McGraw Hill Q3 Earnings Call Highlights

Core Insights - The company reported strong performance, leading to an increase in full-year fiscal 2026 guidance, with recurring revenue rising 14.8% year over year to $357 million, representing 82% of total revenue [1] - Digital revenue increased by 11% to $364 million, accounting for 84% of total revenue, while remaining performance obligation (RPO) stood at $1.7 billion [1] Financial Performance - For the quarter ended December 31, 2025, revenue increased 4.2% year over year to $434 million, with adjusted EBITDA rising 7.7% to $136 million [2] - Adjusted EBITDA margin improved to 31.3%, up nearly 100 basis points from the prior year, and gross profit margin expanded to 85.3% [2] - The company reported Q3 fiscal 2026 revenue of $434 million (+4.2%) and adjusted EBITDA of $136 million (+7.7%), with 82% of revenue being recurring [5] Market Dynamics - Higher education revenue was a key growth driver, increasing 24% year over year to $225 million, with a record-high market share of 30% [5][7] - Inclusive Access and the Evergreen platform contributed significantly to higher education revenue, with 70% of this revenue coming from Evergreen [5][10] - K-12 revenue declined 14.6% year over year to $128 million, attributed to a smaller market and tough comparisons against prior-year performance [12] Strategic Initiatives - The company emphasized the importance of AI in its offerings, with AI Reader reaching over 1 million higher education students and generating 16 million learning interactions [17] - Management highlighted the launch of an offer management system to streamline sales processes and improve pricing visibility [19] - The company is focusing on organic investment and deleveraging, with a net leverage target of 2.0x to 2.5x [22][23] Leadership Transition - A leadership change occurred with Simon Allen retiring as president and CEO, and Philip Moyer taking over the role [3]