Scholastic Corp 2027 Q1 Earnings Call

Hello, and welcome, everyone, to Scholastic's fiscal 2027 first quarter earnings call. Today on the call, I am joined by Peter Warwick, our President and Chief Executive Officer, and Haji Glover, our Chief Financial Officer and Executive Vice President. As usual, we have posted the company investor presentation on our IR website at investor.scholastic.com, which you may download now if you have 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 reconciliations 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_relations@scholastic.com. I would now like to turn the call over to Peter Warwick to begin this afternoon's presentation.

Thank you, Jeff, and good afternoon, everyone. Scholastic continued to advance its fiscal 2027 priorities over the summer while positioning our businesses for an important and promising second quarter. Our first quarter is typically Scholastic's smallest revenue quarter, with schools largely out of session and sales particularly light for our children's books and education divisions. For reference, last year's first quarter represented only 14% of full-year revenue. Consistent with the expectations we outlined in July, we recorded an operating loss in the quarter, reflecting the seasonality of the business as well as the full period impact of the sale leaseback transactions completed last December. During the quarter, we continued to invest in our growth priorities and advance strategic transformation across the company. We remain 100% focused on driving stronger top and bottom-line performance this year and beyond.

Our fiscal 2027 priorities remain unchanged, translating the strategic and operating progress we achieved last fiscal year to drive stronger performance gains. We remain confident in the trajectory we outlined in July and are affirming our full-year fiscal 2027 guidance. Let me turn to our children's book publishing and distribution segment. Our book fairs business is now entering its important fall season, and early performance indicators are strong. Bookings and fair count are ahead of the prior year, and we continue to see traction in Christian schools and other extended formats as we expand the total addressable market for fairs by reaching new school communities. These leading indicators echo the momentum we saw in fiscal 2026 and reinforce our confidence in book fairs as a core growth and earnings engine for our children's book group.

We are bullish about sustainable and profitable growth in fairs for three key reasons. First, the unique competitive advantages provided by our scale, brand, content, and operations. Second, the significant growth opportunities serving new kinds of schools and offering new types of fairs. Third, the strong operating leverage in this business. Our focus now is on execution through the fall while continuing to expand the reach of this highly differentiated business. In book clubs, we remain focused on simplifying the program and innovating our promotions and incentives to better engage teachers and families. Together with fairs, book clubs remains an important part of Scholastic's direct connection to schools and classrooms, as well as an important channel for our publishing.

Turning to our trade publishing business, we are entering a very exciting second quarter and holiday selling season with a strong publishing schedule across our portfolio of global franchises, best-selling series, and new titles. We have an extraordinary Harry Potter publishing program this fall ahead of the new HBO series premiering this Christmas. As a reminder, HBO's epic adaptation of the series, currently planned to roll out over 10 years, will introduce our beloved books to a new generation of American readers. Earlier this month, we launched a major Back to Hogwarts campaign with coordinated publishing, bookseller, school channel, and marketing activity continuing through the fall and holiday season. This includes a Read It Before You See It campaign around the first book in the Harry Potter series, connecting our publishing with growing anticipation for the upcoming television series.

In October, we will publish the full-color illustrated edition of Harry Potter and the Half-Blood Prince alongside a robust range of new titles, including a paperback Philosopher's Stone tie-in with an iconic cover from the HBO show, a continuation of Pocket Potters, and additional licensed titles centered around creativity and crafting. Looking further ahead, we also see opportunities to build on the Harry Potter franchise around major publishing milestones, including the 30th anniversary of its U.S. publication in 2028. Another reason for excitement in quarter 2 will be the November release of Dav Pilkey's Dog Man: A Sprinkle in Time, as we celebrate 10 years of Dog Man, now with more than 70 million books in print worldwide.

We're also looking beyond this fall with new Pilkey publishing planned in 2027 and 2028, including the recently announced interactive book, "Dog Man Dynamite," continuing the momentum of one of Scholastic's most important global franchises and a publishing relationship with Dav spanning nearly three decades. November also brings another major moment for The Hunger Games, with the film adaptation of Sunrise on the Reaping, supported by tie-in publishing and renewed activity around the franchise. Our fall publishing slate includes much more. In July, Heartstopper: Volume 6 became the first young adult title to debut at number 1 this year and was the number 1 selling book across adult and children's titles during the month, according to Circana.

We've also got new titles ahead across bestselling series, including The Baby-Sitters Club, Wings of Fire, and I Survived. Together, the breadth of our publishing program and the major franchise activity ahead give us confidence in trade's positioning for the year. Our focus is on executing against that slate and increasing coordination across our publishing, marketing, and diverse channels to extend the reach of our books and franchises across the Children's Book Group and Scholastic. Turning now to Scholastic Entertainment. Building on the momentum and visibility we discussed in July, the business delivered a strong first quarter. Production activity increased significantly year-over-year, driving substantial revenue growth and improved profitability. Just as importantly, our pipeline for fiscal 2027 remains strong and continues to build with additional contracted projects and opportunities supporting our expectation for accelerating growth in the business.

Meanwhile, Scholastic Entertainment's digital platforms continue to extend the reach of Scholastic IP. Clifford remains one of the leading franchises across our digital portfolio, with YouTube views increasing 52% year-over-year in the first quarter. We're building on that audience engagement ahead of the new Clifford the Big Red Dog animated series, expected to premiere on PBS Kids in 2027. Together, the growth in production activity, continued visibility into the pipeline, and expanding engagement with Scholastic's IP reinforce our confidence in Entertainment's growth and profitability opportunity in fiscal 2027. Turning to Scholastic Education during that business's smallest quarter, we continued to take significant actions to reposition it. The go-to-market transformation that accelerated this spring under our new chief revenue officer is focused on improving sales productivity and execution.

Further actions to restructure our products and operations are helping us diversify the customer base and better align the cost structure with current pressured market conditions. We believe the actions underway are creating a more streamlined and diversified Education business with stronger commercial execution and a cost base better aligned with the opportunities ahead. Finally, our International business continues to benefit from Scholastic's global franchises, local publishing, and operating discipline across key markets. We began to see early benefits from renewed Hunger Games activity ahead of the film this fall, building on the franchise's strong performance across our international markets last year. The new Dog Man title publishing in November provides another important franchise moment across our international markets in the second quarter.

We also recently announced a publishing and distribution partnership with Mattel in India, bringing brands including Barbie, Hot Wheels, and Masters of the Universe to young readers across the subcontinent through Scholastic's local publishing expertise and reach. More broadly, as we move through the important fall selling season, our focus remains on execution. With the first quarter behind us, we remain confident in our plan and full-year outlook. With that, I'll turn the call over to Haji to discuss our first quarter financial results and outlook in more detail.

Thank you, Peter, and good afternoon, everyone. Please refer to the tables in today's earnings release and our SEC filings for a complete discussion of one-time items and reconciliations of all non-GAAP measures discussed today, including adjusted operating income or loss, segment adjusted operating income or loss, unallocated adjusted overhead costs, adjusted EBITDA, adjusted net income or loss, adjusted net income or loss per share, free cash flow, and results presented on a comparable basis to the most directly comparable GAAP measures. I'll identify our adjusted results and other non-GAAP measures as I discuss them. As Peter noted, the first quarter is typically Scholastic's smallest revenue quarter, reflecting the summer period when schools are largely out of session and activity in our school-based businesses is limited. Let me begin with our consolidated financial results.