John Wiley & Sons, Inc. — Fiscal 2023 Third-Quarter Form 10-Q
Reporting period: Three and nine months ended January 31, 2023; fiscal year ends April 30. Wiley operates through Research, Academic, and Talent segments and reported that approximately 84% of revenue was digital and 56% was recurring for the nine-month period.
Key Financial Metrics
| Metric | Q3 FY2023 | Q3 FY2022 | 9M FY2023 | 9M FY2022 |
|---|---|---|---|---|
| Revenue | $491.4 million | $515.9 million | $1,493.8 million | $1,537.3 million |
| Operating income (loss) | $(67.1) million | $46.0 million | $(26.6) million | $160.8 million |
| Net income (loss) | $(71.5) million | $35.4 million | $(51.1) million | $105.2 million |
| Diluted EPS | $(1.29) | $0.63 | $(0.92) | $1.86 |
| Adjusted EBITDA | $97.7 million | $99.8 million | $285.2 million | $322.2 million |
| Cash flow from operations | Not separately provided | Not separately provided | $53.7 million | $158.5 million |
Reported Q3 revenue declined 5%; constant-currency revenue declined 2% and organic constant-currency revenue declined 3%. Reported nine-month revenue declined 3%, while constant-currency revenue increased 1% and organic constant-currency revenue was approximately flat. Calculated GAAP operating margins were approximately negative 13.6% in Q3 and negative 1.8% for nine months, compared with approximately 8.9% and 10.5%, respectively, in the prior-year periods.
- Segment revenue, Q3: Research $253.6 million, Academic $177.5 million, and Talent $60.3 million.
- Segment performance, Q3: Research Adjusted EBITDA $80.3 million with a 31.7% margin; Academic $40.9 million with a 23.0% margin; Talent $10.8 million with a 17.9% margin.
- Cash and liquidity: Cash and equivalents were $126.4 million at January 31, 2023, including approximately $119.8 million held outside the United States. Unused borrowing capacity was approximately $553.4 million.
- Debt: Total debt was $945.6 million, compared with $787.0 million at April 30, 2022. The weighted-average interest rate was 4.97% at January 31, 2023, versus 2.55% at April 30, 2022. Wiley was in compliance with its debt covenants.
- Cash deployment: Nine-month capital spending was $57.6 million, product-development spending was $17.8 million, dividends were $58.1 million, and share repurchases were $24.0 million. Free cash flow less product-development spending was negative $21.7 million, compared with positive $77.4 million in the prior year.
Material Changes Versus the Prior Comparable Period
- Academic revenue declined 11% in both reported and constant-currency terms for Q3, driven by lower Academic Publishing revenue and continuing online-enrollment challenges in University Services. University Services enrollment declined 4% in Q3.
- Research revenue declined 4% reported and 1% constant currency in Q3. A temporary pause in Hindawi special-issues publishing reduced Q3 Research revenue by approximately $9 million on a constant-currency basis. Excluding Hindawi, Research revenue increased 2% constant currency.
- Talent revenue increased 13% reported and 18% constant currency in Q3, supported by double-digit placement growth; talent placements increased approximately 38%.
- Interest expense more than doubled to $11.5 million in Q3 and increased to $27.2 million for nine months because of higher borrowing rates.
- Operating results included a $99.8 million pretax, non-cash goodwill impairment related to Education Services and University Services, $8.8 million of restructuring and related charges, and a $3.7 million litigation settlement. These items substantially drove the GAAP operating loss.
- Operating cash flow fell $104.8 million year over year for the nine-month period, primarily because of lower earnings adjusted for noncash items, payment timing, restructuring payments, and lower employee-related accruals.
Guidance, Outlook, Risks, and Unusual Items
- Management reduced fiscal 2023 constant-currency guidance to revenue of $2.065–$2.090 billion, Adjusted EBITDA of $395–$410 million, Adjusted EPS of $3.30–$3.55, and free cash flow of $160–$185 million. Capital expenditures remain expected at $110–$120 million.
- The outlook reduction reflects increased Academic market headwinds and the Hindawi publishing pause, which management estimates could reduce revenue by up to $30 million and Adjusted EBITDA by up to $25 million. Higher interest expense also reduced the EPS outlook.
- Wiley initiated a fiscal 2023 restructuring program expected to produce approximately $60 million of annualized cost savings. The program includes a roughly 22% reduction in real-estate occupancy. Nine-month charges were $44.3 million, including $7.5 million related to closing Russian operations; substantial completion is expected by April 30, 2023, with liquidation extending into fiscal 2024.
- Management cited sustained online-degree-program headwinds, lower projected enrollments, pricing pressure, revenue-share concessions, and fewer new university partners as the basis for the goodwill impairment.
- Hindawi’s special-issues investigation remains ongoing. Wiley retracted hundreds of articles and expects possible effects on submissions, publications, and journal brands in fiscal 2024.
- Approximately $495.6 million of variable-rate debt was unhedged at January 31, 2023; a hypothetical one-percentage-point rate increase would affect annual net income and cash flow by approximately $4.0 million.
- Other relevant risks include foreign-currency volatility, subscription-agent liquidity, print-book sales returns, economic and political conditions, intellectual-property protection, acquisition integration, and execution of restructuring savings. Management stated that pending litigation was not expected to materially affect consolidated results.
Investor Verification Priorities
- Verify the revised fiscal 2023 guidance and the sensitivity of revenue and Adjusted EBITDA to Hindawi and Academic trends.
- Track University Services enrollments, partner additions, revenue-share concessions, and whether further goodwill or long-lived-asset impairments become necessary.
- Assess restructuring execution, remaining charges and payments, Russian-operations liquidation costs, and realization of the approximately $60 million annual savings target.
- Monitor debt balances, floating-rate exposure, covenant headroom, refinancing requirements, and the effect of higher interest rates on cash flow.
- Reconcile non-GAAP Adjusted EBITDA, Adjusted EPS, constant-currency results, and free cash flow measures to GAAP results and review the disclosed exclusions.
- Follow the Hindawi investigation, article-retraction activity, publishing backlog, and potential fiscal 2024 effects on submissions and journal revenue.