McGraw Hill, Inc. (MH) Earnings Call Transcript & Summary

Hello, everyone, and good morning. It's a pleasure to have you with us for McGraw-Hill's results for the fiscal second quarter of 2026. Here with me are Simon Allen, our Chairman, President and Chief Executive Officer, and Bob Sallmann, our Executive Vice President and Chief Financial Officer. On this call, we'll be sharing forward-looking statements regarding the company. Those statements rest on what we currently expect and on today's economic conditions. Such forward-looking statements, estimates and projections naturally carry significant economic, competitive, regulatory and other risks and contingencies, and a great many of those lie outside management's control. A cautionary statement covering these forward-looking statements appears in our earnings release and the investor presentation. They're described further in our 10-Q and our other SEC filings. The key assumptions and factors that might lead actual results to differ materially from what the forward-looking statements indicate are laid out in the earnings release we issued today and in our SEC filings. Today we'll also discuss some non-GAAP measures. Our view is that these measures offer helpful supplemental data that, while they don't replace GAAP measures, permit more transparency when reviewing our financial and operational performance. You can locate a definition of these non-GAAP measures, along with reconciliations to the most directly comparable GAAP measures, in the earnings press release, the appendix of the investor presentation, and supplemental files posted on the Investor Relations website. For anyone listening to a recording of this call, please note that what we say here reflects today, November 12, 2025, and hasn't been updated since. With that, I'll hand things over to our Chairman, President and Chief Executive Officer, Simon Allen.

Thanks, Danielle, and hello everyone. At McGraw Hill, we keep reshaping education via innovation and AI-powered tools that tailor learning at scale, which fuels stronger engagement and improved results. Our fiscal second quarter performance came in above our expectations, demonstrating the strength, durability and breadth of our varied portfolio, which supports learners across the entire learning life cycle during the crucial back-to-school period; this strength was highlighted by fiscal Q2 revenue of $669 million, our second strongest showing for this quarter in 10 years, even with a 2.8% drop from a year earlier caused by the anticipated contraction in the K-12 market. Subscription-based income reached $422 million, up 6.5% from the same period a year earlier, representing 63% of overall revenue and underscoring the strength of our recurring model. Digital sales grew 7.6% year over year to $352 million, making up 53% of all revenue. Our Higher Education segment in particular delivered excellent performance. Its revenue rose 14% compared with the prior year, and digital revenue increased 18.4%, fueled by continued share gains, growth in Inclusive Access, positive enrollment patterns and our ability to capture value-based pricing. According to MPI data, our trailing 12-month share of the market grew 160 basis points, reaching 30%. The Evergreen content delivery model, which is now available for more than 700 top titles, continues to gain traction, reflected in a record-high NPS score for the fall semester. We saw the K-12 selling season come in right where we thought it would. Even though the market opportunity was smaller, performance stayed solid. Recurring revenue grew 3% compared to the same period last year, and we picked up share in Core Science, ELA and Math. Momentum is starting to build early for ALEKS Adventure, our Supplemental Math product for K3 students, which positions us to grow beyond the Core ahead of the big California Math opportunity in fiscal year 2027. On California Math, we're already seeing encouraging early signs, with 2 large deals booked in fiscal year 2026. On top of that, our team continued to deliver strong profitability. In the second quarter, adjusted EBITDA came to $286 million, which works out to a 43% margin — that's 60 basis points higher than the same period last year. What's behind that is solid operating leverage along with an expanding digital mix, even as we keep reinvesting, and that combination is fueling an unusually fast pace of innovation. Because of our strategy, how we execute, and the visibility we have ahead of us, we feel confident enough to lift our fiscal year 2026 guidance in every respect, and Bob will walk through the specifics in a moment. Over at McGraw Hill, we zero in on offerings with demonstrated effectiveness. When you pair top-tier proprietary content with student data you can actually act on and well-considered pedagogy, the result is real gains for learners. We've been applying machine learning for more than 20 years, and our approach to AI is built around three things: giving educators back their time, deepening the bonds between students and teachers, and tailoring learning to the individual. Three things form the foundation of the layered competitive advantage we've built. The first is our intellectual property. We've spent 137 years creating trusted content hand in hand with our authors, and we've worked with over 50 Nobel Laureates, so everything we produce follows a pedagogy-first method that meets the strictest quality benchmarks. The second is our proprietary data. We've developed a thorough grasp of how learning unfolds, drawing on billions of student interactions from millions of digital users every year. Real-time insights and feedback, grounded in evidence instead of mere prediction, allow our solutions to provide a structured path of learning progression. The third is our domain expertise. For decades, we've been assisting educators and institutions as they bring digital tools into their curricula. Our team, which includes people who used to teach and people with deep tech backgrounds, makes sure our offerings rest on pedagogy and organized learning approaches that mirror what actually happens in classrooms. Combined with solid partnerships, a name people trust, and a strong distribution footprint, that advantage creates the base letting us roll out AI successfully in learning settings. Though big language models are useful as information resources, schooling calls for a deliberate learning sequence backed by ongoing student engagement and data so that genuine understanding, rather than rote recall, is achieved. Teachers view us as a dependable ally, which a recent survey we commissioned via Morning Consult shows, with K-12 instructors and administrators placing McGraw Hill first among education companies for using AI most effectively in its products. Equipping teachers to tap AI's potential to meet individual student needs sets McGraw Hill apart from newer AI-first competitors. Take a pupil who is struggling in math. Our AI-driven Supplemental offering, ALEKS, covering K-12 up through Higher Education, applies machine learning to identify where knowledge is missing and supply focused material; per a recent Clemson University case study, it lifts pass rates by 20%. ALEKS Adventure is our newest item for K3 Math, and it is picking up momentum. We also feel good about the worldwide release of ALEKS Calculus, which opens up $100 million in TAM. Now picture the fifth grade instructor weighed down by administrative work and lesson planning. McGraw Hill Plus eases the burden and delivers live insight into how proficient students are, making targeted teaching possible. Offered for math in 10 states, with 2 additional states arriving in the next fiscal year, we saw a 67% rise in the count of districts that used McGraw Hill Plus during this school year by itself, plus growing usage rates. ALEKS and McGraw Hill Plus are set to grow within the multibillion-dollar Supplemental and Intervention market, where our share today is just 5%; we stay highly excited about Gen AI and keep weaving it into our offerings to improve learning experiences and assist educators. AI Reader is a clear illustration of how we took a proven tool and scaled it across our portfolio. Debuted last spring, AI Reader pushes Higher Education students to interact actively with material until they fully grasp concepts. 1 million students are using the tool and 11 million learning interactions came about in Q2 by itself and are speeding up. During the 2025 back-to-school period, we expanded AI Reader by integrating it into more than 600 Connect titles, as well as into our First Aid Forward product for medical learners. Beyond that, we recently introduced 4 exciting new AI-powered offerings to reinforce our portfolio. To begin, Sharpen Advantage transforms our popular study application for college students into an AI-based enterprise tool focused on academic achievement through live faculty dashboards that track advancement, address learning deficiencies, and create tailored study experiences. Supported by our content, Sharpen Advantage offers a dependable, responsible alternative to ordinary chatbots for institutions, unlocking significant growth opportunities beyond our Core. Second, clinical reasoning draws on our evidence-based content and brings in virtual patient interactions to get medical students ready for real-world clinical care, setting us up for added digital growth. Third, students get personalized feedback in real time from Writing Assistant, which builds their skills by encouraging them to check and correct their own work. Just in October, we logged more than 130,000 interactions spanning 877 distinct school districts across the country. Fourth and last, Teacher Assistant delivers immediate planning help to K-12 educators, cutting down the time they spend preparing. Right now it's offered for California Math, and a nationwide launch will come afterward. In our view, these writing and teaching assistant tools should drive greater market share and better retention, especially given the bigger K-12 opportunity ahead; to wrap up, we see our momentum as impossible to deny. Our share of the market is rising, engagement among users is speeding up, and the recurring portion of our revenue is widening. The business continues to be resilient, with tariffs and proposed changes to federal education policy having no meaningful effect. As you're aware, the bulk of funding originates at the state and local levels, and only an immaterial share of K-12 budgets is connected to course materials. I'll now hand the call to Bob, who will go over our financial results.

Thanks, Simon. Morning, everyone. The results from our second fiscal quarter show how strong, how broad and how varied our business is. We're hitting the financial goals we set ourselves: running things tightly, putting money back in to drive growth, and steadily bringing down gross debt. So let's dig into the numbers for fiscal Q2. Revenue came in at $669 million in total, a drop of 2.8% versus a year earlier, reflecting the smaller K-12 opportunity we'd expected, though Higher Education's strength mostly made up for it. For the first half, revenue slipped only 0.5%, landing at $1.2 billion. Reoccurring revenue climbed 6.5% compared with the same period last year, hitting $422 million, which works out to 63% of quarterly revenue overall, mainly powered by a 7.6% rise in digital revenue to $352 million. Digital contracts carrying higher margins keep lifting both the quality and the predictability of what we earn. RPO — that's our remaining performance obligation — went past $1.9 billion by quarter's end, giving us useful visibility into what's ahead. Gross profit margin rose almost 150 basis points from a year ago, reaching 79.2%, helped by operations running efficiently, a favorable mix of digital revenue and strong results in Higher Education. Adjusted EBITDA came to $286 million, a 43% margin, which is 60 basis points higher than last year, thanks to gross margin gains and careful cost control even as we keep reinvesting for growth. AI deployment is making us more efficient internally and improving the customer experience, cutting K-12 order processing times by 27% and automating 25% of service checks, and our AI-powered content creation tools produced a strong ROI, earning back what we put in within a year, with more use cases emerging that ought to unlock extra margin expansion down the road. Let's now turn to our segments; during Q2, Higher Education revenue rose 14% from a year earlier, reaching $213 million for the quarter; year to date, it hit $395 million, likewise up 14% versus last year. Reoccurring revenue there was up 13.8% to $162 million, and digital revenue climbed 18.4% to $186 million. Driving this outstanding result were market share gains of 160 basis points, taking us to 30% on a trailing 12-month basis. Inclusive Access sales jumped a striking 37% year-over-year; that's now more than 50% of Higher Education sales, and close to 2,000 campuses have taken it up. Most of the Inclusive Access growth keeps coming from current customers picking up additional courses, which shows how well cross-selling works inside accounts and points to big room to expand among the 82% of institutions we serve. On top of that, roughly 100 new universities join the program each year through annual onboarding, and that will matter more to growth in the years ahead; these fresh Inclusive Access relationships generally need at least 2 years before they scale fully; put another way, judging by recent results, activations for accounts we bring on in fiscal year 2026 should grow by 15 to 20x come fiscal year 2028. That's central to giving us visibility into the growth runway ahead. And paired with innovations like Evergreen, we open up further ways to support retention and create takeaway opportunities that let us pick up additional market share; all of this shows our investment initiatives of recent years are paying off. We also benefited from solid enrollment trends and from realizing value-based pricing. I couldn't be more pleased with how our team performed — their creativity and commitment produced results that truly set us apart. Within K-12, the quarter's revenue came in at $359 million, a decline of 11.2% compared with a year earlier, which reflects the smaller market opportunity we had expected along with the fact that we were lapping unusually high capture rates from the previous year. Revenue for the first half totaled $630 million, which is 7.3% below the same period a year ago. Reoccurring revenue rose 2.8%, reaching $216 million, while RPO stood at $1.4 billion, underpinned by multiyear procurement cycles and upfront payments — these give us solid forward visibility and serve as the basis for getting K-12 back to growth in fiscal year 2027. We keep beating the market and hold on to our leading position in Florida science. Our National Science program is fueling share gains across other states, and alongside investments that have strengthened our go-to-market coverage, this bolsters our confidence going forward. Although the Supplemental and Intervention market has likewise shrunk, our integration with the Core and the early traction of ALEKS Adventure are encouraging. Pilots built considerable momentum in South Carolina's Math adoption, demonstrating share gains in the K5 market. It bears repeating that we expected a smaller market in fiscal year 2026 because school purchasing cycles are predictable. Proposed changes to federal education policy have made no material difference to our business, since 90% of district revenue comes from state and local budgets. We feel we are well positioned for fiscal year 2027 opportunities in California Math and Florida ELA, among others; and our Emerge! pilot, which is nationwide, is advancing nicely ahead of the sizable California ELA opportunity in fiscal year 2028. Global Professional revenue totaled $40 million for the quarter, roughly flat versus a year ago, while reoccurring revenue climbed 5.4% to $25 million. Strength in medical and engineering compensated for the exit of nonstrategic print, and continued innovation — such as the launch of clinical reasoning — is expected to generate incremental digital growth over time. Lastly, International revenue fell 8.8% from a year earlier to $50 million in Q2, which is a relative improvement over the double-digit year-over-year drop in Q1. The decrease in reoccurring revenue also narrowed on a sequential year-over-year basis to 4.8%. Digital growth in select K-12 markets has partly offset weakness in Canada and timing in Spain. Turning to our balance sheet and cash flow: we closed Q2 with $463 million in cash and $913 million of liquidity, with our revolving credit facility undrawn. Net leverage stood at 3.3x as of September 30. We produced $265 million in cash flow from operating activities during the quarter. Working capital was affected largely by the K-12 market opportunity and the timing of prior year expenses. In October, we prepaid $150 million in term loan principal after September's repricing, which lowered our interest rate spread by 50 basis points. So far this year, we've prepaid $542 million in term loan debt, producing more than $40 million in annualized cash interest savings. Our disciplined capital allocation strategy puts reinvestment and debt reduction first. We stay committed to a net leverage target of 2 to 2.5x as well as to strategic tuck-in M&A. We're going to keep paying down debt step by step for the rest of this fiscal year, using the cash the business generates, which has gotten a boost from cash tax savings tied to new tax legislation, and we'll stay opportunistic when it comes to the capital structure. Turning to what's ahead, given how strong our first half has been, our RPO visibility, the share gains we've sustained and favorable enrollment trends, we're lifting our guidance for the full year. Our updated expectation for total revenue in fiscal year 2026 is somewhere between $2.031 billion and $2.061 billion, with reoccurring revenue of $1.504 billion to $1.524 billion and adjusted EBITDA of $702 million to $722 million. Unlevered free cash flow should come in a bit above the bottom end of the 50% to 100% adjusted EBITDA conversion range, and CapEx and product development as a share of revenue is still unchanged. Recent changes to federal tax policy gave our Q2 tax provision a positive lift, and that should bring our fiscal year 2026 tax liability under the prior $30 million to $50 million range, on both a cash and GAAP basis. Last, a handful of modeling items: for the back half of fiscal year 2026, we expect revenue seasonality trends to look fairly in line with our historical average. Stock-based compensation expense should land at $1 million to $2 million in each of the third and fourth quarters. Interest savings overall should come to roughly $5 million in the fiscal year's second half, and we're expecting debt extinguishment of about $6 million in Q3; for fiscal year 2026, our GAAP effective tax rate should be roughly 15% to 20%, and our marginal non-GAAP cash income tax rate on the incremental changes to book income should be around 18%. Our performance makes us proud, and our strategy gives us confidence. Higher Education's outperformance stands out, and we're well positioned for K-12 growth in fiscal year 2027 and beyond. Operator, let's open the call up for questions.

Congratulations on a fantastic quarter. Simon, I'd like to begin by discussing Higher Ed. Obviously, that part of the business turned in a superb result. Could you unpack a bit more for us the mix between the benefit coming from enrollments? From what I can see, the data indicates roughly 2.4% growth in enrollment for this fall term, as opposed to execution and share gains? Then, regarding the Inclusive Access piece, the growth there was impressive. Could you give us a sense of how durable that is and how much runway remains for growth in Inclusive Access?

Yes. Thanks, Ryan. Good to hear from you, and I appreciate the great question. And yes, we're extremely happy with how Higher Ed performed this quarter. I'd say the 14% growth mainly comes, in a really big way, from capturing market share. We've taken it from every one of our competitors. You brought up enrollment. My understanding is that right now it's projected — though it's quite early — at perhaps 2%, 2.5%; our growth has been enormously larger than that; and we're gaining share from all of them. It all comes down to our execution. You've heard me make this point many times on these calls, but it genuinely holds true. The caliber of our execution is the reason we come out ahead. The way we deliver product, the fact that we grasp what our customers need to see, how we're able to apply AI and what we bring to market and demonstrate in a highly efficacious manner why we've performed well. And beyond that, our go-to-market teams are, in my opinion, genuinely the finest in the industry; and I believe the results bear out that statement when you consider, once again, retention rates climbing significantly as a result of what we've achieved with our market share gains. Every competitor we're taking share from, across all disciplines on the college campus, we're posting record NPS scores throughout this back-to-school period, and I think the best part of all, for us to now reach 30% market share. And if you recall, going back ten years, we sat at barely 21%, 21.5%, Ryan. I mean, it was far lower. We've now climbed to 30%, a 160 basis point increase year-on-year. And we're extremely proud of that. The final point I'd make is that when we consider innovations such as AI Reader, this is the product, if you recall, that we introduced a couple of quarters ago; and it has genuinely established itself as a tremendous retention tool for us. We're seeing above — it's actually — I believe we cited 11 million interactions at the close of Q2. I can tell you that through October, it's roughly 20 million now when it comes to reader interactions. And we're simply expanding that month after month as students recognize the value and professors recognize the value of what that can offer students to truly assist them in their class and help them succeed. So the final thing I'll mention is, well, you brought up Inclusive Access. Once more, we've been communicating that to our investors for an extremely long period. Everyone can participate; we were the first to see how valuable it is. Through IA, our business keeps expanding each quarter. That's a fantastic business model. And what Bob mentioned before regarding land and expand is genuinely accurate. This is exactly where that delivers enormous upside for us. And whenever I consider the fresh offerings we're developing, such as ALEKS Calculus, that will provide an additional $100 million in untapped TAM, along with what we've accomplished using Sharpen and Sharpen Advantage as we work toward an institutional AI-driven product. We genuinely grasp what faculty are looking for, and how we can assist them in leveraging AI for advantage and for clear improvement in student performance and outcomes. So let me — Bob, allow me to hand this over to you a little, since I'm aware you enjoy the Inclusive Access modeling when examining land and expand. So perhaps you could address the remaining portion of Ryan's question.

Absolutely, and thank you, Simon. Ryan, before I get into that, I should point out that the National Student Clearinghouse figures you referenced are preliminary — between our first print and later prints, we have observed revisions. So my caution to you is that the 2.4% figure you cited is preliminary — yet inside that number, you ought to keep in mind that community colleges and 2-year institutions show stronger growth rates. Compared with the broader market, we are over-indexed in that segment. As a result, our enrollment is coming in a bit above that 2.4%, though it deserves mentioning that the figure is preliminary. Turning next to the Inclusive Access model, we called attention to this, specifically its sustainability. Each year, we have brought on 100 new logos, meaning new institutions. Obviously, we still have considerable runway to keep landing them, yet what matters more is the expansion. Once we land those institutions, across the initial couple of years we witness 15 to 20x growth. After that, growth continues. So regarding sustainability, there is plenty of runway. That has us quite excited, and we anticipate continuing to discuss it further.

Ryan, thanks for that. Maybe I can follow up on the K-12 side. It was nice to hear a few remarks about California Math and Florida too. Could you remind us where California Math and Florida ELA stand at the moment in terms of performance? And then, what level of confidence does that give you as we head into — I believe they refer to it as year 1, but the second tranche of that funding in fiscal '27?

Yes, good question. Ryan, I apologize for the longest response you've ever gotten on Higher Ed. But I appreciate your bringing us to K-12, where our potential excites us just as much. You know, and so does everyone, that K-12 is a smaller year this year. What's truly encouraging about FY '27 as we look forward — and obviously we won't provide guidance yet. We'll hold off until our fiscal year ends to do that. But what's truly encouraging is the widely known fact of an extra $300 million TAM in that market. That's approximately 10% more in '27 than '26. And as you mentioned, California Math is driving that. Florida ELA and Texas Math are driving it too. A number of different opportunities are coming out for FY '27. We're encouraged because we've already enjoyed good successes in California at the earliest stages. It all comes down to how suitable our product is. We must ensure that as we build our material, we fully understand the state standards that are required. We ensure our pedagogical delivery of our products fits right within the appropriate learning age range that exists. And then, naturally, we're supplementing all our Core material with McGraw Hill and, of course, ALEKS, which you know well. So we're extremely bullish about next year. Bob, is there anything you'd like to add specifically about California or Texas, for Ryan?

Right. The main thing we're enthusiastic about is the ability to add on in Supplemental/Intervention and to have bundled solutions when we move into that market. So once more, when we consider that part of our business — roughly 15% of the K-12 revenue — we genuinely see a solid chance to bundle those offerings as we step into those opportunities next year.

Across the industry, there's been a lot of anxiety about AI causing disintermediation, so we were hoping you could give us a bit more detail on how you'd characterize the competitive moats surrounding the business — put another way, what is it that sets McGraw Hill's capabilities apart in a unique way from new entrants that are native to Gen AI?

Henry, thanks for asking that. It's simply wonderful to hear an accent I know well. It's a solid question, since — when you consider the matter of AI, I believe a tremendous amount has gone underappreciated. It simply hasn't yet been acknowledged regarding McGraw Hill and what we're capable of doing to truly make a difference and to view AI as a huge genuine tailwind for our business. And we're only in — naturally, since this is our second quarter earnings call, it's new to everyone. But my hope is that in the quarters ahead, people will come to recognize the true value and strength AI brings to our business. And once more, the tailwind we're witnessing, and we're witnessing it throughout every part of our whole structure. When you consider what we're doing in Higher Education, we've spoken extensively about our products involving AI Reader. We've spoken a lot about what we've accomplished with Sharpen Advantage, when you consider the institutional opportunity; we've discussed the capacity for clinical reasoning in our medical business. And that represents a considerable upside when you consider potential students learning and what they must grasp as they move through their medical programs; and then there's ALEKS, and you've known for years that we've partnered with ALEKS for now well — really more than 20 years; and when you consider the capacity for machine learning now to concentrate on Generative AI delivery for our Adventure for K5 as well now at the opposite end for ALEKS Calculus, all of these elements give us enormous confidence. And we're observing that in how our customers react. We're observing it in our financial performance, as you've heard; we're observing it from our customers telling us, we are using Sharpen and it is assisting our students; we are witnessing an enormous rise in student learning and time spent on your excellent platform with AI Reader. Medical students are gaining from clinical reasoning. So these are functional, efficacious products that we deliver; and thanks to our moat, Henry, we possess the strength of our 137 years, the trusted position we hold in the education community and really the reliability we offer our customers with that degree of trust. And they wish to work with us and they wish to understand how we can enhance the materials the way they teach through AI integration. To repeat, that was a lengthy response, yet it truly matters to me and to everyone here that, in my view, people everywhere grasp precisely how much McGraw Hill stands to gain, since by weaving in AI the way we have, we are fully capable of enhancing learning results.

Yes, that's quite useful. Now, following up on that point, we've been hearing from several of your competitors about the rising expense of storing and leveraging data that's been prepared for AI. As data plays a bigger role in what you provide, how should we view the margin picture?

That's a fair question. We're starting to track compute cost at this point. Actually, we've been doing so for some time. Bob, I'll hand that over to you in case you have anything to add. I realize we don't provide a great deal of granularity, but I believe we do have an answer for Henry.

Correct, Henry. When we look at AI, what we really see down the road is margin expansion. We've discussed how Scribe cuts our cost by 60% in some use cases and shortens time to market by 50%, which lets us lower what it costs overall to build product. So when we consider the cost to serve AI, we can offset it by achieving cost reductions across our product and platform development. So what we really see down the road is margin expansion.

Good numbers today. I'd like to explore the K–12 segment a bit further. Could you share additional detail about the trends underneath, and in particular, how momentum for newer offerings is tracking versus what you anticipated, thinking of ALEKS Adventure, MH Plus, and similar items? Then, regarding the upside from these newer offerings — I realize several represent added revenue streams — to what degree might they assist you in going after those bigger Core contracts? How much could these fresh product capabilities and bundling improve your positioning to secure those sizable contracts?

Sure, that's a fair question. I'll begin, and then Bob, I'll turn it over to you too, in case I leave anything out; but what I'd say, Stephen, is that — and you named a few of them. The offerings delivering the major impact: ALEKS Adventure will bring us fresh growth ahead; that's already starting; it launched roughly a year ago, more or less. McGraw Hill Plus, we've expanded. It had been in 10 states; we've broadened it, and we're set to enter 2 additional ones. Every one of those produces a significant rise in teacher intervention and teacher activity. The explanation is that it delivers such an excellent degree of data and detail regarding student performance that educators consider highly useful. Yet a crucial element of your question is what effect does this have on the Core? Since you're aware that we're an extremely, extremely strong performer in Core. Next year the market opportunity is far larger. However, that isn't all for us, the Supplemental/Intervention area, where it's genuinely 15% of our business, yet we hold less — roughly 5% market share. That's where the genuine growth opportunity lies; it's truly extending the Core wins that we've achieved, extending with ALEKS through our Math Core adoptions, extending the ELA adoptions through Actively Learn and Achieve3000; these are the instruments, and then every one of them incorporating McGraw Hill Plus. These are the instruments that provide us tremendous confidence for growth ahead to allow market share growth to persist. Bob, perhaps you have something further to add on that.

Sure. I'll give you a bit more detail here. During the previous quarter, we discussed how we had come out ahead in 8 out of 9 markets. We've shown that's the case, and what we're indicating is that this pattern will continue across the coming several years. What that translates to is this: as we keep winning, we're able to offer forward visibility over the next several years. These contracts span multiple years. One point worth emphasizing: if you set aside the 3 large states, especially Florida and Texas, where our results last year were strong — if you take those out and consider the rest of the districts where we do business, our share is growing. We expanded by 200 bps. That means we're winning at a faster pace. So we're succeeding throughout the market. A few other developments have us enthusiastic. We've mentioned having a presence in 10 states for McGraw Hill Plus. Let me go deeper on that and share additional insights, since we've discussed being in 10 states and moving toward 12 — what does that actually mean for our K-12 business? Once again, McGraw Hill Plus will make us highly sticky as time goes on. When we examine it, 25% of our teachers who use our Core Math products, Reveal, now can access McGraw Hill Plus; that represents close to a 50% gain compared with a year earlier; we've recorded a 4x rise in unique users of McGraw Hill Plus versus a year ago. And at this point more than 10% of districts we serve can access McGraw Hill Plus; so once more, what matters here is that this genuinely fuels that stickiness and retention as time passes. And in the end, the other major innovation we're pursuing is our new ELA offering, Emerge! which will enter the market, once again targeting California ELA in 2028. So once again, we're in a very strong position. The business delivered and matched what we expected during the period; we're quite excited about how this sets us up to get back to growth.

That's really useful, and glad to hear it. Then, as a quick follow-up — when we consider plans for additional spending, I suppose, based on everything you've observed during this year up to now, have your priorities shifted in any way, with more pressure on the pedal in some parts of the business compared with others, particularly when we think about developing products and sales capacity in various segments? At a broad level, I suppose, in which places are you pressing harder on the investment pedal?

Yes. So to begin, let me say — broadly speaking, the amount we invest isn't going to change. We've pointed out that this has represented 8% to 9% of our revenue. That figure will stay where it is. Naturally, though, we do reassess and move around the destinations for our money; and because of certain efficiencies we're generating in product development, we're able to speed up how quickly we invest in other places, for example some of the AI tools we've recently released. Simon brought up the 4 new products we've introduced to the market. Once again, the speed at which we're putting things out lets us launch new products. But the most important point I want to leave you with is that we do think all this innovation will still let us keep growing our margin.

I want to add my congrats too — that was a genuinely strong quarter. For my first question, as you think about the back half outlook, maybe I should set it up by asking how your results in the quarter compared with what you had expected internally? And when it comes to lifting that full year guidance, what portion comes from the Q2 results? What portion comes from what you expect in the back half? And have your methods or assumptions around guidance shifted at all?

Sure. I'll take this one, Simon; regarding our guidance in the quarter, first, keep in mind that Q2 matters most for our business, since it gives us visibility into enrollments, share gains and other items; and above all, in our K-12 business, it gives us the RPO that provides clear visibility through the remainder of the year. So as we built our guide, I'll take you through a few of the BUs and how we're approaching it, but it's also worth noting that we narrowed the guide from the prior quarter to this one, meaning the revenue guide that had been a high to low $60 million range is now narrowed to $30 million; and then for the reoccurring and EBITDA, we had been at $40 million in the earlier guide. We've brought that down and narrowed our guidance to $20 million. And again, that reflects the fact that we've gotten through that seasonally critical Q2 and now have better visibility; as for the parts of the business that hit expectations, I'd say K-12 was definitely in line with what we expected. We noted that we were gaining share. Our products are well positioned. We expected some of those share gains that we achieved, and the overall market size being smaller is now coming in line with expectations. Where we did a bit better, and I'll call that out, was in Higher Education. Obviously, the share gains, we're very pleased with the continued share gains and how large those share gains were, and enrollment came in slightly higher; and again, we discussed it on Ryan's first question regarding what the Clearinghouse is providing; we see it a bit above that, which gives us a modest tailwind. As I walk through the full year, I think it's important to recognize that our business has seasonality. So the first half is seasonally important, the second half is smaller; that then translates into a lower EBITDA margin on the smaller revenue base. And then in the end, I also think it's important to recognize that this seasonality from first half to second half will also show up more like fiscal year 2024 than fiscal year 2025; and I want to highlight that so that your modeling considerations for Q3 and Q4 phasing keep in mind that 2025 had an outsized performance in K-12. So let's really take ourselves back to 2024. And when we look at that overall guidance, I'd say we feel quite good about the way we've set up the business, and that rests on what we've already achieved when it comes to seeing further ahead.

Great. If I could squeeze in a second question, perhaps piggybacking on what was asked before regarding investment within the company, and maybe broaden it to request your perspective in a broader sense on how you're approaching capital allocation going forward?

Yeah, absolutely. The area we consistently put money into first is our organic investments. Those are always going to give us the best ROI; and beyond that, we stay strongly dedicated to bringing down leverage and to our goal of 2 to 2.5x, and we showed that dedication through the $150 million we repaid in October. Given cash flow and how we view the business, there's still going to be room for us to reduce leverage further over the rest of the year; we also weigh that against tuck-in M&A., and right now the funnel is quite full; we're evaluating smaller chances that we view as make versus buy, growing the addressable market; we examine these chances; and so we believe there's an opportunity for us to keep looking into that, though nothing transformational is currently in the funnel.

So far during this adoption cycle, you pointed out how well K-12 has been capturing business. Could you tell us the capture rates achieved up to now in the current year, and what those figures look like measured against the equivalent point last year?

Sure. George, giving you exact visibility into those capture rates isn't something we plan to do. That figure, as you'll remember, comes from data our internal sales force generates. What I can point to, though, is that when we examine that market, it stands 200 bps above the prior year, and that matches what we had expected.

Understood, that's useful. Then you mentioned having solid visibility into the K-12 TAM years ahead of time. Given what you're seeing right now, how much growth do you expect for the K-12 TAM in 2027?

Yeah. So that — we've pointed out that the total market sits at $300 million that we view as expanding. And once more, our position is really strong when we consider that California Math represents the biggest opportunity. We're enthusiastic about what's possible for us. Simon, I'm not certain whether you'd like to add anything further on that.

No, precisely. And we already brought this up before, George — the size of the market's expansion in the coming year is really motivating for us. In earlier years, you saw that when the TAM sits at a far bigger level, our results have been strong. Naturally, we'd anticipate the same degree of increase and execution in later years. And FY '26, as we've stated quite plainly, has consistently been a weak year, and then you consider '27 and '28. When you gaze ahead, the chance becomes visible at that point, and that has us enthusiastic as we look forward.