There's occasionally some maintenance-type fix-up things we need to do, and obviously they're relatively minimal, but that's factored into that $3 million as well.

Was there an $8 million benefit that was referenced?

So that would be the annualized benefit. So that's something we see into the future of kind of seeing those centers depart our fleet and the EBITDA that they were pulling us down by going forward.

So there's only a partial benefit from that this year?

That's right, Jeff. Yep, that's right.

Okay, got it. And can you just comment on just the marketing initiatives and the enrollment growth in the opportunity region and just to what extent that progress is continuing?

Yeah, Jeff, it is continuing. The opportunity region is still performing well. I would tell you that the marketing that we began in the first quarter and it continues through the third quarter now, we actually added a few more, a million dollars to it going into back to school because all of the marketing, the target marketing we've done on paid search has put us in a position to increase year over year inquiry every single week. So we're really pleased with that. It's all about execution now, Jeff. We're waiting to see and are starting to see, as we mentioned in the last call, we're starting to see some traction in partial centers where the clarity of their job, the lack of distractions, all the work that we did to simplify the role of center director is starting to pay off a bit. Okay, thank you. Yep.

Your next question comes from the line of Faiza Allwee with Deutsche Bank. Your line is open. Please go ahead.

Yes. Hi. Thank you. So, just to follow up on the closures, I think you said that there's maybe more costs in 2027 and that might be related to some of the cash costs. So, can you just help us appreciate, you know, some of the impacts into 2027? Should we expect that 8 million benefit to come through in 2027?

Or would there be some, you know, lingering costs that's going to flow through the panel yeah no good question faiza so uh as far as direct impacts to uh to adjust the evita uh we would expect the benefits to start flowing through uh in in 27 and as early to jeff um jeff's question earlier uh even start to see that partially in the back half of this year so we'll start to see those benefits we did i did call out a 20 to 25 million dollar number for continued cost foreclosures. That's right now our best estimate on cash costs as we look to buy out of the right leases that we can buy out that are a great ROI for us to buy out of. So those would be one-time cash costs. And based on the general accounting principles on that, we would see those not hit EBITDA, but they would potentially a portion of that hit net income as we go through. So we're working on those as we speak today. We'd like to get those finished up as soon as possible. But I did allude to the fact that we just know with negotiations that some of that might flow into 27, but we're hoping to get it done as soon as we possibly can.

Got it. Got it. Understood. And then, Tom, just wanted to ask more about, you know, all of your efforts around strengthening the execution and the business. So where would you say, I know it's early days, but where would you say you are? And what have some of the focus areas been for you right now? And what is there sort of, are you at stage one? And is there a second stage that's to follow? And, you know, how should we think about the impact of all of your efforts and when that sort of starts helping enrollment in a more meaningful way?

Good question, Faiz. Obviously to turn 1,600 centers is going to take some time, although I can tell you that we have seen good progress in some of our centers that have eliminated a lot of that extracurricular distraction, if you will, more quickly than others. And so we see that in some of our centers. I would tell you that we're hoping to see some of that during back to school. We don't know how much yet, obviously, because we're literally two or three weeks into back to school. But our hope is between back to school and the rest of the year, which, as you know, we continue to grow enrollment all the way through the fourth quarter and into the first half of next year. So our hope is it continues to crescendo, continues to improve over that period of time. And at the same time, We will continue to invest where it makes sense in additional paid search, if you will, targeted marketing to continue that year-over-year increase in inquiry.

Great. Thank you so much.

Your next call comes from a line of Monov Patnick with Barclays. Your line is open. Please go ahead.

Hi, this is Ronan Kennedy. I'm from Monov. Thank you for taking our questions. Previously discussed the quantiles, the opportunity regions, remediation efforts, now obviously an acceleration of center consolidations. Can you just walk through again the specific criteria used to evaluate a center and determine whether it receives investment, is remediated, consolidated, closed? I know I think you talked about 37% occupancy level. Is there anything else from an enrollment trend, local supply, demand dynamics, labor availability, pricing, anything else? So if you could just walk us through that thought process.

Yeah, of course. Yeah, no, it makes sense where you're going. I mean, look, as we looked at the fleet, we went through, and we talked about this back in March, but we went through one by one and looked at every single one for, frankly, most of the things you're talking about there, right? The biggest one that we're really looking at is we have a pretty good feel on when we're building a new center, when we're acquiring a center, what we expect to have success with as far as demographics go. And there's a number of different graphics that go into there. And so we took a peek at that and qualified our portfolio against those same ones that got a much smaller subset of the centers that are like, we need to take a deeper dive on those. And at that point, we weren't looking at anything else. We weren't looking at financial results. We weren't looking at engagement or anything there. From there, then we took it and looked at each one of those things. So to your point. We're looking at what our inquiry levels have been, and what are the demographics looking at? What's the engagement level of the center? Where has it historically been? Where has it financially been trending? Frankly, you brought up labor. Labor is really not an issue almost anywhere. It's a day-to-day battle, but it's not something that's preventing us from growing ever, but really looked at all those individually and made some decisions center by center on what we needed to do. And then we're always looking at the kind of that drive time map of, it's usually 10 to 15 minutes uh and so we are all we were looking at is there any sister centers within that 10 to 15 minutes for any of those centers that we flag that might make sense to do what we call a magnet center uh and be able to serve those families uh at a magnet center and so that was a definitely consideration as well got it thank you and then um you indicated roughly two-thirds of the optimization effort is done is there possibility for more to be done post fy26 because say there are centers with similar characteristics but you think they could potentially improve etc is there any risk of still further remediation consolidation next year yeah i mean closure yeah no look here's what i'd say we we historically i'd say since 2014 at least uh have always looked to close centers we're running this business like a multi-location business while also making sure we're taking great care of our families and our teachers but every year we're constantly looking at that so i would anticipate we're still going to close more centers next year and so we will still keep our pulse on that and we're going to continue to see closures much like we have in the past as well okay thank you and if i may i'll ask another one can i just please reconfirm if there's a so to speak clean enrollment trend if you can comment to that uh and the inquiring conversion you know anything of note from an enrollment standpoint for the retained portfolio yeah so right we talked about that um the quarter was down 240 basis points and the closures had about a 70 basis point impact right so we're still right around that down three percent uh kind of as clean as you can get it if you will okay thank you of course your next question comes from the line of tony kaplan with morgan stanley your line is open please go ahead thanks so much um i wanted to ask about the tuition reduction in the guide i think you talked about it being related to state subsidies is that a timing issue or could you just maybe explain what's going on there yeah um is it timing tony um i don't think i would necessarily classify it as timing right so as we uh go into the year uh and then go you know when we talk to you back in May, we have certain expectations where state budgets are going to land and what they're going to do about it. It's still not 100% clear to us what all the states are going to do as far as tuition increases related to subsidy. But at this point, based on what we know, we believe it's not going to come in quite as high as we were expecting it to in the first half of the year.

Now, to your timing question, there is a potential that states make some different decisions and we do get some more monies related that to the later in the year and we'll update it as we go but based on what we know today with our connections and knowing what the governments are thinking uh that's why we chose to reduce that uh related to subsidy revenue and tony the only thing i would say is as you know we've uh sort of reversed the trend in indiana which penalized us last year and we're seeing solid growth in indiana uh at this point in time AND ALSO YOU HEARD US TALK ON THE PREPARED REMARKS, BOTH NEW YORK'S 1.7 BILLION IN FUSION AND THE 200 MILLION IN CALIFORNIA ON MIXED DELIVERY AS WELL AS TAX INCENTIVES IN NEW HAMPSHIRE ALL WERE WINDED

OUR BACK SO WE MAY GAIN IT IN ONE PLACE AND LOSE IT IN THE OTHER BUT ALL IN ALL THIS YEAR HAS BEEN A LOT more stable than than was last year understood um and wanted to ask about when you think about the back to school uh environment right now and and the strategies that you're deploying you know we've talked in the past about the opportunity regions and marketing changes any anything else we should be thinking about that you're doing differently in the back to school market push this year?

No, I would tell you that it's a focus on the marketing, and that is a two-pronged approach. We have an amount of marketing that's going throughout our 42 states now, not 41, but 42 states. Along with that, we have a target marketed program in a number of states. We've actually increased that from the first half of the year. So all that should give us wind at our back. The other thing that we are just testing, and it's new for us, Tony, but we work on and have since adopted and executed an AI program that's helping us with the quality of the tour, quality of the interaction with the center director and new parents as they inquire for enrollment, which is showing us, quite frankly, in real time, the quality of the call, the quality of the follow-up, all the way through to enrollment. And we are very encouraged, as is the field management team, about what that can do for us. And that's literally started just weeks ago. So more to come on that in the next call, but something that we are increasing exposure to right now.

Terrific. Really, really quickly, Tony, you mentioned a third quarter revenue range. I think we didn't we didn't catch it and it differs in the transcript. So just wondering if you could just repeat that range for 3Q. Thanks.

Yeah, so we're at $660 to $680 million for revenue, $44 to $48 million for adjusted EBITDA, and occupancy in the mid-60s.

Thank you.

Of course. Your next question comes from the line of George Tong with Goldman Sachs. Your line is open. Please go ahead.

Hi, thanks. Good afternoon. You discussed the qualitative criteria that you use to select centers for consolidation. Can you quantify or estimate how many centers in your current retained portfolio have occupancy or profitability that's comparable to the centers that are being closed?

I don't have an exact figure for you there, George. Like we shared, out of the closures we've done so far about nine nine out of ten of them uh right are out of quintile five uh a strong portion of the remaining ones uh that we'll do this year are also coming out of quintile five so we're definitely uh exiting a not not a majority not quite a majority yet but a strong portion of those and so uh we're definitely exiting some of our lowest performers uh and any ones that we have left if they were at a level of occupancy similar uh we are still keeping them because of uh demographic reasons or potentially and most often it is a center director change or something like that that we still see there is the ability to grow back but again to some of the questions we had earlier those are going to be some of the centers that are in the top of our watch list uh that we're seeing uh if some of these actions that tom's talking about will allow them to turn around.

George, you should also know that we had a number of centers that graduated from the Opportunity Region this year, and we're really proud of that. We also added a couple back in. So, I mean, we really are seeing movement in the Opportunity Region, and candidly, through this part of the year, it's been positive from a standpoint of successful turnarounds. So, we're encouraged by that. Not that we always won't have, we'll always have a Quintel 5, that we're going to focus on, but hopefully it's improving as the mix improves itself.

Got it. That's helpful. And going back to a point that you just mentioned, for centers that you're looking to retain, even if it's in the lower quintiles, what improvement do you need to see and over what timeframe before you decide whether or not to continue remediation or pursue a closure?

Yeah, I mean, as you'd imagine, George, it's really a center by center determination, right? How long we've had that center, what lease life's left, how much lease is on, are all some of the quantitative, just financial reasons we're looking at. Center director and DL time with that center, whether they're an opportunity region might give them a little bit more time. And then it's just trajectory we see, right? We've kind of always talked about getting to about 45 to 50% is generally break even for a center. And so as centers show trajectory to that, and then hopefully pulling out of that, that gets them more ability to kind of buy themselves a little bit more time. So there's not a perfect equation for it, but we're obviously looking at those quantitative factors. And then the last one I'd just say, because we continue to say it, and it's very true, is where engagement levels look at, because those generally tend to be a leading indicator. So if we're seeing engagement levels increase, and we'll do pulses mid-year sometimes to get a check on those, if we're seeing them go in the right direction, usually that's a leading indicator that good things are to come.

And one more thing, just on that subject, we look a lot at density. I mean, these centers are centers that are sometimes 30, 40, even 50 years old, and families have moved out of or migrated out of that area. So just density, if we have a high density and we're a low performer, then it's on us. But if we have a low density center, occupancy is low, inquiry is low, future enrollment doesn't seem to be there, then it's on us to say, look, families have left this community, it's more mature, and we need to find those families and move to where they are.

Very helpful. Thank you.

Your next question comes from the line of josh chan with ubs your line is open please go ahead all right good afternoon tom and tony thanks for taking my question um i guess on the centers that you decided to close you know in terms of how they got to the occupancy levels that they were would that primarily be be coveted like is that the main reason you would think i i don't think it's necessarily covet josh right i mean uh i guess we can all have a different interpretation of covid and what that means uh i would say these were centers that pre you know whatever time period you want to say uh were successful for us and they were doing well by us and uh some of them have been in the fifth quintile potentially but still performing well and demographics have changed so with some of those would somebody say it's because of covid the demographics change potentially uh but it's more just demographics generally to tom's point have changed and the families just aren't there for us to serve anymore. And then it's time to let them go.

Sure. Okay. That makes a lot of sense. And then maybe on guidance, I know that it's been asked a little bit earlier, but could you just bridge for us why, as you close these unprofitable centers, that instead of EBITDA going up by a portion of that 8 million, that it goes down by 15 million?

I know there's some insurance in there and some costs, but can you just bridge us that that difference please thank you oh yeah of course so yeah look i mean we we called out the insurance things that that are impacting it um we did call out the the kind of three million kind of one-time cost related disclosures that's definitely impacting it uh the reduction uh of tuition from three to two and a half is definitely impacting uh the downward trend of evita as well so we're definitely factoring in uh you know a portion of that eight million run rate we talked about in the back half as a reminder q1 and q2 are generally our highest evita quarters so we're not getting quite as much here in the back half out of that um so that number's definitely in there uh it's just a couple other factors are working against us okay that's really clear yeah thank you thank you for the time cool thank you josh thanks for sticking with us sorry about that technical early on there are no further questions at this time i will now turn the call back to tom Wyatt for closing remarks.

Ben, thank you very much, and to all of you, thank you for your questions. Thank you for your support, and we wish you a very good night. We are really, really proud of the progress we've made. I hope you see it. I hope you see the traction we have. I hope you look hard at the businesses like CREM and at work business, which are both performing very nicely, and the trends, if you will, the new shoots, if you will, the green shoots within KinderCare. So have a great night. We appreciate your interest, and we look forward to talking to you next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.