John Wiley & Sons(WLYB) - 2020 Q3 - Quarterly Report

General Disclosures This section contains general information and disclaimers applicable to the entire report Cautionary Notice Regarding Forward-Looking Statements This section provides a "Safe Harbor" statement, warning investors that the report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are subject to risks and uncertainties, many outside the company's control, which could cause actual results to differ materially. Investors should not rely on these statements[7] - Examples of forward-looking statements include fiscal year 2020 outlook, anticipated restructuring charges and savings, operations, performance, and financial condition[7] Non-GAAP Financial Measures The company presents both U.S. GAAP and non-GAAP financial information, using non-GAAP measures for internal reporting, forecasting, evaluating performance, and incentive compensation, providing supplemental insights for investors - The company uses non-GAAP measures (e.g., Adjusted EPS, Free Cash Flow less Product Development Spending, Adjusted Revenue, Adjusted Operating Income, Adjusted Contribution to Profit, EBITDA, Adjusted EBITDA, Organic revenue, and constant currency results) as supplemental indicators for operating performance, financial position, internal reporting, forecasting, and incentive compensation[10] - Non-GAAP measures are not standardized by U.S. GAAP, may not be comparable to other companies, and should not be viewed as alternatives to GAAP results[12] - Adjusted EPS, Adjusted Revenue, Adjusted Operating Income, Adjusted Contribution to Profit, Adjusted EBITDA, and organic revenue provide a more comparable basis to analyze operating results. Free Cash Flow less Product Development Spending assesses long-term value creation for debt repayment, dividends, share repurchases, and acquisitions. Constant currency results remove foreign currency distortion for better period-to-period business trend comparability[13] PART I - FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the statements of financial position, income, comprehensive income, cash flows, and shareholders' equity, along with detailed notes explaining the basis of presentation, recent accounting standards, acquisitions, revenue recognition, operating leases, stock-based compensation, and other financial details Condensed Consolidated Statements of Financial Position – Unaudited This statement presents the company's assets, liabilities, and shareholders' equity at specific dates Condensed Consolidated Statements of Financial Position (Unaudited) | Metric (in thousands) | Jan 31, 2020 | Apr 30, 2019 | Change | | :-------------------- | :----------- | :----------- | :----- | | Assets: | | | | | Total Current Assets | $533,090 | $502,544 | +$30,546 | | Goodwill | $1,226,257 | $1,095,666 | +$130,591 | | Intangible Assets, net | $925,934 | $865,572 | +$60,362 | | Total Assets | $3,324,583 | $2,948,766 | +$375,817 | | Liabilities: | | | | | Total Current Liabilities | $814,538 | $882,326 | -$67,788 | | Long-Term Debt | $789,645 | $478,790 | +$310,855 | | Total Liabilities | $2,127,348 | $1,767,419 | +$359,929 | | Shareholders' Equity: | | | | | Total Shareholders' Equity | $1,197,235 | $1,181,347 | +$15,888 | | Total Liabilities and Shareholders' Equity | $3,324,583 | $2,948,766 | +$375,817 | Condensed Consolidated Statements of Income – Unaudited This statement details the company's revenues, expenses, and net income for specific periods Condensed Consolidated Statements of Income (Unaudited) | Metric (in thousands, except per share) | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue, net | $467,131 | $449,367 | $1,356,866 | $1,308,890 | | Total Costs and Expenses | $418,637 | $399,021 | $1,240,422 | $1,164,929 | | Operating Income | $48,494 | $50,346 | $116,444 | $143,961 | | Net Income | $35,443 | $34,942 | $83,757 | $105,021 | | Basic EPS | $0.63 | $0.61 | $1.49 | $1.83 | | Diluted EPS | $0.63 | $0.61 | $1.48 | $1.81 | Condensed Consolidated Statements of Comprehensive Income – Unaudited This statement presents net income and other comprehensive income components for specific periods Condensed Consolidated Statements of Comprehensive Income (Unaudited) | Metric (in thousands) | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | $35,443 | $34,942 | $83,757 | $105,021 | | Total Other Comprehensive Income (Loss) | $6,686 | $14,298 | $10,398 | $(34,686) | | Comprehensive Income | $42,129 | $49,240 | $94,155 | $70,335 | Condensed Consolidated Statements of Cash Flows – Unaudited This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric (in thousands) | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided By Operating Activities | $88,887 | $52,144 | | Net Cash Used in Investing Activities | $(285,884) | $(263,628) | | Net Cash Provided by Financing Activities | $220,882 | $180,976 | | Effects of Exchange Rate Changes on Cash | $530 | $(6,359) | | Increase/(Decrease) for the Period | $24,415 | $(36,867) | | Balance at End of Period (Cash & Cash Equivalents) | $117,963 | $133,390 | Condensed Consolidated Statements of Shareholders' Equity – Unaudited This statement details changes in the company's shareholders' equity over specific periods Condensed Consolidated Statements of Shareholders' Equity (Unaudited) | Metric (in thousands) | Balance at Jan 31, 2020 | Balance at Apr 30, 2019 | | :-------------------- | :---------------------- | :---------------------- | | Total Shareholders' Equity | $1,197,235 | $1,181,347 | | Retained Earnings | $1,957,199 | $1,931,074 | | Treasury Stock | $(777,824) | $(746,476) | | Accumulated Other Comprehensive Loss | $(498,340) | $(508,738) | - During the nine months ended January 31, 2020, the company purchased $35.0 million of treasury shares and paid $57.6 million in cash dividends[23] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the accompanying financial statements Note 1. Basis of Presentation This note outlines the accounting principles and presentation methods used for the financial statements - The unaudited condensed consolidated financial statements include all accounts of the Company and its subsidiaries, with intercompany transactions eliminated. They are prepared in accordance with SEC interim reporting requirements, condensing or omitting annual GAAP footnotes[27][28] - An immaterial error was identified in the third quarter of 2020, misclassifying certain consideration for unperformed services as a reduction to Accounts Receivable, Net, instead of an increase to Contract Liabilities. This correction increased Accounts Receivable, Net and Contract Liabilities by approximately $11.8 million for April 30, 2019, with no impact on revenue, income, EPS, or cash flows[29] Note 2. Recent Accounting Standards This note discusses the adoption and impact of new accounting standards - The company adopted ASU 2018-02 (Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income) on May 1, 2019, but did not elect to reclassify stranded tax effects to retained earnings[31] - ASU 2017-12 (Targeted Improvements to Accounting for Hedging Activities) and ASU 2018-16 (Inclusion of SOFR OIS Rate as a Benchmark Interest Rate for Hedge Accounting Purposes) were adopted on May 1, 2019, with no immediate impact on consolidated financial statements[32] - ASU 2016-02 (Leases) was adopted on May 1, 2019, resulting in the recognition of $178 million in operating lease liabilities and $142 million in ROU assets, with no impact on income or cash flow statements[33][37] - The company is currently assessing the impact of recently issued standards, including ASU 2019-12 (Simplifying the Accounting for Income Taxes), ASU 2018-15 (Cloud Computing Arrangement Implementation Costs), ASU 2018-14 (Defined Benefit Plan Disclosures), ASU 2018-13 (Fair Value Measurement Disclosures), ASU 2017-04 (Goodwill Impairment), and ASU 2016-13 (Credit Losses on Financial Instruments)[38][39][40][41][42][43] Note 3. Acquisitions This note details the company's recent business acquisitions and their financial impact - In fiscal year 2020, the company completed several acquisitions, including mthree (January 1, 2020, for $128.6 million, adding to Education Services), Zyante Inc. (July 1, 2019, for $57.1 million, adding to Academic & Professional Learning), and Knewton (May 31, 2019, for $19.9 million, adding to Academic & Professional Learning)[46][47][51][55][56] - The mthree acquisition resulted in a preliminary allocation of $80.3 million in goodwill and $57.4 million in intangible assets. Zyante Inc. acquisition resulted in $37.3 million in goodwill and $24.5 million in intangible assets[49][53] - For the three months ended January 31, 2020, mthree contributed $4.5 million in revenue and an operating loss of $1.2 million to the Education Services segment. Zyante Inc. contributed $3.9 million in revenue to the Academic & Professional Learning segment[50][51] Note 4. Revenue Recognition, Contracts with Customers This note explains the company's policies for recognizing revenue from customer contracts Revenue by Segment and Product Type (in thousands) | Segment/Product Type | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research Publishing & Platforms | $233,556 | $227,037 | $697,640 | $681,429 | | Academic & Professional Learning | $178,278 | $176,123 | $500,861 | $522,217 | | Education Services | $55,297 | $46,207 | $158,365 | $105,244 | | Total Revenue | $467,131 | $449,367 | $1,356,866 | $1,308,890 | Accounts Receivable and Contract Liabilities (in thousands) | Balance | Jan 31, 2020 | Apr 30, 2019 | Increase/(Decrease) | | :------------------------------------ | :----------- | :----------- | :------------------ | | Accounts receivable, net | $301,521 | $306,631 | $(5,110) | | Contract liabilities | $413,126 | $519,129 | $(106,003) | | Contract liabilities (Other Long-Term) | $15,785 | $10,722 | $5,063 | - As of January 31, 2020, the aggregate transaction price allocated to remaining performance obligations was approximately $428.9 million, with $372.6 million expected to be recognized in the next twelve months[67] Note 5. Operating Leases This note provides information on the company's operating lease arrangements and related financial impacts - Following the adoption of a new lease accounting standard on May 1, 2019, the company recognized operating lease ROU assets of $142.3 million and operating lease liabilities of $179.7 million (present value) as of January 31, 2020[75][77] Total Net Lease Costs (in thousands) | Metric | 3 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2020 | | :------------------ | :-------------------------- | :-------------------------- | | Operating lease cost | $6,286 | $19,346 | | Variable lease cost | $1,004 | $3,122 | | Sublease income | $(180) | $(519) | | Total net lease cost | $7,110 | $21,949 | Note 6. Stock-Based Compensation This note details the company's stock-based compensation plans and associated expenses Stock-Based Compensation Expense (pre-tax, in thousands) | Period | 2020 | 2019 | | :----- | :--- | :--- | | 3 Months Ended Jan 31 | $5,400 | $6,100 | | 9 Months Ended Jan 31 | $15,700 | $15,000 | Restricted Stock Awards Granted (shares in thousands) | Metric | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | | Awards granted | 738 | 406 | | Weighted average fair value of grant | $44.85 | $63.09 | Note 7. Accumulated Other Comprehensive Loss This note presents the components of accumulated other comprehensive loss Accumulated Other Comprehensive Loss (in thousands) | Component | Balance at Oct 31, 2019 | Total OCI (Loss) 3 Months Ended Jan 31, 2020 | Balance at Jan 31, 2020 | | :-------------------------- | :---------------------- | :--------------------------------- | :---------------------- | | Foreign Currency Translation | $(309,327) | $7,895 | $(301,432) | | Unamortized Retirement Costs | $(194,465) | $(816) | $(195,281) | | Interest Rate Swaps | $(1,234) | $(393) | $(1,627) | | Total | $(505,026) | $6,686 | $(498,340) | - For the nine months ended January 31, 2020, total other comprehensive income was $10.4 million, a significant improvement from a loss of $34.7 million in the prior year, primarily due to foreign currency translation adjustments[80] Note 8. Reconciliation of Weighted Average Shares Outstanding This note reconciles the weighted average shares used for basic and diluted EPS calculations Weighted Average Number of Common Shares Outstanding (in thousands) | Metric | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Shares used for basic EPS | 56,073 | 57,158 | 56,312 | 57,330 | | Shares used for diluted EPS | 56,503 | 57,626 | 56,698 | 57,882 | - Options to purchase 209,394 shares of Class A Common Stock were excluded from diluted EPS calculation for both three and nine months ended January 31, 2020, as they were anti-dilutive. Warrants to purchase 518,750 shares of Class A Common Stock were also excluded[82][83] Note 9. Restructuring and Related Charges This note details the company's restructuring programs and associated charges - The company initiated a multi-year Business Optimization Program in fiscal year 2020 to drive efficiency and operating savings, recording $3.8 million in pre-tax restructuring charges for the three months and $17.8 million for the nine months ended January 31, 2020[84][85] Business Optimization Program Restructuring Charges by Activity (in thousands) | Activity | 3 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | | Severance and termination benefits | $2,313 | $13,600 | | Facility related charges | $1,480 | $2,720 | | Other activities | $0 | $1,336 | | Total | $3,793 | $17,817 | - For the Restructuring and Reinvestment Program (initiated in FY2013), the company recorded pre-tax restructuring credits of $0.5 million for the three months and charges of $0.2 million for the nine months ended January 31, 2020[87][88] Note 10. Segment Information This note provides financial data broken down by the company's operating segments - The company changed its segment reporting structure to align with strategic focus areas: Research Publishing & Platforms, Academic & Professional Learning, and Education Services. Prior period results were revised to reflect this[94] Revenue by Segment (in thousands) | Segment | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research Publishing & Platforms | $233,556 | $227,037 | $697,640 | $681,429 | | Academic & Professional Learning | $178,278 | $176,123 | $500,861 | $522,217 | | Education Services | $55,297 | $46,207 | $158,365 | $105,244 | | Total Revenue | $467,131 | $449,367 | $1,356,866 | $1,308,890 | Adjusted EBITDA by Segment (in thousands) | Segment | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research Publishing & Platforms | $80,957 | $75,463 | $237,430 | $224,079 | | Academic & Professional Learning | $48,140 | $53,360 | $125,579 | $158,732 | | Education Services | $825 | $(1,592) | $8,843 | $(864) | | Total Segment Adjusted EBITDA | $129,922 | $127,231 | $371,852 | $381,947 | Note 11. Inventories This note details the composition and valuation of the company's inventories Inventories, Net (in thousands) | Inventory Component | Jan 31, 2020 | Apr 30, 2019 | | :-------------------------- | :----------- | :----------- | | Finished Goods | $35,766 | $33,736 | | Inventory Value of Estimated Sales Returns | $9,929 | $3,739 | | LIFO Reserve | $(4,171) | $(4,360) | | Total Inventories | $43,139 | $35,582 | Note 12. Goodwill and Intangible Assets This note provides information on the company's goodwill and identifiable intangible assets Goodwill by Segment (in thousands) | Segment | Apr 30, 2019 | Acquisitions | Foreign Translation Adjustment | Jan 31, 2020 | | :-------------------------- | :----------- | :----------- | :----------------------------- | :----------- | | Research Publishing & Platforms | $438,511 | $844 | $4,482 | $443,837 | | Academic & Professional Learning | $458,145 | $45,807 | $(718) | $503,234 | | Education Services | $199,010 | $80,440 | $(264) | $279,186 | | Total Goodwill | $1,095,666 | $127,091 | $3,500 | $1,226,257 | Identifiable Intangible Assets, Net (in thousands) | Asset Type | Jan 31, 2020 | Apr 30, 2019 | | :-------------------------- | :----------- | :----------- | | Content and Publishing Rights | $383,874 | $389,172 | | Customer Relationships | $286,034 | $245,830 | | Brands and Trademarks (Determinable Lives) | $20,361 | $12,993 | | Developed Technology | $17,146 | $0 | | Brands and Trademarks (Indefinite Lives) | $132,701 | $130,909 | | Total Intangible Assets, Net | $925,934 | $865,572 | Note 13. Income Taxes This note details the company's income tax provisions and effective tax rates Effective Tax Rate | Period | Jan 31, 2020 | Jan 31, 2019 | | :-------------------------- | :----------- | :----------- | | 3 Months Ended | 20.7% | 22.7% | | 9 Months Ended | 20.3% | 22.6% | - The decrease in effective tax rates for both periods was primarily due to certain discrete items, including the release of reserves from the expiration of the statute of limitations and a more favorable earnings mix. The nine-month decrease also benefited from a tax-free life insurance recovery[104] Note 14. Retirement Plans This note provides information on the company's pension and defined contribution plans Net Pension Income (in thousands) | Metric | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net pension income | $(2,410) | $(1,904) | $(5,711) | $(5,823) | Employer Defined Contribution Plan Expense (in thousands) | Period | 2020 | 2019 | | :-------------------------- | :----------- | :----------- | | 3 Months Ended Jan 31 | $3,200 | $2,600 | | 9 Months Ended Jan 31 | $10,600 | $9,900 | Note 15. Debt and Available Credit Facilities This note details the company's debt obligations and available credit lines - On May 30, 2019, the company entered into an Amended and Restated RCA, providing a $1.25 billion five-year revolving credit facility and a $250 million five-year term loan A facility[107] - As of January 31, 2020, total debt outstanding was $797.4 million, with $7.8 million as the current portion of long-term debt and $789.6 million as long-term debt. The company was in compliance with all financial covenants[109][113] Note 16. Derivative Instruments and Hedging Activities This note describes the company's use of derivative instruments for risk management - The company uses forward exchange and interest rate swap contracts to hedge against foreign currency and interest rate fluctuations, not for speculative purposes. All derivatives are recognized at fair value[115] - As of January 31, 2020, the company had $200.0 million in interest rate swaps designated as cash flow hedges, fixing a portion of variable interest on its Amended and Restated RCA. The fair value of interest rate swaps was a deferred loss of $1.2 million[117][118][121][122] - No open forward exchange contracts were maintained as of January 31, 2020, or April 30, 2019[125] Note 17. Capital Stock and Changes in Capital Accounts This note details changes in the company's capital stock and equity accounts Class A Common Stock Repurchases | Period | Shares Repurchased | Average Price Per Share | | :-------------------------- | :----------------- | :---------------------- | | 3 Months Ended Jan 31, 2020 | 205,370 | $48.69 | | 9 Months Ended Jan 31, 2020 | 757,217 | $46.22 | | 9 Months Ended Jan 31, 2019 | 633,831 | $55.21 | Cash Dividends Paid (9 Months Ended Jan 31, 2020) | Date of Declaration | Quarterly Cash Dividend | Total Dividend (millions) | | :------------------ | :---------------------- | :------------------------ | | June 27, 2019 | $0.34 per common share | $19.2 | | September 26, 2019 | $0.34 per common share | $19.1 | | December 18, 2019 | $0.34 per common share | $19.0 | - The company increased its quarterly dividend by 3% to $1.36 per share annualized for the nine months ended January 31, 2020, compared to $1.32 per share annualized in the prior year[206] Note 18. Commitments and Contingencies This note discloses the company's significant commitments and potential liabilities - The company is involved in routine litigation, accruing provisions when a liability is probable and estimable. Management believes the ultimate resolution of all pending litigation as of January 31, 2020, will not materially affect the financial position or income statements[131] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the company's financial condition and results of operations for the three and nine months ended January 31, 2020, discussing revenue, expenses, operating income, and segment performance, along with the fiscal year 2020 outlook and liquidity RESULTS OF OPERATIONS – THREE MONTHS ENDED JANUARY 31, 2020 This section analyzes the company's financial performance for the three months ended January 31, 2020 - Revenue for the three months ended January 31, 2020, increased by $17.8 million (4%) to $467.1 million, driven by Education Services (+$9.0 million, including $4.5 million from mthree acquisition), Research Publishing & Platforms (+$6.3 million), and Academic & Professional Learning (+$2.8 million)[135][138] - Operating income decreased by $1.9 million (4%) to $48.5 million, primarily due to higher amortization of intangibles. Adjusted EBITDA, excluding restructuring charges, increased 7% on a constant currency basis[144] Diluted Earnings Per Share (EPS) | Metric | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | | U.S. GAAP EPS | $0.63 | $0.61 | | Non-GAAP Adjusted EPS | $0.68 | $0.61 | - Cost of sales increased by $10.0 million (7%) due to employment-related costs in Education Services and higher royalty costs. Operating and administrative expenses increased by $5.0 million (2%) due to investments in growth initiatives and acquisitions[137][138] - The company recorded $3.8 million in pre-tax restructuring charges for the Business Optimization Program and $0.5 million in restructuring credits for the Restructuring and Reinvestment Program[140][142] SEGMENT OPERATING RESULTS (Three Months Ended January 31, 2020) This section provides a detailed breakdown of operating results by segment for the three months ended January 31, 2020 Segment Revenue and Adjusted EBITDA (3 Months Ended Jan 31, 2020 vs 2019) | Segment | Revenue 2020 (k) | Revenue % Change (CC) | Adj. EBITDA 2020 (k) | Adj. EBITDA % Change (CC) | | :-------------------------- | :----------------- | :-------------------- | :------------------- | :------------------------ | | Research Publishing & Platforms | $233,556 | +3% | $80,957 | +8% | | Academic & Professional Learning | $178,278 | +2% | $48,140 | -9% | | Education Services | $55,297 | +19% | $825 | (Favorable $2.4M) | - Research Publishing & Platforms revenue growth was primarily due to continued growth in Open Access article volume[152] - Academic & Professional Learning organic revenue declined 2% (constant currency) due to continued decline in book publishing, partially offset by modest organic growth in Higher Education publishing products[155] - Education Services revenue increase was mainly driven by a $5.0 million increase in online program management revenue and a $4.5 million contribution from the mthree acquisition. Adjusted EBITDA margin improved to 1.5% from -3.4%[159][160] - As of January 31, 2020, Wiley had 66 university partners for Education Services, up from 36 in the prior year (excluding Learning House acquisition impact)[161] RESULTS OF OPERATIONS – NINE MONTHS ENDED JANUARY 31, 2020 This section analyzes the company's financial performance for the nine months ended January 31, 2020 - Revenue for the nine months ended January 31, 2020, increased by $48.0 million (4%) to $1,356.9 million, with a 5% increase on a constant currency basis. This was driven by Education Services (+$53.2 million) and Research Publishing & Platforms (+$23.4 million), partially offset by a $16.0 million decline in Academic & Professional Learning[163] - Operating income decreased by $27.5 million (19%) to $116.4 million, primarily due to increased amortization of intangibles and lower EBITDA. Adjusted EBITDA, excluding restructuring charges, decreased 1% on a constant currency basis[171] Diluted Earnings Per Share (EPS) | Metric | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | | U.S. GAAP EPS | $1.48 | $1.81 | | Non-GAAP Adjusted EPS | $1.74 | $1.92 | - Cost of sales increased by $36.2 million (9%) due to employment-related costs in Education Services and increased marketing/royalty costs. Operating and administrative expenses increased by $18.9 million (3%) due to higher technology costs and investments in editorial/content support[166][167] - The company recorded $17.8 million in pre-tax restructuring charges for the Business Optimization Program and $0.2 million for the Restructuring and Reinvestment Program[168][169] SEGMENT OPERATING RESULTS (Nine Months Ended January 31, 2020) This section provides a detailed breakdown of operating results by segment for the nine months ended January 31, 2020 Segment Revenue and Adjusted EBITDA (9 Months Ended Jan 31, 2020 vs 2019) | Segment | Revenue 2020 (k) | Revenue % Change (CC) | Adj. EBITDA 2020 (k) | Adj. EBITDA % Change (CC) | | :-------------------------- | :----------------- | :-------------------- | :------------------- | :------------------------ | | Research Publishing & Platforms | $697,640 | +3% | $237,430 | +6% | | Academic & Professional Learning | $500,861 | -3% | $125,579 | -20% | | Education Services | $158,365 | +51% | $8,843 | (Favorable $9.7M) | - Research Publishing & Platforms revenue growth was primarily due to continued growth in Open Access article volume. The segment signed 10 new society contracts and renewed 73[178][180] - Academic & Professional Learning organic revenue declined 6% (constant currency) due to the continued decline in book publishing[182] - Education Services revenue increase was mainly driven by a $40.0 million increase in online program management revenue (including Learning House acquisition) and a $4.5 million contribution from the mthree acquisition[185] FISCAL YEAR 2020 OUTLOOK This section presents the company's financial projections and expectations for fiscal year 2020 Fiscal Year 2020 Outlook (in millions, except Adjusted EPS) | Item | FY 2019 Actual | FY 2020 Outlook (Original) | FX Impact | mthree Impact | Q3 Update (Includes FX and mthree) | | :---------------- | :------------- | :------------------------- | :-------- | :------------ | :--------------------------------- | | Revenue | $1,800 | $1,855 - $1,885 | $(17) | $20 | Reaffirmed | | Adjusted EBITDA | $388 | $357 - $372 | $(5) | $(2) | Reaffirmed | | Adjusted EPS | $2.96 | $2.35 - $2.45 | $(0.06) | $(0.07) | Raised, $2.45 - $2.55 | | Free Cash Flow | $149 | $210 - $230 | $(5) | $(2) | Reaffirmed | - In fiscal year 2021, mthree is expected to achieve double-digit revenue growth and be modestly positive for Adjusted EBITDA, but dilutive to Adjusted EPS[189] LIQUIDITY AND CAPITAL RESOURCES This section discusses the company's ability to generate and manage cash to meet its financial obligations and growth initiatives Principal Sources of Liquidity This section identifies the primary means by which the company obtains cash to fund its operations and investments - The company believes operating cash flow, revolving credit facilities, and other debt financing will be adequate for future operating, investing, and financing needs[192] - As of January 31, 2020, the company had $117.4 million in cash and cash equivalents, with 80% located outside the U.S. It had $797.4 million of debt outstanding and $701.4 million of unused borrowing capacity under its Amended and Restated RCA[193][195] Analysis of Historical Cash Flow This section reviews the company's past cash flow performance from operating, investing, and financing activities Cash Flow Summary (9 Months Ended Jan 31, in thousands) | Activity | 2020 | 2019 | | :------------------------------------ | :----------- | :----------- | | Net Cash Provided By Operating Activities | $88,887 | $52,144 | | Net Cash Used In Investing Activities | $(285,884) | $(263,628) | | Net Cash Provided by Financing Activities | $220,882 | $180,976 | Free Cash Flow less Product Development Spending (9 Months Ended Jan 31, in thousands) | Metric | 2020 | 2019 | | :------------------------------------ | :----------- | :----------- | | Net Cash Provided By Operating Activities | $88,887 | $52,144 | | Less: Additions to Technology, Property and Equipment | $(65,924) | $(49,988) | | Less: Product Development Spending | $(17,770) | $(18,787) | | Free Cash Flow less Product Development Spending | $5,193 | $(16,631) | Net Cash Used In Operating Activities This section details the cash generated or used by the company's core business operations - Net cash provided by operating activities increased by $36.8 million to $88.9 million for the nine months ended January 31, 2020, primarily due to working capital changes, including timing of collections and lower retirement plan contributions[200][201] - Negative working capital was $281.4 million as of January 31, 2020, primarily driven by unearned contract liabilities from advance cash collections for subscriptions[201] Net Cash Used In Investing Activities This section outlines the cash flows related to the company's investments in assets and acquisitions - Net cash used in investing activities increased by $22.3 million to $285.9 million for the nine months ended January 31, 2020, primarily due to $15.9 million in additions to technology, property, and equipment, and $10.2 million more cash used for business acquisitions (mthree, zyBooks, Knewton)[204] Net Cash Provided By Financing Activities This section describes the cash flows associated with debt, equity, and dividend transactions - Net cash provided by financing activities increased by $39.9 million to $220.9 million for the nine months ended January 31, 2020, mainly due to a $46.1 million increase in net borrowings for acquisitions[205] - The company repurchased 757,217 shares of Class A Common stock for $46.22 average price and increased its quarterly dividend by 3% to $1.36 per share annualized[206] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, primarily related to interest rates, foreign exchange, and credit risk, and outlines its strategies for managing these exposures, including the use of derivative financial instruments and monitoring customer credit Market Risk This section identifies and quantifies the company's exposure to various market risks, including interest rate and foreign exchange fluctuations - The company is exposed to market risk from interest rates, foreign exchange, and credit risk, and uses derivative financial investments and/or insurance contracts to reduce fluctuations in earnings and cash flows, not for trading or speculative purposes[208] Interest Rates This section analyzes the company's sensitivity to changes in interest rates on its debt obligations - A hypothetical one percent change in interest rates for the $598.2 million of unhedged variable rate debt as of January 31, 2020, would affect net income and cash flow by approximately $4.5 million annually[210] Foreign Exchange Rates This section discusses the impact of currency fluctuations on the company's financial results - Fluctuations in British pound sterling, euros, Canadian and Australian dollars, and certain Asian currencies significantly impact financial results due to non-U.S. operations[211] Foreign Currency Translation Adjustment (in millions) | Period | 3 Months Ended Jan 31, 2020 | 3 Months Ended Jan 31, 2019 | 9 Months Ended Jan 31, 2020 | 9 Months Ended Jan 31, 2019 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Foreign Currency Translation Gains (Losses) | $7.9 | $17.5 | $10.7 | $(43.2) | Sales Return Reserves This section explains the company's accounting for estimated sales returns, particularly for print books - The estimated allowance for print book sales returns is based on historical patterns and market trends. A one percent change in the estimated sales return rate could affect net income by approximately $1.0 million[215][216] Print Book Sales Return Reserve Net Liability Balance (in thousands) | Account | Jan 31, 2020 | Apr 30, 2019 | | :-------------------------- | :----------- | :----------- | | Increase in Inventories, net | $9,929 | $3,739 | | Decrease in Accrued royalties | $(5,607) | $(3,653) | | Increase in Contract liabilities | $40,477 | $25,934 | | Net liability balance | $(24,941) | $(18,542) | Customer Credit Risk This section assesses the risk associated with customer non-payment and the company's mitigation strategies - Journal subscriptions are primarily sourced through agents, with cash collected in advance and remitted between December and April. One affiliated group of subscription agents accounts for approximately 10% of total annual consolidated revenue[217] - The top 10 book customers account for approximately 15% of total annual consolidated revenue and 29% of accounts receivable as of January 31, 2020. The company maintains $25 million of trade credit insurance[218][219] Disclosure of Certain Activities Relating to Iran This section discloses the company's limited business activities involving Iran and compliance with sanctions - The company recorded an immaterial amount of revenue and net earnings from sales of scientific and medical content to certain publicly funded Iranian entities, believing it is in compliance with sanctions regulations and intends to continue these sales[220] Item 4. Controls and Procedures The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of January 31, 2020. The company is integrating newly acquired businesses (Zyante, mthree) into its internal control over financial reporting and is implementing a new global ERP system, which is expected to enhance processes without adversely affecting internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of January 31, 2020[221] - Zyante (acquired July 2019) and mthree (acquired January 2020) were excluded from the scope of management's report on internal control over financial reporting for the nine months ended January 31, 2020, but will be integrated for the fiscal years ending April 30, 2020, and April 30, 2021, respectively[222][223] - The company is implementing a new global ERP system to enhance business and financial processes, updating internal controls as necessary, and does not expect an adverse effect on internal control over financial reporting[224][225] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings There have been no significant developments related to legal proceedings during the three months ended January 31, 2020 - No significant developments in legal proceedings occurred during the three months ended January 31, 2020[227] Item 1a. Risk Factors The company's business, results of operations, and financial condition may be adversely affected by global public health epidemics, including the COVID-19 outbreak, which could interfere with the ability of employees, contractors, customers, and partners to perform their responsibilities. The extent of this impact remains uncertain - Global public health epidemics, including COVID-19, pose a risk to the company's business, potentially interfering with employees, contractors, customers, and partners, and the extent of this impact is uncertain[228] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended January 31, 2020, the company repurchased 205,370 shares of Class A Common Stock at an average price of $48.69 under its stock repurchase program Class A Common Stock Repurchases (3 Months Ended Jan 31, 2020) | Month | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------ | :----------------------------- | :--------------------------- | | November 2019 | — | $— | | December 2019 | 165,000 | $48.81 | | January 2020 | 40,370 | $48.22 | | Total | 205,370 | $48.69 | Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications, XBRL documents, and other required filings - The exhibits include certifications from the CEO and CFO (Sections 302 and 1350 of Sarbanes-Oxley Act) and various Inline XBRL documents[233] SIGNATURES This section includes the official signatures of the company's authorized officers, certifying the report's filing SIGNATURES This section contains the signatures of the company's authorized officers, including the President and Chief Executive Officer, Executive Vice President and Chief Financial Officer, and Senior Vice President, Corporate Controller and Chief Accounting Officer, certifying the filing of the report - The report is signed by Brian A. Napack (President and CEO), John A. Kritzmacher (EVP and CFO), and Christopher F. Caridi (SVP, Corporate Controller and Chief Accounting Officer)[235]