Scholastic(US:SCHL)2020-12-18 02:30Financial Data and Key Metrics Changes - Second quarter revenue was $406.2 million, a decrease of 32% compared to $597.2 million last year due to lower sales in school distribution channels, particularly fairs from COVID-related disruptions [13][35] - Operating income in the second quarter was $54.3 million versus $107 million last year, with net income at $39.4 million compared to $72.4 million last year [37] - Free cash flow for the quarter was $30.9 million compared to $87.7 million last year, reflecting a significant decline [13][37] - The company achieved over $100 million in cost savings, with SG&A expenses reduced by 35% year-over-year [27][47] Business Line Data and Key Metrics Changes - Children's Book Publishing and Distribution segment revenues fell to $240.3 million, down $173.3 million compared to the year-ago quarter, primarily due to the decline in fairs [42] - Trade revenues increased by 21% year-over-year, driven by demand for popular titles [14][42] - Education segment revenue was $67.5 million, down by just 3%, with digital revenues increasing by 30% and bookings up by 43% [23][43] - International segment revenues were $98.4 million, down 13% from last year, but operating income improved due to cost mitigation efforts [26][45] Market Data and Key Metrics Changes - The company noted that almost all U.S. schools struggled with schedule changes and different modes of learning, impacting the ability to run in-person book fairs [7] - There is cautious optimism for improved performance in fairs as more schools commit to in-person learning [9][22] - The COVID relief bill being finalized includes federal funding for schools, which could provide significant support for the company's operations [19] Company Strategy and Development Direction - The company is focused on reducing operating costs and streamlining its operational structure while investing in growth areas linked to literacy [27][28] - A new Education Solutions Group is being established to unify efforts in supporting literacy instruction and reading achievement [29][30] - The company aims to capitalize on growth opportunities as U.S. schools stabilize and focus on in-person learning [33] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the return of in-person learning and its positive impact on the fairs business [48] - The company is not providing a financial outlook for fiscal 2021 due to uncertainties from the pandemic but expects to improve operating results in the second half of the fiscal year [13][32] - There is a strong pipeline of new releases expected to drive trade sales in the second half of the fiscal year [51] Other Important Information - The company has improved its balance sheet, with cash and cash equivalents exceeding total debt by $161.8 million [38] - Capital expenditures in the second quarter totaled $15.2 million, focused on technology platforms and digital products [39] Q&A Session Summary Question: Can you talk about how fiscal 2Q progressed and expectations for fiscal 3Q? - Management noted that bookings for fairs increased late in the quarter but were impacted by rising COVID cases leading to cancellations [60] - There is an expectation for increased bookings in January and February for the fourth quarter [61][63] Question: How did the Clubs business perform in the latter part of the quarter? - Clubs business saw improved performance in October and November, aligning with prior year levels, but December was slower due to shipping challenges [68] Question: Can trade grow in the second half of fiscal 2021? - Management indicated that trade is expected to maintain momentum, with a strong release pipeline, although facing tough comparisons from the previous year [70] Question: How sustainable are the $100 million in cost savings? - Approximately half of the cost savings are expected to be sustainable, with ongoing efforts to optimize distribution and reduce operational costs [74][76]