Business Context and Reporting Period
John Wiley & Sons, Inc. is a global research and education company operating through Research Publishing & Platforms, Academic & Professional Learning, and Education Services. The filing reports unaudited results for the three and nine months ended January 31, 2022, the third quarter and first nine months of fiscal 2022. More than 80% of nine-month revenue was generated by digital products and services.
Financial Performance and Liquidity
| Metric | Three Months Ended January 31 | Nine Months Ended January 31 |
|---|---|---|
| Revenue | $515.9 million, up 7% | $1,537.3 million, up 9% |
| Operating income | $46.0 million, up 34% | $160.8 million, up 20% |
| Net income | $35.4 million, versus $22.2 million | $105.2 million, versus $106.9 million |
| Diluted EPS | $0.63, versus $0.39 | $1.86, versus $1.90 |
| Adjusted EBITDA | $99.8 million, down 5% at constant currency | $322.2 million, up 4% at constant currency |
| Net cash from operating activities | Not separately disclosed for the quarter | $158.5 million, up 2% |
| Free cash flow less product development spending | Not separately disclosed | $77.4 million, versus $79.5 million |
Approximate reported operating margins were 8.9% for the quarter and 10.5% for the nine-month period. Approximate net margins were 6.9% and 6.8%, respectively. Adjusted EBITDA margins were approximately 19.3% for the quarter and 21.0% for the nine-month period.
- Research Publishing & Platforms revenue increased 10% in the quarter and 11% for nine months; nine-month adjusted EBITDA increased 9% to $289.4 million.
- Academic & Professional Learning revenue declined 2% in the quarter but increased 4% for nine months; nine-month adjusted EBITDA increased 16% to $137.5 million.
- Education Services revenue increased 18% in the quarter and 17% for nine months, driven by Talent Development Services; nine-month adjusted EBITDA declined 24% to $26.9 million because of growth investments and higher costs.
- Cash and cash equivalents were $109.4 million at January 31, 2022, compared with $93.8 million at April 30, 2021. Approximately 93% of cash was held outside the United States.
- Total debt was $917.7 million, compared with $821.6 million at April 30, 2021. The company reported approximately $559.5 million of unused borrowing capacity and compliance with its leverage and interest coverage covenants.
- Current liabilities exceeded current assets by $329.9 million, largely because of advance collections recorded as contract liabilities. Current contract liabilities were $355.8 million at January 31, 2022.
- The company paid $57.9 million of dividends and repurchased $24.9 million of common stock during the nine months. The quarterly dividend was increased to $0.345 per share.
Material Changes Versus the Prior Comparable Period
- Revenue growth was led by Research Publishing & Platforms and Education Services, including approximately 140% growth in IT talent placements. Academic & Professional Learning was affected by lower U.S. college enrollment and the easing of prior-year COVID-19-related benefits.
- Operating income benefited from revenue growth and materially lower restructuring charges. Restructuring expense was $0.4 million in the quarter versus $20.7 million in the prior year; the nine-month period included a $1.2 million credit versus $24.8 million of charges.
- Adjusted profitability was less favorable than GAAP operating income. Quarterly adjusted EBITDA declined 5% and adjusted EPS was $0.95 in both periods, reflecting increased editorial, technology, employee, student acquisition, and other investment costs.
- The nine-month GAAP effective tax rate increased to 33.4% from 14.9%, primarily because a U.K. statutory tax-rate increase generated a $20.7 million noncash deferred tax expense. The prior-year period benefited from the CARES Act.
- Investing cash usage fell to $152.1 million from $392.4 million, primarily because prior-year acquisition spending included Hindawi. Fiscal 2022 acquisitions included XYZ Media for $45.4 million and other businesses for approximately $38.3 million of preliminary consideration.
- Debt increased to fund acquisitions and other activities. The company amended its credit agreement in December 2021 to transition certain Sterling and Euro borrowings from LIBOR-based rates to SONIA, EURIBOR, or other successor rates.
Guidance, Outlook, Commentary, and Risks
- Management reaffirmed fiscal 2022 guidance: revenue of $2.07 billion to $2.10 billion, adjusted EBITDA of $415 million to $435 million, newly defined adjusted EPS of $4.00 to $4.25, and free cash flow of $200 million to $220 million.
- Revenue and adjusted EPS were trending toward the lower end of the ranges because of market conditions affecting University Services and Education Publishing.
- The Business Optimization Program is expected to produce approximately $10 million of run-rate savings from fiscal 2022 actions. Real-estate actions have already produced approximately $8 million of annualized savings, but additional facility-related restructuring charges may occur.
- Key risks include COVID-19-related customer payment delays, subscription renewal rates, the financial condition of subscription agents, U.S. education enrollment, used-book markets, publisher and retailer concentration, foreign exchange, interest rates, acquisitions and integration, intellectual-property protection, and the ability to realize planned cost savings.
- A 1% change in interest rates on approximately $518.1 million of unhedged variable-rate debt would affect annual net income and cash flow by approximately $4.1 million. A 1% change in estimated print-book return rates could affect net income by approximately $1.4 million.
- Wiley disclosed an administrative dissolution and subsequent March 2022 reinstatement of a U.K. entity associated with mthree. Management concluded that it retained control and appropriately continued consolidating the entity; intercompany receivables owed to the entity were approximately $122.4 million at January 31, 2022.
- Management reported effective disclosure controls. XYZ Media was excluded from the scope of internal-control management reporting while integration proceeds through fiscal year-end.
Important Facts for Investors to Verify
- Whether fiscal 2022 revenue and adjusted EPS ultimately reach the guidance ranges, particularly given the stated trend toward the lower end.
- The sustainability and cash conversion of Education Services growth, including Talent Development Services placements and University Services enrollment.
- Debt reduction, variable-rate exposure, covenant headroom, and the effect of rising interest rates.
- Whether planned Business Optimization savings offset continuing technology, employee, editorial, and growth-investment costs.
- The final purchase-price allocations and integration results for XYZ Media and other fiscal 2022 acquisitions.
- The effect of the U.K. tax-rate change, foreign-currency movements, customer collection timing, and subscription-agent liquidity on future earnings and cash flow.
- The reconciliation and comparability of the newly defined adjusted EPS metric, which excludes amortization of acquired intangible assets and other non-GAAP items.