McGraw Hill Q2 Earnings Call Highlights

Key Points

• Q2 revenue fell 5.5% to $632 million, as lower K-12 math sales offset growth in digital products. McGraw Hill reaffirmed fiscal 2027 revenue guidance of $2.115 billion to $2.175 billion and adjusted EBITDA guidance of $750 million to $790 million.
• K-12 revenue declined 9.6%, but management sees an extended English language arts adoption cycle and stronger literacy-program win rates as potential growth drivers. Higher Education also gained ground, with first-half revenue up 4.5%, supported by market-share gains and pricing.
• The company is licensing content for third-party AI tools and acquired TeachFX and Teachally to support growth, though the acquisitions are expected to have negligible near-term revenue impact. Management expects growth to accelerate in fiscal 2028.

McGraw Hill NYSE: MH reported lower fiscal second-quarter revenue as weakness in K-12 math sales offset growth in digital products, but reaffirmed its full-year outlook and pointed to an upcoming English language arts adoption cycle as a potential driver of growth.

Revenue fell 5.5% from a year earlier to $632 million in the quarter ended September 30, 2026, Chief Financial Officer Bob Sallmann said on the company’s November 5 earnings call. Adjusted EBITDA was $251 million, with an adjusted margin of 39.6%.

For the first half of fiscal 2027, revenue declined 1.9% to $1.2 billion, while adjusted EBITDA was $458 million. Sallmann said the company focuses on first-half performance because school ordering and shipment timing can shift revenue between quarters.

Recurring revenue fell 2% in the second quarter to $414 million, but rose 3.7% to $840 million for the first half. Digital revenue increased 2.6% in the quarter and 5.6% in the half. The company reported $1.8 billion in remaining performance obligations.

K-12 Math Weighs on Results as Literacy Opportunity Builds

K-12 revenue declined 9.6% to $325 million in the second quarter and fell 4.9% to nearly $600 million in the first half. Sallmann attributed lower implied K-12 bookings primarily to math capture rates. Excluding California and Texas math, the company’s capture rate remained at the high end of its 25% to 30% target range, he said.

Management expects an extended English language arts, or ELA, adoption cycle to improve the segment’s prospects. CEO Philip Moyer said win rates for the company’s new literacy program were above the target range, including in open territories, while Sallmann said ELA accounts for about 40% of K-12 revenue.

Moyer cited early adoption by several Washington state districts and said the program had received approvals in Pennsylvania and Colorado. He said the company hopes to be included on California’s list when it is published around January.

In California math, Sallmann said the company had four times as many pilots as a year earlier after updating teacher materials and investing in support. He also said shorter-duration contracts tied to state-sponsored curriculum in Texas could create earlier opportunities for McGraw Hill.

Higher Education Gains Share

Higher Education revenue was $213 million in the second quarter, up slightly from a year earlier. First-half revenue rose 4.5% to $413 million, helped by 9.8% growth in recurring revenue.

Sallmann said market-share gains and pricing were supporting the business despite fall enrollment that was flat to down 1%. He said pricing contributed approximately two percentage points of benefit, while share gains contributed three to four points.

The company’s Inclusive Access model represented 58% of Higher Education revenue in the first half, up four percentage points. Moyer also pointed to the Evergreen content delivery model, which covers more than 800 titles, as a factor in renewals.

Elsewhere, International revenue rose 1.6% to $51 million in the quarter. In Global Professional, medical revenue grew 7% year over year and now represents the majority of segment revenue, Sallmann said.

AI Partnerships and Acquisitions Target Growth

McGraw Hill is making licensed content available through third-party AI tools, including Microsoft Copilot and Anthropic’s Claude for Teachers. The company also said its medical content will support a clinical AI tool at the University of California, San Francisco School of Medicine.

Moyer said customers using the company’s Model Context Protocol interface must have a content license. Potential pricing models include an additional charge, blocks of questions or token-based fees. The company is opening a beta program and aims to have business models developed for different use cases by fiscal 2028.

McGraw Hill also acquired TeachFX, an instructional coaching platform, and Teachally, which supports teacher workflows and content localization. Sallmann said the acquisitions would have negligible revenue impact for the rest of the current fiscal year and could be slightly dilutive to adjusted EBITDA.

Full-Year Outlook Unchanged

The company reaffirmed fiscal 2027 revenue guidance of $2.115 billion to $2.175 billion and adjusted EBITDA guidance of $750 million to $790 million. It also maintained its expectation for approximately $400 million in unlevered free cash flow.

First-half operating cash flow rose $22 million to $190 million. McGraw Hill ended the quarter with $233 million in cash and reported net leverage of 3.2 times, above its target of 2 to 2.5 times. A further $50 million voluntary term-loan payment brought debt reduction since its IPO to approximately $700 million.

Management expects growth to accelerate in fiscal 2028, with Sallmann citing continued Higher Education growth and a stronger K-12 position. The company plans to provide more detail at its November 18 investor day.

About McGraw Hill (NYSE:MH)

McGraw Hill was a diversified information and publishing company that operated across education, financial information and media. Its education business published textbooks, digital learning programs, assessment products and instructional resources for schools, colleges, universities and professional learners.

The company also owned Standard & Poor's, which provided credit ratings, investment research, financial data and market indexes, including the S&P 500. Through these businesses, McGraw Hill served customers in the United States and international markets.

Founded in 1888 through the combination of publishing ventures established by James H.

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