McGraw Hill, Inc. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Innovation and AI: Leveraging AI for personalized learning, with AI Reader used by 1 million students and 11 million learning interactions in Q2. Introduced new AI-powered solutions like Sharpen Advantage, clinical reasoning, Writing Assistant, and Teacher Assistant.
• Financial Performance: Fiscal Q2 revenue reached $669 million, down 2.8% y-o-y. Reoccurring revenue grew 6.5% to $422 million (63% of total revenue). Digital revenue increased 7.6% to $352 million (53% of total revenue). Adjusted EBITDA was $286 million, margin 43%, up 60 basis points y-o-y.
• Business Segments: Higher Education delivered exceptional results with 14% revenue growth; K-12 showed strength in Core subject areas; Global Professional and International had mixed performance but ongoing innovation.

Segment Performance

• Higher Education: Q2 revenue grew 14% y-o-y to $213 million. Reoccurring revenue increased 13.8% to $162 million, while digital revenue expanded 18.4% to $186 million. Trailing 12-month market share reached 30%, up 160 basis points. Inclusive Access sales grew 37% y-o-y.
• K-12: Revenue was $359 million in Q2, down 11.2% y-o-y. Reoccurring revenue increased 2.8% to $216 million. Showed share gains in Core Science, ELA, and Math, with ALEKS Adventure gaining traction.
• Global Professional: Revenue was $40 million in Q2, relatively flat y-o-y, while reoccurring revenue grew 5.4% to $25 million.
• International: Revenue decreased 8.8% y-o-y to $50 million in Q2, with a narrowed sequential decline in reoccurring revenue.

Guidance

• Raised full-year guidance for fiscal 2026: Total revenue expected in the range of $2.031 billion to $2.061 billion, reoccurring revenue from $1.504 billion to $1.524 billion, and adjusted EBITDA between $702 million and $722 million. Cited strong first half performance, RPO visibility, share gains, and favorable enrollment trends as reasons for the guidance increase.

Risks

• Economic, competitive, and regulatory uncertainties that could impact forward-looking statements.
• Potential impact of federal education policy changes, though the majority of K-12 budgets are at state and local levels, making the impact immaterial.

Question and Answer

Q: On a great quarter, asked about Higher Ed enrollment and Inclusive Access growth.

A: Simon Allen and Bob Sallmann discussed enrollment trends being slightly higher than preliminary data and the strong runway for Inclusive Access growth with 100 new institutions added annually and 15-20x growth over the first couple of years for landed institutions.

Q: Follow-up on K-12, asked about California Math and Florida ELA performance.

A: Simon Allen and Bob Sallmann mentioned excitement about the $300 million TAM growth in K-12 in 2027, with significant opportunities in California Math, Florida ELA, and Texas Math, and McGraw Hill's strong positioning in these areas.

Q: Asked about AI disintermediation and competitive moats.

A: Simon Allen emphasized McGraw Hill's 137-year trusted position, domain expertise, and proprietary data as key moats, with AI integration enhancing learning outcomes and differentiating from AI-first entrants.

Q: Inquired about K-12 capture rates and TAM growth.

A: Robert Sallmann stated K-12 capture rates were 200 basis points higher than prior year and highlighted the $300 million TAM growth expected in 2027, particularly in California Math.