MH — McGraw Hill, Inc.

Summary of McGraw Hill Q3 2026 Earnings Call

1. Key Financial Results and Metrics:

• Total Revenue: $434 million, up 4.2% year-over-year.
• Recurring Revenue: Grew 14.8% to $357 million, representing 82% of total revenue.
• Digital Revenue: Increased 11% to $364 million, comprising 84% of total revenue.
• Adjusted EBITDA: Rose 7.7% to $136 million, with a margin of 31.3%.
• Gross Profit Margin: Expanded nearly 100 basis points to 85.3%.
• Cash Flow from Operating Activities: $309 million, a 12% increase year-over-year.
• Net Leverage: 2.9x as of December 31, 2025.

2. Strategic Updates and Business Highlights:

• The higher education segment saw a 24% revenue growth, with a record 30% market share.
• The Evergreen platform now accounts for 70% of higher education revenue, enhancing customer engagement and efficiency.
• AI-powered solutions, such as AI Reader, reached over 1 million students, generating significant learning interactions.
• The K-12 segment experienced a 14.6% revenue decline, attributed to a smaller market size but maintained market share gains.
• New product launches, including Sharpen Advantage, aim to deepen institutional engagement and expand market opportunities.

3. Forward Guidance and Outlook:

• McGraw Hill raised its fiscal year 2026 guidance, projecting total revenue between $2.067 billion and $2.087 billion and adjusted EBITDA of $729 million to $739 million.
• The company expects to maintain double-digit growth in higher education and anticipates a return to growth in K-12 for fiscal year 2027, driven by upcoming adoption cycles in key states.

4. Bad News, Challenges, or Points of Concern:

• The K-12 segment's revenue decline of 14.6% reflects a smaller market size this year, raising concerns about future growth in this area.
• The company faces tough comparisons in Q4 due to previous high performance, which may impact growth rates.
• Potential risks from federal education policy changes and government funding remain under observation, although no material impact has been reported to date.

5. Notable Q&A Insights:

• Management emphasized the importance of Evergreen and inclusive access in driving higher education growth, with a focus on maintaining momentum despite challenging comps.
• Philip Moyer, the new CEO, highlighted the need for a strong customer partnership in navigating AI's role in education, aiming to enhance user engagement and outcomes.
• Questions regarding the integration of numerous educational tools in districts revealed concerns about complexity and the necessity for streamlined solutions.
• The company is optimistic about the Teacher Assistant tool, which is designed to alleviate teacher workloads and enhance classroom efficiency.

Overall, McGraw Hill demonstrated strong financial performance and strategic initiatives, particularly in higher education, while acknowledging challenges in the K-12 segment and the need for careful navigation of market dynamics moving forward.