Tammy Lemanowicz - Director of Treasury Operations Richard Robinson - Chairman, President & CEO Maureen O'Connell - EVP, Chief Administrative Officer & CFO.

Drew Crum - Stifel.

Good day, ladies and gentlemen, and welcome to the Scholastic Reports Fiscal 2018 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded.

I will now turn the conference over to Tammy Lemanowicz, Director of Treasury Operations. You may begin..

Thank you and good morning, everyone. Welcome to Scholastic's First Quarter 2018 Earnings Call. Joining me here today are Dick Robinson, our Chairman, President and Chief Executive Officer; and Maureen O'Connell, our Executive Vice President, Chief Administrative Officer and CFO.

We have posted an investor presentation on our IR website at investor.scholastic.com, which we encourage you to download if you have not done so already. I would like to point out that certain statements made today will be forward-looking. These forward-looking statements by their nature are uncertain and may differ materially from actual results.

In addition, we will be discussing some non-GAAP financial measures, as defined in Regulation G and the reconciliations of those measures to the most directly comparable GAAP measures can be found in the Company's earnings release filed this morning on the Form 8-K, which have also been posted to our Investor Relations website.

We encourage you to review the disclaimers in our press release and investor presentations and to review the risk factors contained on our annual and quarterly reports filed with the SEC. Now, I would like to turn the call over to Dick Robinson..

A Journey Through a History of Magic, the companion book to the new British library exhibition leading up to the 20th anniversary of Harry Potter in the U.S. next year. We're also implementing a well=-honed book fair strategy in this important back-to-school selling season.

As we communicated in July, we're focusing on growing revenue per fair in our most profitable fair segments by right-sizing the fairs and by better-matching resources to each school's demographics and needs. Our new CRM platform and new dashboards for the book fair’s sales teams will help these efforts.

In addition, we are upgrading point-of-sale systems to simplify transactions as well as implementing a new merchandising strategy that makes it easier for parents and kids to find the best books curated specially for their age group. We believe this approach will lead to a higher level of participation and more revenue for transaction and fairs.

In clubs, we're focused on sponsor retention and leaner cost structure, as well as a return to the multi-grade book club offers that have been effective in the past.

We're also building our education business through new offerings like Scholastic EDGE, a major component of our guided readings program, new grammar writing and usage programs, and foundational phonics programs all in the pipeline are soon to be released.

These new programs will grow market share beyond supplemental materials for Scholastic and include a complete Pre-K through Grade 6 core literacy program of instruction. We know there's a very attractive market for this solution given teachers' growing preference to build their own customized curriculums instead of relying on basic reading textbook.

We're also bolstering our sales force, making targeted hires and sales professionals with experience in solution selling as well as adding editorial staff to expand our program offering.

In international, Scholastic Asia is an important growth driver, given the dedication to English language learning, the rising middle class, and Scholastic’s strong brand recognition throughout the region. This includes continued growth in trade and direct sales as well as in education.

We're also implementing a shared-services operation for Asia business units with a single financial and operational management system to leverage scale and minimize operating costs.

In short, Scholastic expects strong underlying growth from trade from our club and fair channels and more focused strategy to expand education to take advantage of the changing market opportunity for core Pre-K to 6 literacy curriculum.

We're expanding guided reading into a complete program of reading in the language arts skill, our classroom magazines will continue to provide the nonfiction content that teachers are looking for both in print and digital form.

On top of that, the Scholastic 2020 program will help us manage a clear process to achieve marketing improvements in the reduction of distribution cost. With that, Maureen [ph] quarter results in more detail.

Maureen?.

You and the Universe, the first children's book by Dara O'Briain, UK and Ireland's popular beloved comedian. We also have four of the top 10 titles to the first half of 2017 in Australia according to BookScan including WeirDo Really Weird by Anh Do, which took the number one spot.

We remain focused on growing our international business by building the presence of key products and leveraging our position as a global partner with schools as we continue to support research-based and instructional literacy and mathematics program.

We are seeing traction for our efforts to improve our direct sales performance in Malaysia and we are continuing to implement measures to bring similar results to the Philippines and Thailand. Corporate overhead expenses were $19.3 million versus $26.1 million last year on lower employee-related expenses.

Net cash used in operating activities was $92.4 million versus $105.5 million last year, and free cash used was $131 million versus $122.4 million last year, both in-line with expectations. We repurchased $4.7 million of common stock during the quarter and a quarter-end cash and cash equivalent exceeded debt by $299.9 million.

In the first quarter, we had $32.7 million in capital including $20.7 million in capital related to our headquarters' renovation which remain on track to be completed by the end of the calendar year.

We are also experiencing benefits from the more collaborative work environment and continue to expect our state-of-the-art headquarters to be an attractive feature for recruiting. There was also $10 million in capital used in our strategic technology transformation program. Now turning to the outlook.

We are reaffirming fiscal 2018 outlook of $1.65 billion to $1.7 billion in revenues and earnings per diluted share in the range of $1.20 to $1.30 excluding one-time item and a non-cash charge resulting from the previously announced termination of our domestic defined benefit plan that we expect to take later in the fiscal year.

Fiscal 2018 free cash flow is expected to be a use of $10 million to $20 million, compared to a source of $48.8 million in fiscal 2017.

This outlook includes capital expenditures of $90 million to $100 million, compared to $65.7 million in fiscal 2017 and pre-publication and production spending of $30 million to $40 million, compared to $26.9 million in fiscal 2017.

After fiscal 2018, we continue to expect operating income growth, leading up to Scholastic's 100th anniversary in October 2020.

As Dick mentioned at our annual shareholders' meeting yesterday, our stretch target is for $2 billion sales in fiscal 2021, our anniversary year; leveraging our creative content, our unique market position, strategic technology investments and planning process structure embedded in our Scholastic 2020 plan.

We are excited for and energized by the opportunities ahead and believe we are very well-positioned to capture market share as we also improve profitability through the organization. Before I turn the call over for your questions, I want to speak about hurricanes Harvey and Irma, which had a devastating impact on many of our communities.

Our offices withstood the storm well and our six Texas distribution centers are fully operational and delivering fairs to schools that are able to receive them; and our branches in Florida are now up and running as well.

We are assessing the potential impacts of school closings on our business and currently estimate approximately $5 million of book fair sales have been impacted or roughly 1% of the annual book fair business, and approximately $1 million in book club sales.

We are working to reschedule fairs where possible and supporting affected area schools to ensure that they have the resources they need to get back to instruction as quickly as possible as we also help them evaluate and fulfill their longer term needs. With that, Operator, we are ready to open the line for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Drew Crum of Stifel. Your line is now open..

Okay, thanks. Good morning, everyone. Maureen, just a follow up on your last comment on the hurricanes, are you saying that it's in your guidance or that’s the potential impact, or you could potentially get that back later in the fiscal year? I just want to understand how you're thinking about that $6 million impact you referenced ..

Right now we are trying to reschedule fairs, but in many of the Texas location, on Florida locations, the schools are still not open. At this point, that is our best estimate. We're trying to mitigate that as best as we can, but I would say that's a fair estimate at the moment..

Got it. Okay. And then on the education business, any way you can quantify the impact of this timing issue? Would you expect to pick some of that up in the fiscal second quarter? I think you made a comment that you expect to get some of it in the fiscal fourth quarter if I understood correctly.

If that's accurate, are we seeing an ongoing shift to where this business is more back-end weighted more fiscal fourth quarter or is this year just unique and different and we would expect a return to more normalized performance going forward?.

Our business is fourth quarter-loaded. It is much greater in the month of May than any other month during the year and we continually make improvements in operations so that we can deliver that big peak in the month of May. So we do expect this year most of the growth will come in the fourth quarter..

Okay. One last question and I'll jump back into the queue.

As it relates to the Dav Pilkey title, it released very late in the quarter, just to help us understand the order of magnitude, the contribution that you get in the second quarter relative to the first quarter?.

Well, the effect of Dog Man, the new title, the third one in the series, it was a little bit – at the end as you pointed out, it was shipped on August 29th and we recorded the initial trade sales distribution at that time.

The popularity of that title was so strong and the ramp up for this series was so great that by far the largest part of this is going to be in the second quarter..

Got it..

And the subsequent quarter. Typically as we get into January, Drew when the fourth one comes out, this series is having a terrific impact on children and we expect it to do very well for us in this fiscal year..

Great. Okay. Very good. Thanks, guys..

Thank you..

Thank you. And I'm showing no further questions at this time. I'd like to hand the call back over to Dick Robinson for any closing remarks..

Thank you, all, for joining us. For those who are not able to be here because of the religious holiday, we will welcome you back at our next presentation in December. Thank you for your support to Scholastic..

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone, have a great day..