Higher cash used by operating activities of $123.9 million and free cash use (a non-GAAP measure of operations explained in the accompanying tables) of $125.6 million versus the prior period were primarily driven by a $77.3 million increase in inventory purchases to offset long lead times related to continuing global supply chain challenges and to meet expected demand. Product costs also continue to increase, primarily in freight charges, impacting inventory purchases. Free cash use was also impacted by the $63.1 million federal income tax refund and the $6.6 million in insurance recoveries received in the prior fiscal period, partially offset by $39.6 million in higher customer remittances. The Company’s net cash position and strong balance sheet continue to afford the Company financial flexibility to manage supply chain challenges, as well as to pursue strategic growth initiatives.
The Company distributed $5.1 million in dividends in the first quarter and has reacquired 122,781 shares of its common stock to-date for $5.7 million. The Company expects to continue open market repurchases of its shares for the foreseeable future.
Segment Results
Children’s Book Publishing and Distribution
Book Fairs revenues increased $12.3 million to $28.3 million, primarily due to increased shipments related to reward redemptions. Redemptions, which are common in summer months, were not significant in the prior fiscal period as the Book Fairs business had not yet begun to recover from the pandemic-related shutdowns. New fair activity is minimal during the first quarter based on the seasonality of the business.
Trade revenues were relatively flat during a quiet quarter at $90.1 million, a decrease of $2.9 million, versus a tough comparison to the prior year, which benefited from the successful release of the limited edition foil covers for Dog Man®. Fiscal 2023 revenues from frontlist titles are expected to benefit from new fall releases such as the fourth Cat Kid Comic Club title from Dav Pilkey’s latest series and backlist titles continue to perform well. Additionally, the channel has begun to recognize revenue and expenses related to the release of the animated series on Apple TV+®, Eva the OwletTM, based on the book series Owl DiariesTM.
Book Clubs revenues were relatively flat at $6.3 million, as this channel is seasonally quiet during the summer months.
Education Solutions
Revenues decreased $6.9 million to $73.2 million, relative to the prior year when significant sales shifted from the preceding fourth quarter owing to supply chain constraints at that time. This was partially offset by higher revenues from the New Worlds Reading Initiative, a free book delivery program to advance literacy in the state of Florida, which did not commence shipping until the third quarter of the prior year. As expected, operating loss increased $11.6 million, on the shift in product shipments and continued strategic investments in long-term go-to-market capabilities in the division.
International
In local currency, International revenues increased $5.8 million to $65.0 million, primarily driven by the performance of the trade and book fairs channels in the Australia and Canada markets. This was partially offset by $4.7 million in unfavorable foreign currency translation adjustment due to the strengthening of the US dollar. In addition, during the quarter, the Company finalized the disposition of its low margin direct-to-consumer business in Asia, which generated losses in the prior year.
Overhead
Excluding one-time items, overhead costs were relatively flat at $20.2 million, as the Company continues to focus on capital resources allocations.
Outlook
The Company has affirmed its guidance for fiscal year 2023 for revenues to increase 8% to 10% and Adjusted EBITDA (as defined in the accompanying tables) of $195 million to $205 million, up from $189 million in fiscal 2022, with the greatest contribution expected in the seasonally important second and fourth fiscal quarters.
Additional Information
To supplement our financial statements presented in accordance with GAAP, we include certain non-GAAP calculations and presentations including, as noted above, “Adjusted EBITDA” and “Free Cash Flow”. Please refer to the non-GAAP financial tables attached to this press release for supporting details on the impact of one-time items on operating income, net income and diluted EPS, and the use of non-GAAP financial measures included in this release. This information should be considered as supplemental in nature and not as a substitute for the related financial information prepared in accordance with GAAP.
Conference Call
The Company will hold a conference call to discuss its results at 4:30 p.m. ET today, September 22, 2022. Peter Warwick, Scholastic President and Chief Executive Officer, and Kenneth Cleary, the Company’s Chief Financial Officer, will moderate the call.
The conference call and accompanying slides will be webcast and accessible through the Investor Relations section of Scholastic’s website, www.investor.scholastic.com. To access the conference call by phone, please go to this link (registration link), and you will be provided with dial in details. To avoid delays, we encourage participants to dial into the conference call fifteen minutes ahead of the scheduled start time. Shortly following the call, an archived webcast and accompanying slides from the conference call will also be posted at investor.scholastic.com.
About Scholastic
For more than 100 years, Scholastic Corporation (NASDAQ: SCHL) has been encouraging the personal and intellectual growth of all children, beginning with literacy. Having earned a reputation as a trusted partner to educators and families, Scholastic is the world's largest publisher and distributor of children's books, a leading provider of literacy curriculum, professional services, and classroom magazines, and a producer of educational and entertaining children's media. The Company creates and distributes bestselling books and e-books, print and technology-based learning programs for pre-K to grade 12, and other products and services that support children's learning and literacy, both in school and at home. With 15 international operations and exports to 165 countries, Scholastic makes quality, affordable books available to all children around the world through school-based book clubs and book fairs, classroom libraries, school and public libraries, retail, and online. Learn more at www.scholastic.com.
Forward-Looking Statements
This news release contains certain forward-looking statements relating to future periods. Such forward-looking statements are subject to various risks and uncertainties, including the conditions of the children’s book and educational materials markets generally and acceptance of the Company’s products within those markets, and other risks and factors identified from time to time in the Company’s filings with the Securities and Exchange Commission. Actual results could differ materially from those currently anticipated.
SCHL: Financial
Click here to download a PDF version of this release with tables