Scholastic Management Discusses Q4 2012 Results - Earnings Call Transcript

Scholastic (SCHL)

Q4 2012 Earnings Call

July 19, 2012 8:30 am ET


Jeffrey Mathews

Richard Robinson - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Maureen E. O’Connell - Chief Financial Officer, Principal Accounting Officer, Chief Administrative Officer and Executive Vice President

Deborah A. Forte - Executive Vice President and President of Scholastic Media

Margery W. Mayer - Executive Vice President and President of Scholastic Education


Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division



Good day, ladies and gentlemen, and welcome to the Scholastic Q4 2012 results. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Mr. Jeff [ph] Matthews, VP of Corporate Strategy, Business Development and Investor Relations. Please go ahead, sir.

Jeffrey Mathews

Thanks, Allie, and good morning, everyone. Before we begin, I'd like to point out that the slides for this presentation are available for simultaneous viewing by going to our website,, clicking on Investor Relations and following the links on that page.

I’d also like to note that this presentation contains certain forward-looking statements, which are subject to various risks and uncertainties, including the conditions of the children’s book and educational materials markets and acceptance of the company's products in 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.

Our comments today also include references to certain non-GAAP financial measures as defined in Regulation G. The reconciliation of these non-GAAP financial measures with the relevant GAAP financial information and other information required by Regulation G is provided in the company's earnings release, which is posted on the company's Investor Relations website also at

Now I'd like to introduce Dick Robinson, the Chairman, CEO and President of Scholastic, to begin our presentation.

Richard Robinson

Thanks, Jeff. Good morning and thank you for joining our Fiscal 2012 Year End Analyst and Investor Conference Call. For this morning's prepared comments, I'm joined by Maureen O'Connell, CFO and CAO. Other members of the executive team will also be available to answer questions at the end of this call.

With solid results across the company, fiscal 2012 was a good year made great by The Hunger Games. Suzanne Collins' wonderful trilogy emerges yet another Scholastic published global phenomenon, regularly taking the top 3 spots on print and e-book bestseller lists across the English-speaking world and helping drive record earnings for the company. On top of our success for The Hunger Games, good execution delivered strong operating performance across the company. At the same time, we accelerated major digital initiatives in Children's Books, Educational Technology and International. Continued financial discipline produced significant free cash flow and we finished the year with our strongest balance sheet in more than a decade. These great results provide a strong foundation for the future.

Although we will not repeat our record earnings from fiscal 2012, our goal for fiscal 2013 is to sustain last year's momentum while generating strong free cash flow. We have also taken major steps forward in the fast-paced digital transition of our businesses. We expect our substantial investments in e-commerce, e-books and new digital programs and education will generate strong profit growth, largely in fiscal 2014, though earnings in the year ahead will be lower than fiscal 2012's record level.

Now I'd like to discuss our results and our plan in more detail.

In Children's Books, we had a tremendous year in fiscal 2012. Continuing a record of high quality, best-selling Publishing and Trade, and strong results in fairs. At the same time, we successfully introduced Storia, our ereading app and e-book system, which is the central pillar of our digital strategy for this business. These results and investments position our Children's Book business well to grow and maintain market share as more schools and families buy e-books from us.

During fiscal 2012, The Hunger Games trilogy reached new peaks each fiscal quarter driven by tremendous word-of-mouth among fans, supported by smart marketing and social media campaigns. Later in the year, this accelerated with the buildup and release of the movie. The Hunger Games has emerged as the top e-book in the U.S. in 2012 as the trilogy gains widespread adult readership.

We also had great results with other Scholastic authors and series including The Invention of Hugo Cabret and Wonderstruck by Brian Selznick, as well as new and backlist titles in the 39 Clues series. With over 50 million copies now in print and digital in the U.S. and many more millions internationally, The Hunger Games is a true global phenomenon, the product of remarkable storytelling and great publishing.

All 3 titles in the series have now been bought by many customers, and as a result, sales have begun to ease in June and July, as fiscal 2013 begins. For the year, we expect sales to return to pre-movie levels as The Hunger Games becomes a cornerstone of our backlist.

In the coming year, we have a number of exciting new releases, including 2 new Captain Underpants titles by Dav Pilkey and a fantastic new Star Wars pop-up book by Matthews Reinhart. Scholastic Series Publishing continues to expand with The Raven Boys, the first book in the new young adult quartet from award-winning and best-selling author Maggie Stiefvater. We also are publishing 3 new titles in the best-selling 39 Clues series.

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