Wiley reports rise in revenue, net income; reaffirms fiscal year 2015 outlook
Third quarter revenue grew 5% on a constant currency basis, or 2% including the impact of foreign exchange, to $465.9 million
HOBOKEN, N.J.– March 10, 2015 — John Wiley & Sons, Inc., a global provider of knowledge and knowledge-enabled services that improve outcomes in research, professional practice, and education, today announced the following results for the third quarter of fiscal year 2015:
“Revenue growth this quarter continued to be driven by the strength of our Research journals business, our 2014 acquisitions, and the continued double-digit growth of our Education solutions businesses, including Deltak Education Services and WileyPLUS Course Workflow Solutions,” said Mark Allin, Chief Operating Officer. “For the quarter, journal subscriptions revenue increased 4% on a constant currency basis, while Education Services (Deltak) secured eleven new online programs and another university partner. Our profitability also improved, with higher gross margins from digital products, cost savings from restructuring, and lower income tax rates resulting in another quarter of solid earnings growth for the Company.”
Fiscal Year 2015 Outlook
Wiley reaffirms its fiscal year 2015 outlook of mid-single-digit revenue growth on a constant currency basis and adjusted EPS in a range of $3.25 to $3.35.
Foreign Exchange (FX)
Throughout this report, references are made to variances “excluding foreign exchange” or “on a constant currency basis”; such amounts exclude both currency translation effects and transactional gains and losses.
The Company provides financial measures referred to as “adjusted” revenue, contribution to profit, and EPS, which exclude restructuring and impairment charges and deferred tax benefits related to a UK corporate income tax rate reduction. Variances to adjusted revenue, contribution to profit, and EPS are on a constant currency basis unless otherwise noted. Management believes the exclusion of such items provides additional information to facilitate the analysis of results. These non-GAAP measures are not intended to replace the financial results reported in accordance with GAAP.
Third Quarter and First Nine Months Summary
- Third quarter revenue grew 5% on a constant currency basis, or 2% including the impact of foreign exchange, to $465.9 million. Growth in Research Communication/Journals (+5%) and Education Services-Deltak (+20%), as well as a five-month contribution from CrossKnowledge (+$16.2 million) offset a decline in books sales overall. As previously disclosed, financial results for the recently acquired CrossKnowledge had been reported on a two-month delay pending implementation of reporting process improvements. With these five months reported, CrossKnowledge reporting is now current on a year-to-date basis. Wiley revenue for the first nine months grew 5% on a constant currency and reported basis to $1.38 billion.
- Organic revenue was essentially flat for the third quarter on a constant currency basis, but increased 1% for the nine months. Organic revenue excludes the combined contribution from CrossKnowledge and Profiles International of $22 million for the quarter and $49 million year-to-date.
- Third quarter adjusted earnings per share (EPS) rose 9% on a constant currency basis, or 6% including foreign exchange, to $0.99. Adjusted EPS excludes certain one-time or unusual items in the current and prior year periods as further described in the attached reconciliation of US GAAP to Adjusted EPS. Adjusted EPS growth was due to higher gross margins from digital products, restructuring savings, and lower income tax rates, partially offset by investments in digital products and services and internal business systems, as well as the dilutive impact of the recent Talent Solutions acquisitions. Adjusted EPS for the first nine months rose 8% to $2.45.
- Third quarter adjusted shared services and administration costs grew 4% on a constant currency basis, or 2% including foreign exchange, to $121.4 million. Other Administration (+23%) and Technology and Content Management (+3%) costs offset lower Distribution and Operation Services (-13%) expenses. The increase in Other Administration expenses reflects the expiration of a real estate tax incentive related to the Company’s Hoboken headquarters, early stage investment in an Enterprise Resource Planning (ERP) implementation, and occupancy costs related to recent acquisitions. Note that adjusted shared services costs exclude restructuring charges principally related to the consolidation and disposition of real estate assets. For the first nine months, adjusted shared services and administrative costs, excluding the impact of currency, were up 1% compared to the prior year period.
- Free Cash Flow was $80.0 million for the first nine months of the year compared to $84.6 million in the prior year period, mainly due to increased investment in technology.
Share Repurchases: Wiley repurchased 350,000 shares in the quarter at a cost of $20.4 million, or $58.42 per share. For the first nine months, Wiley repurchased 1,083,000 shares at a cost of $62.0 million, or $57.26 per share. Approximately 2.2 million shares remain in the current authorized program.
- Management Update: On February 10, Wiley announced that President and Chief Executive Officer Stephen M. Smith was diagnosed with a recurrence of urological cancer and would be taking a period of medical leave in order to focus on treatment. In the interim, Wiley’s Executive Leadership Team will report to Mark Allin, the recently named Chief Operating Officer (COO), and Mr. Allin will report to the Executive Committee of the Board of Directors. Mr. Allin is a 14-year Wiley veteran and until recently served as the Executive Vice President of Professional Development. Prior to that, he was the Managing Director of Wiley Asia.
- Third Quarter Restructuring Charge: As anticipated, the Company recorded a restructuring charge of approximately $24 million this quarter, with about half of the charge related to the completion of facility consolidations and dispositions in connection with prior restructuring actions and the remainder principally due to severance costs related to reorganization and consolidation.
- Revenue: Third quarter revenue of $246.5 million grew 3% on a constant currency basis and declined 1% including the impact of FX. Steady revenue growth continued in Journal Subscriptions (+4%), Funded Access (+46%), and Other Journal Revenue (+7%). Books and References revenue decreased 8% while Other Research Revenue grew 8%. For the first nine months, Research revenue increased 2% on a constant currency basis to $766.1 million.
- Calendar Year 2015 Journal Subscriptions: Through January 31, calendar year 2015 journal subscription billings increased 1% over the prior year period on a constant currency basis with approximately 81% of expected 2015 business closed.
- Adjusted Contribution to Profit: Third quarter adjusted contribution to profit after allocated shared service and administrative costs of $72.5 million increased 11% on a constant currency basis due to revenue growth and cost savings from procurement and outsourcing initiatives. For the first nine months, adjusted contribution to profit grew 7% to $220.9 million.
- Society Business: Two new society journals were signed in the quarter with combined annual revenue of $0.2 million; 24 were renewed with combined annual revenue of $13 million; and three with combined annual revenue of $0.6 million were not renewed.
- Revenue: Third quarter revenue grew 17% on a constant currency basis (+15% including FX) to $108.6 million due to contribution from 2014 acquisitions, including three months of reported revenue contribution from Profiles International (+$5.8 million) and five months from CrossKnowledge (+$16.2 million) due to reporting improvements enabling elimination of the two-month reporting delay. Excluding the contributions from both acquisitions, revenue was down 7% from prior year as a decline in Book sales (-12%) exceeded growth in Online Test Preparation and Certification (+14%) and other Assessment revenue (+9%). Revenue for the first nine months increased 13% on a constant currency basis to $306.6 million, but declined 5% excluding the contributions from acquisitions.
- Adjusted Contribution to Profit: Third quarter adjusted contribution to profit after allocated shared service and administrative costs rose 8% to $12.9 million primarily due to restructuring savings, partially offset by lower gross margins on lower book volume and the dilutive impact of the recent Talent Solutions acquisitions. Adjusted contribution to profit for the first nine months increased 27% on a constant currency basis.
- Online Learning and Training: CrossKnowledge announced an agreement with Gavisus, a Scandinavian-based digital learning and talent development company. CrossKnowledge will provide Gavisus with the technology to plan, design and deliver online leadership training to clients in Norway, Sweden and Denmark.
- Online Test Preparation: Wiley introduced the Wiley CFA Exam Review, an online test preparation product for the Chartered Financial Analyst (CFA) certification.
- Revenue: Third quarter revenue on a constant currency basis declined 2% (or 4% including FX) to $110.9 million, with a 14% decline in Books more than offsetting growth in Custom Products (+6%), Course Workflow Solutions (+13%), and Education Services-Deltak (+20%). Revenue for the first nine months grew 4% on a constant currency basis to $308.1 million.
- Adjusted Contribution to Profit: Third quarter adjusted contribution to profit after shared service and administrative costs decreased 5% to $27.6 million, reflecting lower revenue and continued investment in Education Services (Deltak). Adjusted contribution to profit after shared services for the first nine months was down 1% to $55.8 million.
- Education Services (Deltak): In the quarter, Education Services (Deltak) signed Manhattan College as a new online program partner and added eleven new programs for a total of 38 partners and 192 programs under contract (164 revenue-generating and 28 in development).