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Management is transitioning to a unified go-to-market strategy, replacing product-specific silos with a singular salesforce and integrated account management to drive cross-service adoption.

Backup Care growth of 12.5% was driven by expanding unique users and solid utilization across all care types, including in-home, center-based, and academic tutoring.

Full Service revenue growth of 6% was primarily fueled by tuition increases and foreign exchange tailwinds, which helped offset the impact of strategic center closures.

The Australia portfolio experienced a significant enrollment contraction in Q1, diverging from other geographies due to market saturation and a failure of new enrollments to backfill school-year transitions.

Operational discipline in the Full Service segment led to a reduction in the 'bottom cohort' of centers (under 40% occupancy) from 13% to 8% year-over-year through rationalization and enrollment progress.

The company is strengthening foundational capabilities, including a common client-employee credit model and integrated CRM, to create a seamless customer experience across the care continuum.

Full-year revenue guidance is reaffirmed at $3.075 billion to $3.125 billion, with Backup Care expectations raised to 12% to 14% growth based on strong summer reservation visibility.

Management expects Australia to remain a meaningful headwind, projecting a $20 million to $25 million total loss for that geography in 2026.

The long-term growth algorithm for Backup Care has been upgraded to 11% to 13%, supported by low current penetration (under 5%) and a large unvended SMB market.

Full Service margins are expected to remain flat in 2026 due to Australia impacts, but management maintains a long-term target of 9% to 10% as portfolio rationalization continues.

The company anticipates a net reduction of 25 to 30 centers for the full year as it continues to prune underperforming locations while opening new client-sponsored sites.

Australia operations represent a 150 basis point headwind to Full Service margins and an approximately $0.40 total headwind to EPS when including tax impacts.

The company opportunistically repurchased $225 million of stock in Q1, funded by free cash flow and revolver borrowings, which is expected to provide a net $0.08 EPS tailwind for the year.

Adjusted effective tax rate guidance was increased by 100 basis points to 28%-28.5%, partly due to the non-deductibility of losses in the Australia business.

The 45F tax credit expansion has not yet significantly impacted client adoption or decision-making, though it serves as a conversational entry point for new prospects.

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Guidance was raised because of strong momentum in active users and high visibility from extended-window reservations for the summer peak season.

Management noted that historical trends in early reservations provide high conviction for the increased 12% to 14% annual growth target.

The Australia market is facing unique supply saturation and labor cost pressures that have not ameliorated as expected since the 2022 acquisition.

Q1 saw a sharper-than-expected failure of new starters to replace students transitioning to school, a trend management does not see in its other global geographies.

Penetration varies by industry due to work styles; financial services see high use while industrials see less, but even within sectors, there is wide disparity based on how benefits are deployed.

Management is using personalized messaging and deeper account management partnerships to overcome the 'noise' of competing employee benefits.

Current reported margins are 5.5%, but excluding Australia and temporary 'tail costs' from closed leases, the core business is closer to 7.5%.

The target is achievable through continued 25-50 basis point annual gains from enrollment leverage and the eventual roll-off of lease exit costs.

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