Scholastic Corporation (SCHL) Q4 2024 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome to the Scholastic Reports Fourth Quarter Fiscal Year 2024 Results. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's program is being recorded. And now, I'd like to introduce your host for today's program, Jeffrey Mathews. Please go ahead, sir.

Hello, and welcome, everyone, to Scholastic's fiscal 2024 fourth quarter earnings call. Today on the call, I am joined by Peter Warwick, our President and Chief Executive Officer; and Haji Glover, our Chief Financial Officer. 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 reconciliation 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 our 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 email address, investor_relations@scholastic.com. And now, I would like to turn the call over to Peter Warwick to begin this afternoon's presentation.

Thank you, Jeff, and good afternoon, everyone. Thank you for joining us. In the fourth quarter of fiscal 2024, Scholastic continued to execute on its strategy, investing in key growth initiatives and long-term opportunities while navigating current market headwinds. Increasing pressure on spending affecting our Education Solutions and School Reading Events businesses impacted consolidated revenue last quarter, resulting in a 10%, or $53 million, decline relative to last year's strong quarter-four performance, and that's in contrast to our expectations for modest growth. Consequently, profits in our seasonally most important fourth quarter fell below the prior year and our revised guidance. Fourth quarter adjusted operating income was $67 million, down from last year's record of $92 million. Adjusted EBITDA was $91 million, compared to $115 million a year ago. We took steps to manage expenses in line with lower-than-expected demand. SG&A and corporate overheads, excluding one-time items, both improved even as we maintained spending on long-term opportunities. For fiscal 2024, adjusted EBITDA was $137 million versus $196 million a year ago, again reflecting the revenue headwinds we've experienced since last fall. With careful working capital management and our businesses' capital efficient models, we continued to generate strong free cash flow of $73 million, up from $60 million in the prior year. This exceeded our revised outlook of $55 million to $65 million. Delivering on our commitment to capital allocation, we also deployed Scholastic's strong balance sheet to drive long-term value in fiscal 2024. We returned over $181 million to shareholders through dividends and share repurchases during the year. We also announced $182 million strategic investment in 9 Story Media Group, which we closed on June 20. Scholastic's investment to acquire 100% economic interest in 9 Story is a major advance in our evolution as a global children's media company. It greatly expands Scholastic's ability to reach more kids where they are and profitably participate in the full life cycle of our children's franchises and IP. Starting this fiscal year, 9 Story will be consolidated and integrated with Scholastic Entertainment in a new Entertainment segment. Since its 2017 reboot, Scholastic Entertainment has successfully proven that there's significant demand for Scholastic's brand and publishing IP on screens as well as on the page and that we can effectively and profitably meet this demand. In addition to adding a sizable business with solid EBITDA margins today, the 9 Story acquisition significantly expands Scholastic's opportunities to leverage its trusted brand, best-selling publishing and beloved global children's franchises across print, screens and merchandising. After only a month, the combined division is quickly moving forward with an integrated plan that I'll discuss shortly. Last quarter, Trade Publishing, the starting point for much of Scholastic's content, saw sales increase by 3%, excluding revenues from Scholastic Entertainment. The spring release of the 12th book in Dav Pilkey's Dog Man series reached the number one best-selling spot across all book categories in the US, Canada, Ireland, Australia and New Zealand, and the top children's book spot in the UK. Its success also drove strong sales of earlier titles in the series, demonstrating again Scholastic's ability to build global franchises. Despite solid trade results, last quarter's revenues in the Children's Books segment declined by 9%, reflecting the resizing of Book Clubs and the increasing pressure this spring on consumer spending and participation in School Book Fairs. School Book Clubs revenues were down 45%, with planned resizing, while we also tested new offers, marketing and promotional formats for the school year ahead. Sales in School Book Fairs decreased by 6% in quarter four, reflecting lower revenue per fair relative to last year's record level, partly offset by growth in fair count. As we've discussed, revenue per fair has been partly impacted by the addition of smaller fairs as we've grown fair count as well as increased churn among some higher-value fairs. Headwinds in the school environment, in particular high rates of absenteeism this year and increasing pressure on consumer spending across the economy, especially among fair's core market middle-class families, have impacted the number of transactions per fair, especially this spring when schools host second fairs. This has more than offset the benefit of higher transaction sizes, which reflects our strong merchandising. Turning to our Education Solutions segment, revenues declined by 17% in the business' seasonally most important fourth quarter. As many schools have adopted core curricula and implemented new structured literacy programs this year, they paused spending on supplemental curriculum products this spring. This particularly impacted sales of classroom libraries and book collections, as well as products not explicitly aligned with the science of reading. In contrast, sales to non-school state and community literacy partners rose overall. As we navigated the currently challenging market, we continued investing in this segment's long-term growth potential in anticipation of a cyclical return of spending on supplemental products in the 2025 and 2026 school years. We're currently executing on a comprehensive new product plan, as I'll discuss shortly. Finally, International revenues declined modestly last quarter, mostly reflecting headwinds in Asia. As I laid out a year ago, Scholastic's strategy to grow long-term earnings and free cash flow builds on the unique strengths of our domestic and international Children's Books and Education businesses, while also protecting the profitability and cash flow generation of our core business models. Leveraging our balance sheet and strong free cash flow outlook, we aim to sustainably fund these growth investments and return capital to shareholders. Scholastic's growth investments are guided by four key market trends and growth factors, which I'll run you through: First, as brands, content and channels proliferate online and on screens, accelerated by new technologies like generative AI, we're leaning into Scholastic's trusted brand with families and educators and our global best-selling children's franchises to differentiate ourselves and grow sustainably. Second, as kids spend more and more time on screens, we're expanding our ability to reach kids where they are with high quality, engaging content both on screen and on the page. Third, the schools struggle to reverse declining reading scores, as seen again with recent NAEP results at 30-plus year lows. We're developing new partnership models with state, community and philanthropic organizations to support and fund literacy programs outside the school. And fourth, as parents and families take a more active role in their children's education at school and at home, especially post-COVID, we're building new channels to reach and support families directly. Turning to our near- and long-term outlook. For fiscal 2025, we're targeting modest growth in revenue and adjusted EBITDA, including the benefit of our strategic investment in 9 Story, as Haji will discuss. As I've said, we are moving ahead with investments in our most compelling growth opportunities while we navigate continuing market headwinds, especially for Education Solutions. In the new Entertainment segment, we're executing on an expanded development and production slate. While green lights and production orders from the key platforms continue well below their record levels two and three years ago, we'll continue to build on core properties in fiscal 2025 while preparing for growth through synergies with Scholastic in fiscal '26 and beyond. 9 Story has longstanding and valuable IP partnerships that have buttressed their results during the current cycle. For example, the company produces and has significant profit participation in Daniel Tiger's Neighborhood and Wild Kratts, PBS's top two shows currently. We're optimistic both will continue for at least several more seasons. We're quickly moving forward to update our franchise licensing and distribution plans for key Scholastic brands, including Clifford and Magic School Bus, as development moves forward on major projects even in the currently tight market. These core brands have significant value to our partners and upside for Scholastic, leveraging 9 Story's licensing and merchandising sales teams. 9 Story's strong YouTube presence and expertise presents another opportunity for Scholastic's content that we've also begun executing on. In Children's Books, we have a bestseller field publishing plan, featuring two of today's largest children's franchises in the world. First, we'll be publishing another Dog Man title this fall, followed by the worldwide theatrical release of the Dog Man movie in January 2025. Second, we are thrilled to be publishing Sunrise on the Reaping, a highly anticipated fifth book in Suzanne Collins' worldwide bestselling Hunger Games series and doing so in March 2025 simultaneously in the US, Canada, UK, Australia and New Zealand. Lionsgate has already announced a movie adaptation of the book scheduled to be released in November 2026, which promises to continue bringing new readers to this mega-franchise through fiscal 2027 and beyond. This fall, we also look forward to publishing Christmas at Hogwarts, a timeless picture book that will delight families and Harry Potter fans of all ages. We're also excited about the Harry Potter Bake, Create and Decorate Book, a companion to the New York Times bestsellers, The Official Harry Potter Baking Book and The Official Harry Potter Cookbook. Building upon our leading position in graphic novels, which have dominated the children's publishing industry and their ability to engage kids, this August, we launched Unico: Awakening, the highly-anticipated first title in a multi-volume kid-friendly manga series, and we'll also launch two additional middle-grade, full-color manga series later in the fiscal year. In addition, we have a full lineup of exciting new titles from beloved and best-selling authors Raina Telgemeier, Alice Hoffman, Pam Muñoz Ryan and Brian Selznick. We have new publishing in our major series like The Baby-Sitters Club, Goosebumps, and I Survived, and we'll be publishing the finale of Aaron Blabey's Bad Guys series in December, with another movie to follow in summer 2025. In March, we'll be publishing That's Not Funny, David!, a brand new No, David! book from internationally acclaimed Caldecott Honor creator David Shannon. In School Book Fairs, we're planning for modest growth for fiscal 2025 as we invest in long-term growth initiatives, including actions to grow revenue per fair this year and beyond. Share the Fair is a new giving program enabling schools to collect digital contributions from the school community to support students who need help buying books. The program was successfully piloted in fiscal 2024 and we're optimistic about its full rollout in fiscal 2025. Continued category optimization, new case types, and strategic value pricing should also contribute positively to revenue per fair. We've exciting plans around the release of the next Dog Man title and film, leveraging Scholastic Book Fair's exclusive access to the hottest children's and young adult titles. With respect to fair count, we've invested in our sales structure and processes to increase prospecting, reduce churn, and ensure our Book Fair host's success. So far, we're on track with early bookings to achieve our fiscal 2025 target of 90,000 fairs. This year, we'll continue investing to grow long-term fair count and the addressable market for Book Fairs. We're piloting new operating models to profitably serve schools outside our core public school markets and investing in our sponsored fairs' growth, which taps local and national organizations to bring book fairs to schools in high-need communities which we currently don't serve. In School Book Clubs, we're launching redesigned flyers and new offers and enhancing our value proposition with unique Scholastic assets to reengage a profitable core of customers and revitalize this strategic channel to teachers and families. Complementing our school-based channels to kids and families, and leveraging our trusted brand and distribution infrastructure, we've also begun piloting new direct-to-home channels and offers to families of young children. Based on extensive research and testing, we're targeting a substantial opportunity to help parents and caregivers support their kid's early development as readers and learners. While we don't expect these investments to materially contribute to top-line growth in fiscal 2025, we're optimistic about the opportunity in fiscal 2026 and beyond, and we look forward to providing further updates. Turning to Education Solutions, we're targeting solid growth in our sales to the state and community literacy partners as these organizations continue investing to improve kid's access to books at home and outside the school, which is proven to benefit reading development. We're also launching new partnership models and programs for philanthropic organizations to give kids in high-need schools and communities the ability to choose and build their own home libraries. We expect growth from new literacy funding sources to help offset further declines in sales of supplemental literacy materials, especially those not explicitly aligned with the science of reading. This year, we plan to continue investing in a pipeline of literacy programs better aligned with current literacy instruction. These include a new middle school ELA program leveraging our extensive and engaging classroom magazine content, new knowledge-building libraries to replace our level book rooms and guided reading collections, and engaging new decodable collections, including for older students building on our Ready4Reading program, which we launched last year. We expect to launch these products in the 2025-'26 school year and anticipate they'll contribute to growth beginning in fiscal 2026 as the funding cycle for supplemental products improves. In International, modest growth across major markets, including in trade and continued operational improvements in Canada, are expected to drive further improvements in operating margins and contribution relative to fiscal 2024 as we pursue opportunities to build operating scale in major markets and expand our English language offering in Asia. Haji will provide more details in a moment, including the expected contribution of our strategic investment in 9 Story and the actions we're taking on the cost side. In summary, Scholastic's fiscal 2025 plan is to continue and accelerate the progress of fiscal 2024 toward our strategic goals. As we respond to our dynamic markets, both in the short- and long-term, we remain committed to realizing the full potential of Scholastic's unique strengths, our trusted brand, our unique channels, and our extensive content to meet an essential growing need among kids, parents, and educators, giving kids the power and joy of stories and learning. With that, I'll turn the call over to Haji to review our fiscal 2024 results and fiscal 2025 guidance.

Thank you, Peter, and good afternoon, everyone. Today, I will refer to our adjusted results for the fourth quarter and full fiscal year, 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 noted, a more challenging market for our Education and Book Fair businesses caused Q4 performance to fall below our prior-year period and below our revised guidance. Widespread adoptions of ELA core curricula and the continued shift of science-based approaches for literacy instructions impacted spending on supplemental materials while increasing softness in customer spending impacted revenues per fair in Book Fairs. While steps were taken to preserve operating margins, we maintained spending on key initiatives including new structured literacy programs which we expect to launch in the 2025-2026 school years. In Book Fairs, we successfully added new fairs, but due to the strong operating leverage in this business, operating margins were negatively impacted by lower average revenue per fair. In response to these headwinds, we tightly managed inventory and cash, contributing to favorable free cash flow. Despite these challenges, trade channels in US and UK performed well due to a strong publishing pipeline and we resized our US Book Clubs business as we tested new offerings to profitably grow this channel in future periods. Internationally, our Canadian operations continue to benefit from restructuring activities in prior periods. Turning to our consolidated financial results, in the fourth quarter, relative to prior year, revenues decreased 10% to $474.9 million, reflecting the market headwinds I just described. Operating income of $66.8 million was down $25.2 million. Net income was $50.5 million compared to $75.7 million in the prior-year period, and earnings per diluted share were $1.73 compared to $2.26. This reflected in lower net income partially offset by the benefit of significant share repurchases, which lowered diluted share count to 29.2 million from 33.5 million a year ago. Adjusted EBITDA decreased to $91 million from $115 million in the prior year period. For the full year, revenues decreased 7% to $1.6 billion. Operating income decreased 58% to $44.7 million. Net income was $34.6 million, down from $86.3 million in a prior-year period. And adjusted EBITDA decreased to $136.9 million from $196.3 million in fiscal 2023. Full year earnings per diluted share were $1.14, down 54% from $2.49 in the prior-year period. Now, turning to our segment results. In Children's Book Publishing and Distribution, revenues for the fourth quarter decreased 9% to $266 million, driven by resizing of Book Clubs, lower revenue per fair in Book Fairs, and timing-related revenue in Scholastic Entertainment, partially offset by increased sales and trade. Revenues were down 8% to $955.2 million for the full fiscal year. Segment operating income was down $8.5 million from the prior-year period to $49.9 million, primarily reflecting the high operating leverage impact of lower revenue per fair. For the full fiscal year, operating income for the Children's Book segment decreased $21.5 million to $121.9 million. Book Fair revenues decreased 6% in the fourth quarter to $169.5 million and 2% for the full year to $541.6 million. Although fair count increased, revenue per fair was lower than prior year record levels, though well ahead of pre-pandemic levels on lower transaction volumes. Merchandising efforts resulted in higher transaction sizes, partially offsetting the spending headwinds that impacted participation, as discussed by Peter. Book Clubs' revenue in the fourth quarter of $14.4 million were down versus the prior-year period revenues of $26.2 million. Full year revenues of $62.7 million trailed the prior-year revenues of $117.8 million. As Book Clubs is resized to a smaller and more profitable business, efforts are underway to test various offerings to improve teacher engagement. Excluding Scholastic Entertainment revenues, which are also recorded in consolidated trade, channel trade revenue in the fourth quarter increased to $81.6 million compared to prior-year revenues of $79.3 million. Full year revenues were $349 million, in line with $348.1 million in the prior year. Despite a difficult retail market, the company's best-selling publishing continues to resonate with customers. Scholastic Entertainment revenues decreased due to the prior-year release of Eva the Owlet TV series. Beginning in fiscal 2025, Scholastic Entertainment will be combined with 9 Story Media Group in a new segment for the company. Excluding the impact from resizing Book Clubs and timing of Scholastic Entertainment release dates, the revenues in the segment decreased 3% in the fourth quarter and 1% for the full year. In Education, Q4 revenues were $135.7 million, down 17% from prior-year period, and for the full year, revenues were $351.2 million, down 9% when compared to 2023. As we discussed, the challenging market for supplemental literacy curriculum as well as increasing competition impacted sales for key product lines including classroom libraries and summer reading collections. This was partly offset by the growth in our sales to non-school state and community literacy partners, which we see as a strategic growth opportunity. Segment operating income decreased $19.4 million to $35.6 million in Q4 compared to the prior-year period. Full year segment operating income decreased to $21.9 million compared to $58.4 million in the prior-year period. Lower revenues coupled with continued investment in future product offerings resulted in lower operating margins. The International segment revenues of $70.8 million in the fourth quarter trailed prior-year period revenues of $73.9 million, partly reflecting $400,000 year-over-year impact of unfavorable foreign currency exchange. For the full year, International segment revenues of $273.6 million were down from the prior-year's revenue of $279.4 million. Year-over-year, the foreign exchange had a negative $1.1 million impact. The decrease in revenues was primarily due to lower sales in the Asia and Australia trade channels due to softness in the retail market. This was partially offset in the UK where the Company's popular global titles performed well. The segment operating income in the fourth quarter decreased to $1.8 million compared to $2.2 million in the prior period. For fiscal 2024, segment operating loss was $3.1 million compared to a loss of $3.6 million in the prior year. Unallocated overhead costs were $20.5 million in the fourth quarter, improving from $23.6 million in the prior period, reflecting lower employee-related costs. For the full year, unallocated overhead costs of $96 million were 4% higher when compared to the prior year of $91.9 million. The year-over-year increase was primarily related to inflationary impact on overhead costs. Now, turning to cash flow and the balance sheet. For the full year, net cash provided by operating activities was $154.6 million compared to $148.9 million in the prior year. Free cash flow increased to $73.4 million in fiscal 2024 compared to $60 million in the prior-year period. Improvements in cash flow were largely driven by lower inventory purchases, partially offset by lower customer remittance on decreased sales. At the end of the fiscal year, cash and cash equivalents, net of total debt, was $107.7 million, compared to $218.5 million at the end of the prior year. In fiscal 2024, the company continued executing its strategies to deploy capital, including returning excess cash to shareholders. Open market share repurchases combined with regular dividend returned over $181 million to shareholders in the fiscal year 2024, including nearly $20 million in the quarter. This represents a $21 million increase over fiscal 2023. In total, we repurchased over 3.9 million shares, which net of 500,000 shares issued related to stock compensation, represented 11% of company shares outstanding. Over the past two fiscal years, we repurchased 7.3 million shares, which net of 1.3 million shares issued for stock compensation, represented 18% of the company's shares outstanding. As we began fiscal 2025, the company borrowed approximately $200 million under its existing revolving credit facility to complete the 9 Story Media transaction and meet the seasonal summertime working capital needs of the organization. We are currently in the process of securing a more permanent debt facility to fund the acquisition. Based on budgeted growth investments and current forecast working capital needs, including inventory purchasing and lower expected earnings, our current outlook for free cash flow is $20 million to $30 million. We will continue to pursue opportunities to leverage our balance sheet and deploy capital by: first, investing in growth opportunities; second, maintaining a strong and efficient balance sheet; and third, returning excess cash to shareholders to enhance their returns. As discussed, beginning in fiscal 2025, we will be adding a new Entertainment segment, which will consolidate results from the company's existing Scholastic Entertainment division reported historically in the Children's Books segment with the newly added 9 Story Media Group. The current slide as well as tables in the earnings press release provide historic results for both Scholastic Entertainment and 9 Story. As Peter just discussed, both businesses' results benefited in fiscal 2022 and 2023 from high levels of spending on new productions by major streaming platforms. This retracted in 2024 with fewer productions being greenlit and is expected to remain under pressure for the next 12 to 18 months. While this has impacted all players in the industry, 9 Story has been able to outperform peers on the strength of its premium reputation, IP, and partnerships, much like Scholastic Entertainment has. In fiscal 2025, we expect solid growth in segment adjusted EBITDA as we execute on the Company-wide synergies and franchise plans which should benefit this segment and Children's Books results in fiscal 2026 and beyond. In fiscal 2025, our priority is to continue executing our strategic growth initiatives, including the integration of 9 Story, while navigating continued headwinds in our Education Solutions segment, resuming modest growth in Children's Books and tightly managing short-term spending. Based on this plan, we expect revenue growth from 4% to 6%, and targeting adjusted EBITDA of $140 million to $150 million. In the Children's Books segment, we have a very exciting publishing plan bidding on our global franchises. In Book Fairs, we expect modest growth on increased fair count and new merchandising and sales initiatives. We will continue to explore strategies in Book Clubs to increase teacher engagement. In our new integrated Entertainment segment, we expect to benefit from the addition of 9 Story in its strong franchises and partnerships as we execute on our strategic strategies, which we anticipate driving further growth in 2026 and beyond. We expect 9 Story to contribute over $80 million in revenue with solid EBITDA in fiscal 2025. In the Education Solutions segment, we expect sales to hold steady despite soft spending on supplemental offerings offset by forthcoming new product launches slated for the 2025-2026 school year. Our primary focus remains on expanding initiatives aimed at securing new funding sources to tackle the prevalent reading challenges nationwide. We expect unallocated overhead costs to remain approximately level next year as we continue to improve efficiencies and build capabilities to support long-term growth. As a reminder, Scholastic results are highly seasonal. We generally record an operating loss in our first and third quarters, coinciding with summer and winter school vacations, with profitable second and fourth quarters. We expect our seasonal loss in Q1 of fiscal 2025 to be in line with prior period. We are looking forward to an exciting and busy year ahead. Thank you for your time today, and now I will hand the call back to Peter for his final remarks.

Thank you, Haji. While market conditions are more challenging in quarter four as the cyclical trends that we've seen this fiscal year continued, we managed our businesses carefully and kept sight on Scholastic's substantial strengths and opportunity. Scholastic's strengths are deep: Our trusted brand, proprietary distribution channels, unmatched children's content and global franchises, and our robust balance sheet and cash-generating businesses. And in a dynamic market driven by long-term favorable macro forces, our opportunity is vast: to serve the broader growing need for trusted children's books, reading, and media by investing in, building on, and adapting our strengths. In fiscal 2025, with the talent and creativity of our employees, authors, illustrators and creators, and the support of our shareholders, we look forward to continuing to pursue this opportunity to create value and impact. Thank you very much. And now, let me turn the call over to Jeff.

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

Certainly. [Operator Instructions] And our first question for today comes from the line of Brendan McCarthy from Sidoti & Company. Your question, please?

Hi, good afternoon, everybody, and thanks for taking my questions. I wanted to start off looking at the Book Fairs business. Can you talk about your outlook for revenue per fair looking into fiscal '25? And do you expect to surpass the 90% of pre-pandemic fair levels looking out into the next fiscal year?

Yeah. It's Peter here. So, in terms of revenue per fair going forward, we're expecting modest growth in the forthcoming financial -- in the financial year 2025. We would be -- in terms of the revenue count, we expect that we're going to be probably less than we were pre-pandemic, because during the pre-pandemic period, we did do some book fairs that really didn't make very much money at all. And it's much better for us to focus on fairs which have the scale. I think what's important is that we put in place, as I described during the call, a number of big improvements, I think, which means that we will be able to make sure that there's less churn, to make sure that we can really focus on the fairs that do the best thing. And really, we focused on the addressable market, which means the addressable market is one where we can do well with the size of revenues that we hold.

Great. Thanks, Peter. I appreciate the color there. Wanted to turn to the Book Clubs business and the shrink-to-grow strategy. I'm wondering if you can provide some detail on how far along in that strategy Scholastic is, and maybe how much longer the company -- or I guess how much more work on that front does Scholastic have to do as it relates to fiscal '25?

Well, I think we've spent a lot of time working what's the best ways of handling that. And I think that we've worked hard and trialed a number of things that we'll be implementing from the fall of this year. I think we're optimistic the changes that we're making are going to be much more in tune with being able to grow back the business. But the key point about this, Brendan, is that we need -- this business needs to be profitable, and we have been able to make sure that the profitability year-over-year has not deteriorated. But what we want to be able to do is to modestly grow the business. And also, I think, most importantly, to really engage as much as possible teachers with us. I think that we're really committed in the period going forward to be as teacher-centric as we possibly can in the way that we manage that business.

Understood. And turning to the Education Solutions business, I know the broad transition to the science of reading has been a bit of a headwind on spending, but as it relates to Scholastic's capital allocation framework, I know acquisitions have always been a big part of that. Are you seeing any opportunity out there to maybe go out and acquire a company that is fully geared towards the science of reading?

Hi, Brendan. This is Jeff Mathews here. I can address that on the corporate development...

Hey, Jeff.

Hi. Hey, Brendan. From corporate development perspective. Look, as we've discussed, we see broad opportunities across both Education and our Children's Book segment, now adding the Entertainment segment. In the -- where we're seeing the most compelling opportunities are, we have some great products that weren't properly aligned. We are taking those kind of great bones and then making investments to align them with new pedagogies. The core value around independent reading is still there. That's mostly done organically. We continue to look at opportunities additionally in that segment, while we review opportunities on the children's content and media side as well.

Got it. Thanks, Jeff. And one more question for me looking out to fiscal '25 and as it relates to some of the guidance numbers that you provided. What factors have been causing material underperformance or outperformance relative to your expectations for fiscal '25?

Yeah, it's Peter here. There were two main factors. And they were -- the first factor was really that, during the final quarter, the number of kids who are actually buying books at our book fairs declined, because they didn't have any money from their parents to buy the books. And I think this is very much reflective of the economic environment of many sort of middle-class families whose kids go to public schools. That's certainly one fact. And that took us by surprise. The number of kids who are actually participating in the book fairs was lower than we had seen in the fall fairs. The other factor was the one that we've already mentioned really about in the education area that we expected that there will be more opportunities than actually turned out to be the case for supplemental reading materials. And that was because just the sheer volume of new literacy programs and new curricula and particularly those associated with the science of reading. We would see that as being a bit of a continuing headwind, if you like, during the forthcoming financial year, but it is cyclical. It's something which we'll be in a good position in school years '25-'26 to be able to provide schools with what they need in order to supplement the new materials they've got and to be able to -- they'll have much more time to be able to do that once teachers are properly trained and fully familiar with the new core curriculum materials that they're using.

Got it. Thank you, everybody. That's all for me.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks.

Well, thank you very much. It's Peter here. And thank you to all of -- those of you who joined us this afternoon. Scholastic has got an important exciting year ahead. We look forward to engaging with our investors in the coming days and to providing further updates on our progress, including with our growth initiatives on our upcoming quarterly calls, including the next one in September. Goodbye.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.