Ladies and gentlemen, thank you for standing by, and welcome to the Scholastic Reports Q4 2020 Results Conference Call. [Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Gil Dickoff, Senior Vice President and Treasurer. Please go ahead, sir.

Thank you so much, Joel and good afternoon. I trust everyone has successfully steering clear of harm's way and we welcome you to Scholastic's fourth quarter and fiscal 2020 earnings call. Joining me 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 IR website at investor.scholastic.com, which we encourage you to download if you haven't already done so. I would also like to point out that certain statements made today will be forward-looking. Such forward-looking statements are subject to various risks and uncertainties, including those arising from the continuing impact of COVID-19 on the company's business operations. These forward-looking statements by their nature are uncertain 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, 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 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.

Thank you all for joining our call today. In a quarter, when schools and families across the globe were dealing with both the pandemic and a massive economic slowdown, we showed the resilience that is defined our company since our founding 100 years ago. Amidst the challenges from the impact of the coronavirus, including school closures in the U.S. and globally, Scholastic demonstrated our value to our school, teacher, parent and child customers while also taking substantial action to offset the impact of the pandemic on our operating income and cash flow. This disruption coincided with our significant fourth quarter a period when the company typically records the majority of our earnings and cash flow for the year. In response, for all of our school facing businesses, we have transitioned Scholastic to a more flexible model, redesigning clubs and fares, as well as increasing our focus on digital solutions and education. We also established a rigorous cost reduction program with specific company and divisional targets, aimed at $100 million of savings in fiscal 2021 through reducing labor costs and improving processes. This program will enable us to preserve profitability and to ramp as demand increases. While reducing costs, we also focused on a more streamlined Book Fair business simplifying fares to adjust to the changed school environment. We also took cost out of our Book Club process, while improving online ordering. We expanded digital solutions and education deepening our connection with parents and children through Scholastic learn at home. We answered the need for high quality books to read at home with our engaging trade offerings and schools are also asking for more independent for more digital curriculum, which we offered through our digital subscription programs for independent reading, foundational phonics and vocabulary. As we look ahead, including and continued…

Thank you, Dick and good afternoon. Revenues in the important fourth quarter fell by $186.7 million or 40% versus the prior year period, with revenues from clubs and fairs declining $151.7 million as a result of the decrease in school-based Book Clubs and Book Fairs events. Fiscal 2020 revenues declined 10% versus last year to $1.49 billion, also driven by decreased revenues from Clubs and Fairs. School closings also had an adverse impact on our international school channels and education business. As Dick mentioned, we ended the year with strong global trade publishing sales, driven by solid front list including The Ballad of Songbirds and Snakes. Domestic trade sales increased $25 million or 45% in the fourth quarter and $56.5 million or 20% for the full year. This result was significant given that industry wide book store sales declined as a result of brick and mortar store closures in the fourth quarter. Excluding one-time items for both periods, operating loss for the fourth quarter was $39.4 million versus income of $40.1 million in Q4 of last year. For fiscal year 2020, operating loss, excluding one-time items was $32.3 million versus operating income of $41 million in fiscal 2019. Adjusted EBITDA for the fourth quarter was a loss of $17.3 million, compared to $61.2 million last year. While adjusted EBITDA for fiscal 2020 was $56.6 million, compared to $121.3 million in fiscal 2019. These declines are directly attributable to the impact of the coronavirus pandemic. Fourth quarter loss per diluted share was $0.38, compared to earnings of $0.50 in 2019. Excluding one-time items fourth quarter loss per diluted share was $0.23 in 2020 versus earnings of $0.84 in 2019. Loss per diluted share for the year was $1.27 compared to earnings of $0.43 last year. Excluding one-time items loss per diluted…

Thank you, Ken, and Joelle, we are now ready to open the lines for questions.

[Operator Instructions] Our first question comes from Drew Crum with Stifel. Your line is now open.

So in the press release I know you're not giving formal guidance at this point, but there's a comment about expectations for fiscal 2021 sales to be slightly lower than fiscal 2020 offset by the plan cost reductions. Can we assume based on that the adjusted EBITDA that you reported for fiscal 2020 at about $57 million should improve in fiscal 2021? And what are your expectations for free cash flow should it be positive this fiscal year?

Let me answer this and then turn it over to Ken also Drew. Yes, we believe our sales will be just a little bit lower than sales recorded for the full 2020 year. You remember that we discussed that at our call in March and we believe that - because of the slow return schools and adjustments, that the fall will probably be a little less strong. But that would make it up in the second part of the year. We have focused on a cost reduction plan that is really key to our goal of profitability and cash flow for this coming year and what we believe will be an increase in EBITDA, but I'll let Ken talk about that.

Hi Drew.

Hi.

So hope you’re well by the way likewise, yes so we do have a major cost reduction program in place right now as Dick mentioned a $100 million. So, should revenues end up being as we thought slightly lower than last year, then I would expect to see an improvement certainly in EBITDA. I think the more important thought around this is, is that we're capable of reacting to a landscape that seems to be changing fairly regularly if you just watch the news on school openings. So we are really prepared to meet whatever revenues we can get and scale our costs accordingly up or down and that's really our objective at this point in time. Yes - it's as much a continuum in terms of our management practices right now to be able to adapt to what we see on the horizon. So yes, revenues are as we expect then I would expect an improvement in EBITDA.

Okay and Ken any thoughts on free cash flow?

Yes go ahead Ken, yes.

Yes just yes. I don't want to guide too much on free cash flow, but we were just based upon our EBITDA and where we know our reductions in cap spending are as well as our working capital management, free cash flow would be better and does it cross over into the positive range at this point in time I'm not ready to go there. Okay Drew - I don't want to comment, I really don't want to comment.

Okay all right.

So Drew - just to follow-up a little bit. I mean, it was clear that - with revenue down dramatically in the fourth quarter that we had to prepare for reduce revenue picture for the coming year. We immediately set - upon looking at all of our costs and reducing those costs. We have a very structured cost management program with trackers as Ken referred to in his talk. And we're really - our whole strategy is revenue is down a little bit, reduce cost by $100 million, and we will turn the company around.

Okay, that’s helpful.

We can't predict the revenue with the uncertain school openings this fall.

Okay, I've now better sales-related question not looking for specific numbers, but the trade pipeline that you guys discussed looks quite strong. You're going to be laughing at up comparison, but it looks like you've got a number. The new initiatives planned for fiscal 2021 how are you thinking about growth for that business in light of some of the bricks and mortar store closures or potential for more store closures during your fiscal period?

Yes, I think the trade is just had a spectacular year its increasing 20% and 45% in the fourth quarter of course, the fourth quarter was held by the Ballad and the wonderful performance of the Suzanne Collins fourth book in The Hunger Games series. But the whole trade business is strong Drew - every category is clicking and working. Dav Pilkey is very, very strong. We have lots of wonderful new authors. We're winning a lot of auctions for new titles. So and we've expanded our revenues considerably over the past 24 months, as you undoubtedly know. So we feel that that business is moving ahead will continue to grow. It's supported by our entertainment arm, which is producing television and movies including the upcoming Clifford movie, which was we’re still thinking will happen sometime this fall, but that is uncertain as of all movie distribution. But the - what's going on in that business with the integration with the media also is just very, very strong and we're looking forward to continue a strong performance and the children's area has been growing more than the industry for sure. Not too worried about all the bookstore closures because we don't think there will be as many this coming year. However, and I believe also that we were obviously - offset that with our performance in the fourth quarter with direct to the home sales and an excellent mass market sales.

Okay. I have a couple more specific questions on trade continues comment on your channel inventory for the business. Is there another print run planned for the Hunger Games book in fiscal 2021? And as it relates to the JK Rowling book what publishing rights will Scholastic have?

Well in the JK, the new Ickabog, we continue to have North American rights to that book.

Okay, that’s print only Dick?

Yes, that's print only, because she continues to retain - we'll be offering an ebook version however yes.

Okay.

No it’s not a factor we do have an ebook version which we're selling yes.

Okay. And then - is there another print run plan for the Hunger Games book and any commentary on channel inventory as you enter the fiscal year?

Well, we printed a good number and we sold most of them. We’re not holding on to a lot of inventory but - there's still some out there and we, but we're seeing a very, very good sales rate on that title it's holding up extremely well.

Okay all right. And then I guess separately or shifting gears understanding your cash flow is seasonal and you're typically in a use of cash mode during the fiscal first quarter. Are you anticipating having to access the $200 million advance that you referenced?

Ken, you want to handle that one?

At this point in time Drew no.

No okay, all right very good. Just one last question just on clubs and fairs, any impact or can you talk about the impact to profitability for those channels operating its environment versus normal seeing or normal operating conditions. And then just any thoughts on revenue for fair for virtual fair versus normal in-person fair?

Yes the profitability as we operate under pandemic and it is back to school issues. There'll be less people participating in fair. That as the parents will - and the community won't be quite as involved. But we were structuring our fair business to accommodate that. We do have on the phone here Drew, the new President of our Fair business Sasha Quintin. I think I'll ask her to respond to that question also. Sasha, are you there, yes?

I'm here, good afternoon Drew.

Hi Sasha.

So regarding the [National] Fairs, hi and the revenue per fair as compared to the physical, we launched this in the spring in a test mode. And we actually saw a pretty significant range in terms of the performance some even higher than the physical fair, and some lower. So but generally they performed lower from a revenue per fair perspective. So we have a number of enhancements in development and a lot of them are incredibly exciting for the fall season, which we know will offer a much richer, more comprehensive virtual fair experiencing for our students and our teachers and parents alike. So we do believe that we can see some improvements there.

Thank you. [Operator Instructions] I'm not showing any further questions at this time. I would now like to turn the call back over to Richard Robinson for closing remarks.

Well, thank you all for attending our yearend and fourth quarter call. We obviously had a difficult fourth quarter. We're being very flexible going back to school. We're very confident in scholastics ability to help teachers and parents and kids and schools and we're looking forward to doing the best we can with a situation that are enduring brand will carry us through as it has for 100 years, as well as the skill of all the people in the company who have supported us and our customers in schools so well. Thank you for listening and we will be back to you in September.

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