John Wiley & Sons(WLYB) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended October 31, 2019 and 2018, along with detailed notes Condensed Consolidated Statements of Financial Position (Unaudited) | (In thousands) | October 31, 2019 | April 30, 2019 | | :--- | :--- | :--- | | Total Assets | $3,082,771 | $2,937,002 | | Total Current Liabilities | $585,642 | $870,562 | | Total Liabilities | $1,903,775 | $1,755,655 | | Total Shareholders' Equity | $1,178,996 | $1,181,347 | Condensed Consolidated Statements of Income (Unaudited) | (In thousands, except per share) | Three Months Ended Oct 31, 2019 | Three Months Ended Oct 31, 2018 | Six Months Ended Oct 31, 2019 | Six Months Ended Oct 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue, net | $466,205 | $448,622 | $889,735 | $859,523 | | Operating Income | $63,391 | $57,475 | $67,950 | $93,615 | | Net Income | $44,690 | $43,784 | $48,314 | $70,079 | | Diluted EPS | $0.79 | $0.76 | $0.85 | $1.21 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (In thousands) | Six Months Ended Oct 31, 2019 | Six Months Ended Oct 31, 2018 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | $(99,521) | $(116,561) | | Net Cash Used in Investing Activities | $(134,431) | $(49,706) | | Net Cash Provided by Financing Activities | $249,267 | $120,465 | Note 2 — Recent Accounting Standards The company adopted a new lease accounting standard on May 1, 2019, recognizing operating lease Right-of-Use assets and liabilities without impacting income or cash flow - Adopted new lease standard (Topic 842) on May 1, 2019, using the effective date as the date of initial application[39] - Upon adoption, the company recognized operating lease liabilities of $178 million and Right-of-Use (ROU) assets of $142 million[40] Note 3 — Acquisitions In fiscal year 2020, the company completed several acquisitions, including Zyante Inc. and certain assets of Knewton, Inc., primarily within the Academic & Professional Learning segment - On July 1, 2019, the company acquired Zyante Inc. ("zyBooks"), a provider of computer science and STEM courseware, for a preliminary fair value of $57.0 million[48] - On May 31, 2019, the company acquired certain assets of Knewton, Inc., a provider of affordable courseware and adaptive learning technology[53] - The preliminary allocation for zyBooks includes $37.2 million in Goodwill and $24.5 million in Intangible Assets[51] Note 9 — Restructuring and Related Charges The company initiated a new Business Optimization Program in fiscal year 2020 to improve efficiency, incurring $14.0 million in charges for the six months ended October 31, 2019 - A new multi-year Business Optimization Program was initiated in fiscal year 2020 to drive efficiency and savings[84] Restructuring Charges (Six Months Ended Oct 31, 2019) | Program | Charges (Pre-tax) | | :--- | :--- | | Business Optimization Program | $14,024 thousand | | Restructuring and Reinvestment Program | $712 thousand | Note 10 — Segment Information The company realigned its reporting structure into three segments: Research Publishing & Platforms, Academic & Professional Learning, and Education Services, with Research being the largest contributor Segment Revenue (in thousands) | Segment | Revenue (in thousands) | | :--- | :--- | | Research Publishing & Platforms | $464,084 | | Academic & Professional Learning | $322,583 | | Education Services | $103,068 | | Total Revenue | $889,735 | Segment Contribution to Profit (in thousands) | Segment | Contribution to Profit (in thousands) | | :--- | :--- | | Research Publishing & Platforms | $118,937 | | Academic & Professional Learning | $39,961 | | Education Services | $(4,616) | | Total Contribution to Profit | $154,282 | Note 15 — Debt and Available Credit Facilities On May 30, 2019, the company entered into an Amended and Restated Revolving Credit Agreement, establishing a $1.25 billion credit facility and a $250 million term loan - Entered into an Amended and Restated RCA on May 30, 2019, comprising a $1.25 billion revolving credit facility and a $250 million term loan A facility[109] - Total debt outstanding as of October 31, 2019 was $794.7 million[117] Note 17 — Capital Stock and Changes in Capital Accounts During the six months ended October 31, 2019, the company repurchased 551,847 shares of Class A Common Stock for approximately $25.0 million and paid quarterly cash dividends Share Repurchases (Six Months Ended Oct 31, 2019) | Class of Stock | Shares Repurchased | Average Price ($) | | :--- | :--- | :--- | | Class A Common | 551,847 | $45.30 | - Paid quarterly cash dividends of $0.34 per common share during the period[132] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and results of operations, covering consolidated and segment performance, liquidity, and the fiscal year 2020 outlook Results of Operations – Three Months Ended October 31, 2019 For Q2 FY2020, revenue grew 4% to $466.2 million, driven by Education Services and Research Publishing & Platforms, while GAAP EPS was $0.79 Q2 FY2020 vs Q2 FY2019 Performance | Metric | Q2 FY2020 | Change (Reported) | Change (Constant Currency) | | :--- | :--- | :--- | :--- | | Revenue | $466.2M | +4% | +5% | | GAAP EPS | $0.79 | +4% | N/A | | Adjusted EPS | $0.85 | -4% | -1% | - Revenue growth was driven by a $24.0 million increase in Education Services, largely from the Learning House acquisition, and a $9.2 million increase in Research Publishing & Platforms[143] - Excluding acquisitions, revenue on a constant currency basis decreased by 1%[138] Results of Operations – Six Months Ended October 31, 2019 For H1 FY2020, revenue increased 4% to $889.7 million, primarily from Education Services and Research, though operating income fell 27% due to restructuring charges H1 FY2020 vs H1 FY2019 Performance | Metric | H1 FY2020 | Change (Reported) | Change (Constant Currency) | | :--- | :--- | :--- | :--- | | Revenue | $889.7M | +4% | +5% | | Operating Income | $68.0M | -27% | N/A | | GAAP EPS | $0.85 | -30% | N/A | | Adjusted EPS | $1.06 | -19% | -18% | - Excluding acquisitions, revenue on a constant currency basis was flat[166] Fiscal Year 2020 Outlook The company reaffirmed its fiscal year 2020 outlook, updating revenue, Adjusted EBITDA, and Adjusted EPS guidance to reflect the recent zyBooks acquisition Updated Fiscal Year 2020 Outlook | Item | Original Outlook | zyBooks Impact | Updated Outlook | | :--- | :--- | :--- | :--- | | Revenue | $1,840-1,870M | +$15M | $1,855-1,885M | | Adjusted EBITDA | $360-375M | -$3M | $357-372M | | Adjusted EPS | $2.45-2.55 | -$0.10 | $2.35-2.45 | | Free Cash Flow | $210-230M | Insignificant | Unchanged | Liquidity and Capital Resources The company maintains sufficient liquidity with $107.7 million in cash and $705.8 million in unused borrowing capacity as of October 31, 2019 - As of October 31, 2019, the company had cash and cash equivalents of $107.7 million and unused borrowing capacity of approximately $705.8 million[195][197] Free Cash Flow less Product Development Spending (Six Months Ended) | (In thousands) | Oct 31, 2019 | Oct 31, 2018 | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | $(99,521) | $(116,561) | | Less: Additions to Technology, Property and Equipment | $(44,531) | $(34,560) | | Less: Product Development Spending | $(11,686) | $(12,351) | | Free Cash Flow less Product Development Spending | $(155,738) | $(163,472) | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates, foreign exchange, and credit, using derivatives for hedging and maintaining trade credit insurance - A hypothetical one percent change in interest rates on the $595.4 million of unhedged variable rate debt would affect net income by approximately $4.5 million annually[211] - Primary foreign exchange exposure is to the British pound sterling, euro, Canadian and Australian dollars, with a foreign currency translation gain of $38.3 million recorded in Q2 2019[212][213] - Journal subscription agents account for approximately 20% of total annual consolidated revenue, while the top 10 book customers account for approximately 14%[219][220] - The company maintains approximately $25 million of trade credit insurance[221] Controls and Procedures The CEO and CFO concluded the company's disclosure controls and procedures were effective as of October 31, 2019, with ongoing integration of new acquisitions into the control framework - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[223] - The recently acquired Zyante was excluded from the scope of management's report on internal control for this period but will be integrated and included for the full fiscal year ending April 30, 2020[224] PART II - OTHER INFORMATION Legal Proceedings There were no significant developments related to legal proceedings during the three months ended October 31, 2019 - There have been no significant developments related to legal proceedings during the three months ended October 31, 2019[228] Risk Factors This section refers to the Risk Factors detailed in the company's Annual Report on Form 10-K for the fiscal year ended April 30, 2019 - The company refers to Part I, Item 1A, "Risk Factors," of its Annual Report on Form 10-K for the fiscal year ended April 30, 2019[229] Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended October 31, 2019, the company repurchased 334,336 shares of its Class A Common Stock under its stock repurchase program Share Repurchases (Three Months Ended Oct 31, 2019) | Month | Total Number of Shares Purchased | Average Price Paid Per Share ($) | | :--- | :--- | :--- | | August 2019 | — | $— | | September 2019 | 245,315 | $45.40 | | October 2019 | 89,021 | $43.40 | | Total | 334,336 | $44.87 | Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files (101 series)[232]