Scholastic(SCHL) - 2025 Q4 - Annual Results

Executive Summary and Outlook Scholastic achieved solid fiscal 2025 Adjusted EBITDA, driven by Children's Book Publishing, and is advancing its IP strategy while focusing on cost management and strategic initiatives for fiscal 2026 earnings growth CEO Remarks and Strategic Overview Scholastic achieved solid fiscal 2025 Adjusted EBITDA, driven by Children's Book Publishing, and is advancing its IP strategy while focusing on cost management and strategic initiatives for fiscal 2026 earnings growth - Delivered strong Adjusted EBITDA in line with original guidance for fiscal 2025, with strength in Children's Book Publishing offsetting weakness in the Education division[2] - The company is progressing on its 360-degree IP strategy, highlighted by the global success of the new Hunger Games book and the integration of 9 Story Media Group to expand IP monetization[3] - The Education division is being repositioned under new leadership to better align with market needs amid challenges in school funding and the supplemental curriculum market[3] - Key strategic initiatives for fiscal 2026 include a strategic reorganization, cost reductions, and evaluating options to optimize real estate assets to drive long-term growth and shareholder value[4] Fiscal 2026 Outlook Scholastic projects fiscal 2026 Adjusted EBITDA of $160 million to $170 million and 2% to 4% revenue growth, despite anticipated school spending headwinds and $10 million in higher tariff costs Fiscal 2026 Guidance | Metric | Target | | :--- | :--- | | Adjusted EBITDA | $160 million to $170 million | | Revenue Growth | 2% to 4% | - Guidance includes approximately $10 million of expected incremental expense related to higher tariff rates[5] - The company anticipates a seasonal loss in the first quarter of fiscal 2026, approximately in line with the prior year[5] Financial Performance Scholastic reported a 7% revenue increase in Q4 and 2% for the full fiscal year 2025, driven by Children's Book Publishing and the 9 Story Media Group acquisition, despite declines in Education Solutions Fourth Quarter Fiscal 2025 Review Q4 fiscal 2025 revenues grew 7% to $508.3 million, driven by Children's Book Publishing and 9 Story Media Group, offsetting Education Solutions' decline, with operating income up 13% and Adjusted EBITDA stable at $91.2 million Q4 Fiscal 2025 Financial Highlights (in millions, except per share data) | Metric | Q4 FY2025 | Q4 FY2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $508.3 | $474.9 | 7% | | Operating Income | $53.5 | $47.2 | 13% | | Diluted EPS | $0.59 | $1.23 | (52)% | | Adjusted EBITDA | $91.2 | $90.7 | 1% | - Revenue growth was primarily driven by higher revenues in Children's Book Publishing and Distribution and the contribution of 9 Story Media Group, partly offset by lower sales in Education Solutions[6] Children's Book Publishing and Distribution Segment revenue grew 9% to $288.2 million, driven by 19% Consolidated Trade growth from the new Hunger Games book and 5% Book Fairs increase, despite a 9% decline in Book Clubs Q4 Segment Revenue Breakdown (in millions) | Sub-segment | Revenue | YoY Change (%) | | :--- | :--- | :--- | | Book Fairs | $177.8 | 5% | | Book Clubs | $13.1 | (9)% | | Consolidated Trade | $97.3 | 19% | | Total Segment Revenue | $288.2 | 9% | - The strong performance in Consolidated Trade was driven by the fifth book in Suzanne Collins' global best-selling Hunger Games series, Sunrise on the Reaping[10] Education Solutions Education Solutions segment revenues decreased 7% to $125.7 million due to supplemental curriculum market headwinds, leading to a $4.3 million adjusted operating income decline - Segment revenues decreased 7% to $125.7 million due to continuing headwinds in the supplemental curriculum market[12] - The company is actively repositioning the segment to optimize for long-term growth and improved profitability[13] Entertainment Entertainment segment revenue surged to $14.8 million from $0.6 million, primarily due to the 9 Story Media Group acquisition, resulting in a $3.0 million operating loss including $2.7 million intangible amortization - Segment revenues surged to $14.8 million, mainly reflecting the addition of 9 Story Media Group[14] - The segment incurred a $3.0 million operating loss, which included $0.9 million in one-time charges and $2.7 million of intangible amortization from the acquisition[14] International International revenues increased 9% on a constant currency basis to $76.8 million, driven by strong trade channel performance from the latest Hunger Games release, improving adjusted operating income by $4.3 million - Excluding a $0.6 million unfavorable currency impact, revenues increased 9% to $76.8 million[15] - Growth was primarily driven by strong performance in trade channels across major markets following the latest Hunger Games release[15] Overhead Adjusted overhead costs, excluding one-time charges, increased by $9.6 million to $35.5 million, primarily due to the timing of employee-related expenses - Excluding one-time charges, adjusted overhead costs increased by $9.6 million, primarily attributable to the timing of employee-related expenses[16] Full Year Fiscal 2025 Review Full fiscal year 2025 revenues grew 2% to $1.63 billion, driven by the 9 Story Media Group acquisition and strong Book Fairs, while Adjusted EBITDA increased 6% to $145.4 million Full Year Fiscal 2025 Financial Highlights (in millions, except per share data) | Metric | FY2025 | FY2024 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $1,625.5 | $1,589.7 | 2% | | Operating Income | $15.8 | $14.5 | 9% | | Diluted EPS | $(0.07) | $0.40 | (118)% | | Adjusted EBITDA | $145.4 | $136.9 | 6% | - Revenue growth was primarily driven by the contribution of 9 Story Media Group, higher revenues from new releases in Trade Publishing, and strong performance in Book Fairs[17] - Adjusted EBITDA increased by 6% to $145.4 million, reflecting the benefit of the 9 Story Media Group acquisition and strong performance in the Children's Book Publishing and Distribution and International segments[19] Capital Position and Shareholder Returns Scholastic's fiscal 2025 free cash flow decreased by 60%, shifting to a net debt position of $136.6 million after the 9 Story Media Group acquisition, while returning over $90 million to shareholders Liquidity and Cash Flow Fiscal 2025 free cash flow decreased 60% to $29.2 million, shifting the balance sheet from a $107.7 million net cash position to a $136.6 million net debt position post-acquisition Fiscal 2025 Cash Flow and Capital Position (in millions) | Metric | FY2025 | FY2024 | Change ($) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $124.2 | $154.6 | $(30.4) | | Free cash flow (use) | $29.2 | $73.4 | $(44.2) | | Net cash (debt) | $(136.6) | $107.7 | $(244.3) | - The shift to a net debt position reflects borrowings under the company's revolving credit facility to fund the acquisition of 9 Story Media Group[21] Shareholder Returns and Strategic Initiatives Scholastic returned over $90 million to shareholders in fiscal 2025 through $22.6 million in dividends and $70.0 million in share repurchases, while exploring real estate sale-leaseback transactions for liquidity - In fiscal 2025, the company returned capital to shareholders through[22] - $22.6 million in dividends[22] - $70.0 million in share repurchases (3,482,280 shares)[22] - The company is exploring sale-leaseback transactions for its New York City real estate and Missouri distribution centers to provide significant liquidity for debt reduction and share repurchases[23] Financial Statements and Supplemental Data This section provides unaudited consolidated financial statements, detailed segment results, key balance sheet and cash flow items, and reconciliations of non-GAAP measures for fiscal year 2025 Consolidated Statements of Operations This section presents unaudited consolidated income statements for the three and twelve months ended May 31, 2025, detailing revenues, operating income, pre-tax earnings, net income, and earnings per share Consolidated Statements of Operations (Unaudited, in millions) | | Three months ended | Twelve months ended | | :--- | :--- | :--- | | | 05/31/25 | 05/31/24 | 05/31/25 | 05/31/24 | | Revenues | $508.3 | $474.9 | $1,625.5 | $1,589.7 | | Operating income (loss) | $53.5 | $47.2 | $15.8 | $14.5 | | Earnings (loss) before income taxes | $48.9 | $47.3 | $(1.3) | $16.2 | | Net income (loss) | $15.4 | $35.9 | $(1.9) | $12.1 | | Diluted earnings (loss) per share | $0.59 | $1.23 | $(0.07) | $0.40 | Segment Results This section details revenues and operating income by business segment for the fourth quarter and full fiscal year 2025, including Children's Book Publishing, Education Solutions, Entertainment, and International Full Year Fiscal 2025 Segment Revenues (in millions) | Segment | FY2025 Revenue | FY2024 Revenue | Change (%) | | :--- | :--- | :--- | :--- | | Children's Book Publishing & Dist. | $963.9 | $953.3 | 1% | | Education Solutions | $309.8 | $351.2 | (12)% | | Entertainment | $61.0 | $1.9 | NM | | International | $279.6 | $273.6 | 2% | Full Year Fiscal 2025 Segment Operating Income (in millions) | Segment | FY2025 Op. Income | FY2024 Op. Income | Change (%) | | :--- | :--- | :--- | :--- | | Children's Book Publishing & Dist. | $130.7 | $123.3 | 6% | | Education Solutions | $6.3 | $15.8 | (60)% | | Entertainment | $(12.1) | $(11.2) | (8)% | | International | $(1.0) | $(6.9) | 86% | Supplemental Financial Information This section provides a snapshot of key balance sheet and cash flow items as of May 31, 2025, including cash, receivables, debt, and Free Cash Flow calculations Selected Balance Sheet Items (in millions) | Item | 05/31/25 | 05/31/24 | | :--- | :--- | :--- | | Cash and cash equivalents | $124.0 | $113.7 | | Inventories, net | $250.2 | $264.2 | | Lines of credit and long-term debt | $256.2 | $6.0 | | Net cash (debt) | $(136.6) | $107.7 | | Total stockholders' equity | $946.5 | $1,018.1 | Selected Cash Flow Items (in millions) | Item | Twelve months ended 05/31/25 | Twelve months ended 05/31/24 | | :--- | :--- | :--- | | Net cash provided by operating activities | $124.2 | $154.6 | | Free cash flow (use) | $29.2 | $73.4 | Reconciliation of Non-GAAP Measures This section provides detailed reconciliations of GAAP to non-GAAP measures, including adjustments to operating income, net income, EPS, and a full reconciliation of pre-tax earnings to Adjusted EBITDA Full Year Fiscal 2025 GAAP to Non-GAAP Reconciliation (in millions, except per share) | Metric | Reported (GAAP) | One-time Items | Excluding One-time Items (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating Income | $15.8 | $20.0 | $35.8 | | Earnings Before Taxes | $(1.3) | $20.0 | $18.7 | | Net Income | $(1.9) | $15.2 | $13.3 | | Diluted EPS | $(0.07) | $0.55 | $0.48 | Adjusted EBITDA Reconciliation - Full Year (in millions) | | FY2025 | FY2024 | | :--- | :--- | :--- | | Earnings (loss) before income taxes as reported | $(1.3) | $16.2 | | One-time items before income taxes | $20.0 | $30.2 | | Interest (income) expense | $16.4 | $(2.7) | | Depreciation and amortization | $110.3 | $93.2 | | Adjusted EBITDA | $145.4 | $136.9 |