What’s Powering Your Services Recap - 7/17/26

Research evidence excerpt

What’s Powering Your Services Recap - 7/17/26

remains below a sustained positive growth inflection,

gross margins continue to face pressure from unfavorable business mix and incremental

margin conversion remains modest despite improving revenue trends. We believe

improving manufacturing conditions, AI-enabled growth initiatives and execution of the

transformation program are balanced by ongoing margin pressures and limited

near-term EPS upside. Maintain Neutral. Link to our 7/16 note here.

Americas Business & Information Services: Alternative data indicates healthy child

care demand, favoring BFAM over KLC. Our analysis of alternative data linked to child

care demand, including Google search volumes for nearby child care services and Kastle

return-to-office card swipe data, suggests industry demand remains healthy and

supportive of child care center occupancy growth. Google search activity for “child care

near me” and “day care near me” has remained meaningfully above pre-COVID levels on

a seasonally adjusted basis through 2026, with 1Q and 2Q search volumes substantially

exceeding historical averages. Meanwhile, Kastle data indicates office attendance

continues to recover gradually across major US metropolitan areas, which we believe

should support demand for center-based child care as parents gain greater visibility into

work routines and onsite attendance expectations. These favorable industry demand

trends reinforce our positive view on Buy-rated BFAM, where occupancy rates continue

to improve, back-up care is delivering strong double-digit growth and the combination

can support low-to-mid teens annual EPS growth over the medium-term. While the

industry demand backdrop should also be supportive for Neutral-rated KLC, we believe