Wiley reports strong 4th quarter revenue and earnings, board continues search for new CEO
Revenue from digital products and services now 68 percent of total revenue, up from 63 percent in the prior year
HOBOKEN, N.J — June 13, 2017 — John Wiley & Sons, Inc., a global research and learning company, today announced the following results for the fourth quarter and fiscal year 2017, ending April 30:
Adjusted EPS exclude tax charges and credits, restructuring charges and credits, and pension settlement as more fully described in the attached financial schedules.
“We posted stronger revenue and earnings growth this quarter, largely due to growth in our Solutions business and the favorable timing of sales in Publishing,” said Matthew Kissner, Wiley’s Interim CEO and Chairman. “For the year, Research revenue growth was marginally positive and in line with expectations. The Solutions business, in addition to posting double-digit revenue growth, also reported substantial profit improvement. Overall, we ended the year with favorable operating momentum, a strong balance sheet, and reliable cash flow that will enable us to continue investing for growth while returning cash to shareholders through dividends and share repurchases.”
Fiscal Year 2018 Outlook
Wiley’s financial outlook anticipates low-single digit revenue growth in Research and low-double digit revenue growth in Solutions offset by a high-single digit revenue decline in Publishing due to further erosion of print book markets.
- Revenue at constant currency to be approximately even with FY17. In addition, at current FX rates, Wiley would report a FY18 positive FX variance of approximately $25 million in revenue due to functional currency gains.
- Operating income at constant currency to be approximately even with FY17 primarily due to flat revenue. In addition, at current rates, Wiley would report a positive FX variance of approximately $20 million in operating income.
- Adjusted EPS performance at constant currency down low-single digits mostly due to $0.12 in EPS non-recurring tax benefits in FY17. The positive FX variance mentioned above would be approximately $0.25 in EPS.
- Cash from Operations expected to improve to $350 million or higher, from $315 million in FY17.
- Capex (TP&E + Composition and Product Development Spend) projected to be slightly lower than FY17.
Wiley will continue investing for revenue growth across its business segments. In FY18, the Company will near the completion of its ERP implementation and headquarters office transformation. Wiley is also in the process of a multi-year operational excellence initiative that focuses on achieving competitive benchmarks for quality, speed and customer service. Through organization simplification and process optimization, standardization and automation, the Company expects to meaningfully improve operating income, EPS, and Free Cash Flow in Fiscal Years 2019 and 2020. In the first quarter of fiscal 2018, Wiley will record a restructuring charge of approximately $25 million related to these activities, which will yield around $45 million in run rate savings starting in FY19, with roughly half of that realized in FY18. About half of the $45 million will be reinvested.
The Company provides financial measures referred to as “adjusted” contribution to profit and EPS, which exclude tax charges, restructuring charges, pension settlement charges 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.
Foreign Exchange (FX)
Note that foreign exchange was adverse to FY17 revenue and EPS by $43 million and $0.04, 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 2017 were 1.09 and 1.30, 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.
In May, the Company announced the resignation of President and CEO Mark Allin. Matthew Kissner, Chairman of the Board, was named interim CEO. The Board has begun a search for Mr. Allin’s successor.
Fourth Quarter Summary
- Revenue grew 4% on a US GAAP basis to $452.2 million, or 6% excluding the impact of currency. Year-over-year performance at constant currency was driven by growth in Solutions (+$8 million) and Publishing (+$10 million), and the revenue contribution from Atypon (+$9 million). Excluding that contribution, fourth quarter revenue on a constant currency basis was up 4% due to continued growth in Solutions and growth in Publishing, due to favorable timing of orders and lower returns.
- EPS increased 38% on a US GAAP basis to $0.81, or 19% on an adjusted basis. Adjusted EPS excludes restructuring credits in the current quarter ($0.02) and charges in the prior year period ($0.08). The year-over-year increase is attributed to significant improvement in Contribution to Profit for Publishing (+117%) and Solutions (+27%), partially offset by dilution from the recent Atypon and Ranku acquisitions ($0.03). Excluding that dilution, fourth quarter adjusted EPS was up 24%.
- Adjusted shared services and administrative costs of $135.8 million were flat for the quarter with Distribution and Operation Services declining 3% and Technology and Content Management even with the prior year.
- Share Repurchases: Wiley repurchased 282,728 shares this quarter at a cost of $15.0 million, an average of $52.90 per share. Nearly 3.8 million shares remain in the current authorized repurchase program announced in June 2016.
Fiscal Year Summary
- Revenue of $1,719 million was consistent with the prior year on a US GAAP basis, or up 2% excluding the adverse impact of foreign exchange (-$43 million). Performance was driven by the favorable impact of the shift to time-based Journal Subscriptions (+$34 million) and a partial year contribution from the Atypon acquisition (+$19 million). Excluding these items and the impact of currency, revenue was down 1% as steady performance in Journal Subscriptions and double-digit growth in Author-Funded Access (+26%), Online Test Preparation (+27%), and our Solutions segment (14%) did not fully offset declines in Education Books (-13%) and STM and Professional Development Books (-9%). Wiley’s percentage of revenue from digital content and services increased to 68% in FY17 (from 63% in FY16).
- EPS declined 21% on a US GAAP basis to $1.95, or rose 13% on an adjusted basis to $3.00. Adjusted EPS excludes $1.04 and $0.22 in the current and prior year, respectively, to remove the impacts of currency, restructuring charges or credits, and unusual items. Details for these items can be found in the accompanying tables. Adjusted EPS growth is attributed to the favorable transitional impact of the shift to time-based journal subscriptions (+$0.38) and tax credits recorded in the third quarter (+$0.12), which offset dilution from the Atypon and Ranku acquisitions (-$0.08). Excluding the impact of the subscription revenue shift and the dilution of the acquisitions, adjusted EPS was up 1% primarily due to the aforementioned tax benefits and efficiency gains.
- Adjusted shared services and administrative costs were down 2% on a US GAAP basis to $507 million, or flat on a constant currency basis. The performance is mainly due to declines in Other Administration (-9%) and Distribution and Operations (-1%), which offset a 5% increase in Technology and Content Management related to ERP and other systems development and integration.
- Cash from Operations of $314.5 million down from $350.0 million primarily due to unfavorable timing around working capital and an unbudgeted $7 million contribution to our UK pension just before year-end. The adverse working capital performance included the timing of end-of-year payments in fiscal 2017 as compared to fiscal 2016. Collections also lagged due to unexpectedly strong book sales in April. These impacts will unwind in fiscal 2018.
- Free Cash Flow less Composition and Product Development Spend (identical FCF metric that has been reported previously) decreased to $166.2 million from $219.0 million primarily due to lower cash from operations and higher capex (+$17 million) primarily related to the office transformation.
- Net Debt and Cash Position: Net debt (debt less cash and cash equivalents) at the end of April was $306.5 million compared to $241.2 million as of April 30, 2016. During fiscal year 2017, the company used approximately $120 million of cash to acquire Atypon. Cash and cash equivalents were $58.5 million compared to $363.8 million at end of the prior year primarily due to the repayment of debt with proceeds from the Company’s actions to efficiently repatriate cash from foreign entities. The repatriation initiative also included $60 million in proceeds related to an associated inter-company transfer of GPB to USD, received in the fourth quarter.
- Share Repurchases: In fiscal year 2017, Wiley repurchased 953K shares for approximately $50.3 million, an average cost of $52.80. As of April 30, the Company had nearly 3.8 million shares remaining in the repurchase program announced in June 2016.
- Dividend: In June 2016, Wiley increased its quarterly dividend by 3.3% to $0.31 per share. It was the 23rd consecutive annual increase and raised the annualized dividend payout to $1.24 per share.
RESEARCH (JOURNALS AND ATYPON)
- Revenue: Fourth quarter revenue of $234.5 million rose 2% on a US GAAP basis, or 3% on a constant currency basis. Performance was driven by the contribution from the Atypon acquisition (+$9 million), and double-digit growth in Author-Funded Access (+26%), which offset a timing-related decline in Journal Subscription revenue. For the year, revenue on a GAAP basis rose 3% to $853.5 million, or 7% at constant currency. Excluding the subscription shift ($34 million) and the Atypon contribution ($19 million), Research revenue for the year was up modestly at constant currency. Results were mainly driven by steady performance from Journal Subscriptions and strong growth in Author-Funded Access, which offset an unusually large backfile sale of $10 million in the prior year.
- Contribution to Profit: Fourth quarter contribution to profit (CTP) of $80.3 million was down 2% on a US GAAP basis and down 3% on an adjusted basis primarily due to costs associated with the Atypon acquisition (-$2 million) and other spending to support society journals. For the year, GAAP CTP was flat and adjusted was up 2% including the benefit from the shift to time-based journal subscriptions (+$29 million) and costs associated with the Atypon acquisition (-$4 million). Excluding those items, adjusted CTP was down 8% attributed to revenue performance, higher content and royalty costs and investment in new technology.
- Calendar Year 2017 Journal Subscriptions: As of the end of April, calendar year 2017 Journal Subscriptions were up 1% on a constant currency basis with 97% of business contracted.
- Society Publishing Agreements: Two new society contracts were signed in the quarter with combined annual revenue of $1.7 million; fifteen were renewed with combined annual revenue of $17.3 million; and one was not renewed with annual revenue of $0.4 million, for a net gain of $1.3 million. Note: the revenue cited in quarterly society contract signings is typically not achieved until the following calendar year. For calendar year 2017, six new society contracts were signed (+$9 million annual) and fifteen were not renewed (-$9 million). Additionally, calendar year 2017 includes renewals of 91 contracts with combined annual revenue of $67 million.
PUBLISHING (BOOKS, COURSE WORKFLOW, ONLINE TEST PREPARATION)
- Revenue: Fourth quarter revenue increased 5% on a US GAAP basis to $153.7 million, or 7% at constant currency due to growth in Education Books (+28%), Online Test Preparation and Certification (+52%), and Course Workflow/WileyPLUS (+6%), offsetting a 2% decline in STM and Professional Books and a 2% decline in Licensing, Distribution, Advertising and Other. Education Books improved due to favorable timing of orders, lower returns, and growth in digital books. Publishing revenue for the year declined 9% on a GAAP basis or 7% on a constant currency basis, with declines in Books and Reference Material (-11%) offsetting growth in Online Test Preparation (+27%), Course Workflow/WileyPLUS (+7%), and Licensing, Distribution, Advertising, and Other (+3%).
- Contribution to Profit: Fourth quarter CTP grew 111% on a US GAAP basis to $31.1 million, or 117% on an adjusted basis. Strong growth was driven by revenue performance and restructuring savings, including facility closures and expense rationalization. For the year, CTP was flat on both a US GAAP and adjusted basis.
SOLUTIONS (ONLINE PROGRAM MANAGEMENT, CORPORATE LEARNING AND ASSESSMENT)
- Revenue: Fourth quarter revenue rose 13% on a US GAAP basis to $64.0 million, or 14% at constant currency. Solid growth occurred across all product areas, including Online Program Management (+14%), Corporate Learning (+21%), and Professional Assessment (+9%). For the year, Solutions revenue of $232 million was up 13% on a US GAAP basis, or 14% at constant currency.
- Contribution to Profit: Fourth quarter CTP on a US GAAP basis rose 49% to $5.7 million, or 27% on an adjusted basis. Growth at constant currency was due to revenue growth and improved operating efficiency. For the year, CTP on a US GAAP basis was $14.8 million, or $16.6 million adjusted, as compared to $4.0 million and $5.0 million, respectively, in the prior year.
- Online Program Management: In the quarter, Wiley signed eleven new programs and discontinued five. As of April 30, 2017, Wiley had 39 university partners (one partnership retired this quarter) and 250 programs under contract. In the year, Wiley signed important new partners – including George Mason (VA), Seton Hall (NJ), St. John’s (NY), and Vlerick (Belgium) – and added 24 net new programs.