MH

McGraw Hill, Inc. (MH) - 10-Q Summary for Period Ended September 30, 2025

Business Context and Reporting Period

This is the first quarterly report (Form 10-Q) filed by McGraw Hill, Inc. following its Initial Public Offering (IPO) completed on July 25, 2025. The reporting period covers the three and six months ended September 30, 2025. McGraw Hill is a leading global provider of information solutions for education across K-12, higher education, and professional learning. The company operates through four reportable segments: K-12, Higher Education, Global Professional, and International.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue: Revenue decreased 2.8% year-over-year (YoY) for the quarter and 0.5% for the six-month period. The decline was driven by a 11.2% drop in K-12 revenue due to smaller market opportunities in key states (California, Texas, Florida) and an 8.8% decline in International revenue. These were partially offset by a 14.0% increase in Higher Education revenue, driven by digital adoption and Inclusive Access sales.
• Profitability: Net income decreased 21.1% YoY for the quarter. Operating income declined 12.6% YoY. However, Adjusted EBITDA remained relatively stable, decreasing only 1.4% for the quarter and increasing 1.9% for the six-month period.
• One-Time IPO Costs: Operating expenses increased significantly due to $31.1 million in stock-based compensation recognized upon the IPO and a $16.4 million loss on the extinguishment of debt related to the repayment of $385.7 million of term loans using IPO proceeds.
• Interest Expense: Net interest expense decreased 30.2% YoY for the quarter, driven by debt repayments and lower variable rates, partially offset by new secured notes issued in 2024.

Guidance, Outlook, and Risks

Management Commentary: Management highlighted the continued shift toward digital, recurring revenue models, which now represent 67% of total revenue for the six months ended September 30, 2025. The company noted strong performance in Higher Education with 110% Annual Net Dollar Retention (NDR) as of March 31, 2025. The company expects the "One Big Beautiful Bill Act" (OBBBA) enacted in July 2025 to significantly reduce domestic income tax payable for the fiscal year ending March 31, 2026.

Risks and Contingencies:

• Legal Proceedings: The company is facing a False Claims Act lawsuit filed by the State of Florida alleging overcharges to school districts. Additionally, there is ongoing litigation regarding author royalty calculations and a patent dispute involving a former subsidiary (Beable Education).
• Seasonality: Results are heavily influenced by the academic calendar, with significant revenue recognition occurring in the second half of the fiscal year.
• Regulatory Environment: Risks include potential changes in federal education funding, policy shifts, and the impact of the U.S. Department of Education's structure.

Investor Verification Checklist

• Debt Structure: Verify the impact of the recent debt refinancing and the $150 million prepayment made in October 2025 (subsequent event) on future interest obligations.
• K-12 Market Opportunity: Assess the sustainability of the K-12 revenue decline and the timing of procurement cycles in key states like California, Texas, and Florida.
• Legal Exposure: Review the potential financial impact of the Florida False Claims Act lawsuit and the author royalty class action, as the company states it cannot currently estimate losses.
• Tax Rate Volatility: Confirm the realization of tax benefits from the OBBBA legislation and the reduction in valuation allowances on deferred tax assets.
• Recurring Revenue Mix: Monitor the growth rate of Re-occurring Revenue (digital subscriptions) versus Transactional Revenue to validate the strategic shift toward predictable cash flows.