McGraw Hill, Inc.: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with the unaudited consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and the related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended March 31, 2025 included in our final prospectus filed with the SEC on July 24, 2025 (the “Prospectus”). This discussion may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, those discussed in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included in the Prospectus and elsewhere in this Quarterly Report on Form 10-Q. Our actual results could differ materially from such forward-looking statements. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future.

Company Overview

McGraw Hill is a leading global provider of information solutions for education across K-12 to higher education, and through professional learning. We harness the power of content, data-driven insights, and learning science to deliver personalized learning experiences and drive positive outcomes throughout the entire learning lifecycle. We believe that we have positively impacted hundreds of millions of learners and educators with our personalized learning solutions to support learning at scale worldwide. On an annual basis, we serve approximately 60 million learners and educators. We believe that education positively impacts lives and, for more than 135 years, we have continuously innovated to help educators and institutions unlock the potential of each learner.

We believe that education is foundational to global stability and economic prosperity. Recent investments in technology infrastructure and the rapid proliferation of mobile devices have accelerated the adoption of digital learning solutions and fostered a culture of data-driven instruction across the education landscape. Demand for personalized content, delivered via intuitive digital solutions, is reshaping the industry as educators continue to leverage technology, including generative AI, to meet students where they are in their learning journey.

Understanding how learning happens is critical to building effective learning solutions, like ALEKS, which has leveraged data science and machine learning to enhance learning outcomes for over 25 years. Over the last decade, we have invested more than $2.0 billion in developing a suite of market leading digital learning solutions. Our scalable digital solutions rely on shared technology infrastructure, years of collaborative partnerships with leading institutions, expertise in learning science and a focus on high-value iterative product design and development activities led by a team of approximately 300 software engineers. We utilize our data analytics capabilities to generate continuous feedback loops that drive product and go-to-market innovation, which allows us to simplify workflows while creating meaningful learning experiences that are tailored to the needs of each learner.

For the six months ended September 30, 2025 and 2024, we generated revenue of $1,204.9 million and $1,211.5 million, respectively, and a net income (loss) of $105.8 million and $124.0 million, respectively. For the six months ended September 30, 2025 and 2024, we generated Adjusted EBITDA of $477.8 million and $468.9 million, respectively. See “—Key Operating Metrics” and “—Non-GAAP Financial Measures.”

Recent Transactions

A&E Term Loan Facility

On October 16, 2025, the Company prepaid $150.0 million of principal outstanding under its A&E Term Loan Facility.

New York Office Sublease

In October 2025, the Company entered into a sublease agreement for a portion of its New York office space. The sublease is scheduled to commence in March 2026, with total sublease income of approximately $33.0 million over the term of the agreement. The sublease expires in 2035, which corresponds to the remaining term of the Company’s master lease for the premises.

The Education End-Markets We Serve

We serve the needs of three primary customer end markets in education – K-12, higher education and professional which predominately serves the medical and engineering markets. While the United States is our largest market, we serve customers in international markets through an expansive global distribution network. Our operating segments are as follows:

Our K-12 segment represented 52% and 56% of total revenue for the six months ended September 30, 2025 and 2024, respectively. Our Higher Education segment represented 33% and 29% of total revenue for the six months ended September 30, 2025 and 2024, respectively. Our Global Professional segment represented 6% of total revenue for each of the six months ended September 30, 2025 and 2024, respectively. Our International segment represented 8% and 9% of total revenue for the six months ended September 30, 2025 and 2024, respectively. The remaining total revenue relates to adjustments made for in-transit product sales, which are included in the segment “Other.”

Our revenue models across each of our businesses are transforming along with our customers’ increasing adoption of digital learning solutions. In general, our digital solutions are sold on a subscription basis with high renewal rates, which provides a more predictable and stable long-term revenue model.

We are a top two provider in the K-12 market in the United States, serving approximately 99% of public K-12 districts. We go to market with blended digital and print learning solutions as a holistic provider of end-to-end core, supplemental and intervention curricula to support the needs of U.S. K-12 schools. Core Solutions are digital and print solutions that serve mainstream educators with research-based, comprehensive learning solutions. Supplemental Solutions are additional learning resources that complement, enrich and extend core program solutions. Intervention Solutions are solutions that leverage our expertise in data science and learning science to help identify and support students at risk for academic faltering, to remediate learning gaps or to support special learning or behavioral needs. AP and Electives are additional learning solutions to support college readiness, career and technical education, and electives. We sell our learning solutions directly to school districts across the U.S. through multi-year contracts providing strong visibility and predictability of forward revenue. The timing of purchase and the contract length varies by state resulting in variation in the total K-12 sales opportunity in a given year with states with large K-12 populations like Florida, California and Texas having an outsized impact on the sales opportunity in the years that they procure content.

Higher Education

We are a top two provider of digital and print learning solutions in the U.S. higher education market based on market share, serving approximately 82% of U.S. higher education institutions. The proliferation of digital technology has reshaped Higher Education. To support the evolving needs of educators and learners, we provide comprehensive digital course experiences for nearly every subject through our flagship Connect solution, with over 34 million lifetime learners. Our Evergreen content delivery model provides continuous content updates to keep materials engaging and aligned with the latest standards, which we believe outpaces the industry standard and advances beyond the traditional approach of episodic revision cycles.

In Fall 2024, the number of students who were enrolled in post secondary institutions was 19 million. Although we cover all major academic disciplines, our content portfolio is organized into three key disciplines: (i) Business, Economics & Computing; (ii) Science, Engineering & Math; and (iii) Humanities, Social Science & Languages. Our top selling products include Economics: Principles, Problems, and Policies (McConnell/Brue/Flynn), ALEKS, Managerial Accounting (Garrison) and The Art of Public Speaking (Lucas). The primary users of our solutions are students enrolled in two- and four-year non-profit colleges and universities, and to a much lesser extent, for-profit institutions. Although we sell our solutions to the students as end users, it is the instructor who often makes the ultimate decision regarding materials for the course. A key distribution model for Higher Education is Inclusive Access, a course material affordability program, designed by institutions and guided by the U.S. Department of Education. Inclusive Access has saved students over $1.5 billion since the fiscal year ended March 31, 2018, offering them the choice to select the learning resources that are right for them.

We also sell our Higher Education solutions to well-known online retailers and distribution partners, who subsequently sell to students and we also sell direct to student via our proprietary e-commerce platform.

Global Professional

We are a global content provider of trusted, high stakes medical and engineering learning solutions and support learners and educational institutions with technologies developed to maximize learning outcomes. Through our subscription-based learning solutions such as Access, we provide students, institutions and professionals with comprehensive medical and engineering learning solutions. Our AccessMedicine solution is available across approximately 94% of U.S. medical schools.

International

We are a provider of comprehensive digital and print solutions in more than 100 countries and 80 languages outside the United States. Through our expansive global distribution network, we serve the needs of learners and educators throughout the world with our K-12 and Higher Education solutions that primarily originate or are adapted from our U.S.-based solutions.

Other

Other represents certain transactions or adjustments that are unusual or non-operational. In addition, adjustments made for in-transit product sales, timing-related corporate cost allocations and other costs not attributed to a single reportable segment are recorded within Other.

Key Operating Metrics

In addition to our GAAP financial information, we review a number of operating and financial metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions.

Re-occurring Revenue and Transactional Revenue

Re-occurring Revenue represents revenue from offerings that are generally sold as digital subscriptions and multi-year print products. Revenue from digital subscriptions, which are paid for at the time of sale or shortly thereafter, is recognized ratably over the term of the subscription period as the performance obligation is satisfied. For multi-year print products (e.g., workbooks), which are paid for at the beginning of the contract period, each academic year represents a distinct performance obligation. Revenue is recognized upon delivery to the customer for each respective academic year. Re-occurring Revenue serves as a key operating metric used by management as it offers valuable insight into the subscription-based nature of our business. For the six months ended September 30, 2025 and 2024, Re-occurring Revenue represented approximately 67% and 63% of total revenue, respectively.

Transactional Revenue includes revenue from both print and digital offerings. Revenue from print offerings is recognized at the point of shipment and revenue from digital offerings are recognized at the time of delivery. In addition, revenues for amounts billed to customers in a sales transaction for shipping and handling are included in Transactional Revenue. For the six months ended September 30, 2025 and 2024, Transactional Revenue represented approximately 33% and 37% of total revenue, respectively.

Annual Net Dollar Retention

We believe that our ability to retain and grow Re-occurring Revenues from our existing customers over time strengthens the stability and predictability of our total revenue base and is reflective of the value we deliver to them through upselling and cross selling across our suite of solutions to our existing customers. We assess our performance in our Higher Education and Global Professional segments using Annual Net Dollar Retention (“NDR”), which serves as a key operating metric used by management for evaluating the trajectory of digital subscription revenue growth within our existing customer base. Our ability to retain existing customers serves as a leading indicator of our digital subscription-based revenues and cash flows for the subsequent reporting period. It encompasses renewals, expansions, contractions, price increases, and attrition, providing valuable insights into customer engagement and satisfaction.

However, NDR is not applicable to our K-12 segment, as purchasing decisions are typically made at the state or district level, often involving multi-year contracts and varying purchasing cycles across states, that do not align with the renewal, expansion, contraction, and attrition dynamics that NDR measures. Similarly, NDR does not apply to our International segment, as it encompasses higher education and K-12 markets, each with distinct purchasing behaviors, contract structures, and funding mechanisms. This variability across these markets makes it challenging to apply a consistent NDR calculation, limiting its effectiveness as a metric for the International segment.

We calculate NDR by dividing (a) the digital subscription amounts invoiced to existing customers during the year, inclusive of changes in enrollment, price changes and attrition by (b) the digital subscription amounts invoiced to such customers for the comparable prior year.

Remaining Performance Obligation

Our Remaining Performance Obligations (“RPO”) represent the total contracted future revenue that has not yet been recognized. RPO is associated with our digital subscriptions and multi-year print products and is impacted by various factors, including the timing of renewals and purchases, contract durations, and seasonal trends. Given these influencing factors, RPO should be evaluated alongside Re-occurring Revenue and other financial metrics disclosed within this Quarterly Report on Form 10-Q. RPO serves as a key operating metric used by management as it offers visibility into future revenue and facilitates the assessment of long-term growth sustainability.

While we believe that the above key operating metrics provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management, it is important to note that other companies, including companies in our industry, may not use these metrics, may calculate them differently, may have different frequencies or may use other financial measures to evaluate their performance, all of which could reduce the usefulness of Re-occurring Revenue, Transactional Revenue, NDR or RPO as a comparative measure.

Re-occurring Revenue and Transactional Revenue for the Three and Six Months Ended September 30, 2025 and 2024

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NDR as of March 31, 2025, 2024 and 2023

RPO as of September 30, 2025 and as of March 31, 2025

Results of Operations

The following tables set forth certain consolidated financial information for the three months ended September 30, 2025 and 2024. The following tables and discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Consolidated Operating Results for the Three Months Ended September 30, 2025 and 2024

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Revenue

Revenue for the three months ended September 30, 2025 and 2024 was $669.2 million and $688.6 million, respectively, representing a decrease of $19.4 million, or 2.8%. The decrease was driven by the segment factors described below.

K-12

K-12 revenue for the three months ended September 30, 2025 and 2024 was $359.1 million and $404.6 million, respectively, representing a decrease of $45.5 million, or 11.2%. The decrease was primarily attributable to lower Transactional Revenue of approximately $51.4 million, driven by a smaller market opportunity in the current period. This decrease was partially offset by an increase in Re-occurring Revenue of approximately $5.9 million, primarily due to the timing of deferred revenue recognition associated with prior year sales in the California, Texas and Florida markets.

Higher Education

Higher Education revenue for the three months ended September 30, 2025 and 2024 was $213.0 million and $186.9 million, respectively, representing an increase of $26.1 million, or 14.0%. The increase was primarily due to:

• higher Re-occurring Revenue of approximately $19.5 million, due to the timing of deferred revenue recognition associated with the increased adoption of digital products, including 37% growth in Inclusive Access sales, market share gains, continued growth in U.S. enrollments and price increases; and
• higher digital Transactional Revenue of approximately $9.6 million, primarily due to growth in Inclusive Access sales; partially offset by
• lower print Transactional Revenue of approximately $3.0 million, primarily due to the continued adoption of digital products.

Global Professional

Global Professional revenue for the three months ended September 30, 2025 and 2024 was $39.8 million and $40.4 million, respectively, representing a decrease of $0.6 million, or 1.5%. The decrease was primarily due to lower Transactional Revenue of approximately $1.9 million, reflecting the continued execution of the strategic initiative to sunset non-core print titles and to focus on core digital re-occurring products. This decrease was partially offset by an increase in digital Re-occurring Revenue of approximately $1.3 million.

International

International revenue for the three months ended September 30, 2025 and 2024 was $50.3 million and $55.2 million, respectively, representing a decrease of $4.8 million, or 8.8%. The decrease was driven by lower Transactional Revenue and Re-occurring Revenue of approximately $3.8 million and $1.0 million, respectively, as a result of a smaller market opportunity in Spain and lower enrollments in Canada.

Cost of Sales (Excluding Depreciation and Amortization)

Cost of sales (excluding depreciation and amortization) for the three months ended September 30, 2025 and 2024 was $139.1 million and $153.4 million, respectively, representing a decrease of $14.3 million, or 9.3%. The decrease was primarily due to:

• lower manufacturing, freight and other direct fulfillment costs of approximately $13.1 million, primarily attributable to lower Transactional Revenue from print offerings in the K-12 and International segments due to smaller market opportunities in the current period; and
• lower royalty costs of approximately $1.1 million, primarily due to lower royalties in the K-12 and International segments resulting from a decrease in revenue, partially offset by higher royalty costs in the Higher Education segment, resulting from changes in the product sales mix and the timing of deferred royalty cost recognition, consistent with the growth in Re-occurring Revenue.

Operating and Administrative Expenses

Operating and administrative expenses for the three months ended September 30, 2025 and 2024 was $299.5 million and $277.6 million, respectively, representing an increase of $21.9 million, or 7.9%. The increase was primarily due to:

• higher stock-based compensation of approximately $31.1 million, due to the recognition of cumulative stock-based compensation expense in connection with the Company’s IPO;
• higher salaries and wages of approximately $7.3 million, primarily due to an annual merit-based compensation increase; and
• higher allowance for credit losses of approximately $2.9 million, due to the increase in the accounts receivable balance of customers with higher risk characteristics; partially offset by
• lower selling and marketing expense of approximately $6.5 million, driven by lower depository and sales force sales commission, due to the decrease in revenue primarily resulting from a smaller market opportunity in the K-12 segment;
• lower technology-related expenses of approximately $3.7 million, primarily due to lower usage of cloud-based solutions;
• lower general and administrative expense of approximately $2.7 million, due to reduced restructuring activities in the current period, resulting in lower severance and related costs;
• a gain of approximately $2.6 million, resulting from the settlement of a copyright infringement litigation in the current period;
• lower annual incentive compensation expense of approximately $2.2 million, primarily reflecting the higher incentive payments recognized in the prior year, which were driven by a stronger than expected business performance; and
• lower temporary labor cost of approximately $1.7 million, resulting from reduced contractor usage in the current period, driven by lower revenue.

Depreciation and Amortization of Intangibles

Depreciation and amortization expenses for the three months ended September 30, 2025 and 2024 were $74.1 million and $78.5 million, respectively, representing a decrease of $4.4 million, or 5.6%. The decrease was driven primarily by lower amortization expense related to the use of an accelerated method of amortization for our content intangible assets.

Interest Expense (Income), Net

Interest expense (income), net, for the three months ended September 30, 2025 and 2024 was $55.9 million and $80.1 million, respectively, representing a decrease of $24.2 million, or 30.2%. The decrease was primarily driven by the refinancing of the A&E Term Loan Facility in August 2024, which reduced variable rate indebtedness by $749.6 million, the repayment of $385.7 million of debt outstanding under the A&E Term Loan Facility using net proceeds from the Company's IPO on July 25, 2025, and a lower variable interest rate during the current period compared to the prior-year period. These decreases were partially offset by higher interest expense resulting from the issuance of $650.0 million in aggregate principal amount of 2024 Secured Notes in August 2024.

(Gain) Loss on Extinguishment of Debt

During the three months ended September 30, 2025, we recorded a loss on extinguishment of debt of $16.4 million, inclusive of the accelerated amortization of unamortized debt discount and deferred financing costs, in connection with the repayment of $385.7 million of debt outstanding under the A&E Term Loan Facility upon the closing of the Company's IPO on July 25, 2025.

During the three months ended September 30, 2024, in connection with the 2024 Refinancing Transactions, we recorded a loss on extinguishment of debt of $2.7 million, inclusive of write-offs of then-existing unamortized debt discount and deferred financing fees of $1.0 million and $0.3 million, respectively, and new debt discount fees of $1.4 million.

Income Tax Provision (Benefit)

Income tax provision (benefit) for the three months ended September 30, 2025 and 2024 was $(21.1) million and $(37.2) million, respectively, and the effective tax rate was (25.0)% and (38.6)%, respectively.

For the three months ended September 30, 2025, the effective tax rate differed from the statutory rate due to the expected decrease in the valuation allowance on domestic deferred tax assets due to the enactment of H.R. 1, commonly referred to as the One Big Beautiful Bill Act ("OBBBA"), on July 4, 2025. The acceleration of deductibility of software development, interest, and tangible personal property expenditures is expected to significantly reduce our domestic income tax payable for the fiscal year ending March 31, 2026. In addition, a valuation allowance continues to be recorded against certain foreign net deferred tax assets.

For the three months ended September 30, 2024, the effective tax rate differed from the statutory rate due to forecasted current tax expense, a valuation allowance recorded against domestic and certain foreign net deferred tax assets, and the jurisdictional mix of forecasted annual domestic book losses and foreign book income.

Adjusted EBITDA by Segment for the Three Months Ended September 30, 2025 and 2024

Adjusted EBITDA by segment is determined and presented in accordance with Accounting Standards Codification, or ASC, Topic 280, Segment Reporting. Adjusted EBITDA by segment is a measure used by our chief operating decision maker to assess the performance of our segments. We exclude from Adjusted EBITDA by segment: interest expense (income), net, income tax (benefit) provision, depreciation, amortization and pre-publication amortization and certain transactions or adjustments that our chief operating decision maker does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance. In addition, Adjusted EBITDA by segment is calculated in a manner consistent with the definition and meaning of our Adjusted EBITDA Non-GAAP measure, see “—Non-GAAP Financial Measures—EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin.”

K-12

K-12 Adjusted EBITDA for the three months ended September 30, 2025 and 2024 was $172.0 million and $185.8 million, respectively, representing a decrease of $13.8 million, or 7.4%. The decrease was primarily due to:

• a decrease in revenue of approximately $45.5 million as discussed under “—Consolidated Operating Results for the Three Months Ended September 30, 2025 and 2024—K-12”; partially offset by
• lower manufacturing, royalty, freight and other direct fulfillment costs of approximately $18.3 million, attributable to lower Transactional Revenue from print offerings;
• lower allocation of shared corporate costs of approximately $6.6 million, driven by current period factors such as revenue, headcount and the allocable cost base; and
• lower selling and marketing expense driven by lower depository and sales force sales commission of approximately $7.0 million, due to the decrease in revenue resulting from a smaller market opportunity in the current period.

Higher Education

Higher Education Adjusted EBITDA for the three months ended September 30, 2025 and 2024 was $89.0 million and $78.8 million, respectively, representing an increase of $10.2 million, or 12.9%. The increase was primarily due to:

• an increase in revenue of $26.1 million as discussed under “—Consolidated Operating Results for the Three Months Ended September 30, 2025 and 2024—Higher Education”; partially offset by
• higher allocation of shared corporate costs of approximately $4.8 million, driven by current period factors such as revenue, headcount and the allocable cost base;
• higher royalty and other direct costs of approximately $4.4 million, consistent with the growth in revenue;
• higher other expenses of approximately $2.5 million, primarily reflecting increased business activity to support growth and operational execution;
• higher allowance for credit losses of approximately $2.2 million, due to the increase in the accounts receivable balance of customers with higher risk characteristics;
• higher research and development expense of approximately $0.8 million, reflecting continued investment in platform enhancements and product development initiatives; and
• higher selling and marketing expense, driven by higher sales force sales commission of approximately $0.7 million, consistent with the growth in revenue.

Global Professional

Global Professional Adjusted EBITDA for the three months ended September 30, 2025 and 2024 was $11.5 million and $12.9 million, respectively, representing a decrease of $1.4 million or 11.2%. The decrease was primarily due to higher manufacturing cost of approximately $0.8 million, driven by product sales mix, higher salaries and wages of approximately $0.7 million, primarily due to an annual merit-based compensation increase, and the decrease in revenue of $0.6 million as discussed under “—Consolidated Operating Results for the Three Months Ended September 30, 2025 and 2024—Global Professional”. This decrease was partially offset by lower allocation of shared corporate costs of approximately $0.8 million, driven by current period factors such as headcount, revenue and the allocable cost base.

International

International Adjusted EBITDA for the three months ended September 30, 2025 and 2024 was $7.4 million and $11.2 million, respectively, representing a decrease of $3.9 million, or 34.3%. The decrease was primarily due to:

• a decrease in revenue of $4.8 million as discussed under “—Consolidated Operating Results for the Three Months Ended September 30, 2025 and 2024—International”; and
• higher salaries and wages of approximately $0.7 million, primarily due to an annual merit-based compensation increase; partially offset by
• lower manufacturing and royalty costs of approximately $1.8 million, attributable to lower Transactional Revenue from print sales.

Consolidated Operating Results for the Six Months Ended September 30, 2025 and 2024

Revenue

Revenue for the six months ended September 30, 2025 and 2024 was $1,204.9 million and $1,211.5 million, respectively, representing a decrease of $6.6 million, or 0.5%. The decrease was driven by the segment factors described below.

K-12

K-12 revenue for the six months ended September 30, 2025 and 2024 was $630.1 million and $679.5 million, respectively, representing a decrease of $49.4 million, or 7.3%. The decrease was primarily attributable to lower Transactional Revenue of approximately $72.2 million, driven by a smaller market opportunity in the current period. This decrease was partially offset by an increase in Re-occurring Revenue of approximately $22.8 million, primarily due to the timing of deferred revenue recognition associated with prior year sales in the California, Texas and Florida markets.

Higher Education

Higher Education revenue for the six months ended September 30, 2025 and 2024 was $395.3 million and $346.7 million, respectively, representing an increase of $48.6 million, or 14.0%. The increase was primarily due to:

• higher Re-occurring Revenue of approximately $29.6 million, due to the timing of deferred revenue recognition associated with the increased adoption of digital products, including 37% growth in Inclusive Access sales, market share gains, continued growth in U.S. enrollments and price increases; and
• higher digital and print Transactional Revenue of approximately $19.0 million, primarily due to growth in Inclusive Access sales and a reduction in product returns, respectively.

Global Professional

Global Professional revenue for the six months ended September 30, 2025 and 2024 was $75.0 million and $75.7 million, respectively, representing a decrease of $0.7 million, or 1.0%. The decrease was primarily due to lower Transactional Revenue of approximately $2.9 million, driven by the continued execution of the strategic initiative to sunset non-core print titles. This decrease was partially offset by an increase in digital Re-occurring Revenue of approximately $2.2 million, primarily attributable to the timing of deferred revenue recognition related to growth in digital subscriptions for our core products in the prior year.

International

International revenue for the six months ended September 30, 2025 and 2024 was $101.8 million and $113.5 million, respectively, representing a decrease of $11.7 million, or 10.3%. The decrease was driven by lower Transactional Revenue and Re-occurring Revenue of approximately $8.7 million and $3.0 million, respectively, as a result of a smaller market opportunity in Spain and lower enrollments in Canada.

Cost of Sales (Excluding Depreciation and Amortization)

Cost of sales (excluding depreciation and amortization) for the six months ended September 30, 2025 and 2024 was $262.5 million and $278.6 million, respectively, representing a decrease of $16.2 million, or 5.8%. The decrease was primarily due to:

• lower manufacturing, freight and other direct fulfillment costs of approximately $17.9 million, attributable to lower Transactional Revenue from print offerings in the K-12 and International segments due to smaller market opportunities in the current period; partially offset by
• higher royalty costs of approximately $2.2 million, primarily resulting from changes in the product sales mix and the timing of deferred royalty cost recognition in the Higher Education segment, consistent with the growth in Re-occurring Revenue.

Operating and Administrative Expenses

Operating and administrative expenses for the six months ended September 30, 2025 and 2024 was $541.0 million and $523.9 million, respectively, representing an increase of $17.2 million, or 3.3%. The increase was primarily due to:

• higher stock-based compensation of approximately $31.1 million, due to the recognition of cumulative stock-based compensation expense in connection with the Company’s IPO;
• higher salaries and wages of approximately $12.0 million, primarily due to an annual merit-based compensation increase; and
• higher allowance for credit losses of approximately $2.2 million, due to the increase in the accounts receivable balance of customers with higher risk characteristics; partially offset by
• lower technology-related expenses of approximately $8.6 million, primarily due to lower usage of cloud-based solutions;
• lower annual incentive compensation expense of approximately $6.9 million, primarily reflecting the higher incentive payments recognized in the prior year, which were driven by a stronger than expected business performance;
• lower selling and marketing expense of approximately $4.1 million, driven by lower sales force sales commission, due to the decrease in revenue resulting from a smaller market opportunity in the K-12 segment;
• a gain of approximately $2.6 million, resulting from the settlement of a copyright infringement litigation in the current period;
• lower general and administrative expense of approximately $1.8 million, due to reduced restructuring activities in the current period, resulting in lower severance and related costs;
• lower other expenses of approximately $1.8 million, primarily due to foreign exchange income, resulting from favorable fluctuations in foreign currency exchange rates; and
• lower temporary labor cost of approximately $1.7 million, resulting from reduced contractor usage in the current period, driven by lower revenue.

Depreciation and Amortization of Intangibles

Depreciation and amortization expenses for the six months ended September 30, 2025 and 2024 were $148.7 million and $154.2 million, respectively, representing a decrease of $5.5 million, or 3.6%. The decrease was driven primarily by lower amortization expense related to the use of an accelerated method of amortization for our content intangible assets, partially offset by higher amortization expense related to software development projects that were completed and put into service during the period.

Interest Expense (Income), Net

Interest expense (income), net, for the six months ended September 30, 2025 and 2024 was $114.7 million and $161.0 million, respectively, representing a decrease of $46.3 million, or 28.8%. The decrease was primarily driven by the refinancing of the A&E Term Loan Facility in August 2024, which reduced variable rate indebtedness by $749.6 million, the repayment of $385.7 million of debt outstanding under the A&E Term Loan Facility using net proceeds from the IPO on July 25, 2025, and a lower variable interest rate during the current period compared to the prior-year period. These decreases were partially offset by higher interest expense resulting from the issuance of $650.0 million in aggregate principal amount of 2024 Secured Notes in August 2024.

(Gain) Loss on Extinguishment of Debt

During the six months ended September 30, 2025, we recorded a loss on extinguishment of debt of $16.4 million, inclusive of the accelerated amortization of unamortized debt discount and deferred financing costs, in connection with the repayment of $385.7 million of debt outstanding under the A&E

Term Loan Facility upon the closing of the Company's IPO on July 25, 2025.

During the six months ended September 30, 2024, in connection with the 2024 Refinancing Transactions, we recorded a loss on extinguishment of debt of $2.7 million, inclusive of write-offs of then-existing unamortized debt discount and deferred financing fees of $1.0 million and $0.3 million, respectively, and new debt discount fees of $1.4 million.

Income Tax Provision (Benefit)

Income tax provision (benefit) for the six months ended September 30, 2025 and 2024 was $15.9 million and $(32.8) million, respectively, and the effective tax rate was 13.1% and (36.0)%, respectively.

For the six months ended September 30, 2025, the effective tax rate differed from the statutory rate due to the expected decrease in the valuation allowance on domestic deferred tax assets due to the enactment of the OBBBA. The acceleration of deductibility of software development, interest, and tangible personal property expenditures is expected to significantly reduce our domestic income tax payable for the fiscal year ending March 31, 2026. In addition, a valuation allowance continues to be recorded against certain foreign net deferred tax assets.

For the six months ended September 30, 2024, the effective tax rate differed from the statutory rate due to forecasted current tax expense, a valuation allowance recorded against domestic and certain foreign net deferred tax assets, and the jurisdictional mix of forecasted annual domestic book losses and foreign book income.

Adjusted EBITDA by Segment for the Six Months Ended September 30, 2025 and 2024

Adjusted EBITDA by segment is determined and presented in accordance with Accounting Standards Codification, or ASC, Topic 280, Segment Reporting. Adjusted EBITDA by segment is a measure used by our chief operating decision maker to assess the performance of our segments. We exclude from Adjusted EBITDA by segment: interest expense (income), net, income tax (benefit) provision, depreciation, amortization and pre-publication amortization and certain transactions or adjustments that our chief operating decision maker does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance. In addition, Adjusted EBITDA by segment is calculated in a manner consistent with the definition and meaning of our Adjusted EBITDA Non-GAAP measure, see “—Non-GAAP Financial Measures—EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin.”

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K-12 Adjusted EBITDA for the six months ended September 30, 2025 and 2024 was $268.3 million and $277.0 million, respectively, representing a decrease of $8.6 million, or 3.1%. The decrease was primarily due to:

• a decrease in revenue of approximately $49.4 million as discussed under “—Consolidated Operating Results for the Six Months Ended September 30, 2025 and 2024—K-12”;
• higher salaries and wages of approximately $2.9 million, primarily due to an annual merit-based compensation increase; partially offset by
• lower manufacturing, royalty, freight and other direct fulfillment costs of approximately $27.5 million, attributable to lower Transactional Revenue from print offerings;
• lower allocation of shared corporate costs of approximately $10.6 million, driven by current period factors such as headcount, revenue and the allocable cost base; and
• lower selling and marketing expense, driven by lower sales force sales commission of approximately $6.3 million, due to the decrease in revenue resulting from a smaller market opportunity in the current period.

Higher Education

Higher Education Adjusted EBITDA for the six months ended September 30, 2025 and 2024 was $166.8 million and $152.0 million, respectively, representing an increase of $14.8 million, or 9.8%. The increase was primarily due to:

• an increase in revenue of $48.6 million as discussed under “—Consolidated Operating Results for the Six Months Ended September 30, 2025 and 2024—Higher Education”; partially offset by
• higher royalty and other direct costs of approximately $9.6 million, consistent with the growth in revenue;
• higher allocation of shared corporate costs of approximately $9.5 million, driven by current period factors such as headcount, revenue and the allocable cost base;
• higher other expenses of approximately $3.5 million, primarily reflecting increased business activity to support growth and operational execution;
• higher selling and marketing expense driven by higher sales force sales commission of approximately $3.3 million, consistent with the growth in revenue;
• higher research and development expense of approximately $2.6 million, reflecting continued investment in platform enhancements and product development initiatives;
• higher salaries and wages of approximately $2.1 million, primarily due to an annual merit-based compensation increase; and
• higher allowance for credit losses of approximately $2.1 million, due to the increase in the accounts receivable balance of customers with higher risk characteristics.

Global Professional

Global Professional Adjusted EBITDA for the six months ended September 30, 2025 and 2024 was $22.8 million and $23.1 million, respectively, representing a decrease of $0.3 million or 1.5%. The decrease was primarily due to higher salaries and wages of approximately $1.1 million, primarily due to an annual merit-based compensation increase and a decrease in revenue of $0.7 million as discussed under “—Consolidated Operating Results for the Six Months Ended September 30, 2025 and 2024—Global Professional”. This decrease was partially offset by lower allocation of shared corporate costs of approximately $1.5 million, driven by current period factors such as headcount, revenue and the allocable cost base.

International

International Adjusted EBITDA for the six months ended September 30, 2025 and 2024 was $14.6 million and $24.1 million, respectively, representing a decrease of $9.5 million, or 39.5%. The decrease was primarily due to:

• a decrease in revenue of $11.7 million as discussed under “—Consolidated Operating Results for the Six Months Ended September 30, 2025 and 2024—International”; and
• higher allocation of shared corporate costs of approximately $1.9 million, driven by current period factors such as headcount, revenue and the allocable cost base; and
• higher salaries and wages of approximately $1.3 million, primarily due to an annual merit-based compensation increase; partially offset by
• lower manufacturing and royalty costs of approximately $5.5 million, attributable to lower Transactional Revenue from print sales.

Non-GAAP Financial Measures

We include non-GAAP financial measures in this Quarterly Report on Form 10-Q, including EBITDA, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted net income (loss), Adjusted basic and diluted earnings (loss) per share and non-GAAP operating and administrative expense financial measures (including Adjusted operating and administrative expenses, Adjusted selling and marketing expenses, Adjusted general and administrative expenses and Adjusted research and development expenses) because our management uses them to assess our performance. We believe they reflect the underlying trends and indicators of our business and allow management to focus on the most meaningful indicators of our continuous operational performance.

Although we believe these measures are useful for investors for the same reasons, readers of the financial statements should note that these measures are not a substitute for GAAP financial measures or disclosures. We have provided reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP financial measure.

EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin

EBITDA is defined as net income (loss) from continuing operations plus interest expense (income), net, income tax provision (benefit), depreciation and amortization.

Adjusted EBITDA is defined as net income (loss) from continuing operations plus interest expense (income), net, income tax provision (benefit), depreciation and amortization, restructuring and cost savings implementation charges, the effects of the application of purchase accounting, advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated upon consummation of our IPO on July 25, 2025), impairment charges, transaction and integration costs, stock-based compensation, (gain) loss on extinguishment of debt and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.

Further, although not included in the calculation of Adjusted EBITDA below, we may at times add estimated cost savings and operating synergies related to operational changes ranging from acquisitions or dispositions to restructurings, and exclude one-time transition expenditures that we anticipate we will need to incur to realize cost savings before such savings have occurred.

Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenue.

Adjusted net income (loss) and Adjusted basic and diluted earnings (loss) per share

Adjusted net income (loss) is defined as net income (loss) from continuing operations adjusted to exclude amortization of intangible assets, restructuring and cost savings implementation charges, the effects of the application of purchase accounting, advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated upon consummation of our IPO on July 25, 2025), impairment charges, transaction and integration costs, stock-based compensation, (gain) loss on extinguishment of debt and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations and the related tax impact of those adjustments.

We define Adjusted basic and diluted earnings (loss) per share as Adjusted net income (loss) divided by the basic and diluted weighted average shares outstanding.

Non-GAAP operating and administrative expenses

Our non-GAAP operating and administrative expense financial measures include Adjusted operating and administrative expenses, Adjusted selling and marketing expenses, Adjusted general and administrative expenses and Adjusted research and development expenses. We calculate each of these measures by using the same adjustments used in calculating EBITDA and Adjusted EBITDA to the extent such items are included in the corresponding GAAP operating and administrative expense category.

These non-GAAP operating and administrative expense financial measures are calculated as follows:

Adjusted operating and administrative expenses is defined as GAAP operating and administrative expenses adjusted to exclude restructuring and cost savings implementation charges, advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated upon consummation of our IPO on July 25, 2025), transaction and integration costs, stock-based compensation, amortization of product development costs and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.

Adjusted selling and marketing expenses is defined as GAAP selling and marketing expenses adjusted to exclude stock-based compensation and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.

Adjusted general and administrative expenses is defined as GAAP general and administrative expenses adjusted to exclude restructuring and cost savings implementation charges, advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated upon consummation of our IPO on July 25, 2025), transaction and integration costs, stock-based compensation and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.

Adjusted research and development expenses is defined as GAAP research and development expenses adjusted to exclude stock-based compensation and the impact of earnings or charges resulting from matters that we do not consider indicative of our ongoing operations.

Each of the above measures is not a recognized term under GAAP and does not purport to be an alternative to net income (loss), or any other measure derived in accordance with GAAP as a measure of operating performance, or to cash flows from operations as a measure of liquidity. Such measures are presented for supplemental information purposes only, have limitations as analytical tools, and should not be considered in isolation or as substitute measures for our results as reported under GAAP. Management uses non-GAAP financial measures to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, our measures may not be comparable to other similarly titled measures of other companies, and our use of these measures varies from others in our industry. Such measures are not intended to be a measure of cash available for management’s discretionary use, as they may not capture actual cash obligations associated with interest payments, taxes and debt service requirements.

The tables below provide reconciliations of each of the non-GAAP financial measures to the most directly comparable GAAP financial measure on a consolidated basis for the three and six months ended September 30, 2025 and 2024.

Reconciliations of EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin:

(a) Represents severance and other expenses associated with headcount reductions and other cost savings initiated as part of our restructuring initiatives.

(b) For the three and six months ended September 30, 2025 and 2024, represents the pro rata portion of the annual $10.0 million of advisory fees paid to Platinum Advisors pursuant to the Advisory Agreement (which was terminated upon consummation of our IPO on July 25, 2025).

(c) This primarily represents transaction and integration costs associated with acquisitions.

(d) Represents stock-based compensation expense related to awards granted to our employees, directors and consultants under the Company's long-term incentive plans.

(e) Represents accelerated amortization of debt discount and deferred financing costs related to the A&E Term Loan Facility paydown from IPO proceeds.

(f) For the three months ended September 30, 2025 and 2024, this amount represents (i) foreign currency exchange transaction impact of $0.1 million and $(1.3) million, respectively, (ii) non-recurring expenses related to strategic initiatives, including marketing, consulting, and non-operational costs associated with the market introduction of a new product launch of $1.7 million and $1.0 million, respectively, (iii) reimbursements of expenses paid to Platinum Advisors incurred in connection with its services under the Advisory Agreement (which was terminated upon consummation of our IPO on July 25, 2025) of $0.1 million and $0.1 million, respectively, (iv) post-acquisition compensation expense of nil and $0.2 million, respectively, associated with the acquisition of Boards & Beyond, (v) non-recurring transaction-related costs associated with the IPO that were expensed as incurred of $0.9 million and $2.0 million, respectively, and (vi) the impact of additional insignificant earnings or charges resulting from matters that we do not consider indicative of our ongoing operations of $0.6 million and $2.0 million, respectively, that are primarily related to individually insignificant miscellaneous items, including third-party consulting and advisory fees associated with system and process rationalization initiatives and certain additional payments related to incremental insurance premiums and policies as a result of the Platinum acquisition that did not renew after the consummation of the IPO on July 25, 2025.

For the six months ended September 30, 2025 and 2024, this amount represents (i) foreign currency exchange transaction impact of $(1.8) million and $(0.7) million, respectively, (ii) non-recurring expenses related to strategic initiatives, including marketing, consulting, and non-operational costs associated with the market introduction of a new product launch of $2.5 million and $2.4 million, respectively (iii) reimbursements of expenses paid to Platinum Advisors incurred in connection with its services under the Advisory Agreement (which was terminated upon consummation of our IPO on July 25, 2025) of $0.2 million and $0.4 million, respectively, (iv) post-acquisition compensation expense of nil and $0.4 million, respectively, associated with the acquisition of Boards & Beyond, (v) non-recurring transaction-related costs associated with the IPO that were expensed as incurred of $2.8 million and $2.0 million, respectively and (vi) the impact of additional insignificant earnings or charges resulting from matters that we do not consider indicative of our ongoing operations of $1.3 million and $3.3 million, respectively, primarily related to individually insignificant miscellaneous items, including asset dispositions, third-party consulting and advisory fees associated with system and process rationalization initiatives, as well as certain additional payments related to incremental insurance premiums and policies as a result of the Platinum acquisition that did not renew after the consummation of the IPO on July 25, 2025.

Reconciliations of Adjusted net income (loss) and Adjusted basic and diluted earnings (loss) per share

($ in thousands)

(1) Represents amortization of definite-lived acquired intangible assets.

(2) Represents the same adjustments used in calculating EBITDA and Adjusted EBITDA.

(3) Represents the tax impact of the adjustments, which are pre-tax, based upon the effective income tax rate.

Reconciliations of Non-GAAP operating and administrative expenses:

(1) We calculate each of these measures by using the same adjustments used in calculating EBITDA and Adjusted EBITDA to the extent such items are included in the corresponding GAAP operating and administrative expense category.

Seasonality and Comparability

Our revenues, operating profit and operating cash flows are affected by the inherent seasonality of the academic calendar. For the fiscal year ended March 31, 2025, we realized approximately 25%, 33%, 20% and 22% of our revenues during the first, second, third and fourth quarters, respectively. This seasonality affects operating cash flow from quarter to quarter and there are certain months when we operate at a net cash deficit. Changes in our customers’ ordering patterns may affect the comparison of our current results in prior years where our customers may shift the timing of material orders for any number of reasons, including, but not limited to, changes in academic semester start dates or changes to their inventory management practices. During recent years, as the Higher Education business has transitioned to digital sales, third fiscal quarter sales have partially migrated to the fourth fiscal quarter.

Quarterly Results of Operations

The following tables set forth certain historical consolidated financial information for each of the quarters in the two-year period ended September 30, 2025. The following tables and discussion should be read in conjunction with the information contained in our unaudited consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report.

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Liquidity and Capital Resources

Historically, we have generated operating cash flows sufficient to fund our seasonal working capital, capital requirements, expenditure and financing requirements. We use our cash generated from operating activities for a variety of needs, including among others: working capital requirements, capital and product development expenditures and strategic acquisitions.

Our operating cash flows are affected by the inherent seasonality of the academic calendar. This seasonality also impacts cash flow patterns as investments are typically made in the first half of the year to support the significant selling period that occurs in the second half of the year. As a result, our cash flow is typically lower in the first half of the fiscal year and higher in the second half of the fiscal year.

Going forward, we may need cash to fund operating activities, working capital, product development expenditures, capital expenditures and strategic investments. We believe that our future cash flow from operations, together with our access to funds on hand and capital markets, will provide adequate resources to fund our operating and financing needs for at least the next 12 months. Over the longer term, our future capital requirements will depend on our ongoing ability to generate cash from operations and our access to the bank and capital markets. We also expect our working capital requirements to be positively impacted by our migration from print products to digital learning solutions.

If our cash flows from operations are less than we require, we may need to incur debt or issue equity. From time to time, we may need to access the long-term and short-term capital markets to obtain financing. Although we believe we can currently finance our operations on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be affected by many factors, including: (i) our credit ratings, (ii) the liquidity of the overall capital markets and (iii) the current state of the economy. There can be no assurance that we will continue to have access to the capital markets on terms acceptable to us.

Cash and Cash Equivalents

Cash and cash equivalents include bank deposits and highly liquid investments with original maturities of three months or less that consist primarily of interest-bearing demand deposits with daily liquidity, money market and time deposits. The balance also includes cash that is held by us outside the U.S. to fund international operations or to be reinvested outside of the U.S. The investments and bank deposits are stated at cost, which approximates market value. These investments are not subject to significant market risk.

Debt

A&E Cash Flow Credit Facilities

On August 6, 2024, McGraw-Hill Education, Inc. and certain subsidiaries amended its credit agreement (the “Cash Flow Credit Agreement”) which amendment (i) modified certain provisions therein, (ii) refinanced in full the outstanding term loans thereunder with new term loans having an extended maturity to August 2031 (the “A&E Term Loan Facility”) and (iii) except for $38.7 million of the revolving credit facility outstanding immediately prior to August 6, 2024 (which remains due on July 30, 2026 and hereinafter referred to as the “Non-Extended Cash Flow Revolver Facility”), extended the maturity of $111.3 million of the revolving credit facility thereunder to August 6, 2029 for lenders who consented to such amendment (the “A&E Cash Flow Revolving Facility”). The A&E Term Loan Facility, the Non-Extended Cash Flow Revolver Facility and the A&E Cash Flow Revolving Facility, collectively, is the "A&E Cash Flow Credit Facilities”.

On July 25, 2025, upon closing of the IPO, the Company used the net proceeds from the offering to repay $385.7 million of debt outstanding under its A&E Term Loan Facility. In connection with the repayment, the Company recorded accelerated amortization of debt discount and deferred financing costs related to the A&E Term Loan Facility of $16.4 million. As of September 30, 2025, the remaining unamortized debt discount and deferred financing cost were $26.6 million and $5.1 million, respectively.

On September 8, 2025, the McGraw-Hill Education, Inc. and certain subsidiaries (the “Borrower”) entered into an amendment to the Cash Flow Credit Agreement, which amendment (i) (x) reduces the applicable margin by 50 basis points, such that the A&E Term Loan Facility will bear interest, at the Borrower's option, either at a rate based on (a) the base rate plus an applicable margin of 1.75% or (b) Term SOFR plus an applicable margin of 2.75%; and thereafter (y) further reduces the applicable margin if, and for so long as, the Borrower is rated by each of S&P and Moody’s with a rating from each of at least B+ (with stable or better outlook) and at least B1 (with stable or better outlook), respectively, by another 25 basis points, such that the A&E Term Loan Facility will bear interest, at the Borrower's option, either at a rate based on (a) the base rate plus an applicable margin of 1.50% or (b) Term SOFR plus an applicable margin of 2.50%; and (ii) resets the period during which a prepayment premium would be required to be paid on a prepayment made in connection with a Repricing Transaction (as defined in the Cash Flow Credit Agreement) to six months after the effective date of the amendment. There are no other material changes to the Cash Flow Credit Agreement. As of September 30, 2025, the interest rate for the A&E Term Loan Facility was 6.913% per annum.

As of September 30, 2025, the amount available under the A&E Cash Flow Revolving Facility and the Non-Extended Cash Flow Revolver Facility was $111.3 million and $38.7 million, respectively, and there were no outstanding borrowings under either facility.

As of September 30, 2025, we were in compliance with all covenants or other requirements in the Cash Flow Credit Agreement.

A&E ABL Revolving Credit Facilities

On August 6, 2024, the Company amended its ABL revolving credit agreement (the “ABL Revolving Credit Agreement”) which amendment (i) modified certain provisions therein, (ii) extended the maturity to August 2029 and (iii) increased the aggregate principal amount of available commitments thereunder from $200.0 million to $300.0 million, consisting of a $265.0 million U.S. facility (the “A&E U.S. ABL Revolving Credit Facility”) and a $35.0 million Rest of the World subfacility (the “A&E RoW ABL Revolving Credit Facility” and together with the A&E U.S. ABL Revolving Credit Facility, the “A&E ABL Revolving Credit Facilities”).

As of September 30, 2025, the amount available under the A&E ABL Revolving Credit Facilities was $300.0 million, subject to borrowing base capacity pursuant to the terms of the ABL Revolving Credit Agreement. Availability under the A&E ABL Revolving Credit Facilities excludes amounts outstanding for letters of credit in the amount of $4.0 million.

As of September 30, 2025, we were in compliance with all covenants or other requirements in the ABL Revolving Credit Agreement.

2024 Secured Notes

On August 6, 2024, we completed the issuance of $650.0 million aggregate principal amount of new 7.375% senior secured notes due 2031 (the “2024 Secured Notes”).

As of September 30, 2025, we were in compliance with all covenants or other requirements in the indentures governing the 2024 Secured Notes.

2022 Secured Notes and 2022 Unsecured Notes

On July 30, 2021, McGraw-Hill Education, Inc. assumed the obligations of (i) the $900.0 million aggregate principal amount of 5.750% Secured Notes due 2028 (the “2022 Secured Notes”) and (ii) the $725.0 million aggregate principal amount of 8.000% Senior Notes due 2029 (the “2022 Unsecured Notes” and, together with the 2022 Secured Notes, the “2022 Notes”).

As of September 30, 2025, we were in compliance with all covenants or other requirements in the Indentures governing the 2022 Notes.

Cash Flows

Cash flows from operating, investing and financing activities are presented in the following table:

Operating Activities

Cash flows used for operating activities for the six months ended September 30, 2025 and 2024 was $168.3 million and $412.5 million, respectively. The variance was primarily driven by a decrease in the net change in operating assets and liabilities of $268.8 million, partially offset by an increase in net income, net of non-cash flow items of $24.7 million. The decrease in the net change in operating assets and liabilities was primarily due to (i) a decrease in deferred revenue, driven by higher K-12 sales in the prior period related to the California, Texas and Florida market opportunities, which resulted in a greater deferred revenue growth compared to the current period; (ii) a decrease in accounts payable and accrued expenses, due to higher payments for annual incentive compensation in the current period, reflecting the stronger than expected performance in fiscal year 2025; and (iii) a smaller decrease in inventory compared to the prior period, due to the smaller K-12 market opportunities in fiscal year 2026. These decreases were partially offset by a smaller increase in accounts receivable, as the prior year experienced a larger increase in receivables due to higher K-12 sales related to the California, Texas and Florida market opportunities.

Investing Activities

Cash flows used for investing activities for the six months ended September 30, 2025 and 2024 was $86.6 million and $67.5 million, respectively. The variance was primarily driven by the increase in our product development expenditures and capital expenditures of $10.6 million and $8.4 million, respectively, as we continue to invest in our content and platforms.

Financing Activities

Cash flows used for financing activities for the six months ended September 30, 2025 and 2024 was $8.4 million and $134.3 million, respectively. The variance was primarily driven by activity associated with the Company's IPO and the debt refinancing transactions completed in the prior year. During the six months ended September 30, 2025, financing activities primarily consisted of the repayment of $392.3 million on the A&E Term Loan Facility, proceeds from the issuance of common stock of $392.9 million in the Company's IPO, and the payment of deferred IPO costs of $5.2 million. In the prior period, financing activities primarily reflected the repayment of $754.9 million on the Term Loan Facility, borrowings of $650.0 million on the 2024 Secured Notes, and payment of deferred financing costs of $24.0 million.

Capital Expenditures and Product Development Expenditures

Part of our plan for growth and stability includes disciplined capital expenditures and product development expenditures.

An important component of our cash flow generation is our product development efficiency. We have been focused on optimizing our product development expenditures to generate content that can be leveraged across our full range of products, maximizing long-term return on investment. Product development expenditures, principally external preparation costs, are amortized from the fiscal year of publication over their estimated useful lives, one to six years, using either an accelerated or straight-line method. The majority of the programs are amortized using an accelerated methodology. We periodically evaluate the amortization methods, rates, remaining lives and recoverability of such costs. In evaluating recoverability, we consider our current assessment of the marketplace, industry trends and the projected success of programs. Our pre-publication development expenditures were $49.1 million and $38.4 million for the six months ended September 30, 2025 and 2024, respectively.

Capital expenditures include purchases of property, plant and equipment and capitalized technology costs that meet certain internal and external criteria. Our capital expenditures was $37.5 million and $29.0 million for the six months ended September 30, 2025 and 2024, respectively.

Our planned capital expenditures and product development expenditures will require, individually and in the aggregate, significant capital commitments and, if completed, may result in significant additional revenue. Cash needed to finance investments and projects currently in progress, as well as additional investments being pursued, is expected to be made available from operating cash flows and our credit facilities.

Impact of Inflation

Recent inflationary pressure has resulted in increased raw material, labor, energy, freight, logistics and other operating expenses. While we believe that inflation has not had a material impact on our results of operations, financial condition or cash flows, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset our higher costs through price increases. Any material increase in our operating expenses due to inflation could result in lower margins and adversely impact our results of operations, financial condition and cash flows. We continue to maintain relationships with multiple raw material providers and are exploring spreading purchasing and third-party manufacturing across the year to help offset costs and ensure a competitive supplier base.

Critical Accounting Estimates

Critical accounting policies are those that require us to make significant judgments, estimates or assumptions that affect amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and assumptions, including, but not limited to, revenue recognition, sales returns, the determination of the fair value of acquired assets and liabilities assumed in acquisitions, accounting for the impairment of long-lived assets (including other intangible assets), goodwill and indefinite-lived intangible assets, stock-based compensation, valuation of common stock and income taxes. We base our judgments, estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable and prudent under the circumstances. Actual results may differ materially from these estimates.

There have been no material changes to our critical accounting policies and estimates as described in the Prospectus.

Recently Issued and Adopted Accounting Pronouncements

For recently issued and adopted accounting pronouncements, see Note 1, “Description of Business, Basis of Preparation and Summary of Significant Accounting Policies,” to our unaudited consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

We are exposed to market risks from foreign currency exchange rates and interest rates, which could affect our operating results, financial position and cash flows. We manage these risks through our regular operating activities and, when deemed appropriate, through the use of derivative financial instruments in accordance with our policies. We do not enter into derivative financial instruments for speculative or trading purposes.

Foreign Exchange Risk

We have operations in various foreign countries where the functional currency is primarily the local currency. As a result, we are subject to fluctuations from changes in foreign exchange rates. For international operations that are determined to be extensions of the U.S. operations, or where a majority of the revenue and/or expenses is USD denominated, the U.S. Dollar is the functional currency. Our principal currency exposures relate to the Australian Dollar, British Pound, Canadian Dollar, Euro, Mexican Peso and Singapore Dollar. From time to time, we may enter into hedging arrangements with respect to foreign currency exposures.

Interest Rate Risk

A&E Cash Flow Credit Facilities and A&E ABL Revolving Credit Facilities

We are exposed to interest rate risk on borrowings under our A&E Cash Flow Credit Facilities and A&E ABL Revolving Credit Facilities, which bear interest at variable rates with a Term SOFR floor of 0.50% and 0.00%, respectively, as of September 30, 2025. A 100 basis-point increase in Term SOFR on our A&E Cash Flow Credit Facilities debt balances outstanding as of September 30, 2025 would increase our annual interest expense by $7.7 million. No debt balance was outstanding under the A&E ABL Revolving Credit Facilities as of September 30, 2025.

From time to time, we may enter into hedging arrangements with respect to floating interest rate borrowings. While we may enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection from this risk.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation and supervision of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of September 30, 2025, our disclosure controls and procedures were effective and designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and (ii) that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to our risk factors that we believe are material to our business, results of operations, financial condition and cash flows, from the risk factors previously disclosed in the section entitled “Risk Factors” included in our Prospectus.