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

Good evening, and thank you for joining us for McGraw Hill's earnings call for the fiscal third quarter of 2026. With me on the line today are Simon Allen, who serves as Chair of the Board of Directors, Philip Moyer, our President and Chief Executive Officer, and Bob Sallmann, Executive Vice President and Chief Financial Officer. As was announced on January 6, 2026, Simon stepped down from his role as President and CEO on February 9, and he continues to serve as Chair of the Board. On this call, we will be sharing forward-looking statements regarding the company. Such statements reflect our present expectations along with the current economic environment. Forward-looking statements, estimates, and projections are by their nature subject to significant economic, competitive, regulatory, and other uncertainties and contingencies, many of which management cannot control. These forward-looking statements are also governed by the cautionary statement contained in our Fiscal Third Quarter 2026 Earnings Release, the investor presentation that accompanies it, and our Form 10-Q for the Fiscal Third Quarter 2026, along with other filings we have made with the SEC. Important assumptions and factors that might cause actual results to differ materially from those expressed in the forward-looking statements are set forth in our earnings release issued today as well as in our SEC filings. Today we will also reference certain non-GAAP measures. It is our belief that these measures offer useful supplemental data that, while not a replacement for GAAP measures, permit greater transparency when reviewing our financial and operational performance. In the earnings press release, the appendix of the accompanying investor presentation, and as a supplemental file on our Investor Relations website, a definition of these non-GAAP measures and reconciliations to their most directly comparable GAAP measures can be found; for those of you listening to the recording of this call, we remind you that the remarks made herein are as of today, February 11, 2026, and have not been subsequently updated; with that, I'll hand the call over to the Chair of the Board of Directors, Simon Allen.

Thanks, Danielle, and good morning to all of you. This is a thrilling moment for McGraw Hill, as we keep building momentum, turn in solid results for the quarter, and set ourselves up to return to growth in fiscal year 2027. Third quarter revenue rose 4.2% compared with the same period a year earlier, powered by our higher education business, which keeps beating the market. Reoccurring revenue was up 14.8% versus the prior year, accounting for 82% of total revenue, while digital revenue climbed 11%, making up 84% of total revenue. Adjusted EBITDA rose 7.7% against the prior year, producing a margin of 31.3%. Our fiscal Q3 numbers reflect solid execution and ongoing momentum, and because of that we feel good about lifting our fiscal year 2026 outlook — Bob will walk through those details in a moment. Education carries real importance for society, and our mission sits at the core of everything, fueling a business model that is resilient, high-margin, and strong at generating cash. Through trusted content and inventive technology, we go beyond merely passing along information. What we do helps educators spark learner engagement with tailored experiences that build deeper comprehension and development. Intellectual property forms the base of our multi-layered moat, alongside first-party data fed by billions of learning interactions each year, plus expertise across the entire learning lifecycle — together these yield what we consider a unique competitive edge at scale. When it comes to AI, McGraw Hill takes a different approach than companies offering generic tools — we apply it thoughtfully so that learning results improve, leveraging our multi-layered moat to deliver evidence-based impact while giving educators back precious time. People are responding to this approach. Morning Consult recently performed a study in which we were named the number one education company for effective use of AI, as recognized by both students and instructors. Before continuing, I want to address my choice to step down from my roles as CEO and President. Taking this group of more than 4,000 employees driven by mission and guiding a legacy publisher's evolution into a market-leading provider of digital education solutions — fueled by the trust, innovation, and strong financial profile you'll learn more about today — has been the greatest honor of my career. I'm going to stay on as Board Chair and keep a very active role so that Philip Moyer can step in smoothly and take McGraw Hill into its next era, building on the proud history this company has. When the board and I started looking for who would take over from me, what we wanted was a CEO with deep experience and a strong technology background — someone who would value the solid foundation, the financial strength, and the trusted brand we've built, and who could also use those advantages to go after the huge opportunities that lie ahead for McGraw Hill. We ran a thorough search process, and I have complete confidence when I say that in Philip, we found the right person to lead. Philip has deep experience in top tech roles, having worked at Google, Amazon, and Microsoft, and he was most recently CEO of Vimeo. Among the qualities that make him stand out is a passion he developed early on: harnessing technology to imagine what education could look like going forward. Let me begin with the digital software platform he created to modernize how individualized education plans are handled, and then move on to the growth he spearheaded in the education sector while he was with Vimeo. Given all of that, we believe Philip brings precisely the combination we need — operational excellence, strategic vision, and customer-focused technology know-how — to deliver on the commitments we have made: profitable growth, margin expansion, and hitting our net leverage goal of 2 to 2.5 times. Philip, I am truly thrilled about this partnership. Welcome to McGraw Hill.

Thank you, Simon. I'd also like to tell you and the team how grateful I am for the incredible foundation you've built. Taking over at a time when McGraw Hill is winning more of the market, meeting its financial promises, and positioning itself for sustained growth is a privilege. My interest in this role came not just from McGraw Hill's solid financial standing, but also from the company's mission and its trusted place within the industry. Throughout my career, I've seen technology reshape whole sectors, yet it's in education that technology has the power to reshape people's lives. Our industry stands at a pivotal moment. Depending on how it's used, technology can either pull attention away from learning or speed it up. Helping teachers and school administrators connect with today's students through better, more modern tools is a must. Having spent years creating enterprise-grade AI platforms and global video distribution technologies, I see the road ahead from a distinctive angle. Adoption of AI keeps rising, yet no single universal approach exists, and the big AI model companies won't be the ones to crack it. What matters instead is tailoring learning and AI to each individual student and educator. In this coming era of education, McGraw Hill holds a strong position to take the lead. One of the world's most trusted curriculum libraries is ours to draw on. We're developing fresh learning technologies, drawing on billions of proprietary data points that reveal what works and what doesn't when it comes to learning. A key asset here is our worldwide team for distribution and customer support, widely regarded as among the best anywhere, which works hand in hand with teachers and learners to ensure they get results from our products. Driving faster expansion, growing the operation at scale, and safeguarding both the confidence people place in our name and the standards of scholarship will be my priorities, all while creating some of the most captivating and thrilling educational resources available globally. The financial discipline that Bob and Simon brought to this organization is something I greatly respect, and I'm eager to keep making headway on our objectives—putting more money back into areas where we can grow, widening our margins, bringing down what we owe, and making the most of McGraw Hill's powerful reputation and experienced workforce. Working alongside Simon, Bob, the other leaders, and our board to build shareholder value is something I'm excited to do. Over the next several months, I'm looking forward to getting to know many of you, and to talking with you once more in June, when we'll share our results for the close of fiscal year 2026.

Thanks, Philip. Now I'd like to walk through a few additional specifics that support the outstanding results we posted in quarter three. Within higher education, we keep beating the broader market by a wide margin, delivering revenue growth of 24% versus a year ago, backed by a record 30% share according to MPI, our go-to-market execution, being first to move on product innovation, and an expanding portfolio. Riding that momentum, our Evergreen platform now features a library that keeps growing and holds more than 700 titles. Evergreen makes workflow management simpler for instructors and lifts sales productivity, which lets us concentrate more on takeaways. On top of that, our new ALEKS for Calculus offering underpins a broader STEM lineup that opens up roughly $100 million in worldwide market opportunity. Solutions powered by AI are creating deeper engagement, driving better efficiency, and supporting academic achievement, while also raising platform utilization and strengthening our standing as an innovation leader in education. To illustrate, AI Reader served more than 1 million higher education students during Q3, producing 16 million learning interactions, an increase from 11 million in Q2, bringing the cumulative figure to 27 million since launch. We lately brought AI Reader into our First Aid Forward and Access Medicine products in the global professional segment, improving the learning experience through alternative explanations, summaries, and personalized quizzes. Extending this AI innovation, Clinical Reasoning is likewise earning praise from medical professionals for how it cultivates critical thinking and practical, real-world application. We're seeing encouraging momentum across institutional pilots and are broadening its impact by rolling out new modules and virtual cases over the coming months. As we grow, we're pushing for a stronger institutional emphasis and tighter integration across our offerings. Sharpen Advantage, a fresh AI-powered enterprise solution, illustrates this via an appealing TAM extension that draws on our current content and capabilities to create unique content. By rethinking our conventional professor-centric higher education model, Sharpen Advantage increases penetration by selling across the whole institution, with solutions for administrators, professors, and students alike, all of which combine to boost student outcomes. Pairing Sharpen with ALEKS this fall ought to generate additional upsell; in K-12, we picked up share in a down year, extending strong results from the prior year; we hold a rank of first or second in 10 of the top 11 adoption opportunities, with wins in science and ELA. As noted previously, proposed changes to federal education policy have had no material effect on us. Fiscal year 2027 represents a bigger market opportunity, propelled by purchasing cycles in California Math, Florida ELA, and Texas Math. Active pilots in the California Math market are moving ahead, and we've already locked in some early wins; in Florida ELA, we captured a leadership position this year, which we think should leave us well positioned going forward. We're optimistic about Texas Math, where our offering will connect with McGraw Hill Plus, a platform whose district access has risen 86% versus a year ago, alongside a 40% gain in average time spent on the platform since the school year began. We believe our spending on innovation and the breadth of our portfolio will deliver more integrated, end-to-end solutions going forward. Our supplemental and intervention offerings, such as ALEKS Adventure—which now has 4x the monthly student users it did a year ago—along with McGraw Hill Plus and AI tools including Teacher Assistant and Writing Assistant, bolster what we can do to generate growth outside the core. Toward that aim, we've already notched an early success with Emerge, our new K-5 literacy curriculum, and we've rolled out Summit! and Soar! for grades 6 to 12. Those offerings provide coherent, tailored literacy instruction connected with resources such as Teacher Assistant and Writing Assistant, and those resources bring in EssayPop, a company we bought in March of 2025; by supplying more unified, end-to-end solutions, we are sharpening our competitive advantage and putting ourselves in position to produce growth past our core products. At this point, I'll hand the call over to Bob, who will cover the financials.

Thank you, Simon. I'll walk through the fiscal third quarter results in a moment, but before that, I want to say how profoundly grateful I am for the mentorship and friendship you've shown me throughout my time at McGraw Hill. As a transformative leader, you've steered an exceptional financial turnaround that has put McGraw Hill in position as the worldwide leader in education solutions. Thanks to your direction, this company has built a distinctive culture blending passion, excellence, and innovation, one that empowers teams to deliver exceptional results and establishes the groundwork for ongoing success in the years ahead. The mark you've left on this organization is indelible, and all of us are better off because of it. I've already logged considerable time alongside Philip, and our partnership energizes me as we concentrate on scaling the business, widening margins, reinvesting in growth, and hitting our net leverage target. Now to the results, which show our strong earnings quality, our resilient business model, and our steadfast commitment to meeting our obligations, even during a seasonally small quarter for the business. Total revenue for the quarter came in at $434 million, up 4.2% year-over-year, while revenue for the fiscal year to date rose 0.7% compared with the prior year. Recurring revenue climbed 14.8% year-over-year to $357 million, accounting for 82% of total revenue, which highlights a strong digital mix. Digital revenue was up 11% from last year, reaching $364 million. Continued growth in higher margin digital subscriptions keeps strengthening our financial profile, adding predictability that shows up in our remaining performance obligation, which ended the quarter at $1.7 billion and will rise further as we start capturing the first wave of larger K-12 opportunities. Gross profit margin widened by nearly 100 basis points year-over-year to 85.3%, helped by efficient operations and a favorable digital mix, with tariffs having no effect on our business. Adjusted EBITDA climbed to $136 million for the quarter, a 31.3% margin, up almost 100 basis points year-over-year, which reflects strong operating leverage alongside continued reinvestment. Internally, we keep embedding technology to streamline processes and improve operations. During Q3, we rolled out an offer management system to strengthen our go-to-market approach by simplifying the sales process, shortening the time it takes to close deals, and giving us better pricing visibility. We also broadened AI use cases across product development and operations to boost efficiencies and open up incremental margin opportunities over time. Now turning to the segments. Higher education revenue posted impressive growth of 24% year-over-year, reaching $225 million in the quarter, with reoccurring revenue up 33.5% and digital revenue up 24.8%; this strong performance was driven by market share gains, greater demand for our innovative portfolio offerings, enrollment growth, and strategic value-based pricing. Inclusive Access now makes up 60% of higher education revenue, and close to two-thirds of fall 2025 growth came from new course adoptions by existing customers, which underscores strong cross-selling efforts. Onboarding roughly 100 new campuses each year further supports multi-year growth visibility, since accounts typically scale within two to three years. Looking ahead, we anticipate that activations for accounts we brought on during fiscal year 2026 will climb 15 to 20 times over the coming years. At this point, 70% of higher education revenue flows through Evergreen, which is ahead of what we originally anticipated. More and more professors are picking up our newest releases without needing a sales rep involved, which frees our sales team to pursue new opportunities and sets us up nicely for retention and share gains as we head into fiscal year 2027. Our exposure to enrollment pockets that have proven resilient also stays favorable. Two-year colleges account for one-third of our higher education business, and our portfolio is weighted more heavily toward disciplines such as business management, which keeps showing relative strength. K-12 revenue came in at $128 million, down 14.6%, matching what we expected, reflecting the smaller market this year and the fact that we're lapping exceptional capture rates from the prior year. During Q3, reoccurring revenue fell just 1.6%, helped by strong sales a year ago. As Simon noted, we keep gaining market share this year, and we took the lead in Florida ELA; we're also carrying momentum in science adoptions across Alabama and Tennessee. We're actively getting ready for the fiscal year 2027 science cycle. California Math pilots are ongoing as we move into the key selling season. On top of that, we've seen early success in ELA with a K-5 Emerge win in open territory, coming before the California ELA adoption in fiscal year 2028. We're putting forward a competitive value proposition, drawing on integrated solutions such as McGraw Hill Plus and a wider portfolio to drive growth beyond the core. Global professional revenue rose 2%, and its recurring revenue was up 3.5% for the quarter. Gains in digital medical and engineering solutions have more than offset the impact of exiting non-core print. Beyond that, early momentum from our AI-powered Clinical Reasoning solution gives us even more confidence in future opportunities. International revenue decline narrowed sequentially, to 1.8% year-over-year in the quarter. Higher education headwinds are still with us, but we're gaining market share and stay optimistic about growth opportunities fueled by new innovative solutions like ALEKS for Calculus. We closed the quarter with $514 million in cash and $964 million in liquidity, and our revolving credit facility is still undrawn. Net leverage stood at 2.9 times as of December 31st. Cash flow from operating activities came to $309 million in the quarter, up 12% year over year. Our attractive cash flow profile let us prepay another $50 million in term loan principal in December, bringing the quarter's total to $200 million. Year to date, we've prepaid $596 million in term loan debt, which generates over $41 million in annualized cash interest savings. Our disciplined capital allocation strategy keeps prioritizing reinvestment and debt reduction while preserving flexibility to optimize our capital structure; we remain committed to a net leverage target of 2 to 2.5 times and to pursuing strategic tuck-in M&A. With the momentum we're seeing, our backlog visibility, the share gains that keep coming, and encouraging enrollment patterns, we're lifting the outlook we gave for all of fiscal 2026. Our expectation now is that total revenue across fiscal year 2026 lands somewhere between $2.067 billion and $2.087 billion, that reoccurring revenue falls in a $1.516 billion to $1.526 billion band, and that Adjusted EBITDA comes in somewhere from $729 million to $739 million. As for Unlevered Free Cash Flow, our view hasn't changed — it should come in a bit above the bottom of the 50%-100% Adjusted EBITDA conversion range, and CapEx plus product development, measured against revenue, stays where it was, at 8%-9% of total revenue. Last thing — a few items to help you model Q4. We're looking at stock-based compensation of $1-$2 million, and tax expense should break even for the quarter, and when we hold the fiscal year-end earnings call in June, that's when fiscal year 2027 guidance will be shared. Our confidence in fiscal year 2026 and in what sets up fiscal year 2027 is unchanged, with revenue growth coming back and margins continuing to expand, and with that, let's take your questions.

Hello, and thank you. Good afternoon to everyone. Could you break down the factors behind the expansion you're observing in higher education, and what your expectations are for fiscal 4Q? Maybe you could also discuss Evergreen's role as something that sets you apart.

Hello, George; this is Simon. Thanks; that's an excellent question. You know, I sound like I keep repeating myself whenever I discuss our higher education segment, since each quarter I tell all of you how proud we are of the expansion we've achieved, our ongoing capacity to capture market share, and really, a substantial amount of market share at that. And when you examine those growth rates, we are simply thrilled with the position we've reached this quarter. There are numerous factors behind this expansion, though chiefly, I believe you brought up Evergreen. That's a fantastic innovation of ours that only McGraw Hill offers, delivering ongoing updates to faculty, ensuring they no longer have to worry about new editions and making certain they possess the freshest information, which means our reps can devote significantly less time collaborating with faculty and focus far more on expanding market share through pursuing new adoptions. That has worked very well for us. Our faculty inform us, as do our customers, how greatly they appreciate Evergreen since it provides them with that immediacy and the assurance that they hold the latest and most compelling content for their students. That truly matters a great deal. I believe our go-to-market teams have performed remarkably. Our customer success groups, the representatives we employ, our learning specialists, you name it, ALEKS specialists, we've excelled throughout our entire go-to-market operation. It genuinely is something that brings us tremendous satisfaction. And I suppose the final point I'd make, and there's plenty, George, I could discuss regarding higher ed and the expansion we've experienced, but when I consider that Morning Consult survey we mentioned in our script a bit earlier, we take great pride in the fact that they named us, McGraw Hill, as the organization deploying AI most effectively. And that, naturally, comes to us from our educator customers and our student customers. And it fills us with immense pride. And I think when you combine all of that, the value proposition we've laid out so thoroughly, the capacity to innovate with so many various tools at this point, with AI Reader genuinely gaining traction, creating a significant impact for higher education students in virtually every discipline. Evergreen, which now accounts for 70% of our revenue, surpassing even our projections. It's simply a highly encouraging situation, George.

Simon, I might give you some numbers on that. George, let me put some figures behind that and also touch a bit on Q4, and what our thinking looks like there. Regarding the 24% growth, with 17% year-to-date, enrollment is contributing 3%-4% of it. You might have noticed enrollments reported at a lower figure by the National Student Clearinghouse. Naturally, since we over-index toward two-year colleges and business management, that let us generate somewhat stronger growth in that area. Beyond that, and I've said this previously, we keep capturing price; so we go out with inflationary pricing, and it holds. Yet you need to counterbalance that against some of the mix tied to Inclusive Access; therefore, on a net basis, we're obtaining more than 1% of price in higher education. We additionally gained in the quarter from a sales return release. That really stems from a few factors, with the first being a reduced level of returns arriving during the quarter. This is a mechanical process we perform each quarter. You can find more detail in our disclosures; but the other piece I want to emphasize is that we keep shifting toward a greater concentration of Inclusive Access. That revenue of higher quality typically reflects a reduced level of return. So once more, it puts us in a good position as we consider what's ahead. And after that, when we consider the fourth quarter, we consider essentially how to think about the entire year. I'd simply have you consider double-digit growth in billings and on a revenue basis. Once you run those numbers, you're still looking at that 4%-5% growth from share gains. You can connect that back to some of the MPI data Simon mentioned earlier. Those are the areas. You're probably arriving at the fourth quarter question about, "Hey, why is that change or why are we seeing the growth rates dip somewhat?" As we pointed out previously, we've reached a difficult comp in the fourth quarter. Again, as we consider the entire year, we're still going to see that double-digit growth, but we are up against a more difficult comp in the fourth quarter.

Very helpful. Thank you.

Great question.

Hello, and thank you for taking my question. Nice work on a solid quarter, and Philip, welcome aboard. To start things off, my first question is about the K-12 segment. It's obviously continuing to gain considerable market share, as it did in the prior quarter; however, as we think ahead to fiscal 2027, could you elaborate a bit further on what underpins your confidence regarding the expected rebound in growth and how large that growth might be for this business? Also, considering the three big state opportunities—California, Florida, and Texas—I'd like to hear your perspective on how the Texas opportunity is likely to develop. There's a theme that keeps coming up in what we're told: because the way they go about adopting has shifted, along with certain aspects of how that process works, the volume of teaching resources they need to go through ahead of when buying actually happens has grown substantially. Does that raise any concern on your end that choices could get pushed back prior to fiscal 2027? Thank you.

Thanks, Ryan. There's quite a bit packed into that single question. If you'll allow me, I'll take each part in turn. You're absolutely correct, and we're quite happy with how we performed in K-12 as well. As you're aware, FY26 represents a market that's smaller in size, yet our share of it has kept expanding. To us, that's the key thing. At every level, we have to continue beating our competitors. We're really happy that this year, out of the top 11 adoption opportunities, we came in first or second in 10 of them — including all of the top 10. A big part of that comes from the momentum we keep building in science and ELA, and, as Bob mentioned earlier, we're extremely pleased with how we've done in places like Alabama and Tennessee. Then, thinking about what's ahead — to get to your question — in Florida for ELA, year zero is off to a solid start. We feel really good about the potential that holds for us down the road, and we'll be sure to account for the growth opportunity in that market and what it means for us in FY 2027. As you may recall from earlier discussions, Ryan, we're anticipating roughly a $300 million bump in the term for the coming year, so naturally we feel good about what that could mean for us. Adoption is still at a very early point, as you're aware. The selling window essentially kicks off in January and runs through Memorial Day, maybe a bit beyond. So at this moment we're in the thick of the battle, which is exactly where we like to be. By late May or the start of June, we'll have a much clearer picture of how everything is shaping up, and at that point we can bring you an update. That said, we're quite happy with the pilots we've got in market. We've notched some solid wins with Emerge, our K-6 literacy program. So, as you're aware, we also rolled out our Summit! and Soar! offerings for ages six to nine and nine to 12, and those are really thrilling. We held a fantastic sales gathering down in New Orleans. Rather than go through each detail one by one, I can share that this product's debut performed quite strongly, with about 600 reps who were truly excited by what they saw, which is great. Because of that, we feel very confident. Moving on quickly to Texas — that's a valid observation you made. Yes, they are adjusting their strategy a bit, but we have solid relationships there, it's a fantastic market, and we have a clear understanding of how that state operates. When it comes to new competitors, we're fine with them. Circumstances may change. Regarding the delay you brought up, we don't have clarity on that. Their decision-making process is highly efficient. They remain as robust as they've ever been. And honestly, we firmly believe the end-to-end solutions we bring across our entire content and technology portfolio, everything in it, are things rivals simply can't match. What they typically lag on is tech development that truly meshes with so much of the content. That's McGraw Hill's core advantage, as you're aware, and that's exactly why we're optimistic about where this takes us.

I really appreciate all of that detail, Simon. As a follow-up, I'd like to put one question to Philip. Clearly, you're still early in your time here, but I'm just curious — as you look at the opportunity you've walked into, I'd especially like to hear, from the perspective of someone who's a technologist, what you make of McGraw's AI strategy and how you see yourself continuing to develop it in this role going forward. Thanks.

Ryan, thanks so much for asking. I should begin by noting that AI can only be as good as its data and the quality of the training behind it. One of the main reasons I came to McGraw Hill was this very opportunity. If you're setting out to create a next-generation company — honestly, that goes for any business — data is essential. So is experience with workflows. So are integrations. So is go-to-market. The list of what you need goes on and on. Ultimately, what you end up building is a system capable of responding to inquiries or executing tasks; as we move into this new era, the assets we bring are unlike anything else in education. Our content library is among the biggest anywhere—reviewed, region-specific materials, or tomes, if you will—containing tens of thousands of distinct AI items and evaluations tied to particular learning routes. On top of that, we've charted those learning routes, which build tens of thousands of individual skills step by step across every age group. We hold billions of data points alongside algorithms capable of detecting whether a learner is staying on track or has drifted off it. Armed with that insight, we're able to support both the instructor and the pupil in genuinely distinctive ways; beyond that, our go-to-market and service groups maintain strong enterprise connections and grasp the regulatory landscape right down to zip code granularity. Looking back at my first five years here, one thing stands out clearly: this period has brought an enormous wave of spending on technology and AI. That shows up in the results. What hasn't gotten much airtime — the part hidden below the waterline — is the full set of products rolled out during the last 12 to 24 months. Take ALEKS for Calculus, an AI Reader, Teacher Assistant, and Writing Assistant. Then there's Sharpen, which we launched just 9 months ago and which already counts 1 million active users. So the speed of our innovation genuinely excites me. These assets have me genuinely enthusiastic, and the possibilities in front of us have me even more enthusiastic. As a person who has spent an entire career in technology, I have a lot of confidence about the path we are about to take.

Thanks for that, Carter. Appreciate it once more.

Hey, thanks for fielding my questions. I'd like to begin with Philip too, perhaps. You began your new position this week, I believe. So as you look ahead to the months in front of you, what would you say your early priorities are? Where do you see yourself allocating your time throughout the company as you consider these upcoming months?

Sure. To begin with, clearly, I'm getting to know the organization. I'm getting to know the products. But the thing that matters most to me is being out there with customers. The customers I've already spent a bit of time with — I'm hearing directly from them right now, and a lot of them are genuinely worried about AI. A lot of them feel confused by the technology. A lot of them aren't certain their students are engaged, or whether those students are truly understanding the material when AI is involved. So the thing that matters most to me is being out there with our higher ed customers, our K through 12 customers, our global professional customers, our international customers. And I believe many of them are looking for reassurance that a trusted partner will be beside them as they move into this next generation. So for me, that means listening, and it also means giving them confidence that we'll stand with them as a partner at every stage. The second point I'd share, which also matters greatly to me, ties to what I was just describing; our pace of innovation is great, and I truly want to invest time ensuring we have a strong, clear vision for the customer, for the student, for the teacher, for the administrator regarding where McGraw Hill is headed with our technology. And are we moving as fast as we possibly can? I'm also genuinely eager to spend time with our go-to-market teams. They're world-class. They're world-renowned. Their relationships are incredible. So I want to hear from them too about how we can give them more power to serve that customer base.

That's excellent, and I'm grateful for it. Then perhaps a question directed at Bob to follow up on that; the team appears to have faith that K through 12 will return to growth in the coming year. Plus, you offered useful remarks regarding what's fueling expansion within the higher ed segment. So I'm simply wondering, when you examine higher ed and consider fiscal 2027, what amount of visibility do you currently possess regarding possible growth as we move into the next year? Since it appears certain elements underpinning that growth, for instance wider uptake of Inclusive Access, ought to have staying power. So at a broad level, I realize you aren't issuing guidance or anything yet, but still, how are you approaching the idea of growth going into the next year and, well, what degree of visibility do you have on it right now?

Yeah, absolutely. As you know, guidance will come during our June call. When that happens, I'll be drawing on certain early signals that we monitor, such as FAFSA applications, high school graduation rates, details of that sort; yet a few items that bolster our confidence include looking at the RPO. We observe activations during January and in the spring. A portion of that is going to extend into the following year. So every one of those factors. What I'd say we feel the greatest confidence in would be our capacity to keep capturing share. That has been proven by us. We're already noticing takeaways as we move into the next year. So each of those elements looks very promising when we consider the year ahead.

Glad to hear that. Thanks a lot.

Excellent. Appreciate it. Steve Koenig here from Macquarie. Good to be participating in this call. Simon deserves congratulations. I'd like to repeat what others have said before regarding what you've brought to McGraw Hill in financial terms, in operational terms, and definitely in cultural terms. So the situation you're leaving behind is truly strong for Philip to continue building from. And Philip, welcome aboard. My.

Thank you so much. I'm extremely grateful.

Steve Koenig, from your side, I've got a few things I'd like to ask.

Philip Moyer speaking here — first off, I want to express my appreciation.

Thanks, I appreciate that. It's clear you've made a strong contribution and that puts you in a great position. I wanted to ask — I have a question with two connected parts. Simon, maybe the first part is for you: you mentioned that Sharpen Advantage expands your total addressable market by providing solutions throughout the entire institution, serving not only faculty but also administrators and learners. Can you elaborate on that? Then I'll ask the related question as well. Philip, feel free to share your perspective too. One thing I believe a lot of investors don't pay enough attention to — in my software coverage, anyway — is that a competitive moat isn't built solely out of intellectual property. It also stems from the lock-in you get with customers once their solutions are integrated. You put those solutions in place. You hook them up to data, to processes, to workflows, and so forth. At McGraw Hill, that's plainly what you're doing. And I don't mean only the tech products — I also mean your go-to-market approach and the efforts you're making to become indispensable to these institutions. So I'd really like to hear how your technology, your go-to-market, and your content each play into that; with that, I'll hand it back. Thank you both.

Thanks a lot, Steve; and once more, I really appreciate your extremely generous remarks. I'll begin by saying a bit about Sharpen; and I'm grateful you brought it up. Sharpen is something we take great pride in. As you probably recall, the type of offering we have in that space centers heavily on the way learners study in the present day; there's that wonderful description about it being as if my textbook and TikTok had a baby; and that captures how a great many students absorb material during their first and second year, especially at universities and colleges, Steve; and with Sharpen, what we've achieved is a validated approach with learners. We're aware that it performs effectively. They genuinely value the video-driven learning and quiz-centric exercises—there's quite a bit of gamification built in. What we came to realize, though, is that the market keeps pushing us to consider this from a wider angle and to think about what we can offer the institution itself. So as time went on, we made sure to aim for wider coverage—letting instructors bring in their own material, for instance, and enabling the institution at that level to deploy Sharpen materials throughout its whole network, in each class, every sector and department where we operate, which is essentially everywhere. What this means is that having wide-ranging institutional coverage creates a substantial opportunity, a fresh market essentially, that goes past the student alone and, naturally, the faculty ties our company holds so close to its heart. Regarding Sharpen, as Philip mentioned before, we're genuinely thrilled by how fast we've built up meaningful revenue and a customer base. Watching that expand sharply across institutions is something we're truly looking forward to. Right now I'll pass it over to Philip, who'll handle whatever else you'd like to ask on AI.

Absolutely. I’ve been asked quite a bit about large language models in education. My view is that with each wave of technology — the PC, the internet, the cloud — deep domain expertise has been needed to connect the big tech platforms to the end user. I spent many years in that world. I know it supported a thriving ecosystem of software and services businesses. Bridging that gap has grown into an enormous industry, and artificial intelligence is no exception. I believe our competitive advantage will be very evident. Several points: as I said, we grasp local education mandates all the way down to the zip code. Now more than ever, those requirements are becoming specific at the zip code level. We offer learning pathways tailored to specific ages. My favorite way to put it is that an LLM might understand the question you’re posing, but we understand the reason behind it. We can incorporate security, trust, and psychological safety into our products. We’re creating personalized experiences for each student and each teacher; we can move into new curriculum markets in ways previously impossible, using finely detailed supplemental materials. We can deliver highly engaging learning experiences that a typical LLM simply cannot. And beyond that, there’s the capacity to gauge whether someone truly understands the responses they’re giving the teacher, and for the teacher to likewise understand their students. We see all these incredible chances to establish strong moats using artificial intelligence and LLM technology.

That's really useful. I appreciate it, both of you.

Excellent. Good evening, and thank you for fielding my questions. Congrats on those strong results, and Philip, congratulations on your new position. Simon, my time working alongside you was brief, but I certainly hope we stay connected. Wishing you all the best. I have just a few questions. Once more on AI — quite a timely topic, and perhaps a slightly different perspective, for either Simon or Philip to take. From where we sit on the outside, as investors, what would you recommend we use to gauge how AI is affecting your company? And I realize you've also shared certain internal figures regarding development and expenses where AI has delivered gains — so maybe both dimensions of that. What's the way for us to assess AI and its effect on your business?

Oh, many thanks, Marvin. I'll begin, and then hand things over to our new CEO, Philip. What I'd say to start is that regarding all our AI work, we've accomplished an enormous amount. We've put out some fantastic products. Our entire emphasis is on making sure we take a human-in-the-loop approach, so that everything delivered has, as we know it, efficacious value for the teacher. A lot of our AI tools — if I think about Writing Assistant, Teacher Assistant — are centered on giving the educator additional time for in-person work with the student. That point must be stressed constantly. You'll have seen a great deal lately about how necessary that human connection is, for teacher and student to truly bond and share substantial time together. So many of the AI tools we've developed over the past few months make that possible; and they do so by raising efficiency levels. Consider AI Reader in higher education. We let students genuinely comprehend more complex materials through repetition, which in fact helps them master challenging concepts and then hold richer discussions with their professor. At the K-12 level, once again, with writing instruction tools, how do students start thinking about constructing sentences, structuring paragraphs, you name it — again, this permits that formative dialogue with the teacher at each stage. Then, looking at our medical business, Clinical Reasoning, another excellent new innovation we've delivered for medical students who are examining how to diagnose, what to consider using as they work with the patient interactive evaluation tool we've supplied, so they can instantly connect with a patient's circumstances in which they might need assistance. And I believe every tool we've built — I know every tool we've built — is extremely valuable. We test them relentlessly prior to releasing anything, to confirm we're adding value in what we offer. Marvin, that's a really careful process, and it will stay that way; still, it's great to be able to do this now thanks to the technology and the progress in AI. As you're aware, we've used machine learning for more than 20 years with ALEKS; yet at this point we can truly push forward with AI. That said, I'll hand things to Philip. He might have additional remarks too.

Okay. As someone with a technologist's mindset, engagement from users is something I constantly examine. So I'm interested in the number of people utilizing it, how many do so each day, and what amount of time they're putting into the tools. That's what we'll monitor on the inside. Outcomes are another thing we'll be monitoring. On our tools, we're already witnessing some truly remarkable results when it comes to gains in grade level, time spent engaged, and overall better comprehension. That's the second item, then — truly the learning result. But beyond that, there are several other areas you ought to be able to observe us concentrating on. A statistic came to my attention, possibly only today, indicating that the typical district contains as many as 1,000 learning tools within its organization. And things will only get more complicated. Just picture 1,000 AI tools residing in a single local district or a single local university. Because of that, enterprise adoption will be a major priority. Our aim is to make AI use simpler for the institution, whether that's regarding cost, regarding content, or regarding safety or security. So enterprise adoption will matter. And finally, the manner in which we employ AI is speeding up our own development and our arrival in new markets. Consequently, I likewise anticipate that our capacity to perform additional supplemental work and to achieve hyper-localization — meaning this market, and moving into new markets — when you consider the entire education sector globally, comes to roughly $7.3 trillion, and by 2030 it's expanding to around $10 trillion. So how large can we dream, and how many markets can we occupy, and how many educators and students can we reach? I believe that will truly be propelled by how we harness AI.

Understood. That's great. For my second question, perhaps Bob could also chime in here, Philip. Regarding — and I realize you said we'll be talking about your guidance for the next fiscal year and the quarter ahead. But when it comes to where your spending priorities stand right now and which areas are getting your incremental dollars, is there anything you can share with us as you juggle both product development and, clearly, keeping up all of this excellent field sales — could you just expand a bit more on what your spending priorities look like at present?

Yes. And thank you; our roadmap is certainly well defined. As we carry out that roadmap, we know exactly where the product development and technology spend is being directed; so we're simply sticking with it. Nothing significant has shifted; and as time goes on, we anticipate that it will stay at 8%-9%. We truly don't anticipate any movement there. Now, the mix of where those dollars go could shift as time passes. But having worked through our strategic plans and grasped essentially where we're allocating dollars within that roadmap, we expect it to stay in the 8% to 9% range — all of which is why we keep growing margins. So that's the other important point we want to stress: as we put those investments back into the business, we'll keep being able to leverage, scale, and grow our margins.

That's excellent. Many thanks, Bob. Thanks to all of you.

Thank you very much. I realize it's getting late. I'll limit myself to a single question. I realize you don't provide detailed guidance for the quarter, but clearly, the results came in above what was anticipated. Was there anything related to timing — whether in revenue recognition or perhaps pushing some costs into Q4 — that we ought to know about? Thanks.

No. I'd simply go back to the way we consider the comp we face in higher ed, and I want to restate that we do face a tough comp when we look at the fourth quarter. But we're accomplishing all of this while gaining share. And we've observed share gains across every one of our businesses; so when I think about the fourth quarter, really emphasizing the RPO, plus examining the early activations we witnessed in higher ed puts us in position to raise our guide. And those are essentially the drivers for us.

So nothing stood out as a one-time item during Q3?

Alright, let me revisit that reserve. I brought it up regarding higher ed. What I failed to say is that it gave us a benefit of roughly 400 basis points during the quarter. I want to circle back to it. If that's what you're hinting at, it isn't a one-time thing. What I mean is, each quarter we follow a mechanical process, and we share that in the Q; however, it came in a bit bigger than what we've seen historically. That's the reason I felt it deserved mention. And the cause of it being elevated is simply the lower returns we saw during the quarter. So that's why it stood out to us this quarter, and I thought it was worth highlighting.

Okay, that’s genuinely helpful. Thank you very much.

You’re welcome.

Yeah. Hi, everybody. Thanks for taking our questions. And I want to join in the congratulations, Simon, on your retirement. I suppose to kick things off, it's wonderful to see leverage continuing to decline towards the target range. Could you please provide us an update on capital allocation and how you're thinking about leverage progression from here? And since you mentioned it, how are you thinking about M&A in that context, and what kind of assets would be of most interest? Thanks.