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MH

McGraw Hill, Inc. (MH)·Q2 2026 Earnings Summary

Executive Summary

  • Beat-and-raise quarter: Revenue $669.2M (+4.2% vs S&P Global consensus $642.1M*) and Primary (adjusted) EPS $1.40 vs $0.35 consensus*, driven by double‑digit Higher Education growth and mix shift to digital; GAAP EPS $0.57 . Guidance raised across revenue, re‑occurring revenue, and Adjusted EBITDA .
  • Margin expansion despite lower K‑12 market: Gross margin 79.2% (+~150 bps YoY), Adjusted EBITDA margin 42.8% (+60 bps YoY) on digital mix and operating discipline .
  • Higher Education the engine: Revenue +14% YoY to $213.0M; digital +18.4%; U.S. HE TTM share 30% (+160 bps YoY, MPI), Inclusive Access +37% and >2,000 campuses, underpinning forward visibility .
  • Balance sheet de‑risking: $150M term‑loan prepayment in Oct and 50 bps spread cut; YTD gross debt reduction $542M → >$40M annualized interest savings .

Consensus figures marked with * are S&P Global; Values retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • Higher Education acceleration: “Revenue totaled $213.0 million, an increase of 14.0% YoY… digital revenue rose 18.4%… U.S. Higher Education market share reached a record 30%… +160 bps YoY (MPI)” .
  • Digital and re‑occurring mix: Digital revenue +7.6% YoY to $352.2M (53% of total); re‑occurring revenue +6.5% YoY to $422.4M (63% of total), improving predictability and margins .
  • “Second strongest fiscal second quarter revenue performance in a decade” with raised FY26 outlook; CEO: “advancing personalized learning at scale” with AI‑powered solutions; CFO: execution and momentum in digital and re‑occurring revenue .

What Went Wrong

  • K‑12 headwind as expected: Revenue $359.1M (‑11.2% YoY) on a smaller adoption year despite re‑occurring growth; mgmt reiterates return to growth in FY27 with larger TAM (CA Math approval secured) .
  • YoY earnings compression on GAAP: Net income $105.3M vs $133.4M prior year; GAAP diluted EPS $0.57 vs $0.80, reflecting interest expense and debt extinguishment charges .
  • International softness: Q2 revenue $50.3M (‑8.8% YoY) with weakness in Canada and timing in Spain; sequential decline narrowed vs Q1 .

Financial Results

Headline Metrics (Chronological: Q2’25 → Q1’26 → Q2’26)

MetricQ2 2025Q1 2026Q2 2026
Revenue ($USD Millions)$688.6 $535.7 $669.2
GAAP Diluted EPS ($)$0.80 $0.00 $0.57
Adjusted Diluted EPS ($)$1.57 $0.00 $1.40
Gross Margin (%)77.9% (530.1/680.2 approx)77.0% 79.2%
Adjusted EBITDA ($M)$290.3 $191.4 $286.4
Adjusted EBITDA Margin (%)42.2% 35.7% 42.8%
Net Income ($M)$133.4 $0.5 $105.3
Net Income Margin (%)19.4% 0.1% 15.7%

Notes: Adjusted EPS includes add‑backs (intangible amortization, restructuring, stock‑based comp, etc.) per non‑GAAP methodology and reconciliation .

Versus S&P Global Consensus (Q2 2026)

MetricConsensus*ActualSurprise
Revenue ($M)642.1*669.2 +4.2%
Primary EPS ($)0.35*1.40 +$1.05

Consensus figures marked with * are S&P Global; Values retrieved from S&P Global.

Segment Revenue (Q2 2025 → Q2 2026)

SegmentQ2 2025 ($M)Q2 2026 ($M)
K‑12404.6 359.1
Higher Education186.9 213.0
Global Professional40.4 39.8
International55.2 50.3
Other1.5 6.9
Total688.6 669.2

KPIs and Mix

KPIPriorCurrent
Re‑occurring Revenue ($M, Q2)$396.7 (Q2’25) $422.4 (Q2’26)
Digital Revenue ($M, Q2)$327.4 (Q2’25) $352.2 (Q2’26)
Re‑occurring % of Revenue (Q2)63% commentary (Q2’26) 63% (Q2’26)
RPO Total ($M)$1,676.2 (3/31/25) $1,913.6 (9/30/25)
RPO Current/Non‑Current ($M)$794.0 / $882.2 (3/31/25) $966.9 / $946.6 (9/30/25)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($B)FY 2026$1.986–$2.046 $2.031–$2.061 Raised
Re‑occurring Revenue ($B)FY 2026$1.477–$1.517 $1.504–$1.524 Raised
Adjusted EBITDA ($M)FY 2026$663–$703 $702–$722 Raised
GAAP Effective Tax RateFY 2026—~15–20% New
Stock‑Based CompQ3 & Q4 FY26—~$1–2M each quarter New
Interest SavingsH2 FY26—~+$5M New
Debt ExtinguishmentQ3 FY26—~$6M expected New
UFCF ConversionFY 2026—Slightly > low end of 50%–100% of Adj. EBITDA Reiterated
CapEx & Product DevFY 2026—% of revenue unchanged Reiterated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2026)Current Period (Q2 2026)Trend
AI/Technology initiativesEmphasis on data‑driven and GenAI solutions; Scribe improving time‑to‑market; digital momentum Expanded AI suite (AI Reader 11M interactions in Q2; Sharpen Advantage; Clinical Reasoning; Writing Assistant; Teacher Assistant); AI improving ops (K‑12 processing time ‑27%) Accelerating adoption and breadth
Higher Education share/growthHE +14.1% YoY; Evergreen early traction (95% acceptance on updates) HE +14% YoY; TTM share 30% (+160 bps); Inclusive Access +37%, >2,000 campuses Strengthening
K‑12 cycle/TAMSmaller FY26 K‑12 market; CA Math review panel recommendation; nationwide literacy pilot K‑12 rev ‑11.2% YoY; building for FY27 (CA math approved, FL ELA, TX math); supplemental bundling with PLUS/ALEKS Near‑term headwind, FY27 setup
Macros/tariffs/federal—“No significant impact from tariffs or proposed federal education policy changes”; funding mostly state/local Stable
InternationalQ1: International ‑11.7% YoY on timing; digital transition Q2: ‑8.8% YoY; softness in Canada, timing in Spain; Canada share gains +~350 bps YTD Sequential improvement
Investment paceR&D ~8–9% of revenue maintained Reaffirmed, redeployed toward AI tools; margin expansion still expected Consistent

Management Commentary

  • CEO: “With market share gains and the expansion of AI‑powered tools, we are advancing personalized learning at scale… integrating research‑driven pedagogy, high‑quality content, and a wealth of student data” .
  • CFO: “Adjusted EBITDA… 43% margin, up 60 bps YoY… AI implementation is… reducing K‑12 order processing times by 27% and automating 25% of service chats… Scribe recouped its initial investment in a year” .
  • CEO on strategy/moat: “Our multi‑layered moat… intellectual property… proprietary data… domain expertise… allows us to deploy AI effectively across learning environments” .

Q&A Highlights

  • Higher Education drivers and durability: Outperformance mostly from share gains (beyond ~2–2.5% enrollment), aided by Evergreen and AI Reader (11M Q2 interactions; ~20M by Oct); Inclusive Access shows multi‑year 15–20x activation scaling in accounts .
  • K‑12 capture and FY27 setup: Capture rates +200 bps ex‑large states; confidence in FY27 TAM (+~$300M) with CA Math/FL ELA/TX Math; bundling supplemental/intervention to win core .
  • AI moat and margins: Mgmt sees AI as tailwind; Scribe reduces certain costs by ~60% and time‑to‑market by ~50%; expects margin expansion over time .
  • Capital allocation: Priority on organic investment and deleveraging to 2.0–2.5x net leverage; $150M prepay in Oct; selective tuck‑in M&A funnel, nothing transformational .
  • Federal/State funding: No widespread procurement delays; district funding patterns consistent with expectations; K‑12 budgets largely state/local .

Estimates Context

  • Q2 2026 vs S&P consensus: Revenue $669.2M vs $642.1M* (+4.2%); Primary EPS $1.40 vs $0.35* (material beat). 11 estimates for both revenue and EPS in Q2* .
  • Forward look: Q3 2026 consensus Revenue ~$408.0M*; Primary EPS ~$0.13*; raised FY26 guidance and visibility from RPO ($1.91B) suggest potential upward estimate revisions, particularly in HE; watch EBITDA definitions when comparing to consensus (GAAP vs adjusted) .

Consensus figures marked with * are S&P Global; Values retrieved from S&P Global.

Key Takeaways for Investors

  • Beat-and-raise with quality mix: Higher Education strength and digital mix expanded margins; FY26 raised across revenue, re‑occurring revenue, and Adj. EBITDA .
  • Structural growth drivers: Inclusive Access scale (>2,000 campuses; +37% sales) and Evergreen content model underpin multi‑year share gains in HE .
  • K‑12 near‑term trough, FY27 reset: Anticipated small FY26 TAM pressured K‑12, but CA Math approval and bundling strategy support FY27 inflection .
  • AI as execution edge and cost lever: Tangible usage (AI Reader), new solutions (Sharpen Advantage, Clinical Reasoning), and internal tools (Scribe) improving efficiency and stickiness .
  • De‑risked balance sheet lowers interest burden: $542M YTD gross debt reduction and spread cut yield >$40M annualized cash interest savings; continued deleveraging targeted .
  • Modeling cues: H2 seasonality closer to FY24 than FY25; GAAP ETR ~15–20%; small SBC in Q3/Q4; ~+$5M H2 interest savings; ~$6M debt extinguishment in Q3 .
  • Near‑term trading setup: Positive catalyst stack (beat, guidance raise, HE share gains, deleveraging); monitor K‑12 order timing, international softness normalization, and translation of AI benefits into operating leverage .

Appendix: Additional Detail

Digital vs Print Mix (Q2)

  • Digital revenue $352.2M vs $327.4M YoY; print $317.0M vs $361.1M YoY .

Balance Sheet Highlights (9/30/25)

  • Cash $463.2M; Long‑term debt $2.80B; Deferred revenue current/non‑current $966.9M / $946.6M; Total equity $794.6M .

Cash Flow YTD (Six Months Ended 9/30/25)

  • Operating cash flow $168.3M; CapEx $(37.5)M; Product development $(49.1)M .

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