Good day, ladies and gentlemen, and welcome to the Scholastic Reports Q4 and Fiscal 2018 Results and Fiscal 2019 Outlook. [Operator Instructions] And as a reminder, this conference is being recorded for replay purposes. It is now my pleasure to hand the conference over to Mr. Gil Dickoff, Senior Vice President, Treasurer and Head of Investor Relations. Sir, you may begin.

Thanks you very much Brian and good morning everyone. Welcome to Scholastic's fourth quarter 2018 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 IR website at investor.scholastic.com, which we encourage you to download if you have not already done so. I'd 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 morning on Form 8-K, which is also available on our Investor Relations website. We encourage you to review the disclaimers in our press release and in the investor presentation, and to review the risk factors contained in our annual and quarterly reports filed with the SEC. And now I'd like to turn the call over to Dick Robinson.

Good morning, everybody. And thank you for joining us today. Last year at this time we shared our plan for driving long-term profitability through our multi-year Scholastic 2020 plan, designed to substantially increase operating income in the next three years. We'll discuss how we're carrying out this plan in just a moment. But turning to fiscal 2018 results we're pleased to have delivered on our guidance for earnings per share as adjusted and free cash used for the year. We began fiscal 2019 with strong strategies for our core Children's Book education in international businesses, a lower tax rate and continued optimism about the dynamic leasing environment for our SoHo retail space. Given the longer range and strategic outlook of Scholastic 2020, we're taking a new approach to guidance by introducing an EBITDA target. We believe that this non-GAAP measurement will be most useful for comparing our operating performance and value creation from period-to-period, Ken Cleary will discuss this at our outlook later in the call. Recognizing the fiscal 2018 was a transition year between the combined impact of Harry Potter and the Cursed Child in 2017, and Scholastic 2020 related investments which take effect in 2019. Here are some highlights of the recently completed fiscal year. Revenues were $1.63 billion. The year-over-year decline was expected as fiscal 2017 sales were bolstered by the performance of best selling Harry Potter and the Cursed Child, as well as J.K. Rowling’s original screenplay for the film Fantastic Beasts and Where to Find Them. Excluding those titles the fiscal 2018 trade sales were actually higher with top-selling titles across all the genres. On a GAAP basis loss per diluted share from continuing operations was $0.14, compared to earnings per share from continuing operations of $1.48 in fiscal 2017. Excluding onetime items earnings per…

Thank you, Dick and good morning. On this call I will refer to our adjusted results from continuing operations for the year, excluding onetime items unless or otherwise indicated. Revenues were $1.63 billion, versus $1.74 billion last year. Operating income was $75 million, compared to $109.4 million in fiscal 2017. Revenues were slightly below our guidance range, mainly as a result of a shortfall in education orders in Q4, at least a portion of which are being picked up in a new fiscal year. Non-recurring items reflected in our pretax results for the fiscal year totaled $76.7 million and included $57.3 million in non-cash charge below the operating line in connection with the previously reported termination of our domestic cash balance defined benefit retirement plan, a $11.2 million in non-cash impairment charges associated with the renovation of the New York City headquarters building and one time severance and stock compensation charges of $8.1 million, as well certain other non-recurring items as shown in the accompanying financial tables. The $5 million of these onetime charges were recorded in the fiscal fourth quarter. Non-recurring items reflected in the prior year pretax results totaled $20.2 million, of which $11.4 million were recorded in the fourth quarter of fiscal 2017. There was also a small reversal of the estimated non-cash charge in the third quarter related to the re-measurement of the Company's U.S. deferred tax balance in connection with the passage of the Tax Cuts and Jobs Act of 2017. For the year the total one time charge to the tax reform was $5.7 million or $0.16 per share. In Children's Book Publishing and Distribution, segment revenues for the fiscal year decreased $90.6 million, or 9% to $961.5 million, as compared to the prior year, driven by 27% sales decline in trade as predicted,…

Thanks Ken. Brian we are now ready to open the lines for questions.

Thank you, sir. [Operator Instructions] And our first question will come from the line of Drew Crum with Stifel. Your line is now open.

Okay thanks. Good morning everyone. I want to start with the performance in fiscal fourth quarter for the Education segment. Could you address the change in buying patterns that you saw because if I recall, that was the explanation given for the performance in the fiscal first quarter of 2018? Your sales were down 19% that period, down 5% this quarter. I guess I want to understand what the shift is? Should we expect fiscal 1Q to be the primary selling period for your business or is it still the fiscal fourth quarter? Thanks.

Sure, Drew. Good morning. So, this is Ken Cleary.

Hi Ken.

So yes in the current year – we do have sales shifting out from Q4 into Q1 of FY’19. We didn't experience that in the last year. It's going to be a continuing pattern as we go forward, as our customers are really looking to procure products. The schools are looking to procure product more in the summer timeframe, when schools aren't in session. It's going to continue, that pattern will continue even more or so as we move into core curriculum more heavily. So it is impacting us this year, it will probably impact us next year as well. And that will be an ongoing pattern. It does help us in certain ways and that it benefits our selling cycle and also benefits our distribution cycle. So there are some benefits to us, but it does shift out the revenues from one period to the next.

Okay, got it. And then just a point of clarification on the Scholastic 2020 guidance, you're suggesting that EBITDA will grow three times the rate of revenue. What period does that over, is that fiscal 2018 through fiscal 2020, is that fiscal 2020? And what is the rate of growth that you're projecting for revenue? It looks like it’s mid-single digits. I just want to clarify that.

That's correct. So it's through 2021.

Okay.

Okay.

Okay. And then what is – I'm looking at the midpoint of the guidance, the revenue target for fiscal 2021 would imply an acceleration relative to what you saw in fiscal 2018, which obviously had the Harry Potter comp, but even fiscal 2019 looks like kind of 3%-ish type growth at the midpoint. So what do you anticipate driving that acceleration?

I think mainly it's going to be improvements in 2020 marketing efficiencies Drew. We're looking 2020 as a primarily lowering our cost base and improving our operating income through business process improvements, and backend fulfillment costs, and operations decreases. However, with the CRM platforms we will get better information about our customers and then particularly clubs fairs and education, we should be able to increase revenues as we get a growing command of the marketing strength of our CRM capabilities. It's still not a dramatic revenue increase as we're focusing more on improving our operating income, than on the revenue gains.

Okay. And then just last question from me, I know you're moving away from giving the free cash flow guidance, does that suggests there's an exchange in the free cash flow profile for the business? And kind of related to that, I look at the CapEx guidance that would imply about a $47 million swing at the midpoint year-to-year. You're projecting EBITDA to grow by $25 million at midpoint. I guess the offset is the timing of accrued expenses. Are you willing to give any range or numbers on that item?

So just I will give a color on why the move to EBITDA. And you can see it in this year’s results as volatility based upon our cash spend, particularly when we’re in the investment period like we are now. So we feel that really we're making investments today to drive cash flows tomorrow. And EBITDA will reflect that as we move forward.

Thanks guys.

Thank you.

Thank you. [Operator Instructions] One moment for any additional or follow-up questions.

Thank you all for attending our year-end and projected 2019 conference call. We're looking forward to a strong fiscal year. We thank you for your support. And we'll be talking to you again in September.

Ladies and gentlemen, thank you for participating on today's conference. This does conclude our program and you may all disconnect. Everybody have a wonderful day.