Scholastic Corporation

Good day and thank you for standing by. Welcome to the Scholastic Reports third quarter fiscal year 2025 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 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. I would now like to hand the conference over to your speaker today. Jeffrey Matthews.

Hello and welcome everyone to Scholastic's fiscal 2025 third 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 and executive vice president. As usual, we posted the company and 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 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 Wark to begin this afternoon's presentation.

Thanks, Jeff, and good afternoon, everyone. Thank you for joining us. Scholastic performed solidly in our third quarter. We achieved modest revenue growth and improved operating results relative to a year ago. Strong performance in our children's book segment and the addition of nine story media group contributed to these positive results in spite of increasing pressure on spending by families and schools on books and educational materials. Overall, These results reflected Scholastic's unique strengths in engaging kids with great books and quality children's media. We remain committed to our capital allocation priorities, investing in our growth initiatives and returning over $35 million to shareholders through share repurchases and dividends last quarter. Scholastic maintains a strong balance sheet with modest debt and significant options to unlock additional liquidity for debt reduction, and enhancing shareholder returns, including through our significant owned real estate assets. Hadji will expand on this topic later. Looking ahead, we now forecast full year adjusted EBITDA of approximately 140 million, consistent with the low end of our fiscal 2025 guidance. Revenue is forecast to be up modestly year over year, reflecting the intensifying spending headwinds that we saw last quarter and that we expect to continue into the fourth quarter. As we manage these external factors, we've executed cost-saving actions that we expect to benefit both this fiscal year and fiscal 2026. Before going into our operating results, I'd like to comment on the macro environment and the headwinds that Scholastic and many of our peers are navigating. As many major U.S. retailers have recently reported, consumers have begun taking a more cautious approach to spending in today's environment, including in discretionary categories like children's book purchases, as seen when analyzing Sukana book scan data. Second, recent uncertainty around federal education policy and funding mechanisms is causing some schools and school districts to delay or pause purchases of instructional materials. This has contributed to a further cyclical slowdown in the supplemental curriculum market where Scholastic's education business focuses. We expect both trends to continue into our current fourth quarter. Third, we've been actively navigating fast-changing US trade policy and global tariffs, like many other retailers and manufacturers, with global supply chains and footprints. As we outlined last quarter, Our supplier diversification and flexible sourcing processes give us distinct advantages as we mitigate and hedge against tariffs and other risks today. Where we are not able to avoid tariffs, we have opportunities to protect gross margins through modest and targeted price increases. For the remainder of this fiscal year and the first half of fiscal 2026, we still expect minimal tariff-related exposure on our inventory costs. as we have already purchased most inventory needs for this time period. Hadji will discuss further the expected impact of tariffs next fiscal year and beyond. With that, I'll turn to the highlights across our business segments. In the children's book publishing and distribution segment, revenues and profits increased, driven by improved results in both book fairs and book clubs within our school reading events, or SRE, division. Fairs benefited from higher fare count in the quarter, as we remain on track to meet this year's target of 90,000 fares. Notwithstanding the impact of increasing pressure on consumer spending, which we saw slightly impact transaction volumes, revenue per fare was in line with prior year, reflecting higher transaction sizes driven by our strong merchandising capabilities. We were encouraged by increased participation in our new Share the Fair programme last quarter. Share the Fair enables schools to collect contributions digitally from the school community to support students who need help buying books. We see this as a long-term opportunity to increase student and family participation, ultimately contributing to the size and impact of Scholastic Book Fairs. Looking ahead, we continue to expect modest growth in fiscal 2025 driven by higher fair count and new merchandising and sales initiatives, partly offset by modestly lower participation, reflecting continued pressure on families' discretionary spending in quarter four. In book clubs, also within SRE, we continued to benefit from new strategies implemented at the start of the school year. In quarter three, student participation and revenue per sponsor, as well as order volumes, rose year over year, demonstrating positive engagement from the teachers and families who participate in our clubs. We remain focused on continuing this momentum and enhancing our offerings to increase teacher participation in the 2025-26 school year. Turning to our trade publishing division, which is also within the children's book segment, results were in line with the prior year, driven by the global success of new best-selling titles, offset by a modest decline in backlist sales, consistent with industry trends, as I previously mentioned. Upon its publication at the beginning of last quarter, the 13th book in Dave Pilkey's best-selling Dogman series, Dogman, Big Jim Begins, immediately became the number one best-selling book across all categories in the US and Canada, and the number one best-selling children's book in the UK and Australia. It has remained at the top of best-seller lists, already selling almost 2.5 million copies globally. Dave Pilkey's worldwide author tour, the January release of the Dogman movie, and extensive promotion in school book fairs, including specially branded Dogman events, boosted sales of Big Jim Begins and earlier titles in the Dogman series, as well as Dave's other best-selling series, Captain Underpants, and Cat Kid Comic Club. In the midst of this global phenomenon, we're very excited about the 14th Dogman book, Big Jim Believes, which we will publish globally this coming fall. Other newly published Scholastic titles added to our presence on bestseller lists last quarter, including the new Hunger Games deluxe editions and box set, and our new graphic novel, Wings of Fire No. 8, Escaping Peril. Given their ability to engage kids, particularly striving readers, graphic novels are dominating children's publishing, and Scholastic dominates graphic novels, currently holding 12 of the top 15 spots on the New York Times graphic novel bestseller list. Looking at the quarter ahead, earlier this week, Scholastic published the highly anticipated fifth book in Suzanne Collins' worldwide bestselling Hunger Games series, Sunrise on the Reaping. which was released simultaneously in the US, Canada, UK, Australia and New Zealand. The book was already at the top of bestseller lists based on strong pre-orders for print, e-book and audio. Print pre-orders alone were up over 65% compared to the fourth Hunger Games book in spring of 2020. We're optimistic that the excitement around this new title as well as Lionsgate's movie adaptation scheduled to be released in November 2026, will support strong sales of the entire series in the fourth quarter through fiscal 2027 and beyond, as we continue to bring new fans and readers to the Hunger Games franchise. In the entertainment segment, revenue and adjusted EBITDA benefited from the strategic acquisition of Nine Story Media Group in June. We're excited about the progress and early successes our combined Scholastic Entertainment team has made. As we've discussed previously, major streaming platforms and studios have slowed production spending in green lights, impacting near-term demand for production service work and delaying, but not cancelling, some promising Scholastic-produced projects. Though we're encouraged by recent momentum across the industry, We expect more productions to be greenlit in the year ahead compared to last. With the benefit of Nine Stories capabilities, we've significantly expanded the reach and monetization of Scholastic's current media library and IP on streaming platforms, especially through dedicated Scholastic IP channels on YouTube, the top platform for kids' media consumption. Across Scholastic channels, Clifford Classic, Goosebumps, The Magic School Bus and our Scholastic Classic Hub channel, Scholastic Content, had nearly 10 million views on YouTube last month, up almost 40 times from a year ago. And kids and families spent close to 3 million hours a month watching our high-quality beloved stories and animation. In the short time since these channels launched last summer, the strong momentum and engagement has unlocked brand exposure for Scholastic, and contributed to incremental advertising revenue and e-commerce sales. In addition to our reach on YouTube, we now have 700 half hours of scholastic content on leading video on demand platforms, including Peacock, the Roku channel, and Tubi. To serve the tremendous demand for quality content on YouTube, especially among parents for their kids, we've accelerated production and development for that platform. We're especially excited about a new values and faith-based YouTube media property, We Believe Kids, based on the We Believe series of young children's books, which our talented Make Believe Ideas team created in-house. We look forward to launching this channel with e-commerce integration in time for the Easter holiday next month. Turning now to education solutions. As expected, third quarter sales and profits declined. as lower spending on supplemental curriculum remains a headwind for this business. During the quarter, we continue to be encouraged by the strength of our state and community literacy partners' business, driven by increased participation in state-sponsored programmes as our partners continue investing to expand kids' access to books outside of school. We remain excited about our product development pipeline of new literacy programs aligned with current reading pedagogies, reaching the market in time for the 2025-26 school year, which we expect to begin to contribute to results next fiscal year. For the remainder of the year, we expect schools and districts to continue to delay purchases of supplemental materials impacted further by uncertainty around federal education policy and funding as i discussed earlier in response to the decline in this segment sales and profitability over the past two years we've begun a strategic review of the education solutions business with the goal of optimizing its long-term potential i believe in this business given our deep focus on reading and literacy and our commitment to serving teachers and schools as well as a growing number of state philanthropic and community partners seeking to support literacy. We look forward to providing more details on our year-end call. In the international segment, revenues and profits increased, driven by our major markets, including Canada, the UK and New Zealand, all of which benefited from strong sales of Dogman Big Jim Begins. We saw success with both print and digital education products, including a new multi-year contract with the Ministry of Education in New Zealand. We continue to pursue opportunities to organize and invest in this business to drive growth, including expanding our education and English language offerings in emerging markets. Looking ahead, we continue to expect modest growth in these major markets relative to fiscal 2024. And now I'll turn the call over to Haji, to review our fiscal 2025 third quarter results and provide additional details around our updated outlook and actions to drive shareholder value for the remainder of the year and beyond.