McGraw Hill Fiscal Q2 2027 Earnings: K-12 Weakness Drives Revenue Decline

McGraw Hill (NYSE: MH) reported fiscal Q2 2027 revenue of $632.2 million for the quarter ended September 30, 2026, down 5.5% from $669.2 million, while diluted GAAP EPS fell to $0.45 from $0.57. Lower K-12 revenue drove most of the contraction, while digital revenue grew and GAAP gross margin remained stable. Adjusted EBITDA decreased 12.5% to $250.6 million, although the company reaffirmed its fiscal 2027 guidance.

Core Financial Results

Revenue declined as market-share gains and solid capture rates across most markets only partially offset lower capture rates in selected K-12 math markets. Recurring revenue decreased 2.0% to $414.1 million, representing 65.5% of total revenue, while digital revenue increased 2.6% to $361.4 million.

GAAP gross margin held at 79.2% as cost of sales declined broadly in line with revenue. However, operating expenses fell more slowly than revenue, contributing to lower operating income and a 3.2-percentage-point contraction in adjusted EBITDA margin.

K-12 Weakness Drove the Revenue Decline

K-12 revenue fell 9.6% to $324.6 million as strength in Science and English Language Arts was outweighed by anticipated lower capture rates in selected Math markets. Based on the reported growth rate, K-12 accounted for approximately $34.5 million of the company’s $37.0 million overall revenue decline.

Higher Education revenue was nearly unchanged, but its recurring revenue grew 5.5%, supported by Inclusive Access and broader adoption of the Evergreen content model. Digital revenue also continued to expand despite the decline in consolidated revenue.

Global Professional recurring revenue increased 5.5%, including 7% growth in the medical portfolio. International revenue rose 1.6% as delayed Middle East shipments were fulfilled.

Lower Interest Costs Lifted Pretax Income, but the Tax Comparison Cut Net Profit

Operating income declined 9.9% to $141.1 million, but pretax income increased approximately 10.4% to $93.0 million. Interest expense fell to $46.3 million from $55.9 million, while the loss on debt extinguishment declined to $1.8 million from $16.4 million.

The benefit from those lower financing-related costs was offset at the net income line by taxes. McGraw Hill recorded a $6.6 million tax provision this quarter, compared with a $21.1 million tax benefit a year earlier—a $27.7 million unfavorable swing. That comparison explains why GAAP net income and EPS declined even though pretax income increased.

Balance Sheet and Debt Reduction

McGraw Hill repaid $50 million of term debt during the quarter. Balance-sheet debt, including current and long-term portions, stood at approximately $2.53 billion on September 30, down about $47.1 million from March 31. The company said it has reduced gross debt by approximately $700 million since its initial public offering and is moving toward a net leverage target of 2.0 to 2.5 times.

Cash and cash equivalents declined to $233.0 million from $253.5 million at the end of March. Accounts receivable increased to $644.8 million from $362.5 million, while inventory fell to $159.4 million from $195.0 million. Current deferred revenue rose to $974.1 million, and remaining performance obligations totaled $1.79 billion, providing visibility into revenue to be recognized in future periods.

Fiscal 2027 Guidance

Management reaffirmed all three fiscal 2027 guidance ranges. Based on first-half revenue of $1.18 billion and adjusted EBITDA of $457.7 million, the guidance implies approximately $932.9 million to $992.9 million of second-half revenue and $292.3 million to $332.3 million of second-half adjusted EBITDA.

Management Perspective

Management attributed Higher Education’s recurring revenue growth to Inclusive Access, value-based pricing and the Evergreen delivery model. The company said Evergreen now provides direct updates to more than 800 titles and has supported retention and competitive wins. In K-12, management pointed to improving indicators in open-territory markets and an English Language Arts adoption cycle expected to begin in fiscal 2028.

McGraw Hill also reported double-digit active-user growth across nine embedded AI learning tools. Its AI Reader recorded more than 80 million interactions across approximately 3.4 million students through October 2026, compared with 47 million interactions and 2.2 million students in fiscal 2026. Management is extending its content into Microsoft Copilot and Anthropic’s Claude for Teachers while expanding institutional AI pilots.

Risks Investors Should Monitor

• K-12 capture rates: Lower capture rates in selected Math markets caused most of the quarterly revenue decline. Continued weakness would make it harder for digital and Higher Education growth to offset K-12 pressure.
• Margin compression: Adjusted EBITDA margin fell 3.2 percentage points because revenue declined faster than the cost base. Restoring growth without adding proportionate expenses will be important for the company’s fiscal-year margin objective.
• Recurring revenue performance: Quarterly recurring revenue declined 2.0%, despite 3.7% growth for the first half. The durability of Higher Education subscriptions must continue to counter weaker K-12 recurring revenue.
• Debt and interest burden: Gross debt remains above $2.5 billion, and quarterly net interest expense was $46.3 million. Further deleveraging could reduce this drag, but debt remains a significant balance-sheet obligation.

Summary

McGraw Hill’s fiscal Q2 2027 results showed a clear split between weaker K-12 performance and more resilient Higher Education, digital and professional-learning trends. Stable gross margin and lower financing costs provided support, but operating leverage and an unfavorable tax comparison reduced net income and EPS. The main issues to watch are K-12 capture rates, recovery in adjusted EBITDA margin, continued debt reduction and whether digital engagement converts into faster companywide growth.