Q1 2025 Scholastic Corp Earnings Call
And trade publishing we continued to execute well in our retail book selling market that was down slightly year over year class economy, Bookscan first quarter was a relatively quiet quarter for our domestic trade publishing division versus a year ago when sales in the quarter benefited from the release of the paperback edition of the fourth time.
Speaker Change: And the hunger games series ahead of the titles movie release Importantly, scholastics critically acclaimed publishing continue to successfully engage you worried as last quarter with multiple scholastic published front and backlist titles, maintaining that presence across the New York Times Children's series picture.
Speaker Change: Book Middle grade and graphic novel bestseller lists.
Speaker Change: In quarter, one newly released successes included Iron blame this latest title in the bank guys series back guys in certain tender based when.
Speaker Change: When we flew away by best selling author Alex Hoffmann.
Speaker Change: Parents sleep over the latest graphic novel in the Babysitter Club Litho system series.
Speaker Change: And Unica awakening, our first title and the new Kid friendly manga series.
Speaker Change: We also saw strong results from Pokemon Super-duper extra deluxe Handbook and the official Goosebumps coloring book ahead of the second season of the Goosebumps series for Disney plus.
Speaker Change: Looking at this fall in quarter, two we're excited to be publishing in time for the holiday season, additional new titles from best selling global franchises, including the final booking Arrow <unk> Bakken guys series and Christmas at Hogwarts Picture book that will delight, Harry Potter fans of all ages.
Speaker Change: Given the timing of this year's publishing plan compared to a year ago, Our publishing division will face another difficult year over year comparison in quarter. Two we continue to expect the releases of highly anticipated new dog man and hunger games titles in the second half of the fiscal year to benefit full year.
Speaker Change: Revenues in our newest reportable segment Scholastic Entertainment. The recent edition of nine story, which closed in June positively contributed to revenue and EBITDA in the first quarter.
Speaker Change: Scholastic continues to advance its evolution as a global children's media company, expanding our ability to reach more kids, where they are and profitably participate in the full lifecycle about childrens franchises and IP.
Speaker Change: Development and production continue to move forward on major projects.
Speaker Change: This fall we are taking to market. The first Magic School bus series for preschool and an updated Clifford animated series. We also look forward to announcing soon the launch date of Goose bumps season, two airing on Disney plus these core scholastic brands have significant upside for scholastic.
Speaker Change: As we leverage nine stories licensing and merchandising sales teams, we're taking advantage of early opportunities to monetize and expand the reach of classics classic IP on advertising supported distribution platforms and core.
Speaker Change: One we launched the Magic School bus on QB, where it became one of our top performing properties.
Speaker Change: We also stood up a new Clifford classic channel on Youtube in the U S with viewership showing positive momentum.
Speaker Change: We look forward to updating you on upcoming developments as we prepare for growth through synergies with scholastics existing print and media properties in fiscal 'twenty, six and beyond while building on core properties in fiscal 2025.
Speaker Change: Turning to education solutions first quarter sales declined year over year, reflecting lower curriculum and collection sales primarily related to lower spending on supplemental curriculum products.
Cool districts focus on adopting and implementing new English language, our core programs.
Speaker Change: With spending on supplemental curriculum pressured in the near term, we move forward with investments in updated or new literacy programs that leverage scholastics content and align with current literacy instruction.
We continue to anticipate these new products will contribute to growth beginning in fiscal 2026.
Speaker Change: Looking ahead, we expect lower sales trends in this segment to continue in the second quarter ahead of an anticipated larger and more profitable fourth quarter.
Speaker Change: We forecast growth in sales to state and community literacy partners in the second half of fiscal 2025, driven by expanded participation in state sponsored programs as our partners continue investing to improve kids' access to books outside of school.
Speaker Change: And finally in international.
Speaker Change: Revenues were in line with prior year, we continue to expect modest growth in major markets and operational improvements in Canada to drive further improvements in operating margins and contribution relative to fiscal 2024.
Speaker Change: And with that I'll turn the call over to <unk> to review our fiscal 2025 first quarter results.
Speaker Change: Thank you Peter and good afternoon, everyone today, I will refer to our adjusted results for the first quarter, excluding onetime items unless otherwise indicated.
Speaker Change: Please refer to our press release tables, and FCC filings for complete discussion on onetime items.
Speaker Change: As Peter discussed earlier revenues increased and operating loss improved from a year ago and our seasonal require first quarter.
I'm proud of our team's hard work and preparation ahead of back to school season.
Speaker Change: The investments, we are making in our core businesses position us well near and long term and we look forward to making further progress against our plan this fiscal year and beyond.
Speaker Change: Turning to our consolidated financial results in the first quarter revenues increased 4% to $237 2 million and profitability improved on multiple measures.
Speaker Change: The company's seasonal operating loss in the quarter was $85 6 million an improvement from $92 8 million from the prior year period.
Speaker Change: Adjusted EBITDA was a loss of $60 5 million declining from a loss of $70 6 million a year ago.
Net loss improved to $60 3 million from $69 5 million in the prior year period.
Speaker Change: On a per diluted share basis loss declined to $2.13 compared to a loss of $2 20 last year.
Speaker Change: As a reminder, scholastic results are highly seasonal and.
Speaker Change: In addition to the first quarter. We also recorded an operating loss in the third quarter with profitable second and fourth quarters.
Speaker Change: Now turning to our segment results.
Speaker Change: In children's book publishing and distribution revenues for the first quarter increased 3% to $105 4 million, primarily driven by higher revenues in our trade channel.
Speaker Change: Segment operating loss decreased $4 4 million from the prior year period to $36 6 million Pri.
Speaker Change: Primarily reflecting higher revenues and a seasonally quiet quarter for the segment.
Speaker Change: In the first quarter, our school reading events business revenues and profits are not meaningful as schools are largely not in session in the summer book.
Book Fair revenues increased 5% to $28 8 million in the quarter Fair Count is on track to achieve our target of 90000 fairs in fiscal 2025, which we expect to contribute to modest growth in our book fairs. This school year.
Speaker Change: Book clubs revenue of $2 7 million were in line with prior year period revenues of $2 6 million.
Speaker Change: After strategically transitioning book clubs to a smaller more profitable core business in fiscal 2024.
Speaker Change: Our team has implemented new strategies to Reengage teachers and customers the school year.
Speaker Change: Overall, we remain confident that the school reading events business is well positioned for this year's back to school season.
Speaker Change: Trade revenues were $73 9 million in the first quarter up slightly compared to the prior year revenues of $72 5 million, reflecting higher sales of scholastic IP and foreign rights deals.
Speaker Change: This more than offset more frontlist revenues compared to a year ago when sales benefited from the release of the paperback edition of the fourth book and the hunger game series for <unk>.
Speaker Change: <unk> of sound bars and snacks.
Speaker Change: The company's best selling publishing continues to resonate with customers. We're excited about the many frontlist titles, we are publishing including major global franchise the leases in the second half of our fiscal year.
Speaker Change: Education solutions segment revenues were down 16% to $55 7 million in the first quarter.
Reflecting lower spending on supplemental curriculum products.
Speaker Change: This was partly offset by growth in state sponsored programs.
Speaker Change: Our school district focus on adopting and implementing new core programs near term pressures on supplemental literacy curriculum continue to impact sales of supplemental instruction materials in key product lines, including classroom libraries and collections in the first quarter.
Speaker Change: As Peter noted our teams are developing new structured literacy programs and supplemental products for schools scheduled to launch in time for the 2025 and 2026 school year.
Speaker Change: Segment operating loss improved by $1 7 million to $17 million.
Speaker Change: Primarily driven by higher state sponsored program revenues as increased participation has a significant impact on profitability.
Speaker Change: This coupled with decreased operating expenses in the quarter more than offset the impact of more cells of supplemental instructional materials.
Speaker Change: I will now turn to our new Entertainment segment with consolidated results from the Companys existing Scholastic Entertainment Division historically reported in the children's books segment combined with the results from nine stored media group, which we required in Jim.
Entertainment segment revenues were $16 6 million and the segment operating income was $1 2 million, primarily reflecting the contribution of nine story media group.
Nine story revenues and profits were up on a pro forma basis relative to the prior year period.
Speaker Change: We're making progress on our integrated production and development slate and continue to execute on company wide synergies, which should benefit this segment in fiscal 2026 and beyond.
Speaker Change: International segment revenues were $56 8 million in the first quarter compared to the prior year period revenues of $57 2 million, excluding the $2 million year over year impact of unfavorable foreign currency exchange International revenues were in line with the prior year.
As low revenues in Canada were partly offset by strong backlist sales of dog man and Herman games in the U K.
Speaker Change: The segment operating loss increased $1 3 million to $8 3 million compared to $7 million in the prior year period unallocated overhead cost of $24 9 million in the first quarter improved from $25 6 million in the prior year period, primarily driven by lower employee related costs in the quarter.
Speaker Change: Now turning to cash flow and the balance sheet net cash used by operating activities of $41 9 million compared to $38 1 million in the prior year.
Speaker Change: Free cash use in the first quarter was $68 7 million compared to a use of $57 8 million in the prior year period, primarily reflecting higher capex spending, including on new products and education solutions.
In addition, we now include production spending and borrowing related to production loans, both within the New Entertainment segment as part of our definition of free cash flow.
Speaker Change: Production loans are typically secured by tax and other receivables and therefore, essentially an offset to working capital.
Speaker Change: Consistent with other companies in the media industry, and how we view and manage the business. We include borrowing and repayment of these loans and our free cash flow definition to better reflect the overall timing and generation of free cash flow in this business.
Speaker Change: During the quarter the company borrowed 225 million under its existing revolving credit facility to complete the ninth screen media group transaction and to meet the seasonal working capital needs were.
Speaker Change: We're currently in the process of amending and extending our credit facility, increasing the revolver from 300 million to $400 million for another five years, which is unsecured.
Furthermore, we will continue to explore opportunities to optimize our strong balance sheet.
Speaker Change: At the end of the quarter net debt was $152 1 million compared to a net cash position of $107 7 million at the end of fiscal 2024, primarily driven by the nine storey Meteor group transaction, partly offset by positive free cash flow of $62 5 million over the last 12 months.
Speaker Change: In addition to our growth investments, we continue to deploy capital to our shareholders in the first quarter through our regular dividend and open market share repurchases.
Speaker Change: We repurchased 163000 share of last quarter for $5 million.
Speaker Change: Together with our regular dividend, we returned over $10 million in the first quarter as Peter said, we will continue to pursue opportunities to leverage our balance sheet and to deploy capital by first investing in growth opportunities second maintaining a strong and efficient balance sheet and third returning excess cash to shareholders to enhance their returns.
Speaker Change: As we look ahead to the rest of the year, we are affirming our fiscal year 2025 guidance.
Speaker Change: We continue to expect revenue growth of 4% to 6% and adjusted EBITDA of $140 million to $150 million.
Speaker Change: The outlook for the full year free cash flow remains between 20 and $30 million, reflecting our planned investments in working capital needs.
Speaker Change: I would like to reinforce a note about timing that Peter discussed.
Speaker Change: We expect lower year over year trade publishing sales related to the timing of our publication plan and headwinds in our education solutions segment to contribute to lower results in the second quarter compared to the prior year period.
Speaker Change: Per our plan, we continue to expect increased profitability year over year in the second half of our fiscal 2025.
Speaker Change: Thank you for your time today, we remain positive about the remainder of the year and continue to focus on our growth investments.
Speaker Change: I'll now hand, the call back to Peter for his final remarks.
Speaker Change: Thank you had cheat as I laid out in July Scholastic fiscal 2025 plan is focused on building on and accelerating the progress we made last year towards our strategic goals in the first quarter. We continued to execute on these initiatives as planned while preparing for the new school year in <unk>.
Speaker Change: Reading events, we remain confident that our core fundamental businesses are well positioned for long term growth.
We look forward to continuing to pursue scholastics opportunity to create value and impact this year and beyond thank.
Speaker Change: Thank you very much and let me now turn the call over to Jeff.
Thank you Peter with that we will open the call for questions operator.
Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question. Please press star one again, one moment for questions.
Operator: Our first question comes from Brendan Mccarthy with Sidoti You May proceed.
Speaker Change: Hey, good afternoon everybody.
Speaker Change: Good afternoon.
Speaker Change: I wanted to start off looking at gross margins. It looks like there was a nice improvement there year over year can you talk about what you're seeing with gross margins and whether you see further improvement looking out the rest of the year, just given the downturn and inflation.
Speaker Change: Yes, thank you for that question.
Speaker Change: Gross margin as earlier was really mixed as Robyn.
Speaker Change: The conversation around mix is really driving this.
Speaker Change: We do see modest growth in our gross margin throughout the rest of the year and we plan for that already in our outlook.
Speaker Change: Got it thanks guys.
Speaker Change: Yes, that's great.
Speaker Change: I wanted to turn to the fairs business I know last quarter, the fourth quarter of fiscal 'twenty. Four I know you noted there were there was some pressure on consumer spending that impacted the various business.
Speaker Change: Is that still a trend that youre seeing I guess looking out to the second quarter second fiscal quarter.
Speaker Change: While the.
Speaker Change: We've really only just got moving with or without that business.
But at the moment the fat there pretty much.
Speaker Change: Operating as we expected.
Speaker Change: For the fall season.
Speaker Change: And whilst those losses.
Speaker Change: Whilst there's pressures I think probably still continue we've made some good adjustments in terms of how.
How we present the Fas and we also have the benefit of having a really full.
Speaker Change:
Speaker Change: Really full sort of.
Speaker Change: 90000, plus.
Speaker Change: Fast this year. So that's also mitigating factor, but I think it's also important to say that we really only.
Speaker Change: We're expecting modest revenue for Fad growth.
Speaker Change: In fiscal 2025.
Speaker Change: Which was not the case in fiscal 2024.
Speaker Change: And therefore, I think that gives us much more sort of sense.
Speaker Change: Things will go as we are planning.
Speaker Change: Got it thanks Peter.
Speaker Change: Just as a follow up question and I know, we're only one month into the about one month into the school year.
Looking at the school reading events business clubs and then the school channels.
Speaker Change: How is that those how have those business had been performing so far this school year relative to your expectations at the start of the fiscal year.
Speaker Change: But they've been I mean, the good news is they've been they've been operating pretty much exactly as we expected.
There've been no.
Speaker Change: No no.
Speaker Change: No bad surprises no. Good surprises is pretty much as as we were expecting and so I think that's I think that's that's that's.
Speaker Change: Pretty pretty positive I think the one the one area that we have been particularly pleased with although it's the smallest of those two businesses as being the clubs business, where we've seen.
Speaker Change: Quite an uptick actually in the numbers.
Speaker Change: Sponsors.
Speaker Change: Particularly teaches so I think the work that we did last year too.
Speaker Change: For path or redesigning the materials and content I think has been.
Speaker Change: Early signs show that that's happening and that's been a very very very worthwhile thing to have down.
Speaker Change: Got it and in the clubs business I know you mentioned you were testing and still are testing new go to market strategies there.
Speaker Change: Can you provide additional color on some of those strategies and I guess, how they are resonating with customers at this point, yes, I mean, one of the thing one of the things that we've done is that we've.
Speaker Change: We've redesigned.
Speaker Change: <unk> for example, and it has been.
Speaker Change: Very much focused on igniting the interests of our core customers in our core.
Speaker Change: Most profitable customers. So that's that's one thing that we've done the other thing that we've been doing is actually the whole process has been very much more teacher centric than was the year before and therefore I think that that's that's going to be very worthwhile to.
Speaker Change: Got it that's helpful.
Speaker Change: To ask a question on the education solutions business got it.
Speaker Change: Sounds like the outlook there is.
Speaker Change: Quite favorable for the state sponsored business in the back half of this year.
Speaker Change: I guess, what's the process I guess, what are some of the prospects of getting new business from either new states or new state entities.
Speaker Change: That line of business, while I think they I mean, there is an overall trend, which is which is kind of happening in the marketplace, which is that there is much greater attention being paid.
Speaker Change:
Speaker Change: And particularly by by Education faculties education departments, but also by by state legislatures, and making sure that they can get books to students at home.
Speaker Change: It's been it's been shown very much that.
Speaker Change: That one is able to do a much more with kids who are striving readers.
Speaker Change: As long as they have books in the home and that's something that we've.
Speaker Change: Work with them in a number of states and has been very successful I think.
Speaker Change: A growing recognition that.
Speaker Change: That is what's needed in addition to that.
Speaker Change: We've also got another partnership models that we've been able to.
Speaker Change: Developed to get books into the home.
Speaker Change: And we're.
Speaker Change: We're feeling that we're feeling quite confident.
Speaker Change: We'll have another good year in that part of in that part of the business.
Speaker Change: I mean, you know one of the one of the good things that's happening in some ways is that whilst the actually selling books into schools, particularly into school districts and all the rest of it has been more difficult for US. We've had this opportunity to actually get more of our books into their homes through the activities of partners stay.
Speaker Change: Philanthropic and parents and so we've been able we are very consciously building up that part of our business to sort of rebalance to some extent.
Speaker Change: The business as there are changes in the in the marketplace.
Speaker Change: Great. Thanks, Peter one more from me and then I'll turn it over just on the on the balance sheet.
Speaker Change: Just with the new net debt position.
Are you comfortable with where Leverages now or do you see the company allocating more cash flow to pay down the revolver in the future.
Speaker Change: Yes. Currently we are very confident in where we stand today.
We mentioned in the press.
Speaker Change: And my sort of section that we aren't we're looking at other opportunities on our balance sheet, but thats an immediate term right now.
Speaker Change: Great Great. That's all from me thanks, everybody.
Speaker Change: Thank you and this concludes our Q&A I will pass the call back to management for any closing remarks.
Alright. Thank you everyone for joining today's call and for your continued support I would like to again, thank all of scholastics employees for their hard work and preparation ahead of the back to school season.
Speaker Change: We look forward to an important year ahead as we execute on our plan for fiscal 2025 and make progress towards realizing scholastics long term opportunities.
Speaker Change: Thank you. This concludes today's conference call. Thank you for your participation and you may now disconnect.
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