Cengage Learning Holdings II, Inc.

Good day and welcome to the Cengage Group Fiscal 2024 Second Quarter Investor Call. At this time, all participants have been placed on the listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Richard Vieth. The floor is yours.

Good morning and welcome to Cengage Group's Fiscal 2024 Second Quarter Investor Update. Joining me on the call are Michael Hansen, Chief Executive Officer, and Bob Monroe, Chief Financial Officer. A copy of the slide presentation for today's call has been posted to the company's website at cengagegroup.com forward slash investors. The following discussion contains forward-looking statements within the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements can be identified by words such as believe, expect, may, will, estimate, likely, and similar words, and are neither historical facts nor assurances of future performance and relate to future results and events, and they are based on Cengage Group's current expectations and assumptions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict, and many of which are outside of our control. Many factors could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements. You should consider such factors, many of which are subject to the risks and uncertainties discussed in the slide presentation, which accompanies this call, and in the risk factor section of our fiscal 2023 annual report for the year ended March 31st, 2023, as may be updated by our quarterly reports for fiscal year 2024. Any forward-looking statement made in this presentation is based on currently available information. the company disclaims any obligation to publicly update or revise any forward-looking statements except as required by law. On today's call and in our slide presentation, we will refer to certain non-GAAP financial measures. Definitions and the rationale for using these measures and reconciliations of each to its most directly comparable GAAP financial measure are provided in the appendix to the slide presentation. I'll now turn the call over to Michael for an update on the business, followed by Bob, who will take you through the second quarter details before we open the call for questions. Michael?

Thank you, Richard. Good morning, everybody, and thank you for joining us for our fiscal year 2024 second quarter and first half results update. First and foremost, I want to highlight that we are on track to deliver a third consecutive year of mid-single-digit revenue growth with profit growth expected to outpace revenue growth as we continue to drive efficiencies through our operating model and expand margins. Our entire portfolio of businesses continues to demonstrate our strong position as we strive for sustainable revenue growth and margin expansion across all three business units. September year-to-date revenue is up 9% versus prior year. September year-to-date ELPP of $262 million is $31 million or 14% ahead of prior year. This year-over-year strong performance is impacted by meaningful favorable sales times effects with earlier customer ordering benefiting this year and as a result of the supply chain issues that we faced last year. As these effects normalize, we expect the pace of growth to moderate during the second half of our fiscal year. The overall first half revenue growth was driven by our secondary work and ELT businesses, all of which delivered growth of 20% or more, with strong underlying growth in secondary and ELT being boosted by the sales timing effects. Our secondary business reported revenue growth of 26%. Stripping away the timing effects, we expect solid underlying growth in secondary this year, in stark contrast to the downward trend seen by a number of competitors, and reflecting our differentiating strategies focused on the middle and high school, and college and career readiness segments of this market. Staying within academic, U.S. higher ed delivered a successful fall season, driven by increasing adoption of digital and institutional solutions. U.S. higher ed remains on a trajectory to return to growth in the near term, with revenues on a trailing 12-month basis through September now flat against the prior period. In SELECT, English language teaching September year-to-date adjusted cash revenue was up 35% versus prior year due to strong global and US K-12 demands. Lastly, the research business maintained its solid growth momentum with adjusted cash revenue up 4% driven by higher subscription billings. Cengage Work adjusted cash revenue is up 20% versus prior year with a key driver of growth being our advanced career training programs. These courses are focused on providing students with the skills they need to obtain necessary certification for employment, most notably in healthcare, IT, and trades where there is high structural demand. A highlight of the past quarter was the release of our inaugural Cengage Work Outcomes Report. We are committed to providing learners with tangible outcomes of their education investment. We call this our education for employment strategy. Cengage work programs help learners develop relevant skills and earn industry-recognized certifications that are applicable to local jobs and relevant nationally. Each year, more than 250,000 learners gain employability skills with our Cengage work products. Our outcomes report provides timely credibility to the skills programs we offer. Based on our research, we know that 83% of Cengage work learners complete courses and 90% of those learners who set for certification exams passed and earned an industry-recognized credential. Driven by changes in income, Cengage work learners, on average, experience a positive ROI within two years of completing their course. In the last quarter, we have continued to refine our approach to leveraging generative AI to improve the learning experience of students and the teaching experience of instructors. In August, we published research that provides insight into U.S. higher ed instructors' views on generative AI in the classroom. A majority of instructors agree that generative AI will play an increasingly important role in higher ed. While instructors may feel some trepidation, they do plan to use Generative AI to automate certain administrative tasks to free up time for teaching and connecting with students. Our research and ongoing conversations with students, instructors, and administrators has informed our Generative AI product strategy. We have tested various product enhancements and will have more to share in future quarters. Beyond product enhancement, We are committed to vigorously protect our valuable intellectual property and will take the necessary steps to do so. On behalf of the entire Cengage Group organization, I am extremely proud of our Q2 and first half results. Our Q2 results in particular are very strong and we have plans in place to raise the bar to continue to drive our growth both in revenue as well as profitability. Thank you for your continued support. Bob, over to you.