Scholastic Corporation

good day thank you for standing by welcome to the scholastic reports q3 fiscal year 2024 results conference call at this time all participants are in a listen-only mode after the speaker's presentation there will be a question and answer session to ask a question during the session please press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again please be advised that today's conference is being recorded i would not like to hand the conference over to your speaker today Jeffy Matthews.

Welcome, everyone, to Scholastic's fiscal 2024 third quarter earnings call. Today on the call, I'm joined by Peter Wark, our president and chief executive officer, and Haji Glover, our new chief financial officer and executive vice president, who I'm excited to welcome. As usual, we posted the company investor presentation on our IR website at investor.scholastic.com, which you may download now if you've not already done so. We'd like to point out that certain statements made today will be forward-looking. 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 reconciliation of those measures to the most directly comparable GAAP measures may be found in the company's earnings release and in company financial tables, filed this afternoon on a Form 8-K. This earnings release has also been posted to our investor relations website. I encourage you to review the disclaimers in the release and investor presentation and to review the risk factors disclosed in the company's annual and quarterly reports, followed with the SEC. So if you have any questions after today's call, please send them directly to our IR email address, investor underscore relations at scholastic.com. Now I'd like to turn the call over to Peter Wark to begin this afternoon's presentation.

So thanks, Jeff, and good afternoon, everyone. We appreciate you joining us today. During the third quarter, Scholastic executed our long-term strategy for growth and impact while delivering value for our shareholders. In particular, we continued to prove our leadership in children's publishing and media through a consistent and growing presence on best-sellers lists and advanced our 360-degree content creation strategy including with our recently announced agreement to acquire 100% of the economic interest in Nine Story Media Group, which I'll discuss in a moment. In Quarter 3, we also continued to execute solidly in-school reading events and education solutions, while navigating the currently complex environment in U.S. schools and positioned ourselves for an important Quarter 4 season and long-term growth. We demonstrated our confidence in the long-term outlook for our business with continued share buybacks, returning over $60 million to shareholders during the quarter through a combination of open market share repurchases and our regular dividend. As expected, in quarter three, Scholastic recorded modest revenue declines and higher losses, largely reflecting external factors and the shifting seasonality of our business. Going into quarter four, typically our biggest and most profitable quarter, we're confident in achieving our previously provided revised fiscal 2024 guidance for adjusted EBITDA of between $165 million to $175 million, with full year revenue approximately level with or slightly below the prior year. I'm thrilled to be joined on today's call by our new CFO, Haji Glover, who rejoined Scholastic in January. Haji is a forward-looking, growth-oriented finance leader who already knows Scholastic well. He's well-positioned to drive change and focus our business on the future, using his experience and perspective to build on the work of his predecessor, Ken Cleary, who led the finance organization to dramatically increase efficiencies across our operations. Haji is another key addition to the Scholastic leadership team, bringing new perspectives, new skills, and a shared commitment to helping Scholastic build and execute our plans for long-term growth and value creation. As announced this morning, we've appointed two new directors to our board, Kaya Henderson and Alex Guerrer. They are both accomplished leaders in K-12 education and education technology, with extensive experience serving kids, families, and schools, as well as expertise driving excellence in complex organizations. Kaya's career spans over three decades of work in schools, policy, and the not-for-profit sector, earning her a reputation as one of the most admired school leaders in America. Alex contributes over 20 years of experience in the education sector, including as a teacher and successful ed-tech entrepreneur. They're joining the company at an exciting moment when their skills, experience, and market knowledge are especially relevant to us, and we're very happy to welcome them. Turning now to the highlights across our business segments. In the children's book publishing and distribution segment, revenues declined 5% as last quarter reflected the planned resizing of book clubs as well as lower expected production revenue from Scholastic Entertainment. Scholastic's trade publishing continued to outperform with consolidated trade sales up 15% excluding Scholastic Entertainment. This strong performance contrasts positively with the juvenile and young adult retail book selling market, which was down a slight 1% during the quarter, as overall sales levels continue to revert to pre-pandemic growth trends. Scholastic's exceptional showing in retail was driven by a strong performance over the holiday season and multiple new releases, including Heroes by Alan Gratz and the latest titles in our popular graphic novel series, Heartstopper, Wings of Fire, Amulet, and The Babysitter's Club. Scholastic's new front-list titles topped bestseller lists, and we continued to expand our market share of middle-grade graphic novels. At one point last quarter, in fact, Scholastic titles filled every spot on BookScan's top 20 list of best-selling juvenile graphic novels. In 2024, we've increased our already dominant presence on the New York Times middle grade and graphic books and manga bestseller lists compared to the same period last year. This includes Wave Rider, the long-awaited finale in the Amulet series, which landed at number one on the New York Times graphic novel bestseller list and was the number one juvenile title the week of on sale with over 30,000 copies sold. We're also excited about multiple upcoming releases, which we expect to drive further momentum in our children's publishing and spotlight our incredible authors. This includes two more releases this calendar year in Dave Pilkey's Dogman series, including Dogman, The Scarlet Shedder, which went on sale earlier this week. In August, we released Unico, a new kid-friendly manga series, which is already generating a lot of buzz. Highlights of our fall calendar include the illustrated edition of Suzanne Collins' worldwide bestseller, The Hunger Games, a new illustrated Christmas at Hogwarts, and the latest novel from best-selling and award-winning author Alice Hoffman, When We Flew Away, a novel of Anne Frank before the diary. In Scholastic Entertainment, revenues were down in quarter three relative to the prior year period, when we recorded revenue for delivery of episodes of Eva the Owlet. However, building for the future, we continued to execute on our 360-degree strategy, bringing Scholastic brands and franchises to the screen. Disney announced another season of the live-action Goosebumps TV series on Disney+, after a highly successful first season this past fall. We expect the second season to drive significant incremental exposure and upside for our global best-selling book series and brand. As the president of Disney Branded Television has said, quote, audiences everywhere fell in love with Goosebumps' chills, thrills, heart and humour, making it one of Disney Branded Television's most watched shows of last year. In addition to the Goosebumps franchise, we continue to partner with top-tier platforms, producers, screenwriters and actors, to meet strong demand for nostalgia. As I've discussed on previous calls, we have multiple exciting projects in our pipeline, building on best-selling Scholastic franchises like Magic School Bluffs, 39 Clues, Animorphs, Fly Guy, and more, as we continue to create new media moments to complete the virtuous circle of children's brands on page and screen. Turning to our school reading events division, the fiscal first and third quarters are typically a quieter time, given the timing of school holidays. In book fairs, sales declined slightly in quarter three. Revenue per fair, or RPF, remains close to record levels. However, this school year, we have seen RPF decline slightly. This largely reflects the addition of smaller fairs to the full schedule as we increase fair counts, as well as headwinds in the school environment, including high rates of absenteeism, which impacts student participation, and teacher shortages. That said, Fair Count remains strong and on track to meet our goal of returning to 90% of pre-pandemic levels while strengthening the profitability of our fairs. Thanks to our customer-centric approach, from improved tools for book fair hosts and new payment options for kids and families, to kit favourite merchandising and assortments, we continue to deliver the unique, joyful celebration of reading that only Scholastic Book Fairs can provide. As a result, we remain optimistic about a strong spring season. Last quarter, we also further refined our plan to strategically resize book clubs to a more profitable core, as part of our plan to achieve long-term profit growth in school reading events over time. we're already seeing cost savings as a result. That said, lower teacher participation and spending from earlier this school year is carrying over into clubs spring results as expected. Moving to education solutions, quarter three sales were down very modestly as we operationalize our growth strategy and realign key product lines in the market to deliver blended literacy focused solutions. We see significant opportunities ahead and are advancing plans to reinvent our classroom magazines business to combine digital content and instruction. As we work to broaden and deepen our print and digital offerings, we're focused on meeting the needs of educators, the increasing need for literacy products, and schools and districts' ability to tap multiple funding streams, including federal ESSA funding, which school districts must commit to use by September 2024. Turning to our international segment, revenues and profits were up strongly as a result of the ongoing recovery in book sales, particularly in Canada, the UK, and Asia. Our international team is focused on helping to drive the recovery in target markets and ensuring our titles are optimally positioned, while further driving efficiencies and leveraging corporate resources as appropriate. Since its 2017 reboot, Scholastic Entertainment has proven that there's significant demand for Scholastic's brand and publishing IP on screens, as well as the page, and that we can effectively and profitably meet this demand. As it opens more channels and opportunities to reach kids where they are, we've seen this strategy boost book sales and increase the value of our IP and brand. This is the virtuous circle that I've spoken about. Last week's announcement to invest in Nine Story Media Group was a timely opportunity to cement our relationship with a long-time, mission-aligned partner and team. Ninestory is an industry-leading creator, producer, and distributor of premium animated and live-action children's content. Scholastic has been working with the company and its founder for over 20 years. By acquiring 100% of the economic interest and a minority of voting rights in Ninestory Media Group, we achieved two things. First, we'll significantly expand the scope and scale of our media business, adding nine stories production distribution and licensing revenue and profit lines to Scholastic. Second, through greater strategic coordination and integration, we'll substantially increase our ability and speed in building and monetizing Scholastic's global multimedia children's brands, which underpin and will broaden our 360-degree content creation strategy. These two rationales are complementary and additive, which is why we're so excited about this transformative opportunity for Scholastic. With Ninestory, in addition to the talent of their team and their exciting pipeline, we're acquiring turnkey global production studios in Toronto, Dublin, and Bali with state-of-the-art animation and live-action production capabilities. The quality of their work speaks for itself. with 21 Emmy Award wins. 9Story controls an extensive content library, distributing over 5,000 half-hour episodes of 2D and 3D animation, together with a live action catalog, as well as over 10,000 half-hour programs distributed across major advertising, video on demand, or AVOD platforms. Ninestory also has the ability to tap into significant Canadian and Irish tax subsidies and to pre-sell and monetize productions through their global sales, distribution, and licensing teams. This substantially de-risks new projects and improves the long-term economics of media franchises far beyond what's possible under our current arm's length relationship. As I previously mentioned, We believe this investment to acquire 100% of the economic interest in 9Story will significantly deepen our capabilities across the entire IP lifecycle. In turn, bolstering our 360 degree content creation strategy. Scholastic and 9Story share the same mission, to engage children and families with inspiring stories and content. In today's world, it's important that we meet kids where they are and bring them back to reading. We see tremendous opportunity to leverage the deeper capabilities we gain from the deal to support the growth of Scholastic's children's franchises, drive book sales, create additional opportunity for Scholastic authors and partners, and introduce millions of new kids and families to Scholastic books and stories. We'll also expand long-term monetization opportunities as we bring Nine Stories in-house distribution, merchandising, and licensing teams and global sales networks onto the Scholastic platform. So to sum up, we believe this deal is both additive and synergistic. It adds nine stories, industry-leading capabilities and revenue streams, their compelling economic model, and a highly talented team. Leveraging Scholastic's trusted brand and proven ability to create iconic children's series and franchises, the new capabilities will allow us to build deeper connections with young people through our stories as the pages of our books come to life on screens and through merchandising. In short, this opportunity positions Scholastic to meet the continued strong demand for high-quality kids and family entertainment, expanding the footprint of Scholastic's authors and illustrators, building global franchises on every platform, and of course, creating more value for our shareholders. We look forward to sharing more once the deal is closed. And with that, I'll now hand the call over to Haji.