What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-12-20 compared with 2024-09-27 · 165 added, 127 removed, 83 unchanged (78% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Overview and Outlook

Revenues for the first quarter ended August 31, 2024 were $237.2 million, compared to $228.5 million in the prior fiscal year quarter, an increase of $8.7 million or 4%.

The Company reported net loss per diluted share of Class A and Common Stock of $2.21 in the first quarter of fiscal 2024, compared to a net loss per diluted share of $2.35 in the prior fiscal year quarter.

First quarter results reflect the addition of 9 Story to the newly formed Entertainment segment, driving an overall increase in revenues.

Within the Children's Book Publishing and Distribution segment, revenues increased on higher foreign rights sales, partly offset by lower frontlist sales compared to the prior year period when the Company released the paperback edition of the fourth book in the Hunger Games series, The Ballad of Songbirds and Snakes .

Fiscal 2025 revenues are expected to benefit from new releases in the second half of the fiscal year, including the newest book in Dav Pilkey’s Dog Man ® series and the fifth book in Suzanne Collins’ Hunger Games series, Sunrise on the Reaping .

Within Education Solutions, school districts continued to focus on adopting and implementing new core programs, driving lower sales of supplemental curriculum products, partly offset by increased sales to state-sponsored partners driven by the growing number of kids participating in these programs.

Internationally, revenues were comparable to the prior year period as increased backlist sales in the U.K., were offset by revenue declines in Canada and the export channel.

In fiscal 2025, the Company remains focused on expanding the reach and impact of its book fairs and book clubs, while innovating how it serves its school partners.

Within Education Solutions , the Company continues to develop new structured literacy programs and supplemental products for schools, which are expected to launch next summer.

The Company also continues to focus on advancing its strategy as a global children’s media and content company with the integration of 9 Story and growing its slate of media properties in development and production.

Results of Operations

Revenues for the quarter ended August 31, 2024 increased by $8.7 million to $237.2 million, compared to $228.5 million in the prior fiscal year quarter.

The increase in consolidated revenues was driven by the newly formed Entertainment segment, with revenues of $16.6 million, primarily reflecting the acquisition of 9 Story, which closed in June.

The Children's Book Publishing and Distribution segment revenues increased by $3.0 million, primarily driven by increased foreign rights sales within the trade channel.

In the Education Solutions segment, revenues decreased by $10.3 million primarily due to the continued decline in spending on supplemental materials, partially offset by increased revenues from sponsored programs.

In local currency, the International segment revenues decreased by $0.2 million, primarily reflecting lower sales in Canada and export which offset higher revenues from the UK trade channel.

International segment revenues were also impacted by unfavorable foreign exchange of $0.2 million in the quarter ended August 31, 2024.

Components of Cost of goods sold for the three months ended August 31, 2024 and August 31, 2023 are as follows:

Three months ended

August 31, 2024 August 31, 2023

($ amounts in millions) % of Revenue % of Revenue

Components of Cost of goods sold for the three and six months ended November 30, 2024 and November 30, 2023 are as follows:

Three months ended Six months ended

November 30, 2024 November 30, 2023 November 30, 2024 November 30, 2023

($ amounts in millions) % of Revenue % of Revenue % of Revenue % of Revenue

Product, service and production costs and inventory reserves $ 132.8 24.4 % $ 143.0 25.5 % $ 207.0 26.5 % $ 215.8 27.3 %

Royalty costs 22.0 9.3 % 23.5 10.3 %

Royalty and participation costs 40.7 7.5 % 40.1 7.1 % 62.7 8.0 % 63.6 8.0 %

Prepublication and production amortization

2 unchanged sentences

Total $ 228.6 42.0 % $ 234.1 41.6 % $ 356.9 45.7 % $ 364.1 46.0 %

SCHOLASTIC CORPORATION Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Cost of goods sold for the quarter ended August 31, 2024 was $128.3 million, or 54.1% of revenues, compared to $130.0 million, or 56.9% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the quarter ended November 30, 2024 was $228.6 million, or 42.0% of revenues, compared to $234.1 million, or 41.6% of revenues, in the prior fiscal year quarter.

Cost of goods sold was impacted by the addition of production and participation costs which were not present in the prior period as a result of the 9 Story acquisition in fiscal 2025.

This increase was largely offset by the favorable mix of product sold in the quarter ended November 30, 2024, which resulted in lower product costs, primarily in the U.S.

book fairs channel, the Education Solutions segment and in the U.K.

Cost of goods sold for the six months ended November 30, 2024 was $356.9, or 45.7% of revenues, compared to $364.1 million, or 46.0% of revenues, in the prior fiscal year period.

Cost of goods sold benefited from favorable product mix in the U.S.

trade channel which resulted in lower product costs, in addition to lower outbound freight and fulfillment costs, primarily in the U.S.

book fairs channel, and lower royalty costs within Education Solutions .

This was partially offset by higher product costs associated with the mix of products sold in Education Solutions relating to community facing programs and summer reading products, coupled with the addition of production costs as a result of the 9 Story acquisition.

Selling, general and administrative expenses for the quarter ended August 31, 2024 decreased to $182.1 million, compared to $184.2 million in the prior fiscal year quarter.

The $2.1 million decrease was primarily attributable to lower commission, external labor and marketing expenses in Education Solutions , coupled with lower severance expense from the Company's cost-saving initiatives.

This was partially offset by higher operating expenses from the addition of 9 Story and higher labor costs in the U.S.

book fairs channel due to inflationary pressures, as well as to support the expected volume of fairs for the fall season.

Depreciation and amortization expenses for the quarter ended August 31, 2024 were $15.3 million compared to $13.4 million in the prior fiscal year quarter.

trade and book fairs channels, which resulted in lower product costs, partly offset by the addition of production costs as a result of the 9 Story acquisition.

Selling, general and administrative expenses for the quarter ended November 30, 2024 increased to $224.9 million, compared to $213.1 million in the prior fiscal year quarter.

The $11.8 million increase was primarily attributable to higher operating expenses from the addition of 9 Story and $3.8 million of severance expense from the Company's cost-saving initiatives incurred in the quarter ended November 30, 2024.

Selling, general and administrative expenses for the six months ended November 30, 2024 increased to $407.0 million, compared to $397.3 million in the prior fiscal year period.

The $9.7 million increase was primarily attributable to the addition of 9 Story, which resulted in $2.1 million of transaction costs and higher operating expenses in the period ended November 30, 2024, partially offset by $1.3 million of lower severance expense from cost-saving initiatives.

Depreciation and amortization expenses for the three and six months ended November 30, 2024 were $16.3 million and $31.6 million, respectively, compared to $14.1 million and $27.5 million, respectively, in the prior fiscal year periods.

The increase in Depreciation and amortization was primarily due to amortization expense on the intangible assets acquired as a result of the 9 Story acquisition.

The Company continues to shift spending to cloud computing arrangements in which the amortization expense is included in Selling, general and administrative expenses rather than Depreciation and amortization.

Amortization related to cloud computing arrangements for the quarter ended August 31, 2024 increased by $0.6 million compared to the prior fiscal year quarter as a result of assets placed into service during fiscal 2024.

Interest expense for the quarter ended August 31, 2024 was $3.8 million compared to $0.3 million in the prior fiscal year quarter.

The $3.5 million increase in interest expense was due to borrowings under the U.S.

Amortization related to cloud computing arrangements for the six months ended November 30, 2024 increased by $1.4 million compared to the prior fiscal year period as a result of assets placed into service during fiscal 2024.

Interest expense for the three and six months ended November 30, 2024 was $4.9 million and $8.7 million, respectively, compared to $0.5 million and $0.8 million, respectively, in the prior fiscal year periods.

The increase in interest expense was due to borrowings under the U.S.

credit agreement incurred during the first quarter of fiscal 2025 to fund the 9 Story acquisition.

Interest expense is expected to increase by a similar amount each quarter for the remainder of the fiscal year.

Interest income for the quarter ended August 31, 2024 was $0.8 million compared to $1.7 million in the prior fiscal year quarter.

The $0.9 million decrease was attributable to lower average short term investment balances in the quarter ended August 31, 2024.

Interest income for the three and six months ended November 30, 2024 was $0.5 million and $1.3 million, respectively, compared to $0.9 million and $2.6 million, respectively, in the prior fiscal year periods.

SCHOLASTIC CORPORATION Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

decrease in interest income was attributable to lower average short term investment balances in the period ended November 30, 2024.

The Company invests excess cash in short term investments which earn competitive interest rates that change directionally in relation to the Federal Funds rate.

The Company's interim effective tax rate, inclusive of discrete items, for the quarter ended August 31, 2024 was 31.9%, compared to 24.3% for the prior fiscal year period.

The interim effective tax rate for the three months ended August 31, 2024 varies from the statutory rate primarily due to expected state and local income tax and non-deductible compensation for covered executive employees.

Net loss attributable to Scholastic Corporation for the quarter ended August 31, 2024 improved by $11.7 million to a loss of $62.5 million, compared to a loss of $74.2 million in the prior fiscal year quarter.

Loss per basic and diluted share of Class A and Common Stock was $2.21 for the fiscal quarter ended August 31, 2024, compared to $2.35 in the prior fiscal year quarter.

The Company's interim effective tax rate, inclusive of discrete items, for the three and six months ended November 30, 2024 was 30.3% and 37.2%, compared to 24.2% and 22.9% for the prior fiscal year periods.

The interim effective tax rate for the six months ended November 30, 2024 varies from the statutory rate primarily due to expected state and local income tax and non-deductible compensation for covered executive employees.

Net income for the quarter ended November 30, 2024 decreased by $28.1 million to $48.8 million, compared to $76.9 million in the prior fiscal year quarter.

Earnings per basic and diluted share of Class A and Common Stock was $1.73 and $1.71, respectively, for the fiscal quarter ended November 30, 2024, compared to $2.51 and $2.45, respectively, in the prior fiscal year quarter.

Net loss for the six months ended November 30, 2024 was $13.7 million compared to net income of $2.7 million in the prior fiscal year period.

Loss per basic and diluted share of Class A and Common Stock was $0.48 for the six months ended November 30, 2024, compared to earnings per basic and diluted share of $0.09 in the prior fiscal year period.

Children’s Book Publishing and Distribution

Three months ended August 31,

Three months ended November 30, Six months ended November 30,

($ amounts in millions)

2024 2023 Change Change

2024 2023 Change Change 2024 2023 Change Change

Revenues $ 367.0 $ 392.4 $ (25.4) (6.5) % $ 472.4 $ 494.8 $ (22.4) (4.5) %

3 unchanged sentences

Operating income (loss) $ 102.1 $ 111.6 $ (9.5) (8.5) % $ 65.5 $ 70.6 $ (5.1) (7.2) %

Operating margin NM NM

Operating margin 27.8 % 28.4 % 13.9 % 14.3 %

(1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

NM Not meaningful

Revenues for the quarter ended August 31, 2024 increased by $3.0 million to $105.4 million, compared to $102.4 million in the prior fiscal year quarter.

Revenues from school reading events increased $1.6 million, primarily within the book fairs channel.

Revenues from school reading events are generally not significant in the first fiscal

Revenues for the quarter ended November 30, 2024 decreased by $25.4 million to $367.0 million, compared to $392.4 million in the prior fiscal year quarter.

Trade channel revenues decreased $15.1 million, primarily reflecting the timing of new releases as the prior fiscal quarter benefited from the release of Cat Kid Comic Club ® :

Influencers and the interactive edition of Harry Potter and the Prisoner of Azkaban, in addition to continued sales of the paperback edition of The Ballad of Songbirds and Snakes ahead of the title’s movie release last fall, and the timing of foreign rights sales.

This was partially offset by increased sales of backlist titles from the Dog Man ® series.

New releases in the quarter ended November 30, 2024 included Christmas at Hogwarts by J.K.

Rowling, The Bad Guys in One Last Thing (The Bad Guys ® #20), the paperback edition of The Christmas Pig and The Hunger Games:

Illustrated Edition .

Revenues from school reading events decreased $10.3 million.

Book fairs channel revenues decreased $11.1 million as more fairs shifted into December than in the prior fiscal year quarter, coupled with slightly lower revenue per fair and lower redemptions of book fairs incentive credits.

Revenue per fair was impacted by the addition of smaller fairs as the Company continues to grow fair count.

Book clubs channel revenues improved slightly by $0.8 million as a result of higher revenue per sponsor.

The Company continues to adapt its strategies to reengage sponsors and customers in the book clubs channel.

Revenues for the six months ended November 30, 2024 decreased by $22.4 million to $472.4 million, compared to $494.8 million in the prior fiscal year period.

Trade channel revenues decreased $13.7 million, primarily due to lower sales of frontlist titles due to the timing of new releases as the prior year period benefited from the release of several frontlist titles, including Cat Kid Comic Club:

Influencers , the interactive edition of Harry Potter and the Prisoner of Azkaban , and the paperback edition of The Ballad of Songbirds and Snakes .

This was partially offset by increased sales of backlist titles from the Dog Man series and increased foreign rights sales in the period ended November 30, 2024.

Revenues from school reading events decreased $8.7 million.

Book fairs channel revenues decreased $9.6 million as more fairs shifted into December than in the prior fiscal year period, coupled with slightly lower revenue per fair, due to the addition of smaller fairs, and decreased redemptions of book fairs incentive credits.

Book clubs channel revenues improved slightly by $0.9 million as a result of higher

SCHOLASTIC CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

quarter as most schools are not in session.

Trade channel revenues increased $1.4 million reflecting increased foreign rights sales, offset by lower sales of frontlist titles as the retail bookselling market for juvenile titles was down slightly year-over-year and the prior year period benefited from the release of the paperback edition of The Ballad of Songbirds and Snakes ahead of the title’s movie release last fall.

New releases in the quarter ended August 31, 2024 included the paperback release of J.K.

Rowling's The Christmas Pig , The Baby-Sitter's Club #16:

Kristy and the Walking Disaster , The Bad Guys #19:

The Bad Guys in the Serpent and the Beast, Unico:

Awakening (Volume 1):

An Original Manga , and When We Flew Away by NYT bestselling author Alice Hoffman.

Cost of goods sold for the quarter ended August 31, 2024 was $58.9 million, or 55.9% of revenues, compared to $63.3 million, or 61.8% of revenues, in the prior fiscal year quarter.

Cost of goods sold benefited from the mix of product sold in the trade channel in the quarter ended August 31, 2024, which included higher foreign rights sales, as compared to the prior fiscal year quarter, resulting in lower product costs.

In addition, the segment benefited from lower outbound freight and fulfillment costs, primarily in the book fairs channel, coupled with lower print costs.

Other operating expenses for the quarter ended August 31, 2024 were $83.1 million, compared to $80.1 million in the prior fiscal year quarter.

Other operating expenses increased $3.0 million primarily driven by higher labor costs in the U.S.

book fairs channel due to inflationary pressures and to support the expected volume of fairs for the fall season.

Segment operating loss for the quarter ended August 31, 2024 was $36.6 million, compared to $41.0 million in the prior fiscal year quarter.

The $4.4 million improvement was primarily attributable to the increased foreign rights sales, which have a higher profit margin than traditional trade sales.

revenue per sponsor, as the Company continues to adapt its strategies to reengage sponsors and customers in the book clubs channel.

Cost of goods sold for the quarter ended November 30, 2024 was $143.3 million, or 39.0% of revenues, compared to $156.1 million, or 39.8% of revenues, in the prior fiscal year quarter.

Cost of goods sold benefited from the mix of product sold in the book fairs channel in the quarter ended November 30, 2024 compared to the prior fiscal year quarter as lower cost products were redeemed by book fairs incentive credits.

Cost of goods sold for the six months ended November 30, 2024 was $202.2 million, or 42.8% of revenues, compared to $219.4 million, or 44.3% of revenues, in the prior fiscal year period.

Cost of goods sold benefited from the mix of product sold in the period ended November 30, 2024, which included higher foreign rights sales in the trade channel and redemptions of book fair incentive credits for lower cost products.

Other operating expenses for the quarter ended November 30, 2024 were $121.6 million, compared to $124.7 million in the prior fiscal year quarter.

Other operating expenses decreased $3.1 million primarily driven by lower spending on promotional materials within the book clubs channel and lower labor costs as a result of warehouse efficiencies in the book fairs channel.

Other operating expenses for the six months ended November 30, 2024 were $204.7 million, which were comparable to $204.8 million in the prior fiscal year period.

Segment operating income for the quarter ended November 30, 2024 was $102.1 million, compared to $111.6 million in the prior fiscal year quarter.

The $9.5 million decrease was primarily attributable to lower revenues from the book fairs channel, as more fairs shifted into December than in the prior fiscal year quarter, coupled with the timing of new releases in the trade channel and foreign rights sales.

Segment operating income for the six months ended November 30, 2024 was $65.5 million, compared to $70.6 million in the prior fiscal year period.

The $5.1 million decrease was primarily attributable to lower revenues from the book fairs channel, as more fairs shifted into December than in the prior fiscal year period, coupled with lower trade channel revenues driven by the continued softness in the retail bookselling market and the timing of new releases.

Education Solutions

Three months ended August 31,

($ amounts in millions) 2024 2023 Change Change

Three months ended November 30, Six months ended November 30,

($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change

Revenues $ 71.2 $ 81.0 $ (9.8) (12.1) % $ 126.9 $ 147.0 $ (20.1) (13.7) %

3 unchanged sentences

Operating income (loss) $ (0.5) $ 5.8 $ (6.3) (108.6) % $ (17.5) $ (12.9) $ (4.6) (35.7) %

Operating margin NM NM

Operating margin NM 7.2 % NM NM

(1) Other operating expenses include selling, general and administrative expenses, bad debt expenses and depreciation and amortization.

NM Not meaningful

Revenues for the quarter ended August 31, 2024 decreased by $10.3 million to $55.7 million, compared to $66.0 million in the prior fiscal year quarter.

The decrease in segment revenues was primarily driven by the continued impact of market conditions as school districts focus on adopting and implementing new core programs and spending on materials not aligned with Science of Reading based approaches to literacy continued to decline, in addition to the timing of sales from literacy initiatives.

Partially offsetting the decline, the segment benefited from increased revenues from state-sponsored partners, driven by the growing number of kids participating in these programs, and increased sales from the Company’s Rising Voices Library ® offering.

Cost of goods sold for the quarter ended August 31, 2024 was $27.4 million, or 49.2% of revenues, compared to $32.6 million, or 49.4% of revenues, in the prior fiscal year quarter.

Cost of goods sold benefited from lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024 and lower royalty costs driven by product mix.

This was partially offset by higher product costs associated with the mix of products sold during the period ended August 31, 2024, primarily related to community facing programs and summer reading products.

Other operating expenses for the quarter ended August 31, 2024 were $45.3 million, compared to $52.1 million in the prior fiscal year quarter, resulting in a decrease of $6.8 million.

The decrease in Other operating expenses was primarily attributable to lower commission expense driven by the lower revenues, lower external labor costs as a result of the timing of work on new product launches and lower marketing expenses due to the timing of mailings for the magazines business.

Revenues for the quarter ended November 30, 2024 decreased by $9.8 million to $71.2 million, compared to $81.0 million in the prior fiscal year quarter.

The decrease in segment revenues was primarily driven by the continued impact of market conditions as school districts focus on adopting and implementing new core programs and decrease spending on supplemental materials not aligned with Science of Reading based approaches to literacy.

The decrease in revenues was also attributable to the timing of revenues from sponsored programs and lower subscription revenues from Magazines+.

Partially offsetting the decline, the segment benefited from increased sales of the Company's Ready4Reading TM phonics curriculum and Rising Voices Library ® offering.

Revenues for the six months ended November 30, 2024 decreased by $20.1 million to $126.9 million, compared to $147.0 million in the prior fiscal year period.

In addition, subscription revenues from

SCHOLASTIC CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

Segment operating loss for the quarter ended August 31, 2024 was $17.0 million, compared to $18.7 million in the prior fiscal year quarter.

The $1.7 million improvement was primarily driven by the increased sales from sponsored programs as increases in participation have a significant impact on profitability, as well as lower expenses driven by lower prepublication amortization, lower external labor costs and the timing of marketing mailings for the magazine business.

Magazines+ and revenues from literacy initiatives decreased from the prior fiscal year period.

Partially offsetting the decline, the segment benefited from increased sales of the Company's Ready4Reading TM phonics curriculum and Rising Voices Library ® offering as well as increased revenues from sponsored programs in the first quarter.

Cost of goods sold for the quarter ended November 30, 2024 was $27.3 million, or 38.3% of revenues, compared to $30.7 million, or 37.9% of revenues, in the prior fiscal year quarter.

Cost of goods sold as a percentage of revenues increased due to higher outbound freight costs related to sponsored programs, largely offset by lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024 and lower product costs associated with the mix of products sold during the period ended November 30, 2024, primarily related to classroom libraries and paperback collections.

Cost of goods sold for the six months ended November 30, 2024 was $54.7 million, or 43.1% of revenues, compared to $63.3 million, or 43.1% of revenues, in the prior fiscal year period.

Cost of goods sold benefited from lower prepublication amortization as a result of the impairment of certain education products in fiscal 2024, largely offset by higher outbound freight costs related to sponsored programs.

Other operating expenses for the quarter ended November 30, 2024 were $44.4 million, which were comparable to $44.5 million in the prior fiscal year quarter.

Other operating expenses for the six months ended November 30, 2024 were $89.7 million, compared to $96.6 million in the prior fiscal year period.

The $6.9 million decrease in Other operating expenses was primarily attributable to lower commission expense driven by the lower revenues and lower external labor costs.

Segment operating loss for the quarter ended November 30, 2024 was $0.5 million, compared to operating income of $5.8 million in the prior fiscal year quarter.

The $6.3 million decline was primarily driven by lower revenues resulting from decreased spending on supplemental materials and lower subscription revenues from Magazines+.

Segment operating loss for the six months ended November 30, 2024 was $17.5 million, compared to $12.9 million in the prior fiscal year period.

The $4.6 million decline was primarily driven by lower revenues resulting from the decreased spending on supplemental materials, partially offset by lower external labor costs.

Entertainment

Three months ended August 31,

($ amounts in millions) 2024 2023 Change Change

Revenues $ 16.6 $ 0.4 $ 16.2 NM

Cost of goods sold 8.3 0.0 8.3 NM

Three months ended November 30, Six months ended November 30,

($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change

Revenues $ 16.8 $ 0.4 $ 16.4 NM $ 33.4 $ 0.8 $ 32.6 NM

Cost of goods sold 10.6 — 10.6 NM 18.9 — 18.9 NM

Other operating expenses (1)

8.8 0.9 7.9 NM

Operating income (loss) $ (0.5) $ (0.5) $ — — %

Operating margin NM NM

10.9 1.2 9.7 NM 19.7 2.1 17.6 NM

Operating income (loss) $ (4.7) $ (0.8) $ (3.9) NM $ (5.2) $ (1.3) $ (3.9) NM

Operating margin NM NM NM NM

(1) Other operating expenses include selling, general and administrative expenses, bad debt expenses, severance and depreciation and amortization.

3 unchanged sentences

SEI was reported in the Children's Book Publishing and Distribution segment in prior periods.

The financial results for SEI for the three months ended August 31, 2023 have been reclassified to Entertainment to reflect this change.

The financial results for SEI for the three months and six months ended November 30, 2023 have been reclassified to Entertainment to reflect this change.

Refer to Note 7 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements" for further details regarding the acquisition of 9 Story.

Revenues for the quarter ended August 31, 2024 were $16.6 million, compared to $0.4 million in the prior fiscal year quarter.

The $16.2 million increase reflected the addition of 9 Story from the date of acquisition on June 20, 2024 through August 31, 2024 in which a majority of the revenues were driven by production revenue related to episodic deliveries, production services provided to third parties and, to a lesser extent, revenues from royalties and distribution.

Cost of goods sold for the quarter ended August 31, 2024 was $8.3 million, or 50.0% of revenues.

Revenues for the three and six months ended November 30, 2024 were $16.8 million and $33.4 million, respectively, compared to $0.4 million and $0.8 million, respectively, in the prior fiscal year period.

The increase reflected the addition of 9 Story from the date of acquisition on June 20, 2024 through November 30, 2024 in which a majority of the revenues were driven by production revenue related to episodic deliveries, production

SCHOLASTIC CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

services provided to third parties and, to a lesser extent, revenues from royalties and distribution.

Entertainment revenues have been impacted by delays in production greenlights from major platforms.

Cost of goods sold for the three and six months ended November 30, 2024 was $10.6 million, or 63.1% of revenues, and $18.9 million, or 56.6% of revenues, respectively.

Cost of goods sold primarily consists of production costs and amortization, participation expenses and interest on film related obligations.

Other operating expenses for the quarter ended August 31, 2024 were $8.8 million, which included $1.7 million of transaction costs related to the 9 Story acquisition.

Segment operating loss for the quarter ended August 31, 2024 was $0.5 million.

Other operating expenses for the three months ended November 30, 2024 were $10.9 million, which included $0.4 million of transaction costs related to the 9 Story acquisition and $0.4 million of severance expense related to cost-saving initiatives.

Other operating expenses for the six months ended November 30, 2024 were $19.7 million, which included $2.1 million of transaction costs related to the 9 Story acquisition and $0.4 million of severance expense related to cost-saving initiatives.

Segment operating loss for the three and six months ended November 30, 2024 was $4.7 million and $5.2 million, respectively.

International

Three months ended August 31,

($ amounts in millions) 2024 2023 Change Change

Three months ended November 30, Six months ended November 30,

($ amounts in millions) 2024 2023 Change Change 2024 2023 Change Change

Revenues $ 86.7 $ 86.5 $ 0.2 0.2 % $ 143.5 $ 143.7 $ (0.2) (0.1) %

2 unchanged sentences

32.1 29.6 2.5 8.4 % 61.9 59.1 2.8 4.7 %

Operating income (loss) $ (8.3) $ (8.2) $ (0.1) (1.2) %

Operating income (loss) $ 5.7 $ 8.0 $ (2.3) (28.8) % $ (2.6) $ (0.2) $ (2.4) NM

Operating margin 6.6 % 9.2 % NM NM

1 unchanged sentence

NM Not meaningful

Revenues for the quarter ended August 31, 2024 decreased by $0.4 million to $56.8 million, compared to $57.2 million in the prior fiscal year quarter.

Local currency revenues across the Company's ongoing foreign operations decreased by $0.2 million, excluding unfavorable foreign exchange impact of $0.2 million.

In the U.K., local currency revenues increased $1.1 million, primarily driven by the trade channel which benefited from

Revenues for the quarter ended November 30, 2024 increased by $0.2 million to $86.7 million, compared to $86.5 million in the prior fiscal year quarter.

Local currency revenues across the Company's foreign operations decreased by $1.7 million, excluding favorable foreign exchange impact of $1.9 million.

In Australia and New Zealand, local currency revenues decreased $1.8 million, primarily driven by lower trade channel sales in Australia due to softness in the retail market.

Export channel sales also decreased $0.5 million as compared to the prior fiscal year quarter.

The overall decrease in segment revenues was partially offset by a $0.3 million increase in local currency revenues in Asia driven by growth in India and a $0.2 million increase in local currency revenues in the U.K., primarily driven by higher fair count in the book fairs channel.

In Canada, local currency revenues increased $0.1 million as higher revenues from the book fairs and book clubs channels were offset by lower trade channel sales.

Canada also benefited from lower trade sales returns from its major customers which partially offset the decline in trade channel sales.

Revenues for the six months ended November 30, 2024 decreased by $0.2 million to $143.5 million, compared to $143.7 million in the prior fiscal year period.

Local currency revenues across the Company's foreign operations decreased by $1.9 million, excluding favorable foreign exchange impact of $1.7 million.

In Australia and New Zealand, local currency revenues decreased $2.0 million, primarily driven by lower trade channel sales in Australia due to softness in the retail market.

In Canada, local currency revenues decreased $0.4 million, driven by lower trade sales, partly offset by lower sales returns in the trade channel and higher sales from the book fairs and book clubs channels.

Export channel revenues also decreased $0.9 million as compared to the prior fiscal year period.

The decline in segment revenues was partially offset by a $1.3 million increase in local currency revenues in the U.K., driven by higher fair count in the book fairs channel and higher sales in the trade channel which benefited from the release of Jonty Gentoo:

The Adventures of a Penguin by Julia Donaldson and Axel Scheffler.

Local currency revenues in Asia were relatively consistent with the prior year period, increasing $0.1 million.

SCHOLASTIC CORPORATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)

higher sales from backlist titles within the Dog Man and Hunger Games series.

In Canada, local currency revenues decreased $0.5 million primarily driven by lower education channel sales due, in part, to lower school funding, coupled with lower sales from the book fairs channel.

In Australia and New Zealand, local currency revenues decreased $0.2 million, driven by lower sales in New Zealand, primarily in the book clubs channel due to lower revenue per order and the timing of certain education orders, partially offset by higher revenues in Australia, primarily driven by increased sales from the book fairs and trade channels.

Local currency revenues in Asia decreased $0.2 million primarily due to lower sales from the trade and education channels, partially offset by growth in India within the trade channel.

Export channel sales also decreased $0.4 million as compared to the prior fiscal year quarter due to the timing of orders.

Cost of goods sold for the quarter ended August 31, 2024 was $35.3 million, or 62.1% of revenues, which was comparable to $35.9 million, or 62.8% of revenues, in the prior fiscal year quarter.

Other operating expenses for the quarter ended August 31, 2024 were $29.8 million, compared to $29.5 million in the prior fiscal year quarter.

The Company benefited from lower employee related expenses as the prior fiscal year quarter included $1.2 million of severance expense related to reorganization efforts within the book clubs channel in Canada, which was offset by higher general overhead costs in the quarter ended August 31, 2024.

Segment operating loss for the quarter ended August 31, 2024 was $8.3 million, which was comparable to $8.2 million in the prior fiscal year quarter.

Unallocated overhead expense for the quarter ended August 31, 2024 decreased by $4.6 million to $26.1 million, from $30.7 million in the prior year quarter.

The decrease was primarily attributable to lower severance expense from the Company's cost-saving initiatives in respect to which the Company incurred $1.2 million in the quarter ended August 31, 2024 compared to $5.1 million in the prior fiscal year quarter.

In addition, revenue from rental income increased $0.2 million to $2.7 million for the quarter ended August 31, 2024, compared to $2.5 million in the prior fiscal year quarter, driven by a new tenant leasing space in the Company's headquarters.

Cost of goods sold for the quarter ended November 30, 2024 was $48.9 million, or 56.4% of revenues, compared to $48.9 million, or 56.5% of revenues, in the prior fiscal year quarter.

Cost of goods sold for the six months ended November 30, 2024 was $84.2 million, or 58.7% of revenues, compared to $84.8 million, or 59.0% of revenues, in the prior fiscal year period.

Lower product costs in the U.K.

due to the mix of product sold in the period ended November 30, 2024 were offset by increased fulfillment costs in Australia on lower revenues.

Other operating expenses for the three and six months ended November 30, 2024 were $32.1 million and $61.9 million, respectively, compared to $29.6 million and $59.1 million in the prior fiscal year quarter.

The increase in Other operating expenses for the three and six months periods ended November 30, 2024 was primarily due to severance expense from the Company's cost-saving initiatives in Asia of $1.4 million incurred in the period ended November 30, 2024, coupled with higher general overhead costs.

Segment operating income for the quarter ended November 30, 2024 was $5.7 million, compared to $8.0 million in the prior fiscal year quarter.

The decrease was primarily due to lower revenues in Australia, coupled with severance expense from cost-saving initiatives in Asia and higher general overhead costs.

This was partly offset by improved profitability in the U.K.

as a result of lower product costs and in Canada which benefited from lower trade sales returns in the quarter ended November 30, 2024.

Segment operating loss for the six months ended November 30, 2024 was $2.6 million compared to $0.2 million in the prior fiscal year period.

The increase in operating loss was primarily due to lower revenues in Australia, coupled with severance expense from cost-saving initiatives in Asia and higher general overhead costs.

This was partly offset by improved profitability in the U.K.

as a result of lower product costs and in Canada which benefited from lower trade sales returns in the quarter ended November 30, 2024.

Unallocated overhead expense for the quarter ended November 30, 2024 increased by $4.6 million to $27.9 million, from $23.3 million in the prior fiscal year quarter.

The increase was primarily attributable to higher employee-related costs, which included severance expense from the Company's cost-saving initiatives of $2.0 million incurred in the quarter ended November 30, 2024 as well as higher medical expense.

This was partially offset by higher rental income of $0.6 million as a result of a new tenant leasing space in the Company's headquarters.

Unallocated overhead expense for the six months ended November 30, 2024 was $54.0 million, consistent with the prior year period.

Higher medical expense incurred in the period ended November 30, 2024 was offset by lower severance expense from the Company's cost-saving initiatives of $1.9 million and higher rental income of $0.8 million as a result of a new tenant leasing space in the Company's headquarters.

The Company’s Children’s Book Publishing and Distribution school-based book club and book fair channels and most of its Education Solutions businesses operate on a school-year basis;

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Education channel revenues are generally higher in the fourth quarter.

Trade channel and Entertainment segment revenues can vary throughout the year due to the timing of published titles' release dates and program production deliveries and distribution license period start dates.

Trade channel and Entertainment segment revenues can vary throughout the year due to the timing of published titles' release dates and program production deliveries and the start dates of distribution license agreements.

SCHOLASTIC CORPORATION

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Liquidity and Capital Resources

Cash used by operating activities was $41.9 million for the three months ended August 31, 2024, compared to cash used by operating activities of $38.1 million for the prior fiscal year period, representing an increase in cash used by operating activities of $3.8 million.

The increase in cash used was primarily driven by lower customer remittances on receivable balances in the quarter ended August 31, 2024, substantially offset by lower severance payments and lower spending in Education Solutions related to commissions and external labor costs.

Cash used in investing activities was $200.8 million for the three months ended August 31, 2024, compared to cash used in investing activities of $21.8 million in the prior fiscal year period, representing an increase in cash used in investing activities of $179.0 million.

The increase in cash used was primarily due to the 9 Story acquisition for $176.4 million, net of cash acquired, during the three months ended August 31, 2024.

In addition, the Company incurred higher capital expenditures of $5.7 million primarily related to spending on a new literacy platform within Education Solutions and expanding the available rental space in its headquarters.

Cash provided by financing activities was $211.9 million for the three months ended August 31, 2024, compared to cash used in financing activities of $39.3 million for the prior fiscal year period, representing an increase in cash provided by financing activities of $251.2 million.

Cash provided by operating activities was $29.3 million for the six months ended November 30, 2024, compared to cash provided by operating activities of $71.6 million for the prior fiscal year period, representing a decrease in cash provided by operating activities of $42.3 million.

The decrease in cash provided was primarily driven by increased inventory purchases and lower customer remittances on receivable balances in the period ended November 30, 2024, as well as increased medical claim payments, interest payments related to the Company's borrowings and higher spending in Entertainment due to the acquisition of 9 Story in fiscal 2025.

This was partially offset by lower tax payments in the period ended November 30, 2024.

Cash used in investing activities was $217.2 million for the six months ended November 30, 2024, compared to cash used in investing activities of $49.1 million in the prior fiscal year period, representing an increase in cash used in investing activities of $168.1 million.

The increase in cash used was driven by the cash paid for the 9 Story acquisition of $176.2 million, net of cash acquired, during the six months ended November 30, 2024, as compared to the prior year period in which the Company acquired certain amortizable intangible assets related to educational programs for $5.8 million and purchased the remaining noncontrolling interest related to Make Believe Ideas Limited for $2.1 million.

Cash provided by financing activities was $214.5 million for the six months ended November 30, 2024, compared to cash used in financing activities of $97.8 million for the prior fiscal year period, representing an increase in cash provided by financing activities of $312.3 million.

The increase in cash provided was primarily attributable to borrowings of $250 million under the U.S.

credit agreement incurred during the three months ended August 31, 2024 to fund the 9 Story acquisition.

In addition, the Company repurchased common stock of $5.0 million, compared to repurchases of $35.9 million in the prior fiscal year quarter, and paid lower dividends of $0.8 million, partially offset by $2.4 million of net repayments of film related obligations in the three months ended August 31, 2024.

credit agreement incurred during the six months ended November 30, 2024 to fund the 9 Story acquisition and working capital needs.

In addition, the Company repurchased common stock of $10.0 million, compared to repurchases of $90.2 million in the prior fiscal year quarter, which also resulted in lower dividends of $1.5 million, partially offset by $14.6 million of net repayments of film related obligations in the six months ended November 30, 2024.

Cash Position

The Company’s cash and cash equivalents totaled $84.1 million at August 31, 2024, $113.7 million at May 31, 2024 and $125.8 million at August 31, 2023.

The Company’s cash and cash equivalents totaled $139.6 million at November 30, 2024, $113.7 million at May 31, 2024 and $149.5 million at November 30, 2023.

Cash and cash equivalents held by the Company’s U.S.

operations totaled $30.4 million at August 31, 2024, $54.9 million at May 31, 2024 and $90.1 million at August 31, 2023.

operations totaled $86.5 million at November 30, 2024, $54.9 million at May 31, 2024 and $115.1 million at November 30, 2023.

Due to the seasonal nature of its business as discussed under “Seasonality”, the Company usually experiences negative cash flows in the June through September time period.

The Company’s operating philosophy is to use cash provided by operating activities to create value by paying down debt, reinvesting in existing businesses and, from time to time, making acquisitions that will complement its portfolio of businesses or acquiring other strategic assets, as well as engaging in shareholder enhancement initiatives, such as share repurchases or dividend declarations.

Under the Company's open-market buy-back program, $81.6 million remained available for future purchases of common shares as of August 31, 2024.

Under the Company's open-market buy-back program, $76.6 million remained available for future purchases of common shares as of November 30, 2024.

The Company has maintained, and expects to maintain for the foreseeable future, sufficient liquidity to fund ongoing operations, including working capital requirements, pension contributions, postretirement benefits, debt service, planned capital expenditures and other investments, as well as dividends and share repurchases.

As of August 31, 2024, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $84.1 million, cash from operations and the Company's U.S.

As of November 30, 2024, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $139.6 million, cash from operations and the Company's U.S.

Credit Agreement.

The Company is currently in the process of amending its U.S.

credit agreement, increasing the borrowing capacity from $300 million to $400 million and extending the term an additional 5 years.

On November 26, 2024, the U.S.

Credit Agreement was amended, which, among other things, increased the borrowing limit from $300.0 million to $400.0 million and extended the maturity to November 26, 2029.

See Note 4 of Notes to the Financial Statements - Unaudited in Item 1, "Financial Statements," for more information regarding the U.S.

Credit Agreement.

The Company expects the U.S.

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Credit Agreement, less commitments of $0.4 million, has $149.6 million of availability.

Additionally, the Company has short-term credit facilities of $24.0 million, less current borrowings of $6.1 million and commitments of $3.6 million, resulting in $14.3 million of current availability under these facilities at August 31, 2024.

Additionally, the Company has short-term credit facilities of $26.9 million, less current borrowings of $6.2 million and commitments of $3.6 million, resulting in $17.1 million of current availability under these facilities at November 30, 2024.

Accordingly, the Company believes these sources of liquidity are sufficient to finance its currently anticipated ongoing operating needs, as well as its financing and investing activities.

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Credit Agreement and certain credit lines with various banks, including those related to film related obligations, as described in Note 4 of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." The Company had $250.0 million in outstanding borrowings under the U.S.

credit agreement as of August 31, 2024.

Credit Agreement as of November 30, 2024.

Subsequent to November 30, 2024, the Company repaid borrowings of $25.0 million under the U.S.

Credit Agreement.

As indicated above, on November 26, 2024, the Company amended the U.S.

Credit Agreement, which included an increase in the maximum commitments, an increase in interest pricing margins and an extension of the maturity date.

Subsequent to November 30, 2024, based on the Company's prevailing Consolidated Net Leverage Ratio, the Company expects the applicable margin on Base Rate Advances to be 0.75%, the applicable margin on SOFR Advances to be 1.75% , and the commitment fee rate to be 0.25%.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis