Cengage Learning Holdings II (OTCMKTS:CNGO) reported fiscal 2026 third-quarter results that company executives said reflected “strong momentum” across its major businesses, with growth in U.S. higher education and continued expansion in its Work segment helping lift results. Management also highlighted ongoing investments in artificial intelligence and digital platforms, alongside cost actions tied to a new operating model.
Quarterly performance driven by Higher Ed and Work
CEO Michael Hansen said the quarter benefited from “robust digital and institutional sales” in U.S. higher education, which he described as outperforming expectations and reinforcing Cengage’s platform strategy and customer relationships. He added that the Work segment delivered “solid growth,” led by advanced career certificate programs and momentum in career and technical education (CTE), though results were “partially offset” by federal regulatory headwinds and immigration-related impacts on the company’s cybersecurity and beauty and wellness businesses.
Higher Education: digital and institutional sales, share gains
Tilsley said Higher Education, representing nearly half of the business, posted 15% adjusted cash revenue growth in the third quarter and 3% growth year to date, “primarily driven by the U.S. market,” with help from returns to growth at Gale and in international markets.
Within U.S. Higher Ed, Tilsley reported 20% year-over-year growth for the quarter, driven by 9% growth in digital sales and strong institutional sales. He said institutional sales were about $250 million year to date, up 23% year over year, and now represent 56% of U.S. higher education sales.
In response to an analyst question on competitive dynamics, Hansen said the company is seeing adoption share gains based on MPI Data and its internal CRM system, though he said it is “not clear from whom” the share is being gained based on the external dataset.
Management also addressed the magnitude of quarterly growth. Hansen said the company has “fully turned the corner away from print into digital,” and argued growth is coming from converting courses still taught with print materials to digital platforms. He said that while Cengage’s revenues are nearing “almost 90% digital,” only about 50% of U.S. course “seats” are taught with digital platforms, which he said leaves “substantial growth opportunity.”
Tilsley added there were “no timing issues” or balance sheet-related adjustments behind the year-over-year growth, and said institutional sales help improve sell-through and monetization versus traditional print textbook sales. He also pointed to the diminishing impact of print declines: he said U.S. print sales were about $120 million annualized several years ago and are now “in the $40 million range,” with print declining around 28% to 29% year over year, but on a much smaller base.
Tilsley said Gale returned to growth, with adjusted cash revenues up 8% year over year in the third quarter after declines in the first half, as renewals and demand began to normalize following uncertainty around federal funding for research universities. He also said international adjusted cash revenues, including Canada, grew 5% year over year as the business stabilizes, helped by go-to-market improvements in key markets.
Work segment: ed2go and CTE growth, headwinds persist in smaller lines
Tilsley described Work as a major investment focus for revenue and EBITDA growth, citing a large and growing total addressable market for work-based skill certification. He said Work segment adjusted cash revenues rose 6% year over year in the quarter and 4% year to date, “powered by ed2go.”
According to Tilsley, ed2go grew 24% in the quarter and 26% year to date, driven by pricing initiatives, investments to improve pipeline conversion, and triple-digit growth in an emerging employer sales channel. He said the company plans to expand courses, institutions, geographies, and languages to build scale.
Tilsley also said CTE grew 14% year over year and remains a focus for future growth and investment. By contrast, he said Infosec and Milady “remain challenged” due to federal headwinds impacting enrollment, and that management is adjusting costs in those businesses given a near-term outlook that “still looks challenged.”
K-12: low adoption year, early signs for next cycle
Tilsley reminded listeners that fiscal 2026 is a low adoption year for the company’s K-12-focused School and English Language Learning (ELL) segments, with “no large state adoptions” expected in 2026 compared with $50 million of large state adoptions signed in 2025.
School adjusted cash revenue rose 17% year over year in the quarter, which Tilsley said was driven by early Gale renewals and stabilization following earlier market headwinds, as well as strong win rates in open territories. He cautioned that the third quarter is typically a quiet sales period for K-12, and said the key focus remains the larger adoption years expected in 2027 and 2028.
ELL adjusted cash revenue increased 1% year over year in the quarter. Tilsley said year-to-date comparisons were impacted by a single non-recurring $60 million Caribbean deal, and that normalized ELL adjusted cash revenue would be down 5% year over year, reflecting the low adoption year in the U.S.
Asked about early competitive dynamics in major K-12 markets such as California and Texas, Hansen said it is “still early” in the cycle but that early indications are positive, while noting the company needs to see continued encouraging signs in the coming weeks and months.
AI and platform strategy, plus cost discipline and leverage
Hansen emphasized new partnerships and product initiatives aimed at linking education and employment, including a deeper AI partnership with Amazon Web Services and a collaboration with LinkedIn Learning to expand access to courses in AI, machine learning, and security topics. He said Cengage’s approach is “deliberate and course-specific,” leveraging leading large language models and embedding them into its platforms rather than building a standalone model.
Hansen said engagement with the company’s AI tools remains strong, with expanded availability of Student Assistant and measurable improvements in learning outcomes among active users. He also said Instructor Assistant was launched in January following a beta and will be broadened over the coming year. In K-12, he highlighted the launch of Explore, a unified digital learning platform intended to support a shift toward a predominantly digital model.
On costs, Tilsley said operating expenses were down year over year in the quarter and flat on a trailing twelve-month basis “net of key investments,” which he said improved operating leverage and increased flow-through of revenue to EBITDA. He cited investments in areas such as AI, ed2go, and digital-first strategies.
Tilsley also discussed cash flow and leverage trends, pointing to improved working capital from strong collections as invoicing issues tied to a new ERP rollout eased, as well as lower interest payments. He said the company repriced its term loan in January, reducing borrowing costs by 50 basis points for an incremental $8 million in annual interest savings and bringing total savings from debt repricing to more than $20 million since March 2024. He said liquidity remains strong and net leverage declined by 0.2 turns to 2.5 times, with expectations for further strengthening as collections ramp in the fourth quarter and restructuring costs decline.
About Cengage Learning Holdings II (OTCMKTS:CNGO)
Cengage Learning Holdings II (OTCMKTS:CNGO) is a global education content, technology and services company that develops learning solutions for academic, professional and library markets. Through its digital and print offerings, the company delivers course materials, textbooks and interactive learning tools designed to support student outcomes and educator effectiveness. Cengage’s product portfolio spans higher education, K-12, workforce training and library reference, with a growing emphasis on subscription-based digital access models.
The company’s core offerings include digital learning platforms such as MindTap, which integrates course materials, assessments and multimedia resources; WebAssign, an online homework and assessment platform for mathematics and science; and a comprehensive eBook library.
