John Wiley & Sons, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2022, the first quarter of fiscal 2023. The filing is unaudited and should be read with the fiscal 2022 Form 10-K. Wiley operates through Research, Academic & Professional Learning, and Education Services segments. Approximately 83% of revenue was generated by digital products and technology-enabled services, and approximately 58% was recurring.
Financial performance and position
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $487.6 million | $488.4 million | Flat reported; up 4% constant currency |
| Operating income (loss) | $(17.0) million | $41.0 million | Decline of $57.9 million |
| Operating margin | (3.5)% | 8.4% | Down 11.9 percentage points |
| Net income (loss) | $(17.8) million | $13.8 million | Decline of $31.7 million |
| Diluted EPS | $(0.32) | $0.24 | Decline of $0.56 |
| Adjusted operating income | $10.1 million | $40.7 million | Down 75% |
| Adjusted EBITDA | $63.8 million | $95.3 million | Down 33%; down 34% constant currency |
| Net cash used in operating activities | $(89.9) million | $(84.8) million | Outflow increased $5.2 million |
| Free cash flow less product development spending | $(113.7) million | $(108.4) million | Higher outflow |
Revenue was essentially unchanged on a reported basis, while organic revenue increased 2% on a constant-currency basis excluding acquisitions. Cost of sales increased 5% to $174.0 million and operating and administrative expenses increased 9% to $282.8 million, reflecting higher employment, technology, editorial, travel, and entertainment costs. The quarter is seasonally cash consumptive because annual journal subscription collections generally occur later in the fiscal year.
At July 31, 2022, cash and cash equivalents were $104.5 million, total assets were $3.23 billion, and shareholders’ equity was $1.08 billion. Total debt was $939.1 million, compared with $787.0 million at April 30, 2022. Unused borrowing capacity was approximately $531.9 million, and Wiley was in compliance with its leverage and interest-coverage covenants. The weighted-average interest rate on total debt was 2.99% at quarter-end, versus 2.55% at fiscal year-end.
Segment results
| Segment | Q1 FY2023 revenue | Prior-year revenue | Constant-currency trend | Adjusted EBITDA |
|---|---|---|---|---|
| Research | $274.9 million | $274.8 million | Revenue up 4%; organic revenue up 2% | $92.9 million |
| Academic & Professional Learning | $133.0 million | $139.3 million | Revenue down 1% | $17.9 million |
| Education Services | $79.7 million | $74.4 million | Revenue up 11%; organic revenue up 7% | $(2.5) million |
- Research: Open-access article output increased approximately 25%. Research Solutions revenue increased 17% constant currency, but Adjusted EBITDA declined 9% due to higher employment and investment costs.
- Academic & Professional Learning: Revenue was pressured primarily by lower print textbook sales. Adjusted EBITDA declined 30% constant currency due to higher employment and travel costs and expense timing.
- Education Services: Talent Development Services revenue increased 76% constant currency, with talent placements up approximately 97%. University Services revenue declined 12% constant currency, and online enrollment declined 9%. The segment recorded a negative Adjusted EBITDA margin of 3.2%.
Material changes and unusual items
- Wiley initiated a Fiscal Year 2023 Restructuring Program, including position eliminations and a reduction of real-estate occupancy by approximately 17%. The quarter included $21.7 million of pretax restructuring charges, including $12.1 million of severance, $6.1 million of impairment charges, $1.8 million of accelerated facility-related expense, and $1.7 million of ongoing facility costs.
- Management expects approximately $25 million of savings from initial actions and approximately $35 million of annualized cost savings overall, but anticipates additional facility-related restructuring charges in future periods.
- The company discontinued use of the mthree trademark and renamed the offering Wiley Edge. This resulted in $4.6 million of accelerated intangible amortization during the quarter.
- Foreign currency translation losses of $19.8 million reduced other comprehensive income, compared with a $5.9 million loss in the prior-year quarter.
- Wiley completed or integrated fiscal 2022 acquisitions, including XYZ Media, eJournalPress, and J&J Editorial Services. The acquisition accounting remains preliminary and may be revised during the measurement periods.
- Debt increased primarily because borrowings exceeded repayments during the quarter. Wiley paid $19.5 million of dividends and repurchased approximately 212,000 Class A shares for $10.0 million.
Guidance, outlook, and risks
Management reaffirmed its fiscal 2023 outlook. At constant currency, revenue is expected to be $2.175 billion to $2.215 billion, Adjusted EBITDA $425 million to $450 million, Adjusted EPS $3.70 to $4.05, and free cash flow $210 million to $235 million. At first-quarter average exchange rates, the revenue outlook is $2.125 billion to $2.165 billion; the other ranges are unchanged.
The outlook assumes mid-single-digit constant-currency revenue growth led by Research and corporate Talent Development, with restructuring savings partly offset by targeted investments, wage inflation, higher interest expense, higher taxes, and lower pension income. Planned capital expenditures are $115 million to $125 million.
Key risks include foreign-exchange volatility, higher interest rates on variable-rate debt, subscription renewal and collection risk, seasonal education demand, used-book and print-market trends, online enrollment declines, execution of restructuring and acquisition integration, realization of expected savings, protection of intellectual property, economic and political conditions, and the continuing effects of COVID-19. A 1% change in interest rates on the company’s $439.1 million of unhedged variable-rate debt would affect annual net income and cash flow by approximately $3.4 million.
Management does not currently expect the U.S. federal open-research guidance issued in August 2022 or the Inflation Reduction Act to have a material adverse financial impact, but continues to evaluate their effects.
Important facts for investors to verify
- Whether restructuring actions deliver the projected $25 million initial and approximately $35 million annualized savings, and the amount and timing of further charges.
- Whether Education Services can stabilize University Services enrollment and convert strong Talent Development placement growth into positive margins.
- Whether higher operating costs, investments, wage inflation, and interest expense are consistent with the reaffirmed Adjusted EBITDA, EPS, and free-cash-flow outlook.
- Debt reduction, variable-rate exposure, covenant compliance, available borrowing capacity, and the effect of rising interest rates.
- Research Publishing growth, open-access adoption, subscription renewals, and the financial implications of evolving open-research mandates.
- The final purchase-price allocations and integration performance of recent acquisitions.
- Cash generation after seasonal working-capital movements, capital expenditures, dividends, and share repurchases.
- The company’s non-GAAP reconciliations and the comparability of Adjusted EPS, Adjusted EBITDA, adjusted operating income, and free cash flow with other issuers.