Hello, everyone, and welcome to Scholastic Reports Second Quarter Fiscal Year 2025 Results. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. Now, I will pass the call over to the Chief Growth Officer and Executive Vice President, Jeffrey Mathews. Please proceed.

Hello, and welcome everyone to Scholastic Fiscal 2025 Second Quarter Earnings Call. Today on the call, I'm 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 accompanying investor presentation on our IR website at investor.scholastic.com, which you may download now, if you've 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 e-mail address investor_relations@scholastic.com. Now, I'd like to turn the call over to Peter Warwick to begin this afternoon's presentation.

Thanks, Jeff, and good afternoon, everyone. Thank you for joining us. In the second quarter, Scholastic Book Fairs and Clubs continue delivering the joy and excitement of books and reading to millions of kids, while our global children's publishing and entertainment teams moved ahead with exciting plans for this fiscal year and next. As we discussed at our earnings call in September, second quarter results came in lower than the prior year, primarily reflecting the timing of this year's publishing plan. During the back-to-school season, we pursued multiple opportunities to drive long-term growth in our core markets and expand beyond them with new models, channels and products, all leveraging Scholastic's trusted brand, iconic IP, global scale, and differentiated channels. We built upon Scholastic's unique capability to give kids access to engaging high-quality books year-after-year through our school reading events and education businesses. We advanced our strategy as a global children's media and content company through our trade and entertainment divisions, preparing best-selling books and award-winning media for distribution through our own channels as well as through third-party retailers, sellers and platforms. To support this growth, we successfully upsized our unsecured revolving credit facility to $400 million last month. With our strong balance sheet and history of robust free-cash flow conversion, we remain committed to investing in our future while returning excess cash to enhance shareholder returns. We've reaffirmed our fiscal 2025 guidance. This reflects our results in the first-half of the year and confidence in the outlook for the second-half. Haji and I will both discuss this further shortly. I'd like to start by discussing our market outlook and how after significant preparations over the past several years, Scholastic is positioned to navigate potential changes in U.S. policy as the administration changes. First, we're closely monitoring U.S. trade policy, including…

Thank you, Peter, and good afternoon, everyone. Today, I will refer to our adjusted results for the second quarter, excluding one-time items, unless otherwise indicated. Please refer to our press release tables and SEC filings for a complete discussion of one-time items. As Peter discussed earlier, second quarter revenues decreased year-over-year, primarily due to timing-related factors in our Children's Book Publishing segment. Operating profits in the quarter decreased, driven by these modest sale declines. Turning to our consolidated financial results. In the second quarter, revenues decreased 3% to $544.6 million, operating income was $78.9 million compared to $101.3 million in the prior year period. Adjusted EBITDA was $108.7 million, relative to $124 million a year-ago. Net income was $52 million from $76.9 million in the prior year period. On a per diluted share basis, earnings were $1.82 compared to $2.45 last year. Now turning to our segment results. In Children's Book Publishing and Distribution, revenues for the second quarter decreased 6% to $367 million, reflecting timing factors in our trade, publishing and book fairs channels. Segment operating income was $102.1 million, a decrease of $9.5 million from a prior year period. Within our School Reading Events division, Book Fairs revenues were $231 million in the quarter, a decrease of 5%, reflecting slightly lower fair count and revenue per fair. Given the late Thanksgiving holiday in the U.S. and the impact of hurricanes on schools in the South, a larger number of fair bookings occurred in December this year in our fiscal third quarter compared to a year-ago. As a result, fair count was lower in the second quarter versus a year-ago. As we increased fair count for the season, adding smaller fairs to the fall schedule, revenue per fair also decreased slightly. Still, RPF remained close to record levels and…

Thank you, Haji. After solidly executing in the second quarter, I'm positive about Scholastic's prospects. For the remainder of the year, we're focused on delivering modest growth. For next year and beyond, I'm excited about the investments we're currently making to leverage Scholastic's unique assets and strengths and profitably grow in and beyond our core markets, as I've discussed this afternoon. I again want to acknowledge the dedication and innovation of our employees, the talent of the creators, teachers and parents we work with, and the support of our shareholders, which together enables Scholastic to bring stories, reading and learning to kids around the globe. Thank you very much. Let me now turn the call over to Jeff.

Thank you, Peter. With that, we will open the call for questions. Operator?

Thank you, Jeff. [Operator Instructions] And it comes from the line of Brendan McCarthy with Sidoti. Please proceed.

Great. Good afternoon, everybody. Thanks for taking my questions. I just wanted to start out at the segment margin level, specifically the Entertainment segment. Wonder if you could walk us through some of the dynamics and factors that drive margins in that new Entertainment segment and what kind of drove segment operating loss for this recent quarter?

Hey, Brendan, this is Haji. How you doing?

Good, Haji. How are you?

All right. So just taking the Entertainment segment and mainly around the intangible impairments that we have -- not impairments, the intangibles that we have in the business, that actually impacted the quarter by at least 2 -- I think it was like $2.3 million, which is part of the buy of the deal. And then also we have production expenses as well. So those are the major drivers for the margin change.

Got it. That makes sense. Thanks, Haji. And then a follow up with the -- sorry, go ahead.

Yes, I was also going to say with all that stuff is being backed out when you look at the EBITDA.

Got it.

Okay.

Just as a follow-up for the Entertainment segment, the Dog Man movie that's due to come out in January 2025, what kind of role did 9 Story play in that production or distribution there? And maybe you could just kind of walk us through how that worked its way through the Entertainment business?

Yes, so from that perspective, we didn't have anything to do with the actual Dog Man movie where that's actually done through DreamWorks. But what we see the benefit from is actually in the book sales. So we're hoping that the movie gets the excitement that we need and then we continue to see pull-through on the back list as well as the front list.

Got it. That makes sense. And then more of a broad question here on the education solutions side of the business. And as it relates to the incoming Trump administration, just -- I guess, just curious as to what's your base case for any funding changes there. I know that Trump has mentioned potentially eliminating the Department of Education. Just curious as base case as to what changes we might see and ultimately how that will impact the business and spending?

Well, in the -- Brendan, it's Peter. In the short term, we don't expect that to have any material impact one way or the other in our current financial year. I think going forward what we are likely to see is a further decentralization really in terms of funding and decision making from federal level to state and local levels that's already happening. And, of course, the big thing is that most of the funding -- most of the decision-making about educational books is actually done at state and -- it's done at state and local level. It's not really done at federal level. It's done to some extent with federal funding, but the major funding has always been at state level. I think, you're looking at only about 13% to 14% of funding for education being done from federal funding. And, of course, we sell at the district level.

Great. Thanks, Peter. That's helpful. And then on the state literacy partnerships, I think you mentioned in the remarks, you're pretty optimistic about the outlook there for the rest of the fiscal year. Maybe you could talk about what's driving that optimism?

We've got more student -- the main factor is actually we've got more students in our New World Reading Initiative project in Florida, which we do with the Lastinger Center at the University of Florida. So those numbers are going well and it's been a big success as we've discussed in the past. And we've also got other projects ongoing, but the big difference really in terms of our optimism for going forward is really the -- is the Florida project.

Got it. And one more question from me just on the capital allocation priorities. Haji, I think you mentioned strengthening the balance sheet is kind of second in line there. How can we kind of think about leverage where it stands now relative to your goals for leverage or where you would ultimately want leverage to fall long-term?

Well, right now, we're very much comfortable with our leverage that we have today. We're considering to increase modestly to support new growth initiatives that we have been contemplating within the organization and continue to contemplate, because we do see a lot of adjacencies within the markets that we play in. And with our strong brand, we want to continue to leverage that. And then, of course, returning excess cash to shareholders, this is always a priority for us as well.

Great. Thanks, everybody. That's all from me.

Thank you. And this concludes our Q&A session for today. I will pass the call back to management for closing comments.

Well, thank you, everyone, for joining today's call and for your continued support. I'd just like to again thank all of Scholastics employees for their great work this fall, executing on a solid back-to-school season and preparing for a big second-half. We look-forward to executing on our plan for fiscal 2025 and continuing to make progress towards realizing Scholastic's long-term opportunities. And, of course, I wish everyone a happy holiday season.

And thank you so much. And this concludes today's conference call. Thank you all for participating and you may now disconnect.