McGraw Hill Inc.

08/13/2026 | Press release | Distributed by Public on 08/13/2026 05:16

Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" for the fiscal year ended March 31, 2026 included in our Annual Report. This discussion may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed in the sections titled "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements" included in the Annual Report and elsewhere in this Quarterly Report on Form 10-Q. Our actual results could differ materially from such forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.
Company Overview
McGraw Hill is a leading global provider of education solutions for K-12, higher education and professional learning markets with over 100 million active curriculum licenses, 190 terabytes of proprietary educational data, and approximately 25.6 billion learning interactions across its platforms. Based on available industry data and management's knowledge of the competitive landscape, we are one of the largest education companies worldwide based on paid subscribers and users. We are helping shape the education industry by providing access to effective learning experiences that improve outcomes and opportunities for all. McGraw Hill operates at the intersection of proprietary content, software and data, using artificial intelligence to deliver personalized learning experiences at global scale, driving positive outcomes throughout the entire learning lifecycle. For more than 137 years, McGraw Hill has built one of the world's most recognized education brands. Demand for personalized content, delivered via intuitive digital solutions, is reshaping the industry as educators continue to leverage technology, including generative AI, to meet students where they are in their learning journey.
The business is comprised of the following four reportable segments:
•K-12: The Company provides end-to-end core, supplemental and intervention curricula to support the needs of U.S. K-12 schools. The Company sells blended digital and print learning solutions directly to school districts across the United States.
•Higher Education: The Company provides students, instructors and institutions with adaptive digital learning solutions and content, and instructional materials. The primary users of the Company's solutions are students enrolled in two- and four-year non-profit colleges and universities, and to a lesser extent, for-profit institutions. The Company sells its Higher Education solutions to well-known online retailers and distribution partners, who subsequently sell to students. The Company also sells direct to student via its proprietary e-commerce platform.
•Global Professional: The Company provides students, institutions and professionals with comprehensive medical and engineering learning solutions. The Company sells digital learning solutions and print materials which are easily accessible through a broad range of mediums.
•International: The Company is a provider of comprehensive digital and print solutions in more than 100 countries and 80 languages outside of the United States. Through our expansive global distribution network, we serve the needs of learners and educators throughout the world with our K-12 and Higher Education solutions that primarily originate or are adapted from our U.S.-based solutions.
For the three months ended June 30, 2026 and 2025, we generated revenue of $549.9 million and $535.7 million, respectively, and a net income (loss) of $57.9 million and $0.5 million, respectively. For the three months ended June 30, 2026 and 2025, we generated Adjusted EBITDA of $207.0 million and $191.4 million, respectively. See "-Key Operating Metrics" and "-Non-GAAP Financial Measures."
Key Operating Metrics
In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.
Re-occurring Revenue and Transactional Revenue
Re-occurring Revenue represents revenue from offerings that are generally sold as digital subscriptions and multi-year print products. Revenue from digital subscriptions, which are paid for at the time of sale or shortly thereafter, is recognized ratably over the term of the subscription period as the performance obligation is satisfied. For multi-year print products (e.g., workbooks), which are paid for at the beginning of the contract period, each academic year represents a distinct performance obligation. Revenue is recognized upon delivery to the customer for each respective academic year. Re-occurring Revenue serves as a key operating metric used by management as it offers valuable insight into the subscription-based nature of our business. For the three months ended June 30, 2026 and 2025, Re-occurring Revenue represented approximately 77% and 72% of total revenue, respectively.
Transactional Revenue includes revenue from both print and digital offerings. Revenue from print offerings is recognized at the point of shipment and revenue from digital offerings are recognized at the time of delivery. In addition, revenues for amounts billed to customers in a sales transaction for shipping and handling are included in Transactional Revenue. For the three months ended June 30, 2026 and 2025, Transactional Revenue represented approximately 23% and 28% of total revenue, respectively.
Annual Net Dollar Retention
We believe that our ability to retain and grow Re-occurring Revenues from our existing customers over time strengthens the stability and predictability of our total revenue base and is reflective of the value we deliver to them through upselling and cross selling across our suite of solutions to our existing customers. We assess our performance in our Higher Education and Global Professional segments using Annual Net Dollar Retention ("NDR"), which serves as a key operating metric used by management for evaluating the trajectory of digital subscription revenue growth within our existing customer base. Our ability to retain existing customers serves as a leading indicator of our digital subscription-based revenues and cash flows for the subsequent reporting period. It encompasses renewals, expansions, contractions, price increases, and attrition, providing valuable insights into customer engagement and satisfaction.
However, NDR is not applicable to our K-12 segment, as purchasing decisions are typically made at the state or district level, often involving multi-year contracts and varying purchasing cycles across states, that do not align with the renewal, expansion, contraction, and attrition dynamics that NDR measures. Similarly, NDR does not apply to our International segment, as it encompasses higher education and K-12 markets, each with distinct purchasing behaviors, contract structures, and funding mechanisms. This variability across these markets makes it challenging to apply a consistent NDR calculation, limiting its effectiveness as a metric for the International segment.
We calculate NDR by dividing (a) the digital subscription amounts invoiced to existing customers during the year, inclusive of changes in enrollment, price changes and attrition by (b) the digital subscription amounts invoiced to such customers for the comparable prior year.
Remaining Performance Obligation
Our Remaining Performance Obligations ("RPO") represent the total contracted future revenue that has not yet been recognized. RPO is associated with our digital subscriptions and multi-year print products and is impacted by various factors, including the timing of renewals and purchases, contract durations, and seasonal trends. Given these influencing factors, RPO should be evaluated alongside Re-occurring Revenue and other financial metrics disclosed within this Quarterly Report on Form 10-Q. RPO serves as a key operating metric used by management as it offers visibility into future revenue and facilitates the assessment of long-term growth sustainability.
While we believe that the above key operating metrics provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management, it is important to note that other companies, including companies in our industry, may not use these metrics, may calculate them differently, may have different frequencies or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of Re-occurring Revenue, Transactional Revenue, NDR or RPO as a comparative measure.
Re-occurring Revenue and Transactional Revenue for the Three Months Ended June 30, 2026 and 2025
Three Months Ended June 30,
2026 2025
($ in thousands) Re-occurring
Revenue 		Transactional
Revenue 		Total Re-occurring
Revenue 		Transactional
Revenue 		Total
K-12 $ 196,595 $ 77,809 $ 274,404 $ 183,641 $ 87,290 $ 270,931
Higher Education 182,102 17,734 199,836 159,552 22,827 182,379
Global Professional 25,140 9,675 34,815 23,657 11,502 35,159
International 21,727 23,503 45,230 20,764 30,700 51,464
Other - (4,382) (4,382) - (4,223) (4,223)
Total Revenue
$ 425,564 $ 124,339 $ 549,903 $ 387,614 $ 148,096 $ 535,710
NDR as of March 31, 2026, 2025 and 2024
Year Ended March 31,
2026 2025 2024
NDR
Higher Education
114 % 110 % 110 %
Global Professional
101 % 105 % 103 %
RPO as of June 30, 2026 and as of March 31, 2026
June 30, 2026 March 31, 2026
($ in thousands)
Current
Non-current
Total
Current
Non-current
Total
RPO by Segment:
K-12 $ 477,491 $ 733,155 $ 1,210,646 $ 477,183 $ 772,190 $ 1,249,373
Higher Education 169,906 47,029 216,935 268,649 53,350 321,999
Global Professional 62,058 6,619 68,677 58,186 7,791 65,977
International 20,465 2,427 22,892 30,394 2,670 33,064
Other 3,006 - 3,006 945 - 945
Total RPO
$ 732,926 $ 789,230 $ 1,522,156 $ 835,357 $ 836,001 $ 1,671,358
Results of Operations
The following tables set forth certain consolidated financial information for the three months ended June 30, 2026 and 2025. The following tables and discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Consolidated Operating Results for the Three Months Ended June 30, 2026 and 2025
Three Months Ended June 30,
($ in thousands) 2026 2025 $ Change % Change
Revenue
$ 549,903 $ 535,710 $ 14,193 2.6 %
Cost of sales (excluding depreciation and amortization) 110,704 123,384 (12,680) (10.3) %
Gross profit 439,199 412,326 26,873 6.5 %
Operating expenses
Operating and administrative expenses 255,069 241,549 13,520 5.6 %
Depreciation 16,348 17,187 (839) (4.9) %
Amortization of intangibles 53,500 57,365 (3,865) (6.7) %
Total operating expenses 324,917 316,101 8,816 2.8 %
Operating income (loss) 114,282 96,225 18,057 18.8 %
Interest expense (income), net 45,770 58,774 (13,004) (22.1) %
Income (loss) from operations before taxes 68,512 37,451 31,061 82.9 %
Income tax provision (benefit) 10,652 36,949 (26,297) (71.2) %
Net income (loss)
$ 57,860 $ 502 $ 57,358 n/m
Revenue
Three Months Ended June 30,
($ in thousands) 2026 2025 $ Change % Change
Revenue by Segment:
K-12 $ 274,404 $ 270,931 $ 3,473 1.3 %
Higher Education 199,836 182,379 17,457 9.6 %
Global Professional 34,815 35,159 (344) (1.0) %
International 45,230 51,464 (6,234) (12.1) %
Other (2) (4,382) (4,223) (159) 3.8 %
Total Revenue $ 549,903 $ 535,710 $ 14,193 2.6 %
Revenue for the three months ended June 30, 2026 and 2025 was $549.9 million and $535.7 million, respectively, representing an increase of $14.2 million, or 2.6%. The increase was driven by the segment factors described below.
K-12
K-12 revenue for the three months ended June 30, 2026 and 2025 was $274.4 million and $270.9 million, respectively, representing an increase of $3.5 million, or 1.3%. The increase was primarily attributable to higher Re-occurring Revenue of approximately $13.0 million, primarily due to the timing of deferred revenue recognition associated with prior year sales in the California, Florida and Texas markets. This was partially offset by lower Transactional Revenue of approximately $9.5 million, primarily due to lower than target market share capture in current period market opportunities in California and Texas, partially offset by strong performance in Florida and open territories across multiple markets.
Higher Education
Higher Education revenue for the three months ended June 30, 2026 and 2025 was $199.8 million and $182.4 million, respectively, representing an increase of $17.5 million, or 9.6%. The increase was primarily due to:
•higher Re-occurring Revenue of approximately $22.6 million, driven by the timing of deferred revenue recognition associated with the increased adoption of digital products, including growth in Inclusive Access sales, market share gains, favorable pricing and growth in U.S. enrollments, partially offset by
•lower Transactional Revenue of approximately $5.1 million, primarily due to lower product returns in the prior year.
Global Professional
Global Professional revenue for the three months ended June 30, 2026 and 2025 was $34.8 million and $35.2 million, respectively, representing a decrease of $0.3 million, or 1.0%. The decrease was primarily due to lower Transactional Revenue of approximately $1.8 million, driven by the continued execution of the strategic initiative to sunset non-core print titles. This was partially offset by an increase in Re-occurring Revenue of approximately $1.5 million, primarily attributable to the timing of deferred revenue recognition related to growth in digital subscriptions for our core products sold in the prior year.
International
International revenue for the three months ended June 30, 2026 and 2025 was $45.2 million and $51.5 million, respectively, representing a decrease of $6.2 million, or 12.1%. The decrease was primarily driven by lower higher education enrollments in Canada, the timing of K-12 sales in Spain and delays in customer shipments in the Middle East, which shifted the timing of revenue recognition into the second quarter of fiscal year 2027.
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales (excluding depreciation and amortization) for the three months ended June 30, 2026 and 2025 was $110.7 million and $123.4 million, respectively, representing a decrease of $12.7 million, or 10.3%. The decrease was primarily due to:
•lower manufacturing and royalty costs of approximately $15.5 million, due to lower Transactional Revenue from print offerings in the K-12 and International segments, partially offset by
•higher royalty costs of approximately $2.8 million, primarily driven by the timing of deferred royalty cost recognition within Higher Education, resulting from the growth in Re-occurring Revenue.
Operating and Administrative Expenses
Operating and administrative expenses for the three months ended June 30, 2026 and 2025 was $255.1 million and $241.5 million, respectively, representing an increase of $13.5 million, or 5.6%. The increase was primarily due to:
•higher salaries and wages of approximately $9.3 million, primarily due to an annual merit-based compensation increase and growth in headcount;
•higher stock-based compensation expense of approximately $3.9 million, reflecting the commencement of stock-based compensation expense recognition following the consummation of our initial public offering on July 25, 2025;
•higher annual incentive compensation expense of approximately $2.0 million, primarily driven by the growth in headcount and higher salaries and wages;
•higher selling and marketing expense of approximately $1.0 million, driven by higher sales force sales commission associated with revenue growth in our Higher Education segment, partially offset by lower depository sales commission due to state sales product mix in the K-12 segment;
•higher promotional sample expense of approximately $1.0 million, incurred in advance of K-12 market opportunities in fiscal year 2027; and
•higher operating expenses of approximately $8.2 million, primarily driven by increased marketing and sales costs to support revenue growth, higher compliance-related costs associated with operating as a public company, increased third-party software usage to support ongoing technology initiatives and higher restructuring costs related to cost optimization initiatives, partially offset by
•a gain of approximately $7.5 million, resulting from the sale of intellectual property to a third-party;
•lower advisory fees of approximately $2.5 million, reflecting the termination of the Advisory Agreement with Platinum Advisors following the consummation of our initial public offering; and
•lower professional fees of approximately $1.9 million, primarily due to the decrease in non-recurring transaction related costs associated with our initial public offering.
Depreciation and Amortization of Intangibles
Depreciation and amortization expenses for the three months ended June 30, 2026 and 2025 were $69.8 million and $74.6 million, respectively, representing a decrease of $4.7 million, or 6.3%. The decrease was driven primarily by lower amortization expense related to the use of an accelerated method of amortization for our content intangible assets, as well as lower amortization expense related to certain cloud computing arrangements that became fully amortized during the prior fiscal year.
Interest Expense (Income), Net
Interest expense (income), net, for the three months ended June 30, 2026 and 2025 was $45.8 million and $58.8 million, respectively, representing a decrease of $13.0 million, or 22.1%. The decrease was primarily attributable to lower total debt outstanding following (i) the repayment of $385.7 million of borrowings under the A&E Term Loan Facility using net proceeds from our initial public offering on July 25, 2025, (ii) the repayment of an additional $206.7 million of borrowings under the A&E Term Loan Facility during the second half of fiscal year 2026, and (iii) the repayment of $40.0 million aggregate principal amount of the 2022 Unsecured Notes during the fourth quarter of fiscal year 2026. The decrease
also reflects lower interest rates on the A&E Term Loan Facility following the repricing transactions (as defined in the Cash Flow Credit Agreement), which closed on February 6, 2025 and September 8, 2025, reducing the applicable Term SOFR margin by 75 basis points and 50 basis points, respectively.
Income Tax Provision (Benefit)
Income tax provision (benefit) for the three months ended June 30, 2026 and 2025 was $10.7 million and $36.9 million, respectively, and the effective tax rate was 15.5% and 98.7%, respectively. For the three months ended June 30, 2026, the effective tax rate differed from the statutory rate due to non-deductible employee compensation, withholding taxes, U.S. research and development credit and the expected decrease in the valuation allowance on domestic deferred tax assets related to the timing of deferred revenue recognition and the enactment of the One Big Beautiful Bill Act ("OBBBA"). The OBBBA's acceleration of the deductibility of software development, interest, and tangible personal property expenditures is expected to significantly reduce our domestic income tax liability for the fiscal year ending March 31, 2027.
For the three months ended June 30, 2025, the effective tax rate differed from the statutory rate due to forecasted current tax expense and a valuation allowance recorded against domestic net deferred tax assets.
Adjusted EBITDA by Segment for the Three Months Ended June 30, 2026 and 2025
Adjusted EBITDA by segment is determined and presented in accordance with Accounting Standards Codification, or ASC, Topic 280, Segment Reporting. Adjusted EBITDA by segment is a measure used by our chief operating decision maker to assess the performance of our segments. We exclude from Adjusted EBITDA by segment: interest expense (income), net, income tax provision (benefit), depreciation, amortization and pre-publication amortization and certain transactions or adjustments that our chief operating decision maker does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance. In addition, Adjusted EBITDA by segment is calculated in a manner consistent with the definition and meaning of our Adjusted EBITDA Non-GAAP measure, see "-Non-GAAP Financial Measures-EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin."
Three Months Ended June 30,
($ in thousands) 2026 2025 $ Change % Change
Adjusted EBITDA:
K-12 $ 114,498 $ 96,393 $ 18,105 18.8 %
Higher Education 87,034 77,759 9,275 11.9 %
Global Professional 8,691 11,266 (2,575) (22.9) %
International 3,252 7,208 (3,956) (54.9) %
Other (6,429) (1,210) (5,219) 431.3 %
K-12
K-12 Adjusted EBITDA for the three months ended June 30, 2026 and 2025 was $114.5 million and $96.4 million, respectively, representing an increase of $18.1 million, or 18.8%. The increase was primarily due to:
•a gain of approximately $7.5 million, resulting from the sale of intellectual property to a third-party;
•lower selling and marketing expense, primarily driven by lower depository sales commission of approximately $4.4 million, due to state sales product mix;
•lower cost of sales of approximately $3.7 million, primarily driven by lower manufacturing and royalty costs associated with the decrease in Transactional Revenue from print offerings; and
•an increase in revenue of approximately $3.5 million as discussed under "-Consolidated Operating Results for the Three Months Ended June 30, 2026 and 2025-K-12", partially offset by
•higher promotional sample expense of approximately $1.0 million, incurred in advance of market opportunities in fiscal year 2027.
Higher Education
Higher Education Adjusted EBITDA for the three months ended June 30, 2026 and 2025 was $87.0 million and $77.8 million, respectively, representing an increase of $9.3 million, or 11.9%. The increase was primarily due to:
•an increase in revenue of $17.5 million as discussed under "-Consolidated Operating Results for the Three Months Ended June 30, 2026 and 2025-Higher Education", partially offset by
•higher selling and marketing expense, primarily driven by increased sales force sales commission of approximately $5.9 million, associated with revenue growth; and
•higher cost of sales of approximately $1.8 million, primarily driven by increased royalty costs associated with revenue growth, partially offset by lower manufacturing and other direct fulfillment costs due to increased adoption of digital products; and
•higher salaries and wages of approximately $1.0 million, primarily due to an annual merit-based compensation increase and growth in headcount.
Global Professional
Global Professional Adjusted EBITDA for the three months ended June 30, 2026 and 2025 was $8.7 million and $11.3 million, respectively, representing a decrease of $2.6 million or 22.9%. The decrease was primarily due to
•higher travel and other expenses of approximately $1.4 million, primarily driven by increased marketing and sales costs to support go-to-market initiatives;
•higher salaries and wages of approximately $0.6 million, primarily due to an annual merit-based compensation increase; and
•a decrease in revenue of $0.3 million as discussed under "-Consolidated Operating Results for the Three Months Ended June 30, 2026 and 2025-Global Professional".
International
International Adjusted EBITDA for the three months ended June 30, 2026 and 2025 was $3.3 million and $7.2 million, respectively, representing a decrease of $4.0 million, or 54.9%. The decrease was primarily due to:
•a decrease in revenue of $6.2 million as discussed under "-Consolidated Operating Results for the Three Months Ended June 30, 2026 and 2025-International", partially offset by
•lower cost of sales of approximately $2.2 million, primarily driven by lower manufacturing and royalty costs associated with changes in product sales mix and lower Transactional Revenue from print offerings.
Non-GAAP Financial Measures
We include non-GAAP financial measures in this Quarterly Report on Form 10-Q, including EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted net income (loss), Adjusted basic and diluted earnings (loss) per share and non-GAAP operating and administrative expense financial measures (including Adjusted operating and administrative expenses, Adjusted selling and marketing expenses, Adjusted general and administrative expenses and Adjusted research and development expenses) because our management uses them to assess our performance. We believe they reflect the underlying trends and indicators of our business and allow management to focus on the most meaningful indicators of our continuous operational performance.
Although we believe these measures are useful for investors for the same reasons, readers of the financial statements should note that these measures are not a substitute for GAAP financial measures or disclosures. We have provided reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure.
EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
EBITDA is defined as net income (loss) from continuing operations plus interest expense (income), net, income tax provision (benefit), depreciation and amortization.
Adjusted EBITDA is defined as net income (loss) from continuing operations plus interest expense (income), net, income tax provision (benefit), depreciation and amortization, restructuring and cost savings implementation charges, the effects of the application of purchase accounting, advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated on July 25, 2025 in connection with the consummation of our initial public offering), impairment charges, transaction and integration costs, stock-based compensation, (gain) loss on extinguishment of debt and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.
Further, although not included in the calculation of Adjusted EBITDA below, we may at times add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructurings, and exclude one-time transition expenditures.
Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenue.
Adjusted net income (loss) and Adjusted basic and diluted earnings (loss) per share
Adjusted net income (loss) is defined as net income (loss) from continuing operations adjusted to exclude amortization of intangible assets, restructuring and cost savings implementation charges, the effects of the application of purchase accounting, advisory fees paid to Platinum Advisors pursuant to the
Advisory Agreement (which was terminated on July 25, 2025 in connection with the consummation of our initial public offering), impairment charges, transaction and integration costs, stock-based compensation, (gain) loss on extinguishment of debt and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations and the related tax impact of those adjustments.
Adjusted basic and diluted earnings (loss) per share is calculated by dividing Adjusted net income (loss) by the basic and diluted weighted average shares outstanding.
Non-GAAP operating and administrative expenses
Our non-GAAP operating and administrative expense financial measures include Adjusted operating and administrative expenses, Adjusted selling and marketing expenses, Adjusted general and administrative expenses and Adjusted research and development expenses. We calculate each of these measures by using the same adjustments used in calculating EBITDA and Adjusted EBITDA to the extent such items are included in the corresponding GAAP operating and administrative expense category.
These non-GAAP operating and administrative expense financial measures are calculated as follows:
Adjusted operating and administrative expenses is defined as GAAP operating and administrative expenses adjusted to exclude restructuring and cost savings implementation charges, advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated on July 25, 2025 in connection with the consummation of our initial public offering), transaction and integration costs, stock-based compensation, amortization of product development costs and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.
Adjusted selling and marketing expenses is defined as GAAP selling and marketing expenses adjusted to exclude stock-based compensation and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.
Adjusted general and administrative expenses is defined as GAAP general and administrative expenses adjusted to exclude restructuring and cost savings implementation charges, advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated on July 25, 2025 in connection with the consummation of our initial public offering), transaction and integration costs, stock-based compensation and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.
Adjusted research and development expenses is defined as GAAP research and development expenses adjusted to exclude stock-based compensation and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.
Each of the above measures is not a recognized term under GAAP and does not purport to be an alternative to net income (loss), or any other measure derived in accordance with GAAP as a measure of operating performance, or to cash flows from operations as a measure of liquidity. Such measures are presented for supplemental information purposes only, have limitations as analytical tools, and should not be considered in isolation or as substitute measures for our results as reported under GAAP. Management uses non-GAAP financial measures to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our measures may not be comparable to other similarly titled measures of other companies, and our use of these measures varies from others in our industry. Such measures are not intended to be a measure of cash available for management's discretionary use, as they may not capture actual cash obligations associated with interest payments, taxes and debt service requirements.
The tables below provide reconciliations of each of the non-GAAP financial measures to the most directly comparable GAAP financial measure on a consolidated basis for the three months ended June 30, 2026 and 2025.
Reconciliations of EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin:
Three Months Ended June 30,
($ in thousands) 2026 2025
Net income (loss) $ 57,860 $ 502
Interest expense (income), net 45,770 58,774
Income tax provision (benefit) 10,652 36,949
Depreciation, amortization and product development amortization 83,476 87,854
EBITDA
$ 197,758 $ 184,079
Restructuring and cost savings implementation charges (a) 3,746 3,106
Advisory fees (b) - 2,500
Transaction and integration costs (c) - 100
Stock-based compensation (d) 3,884 -
Other (e) 1,658 1,631
Adjusted EBITDA (f)
$ 207,046 $ 191,416
Total Revenue $ 549,903 $ 535,710
Net income (loss) margin 10.5 % 0.1 %
Adjusted EBITDA Margin 37.7 % 35.7 %
__________________
(a) Represents severance and other expenses associated with headcount reductions and other cost savings initiated as part of our formal restructuring initiatives.
(b) For the three months ended June 30, 2025, represents the pro rata portion of the annual $10.0 million of advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated on July 25, 2025 in connection with the consummation of our initial public offering).
(c) This primarily represents transaction and integration costs associated with acquisitions.
(d) Represents stock-based compensation expense related to awards granted to our employees, directors and consultants under the Company's long-term incentive plans.
(e) For the three months ended June 30, 2026 and 2025, this amount represents (i) foreign currency exchange transaction impact of $(0.7) million and $(1.9) million, respectively, (ii) non-recurring expenses related to strategic initiatives, including marketing, consulting, and non-operational costs associated with the market introduction of a new product launch of $2.6 million and $0.8 million, respectively, (iii) reimbursements of expenses paid to Platinum Advisors incurred in connection with its services under the Advisory Agreement (which was terminated on July 25, 2025 in connection with the consummation of our initial public offering) of nil and $0.1 million, respectively, (iv) non-recurring transaction-related costs associated with the initial public offering that were expensed as incurred of nil and $1.9 million, respectively, and (v) the impact of additional insignificant earnings or charges resulting from matters that we do not consider indicative of our ongoing operations of $(0.3) million and $0.7 million, respectively, that are primarily related to individually insignificant miscellaneous items, including asset dispositions, third party consulting and advisory fees associated with system and process rationalization initiatives, as well as certain additional payments related to incremental insurance premiums and policies as a result of the Platinum acquisition that did not renew after the consummation of our initial public offering.
(f) The purchase accounting, impairment charges and (gain) loss on extinguishment of debt adjustments included in the definition of Adjusted EBITDA are not presented in the table above, as there were no such charges recognized during the three months ended June 30, 2026 and 2025.
Reconciliations of Adjusted net income (loss) and Adjusted basic and diluted earnings (loss) per share
Three Months Ended June 30,
($ in thousands) 2026 2025
Net income (loss) $ 57,860 $ 502
Amortization of intangible assets (1)
53,341 57,168
Restructuring and cost savings implementation charges (2)
3,746 3,106
Advisory fees (2)
- 2,500
Transaction and integration costs (2)
- 100
Stock-based compensation (2)
3,884 -
Other (2)
1,658 1,631
Tax impact of adjustments (3)
(7,736) (64,715)
Adjusted net income (loss) $ 112,753 $ 292
Basic earnings (loss) per share $ 0.30 $ 0.00
Diluted earnings (loss) per share $ 0.30 $ 0.00
Adjusted basic earnings (loss) per share $ 0.59 $ 0.00
Adjusted diluted earnings (loss) per share $ 0.59 $ 0.00
Basic weighted-average shares outstanding 191,247,605 166,611,519
Diluted Weighted-average shares outstanding 191,308,015 166,611,519
_____________
(1)Represents amortization of definite-lived acquired intangible assets.
(2)Represents the same adjustments used in calculating EBITDA and Adjusted EBITDA.
(3)Represents the tax impact of the adjustments, which are pre-tax, based upon the estimated annual effective income tax rate.
Reconciliations of Non-GAAP operating and administrative expenses:
Three Months Ended June 30,
($ in thousands) 2026 2025
Operating and administrative expenses
$ 255,069 $ 241,549
Restructuring and cost savings implementation charges (3,746) (3,106)
Advisory fees - (2,500)
Transaction and integration costs - (100)
Amortization of product development costs (13,628) (13,302)
Stock-based compensation (3,884) -
Other (1,658) (1,631)
Adjusted operating and administrative expenses (1)
$ 232,153 $ 220,910
Selling and marketing $ 94,784 $ 87,397
Stock-based compensation (225) -
Other (1,886) (417)
Adjusted selling and marketing expenses (1)
$ 92,673 $ 86,980
General and administrative $ 86,812 $ 75,392
Restructuring and cost savings implementation charges (3,746) (3,106)
Advisory fees - (2,500)
Transaction and integration costs - (100)
Stock-based compensation (3,069) -
Other 786 (906)
Adjusted general and administrative expenses (1)
$ 80,783 $ 68,780
Research and development $ 59,845 $ 65,458
Stock-based compensation (590) -
Other (558) (308)
Adjusted research and development expenses (1)
$ 58,697 $ 65,150
_____________
(1)We calculate each of these measures by using the same adjustments used in calculating EBITDA and Adjusted EBITDA to the extent such items are included in the corresponding GAAP operating and administrative expense category.
Seasonality and Comparability
Our revenues, operating profit and operating cash flows are affected by the inherent seasonality of the academic calendar. For the fiscal year ended March 31, 2026, we realized approximately 25%, 32%, 21% and 22% of our revenues during the first, second, third and fourth quarters, respectively. This seasonality affects operating cash flow from quarter to quarter and there are certain months when we operate at a net cash deficit. Changes in our customers' ordering patterns may affect the comparison of our current results in prior years where our customers may shift the timing of material orders for any number of reasons, including, but not limited to, changes in academic semester start dates or changes to their inventory management practices. During recent years, as the Higher Education business has transitioned to digital sales, third fiscal quarter sales have partially migrated to the fourth fiscal quarter.
Quarterly Results of Operations
The following tables set forth certain historical consolidated financial information for each of the quarters in the two-year period ended June 30, 2026. The following tables and discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report.
March 31, 2025 March 31, 2026 March 31, 2027
($ in thousands; unaudited) Second Quarter 2025 Third
Quarter 2025 		Fourth
Quarter 2025 		First
Quarter 2026 		Second Quarter 2026 Third
Quarter 2026 		Fourth Quarter 2026 First
Quarter 2027
Revenue
$ 688,590 $ 416,493 $ 473,262 $ 535,710 $ 669,187 $ 434,162 $ 463,722 $ 549,903
Cost of sales (excluding depreciation and amortization) 153,358 65,253 78,393 123,384 139,077 63,844 74,834 110,704
Gross profit 535,232 351,240 394,869 412,326 530,110 370,318 388,888 439,199
Operating expenses
Operating and administrative expenses 277,595 250,095 292,535 241,549 299,477 257,201 282,023 255,069
Depreciation 18,307 17,707 16,240 17,187 17,723 27,308 19,767 16,348
Amortization of intangibles 60,234 59,279 58,322 57,365 56,385 55,417 54,460 53,500
Impairment charge - - - - - - 39,000 -
Total operating expenses 356,136 327,081 367,097 316,101 373,585 339,926 395,250 324,917
Operating income (loss) 179,096 24,159 27,772 96,225 156,525 30,392 (6,362) 114,282
Interest expense (income), net 80,146 68,877 63,547 58,774 55,940 47,358 45,154 45,770
(Gain) loss on extinguishment of debt 2,719 - - - 16,361 8,183 1,222 -
Income (loss) from operations before taxes 96,231 (44,718) (35,775) 37,451 84,224 (25,149) (52,738) 68,512
Income tax provision (benefit) (37,172) 8,210 121,092 36,949 (21,060) (4,950) (2,471) 10,652
Net income (loss)
$ 133,403 $ (52,928) $ (156,867) $ 502 $ 105,284 $ (20,199) $ (50,267) $ 57,860
March 31, 2025 March 31, 2026 March 31, 2027
($ in thousands; unaudited) Second Quarter 2025 Third
Quarter 2025 		Fourth
Quarter 2025 		First
Quarter 2026 		Second Quarter 2026 Third
Quarter 2026 		Fourth Quarter 2026 First
Quarter 2027
Digital Revenue by Segment:
K-12 $ 120,922 $ 107,976 $ 102,030 $ 108,597 $ 118,636 $ 103,513 $ 98,898 $ 113,919
Higher Education 157,294 162,717 249,100 168,826 186,169 203,104 241,799 190,146
Global Professional 25,251 26,398 26,254 25,272 26,022 28,249 27,577 26,713
International 23,975 30,561 23,624 22,353 21,372 28,819 24,442 22,755
Other - - - - - - - -
Print Revenue by Segment:
K-12 $ 283,723 $ 42,206 $ 38,800 $ 162,334 $ 240,511 $ 24,676 $ 27,315 $ 160,485
Higher Education 29,596 19,043 5,014 13,553 26,793 22,259 16,451 9,690
Global Professional 15,163 9,133 12,102 9,887 13,786 7,990 11,293 8,102
International 31,202 14,328 19,401 29,111 28,973 15,242 16,373 22,475
Other 1,464 4,131 (3,063) (4,223) 6,925 310 (426) (4,382)
Total Revenue $ 688,590 $ 416,493 $ 473,262 $ 535,710 $ 669,187 $ 434,162 $ 463,722 $ 549,903
March 31, 2025 March 31, 2026 March 31, 2027
($ in thousands; unaudited) Second Quarter 2025 Third
Quarter 2025 		Fourth
Quarter 2025 		First
Quarter 2025 		Second Quarter 2026 Third
Quarter 2026 		Fourth Quarter 2026 First
Quarter 2027
Adjusted EBITDA by Segment:
K-12 $ 185,767 $ 25,941 $ 2,418 $ 96,393 $ 171,953 $ 10,462 $ 6,156 $ 114,498
Higher Education 78,848 80,847 118,047 77,759 89,028 107,780 115,259 87,034
Global Professional 12,948 10,172 11,823 11,266 11,504 11,024 11,803 8,691
International 11,237 6,436 5,185 7,208 7,381 4,082 3,240 3,252
Other 1,537 2,812 (5,822) (1,210) 6,540 2,519 (5,883) (6,429)
Liquidity and Capital Resources
($ in thousands) June 30, 2026 March 31, 2026
Cash and cash equivalents $ 193,637 $ 253,519
Current portion of long-term debt 13,170 13,170
Long-term debt 2,561,270 2,560,698
Finance lease obligations 15,876 16,063
Historically, we have generated operating cash flows sufficient to fund our seasonal working capital, capital requirements, expenditure and financing requirements. We use our cash generated from operating activities for a variety of needs, including among others: working capital requirements, capital and product development expenditures and strategic acquisitions.
Our operating cash flows are affected by the inherent seasonality of the academic calendar. This seasonality also impacts cash flow patterns as investments are typically made in the first half of the year to support the significant selling period that occurs in the second half of the year. As a result, our cash flow is typically lower in the first half of the fiscal year and higher in the second half of the fiscal year.
Going forward, we may need cash to fund operating activities, working capital, product development expenditures, capital expenditures and strategic investments. We believe that our future cash flow from operations, together with our access to funds on hand and capital markets, will provide adequate resources to fund our operating and financing needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on our ongoing ability to generate cash from operations and our access to the bank and capital markets. We also expect our working capital requirements to be positively impacted by our migration from print products to digital learning solutions.
If our cash flows from operations are less than we require, we may need to incur debt or issue equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing. Although we believe we can currently finance our operations on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be affected by many factors, including: (i) our credit ratings, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy. There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us.
Cash and Cash Equivalents
Cash and cash equivalents include bank deposits and highly liquid investments with original maturities of three months or less that consist primarily of interest-bearing demand deposits with daily liquidity, money market and time deposits. The balance also includes cash that is held by us outside the U.S. to fund international operations or to be reinvested outside of the U.S. The investments and bank deposits are stated at cost, which approximates market value. These investments are not subject to significant market risk.
Debt
A&E Cash Flow Credit Facilities
McGraw-Hill Education, Inc. and certain subsidiaries entered into a credit agreement dated July 30, 2021 (as amended from time to time, the "Cash Flow Credit Agreement"), which provides for (i) a term loan facility that matures on August 6, 2031 (the "A&E Term Loan Facility") and (ii) a revolving credit facility, which consists of $111.3 million of capacity maturing on August 6, 2029 (the "A&E Cash Flow Revolving Facility") and $38.7 million of capacity that matures on July 30, 2026 (the "Non-Extended Cash
Flow Revolver Facility"). There were no amendments to the Cash Flow Credit Agreement during the three months ended June 30, 2026.
As of June 30, 2026, the aggregate principal amount outstanding and fair value of the A&E Term Loan Facility was $551.5 million and $553.6 million, respectively, with a remaining contractual life of approximately 5.2 years. As of June 30, 2026, the interest rate for the A&E Term Loan Facility was 6.394% per annum.
As of June 30, 2026, the amount available under the A&E Cash Flow Revolving Facility and the Non-Extended Cash Flow Revolver Facility was $111.3 million and $38.7 million, respectively, and there were no outstanding borrowings under either facility.
As of June 30, 2026, we were in compliance with all covenants or other requirements in the Cash Flow Credit Agreement.
A&E ABL Revolving Credit Facilities
McGraw-Hill Education, Inc. and certain subsidiaries entered into a revolving credit agreement dated July 30, 2021 (as amended from time to time, the "ABL Revolving Credit Agreement") which provides for (i) a U.S. revolving credit facility of $265.0 million and (ii) a non-U.S. revolving credit facility of $35.0 million (together, the "A&E ABL Revolving Credit Facilities"). The A&E ABL Revolving Credit Facilities will mature on August 6, 2029 and are not subject to amortization. There were no amendments to the ABL Revolving Credit Agreement entered into during the three months ended June 30, 2026.
As of June 30, 2026, the amount available under the A&E ABL Revolving Credit Facilities was $300.0 million, subject to borrowing base capacity pursuant to the terms of the ABL Revolving Credit Agreement. Availability under the A&E ABL Revolving Credit Facilities excludes amounts outstanding for letters of credit in the amount of $5.4 million.
As of June 30, 2026, we were in compliance with all covenants or other requirements in the ABL Revolving Credit Agreement.
2024 Secured Notes
On August 6, 2024, we completed the issuance of $650.0 million aggregate principal amount of new 7.375% senior secured notes due 2031 (the "2024 Secured Notes").
As of June 30, 2026, the aggregate principal amount outstanding and fair value of the 2024 Secured Notes was approximately $650.0 million and $658.9 million, respectively, with a remaining contractual life of approximately 5.2 years.
As of June 30, 2026, we were in compliance with all covenants or other requirements in the indentures governing the 2024 Secured Notes.
2022 Secured Notes and 2022 Unsecured Notes
On July 30, 2021, McGraw-Hill Education, Inc. assumed the obligations of (i) the $900.0 million aggregate principal amount of 5.750% Secured Notes due 2028 (the "2022 Secured Notes") and (ii) the $725.0 million aggregate principal amount of 8.000% Senior Notes due 2029 (the "2022 Unsecured Notes" and, together with the 2022 Secured Notes, the "2022 Notes").
As of June 30, 2026, the aggregate principal amount outstanding and fair value of the 2022 Secured Notes was approximately $828.5 million and $823.3 million, respectively, with a remaining contractual life of approximately 2.1 years.
As of June 30, 2026, the aggregate principal amount outstanding and fair value of the 2022 Unsecured Notes was approximately $599.0 million and $599.0 million, respectively, with a remaining contractual life of approximately 3.1 years.
As of June 30, 2026, we were in compliance with all covenants or other requirements in the Indentures governing the 2022 Notes.
Share Repurchase Plan
On June 2, 2026, our board of directors approved a share repurchase plan whereby, from time to time, the Company may repurchase up to $50 million of the Company's Common Stock.
Cash Flows
Cash flows from operating, investing and financing activities are presented in the following table:
Three Months Ended June 30,
($ in thousands)
2026 2025
Statement of Cash Flow Data
Cash flows provided by (used for):
Operating activities $ 601 $ (96,652)
Investing activities (58,289) (39,071)
Financing activities (3,150) (7,384)
Operating Activities
Cash flows provided by (used for) operating activities for the three months ended June 30, 2026 and 2025 was $0.6 million and $(96.7) million, respectively. The variance was primarily driven by an increase in net income (loss) of $61.1 million, net of non-cash flow items, and an increase in the net change in operating assets and liabilities of $36.1 million. The net change in operating assets and liabilities was primarily due to (i) a smaller increase in accounts receivable compared to the prior period, primarily driven by lower K-12 sales in the current period; (ii) an increase in other current liabilities compared to the prior year, driven by the timing of accruals and payments of taxes; and (iii) a smaller decrease in accounts payable and accrued expenses, primarily due to higher payments for annual incentive compensation in the prior period. This was partially offset by a decrease in deferred revenue, driven by higher K-12 sales in the prior period related to market opportunities in California, Texas and Florida, which resulted in a greater deferred revenue growth compared to the current period.
Investing Activities
Cash flows used for investing activities for the three months ended June 30, 2026 and 2025 was $58.3 million and $39.1 million, respectively. The variance was primarily driven by the increase in our product development expenditures and capital expenditures of $11.6 million and $7.6 million, respectively, as we continue to invest in our content and platforms.
Financing Activities
Cash flows used for financing activities for the three months ended June 30, 2026 and 2025 was $3.2 million and $7.4 million, respectively. The variance was primarily driven by cash proceeds received from the exercise of vested stock options during the current period and the absence of non-recurring initial public offering transaction costs incurred in the prior period.
Capital Expenditures and Product Development Expenditures
Part of our plan for growth and stability includes disciplined capital expenditures and product development expenditures.
An important component of our cash flow generation is our product development efficiency. We have been focused on optimizing our product development expenditures to generate content that can be leveraged across our full range of products, maximizing long-term return on investment. Product development expenditures, principally external preparation costs, are amortized from the fiscal year of publication over their estimated useful lives, one to six years, using either an accelerated or straight-line method. The majority of the programs are amortized using an accelerated methodology. We periodically evaluate the amortization methods, rates, remaining lives and recoverability of such costs. In evaluating recoverability, we consider our current assessment of the marketplace, industry trends and the projected success of programs. Our product development expenditures were $34.4 million and $22.8 million for the three months ended June 30, 2026 and 2025, respectively.
Capital expenditures include purchases of property, plant and equipment and capitalized technology costs that meet certain internal and external criteria. Our capital expenditures were $23.9 million and $16.3 million for the three months ended June 30, 2026 and 2025, respectively.
Our planned capital expenditures and product development expenditures will require, individually and in the aggregate, significant capital commitments and, if completed, may result in significant additional revenue. Cash needed to finance investments and projects currently in progress, as well as additional investments being pursued, is expected to be made available from operating cash flows and our credit facilities.
Impact of Inflation
Recent inflationary pressure has resulted in increased raw material, labor, energy, freight, logistics and other operating expense. While we believe that inflation has not had a material impact on our results of operations, financial condition or cash flows, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset our higher costs through price increases. Any material increase in our operating expenses due to inflation could result in lower margins and adversely impact our results of operations, financial condition and cash flows. We continue to maintain relationships with multiple raw material providers and are exploring spreading purchasing and third-party manufacturing across the year to help offset costs and ensure a competitive supplier base.
Critical Accounting Estimates
The preparation of our unaudited consolidated financial statements in conformity with GAAP requires us to make estimates or assumptions that affect amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, revenue recognition, sales returns, the determination of the fair value of acquired assets and liabilities assumed in acquisitions, accounting for the impairment of long-lived assets (including other intangible assets), goodwill and indefinite-lived intangible assets, stock-based compensation, valuation of common stock and income taxes. We base our estimates on current facts, historical experience and various other assumptions that we believe to be reasonable and prudent under the circumstances. Actual results may differ materially from these estimates.
There have been no material changes to our critical accounting policies and estimates as described in our Annual Report.
Recently Issued and Adopted Accounting Pronouncements
For recently issued and adopted accounting pronouncements, see Note 1, "Description of Business, Basis of Preparation and Summary of Significant Accounting Policies," to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.
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