Scholastic Corporation

Thank you for standing by and welcome to the Scholastic Report's fourth quarter fiscal year 2024 results. 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, you'll need to press star 1-1 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce our host for today's program, Jeffrey Matthews. Please go ahead.

Hello, and welcome everyone to Scholastic's fiscal 2024 fourth quarter earnings call. Today on the call, I'm joined by Peter Warrick, our president and chief executive officer, and Haji Glover, 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'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 will 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 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 Wark to begin this afternoon's presentation.

Thank you, Jeff, and good afternoon, everyone. Thank you for joining us. In the fourth quarter of fiscal 2024, Scholastic continued to execute on its strategy, investing in key growth initiatives and long-term opportunities while navigating current market headwinds. Increasing pressure on spending affecting our education solutions and school reading events businesses impacted consolidated revenue last quarter, resulting in a 10% or $53 million decline relative to last year's strong quarter four performance. And that's in contrast to our expectations for modest growth. Consequently, profits in our seasonally most important fourth quarter fell below the prior year and our revised guidance. Fourth quarter adjusted operating income was $67 million, down from last year's record of $92 million. Adjusted EBITDA was $91 million compared to $115 million a year ago. We took steps to manage expenses in line with low than expected demand. SG&A and corporate overhead, excluding one-time items, both improved, even as we maintained spending on long-term opportunities. For fiscal 2024, adjusted EBITDA was $137 million versus $196 million a year ago, again reflecting the revenue headwinds we've experienced since last fall. With careful working capital management and our business's capital-efficient models, we continue to generate strong free cash flow of $73 million, up from $60 million in the prior year. This exceeded our revised outlook of $55 to $65 million. Delivering on our commitment to capital allocation, we also deployed Scholastic's strong balance sheet to drive long-term value in fiscal 2024. We returned over $181 million to shareholders through dividends and share repurchases during the year. We also announced $182 million strategic investment in Nine Story Media Group, which we closed on June 20th. Scholastic's investment to acquire 100% economic interest in 9Story is a major advance in our evolution as a global children's media company. It greatly expands Scholastic's ability to reach more kids where they are and profitably participate in the full life cycle of our children's franchises and IP. Starting this fiscal year, 9Story will be consolidated and integrated with Scholastic Entertainment in a new entertainment segment. Since its 2017 reboot, Scholastic Entertainment has successfully proven that there's significant demand for Scholastic's brand and publishing IP on screens, as well as on the page, and that we can effectively and profitably meet this demand. In addition to adding a sizeable business with solid EBITDA margins today, the nine-story acquisition significantly expands Scholastic's opportunities to leverage its trusted brand best-selling publishing and beloved global children's franchises across print, screens, and merchandising. After only a month, the combined division is quickly moving forward with an integrated plan, as I'll discuss shortly. Last quarter, trade publishing, the starting point for much of Scholastic's content, saw sales increase by 3%, excluding revenues from Scholastic Entertainment. The spring release of the 12th book in Dave Pilkey's Dogman series reached the number one best-selling spot across all book categories in the US, Canada, Ireland, Australia, and New Zealand, and the top children's book spot in the UK. Its success also drove strong sales of earlier titles in the series, demonstrating again Scholastic's ability to build global franchises. Despite solid trade results, Last quarter's revenues in the children's book segment declined by 9%, reflecting the resizing of book clubs and the increasing pressure this spring on consumer spending and participation in school book fairs. School book clubs' revenues were down 45% with planned resizing, while we also tested new offers, marketing and promotional formats for the school year ahead. sales in school book fairs decreased by six percent in quarter four reflecting lower revenue per fair relative to last year's record level partly offset by growth in fair count as we've discussed revenue per fair has been partly impacted by the addition of small affairs as we've grown fair count as well as increased churn among some higher value fairs headwinds in the school environment In particular, high rates of absenteeism this year and increasing pressure on consumer spending across the economy, especially among fairs' core market, middle class families, have impacted the number of transactions per fair, especially this spring when schools host second fairs. This has more than offset the benefit of higher transaction sizes, which reflects our strong merchandising. Turning to our education solutions segment, revenues declined by 17% in the business's seasonally most important fourth quarter. As many schools have adopted core curricula and implemented new structured literacy programs this year, they paused spending on supplemental curriculum products this spring. This particularly impacted sales of classroom libraries and book collections, as well as products not explicitly aligned with the science of reading. In contrast, sales to non-school state and community literacy partners rose overall. As we navigated the currently challenging market, we continued investing in this segment's long-term growth potential in anticipation of a cyclical return of spending on supplemental products in the 2025 and 2026 school years. We're currently executing on a comprehensive new product plan, as I'll discuss shortly. Finally, international revenues declined modestly last quarter, mostly reflecting headwinds in Asia. As I laid out a year ago, Scholastic's strategy to grow long-term earnings and free cash flow builds on the unique strengths of our domestic and international children's book and education businesses, while also protecting the profitability and cash flow generation of our core business models. Leveraging our balance sheet and strong free cash flow outlook, We aim to sustainably fund these growth investments and return capital to shareholders. Scholastic's growth investments are guided by four key market trends and growth factors, which I'll run through. First, as brands, content, and channels proliferate online and on screens, accelerated by new technologies like generative AI, we're leaning into Scholastic's trusted brand with families and educators, and our global best-selling children's franchises to differentiate ourselves and grow sustainably. Second, as kids spend more and more time on screens, we're expanding our ability to reach kids where they are with high-quality, engaging content, both on screen and on the page. Third, the schools struggle to reverse declining reading scores, as seen again with recent NAEP results at 30-plus year lows, We're developing new partnership models with state, community, and philanthropic organizations to support and fund literacy programs outside the school. And fourth, as parents and families take a more active role in their children's education at school and at home, especially post-COVID, we're building new channels to reach and support families directly. Turning to our near and long-term outlook. For fiscal 2025, we're targeting modest growth in revenue and adjusted EBITDA, including the benefit of our strategic investment in nine-storey, as Haji will discuss. As I've said, we're moving ahead with investments in our most compelling growth opportunities while we navigate continuing market headwinds, especially for education solutions. In the new entertainment segment, we're executing on an expanded development and production slate. While green lights and production orders from the key platforms continue well below their record levels two and three years ago, we'll continue to build on core properties in fiscal 2025 while preparing for growth through synergies with Scholastic in fiscal 26 and beyond. Ninestory has longstanding and valuable IP partnerships that have buttressed their results during the current cycle. For example, The company produces and has significant profit participation in Daniel Tiger's Neighborhood and Wild Kratts, PBS's top two shows currently. We're optimistic both will continue for at least several more seasons. We're quickly moving forward to update our franchise licensing and distribution plans for key Scholastic brands, including Clifford and Magic School Bus, as development moves forward on major projects, even in the currently tight market. These core brands have significant value to our partners and upside for Scholastic, leveraging Nine Stories licensing and merchandising sales teams. Nine Stories' strong YouTube presence and expertise presents another opportunity for Scholastic's content that we've also begun executing on. In children's books, we have a bestseller field publishing plan featuring two of today's largest children's franchises in the world. First, we'll be publishing another Dogman title this fall, followed by the worldwide theatrical release of the Dogman movie in January 2025. Second, we're thrilled to be publishing Sunrise on the Reaping, the highly anticipated fifth book in Suzanne Collins' worldwide best-selling Hunger Games series, and doing so in March 2025 simultaneously in the US, Canada, UK, Australia and New Zealand. Lionsgate has already announced a movie adaptation of the book, scheduled to be released in November 2026, which promises to continue bringing new readers to this mega franchise through fiscal 2027 and beyond. This fall, we also look forward to publishing Christmas at Hogwarts, a timeless picture book that will delight families and Harry Potter fans of all ages. We're also excited about the Harry Potter Bake, Create and Decorate book, a companion to the New York Times bestsellers, the official Harry Potter baking book and the official Harry Potter cookbook. Building upon our leading position in graphic novels, which have dominated the children's publishing industry and their ability to engage kids, this August we launched Unico Awakening, the highly anticipated first title in a multi-volume, kid-friendly manga series. And we'll also launch two additional middle-grade full-color manga series later in the fiscal year. In addition, we have a full lineup of exciting new titles from beloved and best-selling authors Rainer Telgemeier, Alice Hoffman, Paminyoth Ryan, and Brian Selznick. We have new publishing in our major series like The Babysitter's Club, Goosebumps, and I Survived. And we'll be publishing the finale of Aaron Blaby's Bad Guy series in December with another movie to follow in summer 2025. In March, we'll be publishing That's Not Funny, David, a brand new No David book from internationally acclaimed Caldecott Honor creator David Shannon. In school book fairs, we're planning for modest growth for fiscal 2025 as we invest in long-term growth initiatives, including actions to grow revenue per fair this year and beyond. Share the Fair is a new giving program enabling schools to collect digital contributions from the school community to support students who need help buying books. The program was successfully piloted in fiscal 2024 and we're optimistic about its full rollout in fiscal 2025. Continued category optimization, new case types and strategic value pricing should also contribute positively to revenue per fair. We have exciting plans around the release of the next Dog Man title and film, leveraging Scholastic Book Fair's exclusive access to the hottest children's and young adult titles. With respect to fair count, we've invested in our sales structure and processes to increase prospecting, reduce churn, and ensure our book fair hosts success. So far, we're on track with early bookings to achieve our fiscal 2025 target of 90,000 fairs. This year, we'll continue investing to grow long-term fair count and the addressable market for book fairs. We're piloting new operating models to profitably serve schools outside our core public school markets and investing in our sponsored fairs growth, which taps local and national organizations to bring book fairs to schools in high-need communities, which we currently don't serve. In school book clubs, we're launching redesigned flyers and new offers and enhancing our value proposition with unique scholastic assets to re-engage a profitable core of customers and revitalize this strategic channel to teachers and families. Complementing our school-based channels to kids and families and leveraging our trusted brand and distribution infrastructure, we've also begun piloting new direct-to-home channels and offers to families of young children. Based on extensive research and testing, we're targeting a substantial opportunity to help parents and caregivers support their kids' early development as readers and learners. While we don't expect these investments to materially contribute to top-line growth in FISFIL 2025, we're optimistic about the opportunity in FISFIL 2026 and beyond, and we look forward to providing further updates. Turning to education solutions, We're targeting solid growth in our sales to state and community literacy partners as these organizations continue investing to improve kids' access to books at home and outside the school, which is proven to benefit reading development. We're also launching new partnership models and programs for philanthropic organizations to give kids in high needs schools and communities the ability to choose and build their own home libraries. We expect growth from new literacy funding sources to help offset further declines in sales of supplemental literacy materials, especially those not explicitly aligned with the science of reading. This year, we plan to continue investing in a pipeline of literacy programs better aligned with current literacy instruction. These include a new middle school ELA program leveraging our extensive and engaging classroom magazine content, new knowledge building libraries to replace our level book rooms and guided reading collections, and engaging new decodable collections, including for older students, building on our Ready for Reading program, which we launched last year. We expect to launch these products in the 2025-26 school year and anticipate they'll contribute to growth beginning in fiscal 2026 as the funding cycle for supplemental products improves. In international, modest growth across major markets, including in trade and continued operational improvements in Canada, are expected to drive further improvements in operating margins and contribution relative to fiscal 2024 as we pursue opportunities to build operating scale in major markets and expand our English language offering in Asia. Hadge will provide more details in a moment, including the expected contribution of our strategic investment in nine-story and actions we're taking on the cost side. In summary, Scholastic's fiscal 2025 plan is to continue and accelerate the progress of fiscal 2024 toward our strategic goals. As we respond to our dynamic markets, both in the short and long term, we remain committed to realizing the full potential of Scholastic's unique strengths, our trusted brand, our unique channels, and our extensive content to meet an essential growing need among kids, parents, and educators, giving kids the power and joy of stories and learning. With that, I'll turn the call over to Haji to review our fiscal 2024 results and fiscal 2025 guidance.