McGraw Hill Q2 Revenue Falls as K-12 Weakness Offsets Digital Growth

McGraw Hill (NYSE: MH) reported lower fiscal second-quarter revenue and adjusted earnings as a decline in its K-12 business outweighed growth in Higher Education and International. Digital revenue continued to increase, while the company issued fiscal 2027 guidance calling for full-year revenue of $2.12 billion to $2.18 billion.

Revenue for the quarter ended September 30, 2026, fell 5.5% year over year to $632 million. Adjusted EBITDA declined 12.5% to $251 million, and adjusted EBITDA margin narrowed to 39.6% from 42.8%. GAAP net income was $86 million, compared with $105 million a year earlier.

Re-occurring revenue, which includes digital subscriptions and multi-year print products, decreased 2.0% to $414 million but represented 65% of quarterly revenue, up from 63% in the prior-year period. Digital revenue rose 2.6% to $361 million and increased to 57% of total revenue from 53%.

Gross profit declined to $500 million from $530 million, reflecting the lower revenue base, while gross profit margin remained unchanged at 79.2%.

K-12 decline offsets Higher Education growth

K-12 revenue fell 9.6% to $325 million and was the main drag on quarterly sales. Re-occurring revenue in the segment declined to $199 million from $216 million, while digital revenue increased to $121 million from $119 million. Re-occurring products accounted for 61% of K-12 revenue, and digital products represented 37%.

Higher Education revenue edged up 0.2% to $213 million. Digital revenue increased to $194 million from $186 million and represented 91% of segment revenue. Re-occurring revenue rose 5.5% to $171 million, accounting for 80% of the segment total.

Global Professional revenue decreased 2.7% to $39 million, although its re-occurring revenue increased 5.9% to $26 million. International revenue rose 1.6% to $51 million, or 2% on a constant-currency basis, while re-occurring revenue declined 9.3% to $18 million.

For the first half of fiscal 2027, total revenue declined 1.9% to $1.18 billion. Digital revenue grew 5.6% to $715 million, and re-occurring revenue increased 3.7% to $840 million. Adjusted EBITDA fell 4.2% to $458 million, with the margin decreasing to 38.7% from 39.7%. GAAP net income increased to $144 million from $106 million.

Remaining performance obligations totaled $1.79 billion at September 30, up from $1.67 billion at March 31. McGraw Hill uses the measure, which represents contracted revenue not yet recognized, to assess future revenue visibility. The company cautioned that RPO is affected by renewal and purchasing timing, contract duration and seasonal trends.

Cash flow, debt and guidance

Operating activities generated $189 million of cash in the quarter, down from $265 million a year earlier. Product development spending rose to $39 million from $26 million, capital expenditures increased to $25 million from $21 million, and the company paid $29 million in cash consideration for acquisitions.

For the first six months, operating cash flow increased to $190 million from $168 million. Investing cash outflow widened to $152 million from $87 million, reflecting higher product development and capital expenditures as well as acquisition spending.

McGraw Hill ended September with $233 million of cash and $644 million of total committed liquidity, including undrawn revolving credit facilities. Gross debt was $2.58 billion, while total net indebtedness was $2.34 billion, equivalent to 3.2 times last-12-month adjusted EBITDA. The company reduced term-loan principal by $50 million in September and said it remains committed to a net debt-to-adjusted EBITDA target of 2.0 to 2.5 times.

Management expects fiscal 2027 revenue of $2.12 billion to $2.18 billion, re-occurring revenue of $1.59 billion to $1.63 billion and adjusted EBITDA of $750 million to $790 million. The company did not provide a reconciliation of prospective adjusted EBITDA to GAAP net income because some necessary items are difficult to predict and may depend on events outside its control.

McGraw Hill also highlighted continued investment in AI-enabled education products, including integrations designed to make licensed content available through model context protocol connections. Its strategy includes collaborations with Microsoft and Anthropic, AI tools embedded in existing learning platforms and acquisitions intended to expand instructional coaching and content-customization capabilities.

The company noted that its guidance and longer-term targets remain subject to business, economic and competitive uncertainties. Actual results could also be affected by purchasing and renewal timing, seasonal patterns and changes in projected K-12 adoption schedules.