Good day, ladies and gentlemen and welcome to the Scholastic Reports Fiscal 2019 Second Quarter Results Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, today’s conference call is being recorded. I’d now like to turn the conference over to Gil Dickoff, Senior Vice President, Treasurer and Head of Investor Relations. Please go ahead.

Thank you so much Candice. And good morning everyone. Welcome to Scholastic's second quarter 2019 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 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 morning on Form 8-K, which has also been posted on 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 morning and thank you for joining our call during this busy holiday season.. Scholastic’s core businesses remained strong during our second quarter, putting us in position to achieve our operating objectives for the fiscal year. This is in thanks - thanks in no small part to our ability to serve the needs of roughly 90% of U.S. schools during the back to school period, which spans our first two quarters, and our continued strength in trade publishing even as the company continues to experience rising product and fulfillment costs similar to other businesses. Revenues up 4% year-to-date before the impact of the new revenue recognition guidelines and net income of $71.6 million versus $57.1 million last year that was partly the result of a lower effective tax rate. Later in the call, Ken will detail our quarterly financial results EPS and EBITDA, as well as the impact of the newly adopted revenue recognition procedures. But first I'd like to share highlights from our second quarter. This fall, reading and children's books, many from Scholastic took center stage in cultural moments that played out across the media landscape underscoring the importance of our role both as a book publisher and trusted partner to educators. I’ll walk you through these cultural conversations and how they dovetail with our business. First, reading is a driver of pop culture and social media buzz. The power of children's books to create pop culture excitement this quarter reflects the strength of our trade publishing whose revenues were up 16% in the current quarter versus last year and our ability to ensure these titles reach classrooms and children directly through our clubs and fairs. More than 10,000 kids turned out this fall to see Dav Pilkey on his nine-city study and book tour, supporting Dog Man:…

Thank you, Dick. And good morning. This morning I’ll refer to our adjusted results from continuing operations for the quarter, excluding onetime items unless otherwise indicated. As discussed last quarter, we have adopted a new revenue recognition guidelines under ASC 606 this fiscal year. Prior periods results have not been restated. As a review the quarter sales and operating income, I will highlight the impact of these new standards on the period's results. Revenues were $604.7 million versus $598.3 million in the second quarter last year, an increase of 1%. The current quarter’s reported revenue was $10.8 million lower due to the impact of ASC 606. Absent this impact, quarterly revenue was up 3% versus the prior year period. If you recall, our Q1 revenues were $12.5 million favorable due to ASC 606. These differences are seasonal within our fiscal year and we do not expect a full year impact from this accounting change. Operating profit was $102.9 million versus $110.9 million last year. The net detriment of the accounting change on this quarter's results was $5.6 million. We had $4.7 million in onetime items in the quarter, which included a $4.3 million charge related to a proposed settlement of an outstanding sales tax assessment from prior fiscal years and $400,000 for severance associated with our transformation. Last year's onetime charges included $3.7 million for restructuring severance and stock compensation and a $15.4 million non-cash partial pension settlement charge below the operating line. Adjusted EBITDA for the second quarter was $123.2 million, as compared to $126.7 million last year. For the first half of the year, our EBITDA is up 21%. We expect adjusted EBITDA to improve at a greater rate than operating income as we continue to leverage our investment in technology and facilities. In the current fiscal year,…

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

Thank you. [Operator Instructions] And our first question comes from Drew Crum with Stifel. Your line is now open.

Okay, thanks. Hey guys, good morning. So – I wanted to ask a couple of questions on the Dog Man book, the 5 million unit print runs for Mr. Pilkey's new book, how does that compare to your original expectations and relative to the fiscal 2019 guidance that was affirmed with 1Q earnings back in September? And then you know, related to that, I am just curious as to what the cadence of book releases for this series will look like going forward? Obviously, you have two in fiscal '19. I think there is another one planned for August of next year. Is two a good number going forward? Or is this year somewhat of an anomaly? Thanks.

Well, I think the trajectory of the printing - first printings has been phenomenally increasing as more kids get excited about Dog Man and wait for it. So I believe our initial printing on the last one was 3 million, now it's up to 5 million with the one that will be distributed on December 24th. You're right there are two - there will be two once the December 24th release takes place this year and there's another one planned for August of 2019. We think the 2 year is probably right. Of course, it depends on the author and his cadence of delivering and creating new manuscripts. But this series now in his sixth book is amazing and we believe will continue probably slightly ahead of the trajectory that we projected earlier Drew.

Okay, okay. That's helpful. And then shifting gears on Scholastic Literacy, can you talk about the pipeline or the interest level, the demand for that product. What does the sales cycle look like for this initiative relative to some of your other products in education? And should we anticipate any meaningful impact from Scholastic Literacy in the second half of fiscal ‘19?

Yeah, Scholastic Literacy is a core curriculum program designed to go after the textbook dollars. And normally our education sales are focused on supplementary materials, but the core textbook market is bigger and we are already have a huge presence in the supplementary market. Scholastic Literacy will be coming into the market more as samples and ability to show customers in the spring, Drew. There will be a small amount of revenue in the summer of - the first quarter of 2020. There probably will be a very small amount coming in before May 31, 2019, yeah.

Okay. And Dick, the sale cycle on this product like a READ 180 for example or is it much…

Yeah, it's a textbook cycle which is really June, July and August with a little bit in September and it's quite different - it's a first quarter business for Scholastic which of course is good for us because that's our loss quarter and we're looking forward to as that product grows to help you know, attenuating the loss in the first quarter. So it will probably be 40% to 50% of its revenues in the first quarter when it gets started and underway.

Okay, got it. And then we've been monitoring the developments in LA Unified School District with interest, just curious as to what potential impact that would have you know, potential strike, I guess that would impact - that would have across your businesses if any?

Well, one of the people in the room here was just talking to an LA superintendent on Friday. I don't know, Beth, that if this topic – that topic came up, but if you have anything to offer go ahead and do so.

Hi, Drew. The topic came up briefly and, of course, LAUSD is concerned about the strike, but I do not feel like it will have any impact on our business. I think they feel like they will resolve this in a matter of a short period of time that I don’t - we discussed ourselves and we don't think will have any impact.

Okay. Okay, fair enough. And then just one last question for me either for Dick or Ken, you know, you referenced the rise in product and fulfilment cost. Where in the P&L or segments results are we seeing that? And aside from the sales tax issue what is the company doing in response to this?

So Drew, you're seeing it really across all channels, particularly in the U.S. and you're seeing it in labor costs, you're seeing in product costs. With regard to those costs, as well as sales tax, with sales tax we have a complete program in place to both introduce it to our customer base with minimal impact to them. We are very cognizant of the impact on teachers and we're treading lightly in that area. With regard to the other areas what we're looking at initially is pricing and we're trying to understand if we can - if we can overcome some price elasticity in certain areas and that will be - those strategic discussions are going on now.

And I think Ken that this was flowing through the cost of goods sold line on the P&L

Yeah, absolutely.

Okay. Okay, guys. I appreciate it. Thank you.

Thank you, Drew.

Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to Richard Robinson for closing remarks.

Well, thank you all for your attention here in the holiday season. We're looking forward to a good second half and we appreciate your focus on Scholastic and your help for our businesses. Thank you all. Have a happy holiday.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.