10-Q: McGraw Hill Q3 Sees Higher Ed Growth, Debt Reduction

Sentiment:

Quarterly Report 11 February 2026 4:06 PM

McGraw Hill reports increased revenue and net income for the nine months ended December 31, 2025, driven by strong Higher Education digital adoption and significant debt reduction, despite declines in K-12 and International segments.

Capital raiseThe company completed an Initial Public Offering (IPO) on July 25, 2025, issuing and selling 24,390,000 shares of its Common Stock at a public offering price of $17.00 per share.The company received $385.7 million in net proceeds from the IPO, after deducting underwriting discounts and commissions and offering expenses.The net proceeds from the IPO were used to repay $385.7 million of debt outstanding under its A&E Term Loan Facility.The underwriters' 30-day option to purchase up to an additional 3,658,500 shares of Common Stock from Platinum (the Selling Stockholder) was not exercised.

Better than expectedNet income for the nine months ended December 31, 2025, increased by 20.5% to $85.6 million, indicating improved profitability.Adjusted EBITDA for the nine months ended December 31, 2025, increased by 3.1% to $613.7 million, showing stronger operational performance.The company significantly reduced its long-term debt by over $550 million since March 31, 2025, leading to a substantial decrease in interest expense.The Higher Education segment demonstrated robust growth, with revenue increasing by 17.4% for the nine months, driven by digital adoption and market share gains.The effective tax rate for the nine months ended December 31, 2025, was 11.3%, a significant improvement from (53.0)% in the prior year, partly due to favorable tax law changes.

Summary

Total revenue for the three months ended December 31, 2025, increased by 4.2% to $434.2 million, up from $416.5 million in the prior year period.
Net loss for the three months ended December 31, 2025, improved significantly to $(20.2) million, compared to a net loss of $(52.9) million in the same period last year.
Adjusted EBITDA for the three months ended December 31, 2025, rose by 7.7% to $135.9 million, from $126.2 million in the prior year.
For the nine months ended December 31, 2025, total revenue increased by 0.7% to $1,639.1 million, up from $1,628.0 million.
Net income for the nine months ended December 31, 2025, grew by 20.5% to $85.6 million, compared to $71.0 million in the prior year period.
Adjusted EBITDA for the nine months ended December 31, 2025, increased by 3.1% to $613.7 million, from $595.1 million.
Higher Education revenue for the three months increased by 24.0% to $225.4 million, and for the nine months increased by 17.4% to $620.7 million, driven by digital product adoption, Inclusive Access sales, market share gains, and U.S. enrollment growth.
K-12 revenue for the three months decreased by 14.6% to $128.2 million, and for the nine months decreased by 8.6% to $758.3 million, primarily due to a smaller market opportunity.
International revenue for the three months decreased by 1.8% to $44.1 million, and for the nine months decreased by 7.9% to $145.9 million, mainly due to lower enrollments in Canada and a shift to digital products in Higher Education.
Interest expense (income), net, decreased by 31.2% to $47.4 million for the three months and by 29.5% to $162.1 million for the nine months, largely due to significant debt repayments and a lower variable interest rate.
The company recorded a loss on extinguishment of debt of $8.2 million for the three months and $24.5 million for the nine months, related to accelerated amortization of debt discount and deferred financing costs from debt repayments.
Cash and cash equivalents increased to $514.4 million as of December 31, 2025, from $389.8 million as of March 31, 2025.
Long-term debt decreased to $2,605.6 million as of December 31, 2025, from $3,164.6 million as of March 31, 2025.
Re-occurring Revenue represented approximately 71% of total revenue for the nine months ended December 31, 2025, up from 66% in the prior year, indicating a shift towards subscription-based models.
The company purchased $52.9 million in federal tax credits for $50.3 million cash on May 16, 2025, to offset its federal income tax liability for the fiscal year ended March 31, 2025.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a positive report, primarily due to significant debt reduction, strong growth in the Higher Education segment, and overall improved profitability for the nine-month period. While K-12 and International segments faced headwinds and legal proceedings remain, the strategic shift to digital and favorable tax changes provide a solid foundation.

Positives

Net income for the nine months ended December 31, 2025, increased by 20.5% to $85.6 million, demonstrating improved profitability.
Adjusted EBITDA for the nine months ended December 31, 2025, increased by 3.1% to $613.7 million, reflecting stronger operational performance.
Higher Education segment revenue grew significantly by 24.0% for the three months and 17.4% for the nine months, driven by digital adoption, market share gains, and U.S. enrollment growth.
The company successfully reduced its A&E Term Loan Facility debt by $385.7 million using IPO proceeds and an additional $200.0 million using cash on hand, leading to a substantial decrease in interest expense.
The interest rate for the A&E Term Loan Facility was reduced by 50 basis points, with potential for a further 25 basis point reduction, lowering future borrowing costs.
The enactment of the OBBBA tax law is expected to significantly reduce domestic income tax payable and deferred tax assets for the fiscal year ending March 31, 2026.
Re-occurring Revenue as a percentage of total revenue increased to 71% for the nine months, indicating a positive shift towards more predictable, subscription-based revenue streams.
Annual Net Dollar Retention (NDR) for Higher Education remained strong at 110% and for Global Professional increased to 105% as of March 31, 2025, showing strong customer retention and growth within existing accounts.

Negatives

K-12 segment revenue decreased by 14.6% for the three months and 8.6% for the nine months, primarily due to a smaller market opportunity.
International segment revenue decreased by 1.8% for the three months and 7.9% for the nine months, mainly due to lower enrollments in Canada.
The company reported a net loss of $(20.2) million for the three months ended December 31, 2025, despite an improvement from the prior year.
A loss on extinguishment of debt of $8.2 million for the three months and $24.5 million for the nine months was recorded due to accelerated amortization of debt-related costs from repayments.
Cash flows from operating activities decreased to $477.3 million for the nine months ended December 31, 2025, from $687.5 million in the prior year, primarily due to changes in operating assets and liabilities.
Investing activities saw increased cash outflows, rising to $(137.7) million for the nine months from $(103.1) million, driven by higher product development and capital expenditures.

Risks

Competition from other products and services in the education market.
Failure to win new adoptions or reductions in federal, state, and local education funding.
Seasonality of the business and changes in customer order patterns and payment schedules.
Changes in policy and funding shifts, including potential reorganization of the U.S. Department of Education.
Impact of various political and economic issues and the ability to comply with international laws and regulations.
Increased availability of free or inexpensive products and customer expectations for lower prices.
Current and potential litigation, including the Florida and Illinois False Claims Act complaints and author royalty class actions, with uncertain outcomes and potential for significant damages.
Malfunction or intentional hacking of technological systems.
Compliance with privacy, accessibility, and other laws, and adequate protection of personal data.
Defects in and an increase in unauthorized copying and distribution of products.
Ability to defend challenges to intellectual property rights.
Material and sustained reduction in enrollment at colleges and universities.
Reliance on third-party distributors and effects of consolidation in distribution and retail channels.
Costs and supply of paper products.
Large returns or changes in customer and/or reseller orders.
Ability to retain and attract qualified authors, employees, and key personnel.
Fluctuations between foreign currencies and the U.S. dollar, including new tariffs or export controls.
General economic conditions, including inflationary pressures, market rate volatility, and interest rate fluctuations.
Financial leverage and outstanding indebtedness.
Ability to make accurate assumptions or estimations in financial statements.
Volatility of the stock price and the inability to sell shares at or above the purchase price.
No anticipated dividends or share repurchases in the foreseeable future.
Dependence upon McGraw-Hill Education, Inc. and its controlled subsidiaries for results of operations, cash flows, and distributions.
Status as a controlled company and potential conflicts of interest with Platinum Equity.

Future Outlook

The company anticipates that future cash flow from operations, combined with existing funds and access to capital markets, will adequately cover operating and financing needs for at least the next 12 months. Longer-term capital requirements will depend on operational cash generation and capital market access. Working capital requirements are expected to improve with the ongoing migration from print to digital learning solutions. The recently enacted OBBBA tax law is projected to significantly reduce domestic income tax payable and deferred tax assets for the fiscal year ending March 31, 2026.

Management Comments

"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."
"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."
"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."
"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."
"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."

Industry Context

StockSavvy.ai notes that McGraw Hill's strong performance in Higher Education, particularly with digital solutions and Inclusive Access sales, aligns with broader industry trends of accelerated digital learning adoption and data-driven instruction. The company's emphasis on personalized learning and leveraging technologies like generative AI positions it well within the evolving education landscape. The continued shift towards subscription-based models, as evidenced by the increasing proportion of re-occurring revenue, reflects a wider industry move towards more stable and predictable revenue streams in educational content delivery.

Comparison to Industry Standards

The company is a top two provider in the U.S. K-12 market, serving approximately 99% of public K-12 districts, indicating a dominant market position.
The company is a top two provider of digital and print learning solutions in the U.S. higher education market, serving approximately 82% of U.S. higher education institutions, demonstrating significant market penetration.
The AccessMedicine solution is available across approximately 94% of U.S. medical schools, highlighting strong adoption in the professional learning segment.
The Evergreen content delivery model is believed to outpace the industry standard for content updates, suggesting a competitive advantage in content relevance and engagement.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
President and Chief Executive Officer	Simon Allen	Philip Moyer	2026-02-09	Simon Allen's retirement; Philip Moyer appointed as successor.
Board Member	NA	Philip Moyer	2026-02-09	Appointment in connection with CEO role.
Chair of the Board	NA	Simon Allen	2026-02-09	Simon Allen will continue to serve as Chair of the Board after retiring as CEO.

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Stock Conversion and Stock Split	On July 23, 2025, all outstanding Class A voting common stock and Class B non-voting common stock were converted into a single class of common stock on a 1-for-1 basis, and a 1.06555-for-1 stock split was effected.	2025-07-23	Simplified capital structure into a single class of common stock, adjusted share count for the split.
Stock Incentive Plan Adoption	On July 14, 2025, the 2025 Stock Incentive Plan was adopted by the board and approved by stockholders, succeeding the 2021 Plan and authorizing up to 15,500,000 shares for issuance.	2025-07-25	Established a new framework for equity compensation, aligning with public company status and providing incentives for employees, directors, and consultants.
Advisory Agreement Termination	The Corporate Advisory Services Agreement with Platinum Equity Advisors, LLC was terminated upon completion of the IPO on July 25, 2025.	2025-07-25	Eliminated annual management fees of $10.0 million and expense reimbursements paid to Platinum Advisors, reducing operating expenses and enhancing independence.

Legal Proceedings

Florida False Claims Act: The State of Florida filed a complaint on August 12, 2025, alleging McGraw Hill, LLC and Savvas Learning Company, LLC overcharged K-12 schools for instructional materials by purportedly disregarding 'most-favored-nation' pricing and mandatory free materials requirements. A qui tam complaint was unsealed on August 11, 2025. The company believes the claims are subject to legal challenge and filed a joint Motion to Dismiss on October 13, 2025. The outcome and potential loss are not estimable.
Illinois Qui Tam Complaint: On December 3, 2025, a qui tam complaint was unsealed in Illinois, alleging similar claims against McGraw Hill, LLC and other education companies. The State of Illinois has elected not to intervene. The company intends to file a joint Motion to Dismiss. The outcome and potential loss are not estimable.
Author Royalty Class Actions: Two class actions filed in January and February 2021 in New York allege breach of author agreements regarding royalty calculation. The breach of contract claim was remanded by the Second Circuit in November 2024. Mediation in November 2025 did not result in a settlement, and the company filed a Motion for Summary Judgment on January 22, 2026. The outcome and potential loss are not estimable.
Achieve3000 vs. Beable Education Inc.: A lawsuit filed in July 2020 alleging intellectual property/patent infringement and trade secret theft. The patent was ruled invalid by the PTAB in January 2023, affirmed by the Federal Circuit in July 2024. Achieve3000 filed an application to reissue the patent in November 2023. Discovery resumed in March 2025. The outcome of counter-claims and potential loss are not estimable.
The company believes, based on current knowledge, that the outcome of pending legal actions should not have a material adverse effect on its financial condition or results of operations.

Related Party Transactions

The company received corporate and advisory services from Platinum Equity Advisors, LLC (an entity affiliated with Platinum) pursuant to a Corporate Advisory Services Agreement. The company paid Platinum Advisors fees of $3.125 million and expense reimbursements of $0.3 million for the nine months ended December 31, 2025. This agreement was terminated on July 25, 2025, upon completion of the IPO.

Stakeholder Impact

Shareholders: The IPO provided liquidity and capital, while debt reduction and improved profitability for the nine-month period could positively impact shareholder value. However, ongoing legal proceedings and declines in K-12 and International segments introduce uncertainty.
Employees: The appointment of a new CEO, Philip Moyer, and the retirement of Simon Allen signal a leadership transition. Stock-based compensation plans (2021 and 2025 Plans) provide incentives for employees.
Customers (Students, Instructors, Institutions): Continued investment in digital learning solutions, including the Evergreen content model and Inclusive Access, aims to provide personalized, affordable, and continuously updated educational content, enhancing learning outcomes.
Creditors: Significant debt repayments totaling $585.7 million on the A&E Term Loan Facility and a reduction in interest rates improve the company's credit profile and reduce financial leverage.
Regulatory Authorities: The company is subject to ongoing inquiries and investigations, such as the Florida and Illinois False Claims Act complaints, requiring compliance with applicable laws and regulations.

Next Steps

Oral argument on the Motion to Dismiss the Florida Complaint is scheduled to occur in Tallahassee in mid-February 2026.
The company intends to file a joint Motion to Dismiss the Illinois Qui Tam Complaint with its co-defendants.
The company will continue to assess the outcome and potential loss from ongoing legal matters, including the Florida, Illinois, and author royalty class actions, and the Achieve3000 vs. Beable litigation.
The company will continue to evaluate the effect of adopting new accounting standards (ASU 2023-09, ASU 2024-03, ASU 2025-01, ASU 2025-05, ASU 2025-06, ASU 2025-11, ASU 2025-12) on its consolidated financial statements and disclosures.
The company plans to host its first annual meeting of stockholders virtually on August 11, 2026, at 9:00 a.m. Eastern Time.
The company will continue to invest in product development and capital expenditures to enhance content and platforms.
The company will continue to explore spreading purchasing and third-party manufacturing across the year to help offset inflationary costs and ensure a competitive supplier base.

Key Dates

Date	Description
2020-07-01	Achieve3000 filed a complaint against Beable Education Inc. and Saki Dodelson in the United States District Court for the District of New Jersey.
2021-01-01	Two purported class actions were filed against McGraw-Hill Education, Inc. in the Southern District of New York regarding author royalties.
2021-02-01	Two purported class actions were filed against McGraw-Hill Education, Inc. in the Southern District of New York regarding author royalties.
2021-05-01	McGraw-Hill Education, Inc. filed a motion to dismiss the class action complaint in its entirety.
2021-07-01	Beable and Dodelson filed a counterclaim asserting breach of an earlier settlement agreement with Achieve3000.
2021-07-30	McGraw-Hill Education, Inc. assumed obligations of the 2022 Secured Notes and 2022 Unsecured Notes.
2021-07-31	Mav Acquisition Corporation acquired 100% of McGraw-Hill Education, Inc. equity interests and merged into it.
2022-01-01	Court granted motion to dismiss breach of contract claim but denied motion to dismiss breach of implied covenant claim in author royalty class action.
2022-06-01	Attorney General for the State of Florida issued a subpoena to McGraw-Hill Education, Inc. as part of an investigation into alleged overcharges.
2022-09-01	Plaintiffs voluntarily dismissed their breach of implied covenant claim in the author royalty class action.
2022-10-01	Plaintiffs filed an appeal on the Court's granting of McGraw-Hill Education, Inc.'s motion to dismiss their breach of contract claim.
2022-12-01	McGraw-Hill completed its production of documents and information in response to the Florida subpoena.
2023-01-01	The Patent Trial and Appeal Board (PTAB) ruled the patent invalid in the Achieve3000 vs. Beable case.
2023-11-01	Achieve3000 filed an application to reissue the Patent, correcting errors to narrow and refine the claims.
2024-01-01	McGraw-Hill Education, Inc.'s former Florida sales representative was deposed by the Attorney General.
2024-07-01	The United States Court of Appeals for the Federal Circuit affirmed the PTAB's ruling that the patent is invalid in the Achieve3000 vs. Beable case.
2024-08-06	Company amended its Cash Flow Credit Agreement, refinancing term loans with extended maturity to August 2031 (A&E Term Loan Facility) and extending revolving credit facility maturity to August 2029. Also amended ABL revolving credit agreement, extending maturity to August 2029 and increasing commitments to $300.0 million.
2024-08-06	Company completed the issuance of $650.0 million aggregate principal amount of new 7.375% senior secured notes due 2031 (2024 Secured Notes).
2024-11-01	The Second Circuit remanded the author royalty class action case to the District Court for further adjudication on one element of the breach of contract claim.
2025-03-01	Discovery resumed in the Achieve3000 vs. Beable Federal Action after extension of deadlines.
2025-05-16	Company purchased Internal Revenue Code Section 48 federal tax credits with a notional value of $52.9 million for cash consideration of $50.3 million.
2025-07-04	H.R.1, the One Big Beautiful Bill Act (OBBBA) was enacted into law, making changes to the U.S. tax code.
2025-07-14	The Company's board of directors adopted the 2025 Stock Incentive Plan.
2025-07-23	In connection with the IPO, the Company converted all outstanding Class A and Class B common stock into a single class of common stock and effected a 1.06555-for-1 stock split.
2025-07-24	Company's final prospectus filed with the SEC.
2025-07-25	Company completed an Initial Public Offering (IPO), issuing and selling 24,390,000 shares of Common Stock at $17.00 per share. Net proceeds of $385.7 million were used to repay debt. The Advisory Agreement with Platinum Advisors was terminated.
2025-08-11	The Circuit Court for the Second Judicial Circuit in Leon County, Florida unsealed a qui tam complaint against McGraw Hill, LLC and Savvas Learning Company, LLC.
2025-08-12	The State of Florida filed a complaint in the Circuit Court for the Second Judicial Circuit in Leon County, Florida against McGraw Hill, LLC and Savvas Learning Company, LLC.
2025-09-08	McGraw-Hill Education, Inc. entered into an amendment to the Cash Flow Credit Agreement, reducing the applicable margin on the A&E Term Loan Facility.
2025-10-13	McGraw Hill, LLC and Savvas Learning filed a joint Motion to Dismiss the Florida Complaint.
2025-10-16	McGraw-Hill Education, Inc. paid down $150.0 million of debt outstanding under its A&E Term Loan Facility.
2025-11-01	The parties participated in mediation to discuss a settlement in the author royalty class action, but did not reach one.
2025-12-03	The Circuit Court of Cook County, Illinois unsealed a qui tam complaint against McGraw Hill, LLC, Savvas Learning Company, LLC, Pearson Education, Inc. and HMH Education Company.
2025-12-10	McGraw-Hill Education, Inc. paid down an additional $50.0 million of debt outstanding under its A&E Term Loan Facility.
2025-12-30	Simon Allen notified the Board of Directors of his intention to retire as President and CEO.
2026-01-02	The Board appointed Philip Moyer to succeed Simon Allen as President and CEO and also appointed Mr. Moyer to the Board.
2026-01-22	The Company filed a Motion for Summary Judgment with the District Court in the author royalty class action.
2026-02-09	Simon Allen's retirement as President and CEO becomes effective, and Philip Moyer assumes the role.
2026-02-11	Date of filing of this Quarterly Report on Form 10-Q.
2026-03-06	Deadline for stockholders to submit proposals for inclusion in the 2026 Annual Meeting proxy materials.
2026-06-15	Record date for determination of stockholders entitled to vote at the 2026 Annual Meeting.
2026-08-11	Company intends to host its first annual meeting of stockholders virtually.

Recommendation

hold

The filing presents a mixed but generally improving financial picture. Strong growth in the Higher Education segment, significant debt reduction, and favorable tax law changes are positive indicators. However, declines in the K-12 and International segments, coupled with ongoing legal proceedings with uncertain outcomes, introduce notable risks. The recent IPO and CEO transition are significant events that require time to fully assess their long-term impact. Given the balance of positive strategic shifts and financial improvements against segment-specific challenges and legal uncertainties, a 'hold' recommendation is appropriate for investors to observe the execution of the new leadership and the resolution of legal matters.

Keywords

Education Technology, EdTech, Digital Learning, K-12 Education, Higher Education, Professional Learning, SEC Filing, 10-Q, Financial Results, Adjusted EBITDA, Revenue Growth, Debt Reduction, IPO, Corporate Governance, Legal Proceedings, Subscription Model, Inclusive Access, Generative AI

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