Ladies and gentlemen, thank you for standing by and welcome to the Scholastic Reports First Quarter 2020 Results Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Senior Vice President, Treasurer, and Head of Investor Relations, Gil Dickoff. Sir, please go ahead.

Thank you, Latif, and good afternoon, everyone. Welcome to Scholastic's first quarter 2020 earnings call. With me here today are Dick Robinson, our Chairman, President, and Chief Executive Officer; and Ken Cleary, the Company's Chief Financial Officer. We have posted an investor presentation on our Investor Relations website at investor.scholastic.com, which we encourage you to download if you have not already done so. I would like to point out that certain statements made today will be forward-looking. These forward-looking statements, by their nature, are uncertain and may differ materially from actual results. In addition, we will be discussing some non-GAAP financial measures as defined in Regulation G and the reconciliations of those measures to the most directly comparable GAAP measures can be found in the Company's earnings release filed this afternoon on our Form 8-K, which has also been posted to our Investor Relations website. We encourage you to review the disclaimers in our press release and investor presentation and to review the risk factors contained in our annual and quarterly reports filed with the SEC. And now, I would like to turn the call over to Dick Robinson.

Good afternoon, everyone and thank you for joining the call today. As millions of U.S. students and teachers settle into their classrooms this new school year, the 99th back-to-school season for Scholastic, the vast majority will come in contact with and find support from Scholastic whether it be through our clubs, fairs, the classroom library we've helped teachers build, instructional materials or classroom magazine, we are a driving force and creating a positive environment for literacy. As we near our 100th anniversary and celebrate this unparalleled reach and impact, we're working on how to expand this important connection to schools and families for the next 100 years. This vision motivates our technology enhancements to better find and serve consumers, our expansion into new education markets, and leveraging our strength as publishing innovators as well as critical distribution channels for kids to find engaging fiction and non-fiction. We're moving forward with a rigorous process to improve our operating income as we detailed in our July call, which started to take effect in our first quarter. To that end, we typically record a loss in the first quarter as U.S. schools are on break over the summer as you know. First quarter revenue was $232.6 million, an increase of 7% compared to $218.4 million in the first quarter of 2019. Adjusted EBITDA in the first quarter was $61 million compared to $64.5 million one-year ago both meeting our expectations. As such, we are affirming our outlook for revenues for the 2020 fiscal year in the range of $1.67 billion to $1.70 billion. And in a few minutes, Ken Cleary will detail our quarterly operating results, EPS, and adjusted EBITDA. First, I'd like to share highlights and updates with you. Our distribution channels of clubs and fairs remain important access points for kids…

Thank you, Dick and good afternoon. Today I will refer to our adjusted results for the first quarter excluding one-time items unless otherwise indicated. We adopted the new revenue recognition standards pursuant to ASC 606 in the first quarter of the last fiscal year, so we will no longer break out the impact of the new standard on our results for comparison purposes. In the current quarter, we adopted the new ASC 842 lease accounting standard. This adoption required us to record substantially all of our leases on the balance sheet, but no impact on the company's results of operations. As Dick mentioned, revenues were $232.6 million versus $218.4 million in the first quarter last year, an increase of 7%, the big story in the quarter was our strong trade frontlist worldwide with our U.S. trade operations of 21% year-over-year. Most impressive was our strength in series publishing, Dog Man, Captain Underpants, Harry Potter, the Bad Guys and Wings Of Fire where each new release had a positive pull on the earlier titles in our backlist. Our operating loss was $83.1 million versus $83.3 million last year with contribution from higher sales, along with better cost management and children's book publishing and distribution and education in the quarter. Adjusted EBITDAA showed a loss of $61 million compared to a loss of $64.5 million in the first quarter of 2019, an improvement of 5%. We believe that adjusted EBITDA is the most meaningful measure of operating profitability and useful for measuring returns on capital investment over time since is not distorted by unusual gains, losses or other items such as share repurchases. The better operating results in children's books and education are partially offset by higher depreciation expense and higher technology spend in corporate overhead both as expected, as well as…

Thanks very much, Ken. Latif, we are now ready to open the lines for questions.

[Operator Instructions] We have a question from Drew Crum of Stifel. Your line is open.

I have a couple, maybe starting with Dog Man, you talked about the week one sell-through. Can you address the initial current run, how that compared to the last book, I believe it was five million copies?

It’s a similar print run, Drew.

Okay.

We’re not announcing the numbers, and we're keeping a focus on management of inventory, but our confidence in Dog Man grows. And as you may have noticed, the new book sold better than the last year’s release. So, it's definitely on upswing and just judging from kids’ comments and the incredible amount of publicity coming in here and enthusiasm for kids and kids stopping people in the street and asking, “When is the next Dog Man coming?” It's really still accelerating its impact.

And then I know on a couple of occasions, you suggested it was a little bit early in the fiscal year to kind of gauge the efforts you're making around addressing competition and fairs and sales tax collections of clubs, but what does your guidance imply or embed in terms of improving margins for those two businesses? I know it's a target, it’s a goal obviously, but what does your guidance --?

Well, certainly, we see good progress in cost management in the first quarter even though it's not an operational quarter. It is a quarter where we're doing an awful lot of stuff preparing for the year, and we’re holding our costs very well in fairs and everywhere else in the company in that quarter. We have very targeted programs in respect to bringing down the cost of our operations in fairs. We have an ongoing group that works every single day to focus on a number of different projects in that area. At the same time, we're very focused on being strong competitors and providing the very best possible fair experience including inventory availability and well-managed fairs and we are -- we believe that we're in the position to do that, while managing our costs down in fairs.

Okay.

On sales tax, it's too soon to say, but our guidance certainly implies that we don't see any major problems that it's too early to say because it's so early in the quarter and we're just beginning to get sales from teachers who we're collecting now for kids as kids come back to school.

And then the overhead costs were up year-on-year, you gave an explanation as to why that makes sense. I'm just curious as to whether or not this is indicative of the type of increase we should expect to see through the balance of the fiscal year?

So yes, you’ve got to remember a big piece of this is depreciation expense. So, you will see the depreciation expense continue to come through, and our spending in terms of technology spend, non-capitalized technology spend this year will certainly continue at a similar rate, will go down in years beyond that though.

Okay. And then, I think going into the fiscal year, you guys are pretty bullish on Asia, I know it’s just one quarter, but can you address the lower direct-to-home sales in the quarter along with the export business, would you expect that to snap back in the out quarters?

Yes, I think the Asia's direct-to-the-home sales are all that we carry these out in primarily developing countries including Malaysia, Thailand, Philippines, Indonesia are the principal markets for that business, and there's always something going on in those markets. This year, in the first quarter, it was in Malaysia where there were some changes in the pattern of going into the malls. I will not bore you with the long description, but it's a timing matter and we believe that business will come back later. So, in export, with the strong U.S. dollar, export is facing headwinds because their pricing is in the U.S. dollar, so that does affect the business but we seem to have -- we seem to have some momentum in that business, and it seems that they were on track for our budget overall for the year despite that performance in the quarter.

Okay, just one more from me. Ken, can you quantify the impact from the new program and sale in the quarter? And how should we think about the cadence of these contributions for the balance of the year and I guess, separate item, you're consolidating the Make Believe business now, was that meaningful to sales in the fiscal first quarter?

So, let me take the latter one first, in terms of MBI, yes there is sales in there, it's a part of the pickup that we have in trade, but it's single digits in terms of revenue for the quarter. Remember, MBI product is sold throughout all of our international operations as well as our U.S. channels or U.S. school channels. So, you're not going to see it all in one spot. It really, it really is an integrated type of operation. In terms of SEI, our programming revenue, remember we had the big pickup last year, but that wasn't really backlist [ph] sale. So, when you talk about contribution going forward, the biggest contribution, yes, there's some top line revenue in there, single digits. But you're not looking at a major contribution because we have programming costs or we have costs associated with that as well whereas when we saw the backlist, everything was already off the books. So, you're not looking at a major contribution there but you're looking at an opportunity to sell product through as well, pull through product. So, it's good to get the brand out there obviously and that's what we're doing.

And just to clarify, Ken to go back to the MBI business, you're capturing or recording revenue in both trade and International?

Yes, you'll see. They have yes. So trade international and what I'm saying is they sell product into our other subsidiaries and our other subsidiaries would sell the product. So MBI is a standalone entity has sales of their own, but we're deploying the other channels as well to, we're leveraging other channels as well to sell that product.

At this time, I'd like to turn the call over to Richard Robinson, Chairman, President and Chief Executive Officer for closing remarks.

Yes sir. Thank you all for listening to our first quarter report. We're happy to be moving forward in the new school year. And we will look forward to talking to you in December where we will be giving more information on our club and fair activity, of course. Thank you very much for your support, and thank you for listening today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.