SCHOLASTIC CORP 10-Q

Item 2. 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, 2025 were $225.6 million, compared to $237.2 million in the prior fiscal year quarter, a decrease of $11.6 million or 5%. The Company reported net loss per diluted share of Class A and Common Stock of $2.83 in the first quarter of fiscal 2026, compared to $2.21 in the prior fiscal year quarter. During the first fiscal quarter, the Company completed the integration of its Book Fairs, Book Clubs and Trade Publishing divisions into a new combined group, called the Children’s Book Group, which is expected to strengthen the segment's ability to connect publishing, merchandising, and distribution. While the summer period is seasonally quiet for School Reading Events, the trade business performed in-line with the prior year quarter, driven by continued demand for several bestselling series. The Company expects the remainder of fiscal 2026 to benefit from new releases, including Dav Pilkey’s Dog Man: Big Jim Believes in November, a collector’s edition of Suzanne Collins’ Sunrise on the Reaping ahead of Lionsgate’s feature film adaptation, the illustrated edition of Catching Fire ® , along with the 25th I Survived book and the interactive illustrated edition of Harry Potter and the Goblet of Fire . Education Solutions continued to be impacted by the volatile funding environment as schools delayed or reduced purchases; however, the Company continues to refine its product portfolio to better align with the needs of educators and families. The Entertainment segment continued to focus on expanding the reach of Scholastic's intellectual property despite delays in production demand, and is well-positioned for growth as industry greenlighting accelerates. Internationally, results reflected increased profitability, primarily in Asia and Australia, driven by higher revenues and previously implemented cost-savings programs. Results of Operations Consolidated Revenues for the quarter ended August 31, 2025 decreased by $11.6 million to $225.6 million, compared to $237.2 million in the prior fiscal year quarter. Within the Children's Book Publishing and Distribution segment, revenues increased by $4.0 million, driven by increased revenues from School Reading Events as a result of increased redemptions of book fair incentive program credits. In the Education Solutions segment, revenues decreased by $15.6 million primarily due to delayed or reduced school funding which resulted in lower sales of supplemental programs. In the Entertainment segment, revenues decreased by $3.0 million, reflecting lower production revenues. In local currency, International segment revenues increased by $2.4 million, primarily driven by higher sales in Australia, Asia and the U.K. International segment revenues were impacted by favorable foreign exchange of $0.2 million in the quarter ended August 31, 2025. In addition, rental income increased $0.4 million from the prior fiscal year quarter. Components of Cost of goods sold for the three months ended August 31, 2025 and August 31, 2024 are as follows: Three months ended August 31, 2025 August 31, 2024 ($ amounts in millions) % of Revenue % of Revenue Product, service and production costs and inventory reserves $ 68.6 30.4 % $ 74.2 31.3 % Royalty and participation costs 24.2 10.7 % 22.0 9.3 % Prepublication and production amortization 7.1 3.1 % 6.7 2.8 % Postage, freight, shipping, fulfillment and other 23.6 10.5 % 25.4 10.7 % Total $ 123.5 54.7 % $ 128.3 54.1 % 22 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, 2025 was $123.5 million, or 54.7% of revenues, compared to $128.3 million, or 54.1% of revenues, in the prior fiscal year quarter. The increase in Cost of Goods sold as a percentage of revenues was primarily driven by higher royalty costs in the U.S. trade channel and the timing of distribution and participation costs in Entertainment. This was largely offset by lower product costs associated with the mix of products sold in Education Solutions and lower inbound freight costs in Canada, coupled with lower fulfillment costs in Australia. The Company expects the newly imposed tariffs to increase Cost of good sold during its peak selling seasons in the second and fourth fiscal quarters, particularly within the book fairs channel. Based on current anticipated revenues and tariff policy, the Company expects approximately $10 million of incremental tariff expense during fiscal 2026. Selling, general and administrative expenses for the quarter ended August 31, 2025 decreased to $177.2 million, compared to $182.1 million in the prior fiscal year quarter. The $4.9 million decrease was primarily attributable to lower employee-related costs resulting from the Company's previous reorganization efforts and cost-saving initiatives, coupled with decreased marketing expense in the U.S. trade channel. This was partially offset by increased severance expense of $7.6 million in the quarter ended August 31, 2025 related to cost-saving initiatives. Depreciation and amortization expense for the quarter ended August 31, 2025 was $16.3 million, compared to $15.3 million in the prior fiscal year quarter. The $1.0 million increase in Depreciation and amortization was primarily due to new assets placed into service during the first quarter of fiscal 2026. Asset impairments for the quarter ended August 31, 2025 were $0.8 million. The Company recognized an asset impairment of $0.8 million related to a product that is no longer being sold within the Children's Book Publishing and Distribution segment. Interest expense for the quarter ended August 31, 2025 was $5.0 million, compared to $3.8 million in the prior fiscal year quarter. The increase in interest expense was due to increased borrowings under the U.S. Credit Agreement during the quarter ended August 31, 2025. The Company continues to expect increased interest expense during fiscal 2026 as a result of higher anticipated borrowings under the U.S. Credit Agreement. Interest income for the quarter ended August 31, 2025 was $0.5 million, compared to $0.8 million in the prior fiscal year quarter. The decrease in interest income was attributable to lower average short term investment balances in the quarter ended August 31, 2025. 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, 2025 was 26.7%, compared to 31.9% for the prior fiscal year quarter. The interim effective tax rate for the three months ended August 31, 2025 varies from the statutory rate primarily due to non-deductible compensation for covered executive employees and expected state and local income tax. Net loss for the quarter ended August 31, 2025 increased by $8.6 million to $71.1 million, compared to a net loss of $62.5 million in the prior fiscal year quarter. Loss per basic and diluted share of Class A and Common Stock was $2.83 for the fiscal quarter ended August 31, 2025, compared to $2.21 in the prior fiscal year quarter. Children’s Book Publishing and Distribution Three months ended August 31, August 31, $ % ($ amounts in millions) 2025 2024 Change Change Revenues $ 109.4 $ 105.4 $ 4.0 3.8 % Cost of goods sold 62.2 58.9 3.3 5.6 % Other operating expenses (1) 81.5 83.1 (1.6) (1.9) % Asset impairments 0.8 — 0.8 NM Operating income (loss) $ (35.1) $ (36.6) $ 1.5 4.1 % (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. NM Not meaningful 23 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Revenues for the quarter ended August 31, 2025 increased by $4.0 million to $109.4 million, compared to $105.4 million in the prior fiscal year quarter. Revenues from School Reading Events increased $4.4 million, driven by increased redemptions of book fair incentive program credits. Revenues from School Reading Events are generally not significant in the first fiscal quarter as most schools are not in session. Trade channel revenues were relatively consistent with the prior fiscal year quarter, decreasing $0.4 million, with continued success in the Hunger Games ® and Harry Potter ® franchises. Cost of goods sold for the quarter ended August 31, 2025 was $62.2 million, or 56.9% of revenues, which was comparable to $58.9 million, or 55.9% of revenues, in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was driven by higher royalty costs as a result of an increase in the mix of higher-royalty bearing titles sold in the trade channel in the quarter ended August 31, 2025, coupled with higher product costs related to redemptions of book fairs incentive program credits. The Company expects the newly imposed tariffs to increase Cost of good sold during its peak selling seasons in the second and fourth fiscal quarters, particularly within the book fairs channel. Other operating expenses for the quarter ended August 31, 2025 were $81.5 million, compared to $83.1 million in the prior fiscal year quarter. The $1.6 million decrease in Other operating expenses was primarily attributable to lower marketing and other general costs, particularly in the trade channel. Asset impairments for the quarter ended August 31, 2025 were $0.8 million. The Company recognized an asset impairment of $0.8 million related to a certain product that is no longer being sold. Segment operating loss for the quarter ended August 31, 2025 was $35.1 million, compared to $36.6 million in the prior fiscal year quarter. The $1.5 million improvement was primarily attributable to the higher revenues from increased redemptions of book fairs incentive program credits. Education Solutions Three months ended August 31, August 31, $ % ($ amounts in millions) 2025 2024 Change Change Revenues $ 40.1 $ 55.7 $ (15.6) (28.0) % Cost of goods sold 19.3 27.4 (8.1) (29.6) % Other operating expenses (1) 42.0 45.3 (3.3) (7.3) % Operating income (loss) $ (21.2) $ (17.0) $ (4.2) (24.7) % (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. Revenues for the quarter ended August 31, 2025 decreased by $15.6 million to $40.1 million, compared to $55.7 million in the prior fiscal year quarter. The decrease in segment revenues was primarily driven by delayed or reduced school funding which resulted in lower sales of supplemental programs. In addition, lower revenues from Magazines+ and the timing of revenues from sponsored programs contributed to the decrease in revenues from the prior fiscal year quarter. Cost of goods sold for the quarter ended August 31, 2025 was $19.3 million, or 48.1% of revenues, compared to $27.4 million, or 49.2% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues decreased due to lower product costs associated with the mix of products sold during the quarter ended August 31, 2025. Other operating expenses for the quarter ended August 31, 2025 were $42.0 million, compared to $45.3 million in the prior fiscal year quarter. The $3.3 million decrease in Other operating expenses was primarily attributable to lower employee-related and external labor costs. Segment operating loss for the quarter ended August 31, 2025 was $21.2 million, compared to $17.0 million in the prior fiscal year quarter. The $4.2 million decline was driven by lower revenues, primarily attributable to delayed or reduced school funding which resulted in lower sales of supplemental materials, partially offset by lower employee-related and external labor costs. Entertainment 24 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Three months ended August 31, August 31, $ % ($ amounts in millions) 2025 2024 Change Change Revenues $ 13.6 $ 16.6 $ (3.0) (18.1) % Cost of goods sold 8.1 8.3 (0.2) (2.4) % Other operating expenses (1) 9.5 8.8 0.7 8.0 % Operating income (loss) $ (4.0) $ (0.5) $ (3.5) NM (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. NM Not meaningful The Entertainment segment includes the operations of 9 Story, as acquired on June 20, 2024, and Scholastic Entertainment Inc. ("SEI"). Refer to Note 8 "Acquisitions," of Notes to the Consolidated Financial Statements in Item 8, "Consolidated Financial Statements and Supplementary Data" for further details regarding the acquisition of 9 Story. Revenues for the quarter ended August 31, 2025 decreased by $3.0 million to $13.6 million, compared to $16.6 million in the prior fiscal year quarter. The decrease in segment revenues was primarily driven by lower production revenues due to fewer episodic deliveries as compared to the prior fiscal year quarter, partially offset by increased production services revenues. Entertainment revenues continue to be impacted by delays in production greenlights from major platforms. Cost of goods sold for the quarter ended August 31, 2025 was $8.1 million, or 59.6% of revenues, compared to $8.3 million, or 50.0% of revenues in the prior fiscal year quarter. The increase in Cost of goods sold as a percentage of revenues was primarily driven by the timing of distribution and participation expenses, and to a lesser extent, the increase in production services revenues which have a higher cost compared to production revenues related to episodic deliveries. Other operating expenses for the quarter ended August 31, 2025 were $9.5 million, compared to $8.8 million in the prior fiscal year quarter. The $0.7 million increase in Other operating expenses reflects a full quarter of expenses in fiscal 2026 as compared to a partial quarter in fiscal 2025 as the 9 Story acquisition occurred on June 20, 2024. Segment operating loss for the quarter ended August 31, 2025 was $4.0 million compared to $0.5 million in the prior fiscal year quarter. The $3.5 million increase in operating loss was primarily driven by lower revenues as a result of fewer episodic deliveries in the quarter ended August 31, 2025. International Three months ended August 31, August 31, $ % ($ amounts in millions) 2025 2024 Change Change Revenues $ 59.4 $ 56.8 $ 2.6 4.6 % Cost of goods sold 35.4 35.3 0.1 0.3 % Other operating expenses (1) 28.2 29.8 (1.6) (5.4) % Operating income (loss) $ (4.2) $ (8.3) $ 4.1 49.4 % (1) Other operating expenses include selling, general and administrative expenses and depreciation and amortization. Revenues for the quarter ended August 31, 2025 increased by $2.6 million to $59.4 million, compared to $56.8 million in the prior fiscal year quarter. Local currency revenues across the Company's foreign operations increased by $2.4 million, excluding favorable foreign exchange impact of $0.2 million. In Australia and New Zealand, local currency revenues increased $1.6 million, primarily driven by increased trade channel sales in Australia. In Asia, local currency revenues increased $1.5 million, primarily driven by increased trade and education sales, which included growth in India and the Philippines. In the U.K., local currency revenues increased $0.7 million, primarily within the trade channel, which continued to benefit from Sunrise on the Reaping . In addition, export channel sales increased $0.2 million compared to the prior fiscal year quarter. The overall increase in segment revenues was partially offset by a $1.6 million decrease in local currency revenues in Canada, primarily driven by lower trade channel sales due to temporarily reduced order volumes from certain customers, and lower book clubs channel sales. 25 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, 2025 was $35.4 million, or 59.6% of revenues, compared to $35.3 million, or 62.1% of revenues, in the prior fiscal year quarter. Cost of goods sold as a percentage of revenues decreased as a result of lower inbound freight and postage costs in Canada and lower fulfillment costs in Australia. Other operating expenses for the quarter ended August 31, 2025 were $28.2 million, compared to $29.8 million in the prior fiscal year quarter. The $1.6 million decrease was primarily driven by lower employee-related costs and decreased bad debt expenses in Asia, in addition to lower operating expenses in Australia. Segment operating loss for the quarter ended August 31, 2025 was $4.2 million, compared to an operating loss of $8.3 million in the prior fiscal year quarter. The $4.1 million improvement was primarily attributable to increased profitability in Asia and Australia, driven by increased revenues and lower operating costs. Overhead Unallocated overhead expense for the quarter ended August 31, 2025 increased by $1.6 million to $27.7 million, from $26.1 million in the prior fiscal year quarter. The increase was primarily attributable to increased severance expense related to cost-savings initiatives of $7.5 million, partially offset by lower employee-related costs resulting from the Company's previous reorganization efforts and cost-savings programs. Seasonality 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; therefore, the Company’s business is highly seasonal. As a result, the Company’s revenues in the first and third quarters of the fiscal year generally are lower than its revenues in the other two fiscal quarters. Typically, school-based channels and magazine revenues are minimal in the first quarter of the fiscal year as schools are not in session. 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 the start dates of distribution license agreements. Liquidity and Capital Resources Cash used in operating activities was $81.8 million for the three months ended August 31, 2025, compared to cash used in operating activities of $41.9 million for the prior fiscal year period, representing an increase in cash used in operating activities of $39.9 million. The increase in cash used was primarily driven by increased inventory purchases, which included higher tariff payments, higher severance and tax payments, and higher interest payments related to the Company's borrowings, coupled with the timing of payments of general operating expenses. This was partially offset by higher customer remittances in the quarter ended August 31, 2025. The increased tariffs are expected to impact Cost of goods sold as the related inventory is sold during the Company's peak selling seasons in the second and fourth fiscal quarters. Cash used in investing activities was $14.9 million for the three months ended August 31, 2025, compared to cash used in investing activities of $200.8 million in the prior fiscal year period, representing a decrease in cash used in investing activities of $185.9 million. The decrease in cash used was primarily driven by the cash paid for the 9 Story acquisition of $176.4 million, net of cash acquired, during the three months ended August 31, 2024, coupled with lower capital expenditures of $10.0 million. Cash provided by financing activities was $66.8 million for the three months ended August 31, 2025, compared to cash provided by financing activities of $211.9 million for the prior fiscal year period, representing a decrease in cash provided by financing activities of $145.1 million. The decrease in cash provided was primarily attributable to net borrowings under the U.S. Credit Agreement of $75.0 million in the three months ended August 31, 2025, compared to $225.0 million in the prior fiscal year quarter in which the Company incurred increased borrowings to fund the 9 Story acquisition. In addition, the Company did not repurchase common stock in the three months ended August 31, 2025, compared to $5.0 million of common stock repurchases in the prior fiscal year quarter. This was partially offset by an increase in net repayments of film related obligations of $1.1 million. 26 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Cash Position The Company’s cash and cash equivalents totaled $94.3 million at August 31, 2025, $124.0 million at May 31, 2025 and $84.1 million at August 31, 2024. Cash and cash equivalents held by the Company’s U.S. operations totaled $28.6 million at August 31, 2025, $48.7 million at May 31, 2025 and $30.4 million at August 31, 2024. 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, $70.0 million remained available for future purchases of common shares as of August 31, 2025. 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, 2025, the Company’s primary sources of liquidity consisted of cash and cash equivalents of $94.3 million, cash from operations and the Company's U.S. Credit Agreement. See Note 5 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. Credit Agreement to provide it with an appropriate level of flexibility to strategically manage its business operations. The Company's U.S. Credit Agreement, less borrowings of $325.0 million and commitments of $0.4 million, has $74.6 million of availability at August 31, 2025. Additionally, the Company has short-term credit facilities of $38.8 million, less current borrowings of $6.2 million and commitments of $3.6 million, resulting in $29.0 million of current availability under these facilities at August 31, 2025. 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. The Company is exploring options to potentially leverage its real estate assets. Financing The Company is party to the U.S. Credit Agreement and certain credit lines with various banks, including those related to film related obligations, as described in Note 5, "Debt," of Notes to Condensed Consolidated Financial Statements - unaudited in Item 1, “Financial Statements." New Accounting Pronouncements Reference is made to Note 1 of Notes to Financial Statements - unaudited in Item 1, “Financial Statements,” for information concerning recent accounting pronouncements since the filing of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2025. 27 SCHOLASTIC CORPORATION Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements. Additional written and oral forward-looking statements may be made by the Company from time to time in Securities and Exchange Commission ("SEC") filings and otherwise. The Company cautions readers that results or expectations expressed by forward-looking statements, including, without limitation, those relating to the Company’s future business prospects and strategic plans, ecommerce and digital initiatives, new product introductions, strategies, new education standards, goals, revenues, improved efficiencies, general operating costs, including transportation and labor costs and the extent such costs are impacted by inflationary pressures, manufacturing costs and tariffs, medical costs, potential cost savings, tax incentives, merit pay, operating margins, working capital, liquidity, capital needs, the cost and timing of capital projects, interest costs, cash flows and income, are subject to risks and uncertainties, which may have an impact on the Company's operations and could cause actual results to differ materially from those indicated in the forward-looking statements, due to factors including those noted in the Annual Report and this Quarterly Report and other risks and factors identified from time to time in the Company’s filings with the SEC. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. 28 SCHOLASTIC CORPORATION