MH — McGraw Hill, Inc.

Summary of McGraw Hill, Inc. Q2 2026 Earnings Call

1. Key Financial Results and Metrics

• Total Revenue: $669 million, a 2.8% decline year-over-year, attributed to a smaller K-12 market.
• Recurring Revenue: Increased 6.5% to $422 million, representing 63% of total revenue.
• Digital Revenue: Grew 7.6% to $352 million, making up 53% of total revenue.
• Adjusted EBITDA: $286 million with a margin of 43%, up 60 basis points year-over-year.
• Gross Profit Margin: Increased to 79.2%, up nearly 150 basis points year-over-year.
• Remaining Performance Obligation (RPO): Exceeded $1.9 billion, providing forward visibility.

2. Strategic Updates and Business Highlights

• Higher Education Performance: Revenue increased 14% year-over-year, driven by market share gains and digital offerings. Inclusive Access sales grew 37%, now comprising over 50% of Higher Education sales.
• K-12 Market: Revenue declined 11.2% year-over-year, but share gains were noted in Core Science, ELA, and Math. Early success with ALEKS Adventure was highlighted, positioning for future growth.
• AI Integration: Continued focus on AI-driven products, with positive reception for tools like ALEKS and McGraw Hill Plus, which enhance student engagement and teacher efficiency.
• Global Professional and International Revenue: Global Professional revenue remained flat at $40 million, while International revenue decreased 8.8% to $50 million, though showing improvement from previous quarters.

3. Forward Guidance and Outlook

• Fiscal Year 2026 Guidance: Total revenue anticipated between $2.031 billion and $2.061 billion, recurring revenue between $1.504 billion and $1.524 billion, and adjusted EBITDA between $702 million and $722 million.
• Tax Provision: Expected to be lower than previously anticipated due to federal tax policy changes.
• Market Growth: Anticipated $300 million increase in K-12 market size for FY 2027, driven by California Math and Florida ELA opportunities.

4. Challenges and Points of Concern

• K-12 Market Decline: The anticipated smaller K-12 market has led to a decline in revenue, with concerns about the impact of federal funding on procurement processes.
• Enrollment Trends: While the company has outperformed in enrollment, broader industry concerns about a demographic cliff could pose risks in the future.
• Competition: Emerging AI-first entrants are increasing competition, particularly in the Supplemental and Intervention markets, although McGraw Hill's established brand and comprehensive offerings provide a competitive moat.

5. Notable Q&A Insights

• Higher Education Enrollment: Enrollment growth is slightly above industry averages, with McGraw Hill capturing significant market share through effective execution and innovative products.
• K-12 Product Traction: Products like ALEKS Adventure and McGraw Hill Plus are gaining traction and are expected to enhance future Core contract opportunities.
• State Budgets: Positive outlook on state budgets for education, with no widespread delays or changes in purchasing patterns reported.
• Inclusive Access Growth: Significant runway for growth in Inclusive Access, with ongoing expansion and high retention rates noted.

Overall, McGraw Hill demonstrated resilience in its financial performance despite challenges in the K-12 market, with strong growth in Higher Education and a strategic focus on AI-driven innovations. The company remains optimistic about future growth opportunities and market positioning.