MCGRAW HILL INC earnings calls

Why results beat expectations

Q (Steven Koenig · Macquarie Group): Analyst asked what drove the quarter's outperformance and asked for more on AI strategy commercial plans.

A: Management said the K-12 timing and delivery was the biggest driver of the beat, and highlighted growing momentum in higher ed. They said AI tools are being monetized on top of existing curriculum licenses and used to charge additional fees.

"I'm trying to say that's the biggest driver of the overperformance, but look, we're really pleased with the momentum we're building in higher ed and across the businesses." — Robert Sallmann (CFO)

Guidance and ELA capture rates

Q (Henry Hayden · Rothschild & Co. Redburn): Analyst asked why guidance did not change despite momentum and asked about early indicators for California ELA and capture rates.

A: Management said the guidance used insights from June 11 and has not meaningfully changed; they will wait until students arrive on campus for more visibility. They also said the new ELA programs are landing well, with strong early wins and expected approvals in California in early September.

Higher ed growth drivers

Q (George Tong · Goldman Sachs): Analyst asked which factors—share, pricing, enrollment—drove higher ed performance and how it compares to competitors; also asked about dyslexia screening product.

A: Management broke down the 10% growth: enrollment up about 4%, price contributing about 2%, and the rest from share gains. They said their go-to-market and customer success drive retention and share; and the new ROAR screener plus literacy programs let them offer a full, multilingual package districts often cannot get elsewhere.

"This allows us to both provide a literacy program, intervene properly, and then I'll say provide a service to the district in a single package, be able to understand proficiency for any kind of reading learner." — Philip Moyer (CEO)

Screens vs paper in early grades

Q (Faiza Alwy · Deutsche Bank): Analyst asked how demand for AI (screens) is balanced with paper-and-pen needs in early elementary grades.

A: Management said screen use should be based on student self-regulation and that in early years they mainly use AI for assessment or short interventions while keeping traditional teaching and print. They emphasized McGraw Hill can serve both print and digital at global scale and can print at scale efficiently.

"So the early years, I would say we primarily use AI for assessment or short-term in some cases for intervention supplemental, but we're spending a lot of time as well in traditional teaching." — Philip Moyer (CEO)

K-12 literacy momentum and timing

Q (Shlomo Rosenbaum · Stifel): Analyst asked what changed from last quarter on capture rates and whether the new literacy program caused the stronger capture; also asked if the June print deliveries pulled revenue forward.

A: Management said outside California and Texas capture rates are at the high end of their range and the new ELA programs are performing above earlier programs. On timing, they said the K-12 beat aligned with first half expectations and some deliveries came faster in June versus July, which is why guidance was kept unchanged.

"And so when we look at the beat in K-12, it was in line with our first half expectations." — Robert Sallmann (CFO)

LLMs and McGraw Hill's role

Q (Joshua Chan · UBS): Analyst asked about the impact of large language models in education and how McGraw Hill thinks about the market and partnerships.

A: Management said big tech will partner across industries and that McGraw Hill built MCP agentic strategy to participate with many chatbots and also offer its own interfaces. They argued their content grounding and tooling make them complementary to, not displaced by, general LLM announcements.

"And I guess the thing I would leave you with is that chatbots are wonderful, but they need to be grounded in truth." — Philip Moyer (CEO)

ROAR monetization and approvals

Q (Toni Kaplan · Morgan Stanley): Analyst asked whether ROAR is an add-on, bundled, or retention tool and whether it creates financial upside; also asked about Florida approvals timing.

A: Management said ROAR is a paid offering that enhances literacy packages and expands TAM because over 40 states mandate dyslexia screening; it can be sold bundled or standalone. On Florida, they said approvals happened on time and it's positive for math and ALEKS adoption but did not change forecasts.

"We do think it both enhances the package or the overall literacy program, and it's also an opportunity to expand our TAM." — Philip Moyer (CEO)

Medical education and agentic tools

Q (Ryan MacDonald · Needham & Company): Analyst asked how McGraw Hill prioritizes investment in medical agentic tools versus big venture-backed startups and how they view the opportunity.

A: Management said medical is a large, growing market and that reliable, medical-grade grounding and repeatability is hard and valuable. They said they have extensive proprietary medical content, are integrating MCP interfaces, and view this as a major TAM expansion and product opportunity.

"What's really hard is grounding in content and having medical grade." — Philip Moyer (CEO)

RPO timing and R&D spend

Q (Jeffrey Meuler · Baird): Analyst asked if Q1 RPO weakness was timing and whether R&D decline reflects AI efficiency or timing.

A: Management said RPO and billings can show timing within the summer selling season and that some orders flow through the summer, consistent with a first half/second half pattern. On R&D, they said changes are tied to roadmap timing but they are realizing productivity and efficiency gains that speed product delivery.

"So you could see a little bit of timing and again that comes back to my comment around it really being a first half, second half business." — Robert Sallmann (CFO)

Capital allocation priorities

Q (Matt Filek · William Blair): Analyst asked about Bluebonnet performance, shorter contracts in Texas, and how the company balances M&A, buybacks, and deleveraging.

A: Management said shorter contracts give opportunities to win back business and their intent to serve teachers hasn't changed. On capital, priorities remain: first fund organic investments with best ROI, then deleveraging toward target leverage, then M&A for tuck-ins, and opportunistic share repurchases.

"The first thing we always fully fund is organic investments that have the best ROI." — Robert Sallmann (CFO)

Supplemental intervention pipeline

Q (Marvin Fong · BTIG): Analyst asked what’s driving double-digit pipeline growth in supplemental intervention and how that squares with some delayed decisions.

A: Management said pipeline growth is driven by expanding product portfolio and better connection to core curriculum, simplifying offerings for districts and teachers and emphasizing proven outcomes. On timing, they see some close decisions but no material change; they'll watch closings in the weeks ahead.

"So I think those are the things that we're seeing most attractive when we're talking to teachers." — Robert Sallmann (CFO)

IP sale and Middle East timing

Q (David Karnovsky · JPMorgan): Analyst asked about a $7.5 million IP sale in K-12, whether it was in guidance, and whether Middle East conflict affects delivery or timing.

A: Management said they sold jointly created IP no longer needed after launching Summit and Soar; the $7.5 million was included in guidance, it won't recur, and it removes shared royalty streams. On the Middle East, they said there is no full-year impact—only timing shifts and they have procured production capacity to meet demand.

"We created some jointly created some IP and we no longer are using the IP as we release Summit and Soar, those products will no longer be utilizing that jointly created IP." — Robert Sallmann (CFO)