Wiley reports ‘mixed’ results in Q3 earnings report
Third quarter came in flat, reaffirms publisher’s fiscal year 2017 operational outlook of mid-single digit decline in adjusted EPS
HOBOKEN, N.J. – March 7, 2017 –John Wiley & Sons, Inc., a global research and learning company, today announced the following results for the third quarter of fiscal year 2017, ending January 31:
“Results were mixed this quarter,” said Mark Allin, Wiley’s President and CEO. “Research revenue and earnings were fully in line with our expectations, with steady performance from journal subscriptions and double-digit growth from author-funded access. The Solutions business continued to post double-digit revenue growth and very strong profit improvement. We are encouraged by the momentum in the Online Program Management business, with four new partners and nineteen new programs. Publishing revenue showed a significant decline due to market weakness in Books and Reference Material, particularly print.”
Fiscal Year 2017 Outlook
Wiley is reaffirming its fiscal year 2017 operational outlook of mid-single digit decline in adjusted EPS and lowering its operational revenue outlook from flat to a low-single digit decline due to further weakness in print book markets. Operationally speaking, revenue and adjusted EPS for the nine months were down 3% and 6%, respectively. Note, the adjusted full year outlook excludes foreign exchange, the favorable impact from shifting to time-based journal subscription agreements (+$34 million in revenue and +$0.38 in EPS), and the partial year revenue contribution (approximately +$20 million) and EPS dilution (approximately -$0.10) of recent acquisitions. Also note, the fiscal year 2017 impact of the shift to time-based journal agreements was projected to be +$37 million of revenue and +$0.42 of EPS; however, due to the prolonged weakness in the British Pound, the FY17 impact has lowered to+$34 million and +0.38 per share.
Foreign Exchange (FX)
Note that foreign exchange was adverse to third quarter revenue by $12.9 million, neutral to EPS and adverse to nine month revenue and adjusted EPS by $36.8 million and $0.05, respectively. Wiley generates approximately half of its revenue from outside the United States and is therefore exposed to foreign exchange rate fluctuations, particularly in relation to the euro and pound sterling. The weighted average rates for fiscal 2016 were 1.11 and 1.50, respectively. 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” contribution to profit and EPS, which exclude a previously announced tax charge; restructuring charges; a pension settlement charge related to voluntary lump sum buyouts; and certain deferred tax benefits as more fully described in the attached financial schedules. Variances to adjusted 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 Summary
- Third quarter revenue was flat on a US GAAP basis at $436.5 million, and increased 3% excluding the adverse impact of foreign exchange. Higher revenue on a constant currency basis was primarily driven by the favorable impact of the shift to time-based subscriptions (+$29M), the contribution of the Atypon acquisition (+$8M) and growth in Solutions (+$7M), partially offset by a continued decline in Publishing (-$25M) and the impact of an unusually large backfile sale in the year-ago period (-$10M). Excluding the favorable subscription shift and the contribution from Atypon, revenue on a constant currency base was down 5% due to the prior year backfile sale and current period declines in book sales (-18%), which offset double-digit growth in Solutions (+14%). Nine month revenue was down 2% on a US GAAP basis to $1,266 million, but up 1% excluding the impact of currency.
- Third quarter EPS increased 34% on a US GAAP basis to $0.82, or 37% on an adjusted basis to $0.92. Adjusted EPS excludes restructuring charges in the current quarter ($0.10) and prior year period ($0.16); and a deferred tax benefit in the prior year period related to a future tax rate reduction in the UK ($0.10). The increase in Adjusted EPS was mainly due to the favorable impact of the shift to time-based journal subscriptions (+$0.33) and one-time tax benefits (+$0.12), partially offset by the impact of lower revenue in Publishing, dilution from the Atypon and Ranku acquisitions (-$0.03), and the impact of an unusually large backfile sale in the year-ago period (-$0.10). Excluding the shift to time-based subscriptions and Atypon and Ranku dilution, third quarter adjusted EPS was down 5%. Nine month EPS was down 39% on a US GAAP basis to $1.15 primarily due to the second quarter $0.82 one-time tax charge. Nine month adjusted EPS at constant currency was up 9%.
- Restructuring Activity: Wiley recorded a $9.1 million restructuring charge in the quarter primarily related to the consolidation of facilities and severance provisions related to additional efficiency gains.
- Net Debt and Cash Position: Net debt (debt less cash and cash equivalents) at the end of January was $383.4 million compared to $428.9 million as of January 31, 2017. Cash and cash equivalents as of January 31, 2017 were $482.3 million.
- Free Cash Flow less Composition Costs (note, this is identical to the free cash flow metric previously reported but with a modified label): Free Cash Flow less Composition Costs was $119.5 million for the first nine months compared to $18.9 million in the prior year primarily due to earlier journal cash collections (timing), but also lower tax payments and lower restructuring payments, partially offset by higher capital spending.
- Share Repurchases: Wiley repurchased 255,200 shares this quarter at a cost of $14.1 million, an average of $55.14 per share. Over 4 million shares remain in the current authorized repurchase programs.
RESEARCH (JOURNALS AND ATYPON)
- Revenue: Third quarter revenue of $205.8 million rose 12% on a US GAAP basis, or 17% on a constant currency basis. Constant currency performance was driven by the favorable impact of shifting to time-based journal subscriptions (+$29M), the contribution from the Atypon acquisition (+$8M), steady underlying performance from Journal Subscriptions, and double-digit growth in author funded access (+15%), which offset a decline in Licensing, Reprints, Backfiles, and Other (-14%), largely as a result of the large backfile sale in the prior year period. For the nine months, Research revenue was up 4% on a US GAAP basis but increased 8% at constant currency primarily due to the shift to time-based journal subscriptions (+$34M) and 4-month contribution from Atypon (+$10M).
- Contribution to Profit: Third quarter contribution to profit (CTP) of $52.5 million was up 19% on a US GAAP basis or 17% on an adjusted basis primarily due to the shift to time-based journal subscriptions (+$25M CTP), which more than offset the large, high-margin backfile sale in the prior year period; costs associated with Atypon; higher technology costs; and other spending to support society journals. For the first nine months, contribution to profit was up 1% on a US GAAP basis, or 4% on an adjusted basis, including the benefit from the shift to time-based journal subscriptions ($29M).
- Calendar Year 2017 Journal Subscriptions: As of the end of January, calendar year 2017 Journal Subscriptions were up 5% on a constant currency basis due to earlier renewals resulting from the introduction of database model subscriptions, which provided library-wide access for our largest customers (note, 87% of CY17 targeted business has been contracted). Wiley expects full year calendar year 2017 subscription growth to be about 1%.
- Society Publishing Agreements: No new society contracts were signed in the three month period; 78 were renewed/extended with combined annual revenue of $57 million; and five contracts with annual revenue of $0.6 million were not renewed.
PUBLISHING (BOOKS, COURSE WORKFLOW, ONLINE TEST PREPARATION)
- Revenue: Third quarter revenue declined 15% on a US GAAP basis to $171.4 million, or 13% at constant currency due to continued market pressure on Books and Reference Material (-18%). Constant currency growth in Online Test Preparation (+29%), Course Workflow (+7%) and Licensing and Other (+7%) was more than offset by a 27% decline in Education Books, which continue to be impacted by rental and other market forces, and a 12% decline in STM and Professional Books, which saw a continued decline in print revenue. Also note, Wiley recorded an unusually large STM online book sale (+$4 million) in the prior year period. For the nine months, Publishing revenue declined 13% on a US GAAP basis, or 11% at constant currency.
- Contribution to Profit: Third quarter contribution to profit fell 18% on a US GAAP basis to $38.8 million, or 21% on an adjusted basis. Lower profit was primarily due to the Book revenue decline, partially offset by additional efficiency savings generated from the Company’s restructuring program. For the nine months, contribution to profit on both a US GAAP and adjusted basis was down 15%.
SOLUTIONS (ONLINE PROGRAM MANAGEMENT, CORPORATE LEARNING AND ASSESSMENT)
- Revenue: Third quarter revenue rose 14% on both a US GAAP and constant currency basis to $59.2 million. Growth at constant currency was driven by Online Program Management (+15%) and Corporate Learning (+20%). Professional Assessment grew 5%. For the nine months, Solutions revenue was up 13% on both a US GAAP and constant currency basis.
- Contribution to Profit: Third quarter contribution to profit on a US GAAP basis rose 105% to $3.6 million, or 137% on an adjusted basis. Growth at constant currency was due to revenue growth and improved operating efficiency. For the nine months, Contribution to Profit on a US GAAP basis was $9.1 million, or $10.7 million on an adjusted basis, as compared to $0.2 million and $0.5 million, respectively, in the prior year period.
- Online Program Management: Wiley signed four new partners in the quarter – George Mason (VA), Seton Hall (NJ), St. John’s (NY), and Vlerick Business School (Belgium). One non-US partnership was cancelled. Wiley also signed 19 new programs in the quarter and discontinued six. As of January 31, 2017, Wiley had 40 university partners and 244 programs under contract, compared to 37 partners and 231 programs at the end of last quarter.
Earnings Conference Call
- Scheduled for today, March 7, at 10:00 a.m. (ET)
- Access the webcast at www.wiley.com> Investor Relations> Events and Presentations, or http://www.wiley.com/WileyCDA/Section/id-370238.html
- U.S. callers, please dial (800) 381-2652 and enter the participant code 9058430#.
- International callers, please dial (719) 325-2190 and enter the participant code 9058430#.
- An archive of the webcast will be available for a period of up to 14 days