McGraw Hill Tops Q3 Estimates, Raises Guidance as Digital Transition Accelerates
McGraw Hill, Inc. (NYSE:MH) reported fiscal third-quarter 2026 results that exceeded analyst expectations, driven by robust growth in its higher education segment and continued expansion of its digital and recurring revenue streams. The educational content provider also raised its full-year outlook, signaling confidence in its ongoing strategic execution.
Earnings and Revenue Beat
The company’s performance for the quarter ended December 31, 2025, surpassed consensus estimates on both the top and bottom lines.
- Revenue: Reported at $434.2 million, a 4.2% year-over-year increase, exceeding the analyst estimate of approximately $423.1 million.
- Earnings Per Share (Non-GAAP): Came in at $0.28, significantly higher than the estimated $0.0984.
This earnings beat was primarily fueled by exceptional performance in the Higher Education segment, which saw revenue surge 24.0% year-over-year to $225.4 million. The company highlighted strong market share gains, value-based pricing, and favorable enrollment trends. The K-12 segment, as anticipated, faced a revenue decline of 14.6% due to a smaller overall market opportunity for the fiscal year, though the company noted it captured market share.
Market Reaction and Strategic Highlights
Following the earnings release, the stock saw a significant positive reaction in after-hours trading, rising approximately 15.9%. This move suggests investors were encouraged by the strong earnings beat and the upward revision to guidance. The positive after-hours action contrasts with the stock's performance over the past month, which had seen a decline of nearly 20%, potentially reflecting pre-earnings caution or broader market sentiment.
The quarterly results underscored the success of McGraw Hill's digital transformation. Key metrics from the press release include:
- Digital Revenue: Grew 11.0% year-over-year to $363.7 million.
- Re-occurring Revenue: Increased 14.8% to $357.5 million, enhancing revenue predictability.
- Remaining Performance Obligation (RPO): Stood at $1.70 billion, providing visibility into future revenue.
- Margin Expansion: Adjusted EBITDA margin improved by nearly 100 basis points to 31.3%.
The company also emphasized progress in scaling its artificial intelligence solutions, with its AI Reader tool recording 16 million interactions during the quarter and surpassing 1 million unique users.
Updated Guidance Versus Analyst Expectations
Management raised its fiscal year 2026 guidance, reflecting the stronger-than-expected third quarter and positive momentum.
The updated revenue guidance range of $2.067 billion to $2.087 billion sits above the prior range of $2.031 billion to $2.061 billion. Notably, the midpoint of this new range (~$2.077 billion) is slightly below the analyst sales estimate for FY2026 of $2.111 billion provided in the context, suggesting analysts may have been more optimistic on the full-year top line.
For the fourth quarter, analysts had estimated revenue of approximately $445.3 million. McGraw Hill's implied Q4 guidance, based on its nine-month actuals and full-year forecast, suggests confidence in a strong finish to the fiscal year.
Leadership Transition and Financial Position
The earnings report coincided with a planned leadership transition. Simon Allen retired as President and CEO on February 9, 2026, and transitioned to the role of Chair of the Board. He is succeeded by Philip Moyer, who brings a technology and AI-focused background to the role. The company stated this transition ensures strategic continuity.
Financially, McGraw Hill continued to strengthen its balance sheet, using strong free cash flow to prepay $200 million of term loan debt during the quarter. Its net leverage ratio improved to 2.9x, moving closer to its target range of 2.0x-2.5x.
Conclusion
McGraw Hill's third-quarter results demonstrate the effective execution of its digital-first strategy, particularly within higher education. The substantial earnings beat and raised guidance have been met positively by the market, as evidenced by the sharp after-hours stock gain. While the updated full-year revenue forecast remains slightly cautious compared to some analyst models, the strong margin performance and debt reduction paint a picture of a company prioritizing profitable growth and financial health. The incoming CEO's focus on technology and AI aligns with the firm's current trajectory, setting the stage for its next phase of development.
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