Scholastic Corporation (SCHL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. My name is Dick Robinson. I'm the Chairman of the Board, President and CEO of Scholastic Corporation. On behalf of the directors and officers of Scholastic, I thank you for coming. As Chairman of the meeting, I hereby call the meeting to order. At this time, I would like to introduce the directors of the company who are present on the phone, here in alphabetical order: there's Andrés Alonso, Former Superintendent of Baltimore City Schools; Jimmy Barge, CFO of Lions Gate and long-time professional in finance and the media world; Mary Beech, who is the CEO of a digital marketing company in New York; Jack Davies, former executive with AOL and many banks, who is a long time director; Andrew Hedden, our General Counsel; Peter Warwick, former Publishing and HR Executive; Margaret "Maggie" Williams, a communications person who has worked closely in politics and communications for many years; and David Young, former CEO of Hachette Book Group and a long-time veteran of the publishing world. I'm very proud of these directors. They've been giving me wonderful advice, and we are nominating them to be renewed at this meeting. I note that Teresa M. Connelly will serve as Secretary of the meeting, and Gil A. Dickoff will serve as the inspector of election. Ms. Connelly has advised me that a quorum is present and that she has a complete list of stockholders as of the close of business on July 27, 2020, the record date for the meeting. We shall now proceed with the matters being voted upon by the shareholders today. The notice of annual meeting of stockholders list the 2 items to be considered this morning, which are as follows: electing 9 directors to the Board of Directors for the ensuing year, an advisory vote to approve the fiscal 2020 compensation awarded to named executive officers. And these matters have been described in more detail in the proxy statement previously made available to you relating to the annual meeting. The only matter to be considered by the holders of the common stock is the election of James W. Barge and John L. Davies to serve as the 2 directors of the company to be elected by the holders of the common stock. The matters to be considered by the holders of the Class A stock are the election of Richard Robinson, Andrés Alonso, Mary Beech, Andrew S. Hedden, Peter Warwick, Margaret A. Williams and David J. Young to serve as the 7 directors of the company to be elected by the holders of the Class A stock and the approval of an advisory vote to approve the fiscal 2020 compensation awarded to named executive officers. We will now proceed to have the voting -- count of votes and the closing of the polls. And at which time, I will make a couple of comments as I normally do at the shareholder meeting each year. These comments will focus in part of the 100th birthday of the company and also on our goals and mission. Our financials will be dealt with specifically on Thursday when we have our quarterly investor call. Good morning all. Our unusual circumstances require that we conduct our annual meeting virtually this year to protect everyone's well-being and safety. I hope you and your loved ones are in good health. And although I would prefer to welcome you from our usual venue, the Scholastic big red auditorium and our company headquarters, named by the way for our beloved mascot, Clifford, I am pleased to welcome you to our Virtual 2020 Annual Shareholders meeting. As you know, 2020 is our company centennial year. In less than 1 month, we'll be 100 years since my father, M.R. Robbie Robinson, published the first issue of the Western Pennsylvania Scholastic, a sports magazine for high school students. His first issue was October 22, 1920. Two years later, that sports magazine was replaced by The Scholastic focused on high school English and social studies. These magazines reflected the values that would form the twin pillars of our mission and lay the foundation for the Scholastic you know today. First, a commitment to help young people understand the world through analyzing important information; and second, encouraging them to understand themselves by reading the great stories to touch hearts and illuminate the power of human potential. Scholastic people knew in 1920 what they know in 2020, it is through understanding information and stories that young people will develop the thinking skills they need today to help build a better society tomorrow. It could be tempting in an anniversary year to dwell on past accomplishments, but that is not the Scholastic way. We live in the future, not the past, so we can prepare young people for the complex world they will inherit. The children that are in school now will become adults in the mid-21st century, and our goal is to prepare young people for the complex world they will inherit. The challenges of 2020 give these words new gravitas. Recent events make it clear, the future is now. The resilience of our young people, their caregivers and the dedicated teachers who serve them has been tested time and again. Together, we have recently faced the upheaval of the global pandemic and for so many families, economic hardship. The social uprising in the wake of the deaths of George Floyd and other Black Americans renews the cry to address the systemic racism, while pervasive income and equality leaves far too many people feeling they've been left behind or denied opportunity. And with the presidential election in just 40 days, understanding these issues are more important than ever to help bring together a divided nation. This is a singular moment in history, but I'm confident in our proven ability as a company to help children, their families and educators navigate these extraordinary times, and I am optimistic about our shared future. Right now, thousands of dedicated Scholastic employees around the world are working to fulfill our commitment to schools and to society, helping young people learn and thrive today and in the future. Our ability to carry out this mission was tested last March as schools began to shut down by thousands in response to the pandemic. Just weeks into our important fourth quarter, the period when the company typically records most of its earnings and cash flow, nearly every state in the U.S. had closed their schools. We had to act swiftly and with purpose to maintain our ability to support the millions of students, families and teachers relying on Scholastic for crucial access to reading and learning. Our staff met this challenge head-on, accelerating the process of digital transformation already underway to meet the huge demand for virtual resources for both school and home and finding inventive ways to provide book access as teachers and families grappled with the new demands of remote learning. Despite these pivots and strong company performance in the first 3 quarters of the 2020 year, fiscal year, the impact of school closings on our business in the fourth quarter was significant. To help mitigate this revenue impact and prepare for continued disruption in the new school year, we worked to build flexibility throughout the Scholastic organization. This included redesigning our clubs and fair team structures and increasing focus on digital solutions and education. We also implemented a rigorous cost-reduction program targeted at $100 million designed to protect our cash reserves and profitability, including taking difficult but necessary staffing actions, such as reduced workweeks and furloughs. This laser focus on cost savings and improving operations has benefited Scholastic as we embark on our new fiscal year, lowering our cost base to mitigate the continuing impact of COVID-19 on our clubs and fair businesses in particular. Six months into the crisis, we are meeting the still evolving needs of students and schools with creativity and agility as instruction continues to shift to digital. The performance of our education and trade groups reflects our strength as a trusted partner to schools as well as the ongoing demand for quality children's books. Keeping kids reading by delighting them with the characters and stories they love has never been more important as educators address the learning loss caused by extended time away from the classroom now going into its seventh month. As I said earlier that I am optimistic about our future. This time last year, I outlined a vision for our shareholders on what the next 5 years held in-store for Scholastic. Needless to say, a pandemic was not part of that vision, but despite our changed circumstances, I remain confident in that vision, which hinges on the following. First, our strength in meeting the needs of educators no matter what the circumstances, reinventing how we create access to reading, learning and professional development, so they can carry out their mission with their students. Second, the ability to meet the challenges of new instructional models by providing teachers with digital products and services, such as our digital subscription programs F.I.R.S.T., W.O.R.D. and Lit Pro that build foundational skills and enable reading practice, and Scholastic Learn at Home, which makes it easy for parents and caregivers to support learning with engaging activities for kids, ages 4 to 10, in the comfort of their homes. These -- all these products are selling very well right now. Third, continued momentum as a leading provider of content in children's books, engaging young readers around the world with new entries in best-selling series like The Hunger Games, Harry Potter, Dog Man, Captain Underpants and The Baby-Sitters Club. Dog Man #9 has been the #1 best-selling book in U.S., Canada and just this morning I learned, Australia, it is the #1 book of all books published selling this week in Australia. The ability to leverage our extraordinary intellectual properties is another part of what we're doing through Scholastic Entertainment, which has become a driving force in showcasing backlist properties, expanding existing brands such as Clifford the Big Red Dog and The Magic School Bus into global franchises and creating marketing opportunities throughout our school channels. Next, a long-held commitment to published books. The celebrated diversity of cultures and communities and making it easier for teachers and families to find these books through programs like the Rising Voices library and the Power of Story, ensuring every child can see themselves reflected in the stories they read. Finally, this is all supported by technology enhancements and improved ways of working and increased operational efficiency and helping -- help us engage with our customers more effectively. So these are some of the key themes that we've been following for the past years and which connect us to our customers and to our future. It's clear the struggle against the coronavirus is not over, and the uncertainty surrounding it continue. But it's also clear that what Scholastic offers has never been more relevant. As we have throughout our history, we will keep providing children with stories of courage and hope that build resilience, beloved characters who spark imagination and laughter, and the information that helps inspire critical thinking and empathy and teaches young people what it means to be engaged citizens in our society. That mission remains constant, and we make our work contemporary by meeting young people and the teachers where they are, whether at home or in the classroom, connecting digitally or in the pages of printed book or magazine. And in that, we are searching for that part of every child that can be awakened and animated and connected to reading and learning in a way that our editors and our mission, and our books and our book access have provided for many years and into the future. It's that connection with that child and making that child connect with learning that is the thing that we do better than anybody else, I believe. There is nothing more rewarding to a Scholastic person than knowing we've successfully made that connection. This was the case with a fourth grade teacher who e-mailed me just last week about new features in our magazine Scholastic News and Storyworks. She wrote, "I have been teaching for 10 years and I'm continuously in awe of the innovations your company makes to your publications. The new digital video features are incredible, and my students and I have been riveted." Having spent a lifetime in classrooms and connecting with educators personally, I've also been deeply moved by notes from teachers struggling to support their kids, teachers who just want to say thank you. As one fifth grade language arts teacher wrote recently, "This is my 31st year of teaching, and I have never encountered obstacles such as these as the coming back to school and the pandemic. Thank you for continuing to support and inspire my students and myself." A sixth grade science teacher wrote to us to say, "You inspire me to pick myself up and continue to do the good work I strive to do each day in the classroom. It feels a little lighter knowing that I am not alone." These are -- this is what's happening with teachers right now in thousands and thousands of schools throughout the United States, adjusting to the pandemic, realizing that their kids are coming back to school with learning loss, trying to find ways to help them to adapt to the new experiences we're all going through as a society. That is what those teachers are doing, and that is what we do. The essence of our work is to help teachers do good work to support the learning tree of kids everywhere, to provide stories and information that, to quote that fourth grade teacher, are "riveting" for young learners. The people who make this possible are my Scholastic colleagues around the world, and I'm so grateful for their resilience and dedication during this challenging year. I've always said the power of Scholastic comes from our people and that has never been more true than now. We have the resources, the talent and the commitment to our mission that will carry us forward into our next 100 years. We know that our work is always relevant because our goal each day is to create that spark of recognition and purpose inside every one of the millions of young people we serve, driving them forward to read and learn and thrive. Thank you to my Scholastic colleagues for upholding our legacy and making a difference to children all over the world. And thank you to my Board members who are gathered here together with the company and with our shareholders to carry our company into the future. And of course, thank you also to our shareholders without whose support, we could not carry out our mission to young people to schools and to society. Thank you very much, and we will return to the operations of the meeting. At this time, I will open the meeting to certain questions from any stockholders present. [ Valosta Marakova ] and Steven Kohutic are available as representatives of our -- of EY, our independent auditors, and are also available to answer any appropriate questions from participants in this meeting. May I have any questions at this time? Last call for questions. Okay. There being no questions. May we now have the preliminary report of the inspector of election, Gil A. Dickoff?

Thank you, Dick. I hereby present the preliminary report of the inspector of election, certifying in writing as to the matters presented at this meeting and showing the following votes. Unanimously approved by the holders of the Class A stock outstanding was the following: one, the election of the following 7 nominated directors, Richard Robinson, Andrés Alonso, Mary Beech, Andrew S. Hedden, Peter Warwick, Margaret A. Williams and David J. Young; and two, the approval of an advisory vote to approve the fiscal 2020 compensation awarded to named executive officers. Approved by a plurality of votes by the holders of the common stock outstanding, the election of the following 2 nominated directors, James W. Barge and John L. Davies.

Thank you, Gil. I direct that the report of the inspector of election be annexed to the minutes of this meeting and the records of the company. And there being no further business, I will thank you all for your attendance, thank the staff who are listening for their support. The stockholders who are tuning in to find out more about the company, thank you for your continuing support, and the directors as well who are reelected as of this meeting. I now will adjourn the meeting. Thank you all for your attention and support.

This now concludes the meeting. Thank you for joining, and have a pleasant day.