McGraw Hill Inc.
06/11/2026 | Press release | Distributed by Public on 06/11/2026 05:16
Annual Report for Fiscal Year Ending March 31, 2026 (Form 10-K)
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 consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. 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 elsewhere in this Annual Report on Form 10-K. 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. 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 with over 100 million active student and educator curriculum licenses worldwide.
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.
Recent Developments
Stock Conversion and Stock Split
In connection with the Company's initial public offering, on July 23, 2025, the Company converted all of its outstanding Class A voting Common Stock and Class B non-voting Common Stock into a single class of Common Stock on a 1-for-1 basis (the "Stock Conversion") and effected a 1.06555-for-1 stock split (the "Stock Split") of the Company's Common Stock, including the shares of Common Stock underlying outstanding stock options. The par value of the Company's Common Stock was not adjusted and 166,611,519 shares of Common Stock with a par value of $0.01 per share, were outstanding as a result of the Stock Split. All share and per share data has been presented on the basis of the Stock Split for all the periods presented within these consolidated financial statements.
Initial Public Offering
On July 25, 2025, the Company completed its initial public offering in which we issued and sold 24,390,000 shares of our Common Stock at a public offering price of $17.00 per share. The Company received $385.7 million in net proceeds, after deducting $21.8 million of underwriting discounts and commissions and approximately $7.2 million in estimated offering expenses. The underwriters were granted a 30-day option to purchase up to an additional 3,658,500 shares of Common Stock from the Selling Stockholder (as defined herein) solely to cover over-allotments. The underwriters did not exercise this option.
Factors Affecting Our Performance
Our results of operations have been, and will continue to be, affected by many factors. While these factors present opportunities for our business, they also pose challenges and risks that we must address in order to sustain growth and improve our results of operations.
Cross-Sell and Up-Sell to Existing Customers
Our institutional relationships and product innovations support our ability to expand existing customer relationships through up-selling and cross-selling of existing solutions and offering new solutions that address emerging customer needs, which contributes to incremental revenue growth and improved retention. Our ability to increase sales to existing customers will depend on a number of factors, including the level of satisfaction with our solutions, competition, pricing, economic conditions and spending by customers on our solutions.
Ability to Acquire New Customers
We seek new customers onto our learning solutions with our brand, global go-to-market reach and product portfolio. Our ability to attract new customers is dependent upon a number of factors, including the features and pricing of our solutions, the effectiveness of our marketing efforts, the marketing and distribution of our solutions and the continued growth in demand for digital learning solutions across the education end-markets we serve. Our Evergreen delivery model provides on-demand and regularly updated digital content directly to existing learning solutions and for the fiscal year ended March 31, 2026, we derived approximately 68% of Higher Education revenue through this model.
Data and AI Driven Product Differentiation
We leverage data-driven insights from billions of learning interactions. For the fiscal years ended March 31, 2026 and 2025, McGraw Hill had approximately 26.7 million and 26.2 million paid digital users, respectively, and we recorded more than 25.6 billion learning interactions, across McGraw Hill solutions in the fiscal year ended March 31, 2026. These interactions generate insights into student performance and academic growth over time. Our platforms create a continuous data flywheel in which learning interactions generate new insights that improve our AI models and enhance personalization, driving increased adoption, engagement and improved customer retention.
Ability to Invest in Technology-Enabled Innovation Across the Learning Lifecycle
Our scale, distribution capabilities and breadth of offerings across the learning lifecycle support continued investment in technology-enabled solutions and product innovation. We expect these investments to support revenue growth through new learning solutions that offer data-driven personalized learning experiences, interactive simulations, 3-D models, experiential learning activities and generative AI tools. In K-12, while we are still providing print solutions to K-12 students, we continue to drive growth across supplemental and intervention solutions, integrated curriculum solutions, and Career and Technical Education, AP and assessment solutions. We have launched McGraw Hill Plus across 12 states and have applied for a patent in connection with this product. In Higher Education, we are exploring new market opportunities in student study solutions, Career and Technical Education, dual enrollment solutions, short courses, badging, and employability, workplace preparedness content solutions and micro-credentialing. We are also focused on driving growth in the global professional sector through the development of our global medical education solutions and undergraduate medical student learning solutions.
Ability to Invest in Sales and Marketing
Our global go-to-market reach is a key component of our strategy. We employed approximately 1,500 sales professionals worldwide as of March 31, 2026, which we believe is among the largest sales force in the global education market. This provides us with a vast reach which drives considerable competitive
advantages for our organization. We plan to continue investing in our sales and marketing efforts, including adding sales personnel and expanding marketing activities, to support customer acquisition, cross-selling and our business growth. Our selling and marketing expense totaled approximately $378.7 million for the fiscal year ended March 31, 2026.
Ability to Increase Our International Presence
We deliver our proprietary content and learning solutions in more than 100 countries and in more than 80 languages, with translations adapted to local customs and cultures, as needed. Our international sales force with local market expertise across key business regions is core to our international strategy. We remain focused on expanding our international presence in both English- and non-English-speaking countries by leveraging our existing investment in digital solutions, including bringing local products onto our Connect platform and expanding our ALEKS offerings internationally.
Components of Results of Operations
Revenue
K-12
We derive revenue primarily from the sale of digital learning solutions, print offerings and other instructional materials. Our revenue is driven primarily by sales volume and, to a lesser extent, changes in unit pricing. Our revenue is comprised of product sales less an allowance for sales returns. The required revenue deferral period for digital solutions in K-12 is significantly greater than in Higher Education due to the longer, multi-year contractual terms of our customer arrangements in K-12 (typically five to eight years).
Sales volumes are driven primarily by the availability of funding for instructional materials. Most public school districts are largely dependent on state and local funding for the purchase of instructional materials, which correlate with state and local receipts from income, sales and property taxes.
The varying purchasing cycles across states have a significant impact on our sales volumes. We monitor the purchasing cycles for specific disciplines across states to manage our product development and to plan sales campaigns. Our sales may be materially impacted by the purchasing schedules of states with large K-12 populations such as Florida, California and Texas, which have state wide procurement patterns.
Sales volume in the U.S. K-12 market is also affected by changes in state curriculum standards and by student enrollment. Changes in state curriculum standards require that instructional materials be revised or replaced to align to the new standards, which historically has driven demand for core programs. School enrollment is highly predictable, as it correlates with the overall change in birth rates in the United States.
Our product pricing is generally determined at the time our products are adopted by a state or district. Price has historically been of lesser importance than curriculum quality and service levels in state and district purchasing decisions. Most of our program offerings are hybrid, incorporating both print and digital elements.
Revenue from print products is recognized when control transfers to the customer which is typically at the time of shipment, which closely aligns with when a school district takes possession of the required number of products at the outset of a multi-year procurement cycle and is included within Transactional Revenue. Print products are typically re-used by students over the multi-year procurement cycle, and school districts will occasionally purchase replacement products due to wear or increasing enrollment over the multi-year procurement cycle. Sales of these replacement products are known as residual sales, from which we derive a significant portion of our revenue.
Our online and digital solutions are sold as a subscription, which states and districts pay for at the beginning of a multi-year contract. We typically defer revenue related to online and digital solutions sold as a subscription upfront and recognize it ratably over the term of the subscription period and is included within Re-occurring Revenue. Revenue for multi-year print products (e.g., workbooks) is deferred when we enter into a multi-year contract and is recognized when delivery takes place, often at the beginning of each academic year over the contract term and is included within Re-occurring Revenue. As our customers purchase more of our digital and hybrid learning solutions, the percentage of our revenue that is deferred at the time of sale continues to increase. The total amount of the sale and the cash received upfront for a fully-digital or hybrid program is comparable to a fully print program; however, the time period over which the revenue is recognized increases with the shift to digital. The difference in our revenue recognition policies between print and digital solutions has caused comparisons of current and historical revenue to less accurately reflect the actual sales performance of our business during this time of transition.
Unlike our Higher Education segment, sales returns in our K-12 segment have an immaterial impact on revenue because we sell directly to school districts, which are better able to predict end demand and are limited to primary market purchases.
Higher Education
We derive revenue primarily from the sale of digital learning solutions and content, and instructional materials. Our digital and print revenue is a function of sales volume and, to a lesser extent, changes in unit pricing. Our revenue is comprised of product sales less an allowance for sales returns.
Our business is driven by our ability to maintain and win instructor adoptions and purchasing decisions made by students. Trends in student enrollment impacts the number of students requiring our digital and print solutions. Because instructors are the ultimate decision makers for content and instructional materials to be used in their courses, we compete for instructor adoptions of our products.
After an instructor has adopted our products for use in his or her course, students have the option to purchase new content and instructional materials, purchase used versions of printed materials, rent printed materials or forgo the acquisition of course content and materials altogether. As digital solutions are adopted by more instructors, and increasingly become part of the instructors' graded curriculum, more students are purchasing our digital solutions. This trend has increased sales of our digital solutions and is resulting in more predictable revenue as sales volumes begin to more closely align with trends in student enrollment. Sales of our digital subscription services provide a predictable and stable revenue stream, with an NDR (as defined herein) of 114%, 110% and 110% for the fiscal years ended March 31, 2026, 2025 and 2024, respectively.
Revenue for our print products is recognized when the performance obligation is satisfied which is at the time of shipment to our distribution partners, who typically order products several weeks before the beginning of an academic semester to ensure sufficient physical product inventory and is included within Transactional Revenue. Revenue for our digital products generally sold as subscriptions, which are paid for at the time of sale or shortly thereafter, are recognized over the term of the subscription period as the performance obligation is satisfied and is included within Re-occurring Revenue. In most cases, students purchase digital products at the beginning of the academic semester, or shortly thereafter, which has tended to shift the timing of revenue to later in the academic year as we sell more digital products and fewer print products. In addition, the difference in our revenue recognition policies between print and digital products has caused comparisons of current and historical revenue to less accurately reflect the actual sales performance of our business during this time of transition.
Revenue is also impacted by our allowance for sales returns. To more accurately reflect the economic impact of returns on our operating performance, we reserve a percentage of our gross sales in anticipation of these returns when calculating our revenue. This reserve has declined in recent years as
we shift from sales of print products to digital learning solutions, which experience a much lower return rate.
Global Professional
We derive revenue globally from the sale of digital subscription services and content in both digital and print formats. Our digital and print revenue is a function of sales volume and, to a lesser extent, changes in unit pricing. Our revenue is comprised of product sales less an allowance for sales returns.
Sales volume is driven by demand for subscription-based, professional content and by growth in knowledge-based industries, especially in the medical and engineering fields. We expect the market for professional education resources to grow, particularly among professions that are experiencing more rapid job growth.
Sales of our digital subscription services provide a predictable and stable revenue stream, with an NDR of 101%, 105% and 103% for the fiscal years ended March 31, 2026, 2025 and 2024, respectively.
Revenue for print products is typically recognized when the performance obligation is satisfied, which is at the point of shipment and is included within Transactional Revenue, while revenue from digital subscriptions is recognized over the term of the subscription period as the performance obligation is satisfied and is included within Re-occurring Revenue. The continued shift from print to digital will increase the percentage of our sales that are deferred at the time of sale and recognized over the contractual term. The difference in our revenue recognition policies between print and digital solutions has caused comparisons of current and historical revenue to less accurately reflect the actual sales performance of our business during this time of transition.
International
We derive revenue primarily from the sale of digital learning solutions and content, print content and instructional materials to the K-12 and higher education markets in more than 100 countries worldwide. Our revenue is a function of the market conditions in the countries in which we operate and our ability to expand our sales to customers in these countries and to new countries. A majority of our international revenue is generated by selling our language products, which were originally created for the U.S. market, internationally with translations adapted to local customs and cultures, as needed. Our revenue is comprised of product sales less an allowance for sales returns.
Our International business covers five major regions. Each of these regions and the underlying country performance can be impacted by the economy, government policy and competitive situations. These regions and the general revenue drivers for each are as follows:
•EMEA: The majority of our business is driven by Higher Education and the sale of original U.S. product translations and adaptations of those products. Our K-12 business in Spain is primarily driven by the development and sale of local original publications and is subject to the cyclical nature of government-driven curriculum renewals. Our K-12 business in the Middle East is primarily driven by print and digital orders for U.S. products as well as translations and adaptations.
•Asia Pacific: Our business is driven by Higher Education and K-12 from English Language Learning and the translation of content into local languages where applicable. Our Australian business is primarily driven by the sale of original U.S. Higher Education product as well as adaptations. In southeast Asia, we operate across many jurisdictions, some of which are subject to volatile political and economic conditions.
•India: Our product portfolio in India primarily consists of local publishing programs, followed by adaptations of U.S. products.
•Latin America: Our business is driven by Higher Education and K-12 (including English Language Learning). From a regional perspective, our largest market is Mexico. The majority of our Higher Education revenue is derived from the sale of original U.S. products that have been translated and/or adapted. Our K-12 business is primarily driven by the development and sale of local/original publications and is subject to the cyclical nature of government-driven curriculum renewals. Latin America's business is exposed to volatile political and economic conditions.
•Canada: The majority of our business is driven by Higher Education, primarily original U.S. Higher Education products as well as translations and adaptations.
Product pricing varies by region and country with pricing comparable to equivalent products sold in the United States. in some instances. Within developing economies, price points tend to be lower than in the United States, dictated by the economic conditions prevalent in that country.
Foreign exchange rates also impact our international revenue as the functional currency is often the local currency of the countries in which we operate. As a result, we are exposed to currency fluctuations in translating our financial results into U.S. dollars. In the fiscal year ended March 31, 2026, approximately 57% of our international sales were denominated in currencies other than the U.S. dollar. We monitor the impact of foreign currency movements and the correlation between local currencies and the U.S. dollar. We also periodically review our hedging strategy and may enter into other arrangements as appropriate.
Revenue recognition for international products is similar to products sold in the U.S. Revenue for print products is typically recognized upon shipment and is included within Transactional Revenue, while revenue from digital subscriptions is recognized over the term of the subscription period and is included within Re-occurring Revenue. The difference in our revenue recognition policies between print and digital solutions has caused comparisons of current and historical revenue to less accurately reflect the actual sales performance of our business during this time of transition.
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales (excluding depreciation and amortization) include variable costs such as paper, printing and binding, inventory obsolescence, certain transportation and freight costs related to our products, as well as content-related royalty expenses, directly related hosting costs and gratis costs (products provided at no charge as part of the sales transaction) for both print and digital products. Gratis costs are predominately incurred in our K-12 business and vary based upon the level of state sales during a given period.
Due to the inherent subjectivity in the classification of costs between cost of sales and operating and administrative expense across our industry, we do not focus on gross profit or gross margin as key operating metrics for our business. Additionally, the classification of costs between cost of sales and operating and administrative expense does not impact Adjusted EBITDA or Adjusted EBITDA by segment.
Operating and Administrative Expenses
Our operating and administrative expenses include the expenses of our employees and outside vendors engaged in our marketing, selling, editorial and administrative activities as well as product development expenditure amortization. A significant component of our total operating and administrative expense relates to our ongoing investment in our digital ecosystem. These costs are both fixed and variable in nature and while we are committed to continue significant digital investment, our annual expenditures have stabilized as our major initiatives and the build-out of certain foundational capabilities conclude.
Costs associated with design and content creation for both digital and print products are capitalized as a component of product development expenditures. Capitalized product development expenditures are subsequently amortized as a component of operating and administrative expenses.
We incur additional digital related costs, including content tagging and digital solutions hosting, which have increased as the digital transformation continues. We rely primarily on internal resources to develop and maintain our digital platforms, host our digital solutions and tag our digital content, and these costs have no clear attribution to specific products and do not directly correlate to sales of products. As a result, we have classified these costs within operating and administrative expenses.
We incur expense for products provided to decision makers in the educational materials purchasing process as part of our sampling program, primarily in our K-12 business. Annual samples expense can vary significantly depending upon the multi-year procurement cycle and the mix of programs being considered. As our revenue continues to shift from print offerings to digital solutions, we expect the expense incurred for sampling to decline.
As of March 31, 2026, we had approximately 1,500 sales professionals worldwide who maintain close relationships with the individual instructors that represent the primary decision makers in the higher education market and the states, school districts and individual schools that primarily make purchase decisions in the K-12 market. We incur significant selling and market expense to maintain and support our extensive sales force. As revenue grows in the future, we expect to see modest increases in selling and marketing expense that will vary with the K-12 sales opportunity in a given year.
Depreciation
Our depreciation expense primarily includes depreciation related to our property, plant and equipment and amortization of our deferred technology costs.
Our property, plant and equipment consists of our buildings, leasehold improvements, furniture, fixtures and equipment. Buildings are depreciated over varying periods from 10 to 40 years, leasehold improvements are depreciated over the shorter of the life of the lease or the life of the asset and furniture, fixtures and equipment are depreciated over varying periods not exceeding 12 years. We record depreciation on a straight-line basis over the asset's estimated useful life. Our deferred technology costs consist of certain software development and website implementation costs. These costs are amortized from the period the software is ready for its intended use over its estimated useful life, generally three years, using the straight-line method.
Depreciation expense for the fiscal years ended March 31, 2026, 2025 and 2024 was $82.0 million, $66.7 million and $53.0 million, respectively.
Amortization of Intangibles
Our intangible asset amortization expense primarily includes the amortization of acquired intangible assets consisting of customer relationships, content rights, trade names and technology. The largest component of our intangibles asset balance is related to content which is amortized over a period of 10 to 15 years. The remaining balances are being amortized over varying periods of time from one to 14 years from the date of acquisition.
Intangible asset amortization expense for the fiscal years ended March 31, 2026, 2025 and 2024 was $223.6 million, $239.0 million and $254.9 million, respectively.
Interest Expense (Income), Net
Our interest expense (income), net primarily includes interest related to our indebtedness, including the amortization of deferred financing fees and debt discounts, and outstanding finance lease and other financing obligations.
Interest expense varies based on the amount of indebtedness outstanding and the rates at which we were able to secure the indebtedness. The interest rate applicable to borrowings under the A&E Term Loan Facility is based on either, at our option, (1) the base rate, subject to a floor of 1.50% per annum, plus an applicable margin (which is 1.75% for the A&E Term Loan Facility following the repricing on
September 8, 2025 (which further reduces to 1.50% if, and for so long as, McGraw-Hill Education, Inc. is rated by each of S&P and Moody's with a rating from each of at least B+ (with stable or better outlook) and at least B1 (with stable or better outlook), respectively)) or (2) Term SOFR, subject to a floor of 0.50% per annum, plus an applicable margin (which is 2.75% for the A&E Term Loan Facility following the repricing on September 8, 2025 (which further reduces to 2.50% if, and for so long as, McGraw-Hill Education, Inc. is rated by each of S&P and Moody's with a rating from each of at least B+ (with stable or better outlook) and at least B1 (with stable or better outlook), respectively)). As a result, changes in Term SOFR can impact interest expense.
Interest expense (income), net for the fiscal years ended March 31, 2026, 2025 and 2024 was $207.2 million, $293.4 million and $326.4 million, respectively.
Product Development Expenditures and Amortization
Product development costs include the pre-publication cost of developing educational content and the development of assessment solution products. Costs incurred prior to the publication date of a title or release date of a product represent activities associated with product development. These may be performed internally or outsourced to subject matter specialists and include, but are not limited to, editorial review and fact verification, graphic art design and layout and the process of conversion from print to digital media or within various formats of digital media. These costs are capitalized when the costs can be directly attributable to a project or title and the title is expected to generate probable future economic benefits. Capitalized costs are amortized upon publication of the title over its estimated useful life of up to six years, with a higher proportion of the amortization typically taken in the earlier fiscal years.
Over the last several years, we have optimized our product development expenditures to emphasize investment in content that can be leveraged across our full range of products, which maximizes our long-term returns on this investment. This has been accomplished, in part, by leveraging our digital ecosystem, which supports ongoing innovation, development and maintenance of our technology platforms.
Product development expenditure demands differ by business segment for a variety of reasons, including the speed with which the digital transformation has occurred. Our product development expenditures to create content used in our adaptive tools, product is increasing. This foundational investment is expected to reduce the variability of product development expenditures in the future as we are able to leverage the content across the business.
K-12
Product development expenditures in the K-12 segment relate to content development, mostly at the direction of our K-12 product development teams. Product development expenditures are incurred for external content development, permissions, artwork and content design for both print and digital products. New programs such as reading, math, social studies or science are typically published around the procurement cycles for large states such as California, Florida and Texas. Product development expenditures are typically spent up to three years prior to the sales year. The product development expenditures for the fiscal years ended March 31, 2026, 2025 and 2024 was $77.2 million, $51.4 million and $38.3 million, respectively.
Higher Education
Product development expenditures in the Higher Education segment relate to the development of products across all disciplines, since the content is often created by authors on a royalty basis. Development of the content is capitalized when the costs are directly attributable to a project or a title and the title is expected to generate probable future economic benefits. Product development expenditures are typically incurred in the year before the copyright. The product development expenditures for the fiscal years ended March 31, 2026, 2025 and 2024 was $27.9 million, $23.2 million and $21.4 million, respectively.
Global Professional
Product development expenditures in the Global Professional segment relate to content for our platforms, similar to the Higher Education segment, and include activities related to the creation of the actual product, since the content is often created by authors on a royalty basis. Product development expenditures are typically incurred in the year before the copyright. The product development expenditures for the fiscal years ended March 31, 2026, 2025 and 2024 was $7.4 million, $7.1 million and $8.1 million, respectively.
International
Product development expenditures in the International segment relate to locally developed products or adaptations and translations of existing K-12 and Higher Education products in both digital and print format. Similar to our Higher Education and Global Professional segments, product development expenditures are typically spent in the year before the copyright is established. The product development expenditures for the fiscal years ended March 31, 2026, 2025 and 2024 was $6.5 million, $8.3 million and $6.9 million, respectively.
Capital Expenditures
Capital expenditures relate to expenditures for fixed assets, leasehold improvements and software development. The expense related to these purchases is recorded as depreciation in our statement of operations over the useful life of the asset. Our capital expenditures vary based upon the level of digital investment being made as well as the timing of the real estate investments. For the fiscal years ended March 31, 2026, 2025 and 2024 our capital expenditures was $84.9 million, $71.1 million and $82.0 million, respectively.
Key Operating Metrics
In addition to our Generally Accepted Accounting Principles ("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 fiscal years ended March 31, 2026, 2025 and 2024 Re-occurring Revenue represented approximately 73%, 69% and 67% 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 fiscal years ended March 31, 2026, 2025 and 2024, Transactional Revenue represented approximately 27%, 31% and 33% of total revenue, respectively.
Annual Net Dollar Retention
We believe that our ability to retain and grow 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 Annual Report on Form 10-K. 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 Fiscal Years Ended March 31, 2026, 2025 and 2024
| Year Ended March 31, 2026 | Year Ended March 31, 2025 | |||||||||||||||||||||||||||||||||||||
| ($ in thousands) |
Re-occurring Revenue
|
Transactional Revenue
|
Total
|
Re-occurring Revenue
|
Transactional Revenue
|
Total
|
||||||||||||||||||||||||||||||||
| K-12 | $ | 619,725 | $ | 264,755 | $ | 884,480 | $ | 602,040 | $ | 368,444 | $ | 970,484 | ||||||||||||||||||||||||||
| Higher Education | 734,353 | 144,601 | 878,954 | 666,748 | 115,862 | 782,610 | ||||||||||||||||||||||||||||||||
| Global Professional | 98,746 | 51,330 | 150,076 | 95,094 | 54,494 | 149,588 | ||||||||||||||||||||||||||||||||
| International | 88,143 | 98,542 | 186,685 | 92,959 | 108,443 | 201,402 | ||||||||||||||||||||||||||||||||
| Other | - | 2,586 | 2,586 | - | (2,785) | (2,785) | ||||||||||||||||||||||||||||||||
|
Total Revenue
|
$ | 1,540,967 | $ | 561,814 | $ | 2,102,781 | $ | 1,456,841 | $ | 644,458 | $ | 2,101,299 | ||||||||||||||||||||||||||
| Year Ended March 31, 2024 | ||||||||||||||||||||
|
($ in thousands)
|
Re-occurring Revenue | Transactional Revenue | Total | |||||||||||||||||
|
K-12
|
$ | 553,856 | $ | 350,999 | $ | 904,855 | ||||||||||||||
| Higher Education | 584,837 | 117,350 | 702,187 | |||||||||||||||||
| Global Professional | 87,938 | 65,141 | 153,079 | |||||||||||||||||
| International | 87,918 | 112,546 | 200,464 | |||||||||||||||||
| Other | - | (107) | (107) | |||||||||||||||||
|
Total Revenue
|
$ | 1,314,549 | $ | 645,929 | $ | 1,960,478 | ||||||||||||||
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 March 31, 2026 and 2025
| March 31, 2026 | March 31, 2025 | ||||||||||||||||||||||||||||||||||
|
($ in thousands)
|
Current | Non-Current | Total | Current | Non-Current | Total | |||||||||||||||||||||||||||||
|
RPO by Segment:
|
|||||||||||||||||||||||||||||||||||
|
K-12
|
$ | 477,183 | $ | 772,190 | $ | 1,249,373 | $ | 457,353 | $ | 822,232 | $ | 1,279,585 | |||||||||||||||||||||||
| Higher Education | 268,649 | 53,350 | 321,999 | 247,685 | 49,631 | 297,316 | |||||||||||||||||||||||||||||
| Global Professional | 58,186 | 7,791 | 65,977 | 54,949 | 7,399 | 62,348 | |||||||||||||||||||||||||||||
| International | 30,394 | 2,670 | 33,064 | 30,513 | 2,894 | 33,407 | |||||||||||||||||||||||||||||
| Other | 945 | - | 945 | 3,531 | - | 3,531 | |||||||||||||||||||||||||||||
|
Total RPO
|
$ | 835,357 | $ | 836,001 | $ | 1,671,358 | $ | 794,031 | $ | 882,156 | $ | 1,676,187 | |||||||||||||||||||||||
Results of Operations
The following tables set forth certain consolidated financial information for the fiscal years ended March 31, 2026 and 2025. The following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
Consolidated Operating Results for the Fiscal Years Ended March 31, 2026 and 2025
| Year Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
|
Revenue
|
$ | 2,102,781 | $ | 2,101,299 | $ | 1,482 | 0.1 | % | |||||||||||||||
| Cost of sales (excluding depreciation and amortization) | 401,139 | 422,294 | (21,155) | (5.0) | % | ||||||||||||||||||
| Gross profit | 1,701,642 | 1,679,005 | 22,637 | 1.3 | % | ||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Operating and administrative expenses | 1,080,250 | 1,066,496 | 13,754 | 1.3 | % | ||||||||||||||||||
| Depreciation | 81,985 | 66,688 | 15,297 | 22.9 | % | ||||||||||||||||||
| Amortization of intangibles | 223,627 | 239,014 | (15,387) | (6.4) | % | ||||||||||||||||||
| Impairment charge | 39,000 | - | 39,000 | n/m | |||||||||||||||||||
| Total operating expenses | 1,424,862 | 1,372,198 | 52,664 | 3.8 | % | ||||||||||||||||||
| Operating income (loss) | 276,780 | 306,807 | (30,027) | (9.8) | % | ||||||||||||||||||
| Interest expense (income), net | 207,226 | 293,446 | (86,220) | (29.4) | % | ||||||||||||||||||
| (Gain) loss on extinguishment of debt | 25,766 | 2,719 | 23,047 | n/m | |||||||||||||||||||
| Income (loss) from operations before taxes | 43,788 | 10,642 | 33,146 | n/m | |||||||||||||||||||
| Income tax provision (benefit) | 8,468 | 96,481 | (88,013) | (91.2) | % | ||||||||||||||||||
|
Net income (loss)
|
$ | 35,320 | $ | (85,839) | $ | 121,159 | (141.1) | % | |||||||||||||||
Revenue
| Year Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| Revenue by Segment: | |||||||||||||||||||||||
| K-12 | $ | 884,480 | $ | 970,484 | $ | (86,004) | (8.9) | % | |||||||||||||||
| Higher Education | 878,954 | 782,610 | 96,344 | 12.3 | % | ||||||||||||||||||
| Global Professional | 150,076 | 149,588 | 488 | 0.3 | % | ||||||||||||||||||
| International | 186,685 | 201,402 | (14,717) | (7.3) | % | ||||||||||||||||||
| Other | 2,586 | (2,785) | 5,371 | n/m | |||||||||||||||||||
| Total Revenue | $ | 2,102,781 | $ | 2,101,299 | $ | 1,482 | 0.1 | % | |||||||||||||||
Revenue for the fiscal years ended March 31, 2026 and 2025 was $2,102.8 million and $2,101.3 million, respectively, representing an increase of $1.5 million, or 0.1%. The increase was driven by the segment factors described below.
K-12
K-12 revenue for the fiscal years ended March 31, 2026 and 2025 was $884.5 million and $970.5 million, respectively, representing a decrease of $86.0 million, or 8.9%. The decrease was primarily attributable to lower Transactional Revenue of approximately $103.7 million, driven by a smaller market opportunity in the current period. This decrease was partially offset by an increase in Re-occurring Revenue of approximately $17.7 million, primarily due to the timing of deferred revenue recognition associated with prior year sales in the California, Florida and Texas markets.
Higher Education
Higher Education revenue for the fiscal years ended March 31, 2026 and 2025 was $879.0 million and $782.6 million, respectively, representing an increase of $96.3 million, or 12.3%. The increase was primarily due to:
•higher Re-occurring Revenue of approximately $67.6 million, due to the timing of deferred revenue recognition associated with the increased adoption of digital products, including growth in Inclusive Access sales, market share gains, continued growth in U.S. enrollments and price increases; and
•higher Transactional Revenue of approximately $28.7 million, primarily due to a decline in product returns driven by growth in Inclusive Access sales.
Global Professional
Global Professional revenue for the fiscal years ended March 31, 2026 and 2025 was $150.1 million and $149.6 million, respectively, representing an increase of $0.5 million, or 0.3%. The increase was driven by higher Re-occurring Revenue, primarily attributable to the timing of deferred revenue recognition related to growth in digital subscriptions for our core products sold in the prior year. This was partially offset by lower Transactional Revenue due to the continued execution of the strategic initiative to sunset non-core print titles.
International
International revenue for the fiscal years ended March 31, 2026 and 2025 was $186.7 million and $201.4 million, respectively, representing a decrease of $14.7 million, or 7.3%. The decrease was driven by lower Transactional Revenue and Re-occurring Revenue of approximately $9.9 million and $4.8 million, respectively, primarily resulting from lower enrollments in Canada, K-12 curriculum cycle reform in Spain and timing of sales.
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales (excluding depreciation and amortization) for the fiscal years ended March 31, 2026 and 2025 was $401.1 million and $422.3 million, respectively, representing a decrease of $21.2 million, or 5.0%. The decrease was primarily due to:
•lower manufacturing, royalty and other direct fulfillment costs of approximately $33.4 million, primarily attributable to lower Transactional Revenue from print offerings in the K-12 and International segments due to smaller market opportunities in the current period; and
•lower inventory obsolescence reserve of approximately $3.8 million, primarily resulting from a reduced inventory balance in the Higher Education segment due to the shift toward digital sales; partially offset by
•higher royalty costs in the Higher Education segment of approximately $16.1 million, resulting from the growth in Re-occurring Revenue.
Operating and Administrative Expenses
Operating and administrative expenses for the fiscal years ended March 31, 2026 and 2025 was $1,080.3 million and $1,066.5 million, respectively, representing an increase of $13.8 million, or 1.3%. The increase was primarily due to:
•higher stock-based compensation of approximately $33.7 million, due to the recognition of cumulative stock-based compensation expense in connection with our initial public offering;
•higher salaries and wages of approximately $25.6 million, primarily due to an annual merit-based compensation increase and growth in headcount; partially offset by
•lower technology-related expenses of approximately $15.0 million, primarily driven by ongoing cost optimization initiatives, including infrastructure rationalization and the migration of on-premise data centers to cloud-based platforms;
•lower annual incentive compensation expense of approximately $7.5 million, primarily reflecting the higher incentive payments recognized in the prior year, which were driven by a stronger than expected business performance;
•lower professional fees and other expenses of approximately $7.0 million, primarily due to the decrease in non-recurring transaction related costs associated with our initial public offering and a reduction in third-party costs from cost-saving initiatives;
•lower advisory fees of approximately $6.9 million, reflecting the termination of the Advisory Agreement with Platinum Advisors following the consummation of our initial public offering;
•lower general and administrative expense of approximately $4.0 million, due to reduced restructuring activities in the current period, resulting in lower severance and related costs;
•a gain of approximately $2.6 million, resulting from the settlement of a copyright infringement litigation in the current period; and
•lower selling and marketing expense of approximately $2.5 million, driven by lower sales commissions reflecting lower revenue in the K-12 segment due to a smaller market opportunity, which more than offset higher sales commissions associated with revenue growth in our Higher Education segment.
Depreciation and Amortization of Intangibles
Depreciation and amortization expenses for the fiscal years ended March 31, 2026 and 2025 were $305.6 million and $305.7 million, respectively, representing a decrease of $0.1 million. The result reflects lower amortization expense related to the use of an accelerated method of amortization for our content intangible assets, partially offset by higher depreciation expense related to the accelerated depreciation of leasehold improvements associated with the sublease of a portion of our New York office space and depreciation related to software development projects that were completed and placed into service during the period.
Impairment Charge
We recorded an impairment charge of $39.0 million for the fiscal year ended March 31, 2026, of which, $35.0 million related to the impairment of goodwill of our International reporting unit and $4.0 million related to the impairment of our International indefinite-lived intangible trademark. The impairment charges were primarily attributable to uncertainty in macroeconomic and geopolitical conditions, including rising interest rates, foreign exchange volatility, and economic uncertainties in certain countries within the Middle East region in which the International reporting unit operates, which impacted both the discount rate and projected revenue growth rates used in our valuation.
There were no impairment charges for the fiscal year ended March 31, 2025.
Interest Expense (Income), Net
Interest expense (income), net, for the fiscal years ended March 31, 2026 and 2025 was $207.2 million and $293.4 million, respectively, representing a decrease of $86.2 million, or 29.4%. The decrease was primarily driven by the refinancing of the A&E Term Loan Facility in August 2024, which reduced variable rate debt by $749.6 million, as well as the repayment of $592.4 million of debt outstanding under the A&E Term Loan Facility during the current period, funded by net proceeds from our initial public offering on July 25, 2025 and cash on hand. The decrease also reflects lower variable interest rates on the A&E Term Loan Facility following Repricing Transactions (as defined in the Cash Flow Credit Agreement), which closed on February 6, 2025 and September 8, 2025, and reduced the applicable margin on Term SOFR by 75 basis points and 50 basis points, respectively. These decreases were partially offset by higher interest expense associated with the issuance of $650.0 million aggregate principal amount of 2024 Secured Notes in August 2024.
(Gain) Loss on Extinguishment of Debt
For the fiscal year ended March 31, 2026, we recorded a loss on extinguishment of debt of approximately $25.8 million, comprised primarily of the accelerated amortization of unamortized debt discount and deferred financing costs. Of this amount, $16.4 million was recorded in connection with the repayment of $385.7 million of debt outstanding under the A&E Term Loan Facility upon the closing of our initial public offering on July 25, 2025, and $8.4 million was recorded in connection with the additional repayment of $206.7 million of debt outstanding under the A&E Term Loan Facility during the second half of fiscal year 2026. In addition, $1.0 million was recorded in connection with the repurchase of $40.0 million principal amount of our 2022 Unsecured Notes.
For the fiscal year ended March 31, 2025, we recorded a loss on extinguishment of debt of $2.7 million in connection with the debt refinancing on August 6, 2024. This amount comprised of $1.3 million related to the write-off of unamortized debt discount and deferred financing costs and $1.4 million of new debt discount fees associated with the refinanced debt.
Income Tax Provision (Benefit)
Income tax provision (benefit) for the fiscal years ended March 31, 2026 and 2025 was $8.5 million and $96.5 million, respectively, and the effective tax rate was 19.3% and 906.6%, respectively.
For the fiscal years ended March 31, 2026 and 2025, a valuation allowance is recorded on the Company's net federal and state deferred tax assets due to the preponderance of negative evidence consisting of cumulative book losses and the Company's analyses which indicates that the reversal of existing temporary differences and carryforwards will not be sufficient to support the realizability of all net domestic deferred tax assets, mainly driven by disallowed interest expense under Code Section 163(j).
For the fiscal years ended March 31, 2026 and 2025, a valuation allowance is recorded for certain foreign deferred tax assets due to the preponderance of negative evidence consisting of cumulative book losses with no deferred tax benefit recognized for certain foreign losses on operations.
For the fiscal year ended March 31, 2026, the effective tax rate differed from the statutory rate, mainly due to the decrease in the valuation allowance on domestic deferred tax assets related to the enactment on July 4, 2025, of the One Big Beautiful Bill Act ("OBBBA"). The acceleration of deductibility of software development, interest, and tangible personal property expenditures significantly reduced our domestic income tax liability for the fiscal year ending March 31, 2026. Furthermore, the effective tax rate was impacted by the U.S. research and development credit, discount on purchase of Federal investment energy credit, goodwill impairment and non-deductible executive compensation. The tax rate reflects the release of valuation allowance for Australian deferred tax assets, partially offsetting valuation allowances recorded against certain foreign net deferred tax assets.
For the fiscal year ended March 31, 2025, the effective tax rate was different than the U.S. federal statutory tax rate, primarily due to the domestic and international valuation allowances and current state income taxes.
The Organization for Economic Cooperation and Development has proposed model rules to enact a global minimum tax rate of at least 15% of reported profits for large multinational companies beginning in 2024 ("Pillar Two"). Each country must enact legislation to apply Pillar Two, but countries may enact Pillar Two differently than the model rules and on different timelines and may adjust domestic incentives in response to Pillar Two. Additionally, in January 2025, the United States issued an executive order announcing opposition to aspects of Pillar Two. The enactment of Pillar Two legislation did not have a material effect on our financial position for the fiscal year ended March 31, 2026. We will continue to monitor and reflect the impact of such legislative changes in future periods, as appropriate.
Adjusted EBITDA by Segment for the Fiscal Years Ended March 31, 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 ("CODM") to assess the performance of our segments. We exclude from Adjusted EBITDA by segment: interest expense (income), net, income tax (benefit) provision, depreciation, amortization and pre-publication amortization and certain transactions or adjustments that our CODM 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."
| Year Ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | $ Change | % Change | ||||||||||||||||||||
| Adjusted EBITDA: | |||||||||||||||||||||||
| K-12 | $ | 284,964 | $ | 305,333 | $ | (20,369) | (6.7) | % | |||||||||||||||
| Higher Education | 389,826 | 350,862 | 38,964 | 11.1 | % | ||||||||||||||||||
| Global Professional | 45,597 | 45,105 | 492 | 1.1 | % | ||||||||||||||||||
| International | 21,911 | 35,742 | (13,831) | (38.7) | % | ||||||||||||||||||
| Other | 1,966 | (10,252) | 12,218 | (119.2) | % | ||||||||||||||||||
K-12
K-12 Adjusted EBITDA for the fiscal years ended March 31, 2026 and 2025 was $285.0 million and $305.3 million, respectively, representing a decrease of $20.4 million, or 6.7%. The decrease was primarily due to:
•a decrease in revenue of approximately $86.0 million as discussed under "-Consolidated Operating Results for the Fiscal Years Ended March 31, 2026 and 2025-K-12";
•higher salaries and wages of approximately $2.7 million, primarily due to an annual merit-based compensation increase and growth in headcount; partially offset by
•lower manufacturing, royalty, and other direct fulfillment costs of approximately $34.7 million, attributable to lower Transactional Revenue from print offerings;
•lower allocation of shared corporate costs of approximately $16.5 million, driven by current period factors such as headcount, revenue and the allocable cost base; and
•lower selling and marketing expense, driven by lower sales commission of approximately $7.3 million, due to the decrease in revenue resulting from a smaller market opportunity;
•lower other expenses of approximately $5.8 million, due to implementing cost control initiatives, including reduced promotional samples and other discretionary expenses, in line with lower revenue; and
•lower annual incentive compensation expense of approximately $4.0 million, primarily reflecting the higher incentive payments recognized in the prior year, which were driven by a stronger than expected business performance.
Higher Education
Higher Education Adjusted EBITDA for the fiscal years ended March 31, 2026 and 2025 was $389.8 million and $350.9 million, respectively, representing an increase of $39.0 million, or 11.1%. The increase was primarily due to:
•an increase in revenue of $96.3 million as discussed under "-Consolidated Operating Results for the Fiscal Year Ended March 31, 2026 and 2025-Higher Education";
•lower inventory obsolescence reserve of approximately $3.2 million, resulting from a significantly reduced inventory balance due to the shift toward digital sales; partially offset by
•higher allocation of shared corporate costs of approximately $28.7 million, driven by current period factors such as headcount, revenue and the allocable cost base;
•higher royalty and other direct fulfillment costs of approximately $19.9 million, consistent with the growth in revenue;
•higher selling and marketing expense, primarily driven by increased sales force sales commission of approximately $6.1 million, associated with the growth in revenue;
•higher allowance for credit losses of approximately $2.8 million, primarily due to the absence of a prior year reserve release associated with the resolution of previously reserved customer exposures with higher risk characteristics, as well as a higher accounts receivable balance in the current year;
•higher other expenses of approximately $2.7 million, primarily reflecting increased business activity to support revenue growth and operational execution; and
•higher salaries and wages of approximately $1.4 million, primarily due to an annual merit-based compensation increase and growth in headcount.
Global Professional
Global Professional Adjusted EBITDA for the fiscal years ended March 31, 2026 and 2025 was $45.6 million and $45.1 million, respectively, representing an increase of $0.5 million or 1.1%. The increase was primarily due to an increase in revenue of $0.5 million as discussed under "-Consolidated Operating Results for the Fiscal Years Ended March 31, 2026 and 2025-Global Professional".
International
International Adjusted EBITDA for the fiscal years ended March 31, 2026 and 2025 was $21.9 million and $35.7 million, respectively, representing a decrease of $13.8 million, or 38.7%. The decrease was primarily due to:
•a decrease in revenue of $14.7 million as discussed under "-Consolidated Operating Results for the Fiscal Years Ended March 31, 2026 and 2025-International"; and
•higher allocation of shared corporate costs of approximately $5.0 million, driven by current period factors such as headcount, revenue and the allocable cost base; and
•higher salaries and wages of approximately $1.5 million, primarily due to an annual merit-based compensation increase; partially offset by
•lower manufacturing and royalty costs of approximately $6.4 million, attributable to lower Transactional Revenue from print sales; and
•lower selling and marketing expense, driven by lower sales commission of approximately $1.8 million, associated with the decrease in revenue.
Results of Operations
Consolidated Operating Results for the Fiscal Years Ended March 31, 2025 and 2024
The following tables set forth certain historical consolidated financial information for the fiscal years ended March 31, 2025 and 2024. The following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
| Year Ended March 31, | ||||||||||||||||||||||||||
| ($ in thousands) |
2025
|
2024
|
$ Change | % Change | ||||||||||||||||||||||
|
Revenue
|
$ | 2,101,299 | $ | 1,960,478 | $ | 140,821 | 7.2 | % | ||||||||||||||||||
| Cost of sales (excluding depreciation and amortization) | 422,294 | 420,331 | 1,963 | 0.5 | % | |||||||||||||||||||||
| Gross profit | 1,679,005 | 1,540,147 | 138,858 | 9.0 | % | |||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Operating and administrative expenses | 1,066,496 | 1,027,427 | 39,069 | 3.8 | % | |||||||||||||||||||||
| Depreciation | 66,688 | 52,985 | 13,703 | 25.9 | % | |||||||||||||||||||||
| Amortization of intangibles | 239,014 | 254,937 | (15,923) | (6.2) | % | |||||||||||||||||||||
| Impairment charge | - | 49,500 | (49,500) | (100.0) | % | |||||||||||||||||||||
| Total operating expenses | 1,372,198 | 1,384,849 | (12,651) | (0.9) | % | |||||||||||||||||||||
| Operating income (loss) | 306,807 | 155,298 | 151,509 | n/m | ||||||||||||||||||||||
| Interest expense (income), net | 293,446 | 326,438 | (32,992) | (10.1) | % | |||||||||||||||||||||
| (Gain) loss on extinguishment of debt | 2,719 | (3,415) | 6,134 | (179.6) | % | |||||||||||||||||||||
| Income (loss) from operations before taxes | 10,642 | (167,725) | 178,367 | (106.3) | % | |||||||||||||||||||||
| Income tax provision (benefit) | 96,481 | 25,294 | 71,187 | n/m | ||||||||||||||||||||||
|
Net income (loss)
|
$ | (85,839) | $ | (193,019) | $ | 107,180 | (55.5) | % | ||||||||||||||||||
Revenue
| Year Ended March 31, | ||||||||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||||
| Revenue by Segment: | ||||||||||||||||||||||||||
| K-12 | $ | 970,484 | $ | 904,855 | $ | 65,629 | 7.3 | % | ||||||||||||||||||
| Higher Education | 782,610 | 702,187 | 80,423 | 11.5 | % | |||||||||||||||||||||
| Global Professional | 149,588 | 153,079 | (3,491) | (2.3) | % | |||||||||||||||||||||
| International | 201,402 | 200,464 | 938 | 0.5 | % | |||||||||||||||||||||
| Other | (2,785) | (107) | (2,678) | n/m | ||||||||||||||||||||||
|
Total Revenue
|
$ | 2,101,299 | $ | 1,960,478 | $ | 140,821 | 7.2 | % | ||||||||||||||||||
Revenue for the fiscal years ended March 31, 2025 and 2024 was $2,101.3 million and $1,960.5 million, respectively, representing an increase of $140.8 million, or 7.2%. The increase was driven by the segment factors described below.
K-12
K-12 revenue for the fiscal years ended March 31, 2025 and 2024 was $970.5 million and $904.9 million, respectively, representing an increase of $65.6 million, or 7.3%. The increase was primarily due to:
•the timing of deferred revenue recognition related to prior year ELA market opportunity sales, resulting in approximately $48.2 million higher Re-occurring Revenue recognition in the current period; and
•higher Transactional Revenue of approximately $17.4 million, driven by the strong performance in Texas and Florida science markets, with particularly high capture rates in Texas.
Higher Education
Higher Education revenue for the fiscal years ended March 31, 2025 and 2024 was $782.6 million and $702.2 million, respectively, representing an increase of $80.4 million, or 11.5%. The increase was primarily due to:
•higher Re-occurring Revenue of approximately $81.9 million, primarily driven by the increased adoption of digital products, including 23% growth in Inclusive Access sales in the fiscal year ended March 31, 2025, as well as continued growth in U.S. enrollments and market share gains; and
•favorable product returns of approximately $15.4 million, driven by lower than expected returns from a key distribution partner and a decline in returns due to the continued growth of sales in our digital products, including sales through our Inclusive Access distribution channel; partially offset by
•the ongoing migration from print to digital learning solutions, resulting in a decline in Transactional Revenue from print offerings of approximately $16.9 million.
Global Professional
Global Professional revenue for the fiscal years ended March 31, 2025 and 2024 was $149.6 million and $153.1 million, respectively, representing a decrease of $3.5 million, or 2.3%. The decrease was primarily due to:
•lower Transactional Revenue of approximately $10.6 million, largely attributable to a decline in print offerings. That decline reflects the continued execution of the strategic initiative, launched in the prior year, to sunset non-core print titles; partially offset by
•higher Re-occurring Revenue from digital subscriptions of approximately $7.2 million, primarily driven by improved retention rates of existing customers and the timing of deferred revenue recognition related to prior period sales.
International
International revenue for the fiscal years ended March 31, 2025 and 2024 was $201.4 million and $200.5 million, respectively, representing an increase of $0.9 million, or 0.5%. The increase was primarily due to higher Re-occurring Revenue from digital subscriptions of approximately $5.0 million as a result of growth in the Middle East market and the shift towards digital products within our Higher Education
business. This was partially offset by a decline in Transactional Revenue of approximately $4.1 million due to the shift towards digital subscription products.
Cost of Sales (Excluding Depreciation and Amortization)
Cost of sales (excluding depreciation and amortization) for the fiscal years ended March 31, 2025 and 2024 was $422.3 million and $420.3 million, respectively, representing an increase of $2.0 million, or 0.5%. The increase was primarily due to:
•higher royalty costs of approximately $10.4 million and higher freight and other direct fulfillment costs of approximately $2.7 million, consistent with the growth in revenue; partially offset by
•lower manufacturing costs of approximately $6.4 million, due to the continued shift towards digital sales and the continued execution of the strategic initiative, launched in the prior year, to sunset non-core print titles in our Global Professional business; and
•lower inventory obsolescence reserve of approximately $4.7 million, resulting from a significantly reduced inventory balance due to the shift toward digital sales and the timing of K-12 market opportunities.
Operating and Administrative Expenses
Operating and administrative expenses for the fiscal years ended March 31, 2025 and 2024 was $1,066.5 million and $1,027.4 million, respectively, representing an increase of $39.1 million, or 3.8%. The increase was primarily due to:
•higher salaries and wages of approximately $39.5 million, primarily resulting from higher incentive compensation due to a stronger than expected business performance;
•higher travel, entertainment and other operating expenses of approximately $14.1 million, primarily due to higher selling and marketing expense to drive sales growth;
•higher sales force and depository sales commission of approximately $7.1 million, driven by higher revenue and changes in the product sales mix within our K-12 business; and
•prior year gain of approximately $2.0 million from the sale of a real estate property; partially offset by
•lower credit losses on accounts receivable of approximately $8.6 million, primarily due to a decrease in the reserves for credit losses in the current period driven by a lower account receivable balance related to certain customers with higher risk characteristics;
•lower restructuring expense of approximately $7.6 million, resulting from initiatives implemented in the prior period;
•lower promotional sample expense of approximately $3.6 million, due to smaller K-12 market opportunities in fiscal year 2026;
•lower occupancy expense of approximately $2.9 million, driven by the strategic rationalization of our real estate properties to optimize cost efficiency; and
•lower legal and professional fees of approximately $1.7 million, primarily due to costs incurred in the prior year related to our defense against the litigation referenced in Note 20, "Commitments and Contingencies" to our consolidated financial statements.
Depreciation and Amortization of Intangibles
Depreciation and amortization expenses for the fiscal years ended March 31, 2025 and 2024 were $305.7 million and $307.9 million, respectively, representing a decrease of $2.2 million, or 0.7%. The decrease was driven primarily by lower amortization expense related to the use of an accelerated method of amortization for our content intangible assets, partially offset by higher amortization expense related to software development projects that were completed and put into service during the period.
Impairment Charge
There were no impairment charges for the fiscal year ended March 31, 2025.
We recorded an impairment charge of $49.5 million for the fiscal year ended March 31, 2024, of which, $40.5 million related to the impairment of goodwill of our Global Professional reporting unit and $9.0 million related to the impairment of our Global Professional indefinite-lived intangible trademarks. The impairments resulted primarily from a revision of previously projected revenues given the strategic decision to sunset certain non-core front-list print titles and to re-invest into higher margin digital medical and engineering portfolios.
Interest Expense (Income), Net
Interest expense (income), net, for the fiscal years ended March 31, 2025 and 2024 was $293.4 million and $326.4 million, respectively, representing a decrease of $33.0 million, or 10.1%. The decrease was primarily attributable to lower interest expense from refinancing our A&E Term Loan Facility, which reduced our variable rate indebtedness by $749.6 million, partially offset by an increase in interest expense associated with the issuance of $650.0 million in aggregate principal amount of 2024 Secured Notes in August 2024. See Note 10, "Debt" in our consolidated financial statements for further details.
(Gain) Loss on Extinguishment of Debt
During the fiscal year ended March 31, 2025, in connection with the 2024 Refinancing Transactions, we recorded a loss on extinguishment of debt of $2.7 million, inclusive of write-offs of then existing unamortized debt discount and deferred financing fees of $1.0 million and $0.3 million, respectively, and new debt discount fees of $1.4 million.
During the fiscal year ended March 31, 2024, we repurchased $50.0 million face value of the 2022 Unsecured Notes for $44.5 million. We recorded a gain on extinguishment of debt of $3.4 million, which consisted of a $5.5 million redemption discount, partially offset by the write-off of unamortized debt discount and deferred financing fees of $1.7 million and $0.4 million, respectively, related to the portion of debt accounted for as an extinguishment.
Income Tax Provision (Benefit)
For the fiscal years ended March 31, 2025 and 2024, the income tax provision (benefit) was $96.5 million and $25.3 million, and the effective tax rate was 906.6% and (15.1)%, respectively.
For the fiscal years ended March 31, 2025 and 2024, our forecasts indicate that the reversal of existing temporary differences and carryforwards will not be sufficient to support the realizability of all net domestic deferred tax assets, mainly driven by disallowed interest expense under Code Section 163(j). As a result, our income tax provision reflects a valuation allowance on net federal and state deferred tax assets.
For the fiscal years ended March 31, 2025 and 2024, a valuation allowance is recorded for certain foreign deferred tax assets due to the negative evidence of cumulative book losses with no deferred tax benefit recognized for certain foreign losses on operations.
For the fiscal year ended March 31, 2025, the effective tax rate was different than the U.S. federal statutory tax rate, primarily due to the domestic and international valuation allowances and current state income taxes. For the fiscal year ended March 31, 2024, the effective tax rate was different than the U.S. federal statutory tax rate, primarily due to the domestic and international valuation allowances, current state income taxes, and impairment of goodwill, for which no income tax benefit was recognized.
Adjusted EBITDA by Segment for the Fiscal Years Ended March 31, 2025 and 2024
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 CODM to assess the performance of our segments. We exclude from Adjusted EBITDA by segment: interest expense (income), net, income tax (benefit) provision, depreciation, amortization and product development amortization and certain transactions or adjustments that our CODM 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."
| Year Ended March 31, | ||||||||||||||||||||||||||
| ($ in thousands) | 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||||
| Adjusted EBITDA by Segment: | ||||||||||||||||||||||||||
| K-12 | $ | 305,333 | $ | 291,366 | $ | 13,967 | 4.8 | % | ||||||||||||||||||
| Higher Education | 350,862 | 290,231 | 60,631 | 20.9 | % | |||||||||||||||||||||
| Global Professional | 45,105 | 43,402 | 1,703 | 3.9 | % | |||||||||||||||||||||
| International | 35,742 | 30,926 | 4,816 | 15.6 | % | |||||||||||||||||||||
| Other | (10,252) | 693 | (10,945) | n/m | ||||||||||||||||||||||
K-12
K-12 Adjusted EBITDA for the fiscal years ended March 31, 2025 and 2024 was $305.3 million and $291.4 million, respectively, representing an increase of $14.0 million, or 4.8%. The increase was primarily due to:
•higher revenue of approximately $65.6 million as discussed under "-Consolidated Operating Results for the Fiscal Years Ended March 31, 2025 and 2024-K-12"; and
•lower promotional sample expense of approximately $3.5 million, due to smaller K-12 market opportunities in fiscal year 2026; partially offset by
•higher manufacturing, freight and other direct fulfillment costs of approximately $17.5 million, attributable to higher Re-occurring and Transactional Revenue from print offerings;
•higher corporate cost allocation of approximately $13.3 million;
•higher salaries and wages of approximately $10.2 million, primarily resulting from higher incentive compensation due to a stronger than expected business performance; and
•higher royalty costs of approximately $8.5 million, primarily attributable to higher revenue resulting from strong performance in Texas and Florida science markets, as well as changes in the product sales mix; and
•higher depository and sales force sales commission of approximately $4.3 million, driven by higher revenue and changes in the product sales mix.
Higher Education
Higher Education Adjusted EBITDA for the fiscal years ended March 31, 2025 and 2024 was $350.9 million and $290.2 million, respectively, representing an increase of $60.6 million, or 20.9%. The increase was primarily due to:
•higher revenue of $80.4 million as discussed under "-Consolidated Operating Results for the Fiscal Years Ended March 31, 2025 and 2024-Higher Education"; and
•lower credit losses on accounts receivable of approximately $8.0 million primarily due to a decrease in the reserves for credit losses in the current period driven by a lower account receivable balance related to certain customers with higher risk characteristics; partially offset by
•higher salaries and wages of approximately $8.2 million, primarily resulting from higher incentive compensation due to a stronger than expected business performance;
•higher royalty costs of approximately $5.9 million, consistent with the growth in revenue;
•higher corporate cost allocation of approximately $5.6 million; and
•higher sales force sales commission of approximately $5.9 million, consistent with the growth in revenue.
Global Professional
Global Professional Adjusted EBITDA for the fiscal years ended March 31, 2025 and 2024 was $45.1 million and $43.4 million, respectively, representing an increase of $1.7 million or 3.9%. The increase was primarily due to:
•lower manufacturing, freight and other direct fulfillment costs of approximately $3.8 million, due to lower Transactional Revenue from print offerings;
•lower compensation expenses of approximately $2.4 million, resulting from restructuring initiatives implemented in the prior year; and
•lower inventory obsolescence reserve of approximately $1.1 million, resulting from a significantly reduced inventory balance due to the shift toward digital subscription sales; partially offset by
•lower revenue of $3.5 million as discussed under "-Consolidated Operating Results for the Fiscal Years Ended March 31, 2025 and 2024-Global Professional"; and
•higher corporate cost allocation of approximately $2.5 million.
International
International Adjusted EBITDA for the fiscal years ended March 31, 2025 and 2024 was $35.7 million and $30.9 million, respectively, representing an increase of $4.8 million, or 15.6%. The increase was primarily due to:
•lower royalty and manufacturing costs of approximately $4.0 million, primarily attributable to changes in the product sales mix;
•lower compensation expenses of approximately $2.4 million, resulting from restructuring initiatives implemented in the prior year; and
•higher revenue of $0.9 million as discussed under "-Consolidated Operating Results for the Fiscal Years Ended March 31, 2025 and 2024-International"; partially offset by
•higher corporate cost allocation of approximately $3.1 million.
Non-GAAP Financial Measures
We include non-GAAP financial measures in this Annual Report on Form 10-K, 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 fiscal years ended March 31, 2026, 2025 and 2024.
Reconciliations of EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin
| Year Ended March 31, | ||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2024 | |||||||||||||||||
| Net income (loss) | $ | 35,320 | $ | (85,839) | $ | (193,019) | ||||||||||||||
| Interest expense (income), net | 207,226 | 293,446 | 326,438 | |||||||||||||||||
| Income tax provision (benefit) | 8,468 | 96,481 | 25,294 | |||||||||||||||||
| Depreciation, amortization and product development amortization | 361,918 | 362,357 | 366,381 | |||||||||||||||||
|
EBITDA
|
$ | 612,932 | $ | 666,445 | $ | 525,094 | ||||||||||||||
|
Restructuring and cost savings implementation charges (a)
|
11,176 | 24,626 | 32,548 | |||||||||||||||||
|
Purchase accounting (b)
|
- | - | 18,101 | |||||||||||||||||
|
Advisory fees (c)
|
3,125 | 10,000 | 10,000 | |||||||||||||||||
|
Impairment charge (d)
|
39,000 | - | 49,500 | |||||||||||||||||
|
Transaction and integration costs (e)
|
1,191 | 2,982 | 8,205 | |||||||||||||||||
|
Stock-based compensation (f)
|
33,723 | - | - | |||||||||||||||||
|
(Gain) loss on extinguishment of debt (g)
|
25,766 | 2,719 | (3,415) | |||||||||||||||||
|
Other (h)
|
17,351 | 20,018 | 16,585 | |||||||||||||||||
|
Adjusted EBITDA
|
$ | 744,264 | $ | 726,790 | $ | 656,618 | ||||||||||||||
| Total Revenue | $ | 2,102,781 | $ | 2,101,299 | $ | 1,960,478 | ||||||||||||||
| Net income (loss) Margin | 1.7 | % | (4.1) | % | (9.8) | % | ||||||||||||||
| Adjusted EBITDA Margin | 35.4 | % | 34.6 | % | 33.5 | % | ||||||||||||||
(a)Represents severance and other expenses associated with headcount reductions and other cost savings initiated as part of our restructuring initiatives.
(b)Represents the effects of the application of purchase accounting associated with the Platinum acquisition, driven by the step-up of acquired inventory.
(c)For the fiscal year ended March 31, 2026, represents the pro rata portion of the annual $10.0 million advisory fee paid to Platinum Advisors pursuant to the Advisory Agreement through its termination on July 25, 2025 in connection with the consummation of our initial public offering. For each of the fiscal years ended March 31, 2025 and 2024, represents $10.0 million of annual advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement.
(d)For the fiscal year ended March 31, 2026, we recorded an impairment charge of $39.0 million, related to our International goodwill and indefinite-lived intangible trademark. For the fiscal year ended March 31, 2024, we recorded an impairment charge related to our Global Professional goodwill and indefinite-lived intangible trademark of $40.5 million and $9.0 million, respectively.
(e)This primarily represents transaction and integration costs associated with acquisitions.
(f)Represents stock-based compensation expense related to awards granted to our employees, directors and consultants under the Company's long-term incentive plans.
(g)For the fiscal year ended March 31, 2026, the amount represents accelerated amortization of debt discount and deferred financing costs related to (i) the repayment of $385.7 million of debt outstanding 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 debt outstanding under the A&E Term Loan Facility during the second half of fiscal year 2026 and (iii) the repayment of $40.0 million face value of the 2022 Unsecured Notes during the fourth fiscal quarter of 2026.
For the fiscal year ended March 31, 2025, the amount represents accelerated amortization of debt discount and deferred financing costs associated with the August 6, 2024 refinancing of the Term Loan Facility.
For the fiscal year ended March 31, 2024, the amount represents accelerated amortization of debt discount and deferred financing costs associated with the extinguishment of $50.0 million face value of the 2022 Unsecured Notes.
(h)For the fiscal years ended March 31, 2026, 2025 and 2024, the amount represents (i) gain from a real estate sale of nil, nil and $2.0 million, respectively, (ii) foreign currency exchange transaction impact of $(2.3) million, $1.3 million and $3.1 million, respectively, (iii) 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 $9.2 million, $4.3 million and $5.4 million, respectively, (iv) 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 $0.8 million, $0.6 million and $0.6 million, respectively, (v) non-recurring transaction-related costs associated with our initial public offering that were expensed as incurred of $2.8 million, $4.9 million and nil, respectively, (vi) lease termination costs of nil, $3.3 million and nil, respectively, associated with the early exit of a leased property in connection with the strategic rationalization of our real estate properties to optimize cost efficiency, (vii) post-acquisition compensation expense of nil, $0.6 million and $2.7 million, respectively, associated with the acquisition of Boards & Beyond, and (viii) the impact of additional insignificant earnings or charges resulting from matters that we do not consider indicative of our ongoing operations of $6.9 million, $5.0 million, and $6.8 million, respectively, primarily related to individually insignificant miscellaneous items, including asset dispositions, third-party consulting and advisory fees associated with system and process rationalization initiatives, as well as certain additional payments related to incremental insurance premiums and policies as a result of the Platinum acquisition that did not renew after the consummation of our initial public offering.
Reconciliations of Adjusted net income (loss) and Adjusted basic and diluted earnings (loss) per share
| Year Ended March 31, | ||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2024 | |||||||||||||||||
| Net income (loss) | $ | 35,320 | $ | (85,839) | $ | (193,019) | ||||||||||||||
|
Amortization of intangible assets (1)
|
222,932 | 238,240 | 253,663 | |||||||||||||||||
|
Restructuring and cost savings implementation charges (2)
|
11,176 | 24,626 | 32,548 | |||||||||||||||||
|
Purchase accounting (2)
|
- | - | 18,101 | |||||||||||||||||
|
Advisory fees (2)
|
3,125 | 10,000 | 10,000 | |||||||||||||||||
|
Impairment charge (2)
|
39,000 | - | 49,500 | |||||||||||||||||
|
Transaction and integration costs (2)
|
1,191 | 2,982 | 8,205 | |||||||||||||||||
|
Stock-based compensation (2)
|
33,723 | - | - | |||||||||||||||||
|
(Gain) loss on extinguishment of debt (2)
|
25,766 | 2,719 | (3,415) | |||||||||||||||||
|
Other (2)
|
17,351 | 20,018 | 16,585 | |||||||||||||||||
|
Tax impact of adjustments (3)
|
(14,125) | (10,396) | (12,152) | |||||||||||||||||
|
Adjusted net income (loss)
|
$ | 375,459 | $ | 202,350 | $ | 180,016 | ||||||||||||||
| Basic earnings (loss) per share | $ | 0.19 | $ | (0.52) | $ | (1.16) | ||||||||||||||
| Diluted earnings (loss) per share | $ | 0.19 | $ | (0.52) | $ | (1.16) | ||||||||||||||
| Adjusted basic earnings (loss) per share | $ | 2.05 | $ | 1.21 | $ | 1.08 | ||||||||||||||
| Adjusted diluted earnings (loss) per share | $ | 2.04 | $ | 1.21 | $ | 1.08 | ||||||||||||||
| Basic weighted-average shares outstanding | 183,466,677 | 166,611,519 | 166,611,519 | |||||||||||||||||
| Diluted weighted-average shares outstanding | 183,670,022 | 166,611,519 | 166,611,519 | |||||||||||||||||
_____________
(1)Represents amortization of definite-lived acquired intangible assets. See Note 7, "Goodwill and Other Intangible Assets" to our consolidated financial statements and related notes for the fiscal year ended March 31, 2026 for further details.
(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 annual effective income tax rate.
Reconciliations of Non-GAAP operating and administrative expenses
| Year Ended March 31, | ||||||||||||||||||||
| ($ in thousands) | 2026 | 2025 | 2024 | |||||||||||||||||
|
Operating and administrative expenses
|
$ | 1,080,250 | $ | 1,066,496 | $ | 1,027,427 | ||||||||||||||
| Restructuring and cost savings implementation charges | (11,176) | (24,626) | (32,548) | |||||||||||||||||
|
Advisory fees
|
(3,125) | (10,000) | (10,000) | |||||||||||||||||
| Transaction and integration costs | (1,191) | (2,982) | (8,205) | |||||||||||||||||
| Amortization of product development costs | (56,306) | (56,655) | (58,459) | |||||||||||||||||
| Stock-based compensation | (33,723) | - | - | |||||||||||||||||
| Other | (17,351) | (20,018) | (16,585) | |||||||||||||||||
|
Adjusted operating and administrative expenses (1)
|
$ | 957,378 | $ | 952,215 | $ | 901,630 | ||||||||||||||
| Selling and marketing | $ | 378,719 | $ | 380,199 | $ | 373,879 | ||||||||||||||
| Stock-based compensation | (1,180) | - | - | |||||||||||||||||
|
Other
|
(6,922) | (3,210) | (4,678) | |||||||||||||||||
|
Adjusted selling and marketing expenses (1)
|
$ | 370,617 | $ | 376,989 | $ | 369,201 | ||||||||||||||
| General and administrative | $ | 368,972 | $ | 345,213 | $ | 331,673 | ||||||||||||||
| Restructuring and cost savings implementation charges | (11,176) | (24,626) | (32,548) | |||||||||||||||||
|
Advisory fees
|
(3,125) | (10,000) | (10,000) | |||||||||||||||||
| Transaction and integration costs | (1,191) | (2,982) | (8,205) | |||||||||||||||||
| Stock-based compensation | (27,428) | - | - | |||||||||||||||||
| Other | (8,500) | (15,747) | (10,689) | |||||||||||||||||
|
Adjusted general and administrative expenses (1)
|
$ | 317,552 | $ | 291,858 | $ | 270,231 | ||||||||||||||
| Research and development | $ | 276,253 | $ | 284,429 | $ | 263,416 | ||||||||||||||
| Stock-based compensation | (5,115) | - | - | |||||||||||||||||
|
Other
|
(1,929) | (1,061) | (1,218) | |||||||||||||||||
|
Adjusted research and development expenses (1)
|
$ | 269,209 | $ | 283,368 | $ | 262,198 | ||||||||||||||
_______________
(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 March 31, 2026. The following tables and discussion should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
| March 31, 2025 | March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
($ in thousands; unaudited)
|
First
Quarter 2025
|
Second Quarter 2025
|
Third
Quarter 2025
|
Fourth
Quarter 2025
|
First Quarter 2026 |
Second Quarter 2026 |
Third Quarter 2026 |
Fourth Quarter 2026 |
||||||||||||||||||||||||||||||||||||||||||
|
Revenue
|
$ | 522,954 | $ | 688,590 | $ | 416,493 | $ | 473,262 | $ | 535,710 | $ | 669,187 | $ | 434,162 | $ | 463,722 | ||||||||||||||||||||||||||||||||||
| Cost of sales (excluding depreciation and amortization) | 125,290 | 153,358 | 65,253 | 78,393 | 123,384 | 139,077 | 63,844 | 74,834 | ||||||||||||||||||||||||||||||||||||||||||
| Gross profit | 397,664 | 535,232 | 351,240 | 394,869 | 412,326 | 530,110 | 370,318 | 388,888 | ||||||||||||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating and administrative expenses | 246,271 | 277,595 | 250,095 | 292,535 | 241,549 | 299,477 | 257,201 | 282,023 | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation | 14,434 | 18,307 | 17,707 | 16,240 | 17,187 | 17,723 | 27,308 | 19,767 | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangibles | 61,179 | 60,234 | 59,279 | 58,322 | 57,365 | 56,385 | 55,417 | 54,460 | ||||||||||||||||||||||||||||||||||||||||||
| Impairment charge | - | - | - | - | - | - | - | 39,000 | ||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 321,884 | 356,136 | 327,081 | 367,097 | 316,101 | 373,585 | 339,926 | 395,250 | ||||||||||||||||||||||||||||||||||||||||||
| Operating income (loss) | 75,780 | 179,096 | 24,159 | 27,772 | 96,225 | 156,525 | 30,392 | (6,362) | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense (income), net | 80,876 | 80,146 | 68,877 | 63,547 | 58,774 | 55,940 | 47,358 | 45,154 | ||||||||||||||||||||||||||||||||||||||||||
| (Gain) loss on extinguishment of debt | - | 2,719 | - | - | - | 16,361 | 8,183 | 1,222 | ||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from operations before taxes | (5,096) | 96,231 | (44,718) | (35,775) | 37,451 | 84,224 | (25,149) | (52,738) | ||||||||||||||||||||||||||||||||||||||||||
| Income tax provision (benefit) | 4,351 | (37,172) | 8,210 | 121,092 | 36,949 | (21,060) | (4,950) | (2,471) | ||||||||||||||||||||||||||||||||||||||||||
|
Net income (loss)
|
$ | (9,447) | $ | 133,403 | $ | (52,928) | $ | (156,867) | $ | 502 | $ | 105,284 | $ | (20,199) | $ | (50,267) | ||||||||||||||||||||||||||||||||||
| March 31, 2025 | March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
($ in thousands; unaudited)
|
First Quarter 2025 | Second Quarter 2025 | Third Quarter 2025 | Fourth Quarter 2025 | First Quarter 2026 | Second Quarter 2026 | Third Quarter 2026 | Fourth Quarter 2026 | ||||||||||||||||||||||||||||||||||||||||||
|
Digital Revenue by Segment:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| K-12 | $ | 99,618 | $ | 120,922 | $ | 107,976 | $ | 102,030 | $ | 108,597 | $ | 118,636 | $ | 103,513 | $ | 98,898 | ||||||||||||||||||||||||||||||||||
| Higher Education | 153,955 | 157,294 | 162,717 | 249,100 | 168,826 | 186,169 | 203,104 | 241,799 | ||||||||||||||||||||||||||||||||||||||||||
| Global Professional | 25,093 | 25,251 | 26,398 | 26,254 | 25,272 | 26,022 | 28,249 | 27,577 | ||||||||||||||||||||||||||||||||||||||||||
| International | 24,559 | 23,975 | 30,561 | 23,624 | 22,353 | 21,372 | 28,819 | 24,442 | ||||||||||||||||||||||||||||||||||||||||||
|
Print Revenue by Segment:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| K-12 | $ | 175,209 | $ | 283,723 | $ | 42,206 | $ | 38,800 | $ | 162,334 | $ | 240,511 | $ | 24,676 | $ | 27,315 | ||||||||||||||||||||||||||||||||||
| Higher Education | 5,891 | 29,596 | 19,043 | 5,014 | 13,553 | 26,793 | 22,259 | 16,451 | ||||||||||||||||||||||||||||||||||||||||||
| Global Professional | 10,194 | 15,163 | 9,133 | 12,102 | 9,887 | 13,786 | 7,990 | 11,293 | ||||||||||||||||||||||||||||||||||||||||||
| International | 33,752 | 31,202 | 14,328 | 19,401 | 29,111 | 28,973 | 15,242 | 16,373 | ||||||||||||||||||||||||||||||||||||||||||
| Other | (5,317) | 1,464 | 4,131 | (3,063) | (4,223) | 6,925 | 310 | (426) | ||||||||||||||||||||||||||||||||||||||||||
|
Total Revenue
|
$ | 522,954 | $ | 688,590 | $ | 416,493 | $ | 473,262 | $ | 535,710 | $ | 669,187 | $ | 434,162 | $ | 463,722 | ||||||||||||||||||||||||||||||||||
| March 31, 2025 | March 31, 2026 | |||||||||||||||||||||||||||||||||||||||||||||||||
|
($ in thousands; unaudited)
|
First Quarter 2025 | Second Quarter 2025 | Third Quarter 2025 | Fourth Quarter 2025 |
First Quarter 2026
|
Second Quarter 2026
|
Third Quarter 2026
|
Fourth Quarter 2026
|
||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA by Segment: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| K-12 | $ | 91,207 | $ | 185,767 | $ | 25,941 | $ | 2,418 | $ | 96,393 | $ | 171,953 | $ | 10,462 | $ | 6,156 | ||||||||||||||||||||||||||||||||||
| Higher Education | 73,120 | 78,848 | 80,847 | 118,047 | 77,759 | 89,028 | 107,780 | 115,259 | ||||||||||||||||||||||||||||||||||||||||||
| Global Professional | 10,162 | 12,948 | 10,172 | 11,823 | 11,266 | 11,504 | 11,024 | 11,803 | ||||||||||||||||||||||||||||||||||||||||||
| International | 12,884 | 11,237 | 6,436 | 5,185 | 7,208 | 7,381 | 4,082 | 3,240 | ||||||||||||||||||||||||||||||||||||||||||
| Other | (8,779) | 1,537 | 2,812 | (5,822) | (1,210) | 6,540 | 2,519 | (5,883) | ||||||||||||||||||||||||||||||||||||||||||
Liquidity and Capital Resources
| March 31, | ||||||||||||||
|
($ in thousands)
|
2026 | 2025 | ||||||||||||
| Cash and cash equivalents | $ | 253,519 | $ | 389,830 | ||||||||||
| Current portion of long-term debt | 13,170 | 13,170 | ||||||||||||
| Long-term debt | 2,560,698 | 3,164,551 | ||||||||||||
| Finance lease obligations | 16,063 | 10,209 | ||||||||||||
Historically, we have generated operating cash flows sufficient to fund our seasonal working capital needs, capital expenditures 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 United States to fund international operations or to be reinvested outside of the United States. The investments and bank deposits are stated at cost, which approximates market value. These investments are not subject to significant market risk.
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 (the "Term Loan Facility") and (ii) a revolving credit facility (the "Cash Flow Revolving Credit Facility"). Amendments and repayments under the Cash Flow Credit Agreement during the fiscal years ended March 31, 2026 and 2025 are described below.
On August 6, 2024, McGraw-Hill Education, Inc. and certain subsidiaries amended its Cash Flow Credit Agreement which, among other things, (i) modified certain provisions therein, (ii) refinanced in full the outstanding term loans under the Term Loan Facility of $2,066.6 million with new term loans in an
aggregate principal amount of $1,317.0 million, including an extended maturity to August 6, 2031, (such facility as being refinanced, the "A&E Term Loan Facility") and (iii) except for $38.7 million of the Cash Flow Revolving Credit Facility outstanding immediately prior to August 6, 2024 (which remains due on July 30, 2026 and hereinafter referred to as the "Non-Extended Cash Flow Revolver Facility"), extended the maturity of $111.3 million of the Cash Flow Revolving Credit Facility thereunder to August 6, 2029 for lenders who consented to such amendment ( the "A&E Cash Flow Revolving Facility"). This refinancing was accounted for as a modification and partial extinguishment of debt in accordance with ASC 470-50. As a result, the Company recorded a loss on partial extinguishment of debt of $2.7 million, which included the write-off of unamortized debt discount and deferred financing fees of $1.0 million and $0.3 million, respectively, and new debt discount fees of $1.4 million. This loss was recorded within (gain) loss on extinguishment of debt in the consolidated statements of operations for the fiscal year ended March 31, 2025. The A&E Term Loan Facility, together with the Non-Extended Cash Flow Revolver Facility and the A&E Cash Flow Revolving Facility, are collectively referred to as, the "A&E Cash Flow Credit Facilities".
During the three months ended December 31, 2024, the Company paid down a total of $100.0 million of debt outstanding under its A&E Term Loan Facility. As a result, the Company recorded accelerated amortization of unamortized debt discount and deferred financing costs of $3.9 million and $0.7 million, respectively, which were recorded within Interest expense (income), net in the consolidated statements of operations for the fiscal year ended March 31, 2025.
On February 6, 2025, McGraw-Hill Education, Inc. and certain subsidiaries amended its Cash Flow Credit Agreement to reprice its A&E Term Loan Facility with replacement term loans in an aggregate principal amount of $1,213.7 million. The A&E Term Loan Facility following the repricing has substantially the same terms as the existing A&E Term Loan Facility, including the same maturity date of August 6, 2031, except that the A&E Term Loan Facility following the repricing provided for a reduced applicable margin on Term SOFR of 75 basis points.
On March 31, 2025, the Company paid down $50.0 million of debt outstanding under its A&E Term Loan Facility. As a result, the Company recorded accelerated amortization of unamortized debt discount and deferred financing costs of $2.0 million and $0.4 million, respectively, which were recorded within Interest expense (income), net in the consolidated statements of operations for the fiscal year ended March 31, 2025.
On July 25, 2025, upon closing of the initial public offering, the Company used the net proceeds from the offering to repay $385.7 million of debt outstanding under its A&E Term Loan Facility. In connection with the repayment, the Company recorded accelerated amortization of unamortized debt discount and deferred financing costs related to the A&E Term Loan Facility of $16.4 million. These costs were recorded within (gain) loss on extinguishment of debt in the consolidated statements of operations for the fiscal year ended March 31, 2026.
On September 8, 2025, McGraw-Hill Education, Inc. and certain subsidiaries amended its Cash Flow Credit Agreement to further reprice its A&E Term Loan Facility with replacement term loans in an aggregate principal amount of $771.4 million. The A&E Term Loan Facility following the repricing has substantially the same terms as the A&E Term Loan Facility following the repricing on February 6, 2025, including the same maturity date of August 6, 2031, except that the A&E Term Loan Facility provided for a further reduced applicable margin on Term SOFR by up to 75 basis points.
On October 16, 2025, December 10, 2025 and March 31, 2026, McGraw-Hill Education, Inc. paid down $150.0 million, $50.0 million and $6.7 million, respectively, of debt outstanding under its A&E Term Loan Facility. As a result, the Company recorded accelerated amortization of debt discount and deferred financing costs related to the A&E Term Loan Facility of $8.4 million, which were recorded within (gain) loss on extinguishment of debt in the consolidated statements of operations for the fiscal year ended March 31, 2026.
As of March 31, 2026, the aggregate principal amount outstanding and fair value of the A&E Term Loan Facility was $554.8 million and $553.5 million, respectively, with a remaining contractual life of approximately 5.4 years. As of March 31, 2026, the amount available under the A&E Cash Flow Revolving Facility and the Non-Extended Cash Flow Revolver Facility was $111,250 and $38,750, respectively, and no amount was outstanding under either facility.
Interest Rates and Fees
The interest rate applicable to borrowings under the A&E Cash Flow Credit Facilities is, at McGraw-Hill Education, Inc.'s option, either (1) the base rate, subject to a floor of 1.50% per annum, plus an applicable margin (which is 1.75% for the A&E Term Loan Facility following the repricing on September 8, 2025 (which further reduces to 1.50% if, and for so long as, McGraw-Hill Education, Inc. is rated by each of S&P and Moody's with a rating from each of at least B+ (with stable or better outlook) and at least B1 (with stable or better outlook), respectively), 3.00% for the Non-Extended Cash Flow Revolver Facility and 3.00% for the A&E Cash Flow Revolving Facility) or (2) Term SOFR, subject to a floor of 0.50% per annum (or for the A&E Cash Flow Revolving Facility borrowings in permitted alternative currencies, such other permitted alternative currency rate) plus an applicable margin (which is 2.75% for the A&E Term Loan Facility following the repricing on September 8, 2025 (which further reduces to 2.50% if, and for so long as, McGraw-Hill Education, Inc. is rated by each of S&P and Moody's with a rating from each of at least B+ (with stable or better outlook) and at least B1 (with stable or better outlook), respectively), 4.00% for the Non-Extended Cash Flow Revolver Facility and 4.00% for the A&E Cash Flow Revolving Facility). As of March 31, 2026, the interest rate for the A&E Term Loan Facility was 6.418% per annum.
The following fees are applicable under the A&E Cash Flow Revolving Facility and the Non-Extended Cash Flow Revolver Facility: (a) an unused line fee of 0.50% per annum of the unused portion of the A&E Cash Flow Revolving Facility and the Non-Extended Cash Flow Revolver Facility (in each case, excluding any swingline loans), (b) a letter of credit participation fee accruing at a rate equal to the interest rate margin applicable to Term SOFR under the A&E Cash Flow Revolving Facility borrowings on the aggregate stated amount of each letter of credit (c) a letter of credit ("LC") fronting fee of 0.125% on the average amount of LC exposure of such issuing bank and (d) certain other customary fees and expenses of the lenders, letter of credit issuers and agents thereunder. In addition, the A&E Term Loan Facility is subject to 1% annual amortization payable in equal quarterly installments. The Company incurred undrawn fees of $0.8 million on unutilized commitments for both the A&E Cash Flow Revolving Facility and the Non-Extended Cash Flow Revolver Facility for the fiscal year ended March 31, 2026.
Collateral
All obligations under the Cash Flow Credit Agreement continue to be guaranteed by, and secured by a lien on the assets of, the direct parent of McGraw-Hill Education, Inc. and all of McGraw-Hill Education, Inc.'s direct and indirect wholly owned U.S. subsidiaries (subject to certain customary exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenue of excluded U.S. subsidiaries). The lien securing the obligations under the Cash Flow Credit Agreement is a second-priority lien with respect to accounts receivable, inventory and certain other current assets (second in priority to the lien securing the A&E ABL Revolving Credit Facilities) and a first-priority lien with respect to other assets, in each case, subject to other permitted liens. The A&E Cash Flow Credit Facilities are secured pari passu with the 2022 Secured Notes and the 2024 Secured Notes.
Covenants and Events of Default
The Cash Flow Credit Agreement requires the maintenance of a maximum Consolidated First Lien Net Leverage Ratio, on the last day of any fiscal quarter when aggregate exposures exceed 40% of total revolving commitments (subject to certain exclusions, including issued or undrawn letters of credit), of no greater than 6.95 to 1.00, tested for the four fiscal quarter period ending on such date.
The Cash Flow Credit Agreement also includes customary mandatory prepayment requirements with respect to the term loans under the A&E Term Loan Facility based on certain events such as asset sales, debt issuances and defined levels of excess cash flow.
The Cash Flow Credit Agreement contains customary covenants, including, but not limited to, restrictions on the ability of McGraw-Hill Education, Inc. and McGraw-Hill Education, Inc.'s restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, pay dividends or make other restricted payments, make investments, sell or otherwise transfer assets, optionally prepay or modify terms of certain junior indebtedness, enter into transactions with affiliates or certain burdensome agreements, create certain restrictions on subsidiaries, modify its governing documents, certain junior debt documents or change its line of business.
The Cash Flow Credit Agreement provides that, upon the occurrence of certain events of default, McGraw-Hill Education, Inc.'s obligations thereunder may be accelerated. Such events of default include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy proceedings, material money judgments, material pension plan events, certain change of control events and other customary events of default subject to certain materiality levels, default triggers and cure and grace periods.
As of March 31, 2026, the Company was 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, subject to U.S. borrowing base capacity (the "U.S. ABL Revolving Credit Facility") and (ii) a non-U.S. revolving credit facility, subject to non-U.S. borrowing base capacity (the "Rest of World ("RoW") ABL Revolving Credit Facility". Certain amendments to the ABL Revolving Credit Agreement entered into during the fiscal years ended March 31, 2026 and 2025 are described below.
On August 6, 2024, McGraw-Hill Education, Inc. and certain subsidiaries amended its ABL Revolving Credit Agreement which, among other things, (i) modified certain provisions therein, (ii) extended the maturity to August 6, 2029 and (iii) increased the aggregate principal amount of available commitments thereunder from $200.0 million to $300.0 million, consisting of a $265.0 million U.S. facility (such facility as being refinanced, the "A&E U.S. ABL Revolving Credit Facility") and a $35.0 million non-U.S. facility (such facility as being refinanced, the "A&E RoW ABL Revolving Credit Facility" and together with the A&E U.S. ABL Revolving Credit Facility, are collectively referred to as, the "A&E ABL Revolving Credit Facilities"). The A&E ABL Revolving Credit Facilities is not subject to amortization.
As of March 31, 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 $4.0 million.
Interest Rates and Fees
The interest rate applicable to borrowings under the A&E ABL Revolving Credit Facilities is, at McGraw-Hill Education, Inc.'s option, either (1) the base rate plus an applicable margin or (2) Term SOFR (subject to a credit spread adjustment), SONIA (subject to a credit spread adjustment), EURIBOR, Term CORRA (subject to a credit spread adjustment), BBSY or BKBM (in each case, as defined in the A&E ABL Revolving Credit Facilities), in each case, plus an applicable margin. The applicable margin is based on average availability under the ABL Revolving Credit Agreement at such time, and ranges from 1.25% to 1.75% for non-base rate loans and 0.25% to 0.75% for base rate loans. The interest rate on borrowings
under the A&E ABL Revolving Credit Facilities is subject to a Term SOFR (or such other permitted alternative currency rate) floor of 0% per annum.
The following fees are applicable under the A&E ABL Revolving Credit Facilities: (a) an unused line fee of (i) 0.250% per annum of the unused portion of any A&E ABL Revolving Credit Facilities (excluding any swingline loans) when the average daily unused portion of such A&E ABL Revolving Credit Facilities is less than or equal to 50% of the aggregate commitments under such A&E ABL Revolving Credit Facilities or (ii) 0.375% per annum of the unused portion of any A&E ABL Revolving Credit Facilities (excluding any swingline loans) when the average daily unused portion of such A&E ABL Revolving Credit Facilities is greater than 50% of the aggregate commitments under such A&E ABL Revolving Credit Facilities, (b) a letter of credit participation fee accruing at a rate equal to the interest rate margin applicable to Term SOFR borrowings on the aggregate stated amount of each letter of credit and (c) certain other customary fees and expenses of the lenders, letter of credit issuers and agents thereunder. The Company incurred undrawn fees of $1.2 million on unutilized commitments related to the A&E ABL Revolving Credit Facilities for the fiscal year ended March 31, 2026.
Collateral
All obligations under the ABL Revolving Credit Agreement continue to be guaranteed by, and secured by a lien on the assets of, the direct parent of McGraw-Hill Education, Inc. and all of McGraw-Hill Education, Inc.'s direct and indirect wholly owned U.S. subsidiaries (subject to certain customary exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenue of excluded U.S. subsidiaries). The lien securing the obligations under the A&E ABL Revolving Credit Facilities is a first-priority lien with respect to cash and cash equivalents, accounts receivable, inventory and certain other current and foreign assets, and a second-priority lien with respect to other assets (second in priority to the liens securing the A&E Cash Flow Credit Facilities, the 2022 Secured Notes and the 2024 Secured Notes). In addition to the U.S. obligors, the obligations under the A&E RoW ABL Revolving Credit Facility continue to be additionally guaranteed by, and secured by a lien on, the assets of certain foreign subsidiaries.
Covenants and Events of Default
The ABL Revolving Credit Agreement contains customary covenants, including, but not limited to, restrictions on the ability of McGraw-Hill Education, Inc. and McGraw-Hill Education, Inc.'s restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends or make other restricted payments, sell or otherwise transfer assets, optionally prepay or modify terms of certain junior indebtedness, enter into transactions with affiliates or certain burdensome agreements, create certain restrictions on subsidiaries, modify its governing documents, certain junior debt documents or change its line of business.
The ABL Revolving Credit Agreement requires the maintenance of a minimum Consolidated Fixed Charge Coverage Ratio (as set forth in the ABL Revolving Credit Agreement), on any date when Adjusted Availability (as such term is defined in the ABL Revolving Credit Agreement) is less than the greater of (a) 10% of the Line Cap (as such term is defined in the ABL Revolving Credit Agreement) and (b) $18.8 million, of at least 1.00 to 1.00, tested for the four fiscal quarter period ending on the last day of the most recently ended fiscal quarter for which financials have been delivered, and at the end of each succeeding fiscal quarter thereafter until the date on which Adjusted Availability has exceeded the greater of (a) 10% of the Line Cap and (b) $18.8 million for 30 consecutive calendar days.
The ABL Revolving Credit Agreement provides that, upon the occurrence of certain events of default, McGraw-Hill Education, Inc.'s (and other co-borrowers') obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy proceedings, material money
judgments, material pension plan events, certain change of control events and other customary events of default, subject to certain materiality levels, default triggers and cure and grace periods.
As of March 31, 2026, the Company was in compliance with all covenants or other requirements in the ABL Revolving Credit Agreement.
2024 Secured Notes
On August 6, 2024, the Company completed the issuance of $650.0 million aggregate principal amount of new 7.375% senior secured notes due 2031 (the "2024 Secured Notes"). The 2024 Secured Notes will mature on September 1, 2031. Interest on the 2024 Secured Notes is payable semiannually in arrears on March 1 and September 1 of each year, each commencing on March 1, 2025. The 2024 Secured Notes were offered and sold in transactions not required to be registered under the Securities Act and are not entitled to any registration rights.
The Company may redeem the 2024 Secured Notes at its option at certain redemption prices with respect to such series. Upon the occurrence of certain events constituting a change of control, McGraw-Hill Education, Inc. must offer to repurchase all of the 2024 Secured Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
All obligations under the 2024 Secured Notes are guaranteed by, and secured by a lien on the assets of, the direct parent of McGraw-Hill Education, Inc. and all of McGraw-Hill Education, Inc.'s direct and indirect wholly owned U.S. subsidiaries (subject to certain customary exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenue of excluded U.S. subsidiaries). The lien securing the obligations under the 2024 Secured Notes is a second-priority lien with respect to accounts receivable, inventory and certain other current assets (second in priority to the lien securing the A&E ABL Revolving Credit Facilities) and a first-priority lien with respect to other assets, in each case, subject to other permitted liens. The 2024 Secured Notes are secured pari passu with the A&E Cash Flow Credit Facilities and 2022 Secured Notes.
The Indenture governing the 2024 Secured Notes contains certain customary negative covenants and events of default, including, among other things and subject to certain significant exceptions and qualifications, limitations on the ability of the Company and its restricted subsidiaries to incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock; prepay, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into agreements containing prohibitions affecting its subsidiaries' ability to pay dividends; enter into transactions with affiliates; and consolidate, merge or sell all or substantially all of its assets.
As of March 31, 2026, the Company was in compliance with all covenants or other requirements in the Indentures governing the 2024 Secured Notes.
As of March 31, 2026, the fair value of the outstanding 2024 Secured Notes was approximately $659.8 million, with a remaining contractual life of approximately 5.5 years.
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"). The 2022 Secured Notes will mature on August 1, 2028 and the 2022 Unsecured Notes will mature August 1, 2029. Interest on each series of the 2022 Notes is payable semiannually in arrears on February 1 and August 1 of each year, each commencing on February 1, 2022. Each series of 2022 Notes were offered and sold in transactions not required to be registered under the Securities Act and are not entitled to any registration rights.
The Company may redeem each series of the 2022 Notes at its option at certain redemption prices with respect to such series. Upon the occurrence of certain events constituting a change of control, McGraw-Hill Education, Inc. must offer to repurchase all of each series of 2022 Notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
During the fiscal year ended March 31, 2024, the Company repurchased $50.0 million face value of the 2022 Unsecured Notes for $44.5 million. The repurchases were accounted for as an extinguishment of debt in accordance with ASC 470-50. As a result, the Company recorded a gain on extinguishment of debt of $3.4 million, which consisted of a $5.5 million redemption discount, partially offset by the write-off of unamortized debt discount and deferred financing costs of $1.7 million and $0.4 million, respectively. The gain was recorded within (gain) loss on extinguishment of debt in the consolidated statements of operations for the fiscal year ended March 31, 2024.
During the fiscal year ended March 31, 2026, the Company repurchased a total of $40.0 million face value of the 2022 Unsecured Notes for $39.9 million. The repurchases were accounted for as an extinguishment of debt in accordance with ASC 470-50. As a result, the Company recorded a loss on extinguishment of debt of $1.0 million, which consisted of a $0.1 million redemption discount, partially offset by the write-off of unamortized debt discount and deferred financing costs of $0.9 million and $0.2 million, respectively. The gain was recorded within (gain) loss on extinguishment of debt in the consolidated statements of operations for the fiscal year ended March 31, 2026.
All obligations under the 2022 Secured Notes are guaranteed by, and secured by a lien on the assets of, the direct parent of McGraw-Hill Education, Inc. and all of McGraw-Hill Education, Inc.'s direct and indirect wholly owned U.S. subsidiaries (subject to certain customary exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenue of excluded U.S. subsidiaries). The lien securing the obligations under the 2022 Secured Notes is a second-priority lien with respect to accounts receivable, inventory and certain other current assets (second in priority to the lien securing the A&E ABL Revolving Credit Facilities) and a first-priority lien with respect to other assets, in each case, subject to other permitted liens. The 2022 Secured Notes are secured pari passu with the A&E Cash Flow Credit Facilities and the 2024 Secured Notes.
All obligations under the 2022 Unsecured Notes are guaranteed by all of McGraw-Hill Education, Inc.'s direct and indirect wholly owned U.S. subsidiaries (subject to certain customary exceptions, including exceptions based on immateriality thresholds of aggregate assets and revenue of excluded U.S. subsidiaries).
The Indentures governing each series of the 2022 Notes contain certain customary negative covenants and events of default, including, among other things and subject to certain significant exceptions and qualifications, limitations on the ability of McGraw-Hill Education, Inc. and its restricted subsidiaries to incur additional indebtedness and guarantee indebtedness; pay dividends or make other distributions in respect of, or repurchase or redeem, its capital stock; prepay, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into agreements containing prohibitions affecting its subsidiaries' ability to pay dividends; enter into transactions with affiliates; and consolidate, merge or sell all or substantially all of its assets.
As of March 31, 2026, the Company was in compliance with all covenants or other requirements in the Indentures governing the 2022 Notes.
As of March 31, 2026, the fair value of the outstanding 2022 Secured Notes and 2022 Unsecured Notes was approximately $817.1 million and $596.0 million, respectively, with a remaining contractual life of approximately 2.4 years and 3.4 years, respectively.
Debt Issuance Costs
The unamortized debt discount and deferred financing costs as of March 31, 2026, were as follows:
|
As of March 31, 2026
|
|||||||||||||||||
| ($ in thousands) |
Debt Discount(1)
|
Deferred Financing Costs(1)
|
Total
|
||||||||||||||
| A&E Term Loan Facility | $ | 17,908 | $ | 3,420 | $ | 21,328 | |||||||||||
| 2022 Secured Notes | 13,288 | 3,115 | 16,403 | ||||||||||||||
| 2022 Unsecured Notes | 12,743 | 2,937 | 15,680 | ||||||||||||||
| 2024 Secured Notes | 4,150 | 911 | 5,061 | ||||||||||||||
|
Total
|
$ | 48,089 | $ | 10,383 | $ | 58,472 | |||||||||||
______________
(1)Debt discount and deferred financing costs are included within long-term debt in the Company's consolidated Balance Sheets and are amortized over the term of facility using the effective interest rate method.
In addition, as of March 31, 2026, the unamortized deferred financing costs related to the Cash Flow Revolving Facility and A&E ABL Revolving Credit Facilities were $2,369 and $2,953, respectively, and are included within Other non-current assets in the Company's consolidated balance sheets and are amortized over the term of the facility on a straight-line basis.
Scheduled Principal Payments
The scheduled principal payments by fiscal year required under the terms of our debt were as follows:
| ($ in thousands) | March 31, 2026 | |||||||
| 2027 | $ | 13,170 | ||||||
| 2028 | 13,170 | |||||||
| 2029 | 841,636 | |||||||
| 2030 | 612,204 | |||||||
| 2031 | 1,152,160 | |||||||
| Thereafter | - | |||||||
| $ | 2,632,340 | |||||||
Finance Lease Obligations
Finance lease obligations includes capital leases for computer systems, office equipment and vehicles. See Note 15, "Leases," to our consolidated financial statements for further discussion of our finance leases.
Cash Flows
Cash flows from operating, investing and financing activities are presented in the following table:
|
Year ended March 31,
|
||||||||||||||||||||
| ($ in thousands) | 2026 |
2025
|
2024 | |||||||||||||||||
| Statement of Cash Flow Data | ||||||||||||||||||||
| Cash flows provided by (used for): | ||||||||||||||||||||
| Operating activities | $ | 331,173 | $ | 646,284 | $ | 236,156 | ||||||||||||||
| Investing activities | (203,863) | (167,062) | (136,109) | |||||||||||||||||
| Financing activities | (264,867) | (294,680) | (77,243) | |||||||||||||||||
Operating Activities
•Cash flows provided by operating activities for the fiscal years ended March 31, 2026 and 2025 was $331.2 million and $646.3 million, respectively. The variance was primarily driven by an increase in net income of $202.7 million, net of non-cash flow items, and a decrease in the net change in operating assets and liabilities of $517.8 million. The decrease in the net change in operating assets and liabilities was primarily due to (i) 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; (ii) a decrease in accounts payable and accrued expenses, due to higher payments for annual incentive compensation in the current period, reflecting the stronger than expected performance in fiscal year 2025; (iii) a decrease in other current liabilities compared to the prior period, primarily due to the timing of payment of our fiscal year 2025 federal income tax liability and (iv) an increase in inventory compared to the prior period, due to the build-up of inventory to support a larger K-12 market opportunity in fiscal year 2027.
•Cash flows provided by operating activities for the fiscal years ended March 31, 2025 and 2024 was $646.3 million and $236.2 million, respectively. The variance was primarily driven by an increase in net income of $73.6 million, net of non-cash flow items, and an increase in the net change in operating assets and liabilities of $336.5 million. The net change in operating assets and liabilities was primarily driven by higher deferred revenue due to an increase in Re-occurring Revenue in our K-12 and Higher Education businesses as well as higher accounts payable due to the timing of payments and an increase in accrued expenses, largely attributable to higher annual incentive compensation accruals due to better-than-expected performance.
Investing Activities
•Cash flows used for investing activities for the fiscal years ended March 31, 2026 and 2025 was $203.9 million and $167.1 million, respectively. The variance was primarily driven by the increase in our product development expenditures and capital expenditures of $29.0 million and $13.8 million, respectively, as we continue to invest in our content and platforms.
•Cash flows used for investing activities for the fiscal years ended March 31, 2025 and 2024 was $167.1 million and $136.1 million, respectively. The variance was primarily driven by the increase in our product development expenditures of $15.3 million as we continue to invest in our content and platforms, the cash payment of $6.0 million for the acquisition of EssayPop and the $20.5 million in proceeds from a real estate sale in the prior fiscal period. This was partially offset by a decrease in our capital expenditures of $10.9 million.
Financing Activities
•Cash flows (used for) provided by financing activities for the fiscal years ended March 31, 2026 and 2025 was $264.9 million and $294.7 million, respectively. The variance was primarily driven by activity associated with our initial public offering, the repayment of our indebtedness and the debt refinancing transactions completed in the prior year. During the fiscal year ended March 31, 2026, financing activities primarily included the repayment of $605.6 million of debt outstanding under our A&E Term Loan Facility, proceeds of $392.9 million from the issuance of Common Stock in connection with our initial public offering, the repurchase of $39.9 million of 2022 Unsecured Notes, and the payment of $7.0 million of deferred initial public offering costs. In the prior period, financing activities primarily reflected the repayment of $754.9 million and $156.6 million of debt outstanding under the Term Loan Facility and A&E Term Loan Facility, respectively, borrowings of $650.0 million related to the issuance of the 2024 Secured Notes, and payment of $24.0 million of deferred financing costs.
•Cash flows (used for) provided by financing activities for the fiscal years ended March 31, 2025 and 2024 was $294.7 million and $77.2 million, respectively. The variance was primarily driven by
the reduction in our aggregate outstanding indebtedness of $99.6 million as a result of the 2024 Refinancing Transactions and the voluntary prepayment of $150.0 million in principal under our A&E Term Loan Facility during fiscal year 2025.
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, of 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 was $119.0 million, $90.0 million, $74.7 million for the fiscal years ended March 31, 2026, 2025 and 2024, respectively.
Capital expenditures include purchases of property, plant and equipment and capitalized technology costs that meet certain internal and external criteria. Our capital expenditures was $84.9 million, $71.1 million and $82.0 million for the fiscal years ended March 31, 2026, 2025 and 2024, 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.
Off-Balance Sheet Arrangements
As of March 31, 2026, we did not have any relationships with unconsolidated entities, such as entities often referred to as specific purpose or variable interest entities where we are the primary beneficiary, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such we are not exposed to any financial liquidity, market or credit risk that could arise if we had engaged in such relationships.
Critical Accounting Estimates
Critical accounting policies are those that require us to make significant judgments, 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 judgments, estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable and prudent under the circumstances. Actual results may differ materially from these estimates. For a complete description of our significant accounting policies, see Note 1, "Description of Business, Basis of Preparation and Summary of Significant Accounting Policies" to our consolidated financial statements.
Revenue Recognition
Revenue is recognized when the control of goods is transferred to customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. We determine revenue recognition through the following steps:
•identification of the contract, or contracts, with a customer;
•identification of the performance obligations in the contract;
•determination of the transaction price;
•allocation of the transaction price to the performance obligations in the contract; and
•recognition of revenue when, or as, we satisfy a performance obligation.
Our performance obligation for print products is typically satisfied at the time of shipment to the customer, which is when control transfers to the customer. For print products, such as workbooks, that are multi-year contracts, each academic year represents a distinct performance obligation which is satisfied when each academic year's delivery to the customer takes place.
Our digital products are generally sold as subscriptions, which are paid for at the time of sale or shortly thereafter, and our performance obligation is satisfied ratably over the life of the digital products' subscription period.
Our contracts with customers often include multiple performance obligations which generally include print and digital textbooks/content and instructional materials. One or more of these contractual performance obligations may be provided for no additional consideration, i.e., gratis performance obligations. These performance obligations are considered distinct as the customer can benefit from each of the promised products under the contract on its own and the transfer of these promised products are separately identifiable and are not dependent on other promised products within the contract. For contracts that contain multiple performance obligations, we allocate the transaction price based on the relative standalone selling price ("SSP") method, inclusive of gratis performance obligations, pursuant to which the transaction price is allocated to each performance obligation based on the proportion of the SSP of each performance obligation to the sum of the SSPs of all of the performance obligations in the contract. We determine the SSP based on our historical pricing for the distinct performance obligation when sold separately.
Sales Returns
Our sales return reflects seasonal fluctuations and is a subjective critical estimate that has a direct impact on revenue. The allowance for sales returns is an estimate, which is based on historical rates of return, timing of returns and market conditions. The provision for sales returns is reflected as a reduction to Revenues in the consolidated statements of operations for sales recognized as revenue and as a reduction to Deferred revenue in the consolidated balance sheets for sales which have not been recognized yet. Sales returns are charged against the reserve as products are returned to inventory. The impact of a one percentage point change in the estimate of the allowance for sales returns would have resulted in an increase or decrease in operating income for the fiscal year ended March 31, 2026 of approximately $1.8 million.
Business Combinations
The purchase price of an acquisition is allocated to the assets acquired, including intangible assets, and liabilities assumed, based on their respective fair values at the acquisition date. The excess of the cost of an acquired entity, net of the amounts assigned to the assets acquired and liabilities assumed, is recognized as goodwill. The net assets and results of operations of an acquired entity are included on our consolidated financial statements from the acquisition date.
The purchase price allocation process requires management to make significant estimates and assumptions in the determination of the fair value of these assets acquired and liabilities assumed, especially with respect to intangible assets. Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience, market conditions and information obtained from management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include, but are not limited to, projected revenue growth rates, royalty rates, tax rates, discount rates, tax amortization benefits, obsolescence rates and attrition rates. We engage outside third-party specialists as deemed necessary or appropriate to assist in the calculation of the fair value of assets acquired and liabilities assumed; however, management is responsible for evaluating the estimate. The significant estimates and assumptions used in determining their fair value may change during the finalization of the purchase price allocation. As a result, we may make adjustments to the provisional amounts recorded for certain items as part of the purchase price allocation subsequent to the acquisition, not to exceed one year after the acquisition date, until the purchase accounting allocation is finalized.
When a business combination involves contingent consideration, we record a liability for the estimated cost of such contingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these matters.
We reassess the estimated fair value of the contingent consideration for each financial reporting period over the term of the arrangement. Any resulting changes identified subsequent to the measurement period are recognized in earnings and could have a material effect on our results of operations.
In addition, review of the tax balances associated with the opening balance sheet of acquired entities is a critical step of the acquisition accounting and throughout the measurement period.
Accounting for the Impairment of Long-Lived Assets (Including Other Intangible Assets)
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to current forecasts of undiscounted future net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future undiscounted cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on market observable inputs, discounted cash flows or appraised values, depending upon the nature of the assets.
Goodwill and Indefinite-Lived Intangible Assets
We review goodwill and indefinite-lived intangible assets for impairment annually, as of March 31, or more frequently if events or changes in circumstances indicate that the goodwill or indefinite-lived intangible asset might be impaired.
We initially perform a qualitative analysis to evaluate whether there are events or circumstances that provide evidence that it is more likely than not that the fair value of any of our reporting units or indefinite-lived intangible assets are less than their carrying amount. If, based on this evaluation we do not believe that it is more likely than not that the fair value of any of our reporting units or indefinite-lived intangible
assets are less than their respective carrying amounts, no quantitative impairment test is performed. Conversely, if the results of our qualitative assessment determine that it is more likely than not that the fair value of any of our reporting units or indefinite-lived intangible assets are less than their respective carrying amounts, we perform a quantitative impairment test. If the results of our quantitative assessment determine that the carrying value exceeds the fair value of the reporting unit or indefinite-lived intangible assets, then we recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit or indefinite-lived assets fair value.
To perform the quantitative impairment test, we estimate the fair value of our reporting units using a weighted average of the discounted cash flow method and the market-based valuation model, which includes the Guideline Publicly Traded Company ("GPTC") method.
The discounted cash flow method incorporates various assumptions, the most significant being projected revenue growth rates, operating margins and cash flows, the terminal growth rate and the discount rate. We project revenue growth rates, operating margins and cash flows based on each reporting unit's current business, expected developments and operational strategies over a five-year period. In estimating the terminal growth rates, we consider our historical and projected results, as well as the economic environment in which its reporting units operate. The discount rates utilized for each reporting unit reflect our assumptions of marketplace participants' weighted-average cost of capital and risk assumptions, both specific to the reporting unit and overall, in the economy.
Fair value determinations of the reporting units require considerable judgment and are sensitive to changes in underlying assumptions and factors. As a result, there can be no assurance that the estimates and assumptions made for the purposes of the quantitative goodwill impairment test will prove to be an accurate prediction of future results. Certain future events and circumstances that could result in changes to our future cash flow estimates and assumptions include, but are not limited to, (i) our ability to win new adoptions in certain U.S. states, changes in state academic standards and changes in the timing and scope of anticipated levels of federal, state and local education funding available for the purchase of instructional materials in our K-12 reporting unit; (ii) enrollment levels in colleges and universities in our Higher Education reporting unit; (iii) customer retention rates and growth in knowledge-based industries, especially medical, technical and engineering fields in our Global Professional reporting unit; and (iv) government policy, political and economic conditions and competitive situations in the countries in which we operate in our International reporting unit. Other future events and circumstances that could also result in changes to these estimates and assumptions include the uncertainty of global market conditions, interest rates, inflation, and unemployment. Many of these factors are outside the control of management, and these estimates and assumptions may change in future periods. Changes in these estimates or assumptions could materially affect our cash flow projections and, therefore, could affect the likelihood and amount of potential impairment in future periods. Accordingly, if our current cash flow estimates and assumptions are not realized, it is possible that an impairment charge may be recorded in the future.
The GPTC method applies market multiples of selected comparable businesses to our financial forecasts to create an indication of fair value of our reporting units. These market multiples are derived from companies in similar industries, with similar economic and financial characteristics, and companies that we believe entail a similar degree of business risk. The key estimates and assumptions that are used to determine fair value under the market approach include EBITDA market multiples for selected comparable publicly traded companies with similarities to our reporting units. If these estimates and assumptions change in the future, such as a decline in current market multiples, heightened competition or strategic decisions made in response to economic or competitive conditions, the fair value of our reporting units may be materially impacted and therefore we may be required to record impairment charges in future periods.
To corroborate our fair value conclusions, we reconcile the aggregate estimated fair value of our reporting units to our market capitalization as of the goodwill testing date to assess the reasonableness of the implied control premium relative to observable market data and recent transactions in similar industries. Market capitalization is determined by using an average stock price over a reasonable period
preceding and including the goodwill testing date. This analysis serves as a reasonableness check of our valuation assumptions and estimates.
Fair values of indefinite-lived intangible assets are estimated using relief-from-royalty discounted cash flow analyses. Significant judgments inherent in the relief-from-royalty method include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the relief-from-royalty discounted cash flow analyses reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the relief-from-royalty discounted cash flow analyses are based upon an estimate of the royalty rates that a market participant would pay to license our trade names and trademarks.
Changes in these estimates and assumptions could materially affect the determination of fair value for each indefinite-lived intangible asset and for some of the indefinite-lived intangible assets could result in an impairment charge, which could be material to our financial position and results of operations.
Goodwill
The following tables summarize the changes in carrying value of goodwill by reporting unit for the fiscal years ended March 31, 2026, 2025 and 2024:
| ($ in thousands) | K-12 | Higher Education | Global Professional | International | Total | |||||||||||||||||||||||||||
|
As of March 31, 2023
|
$ | 1,184,877 | $ | 990,022 | $ | 249,809 | $ | 173,387 | $ | 2,598,095 | ||||||||||||||||||||||
|
Impairment charge(1)
|
- | - | (40,500) | - | (40,500) | |||||||||||||||||||||||||||
|
As of March 31, 2024
|
$ | 1,184,877 | $ | 990,022 | $ | 209,309 | $ | 173,387 | $ | 2,557,595 | ||||||||||||||||||||||
| Additions | - | - | - | - | - | |||||||||||||||||||||||||||
|
As of March 31, 2025
|
$ | 1,184,877 | $ | 990,022 | $ | 209,309 | $ | 173,387 | $ | 2,557,595 | ||||||||||||||||||||||
|
Impairment charge(2)
|
- | - | - | (35,000) | (35,000) | |||||||||||||||||||||||||||
|
As of March 31, 2026
|
$ | 1,184,877 | $ | 990,022 | $ | 209,309 | $ | 138,387 | $ | 2,522,595 | ||||||||||||||||||||||
_______________
(1)As of March 31, 2024, we performed a quantitative impairment test and recorded a $40.5 million impairment charge to adjust the carrying amount of goodwill related to our Global Professional reporting unit. The impairment charge resulted primarily from a revision of previously projected revenues given the strategic decision to sunset certain non-core front-list print titles and to re-invest into higher margin digital medical and engineering portfolios. Based on the quantitative goodwill impairment analysis of the K-12, Higher Education and International reporting units as of March 31, 2024, the fair value exceeded the carrying value. There were no impairment charges recognized related to the goodwill recorded within the K-12, Higher Education or International reporting units.
(2)As of March 31, 2026, we performed a quantitative impairment test and recorded a $35.0 million impairment charge to adjust the carrying amount of goodwill related to our International reporting unit. The impairment charge was primarily attributable to uncertainty in macroeconomic and geopolitical conditions, including rising interest rates, foreign exchange volatility, and economic uncertainties in certain countries within the Middle East region in which the International reporting unit operates, which impacted both the discount rate and projected revenue growth rates. Based on the quantitative goodwill impairment analysis of the K-12, Higher Education and Global Professional reporting units as of March 31, 2026, the fair value exceeded the carrying value. There were no impairment charges recognized related to the goodwill recorded within the K-12, Higher Education or Global Professional reporting units.
We performed our annual impairment test of the K-12, Higher Education, Global Professional and International reporting units as of March 31, 2025, and concluded that the fair value exceeded the carrying value. As such, no impairment charges were recognized related to the goodwill recorded within the K-12, Higher Education, Global Professional or International reporting units.
Indefinite-Lived Intangible Assets
As of March 31, 2026, we performed our annual impairment test of our indefinite-lived intangible assets and concluded that the carrying value of the International indefinite-lived Trademark exceeded its fair value. As a result, the Company recorded an impairment charge of $4.0 million related to the Trademark for the fiscal year ended March 31, 2026. The impairment charge was primarily attributable to uncertainty in macroeconomic and geopolitical conditions, including rising interest rates, foreign exchange volatility, and economic uncertainties in certain countries within the Middle East region in which the International reporting unit operates, which impacted both the discount rate and projected revenue growth rates used in our valuation.
As of March 31, 2025, we performed our annual impairment test and concluded that the fair value of our indefinite-lived intangible assets exceeded their respective carrying values. As such, no impairment charges were recorded for any of our indefinite-lived intangible assets as of March 31, 2025.
As of March 31, 2024 and December 31, 2023, we performed a quantitative impairment test on our indefinite-lived assets. Based on the results of the March 31, 2024 and December 31, 2023 impairment analyses, impairment charges of $2.0 million and $7.0 million, respectively, were recorded for the Global Professional indefinite-lived Trademark. This resulted primarily from a revision of previously projected revenues given the strategic decision to sunset certain non-core front-list print titles and to re-invest into higher margin digital medical and engineering portfolios.
Stock-Based Compensation
We issue stock-based awards, including stock options, restricted stock units ("RSUs"), performance stock units ("PSUs") and other stock-based awards to eligible employees, directors and consultants of McGraw Hill, Inc. and its subsidiaries. Determining the fair value of these awards requires management to make estimates and assumptions that affect the amount of compensation expense recognized in our consolidated financial statements.
The fair value of stock options is based on the fair value of our Common Stock on the grant date. The fair value of stock options subject only to a service condition is estimated at the grant date using a Black-Scholes option pricing model, while stock options that contain market conditions are valued using a Monte Carlo simulation model. The fair value of RSUs is determined based on the market price of our Common Stock on the grant date. The fair value of PSUs that contain market conditions, is estimated using a Monte Carlo simulation model.
Black-Scholes Option-Pricing Model
The Black-Scholes model requires management to make assumptions regarding dividend yield, expected volatility, risk-free interest rates and expected term. The dividend yield is based on forecasted expected payments, which are expected to be zero for the immediate future. Expected volatility is estimated based on the historical volatility of comparable companies' stock price, selected based on industry and market capitalization. The risk-free interest rate is based on the U.S. government bond yield in effect at the grant date for a period equal to the awards' expected term. The expected term represents the midpoint between the time until expiration and average vesting period.
Monte Carlo Simulation Model
The Monte Carlo model incorporates assumptions regarding dividend yield, expected volatility and risk-free interest rates. The dividend yield is based on forecasted expected payments, which are expected to be zero for the immediate future. Expected volatility is estimated based on the historical volatility of comparable companies' stock price, selected based on industry and market capitalization. The risk-free interest rate is based on the U.S. Constant Maturity Treasury rate in effect at the time of grant for a period equal to the awards' expected term.
Changes in the above assumptions could materially affect the estimated fair value of stock-based awards and the amount of compensation expense recognized.
For stock-based awards accounted for as equity awards, total compensation cost is based on the grant date fair value of the awards. For stock-based awards accounted for as liability awards, total compensation cost is based on the fair value of the awards on the date the award is granted and is remeasured at each reporting date until settlement. For stock-based awards subject to a performance and a market condition, we recognize stock-based compensation expense over the greater of the derived service period and the implicit or explicit service period, once the performance condition is considered probable of being achieved. The market condition is reflected in the grant date fair value of the stock-based award, and the stock-based compensation expense is recognized regardless of whether the market condition is achieved. For stock-based awards subject to a service condition and a performance condition, we recognize stock-based compensation expense over the requisite service period, using the accelerated attribution method, once the performance condition is considered probable of being achieved. Forfeitures are accounted for as they occur. Stock-based compensation is recorded in operating and administrative expenses in the consolidated statements of operations.
See Note 14, "Stock-Based Compensation," to our consolidated financial statements for more information regarding our stock-based compensation awards.
Valuation of Common Stock
Prior to the completion of our initial public offering, the fair value of the common stock underlying our stock-based compensation awards has historically been determined by our board of directors, with input from management and corroboration from contemporaneous third-party valuations. Given the absence of an active public market of our common stock, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our common stock at each grant date. These factors include:
•contemporaneous valuations of our common stock performed by independent third-party specialists;
•the lack of marketability inherent in our common stock and illiquidity of stock-based awards involving securities in a private company;
•our actual operating and financial performance;
•our current business conditions and projections;
•our net leverage and effective interest rates;
•our hiring of key personnel and the experience of our management;
•our history and the introduction of new products;
•our stage of development;
•industry information such as market size and growth;
•the market performance of comparable publicly traded companies;
•the U.S. and global macroeconomic and capital market conditions; and
•the likelihood of achieving a liquidity event, such as an initial public offering, a merger or acquisition of our company given prevailing market conditions.
In valuing our common stock, our board of directors determined the fair value of our Company by taking a weighted combination of the income valuation approach and the market valuation approach, which included both the GPTC and Market Transaction methods.
The income approach used the discounted cash flow method which involves estimating the future cash flows of a business, including fixed asset and net working capital requirements, for a discrete period of time and discounting such cash flows to present value. If the cash flows are expected to continue beyond the discrete time period, then a terminal value of the business is estimated and discounted to present value. The discount rate reflects the risks inherent in the cash flows and the market rates of return available from alternative investments of similar type and quality as of the valuation date.
The market approach included both the GPTC and Market Transaction methods. When using the GPTC method of the market approach in determining the fair value of our common stock, we identified companies similar to our business and used these guideline companies to develop relevant market multiples and ratios. We then applied these market multiples and ratios to our financial forecasts to create an indication of total equity value. In selecting the guideline companies used in our analysis, we applied several criteria, including companies in similar industries, companies we believed investors would perceive as similar to us based on economic and financial measures, and companies that we believed entail a similar degree of business risk. When using the Market Transaction method of the market approach in determining the fair value of our common stock, we used publicly disclosed data from arm's-length transactions involving similar companies to develop relationships or value measures between the prices paid for the target companies and the underlying financial performance of those companies. These value measures were then applied to our applicable operating data to create an indication of total equity value.
Application of these approaches and methodologies involves the use of estimates, judgments and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and future cash flows, discount rates, market multiples, the selection of comparable public companies and the probability of and timing associated with possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
For valuations after the completion of our initial public offering on July 25, 2025, the fair value of each share of underlying Common Stock is based on the closing price of our Common Stock as reported on the grant date on the NYSE.
Income Taxes
We determine the provision for income taxes using the asset and liability approach. Under this approach, deferred income taxes represent the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities.
Valuation allowances are established when management determines that it is more likely than not that some portion or all of the deferred tax asset will not be realized. Management evaluates the weight of both positive and negative evidence in determining whether a deferred tax asset will be realized. Management will look to a history of losses, future reversal of existing taxable temporary differences, taxable income in carryback years, feasibility of tax planning strategies and estimated future taxable income. The valuation allowance can also be affected by changes in tax laws and changes to statutory tax rates.
We prepare and file tax returns based on management's interpretation of tax laws and regulations. As with all businesses, our tax returns are subject to examination by various taxing authorities. Such examinations may result in future tax assessments based on differences in interpretation of tax laws and regulations. We adjust our estimated uncertain tax positions reserves based on current audits and recent settlements with various taxing authorities as well as changes in tax laws, regulations and interpretations.
We recognize accrued interest and penalties related to uncertain tax positions in income tax provision (benefit) within the consolidated statements of operations.
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 consolidated financial statements.
McGraw Hill Inc. published this content on June 11, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on June 11, 2026 at 11:17 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]