John Wiley & Sons, Inc. — Fiscal 2019 Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2019; the filing also reports fourth-quarter results. The supplied period metadata refers to “2018 Q4,” but the filing is for fiscal 2019 and was filed July 1, 2019.
Business Context
Wiley is a global research and learning company operating through Research, Publishing, and Solutions segments. Research provides scholarly journals, open-access publishing, licensing, and publishing technology services, including Atypon. Publishing provides scientific, professional, and education books, courseware, and test-preparation products. Solutions provides online program management, professional assessment, and corporate-learning services.
- Research represented approximately 52% of fiscal 2019 revenue.
- Publishing represented approximately 32% of fiscal 2019 revenue.
- Solutions represented the remaining approximately 16% of fiscal 2019 revenue.
- The Company employed approximately 5,700 people worldwide at April 30, 2019.
Financial Metrics
| Metric | Fiscal 2019 | Fiscal 2018 | Change |
|---|---|---|---|
| Revenue | $1,800.1 million | $1,796.1 million | Flat reported; up 2% constant currency |
| Operating income | $224.0 million | $231.5 million | Down 3% |
| Net income | $168.3 million | $192.2 million | Down 12% |
| Diluted EPS | $2.91 | $3.32 | Down 12% |
| Gross profit margin | 69.2% | 70.4% | Down 120 basis points |
| Operating cash flow | $250.8 million | $382.3 million | Down $131.5 million |
| Free cash flow less product development spending | $149.2 million | $231.6 million | Down $82.4 million |
| Adjusted EBITDA | $388.3 million | Not clearly provided in the supplied text | Not clearly provided |
Fiscal fourth-quarter revenue was $491.2 million, operating income was approximately $80.0 million, and diluted EPS was $1.10. Management reported fourth-quarter year-over-year increases of 3%, 10%, and 19%, respectively, on a GAAP basis.
Segment Results
| Segment | Fiscal 2019 Revenue | Fiscal 2018 Revenue | Fiscal 2019 Contribution to Profit |
|---|---|---|---|
| Research | $937.3 million | $934.4 million | $258.9 million |
| Publishing | $574.2 million | $617.6 million | $118.9 million |
| Solutions | $288.6 million | $244.1 million | $15.0 million |
- Research revenue was essentially flat reported and increased 3% on a constant-currency basis. Open Access revenue increased 30% reported to $54.7 million, while journal subscriptions declined 2% to $661.1 million.
- Publishing revenue declined 7%, primarily because of lower STM, professional, and education print sales. Courseware revenue increased 7% and test-preparation revenue increased 14%.
- Solutions revenue increased 18%, including $31.5 million contributed by the Learning House acquisition. Solutions contribution to profit declined 32%, reflecting the $8.0 million operating loss from Learning House and higher investment costs.
Liquidity, Debt, and Capital Allocation
- Cash and cash equivalents were $92.9 million at April 30, 2019, including approximately $81.0 million held outside the United States.
- Debt outstanding was $478.8 million, compared with $360.0 million at April 30, 2018. Approximately $623.9 million of borrowing capacity remained available under existing facilities.
- The Company complied with its leverage and interest-coverage covenants at year-end.
- On May 30, 2019, Wiley amended and restated its credit agreement with a $1.25 billion five-year revolving facility and a $250 million five-year term loan A facility.
- Fiscal 2019 dividends totaled $75.8 million, or $1.32 per share, compared with $1.28 per share in fiscal 2018.
- The Company repurchased 1.19 million Class A shares for $60.0 million during fiscal 2019 and had authorization for approximately 1.89 million additional shares at year-end.
Material Changes Versus the Prior Comparable Period
- Revenue was broadly stable as Research and Solutions growth offset continued Publishing declines.
- Operating income and diluted EPS declined despite lower restructuring charges, primarily because of lower Publishing revenue, higher operating costs, increased amortization, and the dilutive impact of Learning House.
- Operating cash flow declined substantially, partly because approximately $35 million of calendar-year 2019 journal-subscription collections were delayed into fiscal 2020 during the ERP transition.
- Restructuring charges declined to $3.1 million from $28.6 million. Management did not anticipate further material charges under the existing Restructuring and Reinvestment Program.
- Learning House was acquired on November 1, 2018 for approximately $201.3 million, including $200.7 million in cash and warrants for 400,000 Class A shares. The acquisition added $110.8 million of goodwill and $109.5 million of identifiable intangible assets.
- The Company adopted ASC 606 revenue recognition using the modified retrospective method. The adoption did not materially affect consolidated revenue, financial position, or results of operations, but changed certain balance-sheet classifications and increased opening retained earnings by $4.5 million.
Guidance, Outlook, Risks, and Unusual Items
Fiscal 2020 outlook:
| Metric | Fiscal 2020 Outlook |
|---|---|
| Revenue | $1.840 billion to $1.870 billion, constant currency |
| Adjusted EBITDA | $360 million to $375 million |
| Adjusted EPS | $2.45 to $2.55 |
| Free cash flow | $210 million to $230 million |
| Restructuring charges | Approximately $15 million to $20 million |
| Potential operating savings | Approximately $30 million over time, with half expected in fiscal 2020 |
- Management expected Adjusted EPS to decline because of acquisition-related amortization and increased investment in Research and Education Services.
- Fiscal 2020 outlook included the impact of Learning House and Knewton but excluded first-quarter restructuring charges related to the multi-year Business Optimization Program.
- Subsequent to year-end, Wiley acquired certain Knewton assets for an undisclosed amount and acquired Zyante for $56 million in cash.
- Key risks include continued migration from print to lower-priced digital products, used and rental textbooks, dependence on subscription agents and concentrated book customers, open-access mandates, foreign-exchange volatility, Brexit, cybersecurity and ERP implementation risks, acquisition integration, restructuring execution, pension funding, tax changes, and impairment of goodwill or intangible assets.
- Goodwill and intangible assets totaled approximately $2.0 billion at year-end, including $1.10 billion of goodwill and $865.6 million of intangible assets. The annual goodwill test identified no impairment, but one indefinite-lived trademark had only approximately 7% excess fair value over carrying value.
- Non-U.S. revenue represented approximately 46% of consolidated revenue. Fiscal 2019 included a $6.0 million foreign-exchange transaction loss and a $60.5 million foreign-currency translation loss in other comprehensive income.
- Routine litigation was disclosed; management stated that pending matters were not expected to have a material effect.
Most Important Facts for Investors to Verify
- Whether Publishing print declines stabilize and whether digital, courseware, and test-preparation growth can offset them.
- Learning House integration, profitability improvement, and the effect of the Business Optimization Program on savings and restructuring costs.
- Whether delayed journal-subscription collections normalize in fiscal 2020 and support the projected cash-flow recovery.
- Compliance with the amended credit agreement and the effect of increased debt and variable interest rates.
- Progress under the Research and Education Services investment plans, including Open Access and the Projekt DEAL agreement.
- Potential impairment exposure from substantial goodwill and intangible assets, particularly if operating performance or market valuations weaken.
- The effect of foreign exchange, open-access regulation, Brexit, cybersecurity, ERP implementation, and customer or subscription-agent liquidity on future results.