Scholastic Corporation (NASDAQ:SCHL) Q3 2025 Earnings Conference Call March 20, 2025 4:30 PM ET Company Participants Jeffrey Mathews - Chief Growth Officer and Executive Vice President Peter Warwick - President and Chief Executive Officer Haji Glover - Chief Financial Officer and Executive Vice President Conference Call Participants Brendan McCarthy - Sidoti Operator Good day, and thank you for standing by. Welcome to the Scholastic Reports Third Quarter Fiscal Year 2025 Results. [Operator Instructions] Ple ...

Core Insights - Scholastic reported a quarterly loss of $0.05 per share, significantly better than the Zacks Consensus Estimate of a loss of $0.78, and an improvement from a loss of $0.80 per share a year ago, indicating an earnings surprise of 93.59% [1] - The company posted revenues of $335.4 million for the quarter ended February 2025, missing the Zacks Consensus Estimate by 3.53%, but showing an increase from $323.7 million in the same quarter last year [2] - Scholastic shares have declined approximately 10.2% year-to-date, underperforming the S&P 500, which has seen a decline of 3.5% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.93 on revenues of $521.52 million, and for the current fiscal year, it is $0.84 on revenues of $1.65 billion [7] - The estimate revisions trend for Scholastic is mixed, leading to a Zacks Rank 3 (Hold), suggesting the stock is expected to perform in line with the market in the near future [6] Industry Context - The Publishing - Books industry, to which Scholastic belongs, is currently ranked in the top 35% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% of industries [8]

Revenue Performance - Revenues for Q3 fiscal 2025 increased by 4% to $335.4 million, compared to $323.7 million in Q3 fiscal 2024[8] - The Children's Book Publishing and Distribution segment's revenues rose by 5% to $203.3 million, with operating income improving to $7.6 million from $2.3 million a year ago[11] - The Education Solutions segment experienced a 16% revenue decline to $57.2 million, driven by ongoing challenges in the supplemental curriculum market[13] - International revenues increased by 5% to $59.3 million, excluding a negative impact of $2.7 million from foreign currency exchange[15] - Revenues for the three months ended February 28, 2025, were $335.4 million, a 3% increase from $323.7 million for the same period last year[34] - The Children's Book Publishing and Distribution segment reported revenues of $203.3 million for the three months ended February 28, 2025, a 5% increase from $193.1 million in the prior year[41] - The Education Solutions segment experienced a 16% decline in revenues, reporting $57.2 million for the three months ended February 28, 2025, down from $68.5 million[41] - The Entertainment segment generated revenues of $12.8 million for the three months ended February 28, 2025, a significant increase from $0.5 million in the prior year[41] - International revenues remained stable at $59.3 million for the three months ended February 28, 2025, compared to $59.1 million in the same period last year[41] Profitability and Earnings - Adjusted EBITDA for Q3 fiscal 2025 was $6.0 million, a significant increase of 183% from a loss of $7.2 million in the same quarter last year[10] - Operating income for the three months ended February 28, 2025, was a loss of $23.9 million, an improvement from a loss of $34.9 million in the prior year[34] - Net loss for the three months ended February 28, 2025, was $3.6 million, compared to a net loss of $26.5 million for the same period last year[34] - Basic and diluted earnings per share for the three months ended February 28, 2025, were both $(0.13), an improvement from $(0.91) in the prior year[34] - Adjusted EBITDA for the three months ended February 28, 2025, was $6.0 million, compared to $(7.2) million in the prior year, indicating a positive trend[56] - The total earnings before income taxes reported was $(28.4) million, compared to $(34.6) million for the same period in the previous year, indicating an improvement of approximately 17.5%[60] Cash Flow and Debt - Free cash flow usage for fiscal 2025 was $30.7 million, compared to $7.1 million in the prior year period, reflecting lower customer remittances and higher interest payments[19] - Net debt increased to $189.4 million, compared to a net cash position of $78.9 million in the prior year, due to borrowings for the acquisition[20] - Cash and cash equivalents decreased to $94.7 million from $110.4 million year-over-year, a decline of 14.5%[44] - Net cash used in operating activities for the three months ended February 28, 2025, was $(12.0) million, compared to $13.1 million for the same period last year[44] - Free cash flow for the three months ended February 28, 2025, was $(30.7) million, a significant decrease from $(7.1) million in the prior year[44] - The company’s lines of credit and long-term debt increased to $280.8 million from $31.5 million year-over-year, indicating a significant rise in leverage[44] Shareholder Returns - The company returned over $35 million to shareholders through share repurchases and dividends in Q3, with an increased share repurchase authorization of $100 million[6][24] Segment Performance - The acquisition of 9 Story Media Group contributed to revenue growth, particularly in the Entertainment segment, which reported revenues of $12.8 million[14] - The Children's Book Publishing and Distribution segment reported earnings before income taxes of $73.0 million for the nine months ended February 28, 2025, consistent with the previous year's $72.8 million, showing stability in this segment[60] - The Education Solutions segment experienced a loss before income taxes of $(24.4) million for the nine months ended February 28, 2025, compared to a loss of $(13.7) million in the prior year, indicating a decline of approximately 78.0%[60] - The International segment reported a loss before income taxes of $(6.0) million for the nine months ended February 28, 2025, compared to $(7.2) million in the previous year, indicating an improvement of approximately 16.7%[60] - The Entertainment segment's loss before income taxes was $(11.4) million for the nine months ended February 28, 2025, compared to $(4.4) million in the previous year, representing a decline of approximately 159.1%[60] Cost Management - The company recognized pretax severance costs of $1.8 million for the three months ended February 28, 2025, related to cost-savings initiatives[35] - The company recognized pretax severance costs of $0.7 million related to cost-savings initiatives for the three months ended February 28, 2025[52] Guidance and Future Outlook - Full-year Adjusted EBITDA guidance for fiscal 2025 has been narrowed to approximately $140 million, down from a previous range of $140 million to $150 million[7] - Adjusted EBITDA for the nine months ended February 28, 2025, was $54.2 million, a significant increase from $(31.1) million reported for the same period last year, reflecting a turnaround in performance[60] - One-time items before income taxes for the nine months ended February 28, 2025, totaled $10.1 million, compared to $10.6 million in the previous year, showing a slight decrease[60] - Depreciation and amortization for the nine months ended February 28, 2025, amounted to $82.4 million, up from $69.1 million in the same period last year, reflecting increased investment in assets[60] - Interest expense for the nine months ended February 28, 2025, was $11.9 million, compared to $2.4 million in the previous year, indicating an increase in financing costs[60]

Core Insights - Scholastic Corporation reported a return of over $35 million to shareholders in the third quarter, with an increased share repurchase authorization of $100 million [1][5][19] - The company affirmed its adjusted EBITDA outlook at the low end of the range, forecasting approximately $140 million for fiscal year 2025 [6][5] - Despite modest revenue growth, the company faces increasing pressure on family and school spending on books and educational materials [2][5] Financial Performance - Revenues for the third quarter increased by 4% to $335.4 million, driven by contributions from the 9 Story Media Group and higher revenues in School Reading Events [7][9] - Operating loss improved by 32% to $23.9 million compared to a loss of $34.9 million in the prior year [8][21] - Adjusted EBITDA increased by 183% to $6.0 million, reflecting a reduction in discretionary overhead expenses and higher revenues in the Children's Book Publishing and Distribution segment [8][41] Segment Analysis - The Children's Book Publishing and Distribution segment saw revenues rise by 5% to $203.3 million, with Book Fairs revenues up 8% to $110.7 million [9][32] - Education Solutions revenues decreased by 16% to $57.2 million, impacted by ongoing challenges in the supplemental curriculum market [11][32] - The Entertainment segment generated revenues of $12.8 million, primarily due to the addition of 9 Story Media Group [12][32] Capital Position and Liquidity - The company reported net cash used by operating activities of $12.0 million, a significant decrease from $13.1 million provided in the prior year [15][35] - Free cash flow usage was $30.7 million, compared to $7.1 million in the previous period, reflecting increased cash outflows [15][35] - Net debt increased to $189.4 million, compared to a net cash position of $78.9 million in the prior year, due to borrowings for the acquisition of 9 Story Media Group [16][34] Shareholder Returns - In the third quarter, the company distributed $5.7 million in dividends and repurchased 1,450,274 shares for $30.0 million [19][5] - The Board of Directors authorized an additional $53.4 million for share repurchases, raising the total authorization to $100 million [19][5]

Group 1 - Scholastic Corporation declared a quarterly cash dividend of $0.20 per share for the fourth quarter of fiscal 2025 [1] - The dividend is payable on June 16, 2025, to shareholders of record as of April 30, 2025 [1] Group 2 - Scholastic has over 100 years of experience in creating quality content and experiences focused on literacy for children [2] - The company is the world's largest publisher and distributor of children's books, reaching over 135 countries [2] - Scholastic aims to empower children to become lifelong readers and learners through various resources, including bestselling books and educational media [2]

Company Overview - Scholastic Corporation has been a leader in children's publishing for over 100 years, focusing on literacy and educational content [1] - The company is the largest publisher and distributor of children's books globally, reaching over 135 countries [1] Earnings Announcement - Scholastic will release its third quarter fiscal year 2025 earnings on March 20, 2025, at 4:00 PM ET [2] - A conference call will follow at 4:30 PM ET, hosted by the President and CEO, Peter Warwick, and CFO, Haji Glover [2] - Participants are encouraged to join the call five minutes early to avoid delays [2] Access Information - The earnings release will be available on the company's investor relations website [2] - A live webcast of the conference call can be accessed online, with details for phone access also provided [2] - An archived version of the webcast and accompanying slides will be available shortly after the live call [2]

Financial Performance - Revenues for the second quarter ended November 30, 2024 were $544.6 million, a decrease of $18.0 million or 3% compared to the prior fiscal year quarter [166]. - Net income per diluted share for the second quarter of fiscal 2024 was $1.71, down from $2.45 in the prior fiscal year quarter [166]. - Revenues for the six months ended November 30, 2024 decreased by $9.3 million to $781.8 million, compared to $791.1 million in the prior fiscal year period [169]. - Revenues for the quarter ended November 30, 2024 decreased by $18.0 million to $544.6 million, a decline of 3.2% compared to the prior fiscal year quarter [195]. - Revenues for the three months ended November 30, 2024 were $71.2 million, a decrease of 12.1% from $81.0 million in the prior fiscal year quarter [236]. - Revenues for the quarter ended November 30, 2024 increased by $0.2 million to $86.7 million, compared to $86.5 million in the prior fiscal year quarter [244]. - Revenues from the Entertainment segment for the three and six months ended November 30, 2024 were $16.8 million and $33.4 million, respectively, compared to $0.4 million and $0.8 million in the prior fiscal year period [241]. Segment Performance - The Children's Book Publishing and Distribution segment saw a revenue decrease of $22.4 million, primarily due to lower trade channel revenues [169]. - Revenues from the Entertainment segment increased by $32.6 million, reflecting the addition of 9 Story [169]. - Education Solutions segment revenues decreased by $20.1 million to $126.9 million, driven by lower spending on supplemental materials [183]. - The Children's Book Publishing and Distribution segment saw a revenue decrease of $25.4 million, primarily due to lower trade channel revenues and a shift in book fair deliveries [195]. - Education Solutions segment revenues decreased by $9.8 million, attributed to reduced spending on supplemental materials and lower subscription revenues from Magazines+ [208]. - The Entertainment segment's revenues increased by $16.4 million, benefiting from the addition of 9 Story [195]. Expenses and Costs - Selling, general and administrative expenses for the six months ended November 30, 2024 increased to $407.0 million, compared to $397.3 million in the prior fiscal year period [172]. - Selling, general and administrative expenses increased to $224.9 million, up $11.8 million from the prior fiscal year quarter, primarily due to higher operating expenses from the addition of 9 Story [198]. - Cost of goods sold for the quarter was $228.6 million, or 42.0% of revenues, compared to $234.1 million, or 41.6% of revenues in the prior year [197]. - Cost of goods sold for the quarter ended November 30, 2024 was $27.3 million, or 38.3% of revenues, compared to $30.7 million, or 37.9% of revenues, in the prior fiscal year quarter [238]. - Cost of goods sold for the quarter ended November 30, 2024 was $48.9 million, or 56.4% of revenues, compared to $48.9 million, or 56.5% of revenues, in the prior fiscal year quarter [246]. - Other operating expenses for the six months ended November 30, 2024 were $89.7 million, a decrease of $6.9 million compared to $96.6 million in the prior fiscal year period [239]. Cash Flow and Liquidity - Cash provided by operating activities was $29.3 million for the six months ended November 30, 2024, a decrease of $42.3 million compared to $71.6 million in the prior fiscal year period [221]. - Cash provided by financing activities was $214.5 million for the six months ended November 30, 2024, an increase of $312.3 million compared to cash used in financing activities of $97.8 million in the prior fiscal year period [222]. - The Company's cash and cash equivalents totaled $139.6 million at November 30, 2024, compared to $149.5 million at November 30, 2023 [223]. - Cash used in investing activities was $217.2 million for the six months ended November 30, 2024, an increase of $168.1 million compared to the prior fiscal year period, driven by the acquisition of 9 Story for $176.2 million [251]. - The Company expects to maintain sufficient liquidity, with cash and cash equivalents of $139.6 million and availability under the U.S. Credit Agreement of $149.6 million as of November 30, 2024 [224]. Tax and Interest - The interim effective tax rate for the six months ended November 30, 2024 was 37.2%, an increase from 22.9% in the prior fiscal year [201]. - Interest expense for the six months ended November 30, 2024 was $8.7 million, compared to $0.8 million in the prior fiscal year period, due to borrowings for the 9 Story acquisition [173]. - The average interest rate on long-term debt is 6.8% with total long-term debt amounting to $250.0 million as of November 30, 2024 [229]. - The company is subject to market risks from changes in interest rates affecting its variable-rate borrowings [257]. Strategic Initiatives - The Company expects revenues to benefit from new releases, including the thirteenth book in the Dog Man series and the fifth book in the Hunger Games series [167]. - The company is developing new supplemental products for schools, expected to launch for the 2025/2026 school years [194]. - The company has $76.6 million remaining available for future purchases of common shares under its open-market buy-back program as of November 30, 2024 [252]. - The company categorizes its businesses into four reportable segments: Children's Book Publishing and Distribution, Education Solutions, International, and Entertainment [277]. - The company’s operating philosophy focuses on using cash from operating activities for debt reduction, reinvestment, and strategic acquisitions [252]. Risks and Challenges - The company faces risks from changing industry trends in the media and content sector, which may affect the demand for its entertainment programming [281]. - The company’s entertainment business relies on key relationships with buyers of film and television content, which may impact financial performance due to demand fluctuations [264]. - The entertainment segment includes operations from the recently acquired 9 Story Media Group Inc., which may impact the company's financial performance if synergies are not realized [265]. - The company reported a significant increase in cash used for acquisitions, with the previous year involving only $5.8 million for educational programs and $2.1 million for a noncontrolling interest [251].

Financial Data and Key Metrics Changes - In Q2 2025, revenues decreased by 3% to $544.6 million, operating income fell to $78.9 million from $101.3 million in the prior year, and adjusted EBITDA was $108.7 million compared to $124 million a year ago [44][42][43] - Net income was $52 million, down from $76.9 million in the prior year, with diluted earnings per share at $1.82 compared to $2.45 last year [44][45] Business Segment Data and Key Metrics Changes - Children's Book Publishing and Distribution revenues decreased by 6% to $367 million, with operating income down to $102.1 million [45][46] - Book Fairs revenues were $231 million, a decrease of 5%, while Book Clubs revenue increased by 2% to $33.2 million [46][48] - Trade Publishing revenues were $102.8 million, down from $117.9 million in the prior year [49] - Entertainment segment revenues were $16.8 million, reflecting contributions from the acquisition of 9 Story Media Group, but incurred an operating loss of $3.9 million [50][49] - Education Solutions segment revenues declined by 12% to $71.2 million, with an operating loss of $0.5 million compared to a profit of $5.8 million in the prior year [52][54] - International segment revenues were $86.7 million, in line with the prior year, with slight decreases in Australia [55] Market Data and Key Metrics Changes - The company is closely monitoring U.S. trade policy and expects little exposure in the second half of fiscal 2025 due to prior inventory purchases [11][12] - The company anticipates modest growth in major international markets relative to fiscal 2024 [39] Company Strategy and Development Direction - Scholastic is focused on expanding its core markets and exploring new models, channels, and products [8][9] - The company aims to leverage its brand and IP through direct-to-consumer offerings and partnerships with public and private funders [40] - Investments are being made in new literacy programs and educational solutions to align with the science of reading [35][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating potential changes in U.S. policy and educational funding, emphasizing the importance of state and local funding [11][14][82] - The company remains optimistic about its long-term growth opportunities and is taking proactive steps to align spending with growth priorities [63][64] Other Important Information - The company successfully upsized its unsecured revolving credit facility to $400 million, maintaining a strong balance sheet [10][58] - Free cash flow in Q2 was $42.4 million, down from $88.6 million in the prior year [57] Q&A Session Summary Question: Dynamics and factors driving margins in the Entertainment segment - The operating loss in the Entertainment segment was impacted by intangible assets and production expenses [70][73] Question: Role of 9 Story in the Dog Man movie production - The Dog Man movie is produced by DreamWorks, with Scholastic expecting benefits from increased book sales due to the movie's release [79][80] Question: Base case for funding changes with the incoming Trump administration - Short-term impacts are not expected, but a decentralization of funding from federal to state and local levels is anticipated [82] Question: Optimism regarding state literacy partnerships - Increased student participation in the New World Reading Initiative in Florida is driving optimism [85] Question: Capital allocation priorities and leverage goals - The company is comfortable with its current leverage and plans to increase it modestly to support growth initiatives [87]

■SCHOLASTIC Second Quarter 2025 Earnings Call Presentation Thursday, December 19, 2024 Forward-Looking Statements / Regulation G This presentation contains certain statements made today which will be forward-looking. These forward-looking statements, by their nature, are subject to various risks and uncertainties, and actual results may differ materially from those currently anticipated. Today's comments include references to certain non-GAAP financial measures as defined in Regulation G. The reconciliation ...

Financial Performance - Scholastic reported quarterly earnings of $1.82 per share, missing the Zacks Consensus Estimate of $2.30 per share, and down from $2.45 per share a year ago, representing an earnings surprise of -20.87% [1] - The company posted revenues of $544.6 million for the quarter ended November 2024, missing the Zacks Consensus Estimate by 1.69%, and down from $562.6 million year-over-year [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is -$0.78 on revenues of $347.05 million, and for the current fiscal year, it is $1.41 on revenues of $1.66 billion [8] - The estimate revisions trend for Scholastic is currently unfavorable, leading to a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [7] Industry Context - Scholastic belongs to the Zacks Publishing - Books industry, which is currently in the bottom 13% of over 250 Zacks industries, suggesting a challenging environment for the company [9]