McGraw Hill (NYSE:MH) reported fiscal third-quarter 2026 results that management said reflected continued momentum in its shift toward digital, recurring revenue and market share gains, particularly in higher education. The quarter also marked a leadership transition: Simon Allen retired as president and CEO on February 9 and remains chair of the board, while Philip Moyer joined as president and CEO.
Third-quarter results and raised fiscal 2026 outlook
For the quarter ended December 31, 2025, McGraw Hill said revenue increased 4.2% year over year to $434 million, with adjusted EBITDA up 7.7% to $136 million. Adjusted EBITDA margin was 31.3%, up nearly 100 basis points from the prior year period. Gross profit margin expanded nearly 100 basis points to 85.3%, which the company attributed to efficient operations and a favorable digital mix. CFO Bob Sallmann also noted there was “no impact from tariffs” on the business.
Based on what the company described as strong performance and visibility, management raised its full-year fiscal 2026 guidance to:
- Total revenue: $2.067 billion to $2.087 billion
- Recurring revenue: $1.516 billion to $1.526 billion
- Adjusted EBITDA: $729 million to $739 million
The company reiterated expectations that unlevered free cash flow will “slightly exceed the low end” of its 50% to 100% adjusted EBITDA conversion range. It also said CapEx and product development spending as a percentage of revenue would remain at 8% to 9%.
Higher education strength driven by share gains, Inclusive Access, and Evergreen
McGraw Hill highlighted higher education as the key driver in the quarter. Higher education revenue rose 24% year over year to $225 million, with recurring revenue up 33.5% and digital revenue up 24.8%. Management cited market share gains, demand for new offerings, enrollment growth and value-based pricing. The company said it reached a record-high 30% market share according to MPI.
Sallmann said 3% to 4% of higher education growth year-to-date came from enrollment trends, which he indicated were favorable given McGraw Hill’s exposure to two-year colleges and disciplines such as business management. He also said net price realization in higher education was “over 1%,” after factoring in mix impacts from Inclusive Access.
Inclusive Access represented 60% of higher education revenue, and management said nearly two-thirds of fall 2025 growth came from new course adoptions from existing customers. The company also noted it onboards roughly 100 new campuses annually and expects activations for accounts landed in fiscal 2026 to increase “by 15-20 times in the next few years.”
Executives repeatedly pointed to Evergreen—its continuously updated digital platform—as a differentiator. The company said Evergreen now includes more than 700 titles, and Sallmann noted that 70% of higher education revenue comes through Evergreen, which exceeded initial expectations. Allen told analysts Evergreen reduces the need for faculty to think about new editions, which in turn frees sales representatives to focus on new adoptions and share gains.
On the call, management also addressed a reserve-related benefit in the quarter. Sallmann said a sales return reserve release contributed about 400 basis points of benefit in higher education during Q3, driven by lower returns and a higher concentration of Inclusive Access, which he described as “higher quality revenue” with lower returns.
K-12 positioned for a larger fiscal 2027 cycle
K-12 revenue declined 14.6% year over year to $128 million, which management said was expected given a smaller market and tough comparisons against strong prior-year capture rates. However, recurring revenue in K-12 decreased only 1.6%, benefiting from prior-year sales.
Allen said the company gained share in a smaller year and was ranked first or second in 10 of the top 11 adoption opportunities, with strengths in science and English language arts (ELA). He also stated McGraw Hill had not seen any material impact from proposed federal education policy changes, and later added that only a small portion of district budgets comes from the federal government.
Looking ahead, management called fiscal 2027 a larger market opportunity tied to state purchasing cycles in California math, Florida ELA and Texas math. Allen said pilots in California math are progressing with “some early wins,” and the company said it secured a leadership position in Florida ELA. In Texas math, Allen said the state is changing some mechanics of its adoption cycle, but McGraw Hill has strong relationships and believes its end-to-end offering provides an advantage.
The company pointed to usage trends on McGraw Hill Plus, saying district access increased 86% year over year and average time spent rose 40% since the start of the school year. Allen suggested deeper integration and data-driven features could strengthen retention over time by making it difficult for districts to leave once they rely on longitudinal performance data.
AI products, engagement metrics, and operational efficiency focus
McGraw Hill’s executives emphasized that AI is being deployed with what Allen described as a “human-in-the-loop” approach aimed at improving learning outcomes and saving educators time. Allen cited a Morning Consult study that ranked McGraw Hill as the top education company for effectively utilizing AI, based on feedback from students and instructors.
The company highlighted several AI initiatives and adoption metrics. Allen said AI Reader reached more than 1 million higher education students in Q3 and generated 16 million learning interactions, up from 11 million in Q2, for a total of 27 million since inception. The company has expanded AI Reader into its First Aid Forward and Access Medicine offerings in the global professional segment.
Management also discussed Clinical Reasoning, an AI-powered product in medical education, noting momentum in institutional pilots and plans to add modules and virtual cases. Allen described Sharpen Advantage as a new AI-powered enterprise solution aimed at institution-wide adoption across administrators, professors and students, and said integrating Sharpen with ALEKS in the fall could drive incremental upsell. Moyer added that Sharpen reached 1 million active users after being released within nine months.
Operationally, Sallmann said McGraw Hill launched an offer management system in Q3 to simplify the sales process, shorten time to close deals and improve pricing visibility. The company also said it expanded AI use cases across product development and operations to unlock efficiencies and incremental margin opportunities, and reiterated that its “Scribe” initiative remains an area of focus with new use cases still in early stages.
Cash flow, debt paydown, and capital allocation priorities
McGraw Hill ended the quarter with $514 million in cash and $964 million in liquidity, with its revolving credit facility undrawn. Net leverage was 2.9x as of December 31. Operating cash flow was $309 million in the quarter, up 12% year over year.
The company used the cash flow to prepay $200 million of term loan principal during the quarter, including an additional $50 million prepaid in December. Year-to-date, McGraw Hill said it prepaid $596 million of term loan debt, generating more than $41 million in annualized cash interest savings. Sallmann said the company expects to pay down another $50 million in the fourth quarter and reiterated a net leverage target of 2.0x to 2.5x.
On capital deployment, Sallmann said the company’s first priority remains funding organic opportunities with the greatest return on investment, followed by deleveraging. He added that McGraw Hill is evaluating tuck-in M&A across business units, including international and global professional, but said there is “nothing transformative” in the current funnel.
About McGraw Hill (NYSE:MH)
McGraw Hill (NYSE:MH) is a global learning science company specializing in educational content, digital learning platforms, and assessment solutions. The company offers textbooks and course materials for K-12 and higher education, along with professional development resources for corporate and workforce training. Its digital solutions—including adaptive learning platforms and analytics-driven tools—support personalized instruction, progress tracking, and interactive engagement in both classroom and remote environments.
Founded in 1888 in New York City, McGraw Hill has evolved from a technical periodical publisher into one of the world’s leading providers of educational content and technology.
