Publishing for the PreK-12 Market 2017

METHODOLOGY

EXECUTIVE SUMMARY

EVERY STUDENT SUCCEEDS ACT KICKS IN

INSTRUCTIONAL MATERIALS DISAPPOINT IN 2016

BASAL CURRICULUM SALES DECLINE

COURSEWARE GENERATES GROWTH OF 3.7%

STATE TESTS GROW IN UNCERTAIN ENVIRONMENT

DIGITAL MEDIA CAPTURES 56.8% SHARE IN 2016

K-12 MARKET TO GROW AT 2.5% CAGR BETWEEN 2016 AND 2020

CHAPTER 1: INDUSTRY SIZE AND STRUCTURE

INTRODUCTION

Table 1.1: Simba Information’s Instructional Materials Segment Definitions

INSTRUCTIONAL MATERIALS SALES OVERALL DISAPPOINT IN 2016

Weak Adoptions Hamstrung Basal Curriculum Sales

Courseware Generates Growth of 3.7%

Table 1.2: Sales of Print and Digital Instructional Media to the U.S. PreK-12 School Market, 2015-2017P ($ in millions)

State Tests Grow in Uncertain Environment

Growth of Digital Supplements Stabilizes at 1.4%

Print Supplements Flatten

Manipulatives Have a Strong Year

Novel Approach: Books for Literacy

Video Pulls Back Amid Often Free Competition

Election Year Boosts School Magazines

DIGITAL MEDIA CAPTURES 56.8% SHARE IN 2016

Table 1.3: Market Share of Print & Digital Instructional Media Sold into U.S. PreK-12 Schools, 2015-2017P ($ in millions)

LMSs Facilitate Digital Uptake in Schools

Evolving Learning Environment: Blended Learning

COMPETITIVE LANDSCAPE

Table 1.4: Simba Information’s PreK-12 Performance Index, 2016 vs. 2015 ($ in 000; ranked by Operating Margin)

M&A? Big Stories May Be on the Horizon

Table 1.5: Simba Information’s PreK-12 Merger & Acquisition Index, 2016

Table 1.5 continued: Simba Information’s PreK-12 Merger & Acquisition Index, 2016

School Specialty Refinances Debt

Curriculum Associates Transfers Ownership to ISU

CHAPTER 2: ENROLLMENT & DEMOGRAPHICS

INTRODUCTION

Table 2.1: Profile of U.S. School Districts by Size, 2017

PUBLIC SCHOOL ENROLLMENT ON THE RISE

Table 2.2: Trends in Public School Enrollment, 2013-2014 to 2026-2027P

ENROLLMENT PATTERNS VARY ACROSS THE STATES

Table 2.3: Projected Percentage Change in Public School Elementary and Secondary Enrollment Fall 2014 to Fall 2026

PRIVATE ENROLLMENT SEES DECLINING TREND

Table 2.4: Trends in Private School Enrollment, 1995-1996 to 2025-2026P

CHARTER ENROLLMENT RISES

Table 2.5: Charter School Growth, 2004-2005 to 2014-2015

Table 2.6: Percentage of Public School Students Enrolled in Charter Schools, Fall 2014

HOMESCHOOL ENROLLMENT TRENDS UP

Table 2.7: Sources of Homeschool Curriculum, 2016

Table 2.8: Growth in Students Being Homeschooled, 1999-2012

Table 2.9: Number of Students Being Homeschooled by State, 2016-2017

MORE VIRTUAL SCHOOLS, SOME BLENDED SCHOOLS

Table 2.10: Virtual Schools by Operator Status, 2015-2016

Blended Schools

Table 2.11: Blended Schools by Operator Status, 2015-2016

An Opportunity in Lagging Performance

STUDENTS IN POVERTY ARE TARGET FOR VENDORS

Table 2.12 Percentage of Children Under Age 18 in Families Living in Poverty, 2015

Table 2.13: Percentage of Public School Students by School Poverty Level and School Locale, 2014-2015

SCHOOLS BECOME MORE DIVERSE

Table 2.14: Trends in English-Language Learner Enrollment, 2004-2005 to 2014-2015

Table 2.15: Top 10 Languages of ELL Students, 2014-2015

Table 2.16: Percentage of Public School Students who are ELL, 2014-2015

SPECIAL NEEDS STUDENTS REQUIRE SERVICES

Table 2.17: Trends in Youth Receiving IDEA Services, 1990-1991 to 2014-2015

STATE-FUNDED PREK ENROLLMENT SWELLS

Table 2.18: Enrollment Growth in State-Funded Preschool Programs, 2013-2014 to 2015-2016

Table 2.19: Enrollment in State-Funded Preschool, 2015-2016

CHAPTER 3: POLICY & FUNDING

INTRODUCTION

ESSA SETTLED POLICY, THEN TRUMP ELECTED

CHANGING COURSE UNDER TRUMP

FUNDING FOR FY 2017 CONTINUES PRIORITIES

Table 3.1: 2017 Education Department Appropriations FY2016-FY2017 (selected K-12 categories, $ in millions)

CHANGING PRIORITIES FOR FISCAL 2018

Table 3.2: Education Department Appropriations FY2017-FY2018 P (selected K-12 categories, $ in millions)

Where the Cuts Hit

TITLE I’S 50 LARGEST ALLOCATIONS

Table 3.3: 50 Largest Title I Allocations to LEAs, FY 2016 ($ in thousands)

E-RATE SUPPORTS CLASSROOM CONNECTIVITY

What Schools Need from E-Rate

STATE EDUCATION FUNDING LAGS OVER DECADE

Table 3.4: Percent Change in State Formula Funding Per Student, Inflation Adjusted, FY 2008-FY-2017

Table 3.5: Percent Change in State Formula Funding Per Student, Inflation Adjusted, FY 2016-FY-2017

STATES ARE CAUTIOUS WITH FISCAL 2018 SPENDING

STATE-FUNDED PREK GROWS

Table 3.6: Funding for State-Funded Preschool, 2015-2016 (Funding dollars in thousands)

CHAPTER 4: BASAL CURRICULUM & ADOPTIONS

INTRODUCTION

Table 4.1: Core Basal Curriculum Segment Definitions:

SEGMENT SIZE

Table 4.2.: Estimated and Projected Sales of Basal Curriculum ($ in millions)

Core Basal Preference

ADOPTION STATES AND OPEN TERRITORIES

Top Disciplines in Open Territories

Table 4.3: Top 8 Disciplines for Textbooks in Open Territories, 2016 $ in 000

Reading/Language Arts Headlines Sales in Adoption States

Table 4.4: Top 8 Disciplines for Textbooks in Adoption States, 2016 $ in 000

MCGRAW-HILL TOPS 2016 ADOPTION PUBLISHER SCORECARD

Table 4.5: Simba Information's Adoption Publisher Scorecard, 2016 (Sales $ in 000 and rounded; ranked by total sales)

HMH in Second; Pearson in Third

Accelerate Learning on the Rise

ADOPTIONS OUTLOOK IN 2017 AND BEYOND

2017 Adoption Opportunity Is Expected to be Flat to Slightly Improved

CHAPTER 5: DIGITAL INSTRUCTIONAL MATERIALS: COURSEWARE, SUPPLEMENTS, VIDEO

INTRODUCTION

Table 5.1: Digital Segment Definitions

COURSEWARE: PROVIDERS AND USE GROW

Table 5.2.: Estimated and Projected Sales of Courseware ($ in millions)

More Providers, More Courseware

Facilitating Integration

Schools Consider New Options

DIGITAL SUPPLEMENTS GIVE SCHOOLS OPTIONS

Table 5.3.: Estimated and Projected Sales of Digital Supplements ($ in millions)

Companies Expand Offerings of Digital Supplements

Districts Guide, but Also Empower Teachers

VIDEO USED MORE, PURCHASED LESS

Table 5.4: Estimated and Projected Sales of Educational Video ($ in millions)

CHAPTER 6: OUTLOOK

INTRODUCTION

K-12 MARKET TO GROW AT A 2.5% CAGR BETWEEN 2016 AND 2020

Table 6.1: Sales of Print and Digital Instructional Media to the U.S. PreK-12 School Market, 2015-2017P ($ in millions)

Basal Curriculum Hits Peak Cycle

Courseware Benefits from Digital Transition

Slow Growth for State Tests

Flat to Slight Growth for Print & Digital Supplements, Video Declines

Manipulatives Have Staying Power

For Reading, Trade Books, Magazines Hang on

CHAPTER 7: COMPANY PROFILES

CAMBIUM LEARNING GROUP

Company Overview

K-12 Publishing Strategy

Financial Summary

Financial Overview: Cambium Learning Group, 2015-2017P

DISCOVERY EDUCATION

Company Overview

K-12 Publishing Strategy

Financial Summary

Financial Overview: Discovery Education and Other, 2015-2017P

GOODHEART-WILLCOX

Company Overview

K-12 Publishing Strategy

Improving Sales & Marketing

Financial Summary

Financial Overview: Goodheart-Willcox, FY2015-FY2017

HOUGHTON MIFFLIN HARCOURT

COMPANY OVERVIEW

PreK-12 Publishing Strategy

Financial Summary

Financial Overview: Houghton Mifflin Harcourt Education, 2015-2017P

K12 INC.

Company Overview

K-12 Publishing Strategy

Financial Summary

Financial Overview: K-12 Inc., FY2015-FY2017

MCGRAW-HILL EDUCATION

Company Overview

PreK-12 (Digital) Publishing Strategy

Adoptions

Financial Summary

Financial Overview: McGraw-Hill School Education Revenue, 2015-2017P

PEARSON

Company Overview

K-12 Strategy

Financial Summary

Financial Overview: Pearson plc, 2015-2017P

ROSETTA STONE, INC.

Company Overview

K-12 Publishing Strategy

Financial Summary

Financial Overview: Rosetta Stone, Inc., 2015-2017P

SCHOLASTIC CORP.

Company Overview

PreK-12 Strategy

Financial Summary

Financial Overview: Scholastic, FY2015-FY2017

SCHOOL SPECIALTY

Company Overview

PreK-12 Curriculum Strategy

Financial Summary

Financial Overview: School Specialty, 2015-2017P

SCIENTIFIC LEARNING CORP.

Company Overview

K-12 Publishing Strategy

Financial Summary

Financial Overview: Scientific Learning Corp., 2014-2016P

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