Good day, and thank you for standing by. Welcome to the Scholastic Reports Second Quarter Fiscal Year 2026 Results. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. I would now like to hand the conference over to your speaker today, Jeffrey Mathews, Executive Vice President and Chief Growth Officer. Hello, and welcome, everyone, to Scholastic's fiscal 2026 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 posted the accompanying investor presentation on our IR website at investors.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'll be discussing some non-GAAP financial measures as defined in Regulation G. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the company's earnings release and the company 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 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 email address, investor_relations@scholastic.com. And now I'd like to turn the call over to Peter to begin this afternoon's presentation. Thank you, Jeff. Afternoon, everyone.

Scholastic performed strongly in our important back-to-school season. We delivered 13% adjusted EBITDA growth in the second quarter and have affirmed our FY 2026 earnings guidance after adjustments for the sale leasebacks that we closed yesterday, which were not assumed in our original guidance. I'll discuss this further in a moment, as will Haji, who'll provide the adjusted view based on these highly accretive transactions. In quarter two, we also sustained our momentum with key strategic and financial initiatives, achieving major goals in our transformation to a more growth-focused, shareholder-oriented company. Before discussing quarter two results, I want to take a moment to review Scholastic's journey over the last four years. Since the start of fiscal 2022, I've had the privilege of working with our new board chair, Yola Lochese, to remake Scholastic with a singular purpose: realizing the power of our unmatched brand, IP, channels, and balance sheet for long-term growth and value creation. While significant opportunity and work remain, I'm proud of the progress that we've made. So first, we've refreshed our board and leadership team. We've added seven new independent directors with deep expertise in education, digital media, and capital allocation. We've also appointed new leaders in each of our major segments and in key corporate functions, including chief financial officer. These changes ensure the board has the experience and perspectives needed to maximize Scholastic's long-term opportunity and value while bringing innovative thinking, sharper strategic focus, operating discipline, and renewed accountability to our management. Second, we've reorganized and reengineered our core businesses and overhead functions to better align with Scholastic's long-term growth opportunities, improve execution of our plan, and unlock operational efficiencies. We unified our children's book group, bringing together our publishing and proprietary distribution channels to fully capitalize on Scholastic's scale as the world's largest and only vertically integrated children's book publisher and distributor. We restructured Education Solutions to focus our product portfolio, strengthen go-to-market capabilities, and reset our cost structure. We've also reorganized our international segment. At the same time, we've significantly reduced costs in our shared services and overhead functions by eliminating redundancies, improving processes, and reducing our real estate footprint. Third, we've invested and expanded into highly strategic growth opportunities. The acquisition and integration of Nine Storey Media Group further differentiates Scholastic as a global children's media book and IP company with the ability to reach kids and families where they are today—on screens as well as on the page. In addition, we've significantly scaled models and channels to tap new sources of corporate, philanthropic, and state and local government funding for literacy, generating over $300 million in revenue for our books and literacy solutions since fiscal 2022. And fourth, we've implemented a disciplined and shareholder-focused approach to capital allocation. Since fiscal 2022, we have returned almost $500 million to shareholders through share repurchases and dividends, reducing our share count by approximately 25%. At the same time, as we have invested in the opportunities that I've just described.

This month, we crossed another major milestone with the closing of two successful sale leasebacks that have unlocked more than $400 million in net proceeds from our major non-operating real estate assets. As a first step to deploy this incremental liquidity, our board has increased our open market share repurchase authorization to $150 million. Haji will speak later in the call about the financial impact of these highly accretive transactions and uses of proceeds. I want to be clear that the board and I are absolutely committed to deploying this incremental cash in ways that create value for our shareholders, and our top opportunity is returning it efficiently to shareholders. In summary, carefully executed comprehensive changes over the past four years position Scholastic's organization, strategy, and finances to better realize the value of its unique strengths that were built over the past century. That is our brand, our IP, and our channels by growing profitably, delivering impact and value for our customers, and driving returns for our owners. As we enter 2026, we remain focused on continuing this work. Turning now to the second quarter results. The performance of our children's book publishing and distribution segment demonstrates the strength of Scholastic's proprietary school-based channels and the power of our major global franchises. School book fairs delivered another strong back-to-school season and remain a cornerstone of Scholastic's reach and engagement with kids. Growth across key performance metrics, fair counts, revenue per fair, and e-wallet usage, and lower cancellations underscore the unique strength and relevance of this beloved event-focused channel, its ability to spark excitement among students, families, and educators. We continue to execute on initiatives to profitably grow fairs, expanding the addressable market, improving selling and marketing effectiveness, introducing new fair formats, and advancing merchandising with strategic pricing optimization. These efforts…

And good afternoon, everyone. As usual, 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 results were solid, reflecting strength in book fairs and momentum across our major global franchises. As a reminder, the second quarter represents one of Scholastic's seasonally more profitable periods, as kids return to school, and our school-based channels ramp up again. Beginning with our consolidated financial results. In the second quarter, revenues increased 1% to $551.1 million. Operating income improved to $95 million from $78.9 million in the prior year period, reflecting the company's cost-saving initiatives. Adjusted EBITDA was $122.5 million, a significant improvement from $108.7 million a year ago. Net income was $66.3 million compared to $52 million in the prior year period. On a per diluted share basis, adjusted earnings increased to $2.57 compared to $1.82 last year. Turning to our segment results. In the Children's Book Publishing and Distribution, revenues for the second quarter increased 4% to $380.9 million, reflecting strong performance in book fairs and the strength of our major global franchises in trade. Segment adjusted operating profit improved to $108.8 million from $102.1 million in the prior year period. Book sale revenues were $242 million in the quarter, an increase of 5% driven by higher fair count and increased revenue per fair. We continue to expect higher fair count and revenue per fair to contribute to revenue growth in our booked fairs business this fiscal year.

Book clubs revenue were $28.5 million in the quarter, compared to $33.2 million a year ago, reflecting lower teacher sponsors. As a reminder, clubs is our smaller school-based channel. We anticipate these trends continuing in the spring season. In our trade publishing division, revenues were $110.4 million in the second quarter, an increase of 7%. These results reflect strong performance of new publishing releases across our major global franchises, led by the fourteenth Dog Man title, which published in November, as Peter discussed. We remain optimistic about sustained momentum across our major global franchise and continue to expect trade to be in line with the prior year on a full-year basis. As a reminder, this year's publishing schedule is weighted more towards Q2 compared to last fiscal year, which benefited from major Dog Man and Hunger Games releases in Q3 and in Q4. Turning to our entertainment segment. Revenues decreased by $1.7 million to $15.1 million compared to $16.8 million in the prior year, primarily driven by fewer episode deliveries in line with expectations. As Peter discussed, we remain encouraged by recent green light momentum, and our position for renewed growth in 2026 and in fiscal 2027, particularly reflecting revenue recognition typical of media development and production. Segment adjusted operating loss was $3.6 million, an improvement of $300,000 from the prior year quarter. Turning to Scholastic Education. Segment revenues were $62.2 million in the second quarter versus $71.2 million in the prior year period, reflecting lower spending on supplemental curriculum products. Segment adjusted operating loss was $1.3 million in the second quarter, compared to a loss of $500,000 in the prior year period, reflecting lower gross profit mostly offset by cost reductions from reorganization initiatives and ongoing cost management. As Peter discussed, we continue to experience near-term funding volatility in…

Thank you, Haji. In fiscal 2026, Scholastic continues to make good progress, building on the momentum we've generated since fiscal 2022 to reinforce our foundations for growth, value, and shareholder returns. As I said at the start of the call, we've refreshed our board and leadership team. We've reorganized and reengineered our core businesses and functions while advancing strategic growth opportunities. And we've carefully allocated capital with a view toward driving shareholder returns, including returning nearly $500 million to our shareholders. We're optimistic about the outlook for our portfolio of businesses for the remainder of the year and over the long term. We also have a very attractive opportunity to repurchase shares using proceeds from our successful sale leaseback transactions, beginning with a $150 million open market authorization. We look forward to updating you on additional actions as we implement them. I'd like to close by thanking Scholastic's employees for their dedication and passion serving kids and customers as well as our shareholders for their continued support. Thank you all 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. Star one one on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. One moment for questions. And our first question comes from Brendan Michael McCarthy with Sidoti and Company. You may proceed.

Great. Good afternoon, everybody. Appreciate you taking my questions here. And congratulations on the quarter and the real estate transaction closing.

Yes. Thank you, Brendan. Yep. Just just wanna start on the use of proceeds. Can you provide any color or timing around how we can think about that $80 million increase in the buyback authorization? I know it looks like historically, you've taken out about 8% of shares outstanding on a fiscal year basis. What might that look like going forward?

Well, I mean, we the first what we've what we've announced is the first step. I mean, because of the, you know, the the very successful and highly accretive sale leaseback transaction. The first thing which we have done and which the board has authorized is to increase our, you know, off market share buyback. That's the first that's the first step. Let me hand over to Haji. He can talk a little bit more about about, you know, how we're thinking about it going forward.

Yeah. Thanks, Peter. So roughly, what we're seeing right now is that we have, you know, sell the share repurchase program that we currently have will allow us to get into the market soon to continue to focus on returning cash to shareholders. As we mentioned in the in the call, over the last four years, we did over $500 million return to our shareholders. We're gonna continue to do that thing. We definitely feel that our shares are undervalued right now, so we're definitely gonna go into the market. And we're we're contemplating things with our board to figure out other ways of doing things to help, you know, bring more money to our shareholders.

Hopefully, that answers your question. Yeah. That's helpful. Thanks, Haji. Thanks, Peter. And and Haji, I believe you mentioned you you are targeting paying down a a large portion of the credit facility.

Yeah. I mean, the census yeah. Exactly. Since it is an open line of credit for us, we can pay that down. We have to it's repriced every month, so we'll we'll probably most likely pay that down. And then if we need it, we'll definitely continue to do what we need to do in an organization from a short-term repayment. Our goal is to return to more moderate levels of of debt or moderate levels of leverage. Like we've done over the last few years.

And as far as the, you know, debt to EBITDA target, what is what's the moderate level of leverage?

I mean, historically, we've been right around one and three quarters. Roughly.

Okay. Got it. That's helpful. And and on the new guidance, specifically the top line revenue, can you walk us through the changes there so that obviously excludes the rental income at this point? Are there are there any other changes baked into that lower revenue number? Yes. And Peter mentioned this early on and has

is a part of the discussion today. We're seeing the education business continuing to deal with the the softness because of funding. While we also know that in the second half, we're gonna see some uplift based on funds being released in the second half and our sales the education group. pipeline is starting to be a lot better. But that was one of the reasons, we saw this office from We still expect to see growth in fares, to help offset that as we are are looking at our fare count We're projecting to do 92,000 fares this year compared to almost 90 last year. And then also, RPF continues to be strong. But that those are the things that are causing us to deal with the second half.

Uptick.

In our numbers.

Bunch of puts and takes. And yep. Understood. And and regarding trade channel sales, yeah, obviously, a really strong year for content last fiscal year. Tough comparison this year. Is it still expected to be, you know, flat to moderately lower for fiscal 'twenty six trade channel sales? Yeah. Trade channel sales, absolutely, is gonna be in line with last year, as we anticipated. We we did as you know, last year, we had the launch of the DogMen in Q3.

Versus this year in Q2. And on top of that, we did have the Hunger Games in Q4 last year. So but, ultimately, we're still getting in the nice tailwinds from all of those major franchises as you can see from our results, in the first half of the year.

Absolutely. Absolutely. And and looking at book fairs, were you surprised at all to see, you know, the strong results there? Or are you seeing anything regarding consumer spending that might give you pause for the rest of the year?

Yeah. I'm a turn that over to Peter, if you don't mind.

No. It's been, I mean, really, it's the the the trends that we that we saw last year are are really pretty much, continuing, which is to say that book book fair bookings are good. Cancellations are down. And, you know, revenue per fare is up. What we're seeing is that in some of the fares, that there, as we saw last year, that there's a a somewhat smaller number of kids who are actually buying. But those kids that are buying are buying significantly more, and that's what's that's what's driving up the revenue per fare. So I think that's the and we're not seeing anything that's in any way different, actually, from from from what we saw from what we saw last year. We're assuming that that is some sort of reflect of the overall economy here, but I'm but, thankfully, you know, we we've been able to manage that pretty well through just being, I think, very effective, very efficient. We've got great book selection and and those and and and marketing and those kinds of things. So we're actually the the Book Fair people are feeling pretty good about the spring. So, you know, that that that that's very encouraging.

That's good. Thanks, Peter. And moving to education solutions. Yeah. Obviously, it's been a tough year so far for that segment. But it looks like despite the revenue decline, think I saw segment adjusted EBITDA was about flat year over year in the second quarter.

Yeah.

You've obviously, you know, done well taking costs out of that business. And do you do you still see, you know, much room much more room there to to take you know, cost out of that segment?

Well, we've taken we've taken significant costs out, which really is reflect reflective of what the current state of the of the of the market is. What we now need to be able to do is to, prepare for regrowing that business to the size that it has been, in the past. That's something which almost all educational publishers and especially those who are involved in supplementary publishing like ourselves are are are having to do. I mean, I think we've done a we've we've done a really good job, I think, in in in very quickly adjusting to to what we can do. And I think as the market recovers, what it means is that, you know, more of the more cents per dollar is actually gonna land on our bottom line.

That makes sense. And, yeah, with one yeah. The first the fall season of of the school year, you know, behind us is there. Yeah. Are you more optimistic heading into the into the spring season How how can we kinda think about that education situation? I'm I'm I'm more I'm more

optimistic in the sense that I think we've stabilized the business. We've got it right sized. We can see that, you know, that we're dealing with a tough situation just like everybody else as well. But, I mean, the quarter four is a and and and the spring tends to be time when there's significant spending ahead of summer for summer reading, and for, you know, materials for the next academic year. So, you know, our our whole approach has been to get this behind us, deal with this thing as quickly as possible. That we can get to a good situation so that as as the season you know, just the the the the the seasonal market, I with purchasing in the spring. And as we hope there's more opportunities, more federal funding being dispersed as well, we expect in the spring that we'll be able to benefit from that We'll see that our overall educational, as it were, sales are going to be more second half loaded than we originally anticipated in our first budget. And that, you know, we'll, we've got ourselves in a good position to build and grow and move forward as the market improves. I think the stronger margins is something which are you know, which which which is really good for us at the moment. That's great. Really appreciate

the detail, Peter and Haji. That's all for me. Alright. Thanks, Brenda. Thanks. Cheers.

Thank you. Our next question comes from Drew Crum with B. Riley Securities. You may proceed.

Okay, thanks. Good afternoon, everyone. I want to go back to the question on uses of cash. I think addressed this on several occasions in your preamble. Is a top priority in terms of deploying the cache. Can you address how dividends play into that I don't think you guys have paid a special dividend through the years and the quarterly dividend payout has been relatively flat over the last several years. So I just want to get some additional color around that. And then I a follow-up.

Yeah. Our goal is to return capital as efficiently as possible. And as you mentioned, the dividend, yeah, we have been consistent with our dividend payout, which is about $0.20 per share over the last few years. On average quarter, that's about $5 million or around an average of $20 million per year. We we're continuing to build and and during more value from the organization. But, ultimately, it's about, you know, investing in our shares.

Okay. And then, Hygiene, just looking at the second half guidance, if I back out the SLB guidance, transactions, it would suggest at least using the midpoint of the ranges would suggest that adjusted EBITDA declines year on year. Just wanna make sure that's correct. And if so, what is driving the decline?

No. I think I I don't think there's a good decline. If you adjust prior year FY '25 with the numbers, you would you'll still you will still show growth. Okay. Okay. Provided that we provided that in the press release.

Okay. Got it. Okay. Thank you. No. No problem.

Thank you.

And this concludes our Q and A. I will pass the call back to management for any closing remarks.

Well, thank you very much, operator. And look, I'd just like like to thank our employees and shareholders as well as our authors, illustrators, educators, all those who are essential to to our our success. And, of course, all of us here wish you all a very happy and healthy holiday season. Goodbye. Thank you. Ladies and gentlemen, this concludes

today's conference call. Thank you for participating. You may now disconnect.