Q1 2026 Scholastic Corp Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Scholastic Corporation's first quarter fiscal year 2026 results. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. I would now like to hand the conference over to your speaker today, Jeffrey Mathews, Executive Vice President and Chief Growth Officer.

Good day, and thank you for standing by. Welcome to the Scholastic report's first quarter fiscal year 2026 results. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After this week's presentation, there will be a question and answer session. To ask a question, please press *1, 1 on your telephone and wait for your name to be announced. To withdraw your question, please press *1, 1 again. I would now like to hand the conference over to your speaker today, Jeffrey Mathews, Executive Vice President and Chief Growth Officer.

Haji Glover: Hello, and welcome everyone to Scholastic Corporation's fiscal 2026 first quarter earnings call. Today on the call, I'm joined by Peter Warwick, our President and Chief Executive Officer, and Haji Glover, our Chief Financial Officer and Executive Vice President. As usual, we posted this call's investor presentation on our IR website at investor.scholastic.com, which you may download now if you've not already done so. We would like to point out that certain statements made today will be forward looking. These forward looking statements, by their nature, are subject to various risks and uncertainties, and actual results may differ materially from those currently anticipated. In addition, we'll 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 accompanying financial tables, filed this afternoon on a Form 8-K.

Hello, and welcome everyone to Scholastic's fiscal 2026 first quarter earnings call. Today, on the call, I'm joined by Peter Warwick, our President and Chief Executive Officer, and Haji Glover, our Chief Financial Officer and Executive Vice President.

As usual, we posted this call as an investor presentation on our IR website at investor.substack.co.

Which you may download now if you've not already done so. So,

We would like to point out that certain statements made today will be forward-looking. These forward-looking statements, by their nature, are subject to various risks and uncertainties.

And actual results may differ materially from those currently anticipated. In addition, we'll be discussing some non-GAAP financial measures as defined in Regulation G.

Haji Glover: This earnings release has also been posted to our Investor Relations website. 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. Should you have any questions after today's call, please send them directly to our IR email address, investor_relations@scholastic.com. Now, I'd like to turn the call over to Peter Warwick to begin this afternoon's presentation.

The reconciliations of those measures to the most directly comparable GAAP measures may be found in the company's earnings release and accompanying financial tables. Follow this afternoon on a Form 8-K.

This earnings release has also been posted to our Investor Relations website.

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.

Should you have any questions after today's call, please send them directly to our IR email address: investor_relations@scholastic.com.

Peter Warwick: Thank you, Jeff, and good afternoon, everyone. Scholastic had a productive summer as we prepared for the back-to-school season and advanced important initiatives. As expected, our first quarter reflected the normal seasonality of our business, with an operating loss in line with previous years. We continued to make strong progress on our previously announced real estate monetization process, with significant investor interest in both our SoHo headquarters and our Jefferson City distribution center. We remain on track with the timeline we outlined in July. Haji will share further details in his remarks. At the same time, we're driving greater financial discipline and operational leverage across the company while affirming our full-year guidance. These actions position us well for profitable growth in the quarters and years ahead. In our Children's Book Group publishing and distribution segment last quarter, trade sales were solid.

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

Thank you, Jeff, and good afternoon, everyone.

Scholastic had a productive summer as we prepared for the back-to-school season and advanced important initiatives, as expected. Our first quarter reflected the normal seasonality of our business, with an operating loss in line with previous years.

We continue to make strong progress on our previously announced real estate monetization process, with significant investor interest in both our Soho headquarters and our Jefferson City Distribution Center.

We remain on track with the timeline we outlined in July. Haji will share further details in his remarks. At the same time, we're driving greater financial discipline and operational leverage across the company, while affirming our full-year guidance. These actions position us well for profitable growth in the quarters and years ahead.

Peter Warwick: Strong continued demand for our global franchises drove unit sales in excess of the overall growth in the children's and young adult markets. Suzanne Collins' Sunrise on the Reaping has now sold 3.7 million copies worldwide since its March release. Looking ahead, in October, we're excited to release the 25th title in Lauren Tarshis' I Survived series, another middle-grade bestseller, along with the illustrated edition of Catching Fire and the interactive illustrated edition of Harry Potter and the Goblet of Fire. In November, we'll publish a collector's edition of Sunrise on the Reaping to sustain momentum ahead of Lionsgate's feature film adaptation in 2026. We're also building towards another major global release with Dav Pilkey's Dog Man, Big Jim Believes. Pre-orders are tracking in line with the last Dog Man, positioning this newest title for a strong on-sale.

In our children's book publishing and distribution segment, last quarter, trade sales were solid. Strong continued demand for our global franchises drove unit sales in excess of the overall growth in the children's and young adult markets. Suzanne Collins' "Sunrise on the Reaping" has now sold 3.7 million copies worldwide since its March release.

Best seller along with the illustrated edition of "Catching Fire" and the interactive illustrated edition of "Harry Potter and the Goblet of Fire."

In November, we'll publish a collector's edition of "Sunrise on the Reaping" to sustain momentum ahead of the Lionsgate feature film adaptation in 2026.

Peter Warwick: The Dog Man franchise has more than 70 million copies in print across 48 languages, and next spring, Dav Pilkey's Captain Underpants returns in an entirely new format with the first epic manga illustrated by Motojiro. In book fairs, Q1 represents only a small portion of annual revenue given the school summer vacations, but early indicators are encouraging. Fall bookings are strong and ahead of last year's bookings. Redemption of Scholastic dollars, our reward currency in book fairs, is high, indicating good engagement with book fair hosts. We're also making progress in booking more larger fairs and reducing churn. In book clubs, Q1 also represents a small portion of annual revenue, with year-over-year change reflecting the timing of mailings.

We're also building towards another major global release with Dave Pilkey, Dog Man. Big Jim believes pre-orders are tracking in line with the last Dog Man, positioning this newest title for a strong on-sale. The Dog Man franchise has more than 70 million copies in print across 48 languages. Next spring, Dave Pilkey's Captain Underpants returns in an entirely new format, with the first epic manga illustrated by Motojirou.

In the Book Fairs quarter, Q1 represents only a small portion of annual revenue given the schools' summer vacations, but early indicators are encouraging.

Fall bookings are strong and ahead of last year's bookings. Redemption of Scholastic Dollars, our reward currency in Book Fairs, is high, indicating good engagement with book fair hosts. We're also making progress in booking more larger fairs and reducing churn.

Peter Warwick: With the integration of trade, fairs, and clubs into the new Children’s Book Group, we now have one aligned organization coordinating editorial, merchandising, marketing, and distribution to maximize the reach and value of our publishing across both our proprietary and retail channels. Our initial priority has been streamlining operations and infrastructure, enhancing data analytics, optimizing inventory and overhead, and driving early cost savings while building a foundation for long-term profitable growth. Turning to Scholastic Entertainment, we're positioned for renewed growth as industry green lighting accelerates and our 360-degree IP strategy gains traction, now with the capabilities and assets of 9 Story Media Group fully integrated into our strategy and organization. We're using YouTube as a launchpad for new properties after integrating all 9 Story branded channels under the Scholastic banner. Clifford remains a cornerstone franchise, both in traditional linear and on digital platforms.

In book clubs, Q1 also represents a small portion of annual revenue, with year-over-year change reflecting the timing of mailings.

With the integration of trade fairs and clubs into the new children's book group, we now have one aligned organization. We are coordinating editorial, merchandising, marketing, and distribution to maximize the reach and value of our publishing across both our proprietary and retail channels.

Our initial priority has been streamlining operations and infrastructure, enhancing data analytics, optimizing inventory and overhead, and driving early cost savings while building a foundation for long-term profitable growth.

Turning to Scholastic Entertainment, we're positioned for renewed growth as an industry. Greenlighting accelerates, and our 360° IP strategy gains traction. Now, with the capabilities and assets of 9 Story Media Group fully integrated into our strategy and organization.

We're using YouTube as a launchpad for new properties. After integrating all 9-story branded channels under the Scholastic banner.

Peter Warwick: We expect to surpass 10 million monthly views by calendar year end of classic Clifford content on YouTube, and we're supporting this with new publishing, consumer products, and promotional partnerships to lay the groundwork for Clifford's next phase of growth. The trailer for Paris Hilton's Paris and Pups dropped on all social media platforms and has been viewed more than 1.8 million times. The series' YouTube launch is coming September 23, with episodes releasing weekly and toys launching in fall 2026 with Playmates Toys as they announced this morning. Scholastic holds global publishing rights, with tie-in books also scheduled for fall 2026. This approach, pairing digital-first content with publishing, is central to our strategy. It not only expands the reach of our IP, but also builds brand affinity that flows back into book sales. As just announced, we've also launched the first-ever Scholastic-branded streaming app in partnership with Future Today.

Clifford remains a cornerstone franchise, both in traditional linear and on digital platforms. We expect to surpass 10 million monthly views by the end of the calendar year for classic Clifford content on YouTube. We are supporting this with new publishing consumer products and promotional partnerships to lay the groundwork for Clifford's next phase of growth.

The trailer for Paris Hilton's "Paris and Pops" dropped on all social media platforms and has been viewed more than 1.8 million times.

The series YouTube launch is coming September 23rd, with episodes releasing weekly and toys launching in Fall 2026 with Playmates Toys, as they announced this morning.

Scholastic, Holes, global publishing rights with tying books. Also scheduled for fall 2026.

Peter Warwick: The app offers families a free, safe, and trusted destination to enjoy beloved Scholastic programming on demand with nearly 400 half hours of content and will scale to more than 1,300 half hours by fiscal 2027. A significant marketing campaign begins this month to build awareness and adoption. Together, these initiatives are expanding the reach of Scholastic's IP, creating high-margin digital revenue streams, and strengthening our position at the intersection of publishing and media. In Scholastic Education, sales are pressured in the quarter by a volatile funding environment, reflecting the delay of some federal education grants and cancellation of others. Further, several states are facing budget impasses. In this challenging environment, we continue taking steps to strengthen this business for the long term. Under new leadership, the team is refocusing our go-to-market functions on our core strengths, rationalizing the product portfolio, and prioritizing investment in high-impact offerings like Knowledge Library.

This approach pairing digital first content with publishing is Central to our strategy. It not only expands the reach of our IP, but also builds brand Affinity that flows back into Book Sales as just announced. We've also launched the first ever Scholastic branded streaming app in partnership with future today. The app offers families of free safe and trusted destination to enjoy beloved Scholastic, programming On Demand with nearly 400 half hours of content and we'll scale to more than 1300 half hours by fiscal 20.

A significant marketing campaign begins this month to build awareness and adoption.

Together, these initiatives are expanding the reach of Scholastic's IP, creating high-margin digital revenue streams and strengthening our position at the intersection of publishing and media.

Peter Warwick: While near-term results remain constrained by the market, education continues to be central to Scholastic's mission. We remain confident in its long-term potential. International results reflected continued portfolio rationalization and a focus on margin improvement. We see growth opportunities in expanding English as a second language programs and in growing markets like India and the Philippines. Overall, Scholastic delivered a solid start to fiscal 2026. We advanced our strategy, including recent reorganizations, invested in some of our strongest franchises and IP, made progress on our potential real estate monetization, and prepared for the important back-to-school season. With these actions, we're affirming our full-year guidance and remain confident in our ability to deliver meaningful profit growth while continuing to create long-term value for our shareholders and lasting impact for children worldwide. Thank you, and I'll now turn it over to Haji.

Library.

While near-term results remain constrained by the market, education continues to be central to Scholastic's mission. We remain confident in its long-term potential.

International results reflected continued portfolio rationalization and a focus on margin improvement. We see growth opportunities in expanding English as a second language programs and in growing markets like India and the Philippines.

Overall, Scholastic delivered a solid start to fiscal 2026. We advanced our strategy, including recent reorganizations, invested in some of our strongest franchises and IP, made progress on our potential real estate monetization, and prepared for the important back-to-school season.

Haji Glover: Thank you, Peter, and good afternoon, everyone. As usual, I will refer to our adjusted results for the first quarter, excluding one-time items unless otherwise indicated. Please refer to our press release tables and SEC filings for a complete discussion of one-time items. As Peter discussed earlier, our first quarter reflected the normal seasonality of our business during the quiet summer months. I'm proud of our team's hard work preparing for the back-to-school season, and we are well positioned to achieve our plan this fiscal year and beyond. Beginning with our consolidated financial results. In our typically small summer first quarter, when our school reading events division had minimum sales, revenues decreased 5% to $225.6 million. Our seasonally adjusted operating loss improved to $81.9 million from $85.6 million in the prior year period, reflecting cost-saving initiatives.

With these actions, we're affirming our full-year guidance and remain confident in our ability to deliver meaningful profit growth while continuing to create long-term value for our shareholders and lasting impact for children worldwide. Thank you. And I'll now turn it over to Haji.

Thank you, Peter, and good afternoon, everyone.

As usual, our references to our adjusted results for the first quarter exclude one-time items unless otherwise indicated.

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

As Peter discussed earlier, our first quarter reflected the normal seasonality of our business during the quiet summer months.

I'm proud of our team's hard work in preparing for the back-to-school season, and we are well positioned to achieve our plan this fiscal year and beyond.

Beginning with our consolidated financial results.

Haji Glover: Adjusted EBITDA was a loss of $55.7 million, an improvement from a loss of $60.5 million a year ago. Net loss was $63.3 million compared to $60.3 million in the prior year period. On a per diluted share basis, adjusted loss increased to $2.52 compared to a loss of $2.13 last year, primarily reflecting lower shares outstanding due to share buybacks. As a reminder, Scholastic Corporation results are highly seasonal. In addition to the first quarter, we also generally record an operating loss in our third quarter with profitable second and fourth quarters. Turning to our segment results. In Children’s Book Group publishing and distribution, revenues for the first quarter increased 4% to $109.4 million, reflecting growth in school book fairs. Segment-adjusted operating loss improved to $34.3 million from $36.6 million in the prior year period.

In our typically small summer first quarter, when our school reading events division has minimum sales, revenues decreased 5% to $225.6 million. Our seasonally adjusted operating loss improved to $81.9 million from $85.6 million in the prior year period, reflecting cost-saving initiatives.

Adjusted EBITDA was a loss of $55.7 million, an improvement from a loss of $60.5 million a year ago.

Net loss was $63.3 million, compared to $60.3 million in the prior year period.

On a per diluted share basis, adjusted loss increased to $2.52 compared to a loss of $2.13 last year, primarily reflecting lower shares outstanding due to share buybacks. As a reminder, Scholastic results are highly seasonal.

In addition to the first quarter, we also generally record an operating loss in our third quarter, with profitable second and fourth quarters.

Haji Glover: Book fair revenue was $34.1 million in the quarter, an increase of 18%, driven by higher Scholastic dollar redemptions. Book clubs revenue was $1.8 million in the quarter compared to $2.7 million a year ago, reflecting the timing of mailings, as Peter discussed. In our trade publishing division, revenues were $73.5 million in the first quarter, essentially flat with the prior year period, reflecting continued strong demand for Hunger Games and Harry Potter titles. We are optimistic in our publishing plan for this fiscal year, which features many exciting new titles in upcoming quarters. Turning to Scholastic Education, segment revenues were $40.1 million in the first quarter versus $55.7 million in the prior year period, reflecting lower spending on supplemental curriculum products and the timing of state-sponsored program revenues.

Turning to our segment results in children's book publishing and distribution, revenues for the first quarter increased 4% to $109.4 million. Reflecting growth in the School Book Fairs segment, adjusted operating loss improved to $34.3 million from $36.6 million in the prior year. Period Book Fair revenue was $34.1 million in the quarter, an increase of 18%, driven by higher Scholastic dollar redemptions.

Book Clubs revenue was $1.8 million in the quarter compared to $2.7 million a year ago, reflecting the timing of mailings, as Peter discussed.

In our trade publishing division, revenues were $73.5 million in the first quarter, essentially flat with the prior year period, reflecting continued strong demand for Hunger Games and Harry Potter titles.

We are optimistic in our publishing plan for this fiscal year, which features many exciting new titles and upcoming quarters.

Haji Glover: Segment-adjusted operating loss was $21.2 million in the first quarter compared to a loss of $17 million in the prior year period, reflecting lower gross profit partly offset by cost cuts and careful expense control. Turning to our Entertainment segment, revenues decreased by $3 million to $13.6 million compared to $16.6 million in the prior year, primarily driven by fewer episodic deliveries as anticipated. Segment-adjusted operating loss was $4 million, a decline of $5.2 million from the prior year quarter. The current year period includes $700,000 in incremental amortization expense on intangible assets related to the timing of the acquisition in the prior year period. As Peter Warwick discussed, we remain encouraged by recent momentum and our position for renewed growth as industry green lighting accelerates. International segment revenues were $59.4 million in the first quarter, up from $56.8 million a year ago.

Turning to Scholastic Education, segment revenues were $40.1 million in the first quarter, compared to $55.7 million in the prior year period, reflecting lower spending on supplemental curriculum products and the timing of state-sponsored program revenues.

Segment adjusted operating loss was $21.2 million in the first quarter, compared to a loss of $17 million in the prior year period, reflecting the lower gross profit, partly offset by cost cuts and careful expense control.

Turning to our entertainment segment, revenues decreased by $3 million to $13.6 million compared to $16.6 million in the prior year, primarily driven by fewer episodic deliveries, as anticipated.

Adjusted operating loss was $4 million, a decline of $5.2 million from the prior year quarter.

The current year period includes $700,000 in incremental amortization expense on intangible assets related to the timing of the acquisition and the prior year period.

Haji Glover: Excluding the $0.2 million year-over-year impact of favorable foreign currency exchange, segment revenues were up $2.4 million, primarily driven by higher revenues in Australia, the UK, and Asia. Segment-adjusted operating results improved to a loss of $4.1 million compared to a loss of $8.3 million in the prior year period, reflecting higher revenues and continued optimization of this business. Unallocated overhead costs decreased by $6.6 million to $18.3 million in the first quarter, primarily driven by lower employee expenses from cost reduction initiatives. Now turning to cash flow and the balance sheet. In the quarter, seasonal net cash used by operating activities was $81.8 million compared to net cash used of $41.9 million in the prior year period.

International segment revenues were $59.4 million in the first quarter, up from $56.8 million a year ago. Excluding the $0.2 million year-over-year impact of favorable foreign currency exchange, segment revenues were up $2.4 million, primarily driven by higher revenues in Australia, the UK, and Asia.

Segment adjusted operating results improved to a loss of $4.1 million compared to a loss of $8.3 million in the prior year period, reflecting higher revenues and continued optimization of this business.

Unallocated overhead costs decreased by $6.6 million to $18.3 billion in the first quarter, primarily driven by lower employee expenses from cost reduction initiatives.

Now, turning to cash flow in the balance sheet.

Haji Glover: This increase in cash use was primarily driven by fluctuations in net working capital, with higher inventory purchases, including tariff charges, the timing of general operating expense payments, higher interest partially offset by higher customer remittance. Severance payments were also higher as part of the cost-saving initiatives. Free cash use in the first quarter was $100.2 million compared to $68.7 million in the prior year period, reflecting lower cash flow from operations partially offset by lower capital expenditures. At quarter end, the company had borrowings of $325 million under its unsecured revolving credit facility. Net debt was $242.8 million compared to net debt of $136.6 million at the end of fiscal 2025, which was due to the working capital requirements. In the first quarter, we continued to return excess cash to shareholders through our regular dividends of $5.2 million. We currently have $70 million remaining on our share buyback authorization.

In the quarter, net cash used by operating activities was $81.8 million compared to net cash used of $41.9 million in the prior year period.

This increase in cash use was primarily driven by fluctuations in working capital, with higher inventory purchases, including tariff charges. The timing of general operating expense payments and higher interest expenses were partially offset by higher customer remittances.

Severance payments were also higher as part of the cost-saving initiatives.

Free cash use in the first quarter was $100.2 million compared to $68.7 million in the prior year period, reflecting lower cash flow from operations. Partially offset by lower capital expenditures at quarter end, the company had borrowings of $325 million under its unsecured revolving credit facility. Net debt was $242.8 million compared to net debt of $136.6 million at the end of fiscal 2025.

This was due to the working capital requirements in the first quarter. We continue to return excess cash to shareholders through our regular dividends of $5.2 million.

Haji Glover: The company expects to continue purchasing shares from time to time as conditions allow on the open market or in negotiated private transactions for the foreseeable future. As we previously announced, the company retained Newmark Group to identify investment partners for potential sale leaseback transactions of all or part of its owned office and retail real estate in New York City and its Jefferson City distribution centers. These processes have generated significant interest and are progressing. We expect both to conclude this fall. While there can be no guarantees of transactions of either or both properties, we remain optimistic about both in the context of our capital allocation priorities, which include debt reduction and share repurchases. Now for our outlook for the remainder of the year. Our strategic efforts to align spending with long-term goals are driving favorable operating margins, supported by our ongoing SG&A optimization.

We currently have $70 million remaining on our share buyback authorization.

The company expects to continue purchasing shares from time to time as conditions allow, on the open market or in negotiated private transactions for the foreseeable future. As we previously announced, the company retained the Newark Group to identify investment partners for potential sale-leaseback transactions of all or part of its own office and retail real estate in New York City and its Jefferson City distribution centers. These processes have generated significant interest and are progressing. We expect both to conclude this fall. While there can be no guarantees of transactions for either or both properties, we remain optimistic about both in the context of our capital allocation.

Priorities, which include debt reduction and share repurchases.

Now, for our outlook for the remainder of the year.

Haji Glover: Our goal for these actions is to sustainably lower our cost structure, especially with respect to non-revenue generating and consulting expenses. As for the impact of tariffs, we are closely following changes in policy and continue to expect approximately $10 million of incremental tariff expenses this fiscal year in our cost of product. We expect a strong second quarter benefiting from major trade releases. As Peter previously indicated, we are affirming our fiscal year 2026 guidance for revenue growth of 2% to 4%, adjusted EBITDA of $160 to $170 million, and full-year free cash flow between $30 and $40 million. Thank you for your time today. I'll hand the call back to Peter for his final remarks.

Our strategic efforts to align spending with long-term goals are driving stable operating margins, supported by our ongoing SG&A optimization.

Our goal for these actions is to sustainably lower our cost structure, especially with respect to non-revenue generating and consulting expenses.

As for the impact of tariffs, we are closely following changes in policy and continue to expect approximately $10 million of incremental tariff expenses this fiscal year and our cost of product.

We expect a strong second quarter, benefiting from major trade releases, as Peter previously indicated. We are affirming our fiscal year 2026 guidance for revenue growth of 2% to 4%.

Peter Warwick: Thank you, Haji. In conclusion, after a solid start to the fiscal year and the return of students to schools, Scholastic is positioned well to continue its momentum and execute its plan for substantial earnings growth in fiscal 2026. As I laid out in July, our plan is focused on building Scholastic's long-term opportunity as a global leader in the children's publishing, media, and education spaces, meeting kids, families, and schools' essential needs to educate, inform, and engage kids. In support of that, we continue to reduce costs, strengthen our organization, return capital to shareholders, and take steps to optimize our capital structure and balance sheet. We look forward to providing our next update in December after a big second quarter. Thank you all very much. Let me now turn the call over to Jeff.

adjusted ibida of 160 to 170 million and full year. Free cash flow between 30 and 40 million. Thank you for your time today. I'll hand the call back to Peter for his final remarks.

Thank you, Haji. In conclusion, after a solid start to the fiscal year and the return of students to schools, Scholastic is positioned well to continue its momentum and execute its plan for substantial earnings growth in fiscal 2026.

As I laid out in July, our plan is focused on building Scholastic's long-term opportunity as a global leader in the children's publishing, media, and education spaces, meeting kids, families, and schools' essential needs to educate, inform, and engage kids. In support of that, we continue to reduce costs, strengthen our organization, return capital to shareholders, and take steps to optimize our capital structure and balance sheet.

We look forward to providing our next update in December after a big second quarter.

Haji Glover: Thank you, Peter. With that, we will open the call for questions. Operator?

Thank you all very much. Let me now turn the call over to Jeff.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment for questions. Our first question comes from Brendan McCarthy with SEDOTI. You may proceed.

Thank you, Peter. With that, we will open the call for questions. Operator?

Came to be announced 2 with a dryer question, please. Press star, 1, 1 again, 1 moment for questions.

Our first question comes from Brennan McCarthy with Sedoti. You may proceed.

[Analyst 1]: Great, good afternoon, everybody. Appreciate you taking my questions here. I just wanted to start off looking at the Education Solutions business. I know we just wrapped up the summer months, but I'm curious if you've had any early feedback on some of the new products that you brought to the market and maybe how they have been resonating with schools or students.

Great. Good afternoon, everybody. I appreciate you taking my questions here.

I just wanted to start off looking at the Education Solutions business. I know we just wrapped up the summer months.

But I'm curious, if you've had any early feedback on some of the new products that you brought to the market, and maybe how they have been resonating with schools or students.

Jeffrey Mathews: Hi, Brendan. This is Jeff here. I'll step in as the interim head of this business. Look, we're getting great feedback from customers around some of the new products. Of course, it's a difficult selling situation. As Peter described, there are some delays and cancellations of some federal funds. I think in that environment, we're very encouraged by what we're hearing, particularly with Knowledge Library as well as our core products, our classroom libraries, and our classroom magazines.

Hi Brandon, this is Jeff here. I'll I'll step in as as the head of this inter interim. Head of this business. Look, we we are getting great feedback from customers around. Some of the new products, of course it's a difficult selling situation.

As Peter described, there are some delays and cancellations of some federal funds.

So, I think in that environment, we're very encouraged by what we're hearing, particularly with Knowledge Library and, as well as our core products: our classroom libraries and our classroom magazines.

[Analyst 1]: Got it. I appreciate the color, Jeff. I guess at this point, what do you think, I understand there's been the pause in spending from states and school districts. What do you think are key variables to keep an eye on that would ultimately turn this trend around?

God, I appreciate the color, Jeff. And I guess at this point,

Um, what do you think? So, I understand, you know, there's been a pause in spending from states and school districts.

What do you think? Are there, you know, Q variables to keep an eye on that would ultimately, you know, turn this trend around?

Jeffrey Mathews: That's a good question. It's important to understand that schools are continuing to spend money. It's an environment when the certainty of future funds is low. They're more likely to hold back on anything but the most necessary and must-have purchases. What we're doing, our strategy is very much focused on helping our customers understand why Scholastic's products align with their most critical needs. Of course, as there's greater funding certainty, and we've seen that some of the federal programs that had been paused or federal grants that had been paused were released in late August, as there becomes more certainty, we expect that school district and school and district leaders will be more forthcoming and more confident in their ability to purchase. There's no question, schools continue to need materials in the classroom.

That's a good question. It's important to understand that it's not that there aren't schools continuing to spend money. It's an environment where the certainty of future funds is uncertain.

is low. They are more likely to hold back on anything but the most necessary and must-have purchases. What we're doing, our strategy is very much focused on helping our customers understand why Scholastic's products align with their most critical needs.

Of course, as as there's greater funding certainty. And we've seen that some of the, the federal programs that had been paused or federal grants have been paused were released in late August. Excuse me. As those as there becomes more more certainty we expect that

School districts and school and district leaders will be more forthcoming with, and more confident in their ability to purchase because there's no question.

Jeffrey Mathews: In many cases, they've made significant investments in their core curricula over the last year or two. This is a time when they start to need to fill out their classrooms with additional materials to support their teachers and support their students. With that respect, the cycle is favorable. It's just getting through this moment of uncertainty that has been caused by volatility, largely in Washington.

Schools continue to need materials in the classroom. In many cases, they have made significant investments in their core curricula.

Over the last year or 2, this is a time when they start to need to fill out their classrooms with additional materials to support their teachers and support their their students. So with that respect, the the cycle is favorable, it's just getting through this moment of uncertainty that that has been has been caused by by volatility. It largely in Washington,

[Analyst 1]: That makes sense. Thanks, Jeff. Certainly something to keep an eye on there. I wanted to turn to the entertainment segment. I know your priority has really been focused on getting some content up onto YouTube where there's the advertising revenue share model. When can we expect to really see that kind of flow through into the financial statements, you know, into the P&L? From more of a long-term perspective too, what does long-term success really look like with the 9 Story Media Group business?

That makes sense. Thanks, Jeff. Certainly something to keep an eye on there. I wanted to turn to the entertainment segment. I know your priority has really been focused on getting some content up onto YouTube.

Where there's the advertising revenue share model.

um, I guess what's the when can we expect to really see that kind of flow through into the financial statements, you know, into the the p&l and

Peter Warwick: It's Peter here, Brendan. Look, the digital model that we now have and the digital income that we're getting is high margin, and it's going to grow. That's a really good thing for us. We will see the major benefits going progressively out into the future. There's not going to be some sort of sudden change this quarter or next quarter, if you know what I mean. A lot of what's going on is the benefits of what we're doing with things like YouTube and so on. It's not just a source of high-value revenue. It's also exposing our brand, and it's driving kids to buy books about Clifford or whatever as well. We now have 1.2 million subscribers to Scholastic channels on YouTube. We didn't have those before. This is a major thing.

I guess more of a long-term perspective too. What does long-term success really look like with the 9 Story Media business?

Hey, it's Peter here. Brendan, um,

Look at the, um, the digital model that we now have. And the digital income that we're getting is high margin.

Um, and it's going to grow. So that's really, you know, that's a really good thing for us. Um, it's about.

Peter Warwick: We are pretty confident that over time, this is going to be a major source of high margin revenue because it's the revenue share from the advertising that comes with it. It's also part of this 360-degree strategy that we've talked to you and others about. We are able to, what we're really doing is integrating as closely as possible both a publishing and media strategy and seeing the interrelationships between the two and gaining benefits from both our media and our book properties.

We will see the major benefits, you know, going progressively out into the future. It's not, there's not going to be some sort of like, you know, Sudden Change this quarter or next quarter, if you know what I mean. Um, but there's a lot of what's going on is is the benefits of what we doing with things like YouTube. Um and and so on is that it's not just a source of high value Revenue. It's also exposing our brand and it's driving kids to buy books about Clifford or or whatever as well. Um, I mean we now have 1 2, 1.2 million subscribers to, um, you know, to Scholastic channels on YouTube. Um, we didn't have those before. Um, and so this is, this is a, this is a major, a major thing. And, you know, we are

Pretty confident that over time. This is going to be a major source of of, of, of of, of high.

Revenue share from, you know, from the from the advertising that that um, that comes with it.

And it's also part of this 360° strategy that we've, you know, talked to you and others about.

That, you know, we are able to – what we really doing is integrating as closely as possible both the publishing and media strategy, and seeing the interrelationships between the two and gaining benefits from both our media and our book properties.

[Analyst 1]: Right. That makes sense. Thanks for that detail, Peter. I guess just in terms of scale, are you able to maybe quantify what the revenue opportunity might look like as it relates to Nine Story Media Group? I guess strictly speaking from the perspective of monetizing the digital content side.

Right? That makes sense. Thanks for that detail, Peter. I guess it's just in terms of scale. Are you able to maybe quantify what?

Haji Glover: Hey, how are you doing? This is Haji. I was just taking that question from you. Right now, we're really in early stages of this, and we're going to try to really see, because right now we're only on two platforms with the opportunity to increase that to another six or seven platforms. I think when we look at it, this has been both an opportunity for us to get our content in front of new viewership and really build on the success of what we already have. Being able to actually quantify this impact is probably going to take us a few months as we see the viewership grow. Once again, we're dealing with a partner in this and sharing the share of that revenue. Most likely, we'll see this opportunity or upside in 2027.

You know, the revenue opportunity might look like as it relates to 9 Story, and I guess, strictly speaking, from the perspective of monetizing the digital content side.

Hey, how you doing? This is Hari. Uh, just taking that uh question from you. Um, so right now we're we're really in early stages of this and we're going to try to um, really see. But right now we're only on 2 platforms with the opportunity to increase that to another 6 or 7 platforms. And I think when we when we look at it, uh, this has been both, uh, an opportunity for us to get our our content in front of new viewership and, and it really build on the success of what we already have. But being able to, uh, actually quantify

This impact is probably going to take us a few months as we see the viewership grow and then, and once again, we're we're dealing with a partner in this and sharing, uh, you know, the share of that revenue and most likely we'll see this opportunity or upside in 2027.

[Analyst 1]: Understood. Thanks, Haji. One question for me on the cost structure side, looking at SG&A. Just curious as to where you're taking costs out of the business and maybe where you see additional room for expense reduction there.

Understood. Thanks. Haji, one question for me on the cost structure side: looking at SG&A, I'm just curious as to where you're taking cost out of the business.

And where maybe where you see additional room for?

Haji Glover: I can say this, that we really dove deep into the restructuring of the organization in this fiscal year, the early part of this fiscal year. We continue to find areas where there's opportunities for us to reduce spend. We will do. We definitely took a really good look at it prior to actually giving our guidance, and our guidance reflects a majority of our spend reductions. I think we announced somewhere between $15 million and $20 million of cost reductions, and we're right now seeing the fruition of that come through in our financials.

For expense reduction there.

But, well, I can say this that we really Dove deep into the, uh, restructuring of the organization. And, and this fiscal year, uh, early part of this, fiscal year. And, uh, we continue to Define areas, or where there's opportunities for us to reduce spend, we will do. Um, but we just, we definitely took a, a really good look at it. Uh, prior to actually giving our guidance and our guidance, reflects on majority of our of our spend reductions. I think we announced, uh, somewhere between 15 and 20 million dollars of price of cost reductions. And we're right now seeing the fruition of that uh, come through in our financials.

[Analyst 1]: Got it. Thanks, Haji. One more question from me just on the guidance affirmation. I guess at this point, I know we're only at the start of the school year, but at this point, what variables might cause a material underperformance or outperformance of the full year fiscal guide?

Got it, got it. Thanks, Haji. I have one more question for me, just on the guidance. Uh, affirmation.

Haji Glover: For us, it's all about understanding where the retail market is. As you know, we're experiencing a lot of things in the marketplace. Consumer and school spending is somewhat in question, but we feel very confident in the plan we put out from an organization perspective. I don't foresee any major concerns from my side of what's going on, there could potentially be some upside and downsides, and we're going to manage it as an organization. That's why we leave the opportunity to be very conservative in how we approach things. At the end of the day, we want to continue to invest in growth, which is in our revenue side of the business, and fall back on things that do not generate revenue. The most important thing for us is the concerns of tariffs as it reflects our business because we are a retail business.

I guess at this point, you know, I know we're only at the start of the school year, um, but at this point, you know what? What variables might cause, you know, a material underperformance or outperformance of the full year fiscal guide?

Um, for us, it's all about understanding, uh, where the retail market is. Uh, as you know, we're experiencing a lot of things in the marketplace; consumer and school spending is, you know, somewhat uh, in question. But we feel very confident in the plan we put out, uh, from an organizational perspective. Um, I don't foresee any major concerns from my side of what's going on, but there could potentially be some upsides and downsides, and we're going to manage it as an organization. And that's why we leave the opportunity to be uh,

You know, we're very conservative in how we approach things. But at the end of the day, we want to continue to invest in growth, which is in our revenue side of the business, and fall back on things that do not generate revenue.

Haji Glover: Those expenses, which we've already planned for, which is about $10 million this year, we're continuing to monitor all the things that are going on with the government down in D.C.

Peter Warwick: I think it's, Brendan, the other thing is that, as I mentioned, you know, school book fairs, the number of fairs that we have are up. It's too early to tell, but clearly a key thing that matters to us is things like revenues for fair, the average revenues for fair. We haven't had enough fairs yet to be able to calculate that yet, but I think we'll see about that. There is no reason to think that we're not on track with what our planning is. It's good having a number of fairs booked being up. That's also a good thing.

We're and, and the most important thing for us is the concerns of of tariffs as it reflects our business, because we are a retail business and those expenses which, uh, we've already planned for, which is about million dollars this year, we're continuing to monitor, uh, all the, uh, the things that are going on with the, the government, uh, down in DC.

And I think it's, um, Brandon. The other thing is that, um, as I mentioned, you know, School Book Fairs are, uh, the number of fairs that we have are up.

Um, and um, you know, it's too early.

To tell, but clearly a key thing that matters to us is things like, um, revenues.

For FARE, the average revenues per... They haven't... We haven't had enough, uh, fairs yet to be able to, to, uh,

Will see, um, about that. Um, no reason to think that we're not on track with what our what our planning is. And you know, it's good having a number of fairs book being up. So so that that's also a good thing.

[Analyst 1]: That makes sense. I appreciate the color there, Peter, Haji, and Jeff. Thank you, everybody. That's all for me.

Peter Warwick: Okay.

Operator: Thank you. Our next question comes from Drew Crumb with B. Riley Securities. You may proceed.

That makes sense. I appreciate the color there, Peter, Haji, and Jeff. Thank you, everybody. That's all for me.

Thank you.

[Analyst 2]: Okay, thanks. Hey guys, good afternoon. I want to go back to the education solutions business. You flagged the funding uncertainty as an impact on spending for supplemental materials. I think in the recent past, you've also indicated you expect market conditions to get better over the next 12 to 24 months. How do we reconcile those two? Should we anticipate a similar trajectory for the business as we observed in Q1 as you move through fiscal 2026, or do you think things stabilize as an opportunity to improve profitability as you move through the year?

Our next question comes from Drew Crumb with B. Riley Securities. You may proceed.

Jeffrey Mathews: Hi Drew, this is Jeff again. We are expecting, based on the current patterns, that this year will be more back-end loaded than previously. It's been inside baseball, but we have shifted our selling year to be aligned with our fiscal year. That is going to give us, which will mean we'll go into Q4 with a very full pipeline. We didn't start Q1 this summer. We started with an empty pipeline. We also expect that, as we, you're seeing this, as I'm sure you were doing monitoring the headlines around federal education policy in states, that some of these, the delays over the summer and in the spring, which of course have a, there's a long lead time with purchases given selling cycles, those were particularly hard hitting over the summer.

Okay, thanks. Hey guys, good afternoon. I want to go back to the Education Solutions business. You flagged the funding uncertainty as an impact on spending for supplemental materials. I think in the recent past you've also indicated you expect market conditions to get better over the next 12 to 24 months. How do we reconcile those two? Should we anticipate a similar trajectory for the business as we observed in Q1 as you move through fiscal 2026, or do you think things will stabilize as an opportunity to improve profitability as you move through the year?

Hi Drew. This is Jeff again, we we, we, we are expecting based on the current patterns that this year, will be more back-end loaded than, than, than previously. It's been inside baseball. But we have shift shifted, our selling our selling year, to be aligned with our fiscal year, that's going to give us allow which will mean, we'll go into Q4 with a very full pipeline. We didn't start q1 this. This summer we started with an empty pipeline

Jeffrey Mathews: We expect, we're hopeful that those headwinds will moderate over the fall and into the spring, and we're doing everything we can to be very well positioned. Of course, leaning into the market now, sopping up money that's available, and then making sure we're ready for a very big spring selling season.

Haji Glover: Okay. Also, Drew, just to be clear, we are very diligent about our frugality and what we spend and how we continue to look at our expenses within that business. I just wanted to make sure you're clear on that.

Right? We also expect that as we you've seen this, as I'm sure you were doing monitoring the headlines around federal education policy and states that that some of these, the delays over the summer and in the spring, which, of course, have a, there's a long lead time with with purchases given selling Cycles. Those those for particularly hard-hitting, in, over the summer. We expect, we're hopeful that that will those headwinds will moderate over the fall and into the spring. And we're doing everything we can to be very well. Positioned, you know, of course, leaning into the market now stopping up money, that is available and then making sure we're ready for a very big spring selling season.

[Analyst 2]: Okay. All right. Helpful. Maybe looking at fiscal Q2, Peter, I think you characterized it or your expectations for the quarter are that it will be big. I'm curious if you can expound upon that and kind of what the puts and takes are for the quarter.

Okay. All right. Also on top of that Drew just to be clear that we are very diligent about our frugality and what we spend and how we uh, we continue to look at our expenses and within that business. So I just want to make sure you're clear on that.

Okay, all right. Helpful. Um, maybe looking at fiscal Q2, Peter, I think you characterized it—or your expectations for the quarter.

Peter Warwick: I think, first of all, as the trade, just looking through the segments, really, if you look at trade publishing, we've got a big quarter two. We've got some really good stuff coming, including a new Dog Man. All the indications that we're seeing with advanced sales in and all the rest of it are giving us good feelings that that's going to be significantly higher than we had in Q2 last year. We're feeling pretty good about the year as a whole as well. The other areas such as book fairs, as we mentioned before, the fair count in Q2, in our Q2, will be higher than the fair count in the prior year. The bookings are up and everything's looking pretty good at the moment.

or that it will be big. Um I'm curious as if you can expound upon that and kind of what the puts and takes are um for the quarter.

well, I think, um,

I mean, first of all, there's the trade, just looking through the segments, really? If, if you look at trade publishing, we've got a, we've got a big quarter too.

Um, and we've got some really good stuff coming. Um, in including a new dog man. Um, and you know, all the indications that we're seeing with, you know, Advanced sales in and all the rest of it are giving us good, um, you know, giving is good good feelings that that's going to be, you know, significantly higher than um, you know, we had in quarter 2 last year. Um, and you know, we're feeling pretty good about about about the year as a whole as well. Um, the other areas such as Book, Fairs, I mean as as we mentioned before the fair count, um, in quarter 2, in our quarter 2 will be higher than the fair count in the

Peter Warwick: I can't give you any more information than that because we really need to have more fairs actually done, sorted out, and all the rest of it. What I can tell you is that I think the folks doing it psychologically are feeling pretty good. I'll take that. The other thing that we're seeing in terms of puts and takes is actually our cost base. You'd see even in education that we had, there was a significant reduction in year-over-year revenues, but the difference in revenues was pulled very significantly down when you actually look at the OI. Sales were down $15 million, but OI was only down by $4 million. That's because of the cost savings that we've been making. The other benefit that we've had just on the cost side is our operating expenses generally and the things that we've been doing.

Prior year, um, and that's, you know, the bookings are up. Um, and everything's looking pretty good at the moment, but it's, I can't give you any more information than that. Because we, we really need to have more fairs actually done, sorted out and, and, and all the rest of it. But what, what I can tell you is that I think the folks doing it psychologically are feeling pretty good. So, that's, you know, I'll, I'll take, I'll take that the other thing that we're seeing for, um, you know, in terms of puts takes is actually our cost base. I mean, I mean, you'd see, even in education that, you know. Um, we had that there was a significant reduction in year-over-year revenues, um, but the difference in revenues was pulled, very significantly. Um, down when you actually look at the, uh, uh, you know, when you look at the Euro sales were down 15 million but oh, I was only down by 4 million.

Peter Warwick: Some of them, a lot of that was created in Q1, but a lot of it is also flow-through from the benefits that we had in costs in the second half of the prior financial year. They're flowing through now. I'm feeling good about all of those things. The other thing that we've seen is we've had a good pickup in one or two international markets as well, particularly UK and Australia, New Zealand. Australia, the whole education year and school book fairs, book fairs is the other way around, as you wanted to hear. They're busy and active at the moment, and we had a good Q1 from them.

Peter Warwick: The other thing we've seen is that our book business, particularly in the UK, has been doing very well, especially with some of these key titles like Sunrise on the Reaping, you know, Suzanne Collins' Hunger Games series, Dog Man, et cetera, et cetera. Those are, you know, they're all making me feel pretty good about quarter two at the moment. They give me a strong sense that, you know, the guidance that we've given for the year is we're absolutely on track for that. In terms of our internal expectations, you know, we were happy with what we were doing in, you know, in quarter one. You know, that from an internal, the way we've been targeting and we're expecting, that was, you know, that's good.

The benefit that we've had just on the on the cost side, um, you know, is is our operating expenses generally and and, and, and things that we've been doing, um, and those will some of some, a lot of that was created in, uh, in quarter 1. But a lot of it is also flow through from the um, you know, from the benefits that we had in costs in the second half of the prior Financial year, they're flowing through now. So I'm I'm feeling good about all of all of those things. I think the other thing that we've seen is um we've had a good pick up in 1 or 2 International markets, as well, particularly UK, and Australian New Zealand. I mean, Australia. You know the the whole education year and School Book Fairs Book. Fairs is, is the other way around as you want to hear. Um, so they're, they're busy and active at the moment and we had a, a good quarter to 2 from, uh, a quarter 1. Sorry, from from them. The other thing we've seen is that our

Our our book business, particularly in the UK has been doing very well, especially with some of these key titles, like sunrise on the reaping, you know, Suzanne Collins is Hunger Games series, dog, man, etc, etc. So those are, you know that they're all making me feel pretty good about quarter 2, um, at the moment. Um, and, um, you know, the they give me a strong sense that that, you know, we're um,

You know, that the the, the guidance that we've given for the, for the year, is we're absolutely on, on, on, on track for that. Um, and you know, in terms of our internal expectations, um, you know, we were, we were happy with what, what, what we were doing in,

[Analyst 2]: Great. Thanks, Peter. Maybe one last one for me for Haji. You outlined the drivers behind the negative variance for cash flow and free cash flow specifically in your preamble versus the year-ago period. Sounds like you believe you can make that up over the balance of the fiscal year. What are the swing factors to achieving that?

um, you know, in in quarter 1, they were, you know, that that from an internal, the way we've been targeting and we'd expecting. That was, you know, that's that's good.

Great, thanks, Peter. And then maybe one last one for me for Haji you outlined.

Haji Glover: The majority of it is actually around our revenue and how we sort of forecast our revenue for the year. Receipts are going to come in a little bit stronger second half versus first half. That's number one. Number two is that we're really tightly watching and actually our forecast for spending on capital expense is a different profile than last year. We made significant investments last year on our One Scholastic Fulfillment Center. Those are actually coming down year on year. That's number one. Number two, just the things that we're looking at to invest in from our growth perspective is a slightly different profile this year than last year. I'm extremely excited about where we are.

The drivers behind the negative variance for cash flow and free cash flow specifically in your preamble versus the year-ago period. Um, sounds like you believe you can make that up over the balance of the fiscal year. What are the swing factors to achieving that?

Um so the majority of it is actually around uh our Revenue uh and and how we sort of forecast our revenue for the year. So receipts are going to come in a little bit stronger. Uh, first half, excuse me, second half was his first half, that's number 1. Number 2, is that we're we're we're really tightly uh, watching and actually are forecast for spending on. Capital expense is a different profile than last year. Uh, we made significant Investments uh last year on our 1 Scholastic, fulfillment center. Those are actually coming down year-on-year so that's number 1 and then number 2. Uh just the things that we're looking at to invest in. Uh from our growth perspective is slightly different uh

Haji Glover: The last thing I want to say is we both had Dav Pilkey and Suzanne Collins to pay last year, whereas this year we only have to pay just Dav Pilkey in terms of the new titles that are being released. That's another thing. I'm very excited and confident about where we are from a capital perspective and where we're spending our money this year.

[Analyst 2]: Okay. All right. Appreciate it, guys. Thanks.

Profile this year than last year. So I'm extremely excited about where we are. And then last thing I want to say is um we both had uh the Dave pilki and Suzanne Collins to pay last year. Whereas this year we only have to pay uh just Dave tilky in terms of the new titles that are being released. So that's another thing. So I'm very excited and confident about uh where we are from a capital perspective and uh where we're spending our money this year.

Haji Glover: All right. Thank you, Drew.

Okay. All right. Appreciate it, guys. Thanks.

Operator: Thank you. This concludes our Q&A. I will pass the call back to management for any closing remarks.

All right, thank you. Drew.

Peter Warwick: Thank you very much. Thank you to our authors and illustrators, educators, and employees. It's their hard work and creativity that drives our success. I'd also like to thank our shareholders and all who joined us this afternoon live or on the recorded call later. We appreciate very much your support. Bye.

Thank you. And this concludes our Q&A. I will pass the call back to management for any closing remarks. Well, thank you very much, and also thank you to our authors, illustrators, educators, and employees. It's their hard work and creativity that drives our success.

Um, and I'd also like to thank our shareholders and all who joined us this afternoon, live or on the recorded call later. We appreciate very much your support.

Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Bye.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.