Scholastic Corporation

Good day and thank you for standing by and welcome to Scholastic Reports Q4 and Fiscal Year 2022 Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Paul Huckinen. You may begin.

Hello, and welcome everyone to Scholastic's fourth quarter and fiscal 2022 earnings call. Joining me on the call today are Peter Wark, 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. 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 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 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 underscore relations at scholastic.com. And now I'd like to turn the call over to Peter Warrick to begin this afternoon's presentation.

Good afternoon, everyone, and thank you for joining today's call. Our fiscal year 2022 came to a close with a strong fourth quarter, which built upon three solid quarters to secure impressive results for the full year and establish positive momentum for moving forward. These results are a direct reflection of the adaptability, resolve, and unparalleled dedication of Scholastic employees. To that point, we delivered more than 500 million units of books and educational materials in the United States this past fiscal year. It takes strong teamwork at every level to accomplish that. As usual, Ken will provide greater detail later in the call, but at a high level, our results exceeded expectations for this rebuilding year, particularly for book fairs, which was initially the area most affected by COVID. Overall, full-year revenues grew 26%, operating income increased by $120 million, and free cash flow increased by $162 million. Based on our strong performance and our optimism for the future, we were pleased to announce yesterday a 33% increase in our regular quarterly dividend, the first change in nearly a decade. Further, we're resuming guidance for our new fiscal year, which we'd suspended in 2020 due to the uncertainties of the pandemic. We expect fiscal year 2023 revenue growth in the range of 8% to 10%. and adjusted EBITDA is expected to be 195 to 205 million, up from 189 million in 2022. If we learned anything over the past two years, it's that change is a certainty, and the pace of that change is more rapid than previous generations have ever experienced. Our confidence moving forward is rooted in that knowledge and fueled by our proactive work to both prepare for and to embrace the future. Our highly skilled management team is working effectively to better tap the full expertise and passion of our employees who benefit from our more streamlined operations. And we've continued to better our strategies to serve our staff by adding a new key role of Chief People Officer, which was announced and filled by Christina Juvier this past April. We're also using changes to our deeply engaged board as an opportunity to broaden the business backgrounds of our members. As you all know, Mary Beach stepped down earlier this year to contribute her expertise to the company in a new role as our Chief Marketing and Transformation Officer. And we've since welcomed to the board Linda Lee, Senior Vice President and General Manager of Wirecutter, the New York Times company. Linda is bringing her nimble sensibility to our digital growth strategy based on her extensive experience in both technology and media companies. Together, we're all embracing new approaches to enterprise strategy in order to best unlock the full potential of all our businesses. And finally, I'd like to thank Maggie Williams for her 12 years of dedicated service on our board. I personally much enjoyed serving alongside her, and Scholastic has benefited a great deal from her insights developed by her distinguished career experience. Maggie recently announced that she will not stand for re-election this coming September, and we'll share news of her replacement in the coming weeks. I'd now like to walk you through the positive trends displayed by our results and that we see ahead of us. children's book publishing and distribution had a very strong fourth quarter, as did education solutions, with increases in revenue year over year of 42% and 26% respectively. In trade, There's an exemplary story of how the best content rises to the top of all platforms, all beginning with books. A runaway success was our young adult graphic novel series Heartstopper by Alice Oseman, which this past year reached the New York Times bestseller list and was further bolstered by the Netflix series adaptation that was quickly renewed for two more seasons. We also saw another blockbuster in the feature animated film from DreamWorks, The Bad Guys, which heightened interest in Aaron Blaby's new book in the series and keeps the backlist titles at the forefront. And, of course, we must applaud the success of Dave Pilkey's latest series of Cat Kid Comic Club, where book after book reaches the top of bestseller lists and who has a feature film based on the Dogman series in development with DreamWorks. This virtuous circle of content, revolving from the page to screen to licensed merchandise, is being utilized and grown by our Scholastic Entertainment division. Apple TV+, tremendous partner since the division's relaunch, recently announced that the animated series Eva the Owlet, based on our highly successful Owl Diaries, will launch in the spring of 2023. This will be hard on the heels of the announced Season 2 of Stillwater on Apple TV+, and from Disney+, the live-action Goosebumps series. Better still, we anticipate that this momentum is just the first chapter in our intellectual property growth story. For context, consider that in 2015, Scholastic Entertainment had five projects in development, Today, that number exceeds 35 and is further fueled by expanding licensing opportunities as partners have witnessed the merchandising success of projects such as the Clifford the Big Red Dog feature film and animated series. Perhaps you've caught the new Geico commercial featuring Clifford as the neighbor's friendly dog. Fares closed out this past fourth quarter with clear and sustainable strength. Throughout the school year, we maintained a healthy percentage of pre-pandemic fair count levels while managing the ongoing supply chain and labor challenges affecting the industry. Ultimately, we closed the fiscal year with 72% of pre-pandemic in-person fair count levels, and perhaps more impressively, the division drove record levels of revenue per fair. The drivers of this success include increased participation rates by children and in the number of books per transaction, as well as permanent operational cost savings. We also have exciting momentum in our equity initiatives to ensure that every child, no matter their circumstances, leaves the fair with a book of their own. from 700 sponsored fairs in recent months to new digital funding pathways to allow the community to more easily support its own students to grow home libraries. Clubs were able to rebound from the challenges presented in the first half of fiscal year 2022, and we've done significant work to alleviate the previously disclosed systems issues and labor shortage. Our team's poised to begin this next school year with a renewed focus on engaging with teachers and doing all that we can to assist them in overcoming the challenges they face in these times. With our education businesses now fully integrated under one leader, during the past fiscal year, the newly formed management team fostered connectivity between the best, most relevant, and important content for children with services and tools to improve student reading, writing, and comprehension, including as part of state and district shifts to the science of reading. A source of pride throughout the company comes from our founding offering of magazines for the classroom, recently rebranded Magazines Plus, which are designed to develop reading and writing skills in the context of helping children build knowledge and understand our complex world. A prime example of combining digital teaching and learning and print, Magazines Plus has returned close to pre-pandemic levels of engagement, as reflected in subscription count and revenue across titles. Our supplemental curricula and collections team has a keen and advancing ability to nimbly meet the needs of our customers for modular print and digital libraries, summer programs, skills practice, and independent reading. Our future investments could include targeted acquisitions for key capabilities, greater development in digital content and functionality, data analytics, and staff to enable these innovations. Accordingly, this division will report increases in capital spending, pre-publication costs, and selling general and administrative expenses in the coming year. While education solutions have certainly benefited from some strategic investments by schools using ESSA funds, it is important to note that our family engagement offerings are a key driver in our results and are more typically funded by traditional lines of Title I funding and locally. giving us a strong and sustainable base of home literacy initiatives beyond the current groundswell of federal support of schools. In international, our markets continue to vary based on the degree of local impact of the ongoing pandemic. Beyond our trade publishing, which remains strong, within the global recovery from COVID, we see the success of book fairs in Canada and the UK. A review of our business in Asia has led us to refocus our strategy and exit from our direct sales business through a sale to new owners. Overall, I believe you'll agree that across our core businesses, there's a connective thread of a clear demand for high-quality content and an overall deeper appreciation of the importance of children's book ownership through home libraries. Ken, I now turn the call over to you for our detailed results and outlook.