Drew Crum

Drew Crum inquired about the market dynamics for launching new mobile games, given past difficulties and current mobile business strength, and whether the backdrop is now more supportive of delivering new hits.

Answer

CEO Strauss Zelnick stated that launching new mobile hits remains 'super hard,' with only a couple of companies consistently succeeding in the last five years. He attributed Zynga's improved approach to being selective, focusing on top talent, supporting their passions, listening to data, and iterating, emphasizing that creative passion is needed to create a hit before iteration can build upon it.

Drew Crum asked about the market dynamics for launching new mobile games, specifically whether the current backdrop is more supportive of delivering new hits, given Take-Two's strength in its mobile business and the historical difficulty of launching new titles.

Answer

CEO Strauss Zelnick acknowledged the extreme difficulty of launching new mobile hits, noting that only a couple of companies, including Take-Two, have consistently done so in the last five years. He explained that Zynga's current approach, which focuses on selecting the best talent, allowing them to pursue their passions, and iterating based on data, is proving more successful than previous methods. Zelnick emphasized that creative passion is essential to create the initial hit.

Drew Crum, a Managing Director at B. Riley Securities, sought clarification on Scholastic's capital allocation strategy, specifically how dividends factor into the deployment of cash proceeds from the sale-leaseback transactions, given the historical consistency of the quarterly dividend. He also inquired about the second-half Adjusted EBITDA guidance, questioning if it indicated a year-over-year decline after accounting for the sale-leaseback impact.

Answer

Haji Glover, CFO and Executive Vice President, explained that Scholastic's goal is efficient capital return, confirming the consistent $0.20 per share quarterly dividend payout. He clarified that the second-half Adjusted EBITDA guidance, when adjusted for prior year comparisons and the sale-leaseback impact, does not suggest a decline but rather continued growth, with detailed figures available in the press release.

Drew Crum from B. Riley Securities questioned the role of dividends in Scholastic's capital allocation strategy, noting the consistent quarterly payout, and sought clarification on whether the second-half Adjusted EBITDA guidance, excluding sale-leaseback transactions, implies a year-over-year decline.

Answer

CFO and EVP Haji Glover explained that dividends are part of their efficient capital return strategy, maintaining a consistent $0.20 per share quarterly dividend, totaling approximately $20 million annually, while also focusing on building value and investing in shares. Glover clarified that the second-half Adjusted EBITDA guidance, when adjusted for prior fiscal year comparisons, does not indicate a decline but rather continued growth.

Drew Crum inquired about reconciling current funding uncertainty in Education Solutions with expectations for market improvement over the next 12-24 months, the anticipated trajectory for the business in fiscal 2026, the drivers behind the 'big' fiscal Q2 outlook, and the swing factors for achieving the full-year cash flow and free cash flow targets despite the Q1 negative variance.

Answer

Jeffrey Mathews, EVP, Chief Growth Officer & Interim President - Scholastic Education, explained that the Education Solutions business is expected to be more back-end loaded in fiscal 2026 due to a shifted selling year and anticipated moderation of federal funding headwinds, with Haji Glover, EVP & CFO, Scholastic, emphasizing continued expense control. Peter Warwick, President, CEO & Member of Board of Directors, Scholastic, attributed the strong Q2 outlook to major Trade Publishing releases (e.g., new Dogman), higher Book Fair counts, ongoing cost savings, and strong international market performance. Mr. Glover clarified that stronger second-half receipts, lower capital expenditures compared to last year's significant investments, and fewer author payments (only Dave Pilkey this year) are key factors for meeting cash flow targets.

Drew Crum asked about reconciling funding uncertainty in the Education Solutions business with expectations for market improvement, and the anticipated trajectory for fiscal 2026.

Answer

Jeffrey Mathews, EVP and Chief Growth Officer, indicated that fiscal 2026 is expected to be more back-end loaded due to a shifted selling year and anticipated moderation of federal funding headwinds. Haji Glover, CFO and EVP, emphasized the company's continued diligence in expense control within the Education Solutions segment. Peter Warwick, President and CEO, highlighted strong Q2 expectations driven by new Dogman titles, increased Book Fair bookings, and cost savings.

Drew Crum asked Haji Glover about the reasons behind the negative variance in cash flow and free cash flow in Q1 and the factors that will enable the company to recover this over the remainder of the fiscal year.

Answer

Haji Glover, Chief Financial Officer and Executive Vice President, attributed the variance primarily to the revenue forecast, with stronger receipts expected in the second half. He also cited lower capital expenditures compared to last year's significant investments in the One Scholastic Fulfillment Center, a different investment profile for growth, and fewer author payments for new titles this year.

Drew Crum sought an update on the full-year guidance for domestic per caps and average ticket prices. He also asked about the back-half weighted nature of the CapEx guidance and other potential swing factors for free cash flow in the second half.

Answer

CFO Melissa Thomas reaffirmed expectations for modest year-over-year growth in domestic average ticket prices and moderate growth in per caps. She confirmed the $225 million CapEx guidance is typically back-half weighted. For free cash flow, she highlighted Q3 working capital headwinds and interest payment timing, but noted that the previously expected increase in cash taxes would be less severe due to recent legislation.

Drew Crum from B. Riley Financial sought preliminary thoughts on the domestic box office outlook for the second half of the year, given tough comparisons and a strong holiday slate. He also asked for clarification on the various factors affecting the hotel segment's revenue outlook for the third quarter.

Answer

Chairman, President & CEO Gregory S. Marcus stated that while short-term box office is hard to predict, the end-of-year slate with films like 'Wicked' and 'Avatar' looks very positive. CFO & Treasurer Chad Paris added that the company's fiscal year change will benefit Q4 results by including the full week between Christmas and New Year's. For the hotel segment, Paris explained that strong, lower-margin banquet and catering business is a key factor, and the completion of the disruptive Hilton renovation will provide an operational tailwind in Q3.

Drew Crum from B. Riley Financial requested an outlook for the domestic box office for the second half of the year, given tough comparisons and a strong holiday slate. He also asked about the net impact of various factors on the hotel segment's revenue for the upcoming third quarter.

Answer

Chairman, President & CEO Gregory S. Marcus stated that while short-term box office is hard to predict, the end-of-year slate with major films like 'Wicked' and 'Avatar' looks very positive. CFO & Treasurer Chad Paris added that a fiscal calendar change will add the high-traffic week between Christmas and New Year's to Q4 results. For the hotel segment, Paris explained that while the completed Hilton renovation removes a headwind, the revenue mix is shifting towards lower-margin banquet and catering business, but the overall business outlook remains stable.

Drew Crum from B. Riley Financial requested management's preliminary outlook for the domestic box office for the second half of the year, noting the tough comparisons from the prior year. He also asked for clarification on the various factors impacting the hotel segment's revenue in the third quarter.

Answer

Chairman, President & CEO Gregory S. Marcus stated that while short-term box office is hard to predict, the end-of-year slate with major films like 'Wicked' and 'Avatar' looks very strong. CFO & Treasurer Chad Paris added that the company's fiscal Q4 will benefit from including the full week between Christmas and New Year's. For the hotel segment, Mr. Paris explained that strong, lower-margin banquet and catering business is a key factor, and the operational headwind from the Hilton Milwaukee renovation will be gone in Q3, which should provide an easier path forward.

Drew Crum from B. Riley Securities sought a preliminary outlook for the domestic box office in the second half of the year, noting tough upcoming comparisons. He also asked for clarification on the various factors affecting hotel segment revenue in the third quarter and how they are expected to net out.

Answer

CEO Gregory S. Marcus found it difficult to predict the box office precisely but expressed optimism for a strong end to the year with films like 'Wicked' and 'Avatar'. CFO Chad Paris added that the company's fiscal Q4 will benefit from an extra week between Christmas and New Year's. For the hotel segment, Paris noted that while strong banquet and catering growth comes at lower margins, the significant headwind from the Hilton Milwaukee renovation will be gone in Q3, which should provide an operational lift.

Drew Crum from B. Riley Securities requested a preliminary outlook for the domestic box office for the second half of the year, noting tough comparisons. He also asked for clarification on the various factors impacting the hotel segment's revenue in the upcoming third quarter.

Answer

CEO Gregory S. Marcus acknowledged the difficulty in predicting the box office but expressed optimism for a strong end to the year, citing major releases like 'Wicked' and 'Avatar'. CFO & Treasurer Chad Paris added that a fiscal calendar change will benefit Q4 by including the week between Christmas and New Year's. For the hotel segment, Paris noted that while strong banquet and catering business has lower margins, the significant headwind from the Hilton Milwaukee renovation will be gone in Q3, creating an easier operational path.

Drew Crum of B. Riley Securities asked for insight into the puts and takes for adjusted EBITDA margins in the second half of the year and the key drivers for achieving the "low 40s" guidance.

Answer

CFO Natasha Fernandes explained that H2 margins will be shaped by high incremental profit from box office, offset by discretionary marketing spend for major releases like Avatar. The mix between Hollywood and lower-cost local language films will also be a factor in quarterly margin performance.

Asked for specifics on the PDP integration being ahead of schedule, whether this influenced the upgraded EBITDA guidance, and about the potential impact of weakening Nintendo hardware sales on the PDP business in the second half of the year.

Answer

The PDP integration is ahead of schedule in areas like system integration, retailer negotiations, and portfolio optimization, which partially contributed to the raised EBITDA guidance. A potential dip in Nintendo-related sales is anticipated and already factored into the full-year guidance, with the company noting that the PDP business is well-diversified across other platforms and product categories that are performing strongly.