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Scholastic Corporation (SCHL)

Q2 2023 Earnings Call· Thu, Dec 15, 2022

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Transcript

Operator

Operator

Good day and thank you for standing by, and welcome to Scholastic Reports Q2 Fiscal Year 2023 Results Conference Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Jeffrey Mathews. Please go ahead.

Jeffrey Mathews

Management

Welcome, everyone, to Scholastic’s fiscal 2023 second quarter earnings call. Today on the call, I am joined by Peter Warwick, our President and Chief Executive Officer; and Ken Cleary, our Chief Financial Officer. As usual, we posted the company investor presentation on our IR website at investor.scholastic.com, which you may download now if you have 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 reconciliation of those measures to the most directly comparable GAAP measures can 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, investor_relations@scholastic.com. And now, I’d like to turn the call over to Peter Warwick to begin this afternoon’s presentation.

Peter Warwick

Management

Thank you, Jeff, and good afternoon, everyone, and thanks for joining us. Scholastic delivered strong revenue growth and higher earnings in our second quarter of fiscal 2023, as we successfully navigated continued market and cost headwinds during the important back-to-school season. The company’s sustained momentum reflected three things; first, the strength of Scholastic’s brand, unique channels, children’s content and educational products; second, the improved operating efficiencies we have achieved over the past three years; and third, our continued investments in long-term growth opportunities. Last quarter, we continued taking steps to deploy capital for long-term growth and shareholder value. We completed our acquisition of Learning Ovations and made progress integrating its product, technology and team. We also accelerated capital returns to shareholders, executing a modified Dutch Auction tender offer and expanding our open market share repurchase authorization as announced this afternoon. We expect this momentum to continue in the second half of fiscal 2023, especially in our seasonally important fourth quarter and have affirmed our guidance for the year, as I will discuss further in a moment. These are very encouraging results, but I am especially proud of Scholastic’s nearly 7,000 employees who continue to perform at such a high level without losing focus on Scholastic’s important mission and enormous long-term opportunity, supporting the growth of children through literacy and the power of stories. This afternoon, I’d like to review our momentum and outlook across our business. Ken will then walk through our financial results and expectations for fiscal 2023. But first, a few words on the current business environment. As it’s been widely reported, consumer confidence in the U.S. has continued to decline this fall, even more so in the U.K. and Canada, two of our largest international markets. This has impacted the retail bookselling environment, which has been softer…

Ken Cleary

Management

Thank you, Peter, and good afternoon. Today, I will refer to our adjusted results for the second quarter, excluding one-time items in the prior year period unless otherwise indicated. Note we recorded no one-time items in the second quarter. Please refer to our press release tables and SEC filings for a complete discussion of one-time items. As Peter discussed, company performance during the critical back-to-school second quarter of our fiscal year was excellent, driven by strong performance in our Children’s Book Publishing and Distribution segment, which benefited from our improved Book Fair operations in a more normalized school environment. On the operations side, our plan to order inventory well in advance of the season, given the long lead times in our supply chain has been successful, as product availability across the company has driven down backlog, improved customer satisfaction and helped to reduce operating costs. Across the company, we are managing operating and headcount costs to below pre-pandemic levels while still investing in growth and ETFs. We are experiencing substantial cost increases for paper, printing and transportation that are impacting our gross margins, but are seeing the inflationary pressures starting to abate. In short, we continued our strong start to our fiscal year in the important second quarter and are optimistic about the future. We are therefore affirming our adjusted EBITDA guidance of $195 million to $205 million for fiscal 2023. Turning to our consolidated financial results, revenues grew 12% to $587.9 million, operating income in the quarter was up 19% to $100.1 million, net income was $75.3 million, compared to $64.4 million last year and adjusted EBITDA rose 14% to $122.3 million, compared to the second quarter last year. Earnings per diluted share was $2.12, compared to earnings per diluted share of $1.80 last year. For the six-month period,…

Peter Warwick

Management

Thank you, Ken. As both of us have discussed this afternoon, Scholastic performed strongly in the second quarter, as we leaned into our unique strengths and competitive advantages to serve kids, families and schools, while successfully navigating a more complex business environment. Based on our current momentum and a positive outlook, including for a strong fourth quarter in the near-term and growing long-term demand for our literacy in stories, we are optimistic about our future growth and achieving our full 2023 goals. In closing, I want to again thank every educator, family and partner that’s helping raise up the students in their community, as well as our employees who are working tirelessly to support you. I also want to thank our shareholders for their continued support and I wish everyone a happy holiday season. Thank you all again for joining our call today. Jeff will conclude this afternoon’s presentation for us.

Jeffrey Mathews

Management

Thank you, Peter. As a reminder, we invite questions to be directed to our IR e-mail, investor_relations@scholastic.com. We appreciate your time and continued support.

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Management

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Operator

Operator

This concludes today’s conference call. Thank you for participating. You may now disconnect.