MH Q2 2027 earnings call transcript, November 5, 2026

In other cases, they want the chatbot to be front and center. In some cases, organizations want us to want to be able to use their own chatbot. And the question you ask around how do you protect your IP and then also monetize in that kind of a world is exactly. Why we're building with this MCP technology. We like to think of it, the future of a lot of this is almost like an app store. And anyone that uses our MCP interface, first and foremost, must have a license to our content. And that's essential. And we have pretty significant technology and security that wraps around our content with MCP. First and foremost, to be able to protect it. And then the beauty of MCP also is that the experience can be exactly the way. The learner, the educator, the school wants it to be. So whatever kind of a chatbot or AI tooling that they want to be able to use, we can plug in in a way. And we can actually see what's happening. We can see the type of questions. We can see where this. student or the educator is struggling, where they want more information, where they're engaging with our content, where they might not be. And so we get a much richer and deeper experience in being able to understand and it improves our own authorship. And so that ability to have this. Both governing as well as openness and then also more data and more insight coming off of the content is all the reasons why we're moving so fast around this technology.

We really do believe in an old. You just take the PDF, you take our content and it's all or nothing. You kind of either give it to the AI model or you don't. In this case with MCP, you're literally able to write down to the question, be able to see and potentially even monetize. The business model associated with this is going to be varied. In some cases, it'll be a slight uplift on our price and we're already having conversations around monetization with a number of organizations. In other cases, it could be a block of questions that you pay for or in another. In other cases, with some large organizations, they like to pay by the token. And so in all of those cases, this MCP technology allows us to both protect, integrate, and also monetize in the business model that's appropriate for each educator and student. That makes a lot of sense, Philip. And I'm wondering, as you go through the kind of initial pilots and start rolling this out, what's your thinking on how the monetization could evolve? Would you likely stick to this hybrid model? Would it vary by market or by segment?

How soon does this translate into significant revenue potential for McGraw-Hill? I'll leave it there.

Thank you very much.

Thank you. So we have two strategies to accelerate growth. One is to be able to provide support for more students, so more of our curriculum in more places, if you will. And the second is to be able to provide more tooling on top of that curriculum. So I'll take in the example of the K-3. The acquisition we just did around Teach Ally allows us to be fully customized in the classroom precisely the way the educator wants to, in the language, in the culture, in the localization they want that that educator needs. And so in that case, the student is very far away from AI, but we can plug our content in, our curriculum in, into that Teach Ally tool. So Teach Ally becomes a way for us to monetize in the backend to support that teacher. In the case of higher ed, a lot of professors as well as students want to be able to have a chat bot that interfaces directly into the content. And so in that case, we can either do an upcharge. In the third case, as I think I've mentioned, is we contemplate relationships like we did with UCSF. We're actually in the hospital or with students, with residents, as an example, or even, for example, in a pharmaceutical space where you have a tremendous amount of research that's being done that leverages our content. That's a case where we can provide big blocks of tokens and big blocks of questions to universities. And so each one of those business models, in some cases, it's one of our own tools that's supporting the classroom. In another case, it's an interface where it's...

Interactive. And then in the third case, it's literally wholesale access to some of our content. And we're seeing all three business models evolve pretty quickly. And actually, organizations, customers actually ask for all three of those business models right now. And so we're, as we mentioned, our goal is to have as much... as many organizations in this pilot as possible. This is one of the reasons why we're so excited to make these public announcements, is that this is the opening of our beta for these products. And our goal is, by the time we hit fiscal year 28, to have fully formed business models with each of these differences.

I'd like to double click on your MCP strategy. You've moved very quickly with MCP. Can you talk a little bit more about how impactful you expect this to be for fiscal 2028 revenues and costs and the key? Indicators that you're focused on that will drive future monetization? You know, for us, it starts all with how many students and educators are engaging with our content. That tells us a lot. And so we want to. But we're going right down to a very granular level of not just the licenses, the 100 million licenses we're selling, but specifically the full on engagement. Internally, that's how we focus around MTP and around our tool. And we're really getting right down. What is the value of the paragraph inside of our content? So engagement with our content and the number of those curriculum licenses is a great indicator for us. And then on top of that, you know, the places that we integrate. The ability to be able to integrate and be able to to be paid for this for those integrations, because there's just simply more interactivity with the content than there has been in prior models that tells us as well, there's a value proposition associated. So think of it as more curriculum licenses, more engagement, and then our ability to be able to be paid in more value. And so the pipeline around that building a lot of at investor day, we're going to actually show. some of these, things like some of the work that we're doing with UCSF and things that we're doing in the medical field. We're going to be showing Teach Ally and demonstrating kind of how this engagement works and then also some of our vision for how we can expand.

with us with the opportunity. That's helpful. And then as you think about impact across your business, how would you compare and contrast the potential benefits to higher ed versus K through 12? Sure. I think in K through 12, you know, every classroom that I go into, they want to make the curriculum theirs. They want to make it personalized to the students that they serve. And oftentimes when you have just, you know, a straight text, you know, static text, you can't make it as personalized to the student experience that you have on a localized basis. And so the work that the acquisition we get around Teach Ally and certainly Teach FX, these are two great examples where you deeply, deeply personalize the students, your culture, the local localization. And that's important because we're a global company. And increasingly, we have to be able to serve a global audience and multilingual audience and a multi cultural audience. And so our ability in K through 12 space, there's a tremendous focus on making it personal for the teacher and for that classroom. So it'll become more personalized. In the higher education space, you know, it's incredible where in many ways, you know, there's so much information coming at these university students and then also at the professors, and they have to teach more in such a limited amount of time. And so this, they're moving from kind of just in case to just in time. And so this allows us to be able to serve up in bite-sized chunks precisely the section.

that the professor is working on at that week. They can push out things like playlists of content each week, and they can see what the interactivity is of the content. And so in that space, you're really doing much more bite-sized chunks. And in the higher, in the medical field, this is where we're really excited. We think, you know, the point of care space, the specialization space, that ability to be able to show up in a whole variety of other places that we've never been able to contemplate with some of the more static content formats that we've had, this ability to be able to give literally an answer right at the moment of care. We think it's an extraordinary opportunity, given the trust that most doctors and MDs and DOs and dentists and physicians and so forth have. in our content, we're really excited to stay a part of their journey their whole life.

Thank you, Henry.

Really, really incredible team. We could not be more proud of this team. Now, you know, we're up to this is going on, I believe, 41 straight quarters of market share growth. The leadership of that organization has. It's incredible. The execution that that team has. I wish that some of you could see what I see on the inside with that higher education team. It's just a world class go to market team, the product organization. We're one of the most innovative organizations in the higher ed space. And you can see. What quality execution looks like of this team. I would tell you that there's a few things that you should keep an eye on. First of all, retention in this marketplace is very difficult. And we are world class in that. And we keep talking about this, and that is about the individuals that are on the ground with the professors, with the institutions, ensuring that they have what they need. The evergreen model that we have is, again, a unique differentiator in the business. Our ability to be able to update. Constantly changing information for the professors in a way that integrates right into their workflow is greatly appreciated by this. And I would say the last is just our ability to be able to price at the right level. You know, inclusive access has been important for students because it makes it easier to ensure that everyone has the content for the class. And it also makes it easier for the institution to purchase.

Yeah. And Henry, let me let me take it from a. Financial profile. So when we look at the second quarter results and you see the gap revenue being flat, that's really a result that transactional revenue in the prior year comping very difficult. So what what I. I would tell you is the underlying performance of the business. When we look at activations, we look at that reoccurring revenue. That's that mid single digit grower. We look at the first half performance also supporting that mid single digit growth. And the way that I'll sort of think about, you know. The drivers of that growth, and we highlighted it in the call, is we're seeing flat to down 1% on enrollment. And then I look at where we're seeing the benefits and pricing continues to stick at a greater level than we anticipated. We're going out, adding greater value to our professors, to the students, through our platform, and we're being rewarded with that higher pricing. And that's generating about 2% benefit for us. And then lastly, that ongoing share gains, all the things that Philip talked about. The differentiation, that's that 3% to 4% benefit. So as we roll up and I think about how are we going to finish the year, the underlying business, again, that's supporting that mid-single-digit growth. Very quick. Thank you.

Thank you, Ryan, for the question. First, I'll say that there's been some really exciting developments over this quarter. Certainly, I'm proud of my home state, Pennsylvania, making the decision to allow us to be on their list for ELA and certainly Colorado. Some of the districts that we won, for example, up in Washington, Snoqualmie, Lake Washington, as well as Seattle, these are three very, very different districts, very different. Dynamics students, and I'll just kind of call it also called Teaching Dynamics. And that this diversity of school districts that we're seeing that are starting to adopt our ELA program is giving. us a really good signal. Certainly the fact that Colorado, where we scored a 211 out of 212 on their rubric. Pennsylvania as well has a very complex rubric. Certainly California as well, we were excited. to be able to get through their process and we're looking forward to be included on their list, hopefully when they publish in January time period. And so we're seeing for a year zero of our product as we're heading into the selling season. Very strong feedback on our ELA product. I think I've mentioned in the past that the market as we go into this coming year could be as much as or coming into the cycle, I should say, could be as much as an additional 10% over what it's been in the past. And we're seeing stronger than the normal capture rates. The exciting thing as well as in the open territory, in some cases, we're seeing some districts that are adopting us before we're even on some of the state lists, which tells us, which gives us a really good signal.

how to actually teach, how important it is to do professional development for teachers, how important it is to have trusted curriculum, pedagogy matters, like how you teach and what you teach actually matters. And I think that you're seeing an extreme focus on this, the fact that, you know, an Austin school board member was elevated to governor in this short period of time is exciting. We want more legislators to be with us in this process. And so I think it's, I think it's an important moment. It's a seminal moment for education. All right. That's great. to hear. And I know you're probably going to be talking about this if you're investor day, but can we get maybe a sneak preview in terms of how the next fiscal year is shaping up and how we should think about the growth profile for the company? Thanks. Yeah. And certainly we're going to be spending a bit of time during November 18th at the investor day. So thanks for noting that. But again, you know, as we think about some of the factors driving it, as I highlighted this in higher education, you know, continue to drive mid single digit growth, regardless of. enrollment. We're taking share. We're continuing to win. That will continue. And as I think about our K-12 business, we've highlighted how well positioned we are ahead of the ELA super cycle that will. Continue. And then we're seeing some real benefits in areas like California math. And I'll give you an example. As we've sold through our selling cycle and moving into next year, we are starting to move through that funnel, getting down.

Through the narrowing process and ultimately moving to pilots. And so we see ourselves at four times more pilots than we had in the prior year. So all of those factors are what sort of allows us to think about 28. And position the business well going forward. But looking forward to sharing more details about the growth algorithm and where the business is headed on November 18th.

That makes sense. And then just as we think about the ELA super cycle, you know, clearly a lot of focus there. Can you just refresh us on how big you think that opportunity might be? I guess, is that something you plan to dig into more in more detail at the Investor Day? Yeah, we certainly will share more information, but I'll remind you that 40% of our revenue in K-12 is coming from ELA. We've launched our biggest investment in that area. And during our Investor Day, you'll have an opportunity to hear directly from educators in district as to what differentiates us. So while we know what the market will be over the next several years, what we are seeing is, you know. Capture rates continue to increase and our program resonating with educators and school districts. And so we look forward to sharing that level of detail on November 18th.

And then I have a follow up after. Sure. Consistent with our comments we made last quarter what we saw in our math program and it's just capture rates in math that really drove that but again as we look into the adoption cycles moving forward and they lean into ELA and support us going forward. So that's the primary driver. Got it. Very helpful. Thanks. And then follow up. So I'm excited to see the potential opportunities with leadership changes that were announced. Any call outs or anything that you guys are most excited for moving forward in strategies that they're going to bring to the table. Thanks. Yeah, you know, we're grateful for Mike Ryan's service over the past 20 years. He's been a great leader of a higher ed business, some extraordinary leadership and Sean Ryan as well. And, you know, both Janet Thompson and Robin Lucas are. 20 plus years tenured in the education industry. Jana has, you know, was at Pearson. She's been with us and also has both a deep tech background as well as she's overseen some of the most successful product launches in the K through 12. market in the world. Robin Lucas, as you can see, ran one of the most successful go to market organizations in the entire higher ed industry. And so between the great, the deep product experience, the deep go to market experience, you know, you'll see us. actually be more consistent and actually drive greater execution, both across product, as well as go to market on a worldwide basis across all of our businesses. And so we're excited about the leadership both of them have both a tenure, as well as

the leadership they have going forward. It also demonstrates the depth of our bench. You know, we have an extraordinary team here. The fact that we've been able to elevate two leaders so quickly into these roles tells you that this has been both orderly as well as it's the quality of the people inside of this organization. We, you know, as you can imagine, we've elevated a number of other people inside of the organization. And I would just tell you that I'm really looking forward to everyone being able to meet both Robin and Janet at our Fester Day. They're going to play a really key part and you're going to get a chance to see them in action and just experience some of their leadership. And so we couldn't be more proud of these two new leaders.