John Wiley & Sons, Inc. 10-Q Summary
Business Context and Reporting Period
Wiley is a global provider of research publishing, education publishing and professional learning, online university program management, and talent development services. The filing covers the three months ended July 31, 2021, the first quarter of fiscal 2022. Results are unaudited and should be read with the fiscal 2021 Form 10-K.
Reportable segments are Research Publishing & Platforms, Academic & Professional Learning, and Education Services. The company completed its acquisition of Hindawi on December 31, 2020; Hindawi contributed $11.5 million of revenue and $1.8 million of operating income during the quarter.
Key Financial Metrics
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $488.4 million | $431.3 million | 13% increase |
| Operating income | $41.0 million | $30.0 million | 36% increase |
| Income before taxes | $44.0 million | $29.7 million | 48% increase |
| Net income | $13.8 million | $16.3 million | 15% decrease |
| Diluted EPS | $0.24 | $0.29 | Decrease |
| Adjusted EBITDA | $95.3 million | $81.8 million | 16% increase |
| US GAAP effective tax rate | 68.6% | 45.1% | Higher |
Revenue increased 9% on a constant-currency basis and 7% organically on a constant-currency basis. Adjusted EPS under the newly defined methodology was $0.85, compared with $0.67 in the prior-year quarter; the new measure excludes amortization of acquired intangible assets.
Segment revenue was $274.8 million for Research Publishing & Platforms, $139.3 million for Academic & Professional Learning, and $74.4 million for Education Services. Segment Adjusted EBITDA margins were 37.4%, 19.2%, and 8.7%, respectively.
Cash Flow, Liquidity, Debt, and Capital Allocation
| Metric | July 31, 2021 | April 30, 2021 |
|---|---|---|
| Cash and cash equivalents | $83.0 million | $93.8 million |
| Total assets | $3.36 billion | $3.45 billion |
| Total debt | $964.5 million | $821.6 million |
| Total shareholders’ equity | $1.08 billion | $1.09 billion |
| Contract liabilities | $418.5 million | $545.4 million |
| Unused borrowing capacity | $518.8 million | Not stated |
- Net cash used in operating activities was $84.8 million, compared with $120.8 million used in the prior-year quarter. The first half of the fiscal year is seasonally cash-negative because annual journal subscription collections generally occur in the second half.
- Net cash used in investing activities was $23.5 million, including $17.9 million of capital expenditures, $5.7 million of product development spending, and $3.0 million for acquired businesses.
- Net cash provided by financing activities was $99.1 million, including $184.0 million of borrowings, $41.3 million of debt repayments, $19.3 million of dividends, and $7.4 million of treasury stock purchases.
- Free cash flow less product development spending was negative $108.4 million for the quarter.
- The company paid a quarterly dividend of $0.345 per share and repurchased 129,513 shares at an average price of $56.88.
- The credit agreement includes a $1.25 billion revolving facility and a $250 million term loan facility. Wiley was in compliance with its leverage and interest coverage covenants.
- Approximately $565 million of variable-rate debt was unhedged; a hypothetical one-percentage-point increase in interest rates would affect annual net income and cash flow by approximately $4.4 million.
Material Changes Versus the Prior Comparable Period
- Research Publishing & Platforms revenue increased 14% as reported and 10% in constant currency. Organic constant-currency revenue increased 5%, supported by Open Access and “read and publish” agreements, while subscription revenue declined.
- Research Publishing Open Access revenue increased 56%, and organic article output increased 5%.
- Academic & Professional Learning revenue increased 10% as reported and 7% in constant currency, primarily due to Professional Learning, trade print books, corporate training, courseware, and education content.
- Education Services revenue increased 16% as reported and 13% in constant currency. Online enrollment increased 9%, 13 new degree programs were added, and Talent Development Services placements increased nearly 70%.
- Education Services Adjusted EBITDA declined 18% as reported and 21% in constant currency because of higher employment and marketing costs associated with growth investments.
- Operating expenses rose 10%, while cost of sales increased 15%, reflecting higher editorial, employment, print product, marketing, and technology costs.
- The company recorded a $3.8 million pretax gain on the sale of its world languages product portfolio.
- The effective tax rate increased primarily because the United Kingdom enacted an increase in its statutory rate from 19% to 25% effective April 1, 2023, producing a $20.7 million non-cash deferred tax expense.
- The Business Optimization Program produced a $0.3 million pretax credit versus a $2.2 million charge in the prior-year quarter. The program had incurred cumulative charges of approximately $66.0 million through July 31, 2021.
- Wiley moved its WileyNXT offering from Academic & Professional Learning to Education Services. The reclassification did not affect consolidated results.
Guidance, Outlook, Commentary, and Risks
Management reaffirmed fiscal 2022 guidance:
| Metric | Fiscal 2022 Outlook | Fiscal 2021 Actual |
|---|---|---|
| Revenue | $2.07 billion to $2.10 billion | $1.942 billion |
| Adjusted EBITDA | $415 million to $435 million | $419 million |
| Adjusted EPS, newly defined | $4.00 to $4.25 | $4.00 |
| Free cash flow | $200 million to $220 million | $257 million |
- Management expects mid-to-high single-digit revenue growth, with EBITDA growth tempered by investments in growth initiatives.
- Free cash flow is expected to decline from fiscal 2021 because of higher capital expenditures, net cash taxes, and incentive compensation payments.
- The Business Optimization Program is expected to deliver approximately $10 million of run-rate savings from actions beginning in fiscal 2022, including approximately $8 million of annualized savings from reducing real estate occupancy by about 12%. Additional facility-related restructuring charges are expected.
- COVID-19 may continue to affect customer liquidity, collections, subscription agents, and demand. Management expects some continued payment delays.
- Key risks include journal renewal rates, the financial condition of subscription agents and major retailers, seasonality and used-book markets, foreign exchange, interest rates, intellectual-property protection, acquisitions and integration, realization of restructuring savings, and global economic and political conditions.
- A UK entity associated with the mthree acquisition was inadvertently dissolved while holding approximately $189 million of intercompany receivables. Wiley has petitioned for reinstatement, believes failure to reinstate is remote, and expects restoration by the second quarter of fiscal 2022. The company continues to consolidate the entity.
- Hindawi’s acquisition accounting remains preliminary and may be revised during the measurement period.
- Management reported effective disclosure controls. Hindawi remained outside the scope of internal-control management reporting while integration continues; it is expected to be included for the fiscal year ending April 30, 2022.
Important Facts for Investors to Verify
- Whether Hindawi integration, Open Access growth, and subscription trends support the company’s revenue and Adjusted EBITDA guidance.
- Progress toward the $10 million Business Optimization run-rate savings and the magnitude and timing of related restructuring charges.
- Cash conversion, seasonal subscription collections, working-capital movements, and achievement of the $200 million to $220 million fiscal 2022 free cash flow outlook.
- Debt repayment progress, borrowing costs, covenant compliance, available capacity, and exposure to unhedged variable-rate debt.
- The sustainability of Education Services growth and whether higher employment and marketing costs improve sufficiently to restore segment margins.
- The effect of the UK statutory tax-rate increase and the difference between reported US GAAP earnings and the company’s non-GAAP Adjusted EPS.
- Completion of the UK entity reinstatement and finalization of Hindawi purchase accounting.
- Potential changes in print-book sales returns, customer credit quality, subscription-agent liquidity, and COVID-19-related payment delays.