Scholastic Corporation

Good day, and thank you for standing by, and welcome to Scholastic Reports Q2 Fiscal Year 2022 Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that this call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your host today, Gil Thickoff, Senior Vice President and Treasurer and Head of Investor Relations. You may begin. Thank you.

Hello, and welcome everyone to Scholastic's fiscal 2022 second quarter earnings call. Joining me on the call today are Peter Warwick, our president and chief executive officer, and Ken Cleary, our chief financial officer. As usual, we have posted the accompanying investor presentation on our IR website at investor.scholastic.com, which you may download now if you have not already done so. We would like to point out that certain statements made today will be forward-looking. Such forward-looking statements are subject to various risks and uncertainties, including those arising from the continuing impact of COVID and its variants on the company's business operations. These forward-looking statements, by their nature, are uncertain, and actual results may differ materially from those currently anticipated. 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 accompanying financial tables filed this afternoon on a Form 8K. 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 underscore relations at scholastic.com. And now, I would like to turn the call over to Peter Warrick to begin this afternoon's presentation.

Peter Warrick Good afternoon, everyone, and thank you for joining the call today. I hope you're each enjoying this holiday season, which in many ways feels closer to normal, even as we remain watchful of COVID developments. The ongoing balance of moving forward in our new normal while continuing to remain cautious made our second quarter especially meaningful this year. We've stayed in close touch with families and educators as they navigated a new school year, thankfully for the most part, finally back in the classroom. We've shared these insights throughout the company while increasing our reach. In fact, this fiscal year to date, we've increased our parent reach through email by almost sixfold. And as we've seen throughout our 101-year history, it's this deep relationship that yet again contributed to positive results because of our ability to meet real-time needs and to evolve. All of these efforts led to a 29% increase in revenues and an approximately $30 million improvement in operating income. While Ken will provide you with specific details of our second quarter results, I'd like to address what I expect is the uppermost question in most people's minds, given our experience with COVID during the past 18 months or so. And that's the question, are our book fairs back? Well, I'm pleased to say that yes, our book fairs business is coming back, As with all COVID impacted businesses, our optimism comes with caution due to the unpredictable nature of the virus. But overall, we believe we have made significant steps in moving beyond the pandemic and with a confidence that while repeated wide-scale school closures are unlikely, we've systems in place to manage through it all. We've not yet reached pre-pandemic levels of book fair bookings, which was not in our outlook. However, we have exceeded our expectations with higher than anticipated revenue per fare. Significant increase in revenue per fare, as well as the demand for scholastic book clubs, tells us that our customers agree that getting books in the hands of kids is a priority, as we all re-emerge from the pandemic. Related to book clubs, this is where we've been most deeply affected by the industry-wide labour shortage. Additionally affected by a discrete system issue, a large backlog of orders, which we continue to address, has been diligently worked on by our staff at our Jefferson City warehouse. Our staff are also staying in close contact with customers to offer digital opportunities to enhance literary experiences in the classroom as they await their orders. I had the pleasure of visiting our flagship warehouse myself this past quarter, and I must share that the staff's dedication to the scholastic mission and fulfillment of these orders is second to none. I was so impressed and grateful for the warm welcome they provided, and thank you one and all for your continued work this holiday season. In trade, we closed our quarter with the release of the new graphic novel, Cat Kid Comic Club Perspectives. This is the second title in Dave Pilkey's new worldwide best-selling series, and made available just in time to be a holiday gift. And speaking of the holidays, The Christmas Pig remains on top of our best-seller list. We're pleased to see many year-end favorite and gift-giving lists include our titles, such as Wishes, which alone has been included on four. And we have much to be proud of, as there's no equal among graphic novels publishers. According to BookScan, graphics accounted for 40% of all graphic novels sold in 2020. And we also remain a runaway leader in the overall category of children's book series. This quarter also brought the world our long-awaited release of the live-action Clifford the Big Red Dog movie from Paramount. Audiences have fallen in love with our beloved character all over again and are rediscovering our books. The success of our strategy in re-envisioning how we diversify our IP, initially through the 2014 relaunch of Scholastic Entertainment, is exhibited by a 30% increase in Clifford U.S. trade sales since the animated reboot released, and our Clifford movie tie-in graphic novel, carried in both clubs and fairs, is exceeding expectations in sales through our school channels. And momentum is growing, as seen from numerous announcements, such as the forthcoming Clifford sequel from Paramount, and with partners such as Apple TV+, and legendary televisions. Scholastic Education Solutions continues in its transformative approach to supporting our school customers. Our new channels of revenue are gaining traction in the market, including our curriculum offering, Pre-K on My Way, and in digital with Scholastic Literacy Pro and Scholastic First, formerly known as Uka Island. These offerings from Education Solutions are critical to supporting literary skills for countless classrooms. Also, the positive response seen through district-wide sales of our culturally responsive book collection, Rising Voices Library, displays the need in classrooms for more diverse content and instruction, a need that we're eager to continue to meet. In international, we continue to see the impact of the ebb and flow of the pandemic throughout the globe. In Australia, our business is coming back from the most recent surge, and we have the inventory on hand there to meet demand. In Asia, disruptions contributed to a decrease in demand, and we continue to navigate new regulations in China. We're optimistic that our results will continue to show the demand for our content and display the long-term benefits made possible by previous investments in technology and infrastructure through our 2020 plan. which enabled us to launch new tools for sales team optimization, inventory management, and new order entry, to name a few. Much of our ability to manage vital change to serve schools and families during the pandemic, while managing both expected and unexpected costs, is the direct result from this initiative, setting a path forward for us to continue to shape and prepare Scholastic to ultimately reach our second century. In the second half of this fiscal year, we look forward to being an exemplary partner to schools and parents for their independent reading needs through high-quality content and education materials, while providing a sense of normalcy by meeting the demand for our clubs and fairs. We will continue to provide high-quality fairs while increasing the number of fairs held as our capacity and fair quality continue to improve, and we're poised to recover from our operational difficulties in clubs this upcoming spring season. In trade, we'll release the highly anticipated Cat Kid Comic Club 3, On Purpose, by Dave Pilkey, and Wings of Fire 15, The Flames of Hope, by Thuy Sutherland. And our pre-K brand, Make Believe Ideas, will continue to widen our appeal by expanding its retail presence into sections traditionally reserved for the toy market. The formal combination of our previously separate education and magazine divisions has allowed for streamlining of marketing, focused growth on new revenue opportunities, and has laid a foundation for future offerings. And while challenges remain in our international business, we have the talent and content to work through these. In closing, our mission to serve all children through literacy and learning continues to be our North Star. We've used this time to build momentum and renewed energy towards more efficient and effective ways of doing things, centering all our various offerings around our customers. A proof point in our enhanced cross-divisional collaboration is our recently announced five-year partnership with the University of Florida Lastinger Center for Learning and the State of Florida to execute the New World's Reading Initiative through monthly homebook deliveries the program has the potential to reach up to 500,000 children statewide who are currently reading behind grade level. While the revenues and profits will be modest in this startup year, we expect the program to grow with roughly 70,000 kids already enrolled. Bringing the expertise of our divisions together to create the winning proposal in Florida truly displays the power of using all of our resources together in a new way to achieve our mission. With a shared vision, our strong management team will ensure our future success by enhancing collaboration and changing the way our divisions interact, a movement which we anticipate to be accelerated as we welcome Mary Beach as Chief Marketing and Transformation Officer. We're eager to begin our work together this January, and we thank Mary for her insights during her time on the board. More information about a successor board member will be shared with you when we can. And with that, I'd like to turn the call over to Ken Cleary.