KinderCare updates 2025 outlook, lowers revenue guidance to $2.72B–$2.74B while focusing on operational efficiency

Earnings Call Insights: KinderCare Learning Companies (KLC) Q3 2025

MANAGEMENT VIEW

* Paul Thompson, CEO, reported that "revenue was $677 million, up nearly 1% from last year with same center revenue of $617 million," but also highlighted "continued softness in organic growth, resulting in same-center occupancy of 67% at the lower end of our expected range." He cited summer seasonality and a more cautious consumer backdrop as key factors impacting enrollment.
* Thompson noted headwinds in the subsidy business: "We saw headwinds in our subsidy business in a handful of states with near-term softening of tuition reimbursement rates and fewer new student authorizations." He pointed to Indiana as a significant example: "roughly 13,000 fewer children are receiving subsidy assistance since the start of the year, and our full-time subsidy enrollments have declined proportionately in the state by nearly 1,000 children."
* Strategic initiatives included signing new Champions school-age program clients, expanding employer relationships, and growing center count through openings and tuck-in acquisitions. Thompson underscored operational improvement efforts: "we intensified our focus on the operational levers within our control, evolving our leadership talent, applying lessons learned from our opportunity region more broadly and expanding the use of our digital and diagnostic tools."
* Thompson announced a key management change: "we recently announced the promotion of Lindsay Sorhondo to Chief Operating Officer."
* Anthony Amandi, CFO, stated: "Our third quarter results were mixed as revenue came in slightly below our expectations, largely reflecting a slower pace of enrollment through the back-to-school season. While this pressured margins for the quarter, cost discipline and positive cash generation remained consistent as Champions and KinderCare for Employers, NCOs and tuck-in acquisitions all continue to perform well."

OUTLOOK

* Amandi updated 2025 guidance: "For the full year 2025, we are expecting revenue to finish the year between $2.72 billion and $2.74 billion. Adjusted EBITDA expected to land between $290 million to $295 million and adjusted EPS to be between $0.64 and $0.67."
* He explained, "we now see a full year occupancy coming in about 200 basis points lower than 2024."
* Management projected tuition increases as a larger contributor to growth in 2026 and continued momentum in B2B, NCOs, and tuck-in acquisitions.

FINANCIAL RESULTS

* Total revenue for Q3 was $677 million, with same center revenue flat at $617 million. Champions revenue grew 11% to $50 million. Net income for the quarter was $4.6 million, bringing year-to-date total to $64 million, a 58% increase over the same period last year.
* Adjusted EBITDA for Q3 came in at $66 million, down 7% from last year. Adjusted EBITDA margin was just under 10%. Adjusted net income for Q3 was $15 million, up from $4 million last year, and adjusted EPS was $0.13, increasing from $0.05 a year ago.
* Average weekly full-time enrollments decreased by 190 basis points to just over 140,000 students. Same-center occupancy finished at 67%, down 160 basis points from a year ago.

Q&A

* Yehuda Silverman, Morgan Stanley: Questioned enrollment expectations for 2026 and government shutdown impact. Thompson responded that "we still very -- feel very good about the level of inquiries... we believe over the long term, we will return to the growth algorithm we've talked about historically."
* Andrew Steinerman, JPMorgan: Asked about timing for returning to long-term growth algorithm and 2026 pricing. Amandi clarified, "we feel good that it will be above next year -- I mean this year, sorry, next year will be above this year." On timing, Thompson stated, "we will get back to the algorithm in 2027."
* John Ronan Kennedy, Barclays: Sought clarification on the softer starting point for enrollment and drivers behind lower numbers. Amandi cited a "lower number coming into back-to-school" and "consumer confidence environment" as key impacts, with Indiana highlighted for subsidy-related declines.
* Jeffrey Meuler, Baird: Raised concerns about industry supply, lower birth rates, and pricing. Thompson cited "continuation of good inquiries even through the last number of months" and bipartisan support for childcare.
* Jeffrey Silber, BMO: Pressed on center closures and acquisitions. Amandi said, "if it's the right time to close centers, we'll do that" and confirmed continued acquisitions due to favorable valuations.
* Keen Fai Tong, Goldman Sachs: Asked about the breakdown of enrollment headwinds. Thompson indicated "but for those handful of centers or -- excuse me, states where we saw a slowdown of subsidy we would be in a much stronger position."
* Joshua Chan, UBS: Queried Q4 enrollment and margin impacts. Amandi said Q4 enrollment is "slightly below where we were in Q3" and highlighted pricing as a key driver of EBITDA guidance reduction.
* Faiza Alwy, Deutsche Bank: Asked about subsidy impact and pricing. Thompson stated, "most of the states have already worked through that... I believe that we're through it with most states." Amandi confirmed, "we will still be at 50 to 100 basis points next year as well."

SENTIMENT ANALYSIS

* Analysts maintained a cautious tone, probing on enrollment softness, macro headwinds, structural industry factors, and cost management. Several questions focused on the durability of demand and the effectiveness of operational responses.
* Management displayed confidence in long-term fundamentals but acknowledged near-term challenges, using language such as "we believe" and "we are confident" while also referring to external pressures and uncertainty. During Q&A, management responses included detailed operational explanations and reaffirmed strategic direction, maintaining a steady tone.
* Compared to the previous quarter, analyst sentiment has shifted slightly more negative, with more pressing questions about macroeconomic impacts and margin pressures. Management, while still confident, was more explicit about delays in returning to historical growth and the persistence of headwinds.

QUARTER-OVER-QUARTER COMPARISON

* Guidance was revised downward for revenue and adjusted EBITDA, with the full-year revenue range lowered to $2.72–$2.74 billion from $2.75–$2.8 billion and adjusted EBITDA to $290–$295 million from $310–$320 million.
* Management now targets a return to the long-term growth algorithm in 2027, later than previously discussed. Tuition growth outlook for 2026 is more optimistic, with expectations for higher pricing.
* Center enrollment and occupancy trends have weakened, with Q3 same-center occupancy at 67% compared to 71% in Q2. Average weekly full-time enrollments declined further this quarter.
* Operational focus has intensified, with increased application of digital tools and leadership changes, notably the appointment of a new COO.
* Analysts in the current quarter have shown heightened concern about persistent softness and the timeline for recovery, compared to a more hopeful tone in Q2.

RISKS AND CONCERNS

* Management cited ongoing enrollment headwinds due to economic caution among families, reduced subsidy funding in certain states, and lower reimbursement rates.
* The company is exposed to state-level decisions on childcare subsidies, with significant declines in Indiana and other states impacting overall results.
* Analysts questioned the risk of structural industry challenges, including supply/demand imbalances, lower birth rates, and pricing sensitivity.
* Management is monitoring cost discipline, operational efficiency, and the potential need for center closures or further cost reduction if trends persist.

FINAL TAKEAWAY

KinderCare management emphasized that despite a challenging operating environment marked by softer enrollment, lower occupancy, and subsidy headwinds, the company is responding with targeted operational initiatives, digital tool deployment, and leadership alignment. The revised 2025 outlook reflects these pressures, but management reiterated confidence in the long-term strategy, expecting tuition growth and business-to-business channels to remain key drivers as conditions improve.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/klc/earnings/transcripts]

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