Scholastic(SCHL)2024-12-20 00:55Financial 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]