Scholastic Corporation Q2 FY2026 earnings call

• Refreshed board and leadership team with seven new independent directors and new leaders in segments/functions.
• Reorganized core businesses and overhead functions, unified children's book group, restructured Education Solutions, reorganized international segment.
• Invested in growth opportunities, acquired Nine Storey Media Group, scaled literacy funding sources.
• Returned nearly $500 million to shareholders through share repurchases and dividends, reduced share count by ~25%.
• Closed sale leasebacks unlocking over $400 million in net proceeds, increased share repurchase authorization to $150 million.
• Strong back-to-school performance with 13% adjusted EBITDA growth in Q2.
• Progress in children's book publishing with strong franchise releases like Dog Man and Hunger Games series.
• Entertainment momentum with production of three premium animated series, strong digital channel performance on YouTube and Scholastic TV.
• Scholastic Education made progress focusing product portfolio and go-to-market approach despite funding challenges.

Children's Book Publishing and Distribution

• Revenues increased 4% to $380.9 million in Q2. Book sale revenues $242 million, up 5% due to higher fair count and increased revenue per fair. Book clubs revenue $28.5 million, down from $33.2 million in prior year due to fewer teacher sponsors. Trade publishing revenues $110.4 million, up 7% from strong global franchise releases.

Entertainment

• Revenues decreased $1.7 million to $15.1 million, segment adjusted operating loss $3.6 million, an improvement from prior year quarter.

Scholastic Education

• Revenues $62.2 million, down from $71.2 million in prior year due to lower spending on supplemental curriculum. Segment adjusted operating loss $1.3 million, better than prior year loss of $500,000.

International

• Revenues $89.5 million, up from $86.7 million, segment adjusted operating income $12.8 million, up from $7.1 million

• Affirmed FY 2026 earnings guidance after sale leasebacks. Adjusted EBITDA outlook $146 to $156 million (includes partial year impact of ~$14 million). Free cash flow forecast to exceed $430 million. Fiscal 2026 revenues expected to be level with or slightly above prior year. Anticipate higher seasonal operating loss in Q3 followed by profitable gains in Q4. Expect ~$10 million incremental tariff expense this fiscal year.

• Tariffs: Closely following policy changes, expecting ~$10 million incremental tariff expense in cost of product this fiscal year.
• Funding volatility in Scholastic Education: Challenging funding environment with delayed federal disbursements and slower district decision cycles impacting near-term sales.
• Near-term challenges in Education: Cautious outlook due to ongoing funding volatility and need for market recovery.

Q: About the use of cash and dividends A: Haji Glover stated the goal is to return capital efficiently, with consistent quarterly dividend payout of ~$0.20 per share, averaging ~$20 million per year, and continuing to focus on returning cash to shareholders.

Q: Second half guidance and adjusted EBITDA decline A: Haji Glover clarified that adjusting for prior year, there is still growth expected, and the second half guidance accounts for various factors including education segment softness and other business performance