Business Context and Reporting Period
John Wiley & Sons, Inc. is a global research and learning company serving researchers, universities, students, professionals, corporations, and government institutions. Its three reportable segments are Research Publishing & Platforms, Academic & Professional Learning, and Education Services.
This Form 10-K covers the fiscal year ended April 30, 2020, including the fourth quarter. The request metadata identifies “2019 Q4,” but the filing is the fiscal 2020 annual report. Approximately 44% of fiscal 2020 revenue was generated outside the United States.
Financial Performance and Key Metrics
| Metric | Fiscal 2020 | Fiscal 2019 | Change |
|---|---|---|---|
| Revenue | $1,831.5 million | $1,800.1 million | +2% |
| Operating income/(loss) | $(54.3) million | $224.0 million | Declined materially |
| Net income/(loss) | $(74.3) million | $168.3 million | Declined materially |
| Diluted EPS | $(1.32) | $2.91 | Declined materially |
| Adjusted EPS | $2.40 | $2.96 | -19% |
| Adjusted EBITDA | $355.8 million | $388.3 million | -8% |
| Net cash from operating activities | $288.4 million | $250.8 million | +$37.6 million |
| Free cash flow less product development spending | $173.2 million | $149.2 million | +$24.0 million |
| Cash and cash equivalents | $202.5 million | $92.9 million | +$109.6 million |
| Total debt outstanding | $775.1 million | $478.8 million | Increased primarily for acquisitions |
Fiscal 2020 operating loss included $202.3 million of non-cash goodwill and intangible-asset impairment charges and $32.6 million of restructuring and related charges. Excluding unusual items, adjusted operating profitability also declined, reflecting growth investments, acquisitions, higher interest expense, and COVID-19 effects.
Gross profit was $1,240.5 million, implying a gross margin of approximately 67.7%, compared with approximately 69.2% in fiscal 2019. GAAP operating margin was approximately negative 3.0%, compared with 12.4% in fiscal 2019. Adjusted EBITDA margin was approximately 19.4%, compared with 21.6% in fiscal 2019.
Segment Results
| Segment | Fiscal 2020 Revenue | Change | Adjusted EBITDA | Adjusted EBITDA Margin |
|---|---|---|---|---|
| Research Publishing & Platforms | $948.8 million | +1% reported; +2% constant currency | $334.8 million | 35.3% |
| Academic & Professional Learning | $650.8 million | -7% reported; -6% constant currency | $154.5 million | 23.7% |
| Education Services | $231.9 million | +47% reported; +48% constant currency | $20.3 million | 8.7% |
Research Publishing benefited from growth in open access and comprehensive “read and publish” agreements, partly offset by lower traditional subscription revenue and delayed renewals. Academic & Professional Learning declined because of continuing pressure on print publishing, test preparation, and corporate training. Education Services grew through Learning House and mthree acquisitions and higher fee-based online program management revenue, but its reporting unit recorded a $110.0 million goodwill impairment.
Cash Flow, Liquidity, Debt and Capital Allocation
- Operating cash flow was $288.4 million. Investing activities used $346.7 million, including $229.6 million for business acquisitions and $88.6 million for technology, property, and equipment.
- Financing activities provided $172.7 million, primarily due to increased borrowings used to fund acquisitions.
- The company had $202.5 million of cash and approximately $722.3 million of unused borrowing capacity under its amended credit agreement and other facilities as of April 30, 2020.
- The amended credit agreement provides for a $1.25 billion revolving credit facility and a $250 million term loan A. Wiley was in compliance with its leverage and interest-coverage covenants at year-end.
- Negative working capital was $312.3 million, primarily because $520.2 million of contract liabilities represented subscription cash collected in advance. Management estimated approximately $30 million of customer payments would be delayed into fiscal 2021.
- Fiscal 2020 dividends totaled $76.7 million, or $1.36 per share. Wiley repurchased 1.1 million shares for $46.6 million during the year and suspended further repurchases because of COVID-19 uncertainty.
Material Changes Versus the Prior Comparable Period
- Revenue increased modestly, but operating results deteriorated sharply because of impairment charges, restructuring costs, COVID-19 disruption, and higher interest expense.
- Fourth-quarter revenue was approximately $474.6 million, down 3% year over year, and fourth-quarter diluted loss per share was $2.83. Management estimated that pandemic shutdowns reduced fourth-quarter revenue by $30 million to $35 million and EPS by $0.15 to $0.20.
- Research Publishing & Platforms adjusted EBITDA increased 4%, while Academic & Professional Learning adjusted EBITDA declined 28%. Education Services adjusted EBITDA increased to $20.3 million from $5.2 million, despite the goodwill impairment.
- Wiley acquired zyBooks, mthree, Knewton assets, Madgex, Bio-Rad’s Informatics products, and other businesses during fiscal 2020. Acquisition cash spending totaled $229.6 million.
- Wiley adopted ASC Topic 842 for leases on May 1, 2019, recognizing $142.7 million of operating lease right-of-use assets and $181.6 million of operating lease liabilities.
- Goodwill and intangible assets totaled $1.12 billion and $807.4 million, respectively, at April 30, 2020. The company recorded a $110.0 million Education Services goodwill impairment, an $89.5 million Blackwell trademark impairment, and a $2.8 million developed-technology impairment.
Guidance, Outlook, Management Commentary and Risks
Wiley did not provide fiscal 2021 guidance and withdrew its fiscal 2022 targets because of limited visibility into the duration and magnitude of COVID-19 effects. Management expected pandemic-related pressure on revenue and earnings to continue through at least the first and second quarters of fiscal 2021.
Management identified student enrollment, university finances, college-entry and certification testing, corporate professional-learning spending, and corporate hiring as key indicators. Planned responses included discretionary spending controls, executive and board compensation reductions, additional cost savings, real-estate rationalization, process automation, technology insourcing, and approximately $100 million of planned fiscal 2021 capital expenditures.
- COVID-19 risks include lower print book sales, delayed journal renewals and customer payments, reduced demand for test preparation and corporate training, lower online-program enrollments, and weaker demand for early-career technology talent.
- Wiley remains exposed to secular migration from print to digital products, used and rental textbooks, pricing pressure, retailer concentration, and changing open-access regulations.
- Subscription agents represented approximately 20% of annual consolidated revenue, with one affiliated group representing approximately 10%.
- Foreign-exchange exposure is significant: approximately 26% of revenue was denominated in British pounds, 10% in euros, and 8% in other currencies. A 1% change in interest rates on $475.7 million of unhedged variable-rate debt would affect annual net income and cash flow by approximately $3.6 million.
- Future impairment risk remains material because of significant goodwill and intangible balances and sensitivity to revenue forecasts, operating cash flows, discount rates, market multiples, and COVID-19 assumptions.
- The company faces pension funding, cybersecurity, data privacy, intellectual-property, Brexit, tax, outsourcing, ERP implementation, acquisition-integration, and customer-credit risks.
- Management and KPMG concluded that internal control over financial reporting was effective as of April 30, 2020. KPMG issued an unqualified opinion, while identifying revenue evidence, acquired intangible-asset valuation, and Education Services goodwill valuation as critical audit matters.
Important Facts for Investors to Verify
- Whether COVID-19 disruption, enrollment trends, corporate spending, and journal renewal timing caused further deterioration or recovery in fiscal 2021.
- Actual cash collections and credit losses, particularly against the estimated $30 million of delayed customer payments.
- Compliance with leverage and interest-coverage covenants as debt remains substantially higher than in fiscal 2019.
- Progress toward the original $100 million and incremental $30 million gross annual restructuring savings, including implementation costs and reinvestment requirements.
- Performance and valuation support for the Education Services reporting unit following the $110.0 million goodwill impairment.
- Growth, margins, and integration outcomes for mthree, Learning House, zyBooks, Knewton, Madgex, Informatics, and other acquisitions.
- The sustainability of dividends and the timing of any resumption of share repurchases.
- The comparability of adjusted EPS and adjusted EBITDA with other companies, because Wiley’s non-GAAP measures exclude items that may be material and are not standardized under U.S. GAAP.