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

Good morning, everyone, and welcome to the earnings call for McGraw Hill covering the fiscal fourth quarter and the full year that came to a close on March 31st, 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. Over the course of this call, we'll be sharing forward-looking statements grounded in what we currently expect and in the present economic climate; these statements, estimates, and projections carry significant uncertainties that lie outside management's control, as laid out in the cautionary language included in our earnings release for the fiscal fourth quarter and full year ended March 31st, 2026, the investor presentation that accompanies it, our Form 10-K, and other filings with the SEC. Today we'll also be citing certain non-GAAP measures, which in our view offer useful supplemental insight into how we performed financially and operationally, even though they do not replace GAAP measures. You can find definitions along with GAAP reconciliations in our earnings release, in the appendix to the investor presentation, and on our investor relations website. If you're listening to a recording of this call, please be aware that these remarks reflect the situation as of today, June 11th, 2026, and have not been updated since. With that, I'll hand things over to our Chair of the Board, Simon Allen.

Hello, everyone, and welcome. The 2026 fiscal year showed just how strong our company is, how sound our approach is, and how education keeps mattering more than ever. Helping learners and teachers, cultivating human intelligence, and driving learning's future — that mission has never felt so pertinent. During a stretch defined by swift progress in AI and turbulence around the globe, McGraw Hill strengthened its standing as the partner educators and learners rely on above all others; that bedrock propels us forward. As a company where learning is driven by data, we achieved major progress in innovation powered by AI, bringing out fresh tools, broadening current offerings, and strengthening essential alliances that put McGraw Hill in position to steer the coming age of AI-enabled learning. This delivery speaks to how solid our strategy is and how talented our leadership team is, guided by exactly the right individual. After collaborating closely with Philip across the past 120 days, both the Board and I hold complete faith in his vision and his capacity to steer McGraw Hill's forthcoming period of growth. We stand entirely united and excited about the road ahead. Now I'll hand the call to McGraw Hill's President and CEO, Philip Moyer.

Thanks, Simon. Morning, everybody. Being handed the CEO reins here at McGraw Hill is a real privilege, especially at such a thrilling point for both education and technology. Across my first 120 days, I've taken part in more than 250 meetings with customers, team members, industry folks, and investors. One thing stands out: education has reached a pivotal juncture. The number of students keeps climbing, the way learning happens grows more intricate by the day. Results matter now more than they ever have. Learners, educators, and schools want an enterprise partner they can count on to make sure the coming generation of students is ready. Another thing that stands out: McGraw Hill holds a one-of-a-kind position to serve as that partner. The content people trust from us, our learning data, how quickly we're innovating with AI, plus the breadth of our relationships — nobody else matches that combination. In my view, we're set up to become the worldwide front-runner in this coming generation. McGraw Hill rests on a strong financial base. What I'm aiming for on behalf of shareholders is to hold onto our profit profile, bring our debt down, and speed up growth in fiscal year 2027 and afterward. Plenty of chances exist for us to lead on innovation, make our execution leaner and more scalable. Grow our TAM profitably. During fiscal year 2026, we beat the revenue and adjusted EBITDA targets we set at IPO. Hit a number of significant milestones along the way. Recurring revenue climbed 6% and now makes up more than 73% of total revenue. On the K through 12 side, our capture rate came in above what we expected, even with the cyclical market decline everyone anticipated. In higher education, net dollar retention hit 114%. Customer satisfaction hit an all-time high. Fiscal year 2026 also showed we could pick up execution speed profitably. We rolled out a record number of curriculum offerings and AI learning tools, all while lifting our adjusted EBITDA margin by close to 80 basis points compared with the prior year. At this point we've released eight AI learning tools, and they reach over 7.5 million users. Three more launches are on the calendar for this fiscal year; we brought out our California math curriculum plus a new literacy curriculum, and that second one ranks as the biggest curriculum investment we've ever made. We also rolled out a K through 12 AI curriculum built to teach AI concepts and weave them into classroom learning. Looking ahead to fiscal year 2027, we can see obvious openings for growth. Market forces back a multi-year speedup in revenue growth and support our confidence in the medium-term framework calling for mid-single-digit plus revenue growth. One of the most thrilling spots I see underpinning those growth expectations is how we use AI. Investors often ask whether AI will disrupt our business, yet customers almost never pose that question to me. Learners, educators, parents, and schools have no interest in sticking a child in front of some generic LLM and crossing their fingers. They understand AI can only be as strong as the data and training behind it. Over these past 120 days, I've grown even more enthusiastic about the competitive moat we're constructing in AI, built specifically for education and the results we deliver. The courses in our proprietary catalog number in the tens of thousands. They cover over 500 subjects, which map to hundreds of thousands of regulated learning objectives, plus academic standards for about 12,000 school districts and some 3,300 higher ed institutions. Our tools are built to satisfy digital accessibility requirements so learners can access them broadly, and independent third parties measure our student outcomes. Students and educators hold more than 100 million active licenses for this curriculum. Through that usage, we gathered over 25.6 billion learning interactions, and we possess decades of data — more than 190 TB — covering how students learn, where they struggle, and how instruction has to adapt in real time. This remarkable content and data moat is the foundation we use to build and tune AI learning tools specific to education. It's also the foundation for delivering a precision education experience: the right content and the right question at the right moment. My excitement about AI comes from watching us widen this precision experience and open new chances for TAM expansion. The emerging agentic AI landscape is one excellent illustration. AI is moving beyond answering questions toward taking actions, and customers require purpose-built agents they can trust. Because of that, education and non-education customers alike are asking us to join their new agentic AI strategies. I'm pleased to announce that we are running a pilot of our new agentic AI tool, which will make our precision education experience available as a trusted AI agent. That amounts to a new business model and one of multiple opportunities to grow our TAM. Meanwhile, we keep improving our core learning solutions with artificial intelligence; we're growing our Connect platform with Learning Coach, an AI conversational tutoring tool we developed alongside Kyron Learning; we've introduced new accessibility features in AI Reader, among them translations spanning 38 languages, and we've built new AI literacy modules. The education market, as I said before, isn't merely requesting better tools. It insists on measurable outcomes. During fiscal year 2026, McGraw Hill deepened the trust educators place in us through meaningful gains in student comprehension and grades, now validated by over 100 independent researchers. Take ALEKS: it carried on setting the benchmark for adaptive learning, as math students reached topic mastery over 90% of the time. In Pennsylvania, first-grade students at elementary schools using ALEKS Adventure improved by nearly 25 points on math assessments, while second graders gained more than 55 points across the school year. AI Reader produced 57 million learning interactions among 2.4 million students, which drove stronger engagement with reading topics assigned by teachers; using our Sharpen tool, students engaged with study activities as much as four times more than they did with generic AI tools. At Rowan College in New Jersey, for instance, students using Sharpen earned final exam scores 47% higher than peers who didn't use the tool. As we look forward, our plan centers on four key priorities: reinforcing the core, broadening cross-sell possibilities, enlarging our addressable market, and generating operational efficiencies. In K through 12, we keep refining our California math offering so it satisfies the market's emerging demands. This California math adoption cycle has moved more slowly than anticipated, yet 80% of the market has not decided. In addition, within K-12, we are stepping into one of the most significant nationwide curriculum refresh cycles of this millennium, since an unprecedented number of schools are reviewing new English Language Arts programs. Starting in 2021, we have put over $100 million into our new science of reading ELA program, Emerge!, Summit!, and Soar!. That stands as our biggest curriculum investment so far, and we are already seeing early district wins along with a strong rubric of scores before emerging opportunities. In higher education, we keep picking up share as institutions embrace inclusive access, broaden their use of our Evergreen model, and look for more integrated learning experiences. The fiscal fourth quarter gave us our 40th consecutive quarter of market share gains in higher ed, with our share nearing 31% according to MPI. Our Net Promoter Score hit a record in the spring, and we enjoyed strong retention along with volume growth. We have also witnessed solid adoption of our new offerings in credentialing and AI professional development. Inside our global professional business, medical education accounts for more than 75% of revenue. The World Health Organization expects a shortage of 11 million healthcare workers by 2030, and this year we broadened our offerings into clinical training and AI-powered diagnostic simulations. We stay well-positioned to serve this market through our innovation and trusted high-stakes learning solutions. Abroad, we observe education market conditions getting better. Higher education enrollment in Canada is leveling off, and new opportunities in favorable demographic markets like Latin America and the Middle East point to a more attractive setup. ALEKS continues to be a key driver internationally, with Calculus now offered in additional markets. Turning to fiscal year 2027, we see a clear path toward revenue growth, expanding margins, and strong free cash flow. We have made considerable progress lowering our gross debt, and we will stay disciplined in capital allocation, which Bob will address shortly. We look forward to sharing a broader update on our long-term strategy and capital allocation framework at our Investor Day later this calendar year. After these first 120 days as CEO, I am more excited than ever. At McGraw Hill, we build human intelligence. Our mission has never mattered more, our assets have never been stronger, and our opportunity has never been greater. With that, I will hand it over to Bob to review our financial results and provide guidance for fiscal year 2027.

Thanks, Philip. Looking at fiscal 2026, the year stood out for share gains, better margins, and quicker digital growth. We closed the year with a healthier balance sheet, more financial flexibility, and improved pricing power, helped by wider use of our AI-enabled offerings, and all of that strengthens our belief in creating value over the long term. For the full fiscal year, revenue came to $2.1 billion, topping the upper bound of our guidance range, and $2 million higher than the prior year. Reoccurring revenue hit $1.5 billion, up almost 6% year-over-year, beating the top end of our guidance range and underscoring how durable our model is. Remaining performance obligation stood at $1.7 billion and should rise in the fiscal second quarter of 2027, which mirrors the usual K-12 seasonality. Fiscal year adjusted EBITDA came in at $744 million, rising 2% year-over-year and surpassing the upper end of our guidance range, while margin widened by almost 80 basis points to 35.4%. Over the fiscal year, we brought gross debt down by $66 million, including the IPO proceeds; our focus stays on hitting a net leverage target of 2x to 2.5 x. Now for the fourth quarter, revenue was $464 million, falling 2% year-over-year, which reflects a smaller K-12 market opportunity, partly offset by ongoing outperformance in higher education. On the recurring side, we saw $373 million, and digital brought in $393 million — that works out to 81% and 85% of total revenue, respectively. For the fourth quarter, gross margin improved by just under 50 basis points, driven by efficiency in operations and a beneficial digital mix. Adjusted EBITDA landed at $131 million, and margins were up close to 40 basis points compared to last year, which speaks to operating leverage and some early savings from AI efficiency efforts, all while we continue putting money into growth. Turning to how the segments did: in higher education, fiscal year revenue was up 12% year-over-year, reaching $879 million, and reoccurring revenue grew 10% to hit $734 million. Most of that growth stemmed from picking up market share, which came in ahead of what we expected, plus enrollment, pricing, and fewer sales returns — and that related release contributed about 3 points of growth. Per MPI, we're now at close to 31% of the market. That momentum continued into Q4: higher ed revenue rose just under 2% from a year earlier, reaching $258 million, despite the fact that a larger number of schools kicked off their spring terms later in the quarter compared with the prior year. Our spring selling period performed well — activations increased versus last year and we picked up share, thanks to solid commercial execution and our Evergreen delivery model. Evergreen is a system for delivering content that's continuously refreshed, which boosts retention and gives our sales reps more room to go after competitive takeaways. It's still something that sets us apart in the marketplace, and it now makes up 68% of higher ed revenue. By discipline, demand was particularly robust in business and science — areas where we over-index. That demand is driven by the inclusive access delivery model. In fiscal year 2026, inclusive access accounted for 56% of revenue, and it continues to grow as campuses already working with us bring more courses on board. Typically, as you know, we bring on roughly 100 new campuses annually, and those ramp up substantially over the next two to three years. At the same time, our customer success team continues to deepen its relationships with faculty, which supports retention and yielded a net dollar retention rate of 114% for the fiscal year. Turning to K-12: revenue for the fiscal year came in at $884 million, down 9% from the prior year, reflecting both the smaller market opportunity we had expected and a difficult comparison to last year. For the fiscal year, recurring revenue reached $620 million, which represents a 3% increase over last year. Although the market was shrinking, we still came in a bit ahead of our projections, because we achieved stronger capture rates in key adoption markets. Fourth-quarter K-12 revenue totaled $126 million, down 10% compared with the same period a year earlier, but we did record sequential improvement; meanwhile, recurring revenue declined 3%, as the prior year's adoptions provided some lasting stability. During this crucial selling period for the 2026 and 2027 school years, we are gathering market information as it develops; in California, some districts are delaying finalizing their curriculum refresh decisions because so many rubric choices, pilot programs, and tools are available. From the start, we figured California's math refresh wouldn't occur in a single wave — our expectation was always that it would play out over several years — yet as we learn more from potential buyers, the timing has shifted. Thanks to that pushback, we've been able to sharpen how our offerings match a market whose needs keep shifting and splitting apart, which lifts our win rates during the later years of adoption. What matters most is that the size of the opportunity, along with our ability to come out ahead in it, hasn't changed. Things have gone well for our math product in Texas. Early wins have come for the state-backed curriculum, helped by incentives Texas offered up front, though agreements have run for shorter terms — a sign of a market that's still testing things out. School systems and teachers have long leaned toward well-built, fully combined offerings, and that preference hasn't changed — so we feel good about our ability to make a real difference for Texas down the road. We've seen how this plays out in colleges and universities, where we beat out open educational resources and AI-created curriculum providers by a margin of 6 to 1. Open educational resources often got picked through mandates handed down by institutions, yet poor results drove instructors back to our side, which underscores that teaching involves far more than just passing along facts. On this call, I want to explain why building instructional materials the right way is so demanding. When you combine cognitive scaffolding with subject-matter expertise and make sure everything lines up with thousands of learning goals and local standards, you need real depth of knowledge — and that is exactly the strength McGraw Hill brings. In Florida ELA, we still see a strong market opportunity, and our capture rate is moving as we anticipated. Going forward, we can see several years of possible growth ahead of us in K-12, mostly because districts across the country are refreshing their ELA curricula in line with the science of reading. We have been positioning ourselves for that moment through our ELA offerings Emerge!, Summit!, and Soar!, which bring together McGraw Hill Plus, capabilities powered by AI, and solutions for supplemental learning and intervention. The early signs in ELA are positive. Emerge! received a score from Colorado's Department of Education. In the most recent review of instructional materials for grades K through 3, it earned the top rating of any curriculum. We are also experiencing some early success in urban open territory markets, including Seattle, a place where McGraw Hill's penetration has traditionally been weaker. ELA's first major statewide adoption opportunity will take place in California, starting in fiscal 2028, and the list of approved vendors from that state is expected to come out later this year. It's worth remembering that ELA is our largest subject area, making up about 40% of the K-12 revenue we've generated in the past. What we've seen so far from our new ELA product gives us reason for optimism. During fiscal 2026, the worldwide professional segment held firm, delivering 4% growth in digital revenue compared with the prior year, aided by medical content and early momentum from our AI-powered offerings, though this was partly counterbalanced by an ongoing shift away from non-core print items. On the international side, revenue fell 7% versus a year earlier because of macroeconomic strain in certain markets, yet we enter fiscal 2027 in a stronger position across several important markets, buoyed by fresh commercial prospects. Results in the fourth quarter were further affected by Middle East project delays that have been pushed into the latter half of FY 2027. Although we recorded a $39 million impairment charge during the fourth quarter, prompted by geopolitical and macroeconomic conditions, our confidence in the fundamental strength and long-term strategic value of the global markets we serve remains intact, and the outlook is set to improve in FY 2027 as pressures subside and our positioning grows stronger. We closed out the year holding $254 million in cash along with $704 million in total liquidity, and our revolving credit facilities are still undrawn.

During the year, we reduced our gross debt by $646 million. That lowered net leverage by roughly 80 basis points and reduced annualized cash interest expense by nearly $45 million. Although we entered our seasonal cash trough in June, we still paid down an additional $50 million of debt in the quarter. That figure includes buying $40 million of our highest coupon notes on the open market at a discount. Moving forward, we will continue optimizing our capital structure. Operating cash flow for the year was $331 million, and CapEx plus product development came to slightly more than $200 million. Unlevered free cash flow for the fiscal year was $335 million. Turning to our outlook for fiscal 2027, the revenue range we anticipate is $2.115 billion to $2.175 billion, consistent with the dollar figures shared during our IPO. First-half results should account for about 55% of the full year, with the second quarter carrying more weight. Recurring revenue is projected at $1.587 billion to $1.627 billion, surpassing our IPO-time forecast — evidence of a revenue stream that is expanding, high in quality, and dependable. For adjusted EBITDA, the expected range is $750 million to $790 million, exceeding what we projected when going public. At the midpoint, the implied adjusted EBITDA margin comes to 35.9%, a 50 basis point gain compared with last year. We're looking at unlevered free cash flow landing in the neighborhood of $400 million, which works out to roughly 20% growth compared with last year, and we expect that figure to climb further in FY 2028. Spending on CapEx along with product development ought to remain near 10% of revenue. When it comes to how we deploy capital, our strategy continues to be balanced and disciplined — reinvesting in the business, paying down debt, and making selective tuck-in acquisitions remain our top priorities. Consistent with that strategy, the board has given the green light to a $50 million share repurchase plan, which speaks to our confidence in the growth we've sustained, the strength of our profitability, and the significant cash we're generating. All told, FY 2026 results came in above what we'd expected, and our FY 2027 revenue outlook in dollar terms stays right in line with the trajectory we laid out when we went public. At the same time, the targets we've set for recurring revenue and adjusted EBITDA exceed what we projected at the time of our IPO, and we anticipate further expansion from those levels past FY 2027. The fundamental forces driving our business are still robust. Within higher education, we foresee additional share gains backed by lasting pricing power, though we're taking a conservative stance on enrollment projections as the academic year approaches; in K-12, we anticipate better momentum as the market grows, aided by ELA traction and the adoption cycle that's coming up. For Global Professional, growth in medical solutions stays our top priority, and in our international operations, we enter fiscal year 2027 from a stronger position. Lastly, a handful of modeling considerations for fiscal year 2027. Looking ahead, depreciation and amortization should come down slightly from what we saw in fiscal year 2026. That figure includes $208 million tied to amortizing intangible assets from the Platinum acquisition back in 2021. For stock-based compensation, we're projecting roughly $15 million. On the tax side, both cash taxes and GAAP taxes should fall within a range of $20 million to $40 million, and GAAP interest expense is likely to stay below $180 million. Taking all of those assumptions together, we expect GAAP net income in fiscal year 2027 to increase significantly compared with fiscal year 2026. At this point I'll turn it back to the operator so we can open the line for questions.

Hi there, good morning, and thank you. For the first question, regarding the revenue guidance for fiscal 2027, could you help lay out — likely this is for Bob — at a broad level what assumptions you're making about segment performance, top-line expansion, and particularly when it comes to K-12 and higher education?

Absolutely. When I look ahead to 2027 and consider how we're shaping the business, we will definitely keep gaining share in higher ed — you witnessed outstanding results there, and we expect that to persist. You heard me mention that for the coming year we've adopted an assumption of 1% growth in higher education enrollment. We'll need to wait until we actually see students arriving on campus. Turning to our K-12 operation, we've determined that the total market is somewhat smaller than what we initially projected, by roughly $100 million. On top of that, we're landing at the bottom portion of our typical capture rates — that 25%-30% band; we could go into more depth on that. We're also observing a few distinct forces at work in that area. Open territory is performing very strongly. We keep capturing additional share. Supplemental intervention remains advantageous. We're noticing gains when it comes to retention rates. We're also seeing our capacity to expand the funnel. In the prepared remarks we called attention to Texas and California — both are quite active markets. Although we're at an early stage in that cycle, our results there are a bit under our usual average. Putting all of that together, you arrive at the bottom portion of that 25%-30% range. On a positive note, you'll observe a return to growth within the international segment. We mentioned certain opportunities in select markets; we have strong confidence in the direction that business is taking. The core medical segment underneath Global Professional is growing at a mid-single-digit pace, though that gets counterbalanced by the tail end of that print business. We think we're roughly in the last year of winding down that non-strategic core print operation. Once I combine everything, Stephen, that's how you arrive at the midpoint of our guidance, roughly 2%. We have confidence in it, and we consider it a sensible guide.

That's really useful. Perhaps if we focus more closely on the higher education side. Clearly, you've seen incredible expansion there when we look back across the prior 2 years. Perhaps when we consider connecting what's expected for fiscal 2026 expansion with fiscal 2027, you brought up enrollment. I suppose how is that growth formula shifting when we consider the coming year compared with what you've delivered across the prior 2?

Yes. That's correct. It's been an outstanding year and the team keeps delivering outstanding results, truly happy about that; regarding that 12%, allow me to unpack it for you. The largest factor behind it is those persistent, ongoing share gains. That's going to keep going; enrollment also gave us a lift. 3%-4% of the expansion came from enrollment. You might have noticed National Student Clearinghouse reported 1.3% growth. Ours was 3%-4%. The explanation for that is how strong our business and science courses are, plus our over-indexing toward the two-year colleges. When we examine our results, our enrollment rates came in higher than the rates National Student Clearinghouse reported. Another point is that historically I've pointed to roughly a 1% net price, which is inflationary price offset by the shift into inclusive, equitable access models. This year, we actually achieved something nearer to 2%, mostly because of all the extra features, all the value. As a reminder, we follow our value-selling process, and when we deliver more value to our customers, we can achieve higher price. Finally, this is the piece that won't repeat. This is the 3% gain we got from a sales returns. As we keep shifting more toward digital, fewer returns came in, and then the matching reserve, we brought that down too. That produced roughly a 3 percentage point rise year-over-year, and we don't anticipate that carrying on. That's how we arrive at that mid-single-digit growth when we consider the outlook.

Very helpful. Thanks, Bob.

You bet.

Hi, and thanks for fielding my questions. Perhaps we could turn to the K-12 segment. Clearly, it sounds like a solid year for that segment, with some decent momentum as the year wrapped up. Could you discuss what within K-12 beat their expectations by the widest margin, or where the pockets of strength were? How does that shape your outlook a bit further, or how significant a change are we witnessing across a few of those key states — Florida, Texas, California — when we consider how you're viewing the landscape in fiscal 2027 compared with perhaps later years? Thanks.

Certainly, Ryan. In 2026, our expected capture rates were surpassed. As I pointed out, we sit at the high end of that 25%-30% range. Where's it originating, right? Our science program has maintained its strength. As we discussed a year ago, performance was exceptional in Florida and Texas in the science program. We observed that in additional adoption states such as Tennessee and Alabama, plus into the open territory. Science keeps delivering above our historical rates. We also found success in Florida ELA and certain other open territory areas. Truly happy with that performance. Turning to 2027, what's our thinking? As I noted, open territory keeps performing well, and I genuinely believe we've hit bottom regarding our supplemental intervention, meaning the ESSER dollars are behind us, and we're actually seeing some possibility for meaningful growth. The pipeline is growing in a meaningful way in supplemental intervention, and our retention rates are climbing too. I think we're very well-positioned there. We're monitoring Texas math closely along with California math. We did observe the California math market shift somewhat while the overall size of the market remains intact. I always knew it was a multi-year adoption cycle. The overall timing has merely shifted somewhat because of a few large districts moving into fiscal year 2028. We just watch as we move through the selling season, we're monitoring our win rates closely. At present, they're falling somewhat behind our expectations, but we're still in that selling season.

One more point I want to make, and it touches on both math and ELA literacy. For us, literacy makes up roughly 40% of revenues, while math is about 20%. Those two markets look quite different at the moment. How math should be taught remains very unsettled. Districts, teachers, and certainly states don't agree on the pedagogy. It's a highly fragmented market, which is exactly what we're seeing in California. There's a great deal of confusion. We've discussed how many companies are submitting bids in California, and that's precisely because the market is so fragmented and debate over math instruction continues so heavily. With literacy, I don't believe we've ever witnessed a market quite like this one. Currently 42 states across the United States, plus a bill in the Senate, are mandating how literacy must be taught, which is the science of reading. That's a remarkable legislative backdrop. We also believe it could produce a potential super cycle in literacy. We've put the largest single investment in our company's history into literacy curriculum — Emerge!, Summit!, and Soar! We've been rolling that curriculum out; we're in year zero of it. What's exciting is that we earned the top score on the Colorado rubric. We won large districts such as Seattle; we just won in Kansas, for instance. We're winning in districts where nobody even expected us to compete in the literacy market, including the big districts. One area where we're excited and momentum is building is, as I mentioned, 40% of our business — the literacy market. It's a major area for us, and we're excited about 2027 and some very early optimistic wins.

I appreciate all of that detail there, from both Bob and Philip. Perhaps to follow up regarding the literacy opportunity, since it truly seems like a massive chance over the coming 3 to 5 years. Since there's that type of mandate at the state level and it's almost nearly blanketed across the country, how are states looking at this opportunity compared to companies and vendors such as McGraw Hill versus perhaps rolling out more state-owned OER type curriculum like you saw with Texas math? Is that a possible risk as we consider how this market develops over the next few years? Thanks.

Yeah. To start off, I want to say that I haven't really seen anything like a contagion or similar patterns in other states when it comes to literacy the way Texas has with Bluebonnet Math. There are a few things you should be aware of. First, with our literacy program, we're among the few in the entire U.S. that uses the science of reading and is multilingual for most of the grades. You need a commitment, not just to the program, but also to multilanguages. The investments we make in accessibility for these programs are pretty extraordinary. Third, the balance of screen time versus paper — it's a really delicate balance. At the start, the majority of districts request under twenty minutes of screen time each week, and that's what we provide. After that, once self-regulation develops a bit more, additional screens can be brought in. But honestly, striking the right balance with a holistic curriculum—spanning kindergarten through twelfth grade, delivered multilingually, ensuring accessibility, and getting screen time proportions correct—is genuinely very difficult. As stated, this ranks among our biggest investments. We put more than one hundred million dollars into this literacy program. As noted, we're earning the top scores on the rubrics. Also, that rubric from Colorado is actually relied upon by several other states, along with evaluations done by outside parties. Your program needs to be heavily focused on third-party reviewers. It needs to go through state-level evaluation. You need to confirm it was constructed properly — and what we're observing is that states simply aren't embracing that approach the way Texas did when it tried out Bluebonnet. Another point I'd add concerns Bluebonnet specifically. I think one issue other states are weighing is that word just came out that this curriculum contained more than 4,000 mistakes. A literacy program simply isn't something where you can afford that level of risk.

Hello, and thanks. So this one's for Philip. Could you go into more depth about the science of reading program and the chance you see to seize it? Can that be measured in some way? Does it amount to a TAM expansion in your view? And which years do you see this landing in?

We view TAM expansion as a possibility internationally. The demand for science of reading isn't confined to the United States; it exists worldwide. As I'd put it, the methods used previously for teaching literacy globally varied a great deal. Like I said, it accounts for 40% of our revenue. Our earlier program, Wonders, brought in more than $1.5 billion for us across 10 years. We see it as both a possible global TAM expansion and, I'd add, TAM acceleration within the United States. I've said this before, but I don't believe we've ever witnessed a legislative climate quite like the current one, in which 42 states now require this approach to instruction. Right now, one of the largest difficulties facing educational institutions throughout the United States is the problem of literacy scores. It's disheartening that 83% of states have gone in reverse; we currently sit at approximately 33% reading at grade level. In many respects, this is a national crisis as well as an international one. The matter has now been settled that science of reading is how to teach — it's really what's known as a phonics-based approach rather than a whole language approach — and that matters greatly. As I said, we're seeing plenty of districts that, frankly, weren't in our pipeline when last year began now entering it; we've secured relationships we hadn't anticipated securing. Not long ago I visited an elementary school in Chicago whose people reached out to me directly to begin using our literacy program. The momentum we're witnessing in that area is truly remarkable. What we see, I'd say, is TAM acceleration. We're only at the beginning of putting numbers to it. Once we can start evaluating it, we'll return with further specifics.

Thanks a lot. Just a quick technical question about that international impairment. Could you go into more detail? It sounds as though you're expecting international to speed up going forward. How does that fit together with the impairment you recorded? Thanks.

Whenever we examine international, gaining a real sense of it matters a great deal. I believe I discussed this during the previous call. On a worldwide basis, we see the education market sitting at roughly $7.3 trillion. In places such as Latin America and the Middle East, the middle class is expanding. We've achieved some strong traction in those markets. When the middle class expands, it typically devotes about 2.5% to education. Those markets — I was recently down in Latin America. I was simply, let me just put it this way, so impressed by the work taking place in K through 12. High schools entirely devoted to science, to universities. I spent some time at a university that had more than 300,000 people enrolled. We're genuinely excited about those opportunities abroad. We are witnessing growth in those markets. Within the company itself, we're aligning better so we can respond more nimbly to local requirements, local language requirements, cultural requirements, pedagogy. We do see it as a tremendous growth opportunity for this company. That spans literally our K through 12 segment, our university segment, our medical segments. You'll see us concentrating on how we take part in that truly exciting growth around the world.

Thanks.

Hello. This is Steve Koenig with Macquarie. Thanks, and congratulations on a strong quarter and a strong year. I've got a question for Philip. Philip, we saw the AI blueprint you published alongside the earnings materials. It's extremely useful for grasping your AI approach. Could you perhaps help us see how that approach stacks up against what your rivals are doing? If I can, the second thing I want to ask about is open educational resources, which came up in your remarks. You brought up Bluebonnet Math during the Q&A. I'm just wondering how you see the future of AI and open educational resources. Many thanks.

Thanks so much for asking. Thanks for going through the AI blueprint; we're very enthusiastic about it. I believe I noted that we discussed having more than 7.5 million users of our AI solutions, and these are tools that only launched within the last 18 to 24 months. We're quite thrilled by the initial traction we're seeing, and much more lies ahead. I believe many people who enter the education sector carry plenty of misconceptions, and they dramatically undervalue what this marketplace demands. You'll notice plenty of startups entering. You'll notice certain organizations that possess some curriculum or some tools. Four things set McGraw Hill apart. To begin with, the deep pedagogical curriculum. From an outside perspective, most folks don't grasp that you're dealing with sequences of information — in something like literacy, you must weave together 1,000 distinct learning requirements. In mathematics, from K through 12, more than 4,000 learning requirements. This content has to be sequenced; it isn't merely a matter of releasing a textbook or a piece of curriculum. You genuinely must sequence it all the way down to the week. What is a third grader doing in their seventh week? When they have an assembly, how do you sort of fit in addition and subtraction and multiplication tables? That sequencing of content is difficult; we have literally hundreds of thousands of titles that we've produced throughout our history, tens of thousands that are sequenced across 500 different subjects where we sequence the way a learner learns. That's literally in many instances across 12 years of their life. That content represents an enormous moat against other organizations. The second thing is that we possess these tools that deliver personalization. Sharpen's an excellent illustration. It's a study guide that we use. Rowan College, a professor there analyzed it and stated that the 60% of the students using it in his class earned a 47% higher grade on their final exam, a 21% higher total grade. We had children in ALEKS Adventure where we saw 25 percentage point increases in their grades, and second graders, 55 percentage points. When it comes to personalized delivery, it doesn't matter if you'd rather hear a podcast, view something visually, or turn it into a game. That personalized delivery is item number two. The third one — and this matters enormously in an age focused on outcomes — is our data. We hold more than 190 TB of data. Each year we capture roughly 25.6 billion learning interactions. When you're training AI, you have to be able to tell whether the AI is on task or off task. We detect that at an extremely granular level. Take a subject such as algebra: among two to the 500th power of possible points along your learning journey, we can pinpoint exactly where you stand; that data is essential. The final piece is the capacity to weave this into workflows. We possess one of the biggest and most — I'll call it impressive, based on what I've seen since arriving — customer success organizations and go-to-market teams, and they're actively striving to bring this into the classroom. At every school I went to, every K-12 teacher I went to, the request was, "Producing this isn't sufficient on its own. Demonstrate how we can apply this in class with learners of different types." So the four elements we offer are content arranged with pedagogy in mind. Element two is personalized delivery. Element three is data, and element four is this ability to close the last mile. Something quite fascinating, which I brought up in my remarks. Among the dozens and dozens and dozens of schools, teachers, and administrators I encountered, investors have put the question to me, "Will AI disrupt our business?" Our customers don't think so. They're delighted that we're embracing AI and that we're making it easy for them, and they recognize the value of what we create; the OER market really confirms this. I've had plenty of people ask, "Couldn't I simply take OER, say a Bluebonnet, and pair it with AI, and boom, there's my curriculum?" The truth is that against OER we come out ahead almost 6x as often as we fall behind. For each unit of OER we lose to, we win six when it comes to our outcomes; we're noticing many organizations in a landscape of AI tools, in a landscape of OER, we're in fact noticing many win backs, with organizations and individuals returning to us because they're waking up to how complex this is. You must connect assessment, you must connect pedagogy, and you must make it function within the workflow and within how the student learns — a genuinely thrilling moment for us.

That's great. I appreciate the additional detail there, Philip. Thank you.

Excellent. I appreciate you fielding my questions, and congratulations on these results. Perhaps I'll begin with a broader view on the guidance and how exactly you arrived at it. What's the thinking that informs the guidance you've given, on both the revenue side and EBITDA, not just for 2027 but more fundamentally — how do you approach putting your guidance together?

Of course. Thank you, Marvin. This is in line with the way we've always handled it — if you go all the way back to the projection models we put out at the time of the IPO and the roadshow, we established this process and we stick with it consistently. Our approach is to take stock of the information available to us right now. As I mentioned, we're at an early stage of the K-12 selling season, and we've shared certain observations regarding higher ed enrollment. Using what we know today, we set that as the midpoint of our guidance, for revenue as well as EBITDA. Then we give a range. As in the past, that range accounts for a variety of possible outcomes — whether enrollments rise, whether capture rates shift, every one of those factors gets captured within that range. In the end, we'll come back to this as things progress, and once students begin appearing on campus — which, as you're aware, happens after our second quarter — we'll be in a position to see the rest of the year far more clearly. The approach we're taking is the same one we've applied before.

Great. For my second question, perhaps something you brought up, Philip, during your prepared remarks — specifically regarding the expansion of your addressable markets. I believe you referenced both non-educational and educational markets, possibly in connection with AI and agentic tools. Could you elaborate on that? It sounds like a compelling point as you work to grow the top line. Which new markets do you have in mind?

Among the most impactful visits I made was to a medical school, where I met with a professor who had recently returned from the American Medical Association. He described the idea of precision education. If a given doctor hasn't studied or hasn't worked with a specific patient population, how do you ensure that doctor, upon entering a situation, can receive education just in time — precisely at the right moment? This is a pattern seen throughout many organizations: just-in-time education. One of the most fascinating developments is that the American Association, Medicine has awarded 12 grants for precision education to tackle precisely this notion of ensuring that doctors within the medical profession can obtain the proper education at the proper moment, particularly given a changing education landscape. I recently read a study indicating that in both computer science and medicine, medical papers are doubling annually. That represents an incredible volume of knowledge being produced. I've spoken before about the multi-trillion-dollar industries now emerging and the vast quantity of knowledge humans must learn, not only in K-12 but across their whole lifetime. What we announced today that we're beginning to pilot is the concept of agentic curriculum. That means having the ability to consult our curriculum through agentic technologies, MCP being one example. One of the organizations — actually two of the organizations — are not traditional education companies that are collaborating with us and beginning to pilot our content. These are organizations within the healthcare industry that don't actually educate, but simply have professionals working in medicine and working in pharmaceuticals who want to be able to consult our content. I consider the lifelong journey of a learner. Increasingly, McGraw Hill aims to connect that journey from the earliest stages to any stage in your life, whether that's continuing education or professional education. Agentic technologies will enable us to accomplish that. One thing I've discussed before is where I expect AI to head in companies like ours: there will be a knowledge economy where you can plug in knowledge. You'll be able to plug in knowledge agents. At present, we are experimenting with a knowledge agent. We see that in the same way that token-based models exist in artificial intelligence, prompt-based business models. This strikes us as a chance to broaden how reachable McGraw Hill can be and, I'd add, to evolve its business model as time goes on, alongside this emerging knowledge economy.

That's fantastic. Thank you very much, everyone.

Hello. Thank you. Good morning. I'd like to explore the agentic curriculum opportunity in greater depth. Could you provide additional detail regarding the schedule for launch, the pricing structure, and the wallet opportunity?

Certainly. George, thank you very much. I also appreciate the AI framework you published. Reading it was a real pleasure. I strongly concur with the fundamental ideas concerning what lies ahead. Regarding agentic for us, throughout the last few months since my arrival, I've devoted considerable time to working with the team, and they have truly operated at a rapid pace. During my previous call, I mentioned how enthusiastic I am about innovation. From the time I got here, we've managed to genuinely construct and begin running internal trials of the agentic technologies, and we are only now beginning to shift toward agentic trials involving outside clients; this is something that has been sought after by numerous universities and numerous organizations outside of education. It's in demand. A secure approach, I'd describe it as an auditable approach, for being able to distribute our content. I believe there has been a decision until this point where either you place all of your content into a large AI model and surrender control over it, or you refrain from doing anything with AI. These agentic technologies let us safely respond to any query and let us monitor and let us protect it just as you would using an API. To me it's almost comparable to what you might term a cloud for knowledge or an app store for knowledge; it's thrilling technology. It's a technology that emerged only within roughly the last 12 or so, 18 months. These standards are only now beginning to appear within the AI field, MCP and agentic technologies. I'm genuinely thrilled that the team could develop this so swiftly, and we're progressing into trial. When you consider what's occurring in the realm of AI pricing, I believe you're noticing that pricing varies wildly. I came across some reports within the last 24 hours indicating OpenAI might reduce its token prices; we're observing SaaS companies using an array of pricing structures. Sometimes it's merely an added charge; other times, you're actually billed according to tokens. What we're entering trial to accomplish is to truly grasp how our clients utilize this; in education, as you might expect, they desire predictability. They don't want some AI agent that will potentially bill them per question with no control on their part. Without a doubt, that turns into an incredibly costly matter for the university, for the K through 12 school, for the medical school, and for the student. I'd say to you that I've noted previously there's tool fatigue, where you have up to 25 separate logins for students, 40 logins for professors. They want simplicity. Between this point and year-end, we plan to test different business models so we can pin down exactly which approach works best for education. Because of that, we believe we'll be able to capture additional wallet share and also make things simpler. Back when I worked in cloud, I noticed many companies begin moving to the cloud, after which expenses spiraled, forcing them to regain control quickly. The same pattern is showing up with AI, where expenses are rapidly spiraling, and now finance teams — FinOps, as we refer to it — are turning their attention to AI; we intend to genuinely make this easy. We'll streamline it for whoever is using it, and our business model should end up better than whatever a student or a university might secure independently. As this model takes shape across the coming six months, we'll share further details with you.

George, thanks for that. So looking at K through 12, where do you think we'll fall within that 25%-30% capture rate range we've seen historically for fiscal 2027?

Yeah, George, our expectation is that we'll land at the low end of that range.

Do you have any insights into how that will change as the year goes on, and where states might have room to do better?

Yes, I believe the places we're putting the most attention on for potential gains will keep being open territory along with supplemental intervention. We're going to keep an eye on that. As I said, Texas and California — since we're seeing a growing number of calls, we'll track those carefully. What gets me the most enthusiastic is supplemental intervention, where our share is 5%, and that accounts for roughly 15% of our total K-12 revenues, plus open territory.

Understood. That's quite useful. Thanks.

Right. Hello, and thanks. I'd like to sharpen the point regarding your comments on K-12, since from my vantage point there appears to have been considerable pushback among parent organizations concerning technology and digital resources in classrooms. Many parents would prefer a return to pencil and paper. Is this creating a problem for you? Is that the reason you're sitting at the lower end of that capture rate, or do you view it as an opportunity? I'd really appreciate hearing your take on this.

I appreciate that question very much. Screen time is something I'm asked about frequently. This is actually a major advantage for McGraw Hill, since our track record is so robust when it comes to providing education in any format a school or a student needs. As of now, we are among a small number of organizations globally capable of providing anything from AI through to paper, and the reverse as well. What we observe, above all, is that yes, with screens, particularly for younger students, there exists an inverse relationship between time spent on screens and understanding. Numerous studies have examined this subject. What we observe is this notion of genuine self-regulation. The capacity to self-regulate while using a screen is simply reduced in many instances, and there isn't as much, shall I say, dwell time spent on the material. With paper, we observe up to 3x to 4x greater dwell time along with rereading of the material. That's engagement. For a learner, engagement propels comprehension; that equilibrium, I believe, is something people are increasingly recognizing. Throughout the last few years, as social media has pushed screen time considerably higher, this has drawn growing attention, and we're seeing many schools prohibiting screens in classrooms as of now, or rather mobile phones, to give one example. I believe we've reached more than 30 states on that front; so distraction is genuine. Poor comprehension is genuine when screens are more prevalent. That said, there is an appropriate time and place for screens. Consider something like our Emerge! product — as I noted, we're at approximately 7%, or 20 minutes each week, of screen time for Emerge!; that was among the most crucial questions raised in Seattle by the board while they were weighing whether to adopt our product. What screens excel at is, in fact, assessment. Take a product such as our ALEKS product for algebra: using 25 questions, we can identify exactly the 500 skills a student requires, and how many they possess, with only 25 questions. When it comes to our organization, outside parties evaluate our performance, how our curriculum gets built, and the way we teach it; school boards also review the results we produce; on top of that, we run a huge amount of testing. Within the network we have more than 7,000 teachers, plus over 2,000 students involved in testing — we reach into that network prior to putting out a product. McGraw Hill belongs to that small group of companies able to begin right at kindergarten with paper, workbooks, and reading passages printed on paper, then progress to bite-size assessments, and continue all the way into learning tools, study tools such as Sharpen, then up into higher education and even offerings like Clinical Reasoning, in which we simulate patients in the medical field. Ours may be among the broadest and most varied methods of delivering reading — sorry, learning, and honestly that's a strength I'd call unmatched.