q4 2016 investor presentation final-posted to site_3.21.17

McGraw‐Hill EducationQ4‐2016 Update

March 21, 2017

This presentation has been prepared for existing debt holders of McGraw‐Hill Global Education Holdings LLC and MHGE Parent, LLC .

Final

Important Notice

Forward‐Looking Statements

This presentation includes statements that are, or may be deemed to be, “forward‐looking statements.” These forward‐looking statements can be identified by the use of forward‐looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward‐looking statements include all matters that are not historical facts. They appear in a number of places throughout this presentation and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward‐looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward‐looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward‐looking statements contained in this presentation. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward‐looking statements contained in this presentation, those results of operations, financial condition and liquidity or developments may not be indicative of results or developments in subsequent periods.

Any forward‐looking statements we make in this presentation speak only as of the date of such statement, and we undertake no obligation to update such statements. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

Non‐GAAP Financial Measures

Certain financial information included herein, including Billings, EBITDA and Adjusted EBITDA, are not presentations made in accordance with U.S. GAAP, and use of such terms varies from others in the same industry. Non‐GAAP financial measures should not be considered as alternatives to income from continuing operations, income from operations or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance or cash flows as measures of liquidity. Non‐GAAP financial measures have important limitations as analytical tools, and you should not consider them in isolation or as substitutes for results as reported under U.S. GAAP. This presentation includes a reconciliation of certain non‐GAAP financial measures to the most directly comparable financial measures calculated in accordance with U.S. GAAP.

Adjusted EBITDA, which is defined in accordance with our debt agreements, is provided herein on a segment basis and on a consolidated basis. Adjusted EBITDA on a consolidated basis is presented as a debt covenant compliance measure. Management believes that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non‐cash items and about unusual items that we do not expect to continue at the same level in the future as well as other items to assess our debt covenant compliance, ability to service our indebtedness and make capital allocation decisions in accordance with our debt agreements.

2

Business Review

McGraw‐Hill Education 2016 ResultsMarket share gains in cyclically smaller year for both Higher Ed and K‐12

2016 was a challenging year for the industry with cyclically

smaller markets in both Higher Ed and K‐12

Channel destocking and a smaller front‐list unfavorably

impacted Higher Ed sales while strong new adoption market

share capture partially offset the anticipated smaller K‐12

market

MHE expanded market share in both Higher Ed and K‐12

Digital investment proven successful at scale; almost $800M

digital Billings and double‐digit growth in both user

engagement and direct‐to‐student e‐commerce sales

Expect MHE Billings improvement in 2017 from a larger front‐

list and abatement of channel destocking in Higher Ed as well

as a larger K‐12 new adoption market

Significant liquidity of over $750M in cash and available credit

lines at year‐end; repurchased debt on open market in Q1‐17

Company PerformanceMHE Billings $1,913M (‐7.0%) MHE Adjusted EBITDA $421M (‐13.4%)

MHE Digital Billings $785M (+2.7%)% MHE Digital Billings 41% (+400bps)

Market Share1Higher Ed Market Share (+) ~200 bps since 2012K‐12 Market Share (+) ~500 bps since 2013

Key IndicatorsAdaptive Interactions since 2012 11.9BConnect/LearnSmart Paid Activations 3.3M (+11%)ALEKS Unique Users 3.3M (+24%)

Company LiquidityCash $419MCredit Line Capacity 350MTotal Liquidity $769M

Q1‐17 Debt Repurchase $47M(Open market purchases)

4

Fiscal Year Ended December 31, 2016

1Management Practice, Inc. (MPI) and Association of American Publishers (AAP)

McGraw‐Hill Education

Strong digital growth was more than offset by a smaller

front‐list and distributor destocking

Despite destocking, back‐list net sales grew 4.1% Y/Y in 2016,

as digital demand outpaced the print decline

Direct‐to‐student e‐commerce net sales grew 22.9% Y/Y in

2016, representing 20%+ of total Higher Ed Billings

Sales continued to shift from Q4‐16 to Q1‐17 as direct‐to‐

student purchases are increasingly made closer to the start

of the semester

Expect Higher Ed to stabilize in 2017 due to following:

Larger front‐list

Abatement of channel destocking driven by anticipated

lower actual returns from distributors– returns

favorability continuing into early Q1

5


McGraw‐Hill Higher Education 2016 ResultsIndustry in transition; meaningful opportunity to grow digital and still monetize print

Company PerformanceBillings (net of accrued returns) $736M (‐10.8%) % Digital Billings 56% (+1,100bps)

Direct‐to‐Student Net Sales $172M (+22.9%)

*Total Net Sales (net of actual returns) $713M (‐9.5%)Back‐list Sales (net of actual returns) $415M (+4.1%)Front‐list Sales (net of actual returns) $298M (‐23.4%)

Market Performance / Share1Market Share (actual returns basis) 21.3% (+54bps) Industry Net Sales (actual returns) ‐13.8%

MHE Actual Returns Change (‘16 vs.‘15) ‐$40M (‐14.4%)Industry Actual Returns Change ‐$128M (‐9.2%)

Key IndicatorsConnect/LearnSmart Paid Activations 3.3M (+11%)ALEKS Unique Users 1.3M (+19%)

*Primary difference between Billings and net sales (industry market share measure) is the accrual of returns

1Management Practice, Inc. (MPI)

Higher Education

K‐12 billings lower in 2016 due to a cyclically smaller new

adoption market vs. 2015 and softer open territory performance

Outsized performance in California English Language Arts (ELA)

driven by innovative program offering

MHE K‐6 Reading Wonders program offers an integrated

English Language Learners’ platform and customized

reporting for teachers and a digital partnership with

multimedia lessons for grades 6‐8

Larger new adoption market anticipated in 2017‐2019 with key

purchases in California, Florida and Texas

Well positioned for new adoptions in 2017, including

remaining 2/3 of California ELA purchases (2017‐2018),

but a tough comp vs. 2016

Open territory sales were down slightly in 2016 driven by losses

in a small number of key urban districts; modifications made to

drive improvement in 2017

6


McGraw‐Hill K‐12 2016 ResultsStrong K‐12 new adoption performance precedes robust market opportunity

Company PerformanceBillings (net of accrued returns) $758M (‐4.9%)% Digital Billings 34% (‐300bps)

Market Performance / Share1Market Share (actual returns basis) 24.6% (+97bps)Adoption Market Share ~30%Open Territory Market Share ~20%

Industry Net Sales (actual returns) ‐9.2%

MHE California New Adoption Market Share Performance K‐8 ELA ~57%K‐5 ELA ~70%6‐8 ELA ~37%

Key IndicatorsConnectEd Unique Users 7.1M (+38%)ALEKS Unique Users 2.0M (+27%)

*Primary difference between billings and net sales (industry market share measure) is the accrual of returns

1 As per Monthly AAP data ‐ Cohort of publishers for monthly AAP data differs from that of annual AAP data‐Monthly data reflects net sales on an actual returns basis submitted by 6‐7 publishers‐ Annual data reflects net sales on an actual returns basis submitted by 5 publishers

K‐12

International

Digital transition continued with a focus on localized digital

offerings, multi‐year, recurring revenue UAE contract and the

launch of new digital product pilots

Digital nearing 20% of total Billings vs. 11% in 2015

Recently launched two new products: Connect2 and ELLevate

English – these products are global and will be introduced in

the U.S.

Professional

Business continued to evolve from a traditional provider of

print products to digital subscription solutions

Growth of the Access subscription platform coupled with a

strong renewal rate continued to drive digital growth

Digital exceeded 50% of total Billings vs. 47% in 2015

7

McGraw‐Hill International & Professional 2016 ResultsStrong digital performance with growth opportunities ahead

Company Performance ‐ InternationalInternational Billings (constant fx) $303M (‐1.6%)International Digital Billings $49M (+42.4%)International Digital Billings % 17% (+600bps)

Key Indicators ‐ InternationalConnect/LearnSmart Paid Activations 275K (+7%)ALEKS Unique Users 112K (+66%)

Company Performance ‐ ProfessionalProfessional Billings $122M (0.8%)Professional Digital Billings $64M (+9.9%)Professional Digital Billings % 52% (+500bps)

Key Indicators ‐ ProfessionalAccess Platform Billings $50M (+17.3%)Access Platform Renewal Rate 93%


NEW PRODUCTS IN THE INTERNATIONAL MARKET Connect2: Pre‐built all‐digital course framework attractive to

the localization and customization needs found within international markets

ELLevate English: Global, digital‐first six level English Language Learners’ course for grades 7‐12 leveraging MHE’s open learning platform

International & Professional

8

McGraw‐Hill 2017 Preliminary OutlookImproving conditions in Higher Ed; well positioned for key adoptions in K‐12

Key Front‐List Titles – 2018 Copyrights (sold in 2017)

Higher Ed: Improving conditions anticipated for MHE in 2017

Expect Higher Ed Billings to stabilize in 2017 (vs. 2016) due to abatement of

channel destocking and a larger MHE front‐list

Actual returns favorable YTD March 15th: down mid‐teens % Y/Y

Strong e‐commerce sales in early 2017 demonstrate continued progress in

digital transition; ($74M in e‐commerce sales, up 23% YTD March 15th)

Testing go‐to‐market strategies to maximize the print opportunity

Pre‐publication costs to increase ~$3‐5M to support launch of new front‐list

K‐12: Difficult comp vs. 2016 but well positioned for key adoptions

New adoption market to expand in the 2017‐2019 period; 2019 is the largest

year for new adoptions in the period

CA anticipated to purchase ~50% of multi‐year reading adoption in 2017

FL social studies adoption is next largest adoption in 2017, but significantly

smaller than 2017 CA ELA adoption

Pre‐publication costs to increase ~$15‐20M ahead of key new adoptions

anticipated in 2019

Key drivers of success in 2017: Front‐list sell‐through Destocking abatement led by a continued

decline in returns

2017 K‐12 Market Opportunities

Key drivers of success in 2017: Maintaining CA momentum against outsized

2016 performance Level of purchasing in Florida MHE improvement in open territory

Higher Education

K‐12

0.7 1.0 1.6 2.00.80.9

1.11.3

1.52.0

2.73.3

2013 2014 2015 2016

K‐12 Higher Ed

2.22.6

3.0 3.3

2013 2014 2015 2016

MAINTAINING A LEADERSHIP POSITION IN DIGITAL ADAPTIVE LEARNING

Paid activations, unique users and engagement on MHE digital adaptive learning products grew double‐digit rates in 2016

Adaptive products continued to penetrate classrooms and improve outcomes

‐ 99M assignments submitted through Connect, up 12% Y/Y

‐ ~6.9B interactions (questions answered) on LearnSmartsince 2009

‐ ~5.0B interactions (questions answered) on ALEKS since 2010

McGraw‐Hill Education FY 2016 Digital Ed Tech Highlights~12 Billion cumulative adaptive interactions

+11%

CONNECT/LEARNSMART PAID ACTIVATIONS (US HIGHER ED)

ALEKS UNIQUE USERS (GLOBAL HIGHER ED, K‐12)

+24%

9

(Millions)

CONNECTED UNIQUE USERS (K‐12)

2013‐2016 CAGR: +15%

2.23.5

5.2

7.1

2013 2014 2015 2016

+38%2013‐2016 CAGR: +47%

2013‐2016 CAGR: +32%

International Connect/LearnSmart Paid Activations of 275K not included in Connect/LearnSmart totals aboveInternational ALEKS Unique Users of 112K included within total ALEKS Unique Users above

$67

$105

$140$172

2013 2014 2015 2016

DIRECT‐TO‐STUDENT SALES CONTINUED TO GROW SIGNIFICANTLY IN 2016

Higher Ed digital Billings expanded 1,100 bps Y/Y as a percentage of total Higher Ed Billings in 2016

Direct‐to‐student e‐commerce channel was the largest distribution channel for Higher Ed in 2016

Direct‐to‐student e‐commerce sales are predominantly stand‐alone digital solutions

‐ Paid activations of Connect/LearnSmart are increasingly sourced through the e‐commerce channel

‐ Business and economics disciplines comprised more than one‐third of all net sales from this channel

‐ ALEKS sales are gaining traction particularly in science, engineering and math disciplines

Higher Ed Billings Mix

McGraw‐Hill Education Higher Ed Digital BillingsEvolving the EdTech business model with increasing direct‐to‐student e‐commerce sales

DIGITAL VS. PRINT BILLINGS MIX %

E‐COMMERCE NET SALES

10

+23%

($ in Millions)

2013‐2016 CAGR: +37%

34% 38% 45% 56%

66% 62% 55% 44%

2013 2014 2015 2016

Digital Print (Traditional + Custom)

$16 $17

$292 $260

25% 31% 37% 34%

$11 $19 $35

$49

12% 21% 11% 17%$22 $25

$58 $64

53% 61% 47% 52%

$87 $90

$375 $411

45% 52% 45% 56%

$138 $152

$765 $785

35% 42% 37% 41%

11

McGraw‐Hill Education Digital Billings MixDigital now 56% of Higher Ed Billings; product mix impacted K‐12 in 2016

($ in Millions)

MCGRAW‐HILL EDUCATION +3%

+10%

K‐12(11%)

Q415 Q416 2015 2016

HIGHER ED

Q415 Q416 2015 2016

+4%

Q415 Q416 2015 2016

Q415

PROFESSIONAL

+10%

+15%

Q416 2015 2016

INTERNATIONAL

+42%+74%

Q415 Q416 2015 2016

% of TotalBillings

% of TotalBillings

% of TotalBillings

% of TotalBillings

% of TotalBillings

Digital is now an almost $800M business for MHE

MHE digital Billings impacted by K‐12 change in product mix

Strong Higher Ed digital growth adversely impacted by channel destocking (physical access cards) and weak front‐list

+2%

+9%

Financial Review

$(7) $(5)

$486 $421

nm nm24% 22%

$395 $361

$2,058 $1,913

Total BillingsMHE TOTAL BILLINGS

13

($ in Millions)

Adjusted EBITDAMHE ADJUSTED EBITDA

Digital %

(9%)

29%

(13%)

Margin %

(7%)

Q415 Q416 2015 2016

Q415 Q416 2015 2016

35% 42% 37% 41%

McGraw‐Hill Education Financial ReviewYear of transition in Higher Ed; better than expected K‐12 new adoption performance

BILLINGS GROWTH IMPACTED BY A GREATER THAN EXPECTED PRINT DECLINE IN HIGHER ED

2016 MHE Billings decreased 7% Y/Y on constant FX

Billings impacted by greater than expected distributor destocking in Higher Ed and planned smaller K‐12 new adoption market vs. 2015

‐ A smaller Higher Ed front‐list was anticipated but the extent and duration of destocking was not anticipated

‐ MHE realized better than expected K‐12 market share capture in California reading /literacy

Digital Billings nearly $800M in 2016 as usage and penetration continued to expand

‐ Paid activations, users and engagement on digital adaptive learning platforms continued to grow double‐digit rates

ADJUSTED EBITDA IMPACTED BY LOWER BILLINGS AND TIMING OF INVESTMENT SPEND

2016 Adjusted EBITDA predominantly impacted by lower Billings in Higher Ed and the timing of digital investment in advance of upcoming opportunities

Billings flow‐through to EBITDA dollars favorably impacted by higher gross margin and benefit of previous cost savings

Constant FX (8%) $363 (7%) $1,921

Constant FX 37% $(5) (14%) $420

McGraw‐Hill Education

$52 $39

$295 $234

26% 23% 36% 32%

$195 $173

$825 $736

Higher Ed Financial ReviewQ4 performance in‐line with expectations conveyed after Q3; digital sales shift to Q1‐17

14

($ in Millions)

Total Billings

Adjusted EBITDA

HIGHER ED TOTAL BILLINGS

HIGHER ED ADJUSTED EBITDA

Q415 Q416 2015 2016Digital %

(11%)

(11%)

Margin %

45% 52% 45% 56%

Q415 Q416 2015 2016

DESTOCKING ABATING AS RETURNS DECLINE Distributor destocking continued into the fourth quarter but

was partially offset by lower actual returns

Actual returns in 2016 declined 14% Y/Y vs. a 9% decline for the industry

‐ MHE reserve accrual adjusted down 70bps to 22.7% in 2016; accrual calculation impacted by both actual returns and change in gross sales

Digital Billings grew 4% Y/Y in the fourth quarter, in line with expectations for this time of the year

‐ Digital purchases for the back‐ to‐school semester continued to shift to Q1 of the following year

‐ Standalone digital sales via our direct‐to‐student e‐commerce channel more closely align with the start of a semester (historically, physical access cards would have been sold to the channel in Q4)

ADJUSTED EBITDA IMPACTED BY LOWER BILLINGS 2016 Adjusted EBITDA unfavorably impacted by lower print

Billings slightly offset by digital Billings growth and reduced incentive expense

Billings flow‐through to EBITDA dollars favorably impacted by the higher gross margin associated with digital product sales and benefit from previous cost savings

(24%)

(21%)

Higher Education

$(87) $(74)

$127 $137

nm nm

16% 18%

$66 $54

$798 $758

K‐12 Financial ReviewStrong performance in new adoptions; well positioned for upcoming opportunities

15

($ in Millions)

Total Billings

Adjusted EBITDA

K‐12 TOTAL BILLINGS

K‐12 ADJUSTED EBITDA

Digital %

(5%)

(18%)

Margin %

25% 31% 37% 34%

Q415 Q416 2015 2016

Q415 Q416 2015 2016

STRONG PERFORMANCE IN CALIFORNIA ELA Stronger than anticipated new adoption market share gains

in California reading / literacy partially offset the smaller market and softer performance in open territory

New adoption capture exceeded normalized levels in 2016 while open territory lagged due to losses in a small number of key urban districts

Digital Billings were lower in 2016 strictly due to product mix; reading / literacy is less digital than math and social studies

Q4 is a seasonally small quarter for K‐12

‐ Decline in Billings driven by an unfavorable Y/Y comp and softer open territory performance

ADJUSTED EBITDA FAVORABLY IMPACTED BY TIMING OF PRE‐PUBLICATION INVESTMENT

2016 EBITDA impacted by the margin flow‐through on anticipated lower Billings offset by lower pre‐publication investment driven by the timing and size of new adoption opportunities

Pre‐publication investment typically incurred 12‐18 months in advance of targeted new adoption

15%

8%

K‐12

$16 $18

$32 $34

40% 44% 26% 28%

$41 $41

$123 $122

$13 $12

$33

$19

14% 13% 11% 6%

$91 $92

$308 $295

International & Professional Financial ReviewDigital investment and growth continued across the portfolio

16

($ in Millions)

Total BillingsTotal BillingsINTERNATIONAL TOTAL BILLINGS

INTERNATIONAL ADJUSTED EBITDA

Margin %

Q415 Q416 2015 2016

Digital %

Q415 Q416 2015 2016

12% 21% 11% 17%

PROFESSIONAL ADJUSTED EBITDA

PROFESSIONAL TOTAL BILLINGS

2016 Billings declined 2% Y/Y on constant FX as growth in localized digital offerings was more than offset by lower print sales

Margin adversely impacted by increase in pre‐publication investment related to UAE agreement

Digital % 53% 61% 47% 52%

Q415 Q416 2015 2016

Margin %

Q415 Q416 2015 2016

+1%

(4%)

Constant FX 3% $94 (2%) $303

(1%)

0%

Constant FX (9%) $12 (45%) $18

+5%

+11%(9%)

(43%)

International 2016 Billings decreased 1% Y/Y as growth in digital Access

platform subscriptions was more than offset by a decline in print and eBook sales

Margin favorably impacted by lower costs associated with product mix and ongoing shift to digital solutions

Professional

Capital Structure and LiquiditySignificant liquidity to support business seasonality and de‐lever

Senior Secured Term Loan due 2022 $1,567Revolving Credit Facility due 2021 ($350M) 0 Total First Lien Indebtedness $1,567

Less: McGraw‐Hill Global Education Cash and Cash Equivalents (412)

Net First Lien Indebtedness $1,155Last Twelve Months Covenant EBITDA $421

Net First Lien Leverage Ratio 2.7x

Senior Unsecured Notes Due 2024 400Net Total Indebtedness $1,555

LeverageCash and Cash Equivalents

McGraw‐Hill Global Education Holdings $412McGraw‐Hill Education Inc. 7Total McGraw‐Hill Education, Inc. $419

Available under Credit Facilities at Dec 31, 2016 350

Total Liquidity $769

MCGRAW‐HILL EDUCATION INC. (MHE INC.) LIQUIDITY

Notes˗ Net Total Indebtedness calculation excludes $500M of MHGE Parent LLC debt and

cash held at McGraw‐Hill Education Inc. ˗ Net First Lien Leverage covenant takes effect only if 30% of revolving line of credit

is drawn at quarter‐end. Usage was less than 30% at December 31, so covenant did not apply. Covenant level is 5.25x in Q2 and 4.8x in Q1, Q3 and Q4.

17

MCGRAW‐HILL GLOBAL EDUCATION HOLDINGS COVENANT LEVERAGE

Ended 2016 with a strong liquidity position

Management is committed to de‐levering, even after a

slower year

Board authorized up to $107M for repurchase of

8.5% 2019 MHGE Parent PIK/Toggle Notes

callable Aug‐17

$47M purchased in open market at or below par;

priority – earliest maturity and highest coupon

Anticipate additional repurchases if business

meets expectations and depending on market

conditions

No excess cash flow payment due in 2017 as a result of

the 2016 debt prepayment

Hedged $500M of floating rate debt in Q1‐17

($ in Millions)AT DECEMBERR 31, 2016

18

SummaryMHE gained market share in Higher Ed and K‐12; widened competitive lead in digital

2016 was a challenging year for the Higher Ed industry as it transitions from print to digital – transition

to digital remains in early innings; meaningful opportunity to grow digital and still monetize print

Anticipate new front‐list titles in 2017 (2018©) will drive print and digital sales along with

abatement of channel destocking

Planning alternatives to maximize print opportunity by disintermediating used and rental

Strong new adoption share in K‐8 California reading/literacy partially offset the smaller market in 2016

Optimistic for upcoming key new adoption opportunities in the 2017‐2019 period

Executing well on the digital strategy within key international markets and with new product

introductions

Ended the year with a strong cash position and remain focused on de‐levering and digital investment

Appendix

Financial Terms and Acronyms

20

Financial Terms Description

Adjusted EBITDA

Non‐GAAP financial measure that includes adjustments required or permitted in calculating covenant compliance under our debt agreements. Adjusted EBITDA is a non‐GAAP financial measure defined as net income from continuing operations plus net interest, income taxes, depreciation and amortization (including amortization of pre‐publication investment cash costs) and adjusted to exclude unusual items and other adjustments required or permitted in calculating covenant compliance under our debt agreements less cash spent for pre‐publication investment in addition to the change in deferred revenue.

Billings (formerly referred to as Adjusted Revenue)

Non‐GAAP financial measure that we define as U.S. GAAP revenue plus the net change in deferred revenue excluding the impact of purchase accounting. Billings, a measure used by management to assess sales performance, is defined as the total amount of revenue that would have been recognized in a period if all revenue were recognized immediately at the time of sale.

Change in Deferred Revenue

The Company receives cash up‐front for most product sales but recognizes revenue (primarily related to digital sales) over time recording a liability fordeferred revenue at the time of sale. This adjustment represents the net effect of converting deferred revenues to a cash basis assuming the collection of all receivable balances.

Digital Billings (formerlyreferred to as Digital Adjusted Revenue)

Represents standalone digital sales and, where digital product is sold in a bundled arrangement, only the value attributed to the digital component(s) is included. The attribution of value in bundled arrangement is based on relative selling prices (inclusive of discounts).

EBITDA Earnings before interest (net), income tax, depreciation and amortization.

Front‐list and Back‐list Front‐list represents brand new titles and new revisions of existing titles previously published. For example, the 2016 front‐list represents 2017 and 2016copyrights sold in 2016. Back‐list represents copyrights from 2015 and prior sold in 2016.

Net Sales Gross sales less actual returns; net sales are not adjusted for the impact of accruals / net change in deferred revenue.

Pre‐publicationInvestment

Pre‐publication costs reflect the costs incurred in the development of instructional solutions, principally design and content creation. These costs are capitalized when the title is expected to generate future economic benefits and are amortized upon publication of the title over its estimated useful life of up to six years.

Sell‐Through Represents the percentage of net sales a new revised title generates vs. prior editions of the same title.

KPI Terms Description

Paid Activation A user who accesses a purchased digital product for the first time. Access can be through a physical access card purchased from a bookstore or directly over MHE’s e‐commerce channel.

Unique User on a platform An individual who authenticates a product at least once during a given period of time.

Digital Product Offering Descriptions

21

Product Description Higher Education K‐12 International Professional

AccessDigital subscription platform that provides easily searchable and customizable digital content integrated with dynamic and functional workflow tools

ALEKS Adaptive learning technology for the K‐12 and higher education markets

Connect Open learning environment for students and instructors in the higher education market

Connect2 Collaborative teaching and learning environment for the International Higher Education market

ConnectEd Content delivery platform for the K‐12 market

ELLevate English Six level English Language Learning (ELL) course

EngradeDeveloper of an open digital platform for K‐12 education that unifies the data, curriculum and tools to drive student achievement and inform district educational strategy

LearnSmart Adaptive learning program which personalizes learning and designs targeted study paths for students

RedbirdA leading digital personalized learning company that offers courses in K‐12 math, language arts and writing, and virtual professional development programs for educators

SmartBookAdaptive reading product designed to help students understand and retain course material by guiding each student through a highly personal study experience

Supplemental Financial Disclosure

Billings and Adjusted EBITDA

23

Billings is a non‐GAAP sales performance measure that provides useful information in evaluating our period‐to‐period performance because it reflects the total amount of revenue that would have been recognized in a period if we recognized all print and digital revenue at the time of sale. We use Billings as a sales performance measure given that we typically collect full payment for our digital and print solutions at the time of sale or shortly thereafter, but recognize revenue from digital solutions and multi‐year deliverables ratably over the term of our customer contracts. As sales of our digital learning solutions have increased, so has the amount of revenue that is deferred in accordance with U.S. GAAP. Billings is a key metric we use to manage our business as it reflects the sales activity in a given period, provides comparability from period‐to‐period during this time of digital transition and is the basis for all sales incentive compensation. In the K‐12 market where customers typically pay for five to eight year contracts upfront and the ongoing costs to service any contractual obligation are limited, the impact of the change in deferred revenue is most significant. Billings is U.S. GAAP revenue plus the net change in deferred revenue.

EBITDA, a measure used by management to assess operating performance, is defined as net income from continuing operations plus net interest, income taxes, depreciation and amortization (including amortization of pre‐publication investment cash costs). Adjusted EBITDA is a non‐GAAP debt covenant compliance measure that is defined in accordance with our debt agreements. Adjusted EBITDA is a material term in our debt agreements and provides an understanding of our debt covenant compliance, ability to service our indebtedness and make capital allocation decisions in accordance with our debt agreements.

Each of the above described measures is not a recognized term under U.S. GAAP and does not purport to be an alternative to revenue, income from continuing operations, or any other measure derived in accordance with U.S. GAAP as a measure of operating performance, debt covenant compliance or to cash flows from operations as a measure of liquidity. Additionally, each such measure is not intended to be a measure of free cash flows available for management’s discretionary use, as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Such measures have limitations as analytical tools, and you should not consider any of such measures in isolation or as substitutes for our results as reported under U.S. GAAP. Management compensates for the limitations of using non‐GAAP financial measures by using them to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends affecting the business than U.S. GAAP results alone. Because not all companies use identical calculations, our measures may not be comparable to other similarly titled measures of other companies.

Management believes Adjusted EBITDA is helpful in highlighting trends because Adjusted EBITDA excludes the results of decisions that are outside the control of operating management and can differ significantly from company to company depending on long‐term strategic decisions regarding capital structure, the tax rules in the jurisdictions in which companies operate, and capital investments. In addition, Billings and Adjusted EBITDA provides more comparability between the historical operating results and operating results that reflect purchase accounting and the new capital structure post the Founding Acquisition as well as the digital transformation that we are undertaking which requires different accounting treatment for digital and print solutions in accordance with U.S. GAAP.

Management believes that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non‐cash items and about unusual items that we do not expect to continue at the same level in the future as well as other items to assess our debt covenant compliance, ability to service our indebtedness and make capital allocation decisions in accordance with our debt agreements.

Note: In compliance with SEC interpretative guidance, we now refer to ‘Adjusted Revenue’ as ‘Billings’ throughout the presentation

MHE Higher Ed Front‐List / Back‐List Net Sales

24

($ in Millions)

Front‐list / Back‐list is on a net sales basis; refer to key financial terms in appendix

Twelve Months Ended December 31 Three Months Ended

2012 2013 2014 2015 2016 Dec‐2015 Dec‐2016

Digital Net Sales

Front‐list $100 $126 $132 $156 $149 $36 $34Back‐list 137 153 194 220 263 43 51

Total Digital Net Sales $237 $278 $326 $376 $411 $79 $85

Y/Y %Front‐list (6.0%) 25.1% 5.2% 18.2% (4.7%) (1.1%) (4.6%)

Back‐list 53.7% 11.8% 27.1% 13.4% 19.2% 2.6% 19.2%Total Digital Net Sales 21.1% 17.4% 17.2% 15.3% 9.3% 0.9% 8.3%

Print Net Sales


Total Print Net Sales $523 $538 $524 $411 $302 $78 $65

Y/Y %Front‐list (23.9%) 1.9% (9.9%) (20.0%) (35.9%) (32.2%) (34.6%)

Back‐list 0.6% 4.7% 8.5% (23.6%) (14.6%) (38.2%) 7.6%Total Print Net Sales (15.9%) 3.0% (2.6%) (21.6%) (26.7%) (34.8%) (17.4%)

Total Net Sales


Total Net Sales $760 $817 $851 $787 $713 $157 $150

Y/Y %Front‐list (20.3%) 7.5% (5.7%) (8.1%) (23.4%) (21.4%) (21.5%)

Back‐list 16.7% 7.5% 16.2% (6.8%) 4.1% (19.9%) 14.2%Total Net Sales (7.0%) 7.5% 4.2% (7.4%) (9.5%) (20.7%) (4.5%)

Higher Ed Industry and MHE Higher Ed Sales Trend

25

($ in Millions)

2011 2012 2013 2014 2015 2016

Higher Ed Industry per Management Practice, Inc.1

Higher Ed Market Gross Sales $5,726 $5,420 $5,453 $5,465 $5,302 $4,695Returns 1,323 1,311 1,262 1,214 1,377 1,250

Net Sales $4,403 $4,110 $4,191 $4,251 $3,925 $3,446

Y/Y %Gross Sales n/a (5.3%) 0.6% 0.2% (3.0%) (11.4%)Returns n/a (0.9%) (3.7%) (3.8%) 13.5% (9.2%)Net Sales n/a (6.7%) 2.0% 1.4% (7.7%) (12.2%)

McGraw‐Hill Education Return Detail

Actual Returns $263 $276 $257 $252 $277 $237Reserve for Returns Adjustment (3) (13) 9 16 (31) (23) Reported Returns $260 $263 $266 $268 $246 $215

Return Accrual % 24.4% 25.8% 25.1% 24.4% 23.4% 22.7%

McGraw‐Hill Higher Education Billings Mix (%)2

For‐profit % of Total Higher Ed Billings 18% 19% 16% 11% 10% 10%Non‐profit % of Total Higher Ed Billings 82% 81% 84% 89% 90% 90%

Billings will not reconcile to M PI submission due to classification of revenue between K-12 and Higher Ed

(1) M PI data reflects gross and net sales on an actual returns basis and includes other adjustments, eg. advanced placement which is reported in K-12

(2) B illings mix on a net sales basis; refer to key financial terms in the appendix

Twelve Months Ended December 31

K‐12 Industry New Adoption Market Overview

26

2012 2013 2014 2015 2016 2017E 2018E 2019ELargest Adoption States

Reading Reading* Science

Math Social Studies Social Studies*

Reading (K‐5) Reading (6‐12)

Math (K‐5) Math (6‐12)

Math (K‐8) Math (9‐12)Science Social Studies

Science*All Other Adoption States

Alabama Math Reading Social Studies Science

Arkansas Math

Math*Reading

Idaho Science Reading Math Social Studies Reading

Indiana Reading Reading*

Math (K‐8)Social Studies

North Carolina Math Science Social Studies Reading

New Mexico Science Math Reading Social Studies Science

MathSocial Studies (6‐12)

MathSocial Studies

Social StudiesMath

(1) Excludes new state adoptions in non‐core discipl ines such as career and technical education, music, art, world languages, health, etc.*Disciplines reflect 2nd or 3rd year of major purchasingPurchases from AR and IN classified as open territory effective 2015

West Virginia

Mississippi

Oklahoma

Oregon

South Carolina

Tennessee

Virginia

Reading (9‐12) Reading (K‐6) Social Studies Math Science

Reading Science Math

Louisiana

New State Adoptions by Purchase Year1

California (K‐8)

Florida

Texas

Georgia

Science Reading (K‐8)

MathScienceSocial Studies

Math

Social Studies

Math* Reading Reading*

Social Studies

Reading

Social Studies

Social Studies (K‐5)Reading

Science

Science

Social StudiesScienceMathReading*ReadingSocial Studies

Reading Math (9‐12) Reading Social Studies

Social Studies Science Reading Math

Science

MathReading

Math Reading*

K‐12 Industry Adoption and Open Territory Market Net Sales

27

($ in Millions)

2012 2013 2014 2015 2016E 2017E 2018E 2019E

Historical Industry Net Sales Per AAP1 Projected Industry Net Sales (Mean) 2

Total Adoption Net Sales $1,311 $1,391 $1,860 $1,621 $1,296 $1,354 $1,443 $1,710

$1,175 ‐ $1,418 $1,207 ‐ $1,608 $1,400 ‐ $1,471 $1,530 ‐ $1,910

Total Open Territory Net Sales $1,423 $1,563 $1,425 $1,431 $1,474 $1,503 $1,557 $1,580

$1,450 ‐ $1,500 $1,475 ‐ $1,546 $1,500 ‐ $1,608 $1,500 ‐ $1,672

Total Adoption & Open Territory Net Sales $2,734 $2,954 $3,285 $3,052

$2,625 ‐ $2,918 $2,682 ‐ $3,154 $2,900 ‐ $3,079 $3,030 ‐ $3,582

(1) AAP total adoption and open territory net sales include front‐l ist and back‐l ist and is based on actual returns submitted by five publishers. AAP net sales reflect US sales only and includes sales of core and non‐core disciplines, AP products, software and platforms etc. Total adoption net saIes includes net sales from both new state adoptions and residual purchases (2) Reflects an arithmetic average of MHE estimates with estimates from three wall street firms(3) High and low of MHE estimates with estimates from three wall street firms

Projected Adoption & Open Territory Net Sales (Low/High) 3

*Projected industry net sales reflect an average of MHE estimates with estimates from three Wall Street firms

Projected Total Adoption Net Sales (Low/High) 3

Projected Total Open Territory Net Sales (Low/High) 3

Adoption and Open Territory Net Sales

K‐12 Industry and MHE K‐12 Sales Trend

28

($ in Millions) Twelve Months Ended December 31

2012 2013 2014 2015 2016*K‐12 Industry per Association of American Publishers (AAP)

AAP U.S. Net Sales 1

Total Adoption $1,311 $1,391 $1,860 $1,621Open Territory 1,423 1,563 1,425 1,431

Total Net Sales $2,734 $2,954 $3,285 $3,052

Y/Y %Total Adoption n/a 6.2% 33.6% (12.8%)Open Territory n/a 9.8% (8.8%) 0.4%

Total Net Sales n/a 8.1% 11.2% (7.1%)

McGraw‐Hill Education K‐12

McGraw‐Hill Education Billings 2

Total Adoption $320 $318 $366 $450 $411Open Territory / Other 378 359 369 348 348

Total K‐12 Billings $698 $677 $734 $798 $758

Y/Y %Total Adoption n/a (0.5%) 15.0% 23.0% (8.6%)Open Territory / Other n/a (5.0%) 2.6% (5.7%) (0.1%)

Total K‐12 Billings n/a (3.0%) 8.5% 8.6% (4.9%)

MHE Adoption Participation % 96% 79% 67% 76% 87%

(1) AAP annual data reflects unrestated net sales on an actual returns basis submitted by five publishers in each respective year; data reflects US sales only and includes sales of AP products, software and platforms, etc.

AAP includes front-list and back-list net sales; annual data prior to 2015 has not been restated for the shift o f AR and IN from adoption to open territory

(2) M HE Billings reflect an accrued returns basis and will not reconcile to AAP submission due to classification of revenue; Total adoption includes new adoption and residual

M HE Billings have not been restated for the shift o f AR and IN in prior periods

*AAP market data to be updated upon release of the AAP annual report

Digital vs. Print Billings Detail

29Figures are represented on a cash basis inclusive of actual returns but excluding purchase accounting adjustments. Accrued returns are reflected in print revenue.

($ in Millions)Q4 Billings Detail by Component

December YTD Billings Detail by Component

2014 2015 2016 2015 2014 2015 2016 2015 2014 2015 2016 2015

Higher Ed $84 $87 $90 3.9% $142 $108 $83 (23.2%) $226 $195 $173 (11.1%)K‐12 24 16 17 2.5% 49 50 38 (24.7%) 73 66 54 (18.0%)

International 9 11 19 74.3% 86 80 73 (9.1%) 94 91 92 0.9%Professional 21 22 25 15.1% 19 19 16 (17.3%) 40 41 41 (0.2%)

Other 5 2 1 (52.6%) (2) (0) 0 100.0% 2 2 1 (48.3%)

Total MHE $142 $138 $152 10.1% $294 $257 $210 (18.6%) $436 $395 $361 (8.6%)

% of TotalHigher Ed 37% 45% 52% 63% 55% 48% 100% 100% 100%

K‐12 32% 25% 31% 68% 75% 69% 100% 100% 100%International 9% 12% 21% 91% 88% 79% 100% 100% 100%Professional 53% 53% 61% 47% 47% 39% 100% 100% 100%

Total MHE 33% 35% 42% 67% 65% 58% 100% 100% 100%

% vs % vs% vsQ4 Digital Billings Q4 Print Billings Q4 Total Billings

2014 2015 2016 2015 2014 2015 2016 2015 2014 2015 2016 2015

Higher Ed $322 $375 $411 9.4% $516 $450 $325 (27.7%) $838 $825 $736 (10.8%)K‐12 215 292 260 (10.9%) 520 505 498 (1.4%) 734 798 758 (4.9%)

International 31 35 49 42.4% 304 273 246 (10.1%) 336 308 295 (4.2%)Professional 58 58 64 9.9% 69 65 58 (10.4%) 127 123 122 (0.8%)

Other 5 5 1 (74.9%) (1) (0) 1 N/M 4 5 2 (62.4%)

Total MHE $631 $765 $785 2.7% $1,408 $1,293 $1,128 (12.8%) $2,039 $2,058 $1,913 (7.0%)

% of TotalHigher Ed 38% 45% 56% 62% 55% 44% 100% 100% 100%

K‐12 29% 37% 34% 71% 63% 66% 100% 100% 100%International 9% 11% 17% 91% 89% 83% 100% 100% 100%Professional 46% 47% 52% 54% 53% 48% 100% 100% 100%

Total MHE 31% 37% 41% 69% 63% 59% 100% 100% 100%

% vs % vs % vsDec YTD Digital Billings Dec YTD Print Billings Dec YTD Total Billings

Free Cash Flow

30

($ in Millions)

Cash Flow Comparison 2015 2016 Y/Y $

Adjusted EBITDA 486 421 (65)

∆ in Accounts Receivable 12 (4) (16) ‐ lower Q4 billings offset by timing of K‐12 collections∆ in Inventories (14) (27) (13) ‐ inventory build in advance of K‐12 CA ELA opportunity

∆ in Prepaid & Other Current Assets1 (48) (16) 32 ‐ royalty reclassification in 15 accounts for ‐$24mm∆ in Accounts Payable and Accrued Expenses (22) (62) (40) ‐ royalty reclassification in 15 accounts for +$24mm, lower incentives in 16∆ in Other Current Liabilities (3) (25) (23) ‐ $17mm accrued interest decline in 16 driven by payment timing

Adjusted EBITDA less ∆ in Working Capital Accounts 411 287 (124)

Pre‐publication Investment (*) 99 90 (9) ‐ timing related spend with Int'l higher & K‐12 lower; see below

Restructuring and Cost Savings Implementation Charges (*) (25) (17) 8 ‐ lower severance payments

Sponsor Fees (*) (4) (4) 0Cash Interest (170) (170) 1 ‐ Refinancing offset by shift to monthly interest paymentsNet (loss) from Discontinued Operations (net of non cash adjustment) (34) (2) 32 ‐ CTB divestiture in 2015Inventory Obsolescence 25 20 (6)

∆ in Operating Assets and Liabilities1 (6) (12) (7)Other 11 6 (5)

Cash (used for) provided by operating activities 308 198 (110)2015 2016 Y/Y $

Higher Education 30 30 (0)Adjusted EBITDA less ∆ in Working Capital Accounts per above 411 287 (124) School 53 35 (18)‐ Capital Expenditures & Payment of Capital Lease Obligations (41) (42) (1) International 7 18 11

Operating Free Cash Flow2 369 245 (125) Professional 9 8 (2)Total 99 90 (9)

Cash Balance at Beginning of Period 414 553 139

Cash (used for) provided by operating activities 308 198 (110)Dividends (101) (320) (219)Net Borrowings 90 180 90Payment of Deferred Financing Costs ‐ (38) (38)Pre‐publication Investment (*) (99) (90) 9Capital Expenditures (41) (38) 3Investments, Acquisitions & Divestitures, net (11) (12) (1)Payment of Capital Lease Obligations ‐ (4) (4)Other (7) (11) (4)

Cash Balance at End of Period 553 419 (134)

Source: Consolidated Statement of Cash Flows or Adjusted EBITDA reconciliation if denoted by (*)1 includes adjustment for change in short term and long term deferred royalties included in calculation of Adjusted EBITDA2 includes the impact of certain non operational working capital items (i.e., restructuring reserves, purchase accounting, accrued interest, etc.)

Twelve Months Ended December 31

Pre‐publication Investment

Key Drivers

Adjusted EBITDA Reconciliation

Amounts above may not sum due to rounding. 31

($ in Millions)

2015 2016 2015 2016Net Income ($95) ($114) ($63) ($46)Interest (income) expense, net 193 200 47 45 Provision for (benefit from) taxes on income 5 9 3 5 Depreciation, amortization and prepublication investment amortization 214 202 54 44 EBITDA $316 $296 $41 $48

Change in deferred revenue (a) 228 156 (31) (41) Change in deferred royalties (b) (11) (17) (1) (0) Restructuring and cost savings implementation charges (c) 25 17 6 7 Sponsor fees (d) 4 4 1 1 Loss on extinguishment of debt (e) ‐ 27 ‐ ‐ Other (f) 22 29 8 15 Pre‐publication investment cash costs (g) (99) (90) (32) (35)

Adjusted EBITDA $486 $421 ($7) ($5)

Three Months Ended December 31Twelve Months Ended December 31

Adjusted EBITDA Footnotes

32

(a) We receive cash up‐front for most sales but recognize revenue (primarily related to digital sales) over time recording a liability for deferred revenue at the time of sale. This adjustment represents the net effect of converting deferred revenues to a cash basis assuming the collection of all receivable balances.

(b) Royalty obligations are generally payable in the period incurred with limited recourse. This adjustment represents the net effect of converting deferred royalties to a cash basis assuming the payment of all amounts owed.

(c) Represents severance and other expenses associated with headcount reductions and other cost savings initiated as part of our formal restructuring initiatives to create a flatter and more agile organization.

(d) Beginning in 2014, $3.5 million of annual management fees was recorded and payable to Apollo.(e) This amount represents the write‐off of unamortized deferred financing fees, original debt discount and other fees and expenses associated with the

Company’s refinancing of its existing indebtedness on May 4, 2016. (f) For the year ended December 31, 2016 the amount represents (i) non‐cash incentive compensation expense and (ii) other adjustments required or

permitted in calculating covenant compliance under our debt agreements. For the year ended December 31, 2015, the amount represents (i) non‐cash incentive compensation expense; (ii) elimination of the gain of $4.8 million on the sale of an investment in an equity security and (iii) other adjustments required or permitted in calculating covenant compliance under our debt agreements.

(g) Represents the cash cost for pre‐publication investment during the period excluding discontinued operations.

Revenue Bridge & Segment Detail

33

($ in Millions)

Amounts above may not sum due to rounding.

2015 2016 2015 2016Reported Revenue $1,830 $1,757 $424 $400Change in Deferred Revenues 228 156 (29) (39) Billings $2,058 $1,913 $395 $361

Billings by segmentHigher Education $825 $736 $195 $173K ‐ 12 798 758 66 54 International 308 295 91 92 Professional 123 122 41 41 Other 5 2 2 1 Total Billings $2,058 $1,913 $395 $361

Adjusted EBITDAHigher Education $295 $234 $52 $39K ‐ 12 127 137 (87) (74) International 33 19 13 12 Professional 32 34 16 18 Other (1) (2) (1) 0 Total Adjusted EBITDA $486 $421 ($7) ($5)


Adjusted Operating Expense Bridge

34

($ in Millions)

Amounts above may not sum due to rounding.

2015 2016 2015 2016

Operating Expense BridgeTotal Reported Operating Expenses $1,252 $1,207 $323 $308Less: Depreciation & Amortization of intangibles (125) (128) (34) (31) Less: Amortization of prepublication costs (89) (74) (20) (13) Less: Restructuring and cost savings (25) (17) (6) (7) Less: Other adjustments (22) (29) (8) (15) Adjusted Operating Expenses $991 $959 $255 $241


35

Financial Statement Revision

In the December 31, 2016 financial statements, the company revised previously issued financial information for two

accounting changes relating to K‐12 royalties and Free With Order (FWO). A summary of the change and impact follows:

MHE defers royalties associated with digital subscription products and amortizes over the subscription period; prior to 2016, K‐12

royalties had been deemed immaterial and expensed upfront;

Royalty reassessment following the significant increase in K‐12 royalties associated with the 2016 CA ELA adoption and, as a

result, K‐12 royalties were material in 2016 and should now be deferred.

MHE allocates revenue between print, digital and FWO print products. Prior to 2016, FWO digital products were not material to

the allocation. However, during 2016, MHE sold bundled arrangements with multiple deliverables including FWO digital products

associated with the 2016 CA ELA adoption.

Q1 Q2 Q3 Q4 FY Q1 Q2 Q3 Q4 FYNon‐GAAP Impact

Billings ($0.2) $0.0 $0.0 $2.7 $2.5 $0.0 $0.0 $0.0 $0.9 $0.9Adjusted EBITDA (5.5) 0.0 1.0 3.7 (0.8) (3.0) (1.0) (1.0) 2.7 (2.4)

Y/Y $Billings $0.2 $0.0 $0.0 ($1.8) ($1.6)Adjusted EBITDA 2.5 (1.0) (2.0) (1.1) (1.6)

GAAP Impact

GAAP Revenue ($2.1) ($1.2) ($0.6) ($0.7) ($4.6) ($2.0) ($17.4) ($10.8) $33.8 $3.7Pre Tax Operating Income (6.1) 0.7 4.3 4.8 3.7 (6.1) (12.6) 0.9 33.2 15.5

Y/Y $GAAP Revenue $0.1 ($16.2) ($10.2) $34.6 $8.3Pre Tax Operating Income 0.1 (13.4) (3.4) 28.5 11.8

2015 2016

q4 2016 investor presentation final-posted to site_3.21.17

Investor Relations