McGraw Hill Fiscal Q1 2027 Earnings: Margin Expansion Outpaces Revenue Growth

McGraw Hill (NYSE: MH) reported fiscal Q1 2027 revenue of $549.9 million, up 2.6% year over year, while diluted EPS increased to $0.30 from $0.00. GAAP gross margin expanded 290 basis points to 79.9%, and adjusted EBITDA rose 8.2% to $207.0 million as lower cost of sales more than offset higher operating and administrative expenses. Higher Education led segment growth, while operating cash flow turned slightly positive despite substantial working-capital use.

Core performance data

Revenue growth was modest, but the mix continued shifting toward digital and company-defined re-occurring revenue. Re-occurring revenue increased 9.8% to $425.6 million and represented 77% of total revenue, while digital revenue grew 8.8% to $353.5 million.

Profitability increased faster than revenue. Gross profit rose approximately 6.5%, operating income increased about 18.8%, and adjusted EBITDA margin reached 37.7%.

Adjusted EBITDA and its margin are non-GAAP measures. The operating margins above are approximate calculations based on reported revenue and operating income.

Remaining performance obligations totaled $1.52 billion at June 30, 2026. The company did not provide a prior-year comparison for this measure, limiting the ability to assess its growth rate.

Business and segment performance

Higher Education produced the fastest disclosed segment growth. Revenue increased 9.6% to $199.8 million, while re-occurring revenue rose 14.1% to $182.1 million. McGraw Hill attributed the performance to market-share gains, higher realized pricing, increased enrollment, Inclusive Access momentum, and deeper campus penetration through its Evergreen delivery model.

K-12 remained the largest disclosed business by revenue but grew more slowly. Revenue increased 1.3% to $274.4 million, while re-occurring revenue rose 7.1% to $196.6 million. Management pointed to multi-year contracts and capture rates in English language arts and science as the main drivers. The difference between total and re-occurring revenue growth suggests that the contracted portion of the business expanded faster than overall K-12 sales.

Global Professional reported 6.3% growth in re-occurring revenue, supported by medical education solutions, including its AI-based Clinical Reasoning product. The company did not disclose the segment’s total revenue.

International revenue was $45.2 million. Fulfillment of delayed Middle East K-12 shipments and momentum in Latin America offset enrollment pressure in Canada, illustrating that shipment timing and regional enrollment trends remain important variables for this business.

Margin gains lift earnings, but working capital absorbs most of the cash

The decline in cost of sales was the main operating reason earnings grew faster than revenue. Cost of sales fell to $110.7 million from $123.4 million even as revenue increased, allowing gross profit to rise by $26.9 million and gross margin to expand to 79.9%.

Operating and administrative expenses moved in the opposite direction, increasing to $255.1 million from $241.5 million. Nevertheless, the gross-profit improvement was sufficient to lift operating income to $114.3 million.

Two below-the-line items also contributed significantly to the increase in GAAP net income. Net interest expense declined to $45.8 million from $58.8 million, while the income tax provision fell to $10.7 million from $36.9 million. In the prior-year quarter, taxes consumed nearly all of the $37.5 million in pretax income, helping explain why net income was only $0.5 million despite a meaningful level of operating profit.

The earnings improvement did not fully translate into cash generation. Operating cash flow was only $0.6 million because working-capital movements absorbed most of the quarter’s reported profit. Deferred revenue created a $149.4 million cash outflow, compared with $27.6 million a year earlier, while accounts payable and accrued expenses reduced cash by $63.6 million. This was partly offset by a much smaller accounts-receivable outflow of $18.0 million, versus $105.3 million in the prior-year period.

Investing cash outflow totaled $58.3 million, including $34.4 million of product-development spending and $23.9 million of capital expenditures. As a result, cash and equivalents declined by $59.9 million during the quarter to $193.6 million.

Total reported debt remained approximately $2.57 billion at quarter-end, essentially unchanged from March 31, 2026. McGraw Hill reiterated its commitment to debt reduction and a 2.0–2.5 times net leverage target, although the release did not disclose the current net leverage ratio. Moody’s upgraded the company’s credit ratings in July 2026.

Management perspective

CEO Philip Moyer said AI contributed to revenue growth, margin expansion, price realization, and market-share gains during the quarter. Management reported more than 7.5 million active users across eight live AI tools.

Through July 2026, AI Reader had generated 63 million learning interactions across approximately 2.6 million students since inception, up from roughly 47 million interactions and 2.2 million students reported for fiscal 2026. Because the updated figures include July activity, they extend beyond the June 30 quarter-end.

CFO Bob Sallmann emphasized the company’s entry into its peak selling season. Management cited above-target win rates for its new K-12 English language arts program, the early stages of a multi-year curriculum adoption cycle, and continued Higher Education market-share gains as important operating indicators.

Recent insider transactions

The supplied transaction-level data lists several purchases by executives and directors. These transactions should be viewed as factual disclosures rather than evidence of a particular outlook.

A separate six-month summary in the supplied dataset reported zero purchases, which conflicts with the dated transaction entries. The transaction-level and aggregate data therefore should not be treated as fully reconciled.

Risks investors should monitor

• Peak-season execution: Management described the next quarter as the most important quarter of the fiscal year. Early program win rates and adoption indicators still need to convert into recognized revenue.
• Slower K-12 growth: K-12 revenue increased only 1.3%, substantially below Higher Education’s 9.6% growth. Curriculum adoption timing and capture rates could materially affect the segment’s performance.
• Working-capital pressure: Operating cash flow improved but remained barely positive. The $149.4 million deferred-revenue outflow shows that reported earnings and cash generation can diverge significantly from quarter to quarter.
• Debt and interest burden: Total debt remained around $2.57 billion, and quarterly net interest expense was $45.8 million. Progress toward the company’s leverage target remains an important balance-sheet consideration.
• International volatility: Canadian enrollment pressure and the timing of Middle East shipments affected the regional mix, leaving International results sensitive to enrollment and fulfillment patterns.

Summary

McGraw Hill’s fiscal Q1 2027 results combined modest revenue growth with faster expansion in re-occurring and digital revenue. Lower cost of sales, reduced interest expense, and a much smaller tax provision drove substantial profit growth, while Higher Education outpaced K-12. The main items to monitor are conversion of peak-season demand into revenue, the durability of margin gains, working-capital-driven cash flow, and progress in reducing leverage.