Q1 2024 Scholastic Corp Earnings Call

Okay.

Speaker 1: Thank you for standing by and welcome to today's conference entitled Scholastic Reports First Quarter Fiscal Year 2024 Results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. As a reminder, today's program is being recorded.

Thank you for standing by and welcome to today's conference entitled Scholastic Reports first quarter fiscal year 2024 results. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer.

Session ask a question.

Press Star one on your telephone as a reminder, today's program is being recorded.

Speaker 1: One moment and I will go ahead and introduce our host for today's program, Jeff Matthews, Executive Vice President, Corporate Development and Investor Relations. Please go ahead, sir.

I will go ahead and.

And introduce our host for today's program, Jeff Matthews Executive Vice President Corporate development and Investor Relations. Please go ahead Sir.

Okay.

Okay.

Hello, and welcome everyone to his classics fiscal 2020.

Hello, and welcome everyone.

Speaker 2: Hello and welcome everyone to Scholastic's fiscal 2024 first quarter earnings call. Today on the call I'm joined by Peter Warrick, our President and Chief Executive Officer, and Ken Cleary, our Chief Financial Officer. As usual, we have posted the investor presentation on our IR website, investor.scholastic.com, which you may download now if you've not already done so.

Hello, and welcome everyone to his classics fiscal 2024 first quarter earnings call.

On the call I'm joined by Peter work, our President and Chief Executive Officer, and Ken Cleary, Our Chief Financial Officer.

As usual, we posted at the Investor presentation on our IR website, Investor <unk> Classic Dotcom, which you may download now if you've not already done so.

Speaker 2: We'd like to point out that certain statements made today will be forward looking.

We'd like to point out that certain statements made today will be forward looking these.

Speaker 2: These forward-looking statements by their nature are subject to various risks and uncertainties, and actual results may differ materially from those currently anticipated.

Forward looking statements by their nature are subject to various risks and uncertainties and actual results may differ materially from those currently anticipated.

Speaker 2: In addition, we will be discussing some non-GAAP financial measures as defined in Regulation G. The reconciliations of those measures to the most directly comparable GAAP measures may be found in the company's earnings release and company financial tables filed this afternoon on a form AK. This earnings release has also been posted to our Investor Relations website.

Additionally, we will be discussing some non-GAAP financial measures as defined in regulation G. Reconciliations of those measures to the most directly comparable GAAP measures may be found in the company's earnings release and company financial tables.

This afternoon on a form 8-K. This earnings release has also been posted to our Investor Relations website.

Speaker 2: We encourage you to review the disclaimers in the release and investor presentation. And to review the risk factors disclosed in the company's annual and quarterly reports filed with the SEC.

Carriage you to review the disclaimers in our release and Investor presentation.

Review the risk factors disclosed in the company's annual and quarterly reports filed with the SEC.

Speaker 2: Should you have any questions after today's call, please send them directly to our IR email address, investor-relations at scholastic.com.

Should you have any questions. After todays call. Please send them directly to our IR E Mail address investor underscore relations as classic Dot com.

Speaker 2: And now I'd like to turn the call over to Peter Warrick to begin this afternoon's presentation.

And now I'd like to turn the call over to Peter work to begin this afternoon's presentation.

Speaker 3: Thank you, Jeff, and good afternoon, everyone. We're happy you're joining us. Scholastic began fiscal 2024 solidly, excited and well positioned for the year's back to school season, which represents another opportunity for Scholastic to work with families, educators and kids to address the critical needs for literacy, reading and stories.

Thank you, Jeff and good afternoon, everyone. We're happy you're joining us scholastic began fiscal 2024 solidly excited and well positioned for the back to school season, which represents another opportunity for scholastic to work with families educators and kids to address the critical needs for literacy reading.

Speaker 3: We continue to execute on our integrated strategy to drive growth, impact, and shareholder value creation over the coming years. While we protect margins and sustain the growth that we achieved in fiscal 2023.

Stories.

We continue to execute on our integrated strategy to drive growth impact on shareholder value creation over the coming years, while we protect margins and sustain the growth that we achieved in fiscal 2023.

Speaker 3: As quarter, we continue to invest in strategic growth initiatives, including in go-to market and blended product development capabilities in education solutions. As we took further steps to ensure that the structure for future growth, executing reorganizations in our US and Canadian book clubs, and announcing key leadership change.

Last quarter, we continued to invest in strategic growth initiatives, including in go to market and blended product development capabilities and education solutions. As we took further steps to ensure scholastic is structured for future growth executing reorganizations in our U S and Canadian book clubs.

And announcing key leadership changes as we expected and previewed on last quarter's call first quarter's operating loss grew from a year ago, reflecting these ongoing and one time investments as well as the changing seasonality and timing of education revenues, who planned spending ahead of expected.

Speaker 3: As we expected and previewed on last quarter's call, first quarters operating last grew from a year ago, reflecting these ongoing and one-time investments as one of the changing seasonality and timing of education revenues and planned spending ahead of expected growth in school reading events are recently combined book fairs and clubs division.

Growth in school reading events Ah recently, combined book fairs and clubs Division.

Speaker 3: As a reminder, scholastic typically records operating losses in the first and third quarters, which coincide with summer and winter school vacations in the Northern Hemisphere.

As a reminder, scholastic typically records operating losses in the first and third quarters, which coincides with summer and Winter school vacations in the northern Hemisphere.

Speaker 3: We generate the greatest contribution in the seasonally important second and fourth quarters. Based on quarter one results, we are affirming our fiscal 2024 guidance for revenue growth of 3 to 5% and adjusted a bit of our $190-200 million, excluding the impact of one-time charges of $7-10 million related to restructuring and cost savings activity.

We generate the greatest contribution in the seasonally important second and fourth quarters based on quarter. One results. We are affirming our fiscal 2024 guidance for revenue growth.

3% to 5%.

And adjusted EBITDAR of $190 million to $200 million, excluding the impact of one time charges of $7 million to $10 million related to restructuring and cost savings activities.

Speaker 3: Our confidence in our outlook is also demonstrated by our continued sharey purchases. In total, last quarter, we returned over 42 million to our shareholders. This afternoon, I'd like to review our first quarter results and outlook for the rest of the year. Ken will then discuss our financial results in more detail.

Our confidence in our outlook is also demonstrated by our continued share repurchases in total last quarter, we returned over 42 million to our shareholders.

Afternoon, I'd like to review, our first quarter results and outlook for the rest of the year, Ken will then discuss our financial results in more detail.

Speaker 3: If I've done on past several calls, I'd like to begin with some comments on the macro environment in which we're operating.

As I've done on past several calls I'd like to begin with some comments on the macro environment in which we're operating.

Speaker 3: First, reading, literacy and learning remain a top focus for families, educators and leaders across our country. And something that everyone can agree on, even as we're seeing increasing debate across our society, including around education policy and book choice.

First reading literacy and learning remain a top focus for families educators leaders across our country and something that everyone can agree on even as we're seeing increasing debate across our society, including around education policy book choice.

Speaker 3: Scholastic continues to be uniquely positioned to respond to these needs. As we've done for more than 100 years, we will continue to focus on serving kids, families and educators.

Elastic continues to be uniquely positioned to respond to these needs.

We have done for more than 100 years, we will continue to focus on having kids families and educators.

Speaker 3: Second, the global retail book selling market continues to revert year over year to pre-pandemic levels, has reflected in softness at retail and continued reductions in backlist inventory by book sellers.

Second the global retail book selling market continues to revert year over year to pre pandemic levels as reflected in softness at retail will continued reductions in backlist inventory buy bulk sellers.

Speaker 3: Based on NPD books, Candata, sales of children's and young adult books in the US declined 8% during our first quarter. Notably, sales of our front list titles have been strong, as I'll discuss in a moment. As we've said, despite short-term softness in the trade channel, our confidence in overall demand for children's books remains strong, both by the positive same fair sales we saw last year in books.

Based on NPD book scan data sales of children's and young adult books in the U S declined 8% during our first quarter.

Notably sales of our Frontlist titles have been strong as I'll discuss in environment. As we've said despite short term softness in the trade channel our confidence and overall demand for children's books remained strong bolstered by the positive same fast sales, we saw last year and book fairs.

Speaker 3: Third, having lapped the steep ride in paper, manufacturing, freight and shipping costs that we saw during the pandemic, these costs, especially manufacturing and freight, have begun to fall. As Ken will discuss, this is first benefiting our inventory purchases and free cash flow, and we will flow through operating margins later this financial year.

Third having lapped the steep rise in paper manufacturing freight and shipping costs that we saw during the pandemic these costs, especially manufacturing and freight.

And therefore.

As Ken will discuss this is first benefiting our inventory purchases and free cash flow and will flow through operating margins later this financial year.

Speaker 3: With that, I'll provide a high level overview of our first quarter. 20.

With that I'll provide a high level overview of our first quarter.

2024 results in its seasonally smallest quarter revenue in the children's books segment declined driven by lower results in our consolidated trade channel.

Speaker 3: In its season this smallest quarter, revenue in the children's book segment declined, driven by lower results in our consolidated trade channel. This primarily reflected industry-white softness in the retail market as I just described.

This primarily reflected industry wide softness in the retail market as I just described.

Speaker 3: Multiple frontless bestsellers in the quarter help partly offset this. Some standout successes included this winter by Alice O'Harsman, the best selling author of the Heartstopper series. The bad guys, in Let The Games Begin by Aaron Blayby and the official Harry Potter cookbook.

Multiple frontlist best sellers in this quarter helped partly offset this some standout successes included this winter by Alex Arismun, the best selling author the Heartstopper series.

The bad guys and let the games begin by Aaron <unk> and the official Harry Potter cookbook.

Speaker 3: We also had strong sales of the new paperback edition of the Ballad of Songbirds and Snakes. Suzanne Collins prequel to the Hunger Games series, ahead of the highly anticipated release of that movie, this November .

We also had strong sales of the new paperback edition of the Validus songbirds snakes, Suzanne Collins prequel to the hunger games series ahead of the highly anticipated release of that movie. This November .

Speaker 3: Looking ahead at the Fallen Spring, we have a strong lineup with new titles in Dave Pilke's Dogman and Cat Kid Comic Club series, a new heart stopper title and Harry Potter, including the interactive Meena Lemur edition of Harry Potter and the prisoner of Ask a Bam and the Harry Potter Wizarding Almanage.

Looking ahead at the fall and spring, we have a strong lineup with new titles and Dave Turkeys Dog Man and cap Kit comic club series, and new Heartstopper title and Harry Potter, including the interactive Mena Lemur edition of Harry Potter and the prisoner of Azkaban and the Harry Potter visiting all of them.

Speaker 3: We're also looking forward to the release of the new Goosebumps TV series on Disney Plus and Hulu on October 13th.

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We're also looking forward to the release of the new Goosebumps TV series on Disney plus with Hulu on October 13th.

Speaker 3: The series, which was developed and co-produced by a Scholastic Entertainment, already has a lot of buzz and Disney is supporting its launch with extensive marketing. We expect it will introduce a whole new generation of readers to this beloved Scholastic series of books, which has sold over 400 million copies today, and is the second bestselling kit series ever, second only to Harry Potter, which has sold over 600 million copies worldwide.

Series, which was developed and co produced by Scholastic Entertainment already has a lot of bonds and Disney's supporting its launch with extensive marketing.

We expect it will introduce a whole new generation of readers to this beloved scholastic series of books, which has sold over 400 million copies to date and is the second best selling kids series ever.

Second only to Harry Potter, which has sold over 600 million copies worldwide.

Speaker 3: This is another success by the Scholastic Entertainment team, who is focused on building global brands and franchises through the virtuous cycle from page to screen and merchandising and back to the page. By developing Scholastic Book Titles and Intellectual Property into compelling, viable media projects, we can partner with studios and streaming platforms, both domestically and internationally, to bring our brands to kids and families around the world.

This is another success by the Scholastic Entertainment team, whose focus is on building global brands and franchises to the virtuous cycle from page to screen and merchandising and back to the page by developing scholastic book titles and intellectual property into compelling viable media projects we can.

Partner with studios and streaming platforms, both domestically and internationally to bring our brands to kids and families around the world.

Speaker 3: Doosebumps comes on the heels of the P-Body and Emmy Award-winning Stillwater series that Scholastic Entertainment co-produced for Apple TV Plus. Now, turning to our unique school-based distribution channel.

Those pumps comes on the heels of the Peabody and Emmy Award, winning Stillwater series that Scholastic Entertainment co produced for Apple TV, plus now turning to our unique school based distribution channels.

Speaker 3: Scholastic book clubs and fairs generate minimal revenue during the first quarter when schools are out So the year-over-year trend last quarter is not meaningful

Elastic book clubs and fairs generates minimal revenues during the first quarter when schools are out so the year over year trend last quarter is not meaningful.

Speaker 3: Over the past two years, we've transformed bookfairs with new customer-centric strategies and operational improvements, which are resulted in higher participation, strong growth in fair count and revenue per fair, and higher operating contribution. For back to school, we've now begun implementing these customer-centric strategies and operational improvements in book club.

Over the past two years, we've transformed book fast with new customer centric strategies and operational improvements, which have resulted in higher participation strong growth in fact, count and revenue per fair and higher operating contribution for.

For back to school, we have now begun implementing these customer centric strategies and operational improvements in book clubs.

We remain optimistic about continued growth in book fast this year.

Same time, our plan is to strategically transition book clubs to a smaller more profitable core business. This year upon which we can grow going forward.

Speaker 3: Turning to education solutions. Last quarter, we continued investing to build capabilities and to focus the organization around executing our blended learning strategy under new leadership.

Turning to education solutions last quarter, we continued investing to build capabilities and to focus the organization around executing our blended learning strategy under new leadership.

First quarter sales were lower year over year as expected. This reflected two things fast the shifting seasonality of this business is increasingly driven by the strength of our summer reading programs, which mostly benefit quarter for.

Speaker 3: And second, the timing of revenues related to our growing state sponsored programs, which vary year to year and are not typically correlated with the school year. We've also seen declines in supplemental instructional sales over the past few quarters, related to the shift in prevailing approaches to literacy instruction, and for which we are in the process of realigning our key product line.

And second the timing of revenues related to our growing state sponsored programs, which vary year to year and are not typically correlated with the school year. We are also seeing declines in supplemental instructional sales over the past few quarters related to the shift in prevailing approaches to literacy instruction and for which we are in the <unk>.

Process of realigning our key product lines.

Speaker 3: We now have a clear long-term vision to grow our sales in literacy-focused blended learning programs like Unyuly launched Ready for Reading, which combine digital and print components.

We now have a clear long term vision to cross sales and literacy focused blended learning programs like our newly launched ready for reading, which combined digital and print components. Our opportunity is to execute this long term growth strategy, while protecting and building on the long term strength.

Speaker 3: Our opportunity is to execute this long-term growth strategy while protecting and building on the long-term strengths of our profitable print content businesses.

Of our profitable print content businesses.

Speaker 3: In addition to continuing to build our long-term capabilities, last quarter we took actions to optimize the organization and operating model.

In addition to continuing to build our long term capabilities last quarter, we took actions to optimize the organization and operating model.

Speaker 3: I'm delighted to have appointed Beth Polkari as our new president of education solutions. We'll continue to advance this vision. Beth is a proven leader, including most recently as president of Scholastics International Division, where she led through the pandemic and over-force significant operation improvements, especially in Scholastics' growth mark.

Delighted to have appointed Beth Porcari as our new President of Education solutions. We will continue to advance. This vision path is a proven leader, including most recently as president of Scholastics International Division, where she led through the pandemic and oversaw significant operational improvements, especially in scholastics credit markets.

Speaker 3: Before that, she oversaw Scholastic's classroom magazines, digital subscriptions and teaching resources businesses, all of which are key foundations of our education solutions business today. Beth also let key digital growth initiatives, including the development of Scholastic Literacy Proud.

Before that she oversaw scholastics classroom magazines digital subscriptions and teaching resources businesses, all of which are key foundations of our education solutions business today.

Also that key digital growth initiatives, including the development of Scholastic literacy pro.

Speaker 3: That's leadership, deep knowledge of the education market and our businesses and strong operational focus will be invaluable as education's solutions enters its next chapter.

Pat's leadership deep knowledge of the education market and our businesses and strong operational focus will be invaluable as education solutions enters its next chapter.

Speaker 3: Turning last to our international segment, which offers a significant long-term opportunity for scholastic, both strategically as we build global publishing franchises, such as we've done with Aaron Blabie's bad guys, and financially, as we grasp scale, to further improve operating efficiencies and drive profitable growth.

Turning last to our international segment, which offers a significant long term opportunity for scholastic both strategically as we build global publishing franchises such as we've done with our <unk> bad guys and financially as we grow our scale to further improve operating efficiencies and drive profitable growth.

Speaker 3: Last quarter, we completed a reorganization of book clubs in Canada, in line with actions we took in the US business.

Last quarter, we completed a reorganization of book clubs in Canada in line with actions, we took in the U S business.

Speaker 3: The confident this will drive greater operational efficiencies beginning later this year.

We are confident this will drive greater operational efficiencies beginning later this year.

Speaker 3: Softness in the global retail book market, however, continued to depress our major markets, particularly Canada and Australia, which impacted segment of the results.

Softness in the global retail book market. However, continued to depress, our major markets, particularly Canada, and Australia, which impacted segment results.

Speaker 3: As we also announced last month, our CFO can clearly have taken on responsibility for our international division and will be transitioning to become the full-time president of international as soon as the company appoints a successor for current role as chief financial officer.

As we also announced last month, our CFO , Ken Cleary is taken on responsibility for our International Division and we will be transitioning to become the full time president of international as soon as the company appoints a successor for his current role as Chief Financial Officer.

Speaker 3: We have retained a nationally recognized search firm, which has begun the process of identifying and hiring the growth-oriented CFO to partner with our leadership team to deliver on Scholastics long-term strategy. This is a great opportunity for Scholastic.

We have retained a nationally recognized search firm, which has begun the process of identifying and hiring a growth oriented CFO to partner with our leadership team to deliver all scholastics longtime strategy. This is a great opportunity for scholastic out for Ken Ken has over 15 years of service and Scholastics Finance Org.

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His leadership as CFO scholastic successfully navigated the pandemic and dramatically increased efficiencies across our operations. He is an ideal successor to that as president of international given his deep knowledge of our domestic and international businesses and I'm confident that Ken will be a highly effective partner helping.

Speaker 3: I'm confident that Ken will be a highly effective partner helping the company's international subsidiaries realise their full potential.

The Companys international subsidiaries realize their full potential.

So now I will turn the call over to Ken.

Speaker 2: Thank you, Peter, and good afternoon, everyone. Today, I will refer to our adjusted results for the first quarter, excluding one time items in fiscal 2024, unless otherwise indicated. Note that we recorded no one time items in fiscal 2020.

Thank you Peter and good afternoon, everyone today, I will referred to our adjusted results for the first quarter, excluding one time items in fiscal 2024, unless otherwise indicated.

Note that we recorded no one time items in fiscal 2023.

Speaker 4: Please refer to our press release tables in SEC filings for complete discussion of one timeline.

Please refer to our press release tables, and SEC filings for a complete discussion of one time items.

Speaker 4: As Peter discussed earlier, we are excited for this year's back to school season.

As Peter discussed earlier, we are excited for this year's back to school season.

Speaker 4: After a strong finish to fiscal 2023, results in a seasonally quiet first quarter were in line with our expectations, including a greater year of year operating loss. Over the past three months, we have made progress and execute organizational improvements across all three of our business segments. I'm proud of our Keem Tard work and preparations ahead of the back to school season. These actions have positioned us for an upcoming fall and spring seasons and we look forward to continuing our progress next quarter and be on.

After a strong finish to fiscal 2023 results in a seasonally quiet first quarter were in line with our expectations, including a greater year over year operating loss over the past three months, we have made progress and execute organizational improvements across all three of our business segments I am proud of our team's hard work and preparations ahead of the <unk>.

Back to school season. These.

These actions have positioned us for upcoming fall and spring seasons, and we look forward to continuing our progress next quarter and beyond.

Speaker 4: Turning to our Consolidate Financial Results. First quarter revenues decreased 13% to 228.5 million dollars.

Turning to our consolidated financial results first quarter revenues decreased 13% to $228 $5 million operating loss in the quarter was $92 $8 million down from $58 $1 million from the prior year period.

Speaker 4: Operating loss in the quarter was $92.8 million, down from $58.1 million from the prior year period. Net loss was 59.5.

Net loss was $69 $5 million.

Speaker 4: Compared to $45.5 million in the prior year period, and Justin EBITDA was a loss of $70.6 million from $35.6 million a year ago.

Compared to $45 $5 million in the prior year period.

Adjusted EBITDA was a loss of $70 6 million from $35 $6 million a year ago.

Speaker 4: Lost Perdaloud's share was $2.20, compared to a loss of $1.33.

Loss per diluted share was $2 20.

Compared to a loss of $1 33 last year.

Speaker 4: Your-to-date free cash use was $57.8 million, improving from $76.5 million in the prior year period.

Year to date free cash use was $57 8 million improving from $76 $5 million in the prior year period.

Speaker 4: As discussed, first quarter is offering loss grew from a year ago as expected. After a record generating operating income in the fourth quarter, we anticipate these results as we continue to prioritize strategic investments and growth initiatives and execute on our plan in the school reading events business.

As discussed first quarter's operating loss grew from a year ago as expected after a record generating operating income in the fourth quarter. We anticipated. These results as we continue to prioritize strategic investments in growth initiatives and execute on our plan in the school reading advanced business <unk>.

Speaker 4: Additionally, our education solutions business saw lower sales driven by the timing of revenues related to our growing state sponsored programs and the shifting seasonality of sales to be more Q4 waiters.

Additionally, our education solutions business saw lower sales driven by the timing of revenues related to our growing state sponsored programs and the shifting seasonality of sales to be more Q4 weighted.

Speaker 4: As Peter explained, we typically record an offering loss in our first and third quarters to the highly seasonal nature of our business. We remain positive about the remainder of the year and continue to focus on protecting margins and sustaining growth in fiscal 2024 as we execute on a long-term growth and shareholder value creation strategy. Now, turning to our segment results.

As Peter explained we typically record an operating loss in our first and third quarters due to the highly seasonal nature of our business. We remain positive about the remainder of the year and continue to focus on protecting margins and sustaining growth in fiscal 2024, as we execute on our long term growth and shareholder value creation strategy.

Now turning to our segment results in children's book publishing and distribution revenues for the first quarter decreased 18% to $102 8 million.

Speaker 4: And children's book publishing and distribution revenues for the first quarter decreased 18% to 102.8 million dollars.

Speaker 4: Segment operating loss increased $11.4 million from the prior year period to $41.5 million.

Segment operating loss increased $11 $4 million from the prior year period to $41 5 million.

Speaker 4: Second performance in the first quarter trail of the prior year, primarily driven by continuous softness in the retail book market and plan spending ahead of expected growth in the school reading events.

Segment performance in the first quarter trailed the prior year, primarily driven by continued softness in the retail book market and planned spending ahead of expected growth in school reading events business.

Speaker 4: Book fair revenues declined 4% to $27.3 million in the quarter. Revenues and profits are not meaningful as schools are largely not in session in the summer.

Operator: Thank you for standing by and welcome to today's conference entitled Scholastic Reports First Quarter, fiscal year 2024 results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Ask the question during the session, you'll need to press star 11 on your telephone. As a reminder, today's program is being recorded.

Book their revenues declined 4% to $27 $3 million in the quarter revenues and profits are not meaningful as schools are largely not in session. This summer.

Speaker 4: As noted on our previous earnings call, we expect participation at our in-person book fairs to remain strong this school year. And FairCount is on track to reach approximately 90% of pre-pandemic levels up from 85% in fiscal 2020.

As noted on our previous earnings call. We expect participation at our in person book fairs to remains strong the school year and fair Count is on track to reach approximately 90% of pre pandemic levels up from 85% in fiscal 2023 book clubs revenues of $2 $6 million were down versus the prior year period.

Jeffrey Mathews: One moment and I will go ahead and introduce our host for today's program, Jeff Matthews, Executive Vice President, Corporate Development and Investor Relations. Please go ahead, sir.

Speaker 4: Food clubs and revenues of $2.6 million, were down versus the prior year period revenues of $6.3 million. Again, in a very small quarter.

Revenues of $6 3 million again in a very small quarter for this division book clubs underwent a successful reorganization this quarter as they were combined with fares, which resulted in one time severance regarding overhead the team has begun to implement new customer centric strategies as we reduced this business to more profitable foundation to <unk>.

Speaker 4: Book clubs underwent a successful reorganization this quarter as they were combined with Ferris, which resulted in one-time severance recorded in over 30 days.

Speaker 4: The team has begun to implement new customer centric strategies as we reduce this business to more profitable foundation to build.

Jeffrey Mathews: Hello and welcome everyone to Scholastic's fiscal 2021. Hello and welcome everyone to Scholastic's fiscal 2024 First Quarter earnings call. Today on the call, I'm joined by Peter Warwick, our President and Chief Executive Officer, and Ken Cleary, our Chief Financial Officer. As usual, we've posted the investor presentation on our IR website, investor.schoolastic.com, which you may download now, if you've not already done so. We'd like to point out that certain statements made today will be forward-looking.

Speaker 4: Overall we are confident that the school reading events business is well positioned for successful back to school season. Consolidate trade revenues was $72.9 million in the first quarter. Trailing prior year period revenues of $90.1 million.

Build upon overall, we are confident that the school reading events business is well positioned for a successful back to school season.

Consolidated trade revenues were $72 9 million in the first quarter trailing prior year period revenues of $90 1 million.

Speaker 4: or our best sellers continuing to perform well, trade continues to be impacted by headwinds in the retail book selling market impacting sales.

Our best sellers continuing to perform well trade continues to be impacted by headwinds in the retail book selling market impacting sales.

Jeffrey Mathews: These forward-looking statements by their nature are subject to various risks and uncertainties and actual results made different materially from those currently anticipated. In addition, we will be discussing some non-GAAP financial measures that define in regulation G. The reconciliation of those measures to the most directly comparable GAAP measures may be found in the company's earnings release and company financial tables. While this afternoon on a form a K, the earnings release has also been posted to our investor relations website. I encourage you to review the disclaimers in the release and investor presentation and to review the risk factors disclosed in the company's annual and quarterly reports filed with the SEC.

Speaker 4: As peer discussed, despite the near-term bookstelling environment, we're excited about the many front-list tiles we're publishing later this year, as well as the film and streaming series that are long.

Pierre discussed despite the near term books selling environment. We're excited about the many frontlist titles were publishing later this year as well as the film and streaming series that are launching.

Speaker 4: Lower media revenues contributed to the segment revenue decrease as the company completed the delivery of episodes associated with the production of the animated series give you the outlet in fiscal 2023.

Lower media revenues contributed to the segment revenue decrease as the company completed delivery of episodes associated with the production of the animated series, even the outlet in fiscal 2023.

Speaker 4: Education solutions segment revenues were down 10% to $66 million in the first quarter, reflecting ongoing trends in the timing and seasonality of customer buying paths.

Education solutions segment revenues were down 10% to $66 million in the first quarter, reflecting ongoing trends in timing and seasonality of customer buying patterns operating loss increased $14 4 million to $18 7 million compared to the prior year period in line with our.

Speaker 4: Offering loss increased $14.4 million to $18.7 million compared to the prior year period in line with our expectation.

Jeffrey Mathews: Should you have any questions after today's call, please send them directly to our IR email address, investor underscore relations at schoolastic.com.

Speaker 4: This was driven by lower revenues and continued investment in growth opportunities to become a provider of blended learning solutions, while remaining focused on protecting our strong literacy offerings, which are a pillar of Scholastic's long-term growth strategy.

Our expectations. This was driven by lower revenues and continued investment in growth opportunities to become a provider of blended learning solutions, while remaining focused on protecting our strong literacy offerings, which are a pillar of scholastics long term growth strategy.

Peter Warwick: And now I'd like to send a call over to Peter Warwick to begin this afternoon's presentation. Thank you, Jeff, and good afternoon, everyone. We're happy you're joining us. Scholastic began fiscal 2024 solidly, excited and well positioned for the years back to school season, which represents another opportunity for Scholastic to work with families, educators, and kids to address the critical needs for literacy, reading, and stories. We continue to execute on our integrated strategy to drive growth, impact, and shareholder value creation over the coming years.

Speaker 4: If you're described earlier, we completed actions in the first quarter to streamline the education solutions organization and just the offering model under new leadership as the business executes on our blended learning strategy. This resulted in one time.

As Peter described earlier, we completed actions in the first quarter to streamline the education solutions organization and <unk>.

Just the operating model under new leadership as the business executes on our blended learning strategy.

This resulted in one time severance recorded in Norway.

Speaker 4: International Segment Revenues of $57.2 million in the first quarter trailed the prior year period revenues of $65 million.

International segment revenues of $57 $2 million in the first quarter trailed the prior year period revenues of $65 million a.

Peter Warwick: While we protect margins and sustain the growth that we achieved in fiscal 2023. Last quarter, we continued to invest in strategic growth initiatives, including in go-to market and blended product development capabilities in education solutions. As we took further steps to ensure Scholastic is structured for future growth, executing reorganizations in our US and Canadian book clubs and announcing key leadership changes. As we expected and previewed on last quarter's call, first quarters operating last grew from a year ago, reflecting these ongoing and one-time investments as one of the changing seasonality and timing of education revenues and planned spending ahead of expected growth in school reading events, our recently combined book fairs and clubs division.

Speaker 4: A $1.4 million year of your impact of unfavorable foreign currencies change, and lower revenues of $1.6 million through the fiscal 2023 Q1 disposition of the direct sales business in Asia contributed to this decline.

A $1 $4 million year over year impact of unfavorable foreign currency exchange and lower revenues of $1 $6 million due to the fiscal 2023 Q1 disposition of the direct sales business in Asia contributed to this decline.

Speaker 4: Excluding these factors, international revenues were down $4.8 million, reflecting lower revenues in major markets, specifically Canada, Australia, as softness in the retail book selling market, continued to impact global trade.

Excluding these factors international revenues were down $4 $8 million, reflecting lower revenues in major markets, specifically, Canada, Australia as softness in the retail book selling market continue to impact global trade sales.

Speaker 4: Segment operating loss increased $3.5 million to $7 million, partly reflecting lower revenues and operating pressures in Canada. We expect the reorganization of book clubs in Canada, which resulted in one-time severance, to drive greater operating efficiencies in the coming quarter.

<unk> operating loss increased $3 5 million to $7 million, partly reflecting lower revenues and operating pressures in Canada, we expect.

The reorganization of book clubs in Canada, which resulted in one time severance to drive greater operating efficiencies in the coming quarters.

Peter Warwick: As a reminder, Scholastic typically records operating losses in the first and third quarters, which coincide with summer and winter school vacations in the Northern Hemisphere. We generate the greatest contribution in the seasonally important second and fourth quarters. Based on quarter one results, we are affirming our fiscal 2024 guidance for revenue growth of three to five percent, and adjusted a bit more of 190 to 200 million dollars, excluding the impact of one-time charges of seven to ten million dollars related to restructuring and cost savings activities. Our confidence in our outlook is also demonstrated by our continued shared repurchases. In total, last quarter, we returned over 42 million to our shareholders.

Speaker 4: Unallocated overhead costs of $25.6 million in the first quarter increased from $20.2 million in the prior period, primarily driven by higher employee related.

Unallocated overhead costs of $25 $6 million in the first quarter increased from $22 million in the prior period.

Primarily driven by higher employee related costs.

Speaker 4: As discussed last quarter, we have now rented all of our first floor retail space at our own headquarters building in New York.

As discussed last quarter, we have now rented all of our first floor retail space at our own headquarters building in New York.

Speaker 4: We're currently marketing floors two through four for outside tenants.

We're currently marketing floors, two through four for outside tenants.

Speaker 4: As we now disclose in our findings with the SEC, we recognize rental revenue of $2.5 million in the first quarter. As a reminder, this was previously court as a benefit in S.G.N.A. in the prior year period. On the approximately 26,600 square feet least as of today, we expect annualized street line rental revenue to total approximately $9.9 million in fiscal 2020.

As we now disclosed in our filings with the SEC, we recognize rental revenue of $2 5 million in the first quarter. As a reminder, this was previously recorded as a benefit in SG&A in the prior year period.

On the approximately 26600 square feet leased as of today, we expect annualized straight line rental revenue to total approximately $9 9 million in.

Peter Warwick: This afternoon, I'd like to review our first quarter results and outlook for the rest of the year.

In fiscal 2024, now turning to cash flow and the balance sheet.

Speaker 4: Now turn the cash loan to balance sheet. Net cash used by operating activities was $38.1 million compared to $60.3 million in a prior year.

Kenneth Cleary: Ken will then discuss our financial results in more detail.

Net cash used by operating activities was $38 1 million compared to $63 million in the prior year.

Peter Warwick: As I've done on past several calls, I'd like to begin with some comments on the macro environment in which we're operating. First, reading, literacy and learning remain a top focus for families, educators and leaders across our country, and something that everyone can agree on, even as we're seeing increasing debate across our society, including around education policy and book choice. Scholastic continues to be uniquely positioned to respond to these needs. As we've done for more than 100 years, we will continue to focus on serving kids, families and educators.

Speaker 4: Lower inventory purchases in the first quarter compared to a year ago benefit working capital, reflecting lower manufacturing and freight costs, as well as lower purchase volumes compared to a year ago, when the company replenished inventory levels post-pandemic to meet demand and mitigate shipping delays.

Lower inventory purchases in the first quarter compared to a year ago benefited working capital, reflecting lower manufacturing and freight costs as well as lower purchase volumes compared to year ago. When the company replenish inventory levels post pandemic to meet demand and mitigate shipping delays.

Speaker 4: With a significant improvement in lead times for product, we're able to manage purchases substantially closer to our demand this quarter, resulting in sufficient inventory on hand in low respect.

With a significant improvement in lead times for product, we're able to manage purchases substantially close to our demand this quarter, resulting in sufficient inventory on hand and lower spend.

Speaker 4: We expect our cost of product per unit to decline in fiscal 2024 from the prior year, with this benefit appearing in the P&L in the second half of the fiscal year. Free cash used in the first quarter was $57.8 million, improving from $76.5 million in the prior year period, reflecting lower working capital requirements, partly offset by higher cap-acts and prepublication spending on new products, growth initiatives, and one-time severance.

We expect our cost of product per unit to decline in fiscal 2024 from the prior year with this benefit appeared in the P&L in the second half of the fiscal year free cash used in the first quarter was $57 8 million improving from $76 $5 million in the prior year period, reflecting lower working capital requirements.

Peter Warwick: Second, the global retail book selling market continues to revert year over year to pre-pandemic levels, has reflected in softness at retail and continued reductions in backlist inventory by booksellers. Based on NPD books and data, sales of children's and young adult books in the US declined 8% during our first quarter. Notably, sales of our front list titles have been strong, as I'll discuss in a moment. As we've said, despite short-term softness in the trade channel, our confidence in overall demand for children's books remains strong, bolstered by the positive same fair sales we saw last year in book fairs.

Partly offset by higher Capex and pre publication spending on new products growth initiatives in one time severance costs.

Speaker 4: At the end of the quarter, cash and cash equivalents net a total debt of $119.9 million compared to $218.5 million at the end of fiscal 2020.

At the end of the quarter cash and cash equivalents net of total debt was $119 9 million.

Compared to $218 5 million at the end of fiscal 2023.

Speaker 4: In addition to increasing growth investments, we continue to return capital to shareholders in the first quarter through our regular quarterly dividend and open market share repurchases. We repurchased 818,000 shares last quarter for $36.2 million.

In addition to increasing growth investments, we continue to return capital to shareholders in the first quarter through our regular quarterly dividend and open market share repurchases, we repurchased 818000 shares last quarter for $36 2 million.

Peter Warwick: Third, having lapped the steep ride in paper, manufacturing, freight and shipping costs that we saw during the pandemic, these costs, especially manufacturing and freight, have begun to fall. As Ken will discuss, this is first benefiting our inventory purchases in free cash flow, and we will slow through operating margins later this financial year.

Speaker 4: Together with our regular dividend, we returned over $42 million in the first quarter, as Peter mentioned. We remain consistent in our capital allocation priorities. We will pursue opportunities to leverage our balance sheet and deploy capital by first, investing in growth opportunities.

Together with our regular dividend, we returned over $42 million in the first quarter as Peter mentioned, we remain consistent in our capital allocation priorities, we will pursue opportunities to leverage our balance sheet and deploy capital by first investing in growth opportunities.

Peter Warwick: With that, I'll provide a high-level overview of our first quarter 2024 results. In its season, its smallest quarter, revenue in the children's book segment declined, driven by lower results in our consolidated trade channel. This primary reflected industry-white softness in the retail market, as I've just described. Multiple front list best sellers in the quarter helped partly offset this. Some stand-out successes included this winter by Alice O'Roseman, the best selling author of the Heartstopper series.

Speaker 4: Second, containing a strong and efficient balance sheet. And third, returning excess cash to shower holders to enhance their returns.

Second maintaining a strong and efficient balance sheet and third returning excess cash to shareholders to enhance their returns.

Speaker 4: As we look ahead to the rest of the year, we are affirming our fiscal 2024 guidance, as Peter has said. We continue to expect revenue growth of 3% to 5% and are targeting adjusted EBITDA of $190 million to $200 million.

As we look ahead to the rest of the year, we are affirming our fiscal 2024 guidance as Peter has said we continue to expect revenue growth of 3% to 5% we are targeting adjusted EBITDA of $190 million to $200 million.

Speaker 4: This excludes the impact of one time charges related to restructuring and cost savings activities of 7 million to 10 million dollars. Of which we incurred 6.3M dollars in the 1st quarter.

Peter Warwick: The bad guys in let the games begin by Aaron Blabie and the official Harry Potter cookbook. We also had strong sales of the new paperback edition of the ballad of songbirds and snakes. Susanne Collins prequel to the Hunger Games series ahead of the highly anticipated release of that movie, this November. Looking ahead at the fall and spring, we have a strong lineup with new titles in Dave Pilke's Dogman and Cat Kid comic club series, a new heartstopper title and Harry Potter, including the interactive Meena Leamer edition of Harry Potter and the prisoner of Askeban and the Harry Potter Wizarding Almanac.

This excludes the impact of onetime charges related to restructuring and cost savings activities of 7 million to $10 million of.

Of which we incurred $6 $3 million in the first quarter.

Speaker 4: Based on a current outlook for fiscal 2024 CAPEX and pre-publication spend of $115 million to $125 million compared to $88.9 million of fiscal 2023 we now expect a full year free cash of between $55.65 million dollars.

Based on our current outlook for fiscal 2020 for Capex, and prepublication spend of $115 million to $125 million compared to $88 9 million in fiscal 2023, we now expect full year free cash flow of between 55 and $65 million.

Speaker 4: Thank you for your time today. I will now hand the call back to Peter for his final remarks.

Thank you for your time today I will now hand, the call back to Peter for his final remarks.

Speaker 3: Thank you, Ken. This past quarter, our team made good progress and built a solid foundation for the remainder of fiscal 2024. After first quarter results that were in line with expectations overall, we are affirming our guidance and looking ahead.

Thank you Ken this past quarter, our team made good progress and built a solid foundation for the remainder of fiscal 2024.

Peter Warwick: We're also looking forward to the release of the new Goosebumps TV series on Disney Plus and Hulu on October 13th. The series, which was developed and co-produced by a scholastic entertainment, already has a lot of buzz and Disney is supporting its launch with extensive marketing. We expect it will introduce a whole new generation of readers to this beloved scholastic series of books, which has sold over 400 million copies today and is the second bestselling kid series ever, second only to Harry Potter, which has sold over 600 million copies worldwide.

Our first quarter results that were in line with expectations. Overall, we are affirming our guidance and looking ahead.

Speaker 3: We're positive about fiscal 2024 and our multiple long-term opportunities to grow our business and impact, addressing kids pressing need for reading, learning and stories.

We are positive about fiscal 2024, and our multiple long term opportunities to grow our business and impact addressing kids pressing need for reading learning Ole stories. Thank you very much let me now turn the call over to Jeff.

Speaker 3: Thank you very much. Let me now turn the call over to Jeff.

Speaker 2: Thank you, Peter. We appreciate everyone's time today in continuing support. With that, we will open the call for questions.

Thank you Peter we appreciate everyone's time today and continuing support with that we will open the call for questions.

Speaker 1: And ladies and gentlemen, if you do have a question at this time, simply press star 11 on your telephone. If you wish to remove yourself from the queue, simply press star 11 again. One moment for...

Certainly and ladies and gentlemen, if you do have a question at this time simply press star one on your telephone if you wish to remove yourself from the queue simply press star one again, one moment for <unk>.

Peter Warwick: This is another success by the scholastic entertainment team, whose focus is on building global brands and franchises through the virtuous title from page to screen and merchandising and back to the page. By developing scholastic book titles and intellectual property into compelling viable media projects, we can partner with studios and streaming platforms both domestically and internationally to bring our brands to kids and families around the world.

As we tabulate RQ.

Speaker 1: Once again, if you have a question, please press star 11. One moment for our first question.

Once again, if you have a question. Please press star 111 moment for our first question.

And our first question comes from the line.

Peter Warwick: Goosebumps comes on the heels of the Peabody and Emmy award winning Stillwater series that scholastic entertainment co-produced for Apple TV Plus, now turning to our unique school based distribution channels. Scholastic book clubs and fairs generate minimal revenue during the first quarter when schools are out, so the year-over-year trend last quarter is not meaningful. Over the past two years, we've transformed book fairs with new customer-centric strategies and operational improvements, which are resulted in higher participation, strong growth in fair count and revenue per fair, and higher operating contribution.

Speaker 1: of Brendan McCarthy from Sdodi. Your question, please.

Brendan Mccarthy from Sidoti Your question. Please.

Yes. Thank you for taking my question.

Speaker 5: I think I wanted to start off at the trade channel sales and just the general, the retail market in general.

I think I wanted to start off at the the trade channel sales and just the general the retail market in general.

Speaker 5: I'm just wondering if you can kind of talk about what you're seeing in the industry versus your back and front list sellers.

I'm just wondering if you can kind of talk about what youre seeing in the industry.

Versus your back and front with sellers.

Speaker 5: It looks like obviously you mentioned it's kind of reverting to the pre-pandemic normal more normalized levels, but I was also wondering if you could provide some insight into you know when you might think the timing of that might play out It's bigger here

It looks like you. Obviously, you mentioned, it's kind of reverting to the pre pandemic normal more normalized levels, but I was also wondering if you could provide some insight into.

And when you might think the timing.

Peter Warwick: For back to school, we've now begun implementing these customer-centric strategies and operation improvements in book clubs. We remain optimistic about continued growth in book fairs this year. The same time, our plan is to strategically transition book clubs to a smaller, more profitable core business this year, upon which we can grow going forward.

That might play out.

Yes.

Please go ahead.

I mean, what waiver there are two things going on.

The moment.

The first of which is expense.

We are seeing that.

Speaker 3: Sorry, it's Peter here. The first thing that we're seeing is that...

Yes.

Sorry, Keith again Adam.

The first thing that where we're seeing is that channel.

Speaker 3: Sales are soft going out of the door. And the second thing we're seeing is that the larger inventory purchases which many books have made during the pandemic mean that restocking is not been happening at the same level as before.

Peter Warwick: Turning to education solutions. Last quarter, we continued investing to build capabilities and to focus the organization around executing our blended learning strategy under new leadership. First quarter sales were lower year-over-year as expected.

Sales are soft going out of the door.

And the second thing, we're seeing is that the larger inventory she stays awake Shannon, which many books have made during the pandemic mean that restocking as well been happening at the same level.

Peter Warwick: This reflected two things. First, the shifting seasonality of this business is increasingly driven by the strength of our summer reading programs, which mostly benefit quarter four. Second, the timing of revenues related to our growing state sponsored programs, which vary year-to-year and are not typically correlated with the school year. We've also seen declines in supplemental instructional sales over the past few quarters related to the shift in prevailing approaches to literacy instruction, and for which we are in the process of realigning our key product line.

As before.

Speaker 3: This has been coming for the last few months and parts of this year. But we see this I think is reverting to more normal.

Sure.

This has been coming for the last few months.

For this year.

But we see this I think is reverting to more.

Normal.

Speaker 3: of activities in the trade channel once the full impact of the pandemic is through. And indeed, we're beginning to see some stronger elements of that post the quarter. Certainly the last weeks of August , which is our third month, and now in September are encouraging. I think also with the trade, one's position in the trade market is

Set of activities in the trade channel walls.

And while the full impact of Fei.

Pandemic case is through and indeed, we're beginning to see.

Some are elements of that.

In a post the post the quarter certainly the last <unk>.

Last week.

Peter Warwick: We now have a clear long-term vision to grow our sales in literacy-focused, blended learning programs like how newly launched Ready for Reading, which combine digital and print components. Our opportunity is to execute this long-term growth strategy while protecting and building on the long-term strengths of our profitable print content businesses. So we took actions to optimize the organization and operating model.

At August pictures out debt levels.

And now in September .

Our encouraging I think also with the trade.

<unk> positioning the trade market.

Is that.

Speaker 3: a lot depends too on um...

Hello dependent too.

Speaker 3: a lot depends too on the new publishing that you're doing. And while Star Trek Channel was soft during the first quarter, we've got much more in terms of our publishing.

A lot depends too on the new publishing that you're doing.

And whilst our trade channel.

Or is it soft during the first quarter, we've got much more in terms of our publishing.

Speaker 3: coming in quarter two. So we would expect quarter two to be a really quite strong trade.

Coming in quarter, two so we would expect quarter two to be already quite strong trade loans and we didn't really have any major call a sense about our overall trade forecast for.

Peter Warwick: I'm delighted to have appointed Beth Polkari as our new president of education solutions. We'll continue to advance this vision. Beth is a proven leader, including most recently as president of Scholastic's International Division, where she led through the pandemic and oversaw significant operation improvements, especially in Scholastic's growth markets. Before that, she oversaw Scholastic's classroom magazines, digital subscriptions and teaching resources businesses, all of which are key foundations of our education solutions business today. Beth also led key digital growth initiatives, including the development of Scholastic Literacy Pro. Beth's leadership, deep knowledge of the education market and our businesses and strong operational focus will be invaluable as education solutions and solutions.

Speaker 3: month and we don't really have any major concerns about our overall trade forecast for the for the years at home.

Peter Warwick: Beth has its next chapter.

Speaker 3: The other piece to bear in mind is that we can see a more complete picture really of book buying because of our

For the year as a whole the other pace came to bear in mind is that we can see a more complete picture Manny.

Buying because of ethical books as in particular.

Speaker 3: And school book fair buying has been very strong. It was strong through the spring season this year. And in terms of fairs booked for the fall season, that all looks very promising and strong as well. So I think one's got to look at this in terms of the totality of the market. We're in a particularly...

<unk> booked fab buying has been very strong with trial okay.

And through the spring season this year.

And in terms of SaaS booked.

For the full phase in that all looks very very promising and strong as well.

<unk> got to look at pace in terms of the totality of the market.

Particularly get position to <unk>.

Speaker 3: see the totality of the market because of the volume of books which are actually sold through the book fairs and book clubs which are not captured.

The totality of the market because of the volume.

Both Fisher Akshay cell show they booked fast in book clubs, which are not captured.

Peter Warwick: Turning last to our international segment, which offers a significant long-term opportunity for Scholastic, both strategically, as we build global publishing franchises, such as we've done with Aaron Blabe's bad guys, and financially, as we grow our scale to further improve operating efficiencies and drive profitable growth. Last quarter, we completed a reorganization of book clubs in Canada in line with actions we took in the US business. We confident this will drive greater operational efficiencies beginning later this year. Softness in the global retail book market, however, continued to depress our major markets, particularly Canada and Australia, which impact its segment results.

Hi.

Scott.

Speaker 5: Great, thank you Peter. I was also wondering as a follow-up, do you think it's fair that, or I guess do you think it's fair to say is inflation still having an impact on consumer purchasing patterns as it pertains to trade channel sales?

Great. Thank you Peter I was also wondering as a follow up.

Do you think it's fair that I guess do you think it's fair to say as inflation, so having an impact on consumer purchasing patterns.

As it pertains to trade channel sales.

Speaker 3: Well, we haven't particularly seen that. I think probably not.

While we haven't particularly seen that.

I think probably not.

Speaker 3: answer. Again, we can look at things like revenue per fair as an indication of a...

As Dan Sir again, we can look at things like revenue per fan.

As an indication of.

Kids and parents and purchasing.

Speaker 3: And we saw throughout our last fiscal year, and particularly in spring this year, that actually the revenues per se have been strong and stronger than the pre-pandemic. So I think it's not that particular.

And we saw throughout last fiscal.

Peter Warwick: As we also announced last month, our CFO can clearly have taken on responsibility for our international division and will be transitioning to become the full-time president of international as soon as the company appoints a successor for its current role as chief financial officer. We have retained a nationally recognized search firm, which has begun the process of identifying and hiring the growth oriented CFO to partner with our leadership team to deliver on Scholastic's long-term strategy.

Fiscal year, and particularly in the spring this year that actually the revenues.

That have been strong and stronger than that.

Pre pandemic.

So I think it's not that particularly I think one. It's also got to think of this in terms of day as I said earlier, the totality of what goes on in trade and how how parents and children actually by keeps books.

Speaker 3: And so I think that we feel reasonably, I have to say, we feel comfortable about our trade publishing and trade forecasting, because in many ways, one year's...

And so I think that.

We feel reasonably I have to say, we feel comfortable about about trade publishing in trade forecasting because in many ways. One is never exactly the same as the <unk>.

Peter Warwick: This is a great opportunity to Scholastic and for Ken. Ken has over 15 years of service in Scholastic's finance organization. Under his leadership of CFO, Scholastic successfully navigated the pandemic and dramatically increased efficiencies across our operations. He's an ideal successor to Beth as president of international, given his deep knowledge of our domestic and international businesses. I'm confident that Ken will be a highly effective partner helping the company's international subsidiaries realize their full potential.

Because of timing of new titles and.

And so.

So where that startup cause of concern for us at all.

Got it that's helpful.

Speaker 5: One question on the education solution segment, I know you mentioned there was some impact from the timing of state sponsored programs. I was just wondering if you could go into detail about. Yeah, that that specific time.

One question on the Education solutions segment I know you mentioned there was some impact from the timing of state sponsored programs. I was just wondering if you could go into detail about.

Kenneth Cleary: So now I will turn the call over to Ken. Thank you, Peter, and good afternoon, everyone. Today, I will refer to our adjusted results for the first quarter, excluding one-time items in fiscal 2024, unless otherwise indicated. Note that we recorded no one-time items in fiscal 2020. III. Please refer to our press release tables and SEC filings for a complete discussion of one-time items. As Peter discussed earlier, we are excited for this year's back-to-school season.

Yes.

Specific timing.

Okay.

Speaker 4: Hey, Brandon, this is Ken Cleary. How are you? So, yeah, so there was, you know, we have a very large contract.

Hey, Brendan this is Ken Cleary, how are you. So so yes Joe.

There was.

Have a very large contract with <unk>.

Speaker 4: with NWRI in the state of Florida. And part of that called for...

With <unk> in the state of Florida, and part of that called for.

Speaker 4: some buildings that we don't have this year. So, you know, we continue to grow our student base there, and we continue to reach out to more students, because there's an awful lot of more students in Florida. They're eligible for this program, and we're investing in marketing to reach these students. And therefore, you know, the timing in really the beginning of the year cycle starts, I believe, in July .

Some billings that we're that we don't have this year. So we continue to grow our student base there.

And we continue to reach out to more students KRYSTEXXA.

Kenneth Cleary: After a strong finish to fiscal 2023, results in a seasonally quiet first quarter were in line with our expectations, including a greater year-over-year operating loss. Over the past three months, we have made progress and executed organizational improvements across all three of our business segments. I am proud of our team's hard work and preparations ahead of the back-to-school season. These actions have positioned us for an upcoming fall and spring seasons, and we look forward to continuing our progress next quarter and beyond.

An awful lot of more students in Florida that are eligible for this program and where we're investing in marketing to reach to reach these students and therefore the timing.

And it really the beginning of the year cycle starts I believe in July .

Speaker 4: and continues through the next July . So this quarter really caught the beginning of the year cycle.

And continues through the next July so.

This quarter really caught the beginning of the year cycle for that but the ideas that we're looking to.

Speaker 4: for that, but the idea is that we're looking to increase participation in that program.

Increased participation in that program.

Speaker 4: And to that end, you know, we have incremental.

And to that end, we have incremental opportunities in terms of.

Kenneth Cleary: Turning to our Consolidate Financial Results. First quarter revenues decreased 13 percent to $228.5 million. Operating loss in the quarter was $92.8 million, down from $58.1 million from the prior year period. Net loss was $59.5 million. Compared to $45.5 million in the prior year period, an adjusted EBITDA was a loss of $70.6 million from $35.6 million a year ago. Loss per diluted share was $2.20 cents, compared to a loss of $1.33 last year.

Speaker 4: opportunities in terms of it's now open to

Speaker 4: kindergartners and pre-K as well. So, you know, we're very encouraged by our sponsor programs, particularly in Florida, and that's what you're seeing impacting in the quarter. But also elsewhere, as we continue to try and replicate this model in similar models.

It's now open too.

Kindergartners in pre K as well so so we're very encouraged by our sponsor programs, particularly in Florida, and Thats, what youre seeing impacting in the quarter.

But also elsewhere.

Turning to try and replicate this model and similar models in other states and through other either state sponsors or other sponsors in general.

Speaker 4: and other states and for other state sponsors or other sponsors in general.

Speaker 5: Yeah, thank you, Ken. One more quick question for me. I just noticed the over costs or I'm sorry, overhead costs were up year over year. And that was driven by employee related costs. Is that just compensation?

Got it thank you Ken.

One more quick question from me I, just noticed you over costs or I'm, sorry overhead costs were up year over year and that was driven by employee related costs is that just compensation or.

Kenneth Cleary: Year-to-date free cash use was $57.8 million dollars, improving from $76.5 million in the prior year period. As discussed, first quarter's operating loss grew from a year ago as expected. After a record generating operating income in the fourth quarter, we anticipate these results as we continue to prioritize strategic investments and growth initiatives and execute on our plan in the school reading events business. Additionally, our education solutions business saw lower sales driven by the timing of revenues related to our growing state sponsored programs and the shifting seasonality of sales to be more Q4 weighted.

Speaker 4: Yeah, yeah, some of its higher head count, but a good bulk of it is higher utilization of medical expenses as well and again because our medical expenses.

Yeah, Yeah, some of it's higher some of its higher head count but.

A good bulk of it is higher utilization of medical expenses as well and again, because our medical expenses don't particularly time out with.

Speaker 4: Don't particularly time out with our fiscal year, or our medical year is...

Our fiscal year, our medical year is.

Speaker 4: is a calendar year and our fiscal year is a full year, we're still working to look at those accruals and understand exactly where they are. So right now, this is what we have in there, but we're definitely seeing higher utilization post-pandemic of medical costs, but more to come as the year progresses. We'll certainly have it ironed out by the time we get to the end of the year.

As a calendar year in our fiscal year as a full year, we're still working to look at those those accruals and understand.

Exactly where they are so right now.

This is this is what we have in there, but we're definitely seeing higher higher utilization post pandemic.

Kenneth Cleary: As Peter explained, we typically record an operating loss in our first and third quarters through the highly seasonal nature of our business. We remain positive about the remainder of the year and continue to focus on protecting margins and sustaining growth in fiscal 2024 as we execute on our long-term growth and shareholder value creation strategy.

Medical costs, but.

More to come as the year progresses, we'll certainly have it ironed out by by the time, we get to the end of the year.

Great. Thank you Ken and thank you Peter Thats all from me.

Speaker 1: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks.

Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to management for any further remarks.

Kenneth Cleary: Now, turning to our segment results. Children's book publishing and distribution revenues for the first quarter decreased 18% to $102.8 million. Segment operating loss increased $11.4 million from the prior year period to $41.5 million. Second performance in the first quarter trailed the prior year, primarily driven by continuous softness in the retail book market and plan spending ahead of expected growth in the school reading events business. Book fair revenues declined 4% to $27.3 million in the quarter.

Yes.

Speaker 3: Thank you everyone for joining today's call and for your continued support. I'd like to thank again all of Scholastic employees for their hard work and preparation ahead of the back to school season. We're positive about our plan for fiscal 2024 and about the long-

Thank you everyone for joining today's call and for your continued support I would like to thank again all of scholastics employees for their hard work and preparation ahead of the back to school season.

We are positive about our plan for fiscal 2024 and about the long term opportunities for scholastic as we continue to execute on our strategy and.

This year and beyond.

Kenneth Cleary: Revenues and profits are not meaningful as schools are largely not in session in the summer. As noted on our previous earnings call, we expect participation at our in-person book fairs to remain strong this school year and fair count is on track to reach approximately 90% of pre-pandemic levels up from 85% in the fiscal 2023. Book clubs revenues of $2.6 million were down versus the prior year period revenues of $6.3 million. Again in a very small quarter for this division.

Speaker 1: that you ladies and gentlemen for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Speaker 6: Music

Okay.

[music].

Kenneth Cleary: Book clubs underwent a successful reorganization this quarter as they were combined with fairs which resulted in one-time severance record. No. The team has begun to implement new customer centric strategies as we reduce this business to more profitable foundation to build upon. Overall we are confident that the school reading events business is well positioned for successful back to school season. We are excited about the many front list styles we are publishing later this year as well as the film and streaming series that are launching.

Yes.

[music].

Okay.

[music].

Kenneth Cleary: Lower media revenues contributed to the segment revenue decrease as the company completed delivery of episodes associated with the production of the animated series, even the outlet and fiscal 2023. Education solutions segment revenues were down 10% to $66 million in the first quarter, reflecting ongoing trends in timing and feasibility of customer buying patterns, offering loss increased $14.4 million to $18.7 million compared to the prior year period in line with our expectations. This was driven by lower revenues and continuing investment in growth opportunities to become a provider of blended learning solutions or remaining focused on protecting our strong literacy offerings, which are pillar of scholastics long term growth strategy.

Kenneth Cleary: As Peter described earlier, we completed actions in the first quarter to streamline the education solutions organization and just the operating model under new leadership as the business executes on our blended learning strategy. This resulted in one time severance recording over it. International segment revenues of $57.2 million in the first quarter trailed the prior year period revenues of $55 million. A $1.4 million year of your impact of unfavorable foreign currencies change and lower revenues of $1.6 million through the fiscal 2023 Q1 disposition of the direct sales business in Asia contributed to this decline.

Kenneth Cleary: Excluding these factors, international revenues were down $4.8 million, reflecting lower revenues in major markets, specifically Canada, Australia, as softness in the retail book selling market continued to impact global trade sales. Segment offering loss increased $3.5 million to $7 million, partly reflecting lower revenues and offering pressures in Canada. We expect a reorganization of book clubs in Canada, which resulted one time severance to drive greater operating efficiencies in the coming quarters. Unallocate overhead costs of $25.6 million in the first quarter increased from $20.2 million in the prior period, primarily driven by higher employee related costs.

Kenneth Cleary: As discussed last quarter, we have now rented all of our first floor retail space at our own headquarters building in New York. We're currently marketing floors two through four for outside tenants. As we now disclose in our funds with the SEC, we recognize rental revenue of $2.5 million in the first quarter. As a reminder, this was previously called as a benefit in SG&A in the prior period. On the approximately 26,600 square feet leased as of today, we expect annualized street line rental revenue to total approximately $9.9 million in fiscal 2020, for.

Kenneth Cleary: Now, turn the cash loan to balance sheet. Net cash used by operating activities with $38.1 million, compared to $60.3 million in the prior year. Lower inventory purchases in the first quarter, compared to a year ago, benefited working capital, reflecting lower manufacturing or freight costs, as well as lower purchase volumes compared to a year ago, when the company replaced inventory levels post-pandemic to meet demand and mitigate shipping delays. With a significant improvement in lead times for product, we're able to manage purchases substantially closer to our demand in this quarter, resulting in sufficient inventory on hand and lower spend.

Kenneth Cleary: We expect our cost of product per unit to decline in fiscal 2024 from the prior year, with this benefit appearing in the PNL in the second half of the fiscal year. Free cash used in the first quarter was $57.8 million, improving from $76.5 million in the prior year period, reflecting lower working capital requirements, partly offset by higher cap-backs and pre-publications spending on new products, growth in issues, and one-time severance costs. At the end of the quarter, cash and cash equivalence netted total debt was $119.9 million, compared to $218.5 million at the end of fiscal 2023.

Kenneth Cleary: In addition to increasing growth investments, we continue to return capital shareholders in the first quarter through our regular, quarterly dividend and open market share repurchases. We repurchased $818,000 shares last quarter for $36.2 million. Together with our regular dividend, we returned over $42 million in the first quarter, as Peter mentioned. We remain consistent in our capital allocation priorities. We will pursue opportunities to leverage our balance sheet and deploy capital by first investing in growth opportunities. Second, containing a strong and efficient balance sheet, and third, returning excess cash to shareholders to enhance their returns.

Kenneth Cleary: As we look ahead to the rest of the year, we are affirming our fiscal 2024 guidance, as Peter has said. We continue to expect revenue growth of 3% to 5% and are targeting adjusted EBITDA of $190.2 million to $200 million. This excludes the impact at one-time charges related to restructuring and cost savings activities of $7 million to $10 million, of which we incurred $6.3 million in the first quarter. Based on our current outlook for fiscal 2024 CAPEX and pre-publication spend of $115 million to $125 million, compared to $88.9 million at fiscal 2023, we now expect full-year free cash load of between $55 million and $65 million. Thank you for your time today.

Peter Warwick: I will now hand the call back to Peter for his final remarks. Thank you, Ken. This past quarter our team made good progress and built a solid foundation for the remainder of fiscal 2024. After first quarter results that were in line with expectations overall, we are affirming our guidance and looking ahead. We're positive about fiscal 2024 and our multiple long-term opportunities to grow our business and impact, addressing kids' pressing need for reading, learning and stories.

Peter Warwick: Thank you very much.

Jeffrey Mathews: Let me now turn the call over to Jeff. Thank you, Peter. We appreciate everyone's time and today in continuing support.

Operator: With that, we will open the call for questions. Certainly, and ladies and gentlemen, if you do have a question at this time, simply press star 11 on your telephone. If you wish to remove yourself from the queue, simply press star 11 again, one moment for as we tabulate our queue. Once again, if you have a question, please press star 11 one moment for our first question.

Brendan Mccarthy: And our first question comes from the line of Brendan McCarthy from Sedoti, your question, please. Yes, thank you for taking my question. I think I wanted to start off at the trade channel sales and just the general, the retail market in general. I'm just wondering if you can kind of talk about what you're seeing in the industry versus your back and front list sellers.

Peter Warwick: It looks like, obviously, you mentioned it's kind of reverting to the pre-pandemic normal, more normalized levels, but I was also wondering if you could provide some insight into when you might think the timing of that might play out. Yes, it's Peter here. I mean, there are two things going on at the moment. The first of which is that we're seeing that... Sorry, Peter here. And the first thing that we're seeing is that sales are soft going out of the door.

Peter Warwick: And the second thing we're seeing is that the larger inventory purchases, which many booksellers have made during the pandemic, mean that restocking has not been happening at the same level as before. This has been coming for the last few months and parts of this year. But we see this, I think, as reverting to more normal activities in the trade channel once the full impact of the pandemic is through. And indeed, we're beginning to see some stronger elements of that post the quarter.

Peter Warwick: Certainly the last weeks of August, which is our third month, and now in September, are encouraging. I think also with the trade, once positioned in the trade market, is that a lot depends too on the new publishing that you're doing. And whilst our trade channel was soft during the first quarter, we've got much more in terms of our publishing coming in quarter two. So we would expect quarter two to be a really quite strong trade month.

Peter Warwick: And we don't really have any major concerns about our overall trade forecast for the year as a whole. The other piece to bear in mind is that we can see a more complete picture, of bookbying because of our school book fairs in particular. School book fair buying has been very strong. It was strong through the spring season this year. And in terms of fairs booked for the fall season, that all looks very promising and strong as well.

Peter Warwick: So I think once got to look at this in terms of the totality of the market, we're in a particularly good position to see the totality of the market because of the volume of books which are actually sold through the book fairs and book clubs which are not captured by books again. Great, thank you Peter. I was also wondering as a follow up, do you think it's fair that I guess do you think it's fair to say is inflation still having an impact on consumer purchasing patterns as it pertains to trade general sales?

Peter Warwick: Well, we hadn't particularly seen that. I think probably not, is the answer. Again, we can look at things like revenue per fair as an indication of as we were kids and parents purchasing. And we saw throughout our last fiscal year and particularly in spring this year that actually the revenues per fair have been strong and stronger than pre-pandemic. So I think it's not that particularly. I think once also got to think of this in terms of the as I said earlier the totality of what goes on in trade and how how parents and children actually buy kids books.

Peter Warwick: And so I think that we feel reasonably, I have to say we feel comfortable about how trade publishing and trade forecasting because in many ways one year is never exactly the same as the prior because of timing of new titles. And so we're that sort of cause of concern for us at all. Yeah, that's helpful.

Brendan Mccarthy: One question on the education solution segment. I know you mentioned there was some impact from the timing of state sponsored programs. I was just wondering if you could go into detail about, you know, that specific timing.

Kenneth Cleary: Hey, Brennan, this is Ken Cleary. How are you? So yeah, we have a very large contract with NWRI in the state of Florida. And part of that called for some buildings that we don't have this year. So we continue to grow our student base there and we continue to reach out to more students because there's an awful lot of more students in Florida that are eligible for this program. And we're investing in marketing to reach these students.

Kenneth Cleary: And therefore, you know, the timing in the really the beginning of the year cycle starts. I believe in July and continues through the next July. So we're this quarter really caught the beginning of the year cycle for that. But the idea is that we're looking to increase participation in that program. And to that end, you know, we have incremental opportunities in terms of it's now open to kindergartners and pre-K as well. So, you know, we're very encouraged by our sponsor programs, particularly in Florida. And that's what you're seeing impacting in the quarter.

Brendan Mccarthy: But also elsewhere as we continue to try and replicate this model in similar models in other states and through other either state sponsors or other sponsors in general. Thank you, Ken. One more quick question from me. I just noticed the overhead costs were up year to year, and that was driven by employee-related costs. Is that just compensation? Yeah, some of its higher headcount, but a good bulk of it is higher utilization of medical expenses as well.

Brendan Mccarthy: And again, because our medical expenses don't particularly time out with our fiscal year, our medical year is a calendar year and our fiscal year is a full year. We're still working to look at those accruals and understand exactly where they are. So right now, this is what we have in there, but we're definitely seeing higher utilization post-pandemic of medical costs. But more to come as the year progresses, we'll certainly have it ironed out by the time we get to the end of the year. Great. Thank you, Ken. Thank you, Peter. That's all from me. Thank you.

Peter Warwick: This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks. Thank you, everyone, for joining today's call and for your continued support. I'd like to thank again all of Scholastics employees for their hard work and preparation ahead of the back to school season. We're positive about our plan for fiscal 2024 and about the long-term opportunities for Scholastic as we continue to execute on our strategy this year and beyond. Thank you, ladies and gentlemen, for your participation in today's conference.

Operator: This does conclude the program. You may now disconnect. Good day.