SCHOLASTIC CORP Q2 FY2025 earnings call

• Scholastic Book Fairs and Clubs continued delivering books and reading joy. Global children's publishing and entertainment teams had exciting plans.
• Second quarter results lower than prior year due to timing of publishing plan.
• Pursued growth opportunities in core markets with new models, channels, products.
• Upsized unsecured revolving credit facility to $400 million.
• Monitored U.S. trade and education policy, positioned to navigate changes.
• In Children's Book Publishing, School Reading Events on track for 90,000 fairs; Trade Publishing had strong new releases like Dog Man: Big Jim Begins.
• Entertainment segment saw growth from 9 Story acquisition, new shows launched, Emmy nominations.
• Education Solutions developing new literacy programs like Explore ELA and Scholastic Knowledge Library.
• International segment made progress optimizing business, reorganized education portfolio.

In the Children's Book Publishing and Distribution segment, revenues decreased 6% to $367 million in the second quarter, reflecting timing factors in trade, publishing, and book fairs channels. School Reading Events: Book Fairs revenues were $231 million, down 5% due to lower fair count and revenue per fair; Book Clubs revenue was $33.2 million, up 2% due to higher revenue per sponsor and student per sponsor. Trade Publishing revenues were $102.8 million, down from the prior year. The Entertainment segment's revenues rose from the acquisition of 9 Story Media Group, but segment operating loss was $3.9 million due to increased amortization expense on intangible assets. Education Solutions segment revenues were down 12% to $71.2 million due to lower spending on supplemental curriculum products. International segment revenues were $86.7 million, in line with prior year, with a $1.7 million decrease excluding favorable FX impact.

• Reaffirmed fiscal 2025 guidance, expecting revenue growth of 4% to 6% and adjusted EBITDA of $140 million to $150 million.
• Anticipates revenue and adjusted EBITDA growth in third quarter due to positive timing factors.
• Fourth quarter expected to be solid with Hunger Games book release and modest growth in school reading events.
• Full-year free-cash flow outlook between $20 million and $30 million.

• Timing of publishing plans impacting second quarter results.
• U.S. trade policy changes, including towards China, Mexico, Canada.
• Education policy changes and funding uncertainties.
• Supply-chain risks related to tariffs, shipping, etc.
• Industry-wide pullback on content production affecting Entertainment segment in short term.

Q: Walk us through dynamics and factors driving margins in the Entertainment segment and what drove segment operating loss?

A: Haji Glover said intangible impairments and production expenses were major drivers, with intangibles impacting by ~$2.3 million and production expenses contributing.

Q: Role of 9 Story in Dog Man movie production/distribution?

A: Haji Glover said 9 Story wasn't involved in the Dog Man movie production, but the movie's success is expected to boost book sales.

Q: Base case for funding changes with incoming Trump administration?

A: Peter Warwick said short term no material impact, with funding and decision-making moving to state and local levels, and most education funding at state level.

Q: What's driving optimism for state literacy partnerships?

A: Peter Warwick said the New World Reading Initiative project in Florida with the Lastinger Center at the University of Florida is driving optimism.

Q: How to think about leverage relative to goals?

A: Haji Glover said comfortable with current leverage, considering modest increase to support new growth initiatives and continuing to return excess cash to shareholders.