Business Context and Reporting Period
John Wiley & Sons, Inc. filed this unaudited Form 10-Q for the three months ended July 31, 2023, the first quarter of fiscal 2024. Wiley operates primarily through Research and Learning, with University Services, Wiley Edge, and CrossKnowledge classified in a Held for Sale or Sold segment following a June 2023 divestiture plan. The planned divestitures are expected to be completed during fiscal 2024.
Key Financial Metrics
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $451.0 million | $487.6 million | Down 7% |
| Operating loss | $16.4 million | $17.0 million | Improved $0.6 million |
| Net loss | $92.3 million | $17.8 million | Increased $74.4 million |
| Diluted loss per share | $1.67 | $0.32 | Higher loss of $1.35 per share |
| Adjusted revenue, excluding Held for Sale or Sold | $367.1 million | $394.6 million | Down 8% constant currency |
| Adjusted EBITDA, excluding Held for Sale or Sold | $59.7 million | $66.2 million | Down 10% constant currency |
| Adjusted EPS | $0.27 | $0.46 | Down 37% constant currency |
| Cash used in operating activities | $82.3 million | $89.9 million | Use improved $7.6 million |
| Free cash flow less product development spending | $(106.2) million | $(113.7) million | Use improved $7.5 million |
Reported operating margin was approximately negative 3.6%, and net margin was approximately negative 20.5%. Excluding the Held for Sale or Sold segment, adjusted EBITDA margin was approximately 16.3% based on the filing’s adjusted revenue and adjusted EBITDA figures.
- Research revenue declined 6% reported and 7% constant currency to $257.8 million; adjusted EBITDA declined 18% constant currency to $76.7 million.
- Learning revenue declined 9% to $109.3 million, while adjusted EBITDA increased 19% to $21.2 million, reflecting lower operating expenses.
- Held for Sale or Sold revenue declined 10% to $83.9 million, while adjusted EBITDA improved to $6.5 million from a $2.4 million loss.
- Cash and cash equivalents were $107.2 million at July 31, 2023, including $32.0 million classified as held for sale. Approximately 98% of cash was held outside the United States.
- Total debt was $895.9 million, including $890.9 million of long-term debt. The weighted-average interest rate on total debt was 5.48% at July 31, 2023, compared with 4.76% at April 30, 2023.
- Unused borrowing capacity was approximately $600.6 million. Wiley was in compliance with its leverage and interest coverage covenants.
- The company paid $19.4 million in dividends and repurchased 300,745 Class A shares for $10.0 million during the quarter.
Material Changes Versus the Prior Comparable Period
- Revenue fell $36.6 million, primarily because of the Hindawi publishing disruption, lower Academic print sales, divestitures, and declines in certain corporate and placement offerings.
- Net loss was significantly affected by $26.7 million of goodwill impairment and $75.9 million of impairment charges related to assets held for sale and the loss on the Tuition Manager sale. These items contributed to reported loss but were largely noncash or portfolio-related.
- Goodwill impairment comprised $11.4 million for University Services and $15.3 million for CrossKnowledge. Held-for-sale impairments were $40.6 million for University Services and $33.3 million for CrossKnowledge.
- Interest expense increased to $11.3 million from $6.3 million because of higher borrowing rates.
- Restructuring charges declined to $11.8 million from $21.7 million. Wiley expanded its Global Restructuring Program and further reduced real estate occupancy by approximately 6%, following an earlier reduction of approximately 22%.
- Adjusted corporate expenses declined, and Learning profitability improved, but these benefits were offset by lower Research revenue and the continuing Hindawi impact.
- Accounts receivable declined to $153.4 million from $310.1 million, and current contract liabilities declined to $369.6 million from $504.7 million, primarily reflecting seasonal subscription collections, revenue recognition, and held-for-sale reclassification.
Guidance, Outlook, Commentary, and Risks
- Wiley reaffirmed its fiscal 2024 outlook excluding businesses held for sale or sold: adjusted revenue of $1.58 billion to $1.63 billion, adjusted EBITDA of $305 million to $330 million, and adjusted EPS of $2.05 to $2.40.
- The outlook assumes Research revenue is approximately flat, or up 3% excluding Hindawi, and Learning revenue declines by a low-single-digit percentage.
- Wiley expects Hindawi revenue to decline to approximately $20 million in fiscal 2024, with most lost revenue expected to recover in fiscal 2025 and Hindawi expected to exceed fiscal 2023 levels by fiscal 2026. Hindawi adjusted EBITDA is expected to be a moderate loss in fiscal 2024.
- The company expects approximately $10 million of in-year savings and approximately $12 million of annualized savings from first-quarter restructuring actions, excluding Held for Sale or Sold actions. Broader portfolio and restructuring benefits are expected primarily in fiscal 2025 and fiscal 2026.
- Wiley is not providing free cash flow guidance because of uncertainty regarding the timing of divestitures and the size and timing of restructuring payments.
- Key risks include execution and proceeds from planned divestitures, restructuring costs and savings, subscription renewals and customer liquidity, seasonal working capital, lower print demand, Hindawi recovery, interest-rate exposure, foreign exchange, intellectual-property protection, and online degree-market conditions.
- Approximately $395.9 million of variable-rate debt was unhedged at July 31, 2023; a hypothetical one-percentage-point change in rates would affect annual net income and cash flow by approximately $3.0 million.
- Management stated that routine litigation is not expected to have a material effect, but changes in indirect-tax laws or interpretations could materially affect future results or cash flows.
Important Facts for Investors to Verify
- Whether the University Services, Wiley Edge, and CrossKnowledge divestitures close within fiscal 2024 and at what valuation or proceeds.
- Whether Hindawi revenue and profitability recover in line with management’s fiscal 2025 and fiscal 2026 expectations.
- Actual restructuring cash payments, realized savings, and the timing of expected fiscal 2025–2026 margin improvement.
- Debt refinancing and liquidity requirements, particularly the portions of the credit facilities maturing in May 2024 and the effect of floating interest rates.
- Underlying Research and Learning revenue trends after excluding divested businesses, foreign exchange, and other nonrecurring items.
- The extent to which the reported loss reflects additional impairment, valuation, or divestiture risks in the businesses classified as held for sale.
- Seasonal cash generation in the remainder of fiscal 2024 and the company’s ability to fund dividends, repurchases, capital spending, restructuring, and debt repayment.