The $155.0M increase in cash provided by operating activities and the $162.3M increase in free cash flow (a non-GAAP measure of operations explained in the accompanying tables) versus the prior period were primarily driven by $390.0M in higher customer collections on the increase in revenues as well as $54.0M in higher net federal tax refunds. This was partially offset by higher inventory purchases of $112.4M, increased payroll related payments, higher postage and freight charges, and a $13.4M net settlement of an intellectual property litigation matter. Higher cash balances will afford the Company financial flexibility to pursue strategic growth initiatives.
The Company distributed $5.2M in dividends in the fourth quarter and has reacquired 870,258 shares of its common stock for $33.4M in fiscal year 2022. As previously disclosed, this included a privately negotiated transaction with a related party for 300,000 common shares at a 4.2% discount to market prices. In addition, during the fourth fiscal quarter, the Company entered into a privately negotiated transaction with a third party for the repurchase of 190,290 common shares at a 4.0% discount to market prices. The Company expects to continue open market repurchases of its shares for the foreseeable future.
Outlook
In fiscal 2023, the Company expects the overall demand for independent reading resources at home and in school to remain strong, and management will continue to reallocate investments to yield the best returns by focusing on the value of the Company’s intellectual property, expanding its education solutions channel and, where appropriate, adjust product pricing.
In the book fairs channel, the Company will strategically increase fair count, anticipating 85% pre-pandemic levels, while maintaining strong revenue per fair, continuing to leverage improved distribution efficiencies and sales and marketing efforts. Labor and system issues in the book clubs channel have been mitigated and higher operating incomes are expected on improved customer confidence. The Company is also excited about new releases in the trade channel from some of the most popular best-selling series and authors such as Wings of FireTM GraphixTM by Tui Sutherland, Cat Kid Comic Club®: Collaborations by Dav Pilkey, Brian Selznick’s Big Tree and many more. The Company’s content benefited from on-screen adaptations such as Dreamworks’ The Bad GuysTM and Netflix’s HeartstopperTM in fiscal 2022 and moving forward Scholastic Entertainment has 35+ projects in development, some of which will impact next fiscal year, such as Eva the OwletTM, a new animated kids and family series on AppleTV+ based on the New York Times bestselling Scholastic book series “Owl Diaries”TM by award-winning author Rebecca Elliott.
The Company anticipates increased demand of its educational products supported by continued government-related funding programs, as well as improvements in Education Solutions’ sales and marketing efforts. The Company will enter its second year of the New Worlds Reading Initiative, which will begin in the second fiscal quarter, and will look for future state-sponsored programs opportunities as they arise. The sales of Scholastic Magazines+TM have reached near pre-pandemic levels with distribution of over 125M units of digital and physical product to children throughout the U.S. The Company will prudently increase spending to improve cross-selling initiatives and data-driven selling opportunities which will benefit future periods but will impact next fiscal year, decreasing operating income.
Internationally, the Company is expecting modest improvement in operating profits as the major markets continue to recover from the impacts of the global pandemic and Asia benefits from the Company’s strategic exit of the low-margin direct sales business.
Overhead costs are expected to increase next year due to higher salary related costs as a result of continuing inflationary pressures and an increase in spending on transformative and digital services as the Company invests in future growth opportunities. The Company will continue to explore further opportunities for measured cost savings with process improvements and automation, product rationalization and overall improvements in resource allocation to increase shareholder value.
The Company expects fiscal year 2023 revenues to increase 8%-10% and has set an Adjusted EBITDA (as defined in the accompanying tables) target for fiscal year 2023 of $195M to $205M, up from $188.9M in fiscal 2022.
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, July 21, 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 those arising from the continuing impact of COVID-19 related measures taken by governmental authorities, school administrators, or suppliers or customers which may curtail or otherwise adversely affect certain of the Company’s business operations, and 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