Business Context and Reporting Period
John Wiley & Sons, Inc. filed this unaudited Form 10-Q for the quarter and six months ended October 31, 2023, representing fiscal 2024 second-quarter and year-to-date results. Wiley operates primarily through Research and Learning, while University Services, Wiley Edge, and CrossKnowledge are classified in the Held for Sale or Sold segment following a portfolio-divestiture plan.
Wiley describes itself as predominantly digital, with more than 80% of fiscal 2023 revenue excluding the Held for Sale or Sold segment generated by digital products. Matthew Kissner became interim President and CEO on October 10, 2023.
Financial Performance and Position
| Metric | Three Months Ended October 31, 2023 | Six Months Ended October 31, 2023 |
|---|---|---|
| Revenue | $492.8 million, down 4% | $943.8 million, down 6% |
| Operating income | $46.2 million, down 19% | $29.9 million, down 26% |
| Net income (loss) | $(19.4) million | $(111.7) million |
| Diluted EPS | $(0.35) | $(2.02) |
| Adjusted revenue, excluding Held for Sale or Sold | $406.6 million, down 2% on a constant-currency basis | $773.7 million, down 5% on a constant-currency basis |
| Adjusted EBITDA, excluding Held for Sale or Sold | $92.4 million, down 13% on a constant-currency basis | $152.1 million, down 12% on a constant-currency basis |
| Adjusted EPS | $0.73 | $0.99 |
Six-month revenue declines reflected lower Research revenue, including the continuing impact of the Hindawi publishing disruption, and lower Held for Sale or Sold revenue. Learning revenue was approximately flat for the six months, while its Adjusted EBITDA increased 15% on a constant-currency basis.
Six-month operating cash flow was an outflow of $83.5 million, compared with an outflow of $76.2 million in the prior-year period. Free cash flow less product development spending was negative $132.0 million, compared with negative $126.2 million. Operating cash flow is seasonally negative in the first half because annual journal subscription collections generally occur in the second half.
Cash and cash equivalents totaled $99.5 million at October 31, 2023, including $16.3 million classified as held for sale. Total debt was $942.6 million, compared with $748.3 million at April 30, 2023. Wiley reported approximately $552.7 million of unused borrowing capacity and compliance with its leverage and interest coverage covenants. Weighted-average debt interest rates increased to 5.62% at October 31, 2023 from 4.76% at April 30, 2023. A one-percentage-point change in rates on the $443.3 million of unhedged variable-rate debt would affect annual net income and cash flow by approximately $3.4 million.
Wiley paid $38.7 million of dividends and repurchased $22.5 million of common stock during the first six months. Shareholders’ equity declined to $867.3 million from $1.045 billion, primarily reflecting the year-to-date net loss, accumulated foreign currency translation losses, dividends, and repurchases.
Material Changes Versus the Prior Comparable Period
- Research revenue declined 7% on a constant-currency basis for both the quarter and six-month period. Hindawi revenue declined $18.1 million in the quarter and $37.3 million year to date on a constant-currency basis.
- Learning revenue increased 6% on a constant-currency basis in the quarter and decreased 1% year to date. Digital courseware and improved professional publishing trends supported performance.
- Held for Sale or Sold revenue declined 18% in the quarter and 15% year to date on a constant-currency basis, driven by lower placement revenue, lower University Services enrollments, and prior divestitures.
- Six-month results included $26.7 million of goodwill impairment and $127.3 million of impairment charges related to held-for-sale assets and a business sale. These charges, together with restructuring charges, materially reduced GAAP earnings.
- Restructuring and related charges were $25.1 million in the quarter and $37.2 million year to date, compared with $14.0 million and $36.4 million, respectively, in the prior-year periods.
- Interest expense increased to $12.9 million in the quarter and $24.3 million year to date from $9.3 million and $15.7 million, respectively, due primarily to higher interest rates.
- The Global Restructuring Program has reduced real estate occupancy by approximately 22% and is expected to reduce it by an additional approximately 6%. Wiley estimates approximately $65 million of annualized cost savings, including approximately $30 million expected in fiscal 2024 from actions initiated in fiscal 2024.
Guidance, Outlook, Risks and Unusual Items
Wiley reaffirmed its fiscal 2024 outlook excluding businesses held for sale or sold:
| Metric | Fiscal 2024 Outlook |
|---|---|
| Adjusted revenue | $1.580 billion to $1.630 billion |
| Adjusted EBITDA | $305 million to $330 million |
| Adjusted EPS | $2.05 to $2.40 |
Management expects Research revenue to be flat to down low-single digits, including approximately 2% growth excluding Hindawi, and Learning revenue to be flat to up low-single digits. Wiley did not provide free-cash-flow guidance because of uncertainty regarding divestiture timing and restructuring payments.
On November 13, 2023, Wiley agreed to sell University Services to Academic Partnerships for total consideration of up to $150 million, including $110 million subject to customary working-capital adjustments and up to $40 million of earnout consideration, plus a 10% interest in the acquiring company. Closing remains subject to customary conditions, including antitrust clearance. Wiley expects to continue reporting the business in operating results until closing.
Key risks include continued weakness in Hindawi and online degree markets, execution and valuation risk related to planned divestitures, additional held-for-sale impairments, restructuring execution and cash payments, higher variable interest costs, foreign currency volatility, subscription renewal and collection risk, cyber and intellectual-property risks, and potential declines in goodwill or other intangible-asset values. Management also noted that additional held-for-sale impairment charges could be identified before the divestiture process is complete.
Non-GAAP measures exclude or adjust for items including restructuring, impairments, foreign exchange effects, amortization, and the Held for Sale or Sold segment. They are supplemental measures and are not substitutes for GAAP results.
Important Facts for Investors to Verify
- Progress, closing conditions, consideration received, and final proceeds from the University Services divestiture.
- Whether University Services, Wiley Edge, and CrossKnowledge generate additional impairment charges before sale.
- Hindawi revenue and article-output recovery, including the expected $35 million to $40 million fiscal 2024 revenue decline and anticipated fiscal 2025 recovery.
- Realization and timing of the estimated $65 million annualized restructuring savings, along with remaining restructuring cash payments.
- Debt repayment capacity, variable-rate exposure, covenant compliance, and the effect of higher interest expense on cash flow and adjusted EPS.
- Seasonal conversion of subscription contract liabilities and receivables into cash during the second half of the fiscal year.
- Performance of core Research and Learning businesses after excluding divested operations and other unusual items.