KinderCare Learning Companies, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Industry and Competitive Positioning: Demand for quality early childhood education in the US exceeds supply. KinderCare is the largest and most recognizable provider, with a 20% lead over the next closest provider. The company has a 55+ year track record and benefits from scale, allowing investment in centers and a proven curriculum.
• 2024 Business Results: Strong fourth quarter with total revenues up 5% YOY, adjusted EBITDA up 5%. Portfolio performed well on a same center basis with 3% revenue increase. Champions business saw 12% revenue growth. Full year 2024 revenue was $2.7 billion, up 6% YOY, adjusted EBITDA $298 million, up 12% YOY.
• 2024 Portfolio Highlights: Opened 77 incremental Champion sites, added 6 new KinderCare for Employer locations, opened 6 new community centers, and acquired 23 centers.

Segment Performance

• Early Education Centers: Fourth quarter revenue grew 4% year-over-year (YOY) to $593 million, with same center revenue up 3%. Full year 2024 revenue for early education centers was $2.4 billion, up 5% YOY.
• Champions Business: Fourth quarter revenue grew 12% to $54 million. At year-end 2024, sites totaled 1,025, an 8% increase from the prior year.
• Overall: Total revenues for full year 2024 were $2.7 billion, up 6% YOY. Adjusted EBITDA was $298 million, up 12% YOY. Same center revenue increased 5% to $2.4 billion, and average weekly full-time enrollments were 145,000.

Guidance

• 2025 Revenue: Expected to range from $2.75 billion to $2.85 billion, a 3% to 7% increase from 2024.
• Adjusted EBITDA: Guided to range from $310 million to $325 million, a 4% to 9% increase from 2024.
• Adjusted EPS: Expected to be between $0.75 and $0.85.
• Occupancy: Expected to be relatively flat year-over-year.
• Tuition: Expected to land toward the low end of the 3% to 5% long-term growth target.
• B2B and Champions Pipelines: Strong and ramping, expected to contribute 1% to 2% of consolidated revenue growth in 2025.
• New Centers: On pace to open 10 to 15 early education centers by end of 2025.

Risks

• Macro Uncertainties: Potential impact of economic downturns on family spending and enrollment.
• Regulatory Changes: Changes in government funding or policies related to early childhood education could affect revenue and operations.
• Competition: Intense competition in the early childhood education market could impact market share and pricing.

Question and Answer

• Q: Thanks for the guidance for 2025. Could you give us a sense of how first quarter is trending up until now, given that first quarter 2025 is almost over, really, relative to how you guided for the year? And then also, Tony, if you can mention for the fourth quarter 2024 that you just reported, now how much of the revenue came from any of the M&A acquisitions that happened over the last 12 months? A: Tony Amandi: Let's start with that one. So fourth quarter, we had $4.6 million of revenue from acquisitions that weren't included in the same center number. As far as the quarter, so we're going to be continuing to give guidance to annual as we go and we'll update that every quarter. What I'd say is that, the guidance should hold for what we told you for the year. And that's what we're kind of seeing in the first quarter so far.
• Q: Paul, thanks for the comments on government. I did want to just try to ask maybe in a different way. Could you just talk about, maybe just some clarity around how much revenue is tied to US federal government. We can see sort of in this slide, the last slide in the appendix that, most is in the CCDF, most is federal, but just wanted to get a sense there and anything you're hearing around CCDF funding for 2025. I know you said there's broad support in Congress, but I think investors are really focused on what could happen with DOGE and things like that. So that's the main question. A: Paul Thompson: The revenue dollars we receive through the block grant is roughly 35% of our revenue. So that is the bulk of what you're asking about. Implied in one of your questions, the Department of Education has very little impact on our industry. As you know, the Health and Human Services Department are the ones that administer the block grant itself. We were in DC a few weeks ago, had the opportunity to meet with members of Congress, both the House and the Senate budget recommendation, both actually have increases to the block grant. So that's why when you hear from us, the bilateral support, bipartisan support and continued support overall for what we're seeing and what we would believe is a very durable part of our business of supporting those families, we expect that to continue and be important part of our growth in the future.
• Q: Can you please remind us of the playbook for centers across the various cohorts, but I think especially the ones in the lower. You'd reference initiatives that worked well 2016 through 2019 and those being reinvigorated in the middle of 2024. How did you progress with that and what are the expectations for cohort initiatives for 2025? A: Paul Thompson: As you mentioned, we do have different playbooks based on the underlying factors within each of those, as we refer to them as, quintiles, but the cohorts as you're referring to them. Not surprisingly, when we have a center that's over 85% occupied, we look at those as more about sustaining the experience in the classroom that exists today and recognizing that we have more pricing power in those centers. And that's the way we approach that end of our portfolio. On the other end, as you described, we mentioned that we brought back a lot of practices from 2019 and before, and seeing some good reflection of that. In the supplemental documents, you'll see the improvement in occupancy in our fifth quintile. But at its core, it is doing more with engagement because establishing that relationship with our teachers for continuity of care and with our families really helps with the retention of those children and for their enrollment. So that's the way we think about the playbooks and the diversity of how we approach that in the Quintile 5 centers.