Scholastic Corporation

Speaker's presentation will open up for questions. To ask a question during a session, you will need to press star 101 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 101 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jeffrey Matthews, Executive Vice President and Chief Growth Officer. Please go ahead.

Hello, and welcome everyone to Scholastic's fiscal 2025 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've 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 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'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 in the company 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.

Thank you, Jeff, and good afternoon, everyone. Thank you for joining us. Scholastic delivered strong financial and strategic results in the fourth quarter of fiscal 2025. Adjusted EBITDA grew robustly in line with our original guidance range. Effective cost controls and a sustained focus on operational efficiency allowed us to overcome continued pressure on consumer and school spending while positioning us for earnings growth in fiscal 2026. Revenue growth was also in line with expectations, driven by strong performance in our children's book publishing and distribution segment and the strategic acquisition of Nine Story Media Group early in the financial year. This strong finish reflects the collective efforts of our teams. Amid a challenging macroeconomic environment, we made meaningful progress on the priorities we set at the start of the year, strengthening our core businesses unlocking value from our iconic IP and positioning Scholastic for long-term profitable growth. We continue to return capital to shareholders, investing over $35 million in dividends and share repurchases in the fourth quarter for a total of $92 million in fiscal 2025, while advancing efforts to unlock value from our significant real estate assets. At the same time, we began executing on a set of significant organisational changes, work that's continued into quarter one, that we believe will strengthen leadership, enhance growth and improve efficiencies. These actions set the stage for continued earnings growth and increased shareholder value in fiscal 2026, while deepening Scholastic's impact in schools, homes and communities around the world. Let me now walk through our quarter four and fiscal 2025 segment performance. Children's book publishing and distribution segment revenue and profit increased last quarter, driven by strength across both publishing and book fairs. In trade publishing, we launched Sunrise on the Reaping, the newest installment in Suzanne Collins' Hunger Games series, which became the biggest publishing event yet this year. Released simultaneously in the US, Canada, UK, Australia, and New Zealand, it topped bestseller lists globally across print, e-book, and audio formats, driving significant revenue growth. In the US alone, the book sold over 2 million copies in its first month. Nearly 20 years after the first Hunger Games book was published, the franchise continues to resonate across generations and geographies. This launch followed the success of Dave Pilkey's Dog Man, Big Jim Begins, another global phenomenon, which helped drive second half results and remains one of the world's top selling titles. These best sellers more than offset headwinds in consumer spending and softness in the broader retail book market. In book fairs, we saw higher fair counts in quarter four, with combined case and shippable fairs rising 4%, to over 100,000 fares for the year. This reflects continued improvements in our selling and marketing strategies and customer experience. Revenue per fare declined slightly but remained near record levels, supported by improvements in merchandising and strategies that grew transaction sizes. Slightly lower transaction volumes tied to consumer pressures offset these gains. In book clubs, Revenue declined in quarter four due to fewer participating teachers, partly offset by larger order sizes and higher student participation per class. For the full year, engagement strategies implemented at the start of the school year paid off, driving growth in student participation and revenue per sponsor. Notably, profit contribution from clubs rose again this year. In our entertainment segment, Fourth quarter revenue increased with the addition of nine-story media group whose successful integration has greatly enhanced our reach and monetization of Scholastic's content, especially on streaming platforms where kids are consuming the majority of media content today. We continue to see strong engagement on YouTube across scholastic channels like Clifford Classic, Goosebumps, the Magic School Bus, and our Scholastic Classic Hub. In May, average view duration exceeded 20 minutes, three times the norm for children's content. This robust engagement is fueling digital revenue growth and increasing the value of our IP. Momentum is also building in development and production, which I'll return to shortly. Turning to our education segment, revenue and profit declined in quarter four as the broader supplemental curriculum market remained pressured. However, areas less reliant on district budgets, such as state and community literacy partnerships, showed strength, driven by increased participation in state-sponsored programs that expand kids' access to books outside of school. We're encouraged by the growing number of state philanthropic and community partners focused on literacy and see long-term potential in this segment. Finally, international segment revenue and profit increased in quarter four, reflecting strong trade channel performance, particularly for Hunger Games and Dogman titles. We also realigned international education business under a new structure, which improved operating efficiency and profitability. In fiscal 2026, we expect to significantly grow profit, building on the momentum of strong year-end results and multiple strategic initiatives. Adjusted EBITDA is targeted to grow strongly. The benefit of last year's cost reductions and recent reorganizations, in addition to further cost management and initiatives to improve efficiencies, are expected to more than offset the incremental impact of tariffs from the current historically high rates. At the midpoint of guidance, adjusted EBITDA is expected to grow 20%, excluding $10 million in incremental tariff expense currently anticipated from implemented or announced tariffs. Reflecting continued pressure on consumer and especially school spending, revenue is expected to grow modestly. Jill will discuss our financial outlook in more detail shortly. In our children's book publishing and distribution segments, we have an exciting trade publishing schedule, including Dog Man, Big Jim Believes in November. the latest in Dave Pilkey's blockbuster series following the success of Big Jim Begins and the Dog Man movie, which debuted at number one at the box office and is now streaming on Peacock. We're also publishing the full-color edition of Dave's first ever graphic novel, The Adventures of Super Diaper Baby, re-releasing his Dragon Books for early readers in a new collection and planning a major Captain Underpants publishing moment. March brings Wings of Fire number 16, The Hybrid Prince, the first new book in the series in four years, which kicks off a new trilogy. We'll also publish Wings of Fire number nine, Talons of Power, in graphic novel format in January. Supported by an enthusiastic global fan base, original and graphic novel series have sold a combined 40 million copies and remain steady performers on the new york times bestsellers list after march's huge global release of sunrise on the reaping we expect the hunger game series to continue as a key pillar of our catalogue driven by ongoing sales of sunrise as well as new heart cover box sets collector's editions and illustrated editions of Hunger Games titles publishing in the year ahead. We're optimistic that the upcoming Lionsgate movie, an adaptation of the title, expected in November 2026, as well as our publishing plan for movie tie-in editions, will also continue to engage current fans and attract new ones to the Hunger Games. Other major releases this year include the interactive edition of Harry Potter and the Goblet of Fire, and new works from best-selling authors Alan Gratz, Raina Telgemeier, Tiffany D. Jackson, and promising debut authors. The breadth of Scholastic's best-selling series and authors across formats highlight the company's singular position and track record in building beloved, enduring brands. We expect growth in school book fair counts, supported by strategic improvements in selling, marketing, and fair formats. We also remain focused on merchandising optimization and strategic pricing initiatives, which are expected to benefit modest revenue per fair growth. We continue to expand the addressable market for book fairs, targeting new types of schools like parochial, charter, and independent, while executing on multiple initiatives to increase participation and share of wallet during the fair and throughout the year, leveraging Scholastic's trusted relationship and high-quality books and products. Some examples include Share the Fair, which allows communities to help students in need participate in book fairs. Our Sponsored Fairs program, where local and national partners fund fairs in high-need communities not currently served. and new fair types, like discovery fairs, which create new themed opportunities for schools to host additional fairs during the year. In book clubs, we'll continue executing revitalisation strategies to sustain the profitable revenue gains achieved last year, focusing on teacher engagement and student participation. We're particularly excited about the strategic integration of trade publishing, book fairs and book clubs into our new children's book group under Sacha Quinton's leadership. Sasha has had tremendous impact at Scholastic since joining in 2019, first leading the book fairs to significant profitable growth through her focus on kit-first marketing and merchandising. More recently, she led the integration of our fairs and clubs into a combined school reading events division. With the addition of Jackie DeLeo, a 25-year industry leader who most recently helped lead Barnes & Noble's transformation efforts, We're better positioned than ever to align editorial, merchandising, and distribution to expand our reach and deliver exceptional experiences for kids. This collaborative structure is uniquely possible at Scholastic. We expect it to unlock further efficiencies and potential in our vertically integrated children's book publishing and distribution. It'll also facilitate more productive collaboration between our book and media businesses and the ability of Scholastic IP to reach kids on both screens and the page. We expect this change will progressively drive revenue growth and increase profitability in fiscal 2026 and beyond. Next, our Scholastic Entertainment segment. We expect a return to revenue growth in entertainment as greenlighting activity picks up and our 360-degree IP strategy gains traction, accelerated by our integration of the children's book group. Recent green lights include Dasher, a full-length holiday special for Disney, Sam Witch, a preschool animated series, and Daniel Tiger's Neighborhood, renewed for Season 8 by PBS Kids. We also anticipate two more multi-episode productions soon, including one based on a venerable Scholastic brand. A note about Daniel Tiger. Scholastic-owned nine-story media group has co-produced the series since 2012 and also holds worldwide licensing and distribution rights. This animated preschool series has become a classic with kids and parents alike for its meaningful stories and ability to help young children learn life skills. By far the biggest platform to kids' media consumption, YouTube remains a priority as not only a new source of high-margin revenue, but greater reach for our IP where kids are today. Two new series are launching in October, one with a toy partnership already secured, and a goal for more by fiscal year end. We're also developing a new series for YouTube based on Bobbooks, Scholastic's hugely popular and trusted phonics book series for young children, among several planned IP collaborations between our entertainment and children's book group. We expect this series to drop in fall of 2026. Our digital distribution continues to grow, with over 15,000 half hours of advertising video on demand or AVOD content now available on various platforms, including 11 free app supported streaming TV channels. These platforms represent both a new revenue stream and expanded global reach for our content. Our brand, IP, distribution platforms, customer base and audience, combined with our best-in-class capabilities, afford scholastic premium placement in the landscape of children's media and IP. We remain confident in our opportunity as we continue to build a robust pipeline of IP-based content for screen and streaming platforms around the world. Now on to our education segment. We are repositioning this business for sustainable, profitable growth following a strategic reorganization under new leadership. Jeff Matthews, Scholastic's chief growth officer, has stepped in as interim president in addition to his current responsibilities. With two decades of education experience, including as an EdTech founder, Jeff brings a deep understanding of the market and is already implementing the next phase of our strategy. Extensive market and customer research confirms our belief in the relevance and strategic value of our supplemental literacy offerings. It also strengthens our commitment to this business. These trusted products, magazines, book collections, and classroom resources align with Scholastic's core strengths and have clear upside potential. The supplemental curriculum market has faced a perfect storm, volatile federal funding, instructional shifts, and state adoption cycles. But these trends are cyclical, and we expect conditions to begin improving over the next 12 to 24 months. In the meantime, we're moving forward immediately to refocus our go-to-market strategy around core strengths and customer segments, rationalize our product portfolio, prioritize investment in high-impact offerings, simplify legacy operations and organizational structures, and recruit a long-term leader for the division. We're targeting flat revenue in FY26 while repositioning the business for improved profitability this year and beyond. Now, onto our international segments. Revenue and profit are expected to decline modestly, following last year's major curriculum sale in New Zealand and strong Hunger Game and Dog Man sales across English-speaking markets. Going forward, we're focused on growing our education and English language footprint in emerging markets and expanding global reach for scholastic stories. Before I turn the call over to Haji, I want to briefly touch on board governance. Last week, we announced the appointment of two new independent directors, Milena Alberti and Anne Clark-Wolfe, following a proactive refresh process initiated by our Nominating and Governance Committee. Both of these highly qualified individuals will support the Board's focus on business transformation, growth strategies and capital allocation, as well as other initiatives to maximise shareholder value. With these additions, We've now appointed seven new independent directors over the past four years. I want to sincerely thank Jack Davis and David Young for their combined 35 years of service to Scholastic and to our shareholders. As we begin fiscal 2026 and prepare for the back to school season, we're operating from a position of strength with a revitalized operating model, beloved content and IP, and a deep commitment to children's literacy and learning. And with that, I'll turn it over to Haji.