Scholastic(SCHL) - 2025 Q3 - Quarterly Report

Part I - Financial Information Financial Statements Presents unaudited condensed consolidated financial statements for Q3 FY2025, covering operations, balance sheets, cash flows, and notes Condensed Consolidated Statements of Operations Q3 FY2025 revenues increased, operating loss narrowed, and net loss significantly improved to $(3.6) million Q3 & YTD FY2025 vs FY2024 Statement of Operations (in millions, except per share data) | Metric | Three Months Ended Feb 28, 2025 | Three Months Ended Feb 29, 2024 | Nine Months Ended Feb 28, 2025 | Nine Months Ended Feb 29, 2024 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $335.4 | $323.7 | $1,117.2 | $1,114.8 | | Operating income (loss) | $(23.9) | $(34.9) | $(37.7) | $(32.7) | | Net income (loss) | $(3.6) | $(26.5) | $(17.3) | $(23.8) | | Diluted earnings (loss) per share | $(0.13) | $(0.91) | $(0.61) | $(0.80) | Condensed Consolidated Balance Sheets Total assets increased to $1,961.3 million due to the 9 Story acquisition, with rising liabilities and decreasing equity Balance Sheet Summary (in millions) | Metric | Feb 28, 2025 | May 31, 2024 | Feb 29, 2024 | | :--- | :--- | :--- | :--- | | Total current assets | $757.0 | $676.9 | $728.7 | | Total assets | $1,961.3 | $1,671.2 | $1,715.2 | | Total current liabilities | $616.7 | $534.7 | $608.5 | | Total liabilities | $1,020.0 | $653.1 | $717.6 | | Total stockholders' equity | $941.3 | $1,018.1 | $997.6 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased, investing cash flow surged for the 9 Story acquisition, and financing cash flow turned positive Nine-Month Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months Ended Feb 28, 2025 | Nine Months Ended Feb 29, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $17.3 | $84.7 | | Net cash provided by (used in) investing activities | $(232.0) | $(69.5) | | Net cash provided by (used in) financing activities | $197.6 | $(129.4) | | Net increase (decrease) in cash and cash equivalents | $(19.0) | $(114.1) | | Cash and cash equivalents at end of period | $94.7 | $110.4 | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, 9 Story acquisition, amended credit agreement, and subsequent events including dividends and share repurchases - The company completed the acquisition of 9 Story on June 20, 2024, for an aggregate purchase price of $193.7 million, funded through borrowings. This acquisition enhances the company's development, production, and licensing capabilities[62] - The acquisition of 9 Story resulted in the recognition of $71.0 million in Goodwill and $85.3 million in amortizable intangible assets, which were allocated to the new Entertainment segment[65][72][74] - On November 26, 2024, the company amended its credit agreement, increasing the unsecured revolving credit facility to $400.0 million from $300.0 million and extending the maturity date to November 26, 2029[45][46][48] - Subsequent to the quarter's end, on March 19, 2025, the Board declared a quarterly dividend of $0.20 per share and increased the share repurchase authorization by $53.4 million, bringing the total current authorization to $100.0 million[104][105] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A discusses Q3 FY2025 revenue growth, improved operating loss, segment performance, liquidity, and future outlook Overview and Outlook Q3 FY2025 revenues grew and net loss per share improved, but the outlook anticipates continued spending headwinds and production delays Q3 FY2025 Key Metrics | Metric | Q3 FY2025 | Q3 FY2024 | Change | | :--- | :--- | :--- | :--- | | Revenues | $335.4M | $323.7M | +4% | | Net Loss per Diluted Share | $(0.13) | $(0.91) | Improved | - Future outlook is cautious, expecting increased spending headwinds to impact the trade channel and book fairs, and delays in production greenlights to affect the Entertainment segment in the near-term[107] Results of Operations by Segment Q3 segment performance was mixed, with Children's Book Publishing growth, Education Solutions decline, and new Entertainment segment results Q3 FY2025 Segment Performance (in millions) | Segment | Revenue | % Change YoY | Operating Income (Loss) | Operating Income (Loss) YoY | | :--- | :--- | :--- | :--- | :--- | | Children's Book Publishing & Distribution | $203.3 | +5.3% | $7.6 | $2.3 | | Education Solutions | $57.2 | -16.5% | $(6.9) | $(0.8) | | Entertainment | $12.8 | NM | $(3.9) | $(3.1) | | International | $59.3 | +0.3% | $(2.1) | $(5.9) | - Children's Book Publishing and Distribution growth was driven by a $9.9 million increase in School Reading Events, particularly a higher fair count in the book fairs channel[122] - Education Solutions' decline was attributed to school districts decreasing spending on supplemental programs to focus on new core programs[129] - The Entertainment segment's results reflect the addition of 9 Story, though revenues have been impacted by delays in production greenlights from major platforms[139][140] Liquidity and Capital Resources Liquidity changed significantly due to the 9 Story acquisition, with decreased operating cash flow and increased financing from borrowings - Cash provided by operating activities decreased by $67.4 million for the nine-month period, primarily due to lower customer remittances and increased inventory and royalty payments[159] - Cash used in investing activities increased by $162.5 million, driven by the $176.2 million net cash paid for the 9 Story acquisition[160] - Cash provided by financing activities increased by $327.0 million, mainly due to $275 million in borrowings to fund the 9 Story acquisition, while share repurchases decreased to $40.0 million from $143.0 million YoY[161] - As of February 28, 2025, the company had $124.6 million of availability under its U.S. Credit Agreement and $16.2 million under other short-term facilities[165] Quantitative and Qualitative Disclosures about Market Risk Outlines primary market risks from foreign currency and interest rate fluctuations, detailing debt obligations and risk management - The company's main market risks stem from foreign currency exchange rate changes and interest rate volatility on its variable-rate borrowings[169][170] Debt Obligations as of February 28, 2025 (in millions) | Debt Type | Total Fair Value | Average Interest Rate | | :--- | :--- | :--- | | Lines of credit and current portion of long-term debt | $5.8 | 4.9% | | Long-term debt | $275.0 | 6.1% | | Film related obligations | $18.8 | ~6.3% (weighted avg) | Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective, with no material changes to internal financial reporting controls - The CEO and CFO have certified that the company's disclosure controls and procedures were effective as of the end of the quarter[173] - There were no material changes to the company's internal control over financial reporting during the third fiscal quarter[173] Part II - Other Information Business Confirms no material business changes except for the new Entertainment segment, incorporating 9 Story for content development and licensing - The company has established a new fourth reportable segment: Entertainment[176] - The Entertainment segment includes the newly acquired 9 Story and the existing Scholastic Entertainment Inc. (SEI), which was previously part of the Children's Book Publishing and Distribution segment[176] - The segment's activities include content development, production via its in-house animation studio Brown Bag Films, and global distribution and licensing of its large programming library[177] Risk Factors Introduces new risk factors post-9 Story acquisition, including potential loss of Canadian tax credits, content buyer dependence, and integration risks - A new risk is the potential loss of Canadian government tax credits, which are crucial for financing productions, if the acquired entity (9 Story) ceases to be controlled by Canadian nationals[181] - The entertainment business faces risks from the rapidly evolving media industry, including consolidation of platforms and changing consumer habits, which could impact demand for its content[182] - There is a risk that the company may not achieve the expected synergies and financial benefits from the 9 Story acquisition, which could adversely affect financial performance[183] Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases during Q3 FY2025, with 1,450,274 shares repurchased, and a subsequent increase in authorization Share Repurchases for Q3 FY2025 | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Dec 2024 | 235,336 | $21.23 | | Jan 2025 | 237,344 | $21.05 | | Feb 2025 | 977,594 | $20.44 | | Total | 1,450,274 | N/A | - Subsequent to February 28, 2025, the Board authorized an increase of $53.4 million for common stock repurchases, bringing the total current authorization to $100 million[184] Other Information Reports no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q3 FY2025 - No directors or officers informed the company of the adoption or termination of a Rule 10b5-1 trading arrangement during the third quarter[187] Exhibits Lists all exhibits filed with the Form 10-Q, including the Third Amendment to the Credit Agreement and CEO/CFO certifications - Key exhibits filed include the Third Amendment to the Credit Agreement and CEO/CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[189][190]