KinderCare Learning (NYSE:KLC) reported first-quarter financial results on Thursday. The transcript from the company’s first-quarter earnings call has been provided below.
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The full earnings call is available at https://events.q4inc.com/attendee/920571642
Summary
Kindercare Learning Companies Inc reported a modest revenue increase for the first quarter, driven by strength in the Champions brand and B2B businesses, despite a year-over-year enrollment decline of 3%.
Management emphasized strategic initiatives such as refined marketing investments which led to a 15% increase in inquiries in targeted areas, and efforts to improve execution at the center level.
The company plans to close a higher number of centers than usual in 2026 to strengthen its real estate portfolio, while expecting gradual enrollment improvements in the first half of the year and more significant progress in the latter half.
The company reported a net loss of $290 million due to non-cash impairment but raised full-year adjusted EBITDA and EPS guidance based on first-quarter performance.
Management highlighted positive developments in state and federal childcare subsidies, ongoing marketing investments, and the success of the Opportunity region and Champions brand as key growth drivers.
Full Transcript
OPERATOR
Welcome to KinderCare’s first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press STAR one again. It is now my pleasure to introduce Olivia Kier, KinderCare’s VP of investor relations. Ms. Kier, you may now begin the conference.
Olivia Kier (VP of Investor Relations)
Thank you and good afternoon everyone. Welcome to KinderCare’s first quarter 2026 earnings call. Joining me from the company are Chief Executive Officer Tom Wyatt and Chief Financial Officer Tony Amandi. Following Tom and Tony’s comments today, we will have a question and answer session. During this call we will be discussing non GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non GAAP financial measures are available in our earnings release and within the supplemental earnings presentation, both of which are posted on our investor relations website at investors.kindercare.com a reminder that certain statements made today may be forward looking statements. These statements are made based upon management’s current expectations and beliefs concerning future events impacting the company and involve a number of uncertainties and risks which are explained in detail in the Risk factors section of our most recent annual report on Form 10-K and other filings with the SEC. Please refer to these filings for a more detailed discussion of forward looking statements and the risk and uncertainties of such statements. The actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward looking statements. All forward looking statements are made as of today and except as required by law, Kindercare undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future developments or otherwise. Before we move on, we’d like to note that management will be holding meetings at Baird’s 2026 Global Consumer and Services Conference on June 2. We look forward to connecting with those of you who will be attending. I’ll now turn the call over to Chief Executive Officer Tom Wyatt.
Tom Wyatt (Chief Executive Officer)
Thank you Olivia and good afternoon everyone. I’m pleased to share with you updates. on our first quarter performance. We finished the quarter slightly better than expected. That was supported in part by the efforts of our center and site directors and by our focus on execution. Over the past few months we’ve made several changes across the business and our results reflect the work that is already underway. It is still early, but we are starting to see encouraging signs that those actions are making an impact. Revenue was up modestly, supported by continued strength in our Champions brand and B2B businesses. At the same time, enrollment in our Early Childhood Education (ECE) centers remain below prior year levels, down about 3%. That is an improvement from the fourth quarter when enrollment was down 3.6% year over year, but it continues to be a primary pressure point on the business and where we are concentrating our efforts. Enrollment is not something that turns during a single quarter. It’s a process of improving execution across a large portfolio of centers. Our focus right now is on putting the right pieces in place so that performance improves as we move throughout the year. Our best opportunity for material progress will be in the back half of the year. Until then, we expect gradual improvements through the first half. Over the past few months we have increased and refined our marketing investment and we are seeing that show up in higher inquiry volume over the last year. Since we began our investment, we have seen a 15% increase in inquiry in the targeted areas and a 3% increase for kindercare overall. So more families are engaging with us and that is an important first step. Just as importantly, we are starting to see early signs that conversion is beginning to improve in certain parts of the business. This is notable at CRIM and most pronounced in our Opportunity region where enrollment during the quarter versus last year increased by 8%. That progress is not yet consistent across the system, but it reinforces something we believe strongly demand is there. Our job is to convert it consistently across the system and that is where our focus is right now. We are putting a dedicated focus on tightening execution at the center level. This is about how quickly we respond to families, the quality of our tour experience, and how effectively we follow up. It is also about making sure our center and site leaders spend their time on the things that matter most. We’ve taken steps to reduce administrative burden so they can focus more on the families and teachers because that is what ultimately drives performance. In addition to work on enrollment, we are also taking steps to strengthen our real estate portfolio and better position our centers for sustainable long term performance. Much like any multi-unit operator, we evaluate our real estate portfolio on an ongoing basis and that typically includes closing roughly 1% of our centers each year. We recently completed a more comprehensive network assessment with the goal of enabling long term health and growth for all of our centers. To achieve this goal in 2026, we expect to have a higher number of center closures than usual. We understand that any closures can be disruptive to families and staff. Whenever possible, we proactively help families and employees transfer to nearby locations to maintain continuity of care. This is disciplined portfolio management. It will result in stronger, more productive centers and higher overall occupancy over time, both of which support our mission to offer high quality care to families. To be clear, these are not easy decisions. They will create some near term variability as we execute across the year. However, we are confident that they are the right decisions to drive beneficial outcomes in the long term. We’ll keep you updated in the coming quarters on our progress. Before turning to more detailed business results, I want to spend a few minutes on the subsidy landscape. I have spent time this quarter meeting with state and federal lawmakers to advocate for families and a critical role childcare plays in this country. From Colorado to Massachusetts to Washington, D.C. the feedback has been constructive and encouraging. We continue to see strong bipartisan support for child care at all levels of government. Federally, an additional 85 million in CCDBG funding was approved in February. At the state level, while we are seeing different approaches, the overall direction remains constructive. For example, Indiana is deploying approximately 200 million to support the families of 14,000 additional children. We applaud the state’s leaders for taking action to support the children and families of Indiana. More broadly, we are seeing constructive developments in several other states. There are supportive actions in New Jersey and in Maryland to reach more subsidy families and reduce their program wait list overall. While conditions vary by market, we’re encouraged by the recent directions many states are taking. Turning back to the business, we spent this quarter taking steps to drive week to week enrollment improvement in the first half of the year so we can build momentum in the second half for our flagship brand KinderCare Learning Companies Inc. Our work continues to enable center directors to spend more time engaging in person with teachers and families. We are also evolving how we manage inquiries, allowing our directors to stay focused on families, particularly in centers with high inquiry and lower occupancy. The data consistently tells us that when family and teacher engagement improves, outcomes improve across the board for children, teachers and enrollment leading to stronger center performance. We are also placing more emphasis this year on our in center small group enrichment programs which provide incremental revenue. These are programs we have had for quite some time which offer families additional options for their children like phonics, languages, music and stem. We are creating amazing experiences for children in our centers and expanding this enrichment into our summer camps as well. Early results are encouraging and we’re pleased with the momentum we see in engagement, retention, educational enrichment and the value these programs bring to our centers. At crim, our new brand positioning is starting to resonate. We are preparing for upcoming specialty summer camps and we see families enjoying our updated curriculum which launched in the first quarter. We are seeing better conversion on stronger inquiries, especially in younger students, and are encouraged by the progress we are making. Champions continues to be a strong performer for us. Our 17% growth reflects both new site additions and the strength of our existing sites and we see continued opportunity in both. In our B2B offering, we continue to see strong employer interest in supporting their employees. We signed 12 new tuition benefit clients in the quarter, including a large public university in Florida and multiple professional organizations. All told, we are seeing increasing demand for more integrated solutions across our services. These relationships are becoming a more meaningful and complementary part of our business and a strong growth driver going forward. We continue to make positive progress in our real estate growth during the quarter by opening three new centers and acquiring another two. So when you step back, the picture to us is clear. We feel good about the progress we’re seeing, we are proud of the growth from B2B and champions, and we’re seeing solid improvement at CRM. We’re also seeing traction from our marketing investment and from the changes we’ve made within our KinderCare Learning Companies Inc centers. We still have work to do, but we have a clear path forward and are focused on continuing our progress into the second half of the year. With that, I will turn it over to Tony.
Tony Amandi (Chief Financial Officer)
Thanks Tom. I’ll walk through the quarter and then go over how we are thinking about the year starting with income. Revenue was $673 million in the first quarter, up modestly compared to last year. Same center revenue decreased by $7 million from last year, driven primarily by lower enrollment, while contributions from newer centers and higher tuition rates helped offset some of that pressure. Pricing contributed about 2% to ECE revenue growth despite continued lower subsidy reimbursement rates, which we expect to persist at least through the current state budget cycles. This 2% increase from tuition contribution was offset by Lower overall enrollment, down 3% year over year. While that represents an improvement from the 3.6% decline in the fourth quarter, enrollment continues to weigh on results. As a reminder, enrollment typically builds through the first half of the year and will decline with the transition to summer before we build back up. During back to school, Same center occupancy for the quarter was 66%, up 150 basis points from the fourth quarter and down 310 basis points from the first quarter of last year. Our Champions before and after school. Business continues to perform well as revenue increased 17%, driven primarily by new site openings and incremental pricing. Beyond near term performance, we see champions and by extension our B2B business as an increasingly important and diversifying part of our mix. We opened three new centers and acquired two new centers during the quarter. Cash consideration for the acquisitions in Q1 is about a half million dollars funded completely out of the $1.1 million in free cash flow generated in the quarter. New and acquired centers contributed approximately $12 million in revenue since the start of the year, an increase of 35% from the same period a year ago. Similar to the fourth quarter, we recorded a non cash impairment related to the decline in our stock price in Q1. This drove a reported net loss of $290 million and reported EPS loss of $2.45 and does not impact our liquidity or outlook. Adjusted EBITDA was $52 million for the quarter compared to $83 million in the first quarter last year. Adjusted net income was $4.2 million and adjusted EPS was $0.04 compared to $27 million and $0.23 respectively in the prior year period. The drivers here are relatively straightforward. Lower occupancy continues to be the largest factor since we must maintain minimum teacher to student ratios. Our labor inputs are not as flexible at our current position in the margin step function improvements in occupancy will allow us to drive better overall operating leverage. As Tom outlined, the path to improvement is through enrollment. The early signs we are seeing in inquiries and conversion are important and we’re now looking for consistency as we move through the year. SG&A was 10.6% of revenue, down slightly from last year. As we look ahead, we expect to see additional improvement coming from a continued focus on efficiency and cost discipline. Interest expense was $18 million for the quarter, down from $20 million in the prior year driven by a repricing last summer. Moving on to the balance sheet, we ended the quarter with $133 million in cash and $190 million of available capacity under our revolving credit facility. Net debt to adjusted EBITDA was just under three times and within our targeted range. We expect leverage to be around this level as we work through the enrollment pressure and EBITDA recovery. Consistent with our current operating profile, we have been taking a closer look to identify centers that should exit our real estate portfolio. We’ve examined center level trends for local market demographics, occupancy engagement, lease terms and other factors. To that end, we’ve identified a set of potential centers for Action and are working through timing and approach. Ideally, we want to avoid as much disruption to families and employees as possible, while also consolidating affected families and teachers into nearby centers where …
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