John Wiley & Sons(WLYB) - 2020 Q4 - Annual Report

PART I Business Overview John Wiley & Sons, Inc., a global research and education company, realigned into three segments in FY2020: Research Publishing & Platforms, Academic & Professional Learning, and Education Services, with 44% of revenue from outside the U.S. - The company reorganized into three new reportable segments: Research Publishing & Platforms, Academic & Professional Learning, and Education Services[20] FY 2020 Revenue and Margin by Segment | Segment | % of Consolidated Revenue | Adjusted EBITDA Margin | | :--- | :--- | :--- | | Research Publishing & Platforms | ~52% | 35.3% | | Academic & Professional Learning | ~35% | 23.7% | | Education Services | ~13% | 8.7% | - Key growth strategies involve driving volume from existing brands, developing new digital products, securing new university partners for online programs, and making strategic acquisitions[24] Research Publishing & Platforms This segment, representing 52% of FY2020 revenue, publishes academic journals and provides the Atypon platform, focusing on journal subscriptions, open access, and comprehensive 'read and publish' agreements - The segment publishes approximately 1,675 academic journals, with about 50% of subscription revenue from partnerships with professional societies[25][26] - The company is expanding Open Access offerings, including Hybrid Open Access and fully open access (Gold) journals, funded by Article Publication Charges (APC)[32][34][35] - Significant comprehensive "read and publish" agreements have been established with consortia in the U.K. (Jisc) and Germany (Projekt DEAL), shifting revenue models to combined fees[36][37] Academic & Professional Learning This segment, accounting for 35% of FY2020 revenue, offers educational and professional content, digital courseware, and corporate training, while managing print revenue decline and focusing on digital growth - The segment actively manages print revenue decline by realigning cost structure, rationalizing its portfolio, and focusing on digital opportunities[40] - Recent acquisitions like Zyante, Inc. (zyBooks) and Knewton's alta™ technology enhance digital learning offerings in STEM and adaptive learning[52] - Corporate Training services include branded assessment solutions like Everything DiSC® and The Five Behaviors®, and online learning modules via the Cross Knowledge platform[58][59] Education Services This segment, comprising 13% of FY2020 revenue, delivers online program management for higher education and talent placement services through the mthree acquisition - The Education Services business had 69 university partners under contract as of April 30, 2020, offering market research, student recruitment, and course design services[62] - On January 1, 2020, Wiley acquired mthree, an education services provider that sources, trains, and places technology talent with corporations[64] Risk Factors The company faces significant risks from the COVID-19 pandemic, market shifts to digital, IT dependence, data privacy regulations, acquisition integration challenges, customer concentration, and regulatory changes like open access mandates - The COVID-19 pandemic negatively impacted business, causing declines in print book sales, test prep, corporate training, and delays in journal subscription renewals and customer payments[71][72][75] - The market shift to digital content and demand for lower-priced products, alongside efficient used and rental textbook markets, could adversely affect sales volumes and pricing[78][79][80] - Significant customer concentration risk exists, with subscription agents accounting for approximately 20% of total annual revenue (one group representing 10%), and the top 10 book customers accounting for 12% of revenue[85][86][87] - Acquisitions carry integration difficulties and the risk of failing to realize expected benefits, with $1.12 billion in goodwill and $807.4 million in intangible assets subject to impairment risk[96][97] - Regulatory changes, including "open access" publishing mandates and Brexit effects, could adversely impact financial results[111][113] Properties The company operates global office, warehouse, and distribution facilities, including leased headquarters in New Jersey and distribution centers in England, alongside owned offices in England and Germany Key Properties | Location | Purpose | Ownership | Approx. Sq. Ft. | | :--- | :--- | :--- | :--- | | New Jersey, US | Corporate Headquarters | Leased | 294,000 | | England, UK | Distribution Centers | Leased | 298,000 | | England, UK | Offices | Owned | 70,000 | | Germany | Office | Owned | 104,000 | Legal Proceedings The company is involved in routine litigation, which management expects will not materially impact its financial position or results of operations - Pending litigation is routine and not expected to have a material impact on the company's financial condition[125] Information About Our Executive Officers This section details the current executive officers, including Brian A. Napack (President and CEO) and John A. Kritzmacher (EVP, CFO), with their respective roles and election dates - Brian A. Napack, age 58, has served as President and Chief Executive Officer since December 2017[129] - John A. Kritzmacher, age 59, serves as Executive Vice President, Chief Financial Officer, and Interim Chief Accounting Officer[129] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A and B shares are listed on the NYSE, with the Board considering quarterly dividends and approving a $200 million share repurchase program in FY2020 - A new $200 million share repurchase program was approved by the Board of Directors during the fiscal year ended April 30, 2020[132] Share Repurchases in Q4 FY 2020 | Month | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | February 2020 | — | — | | March 2020 | 325,000 | $35.66 | | April 2020 | — | — | Selected Financial Data This section provides a five-year financial summary, noting FY2020 revenue of $1.83 billion, an operating loss of $54.3 million, and a net loss of $74.3 million, primarily due to $202.3 million in impairment charges Selected Financial Data (Years Ended April 30, in millions, except per share data) | | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue, net | $1,831.5 | $1,800.1 | $1,796.1 | | Impairment of goodwill and intangible assets | $202.3 | $— | $3.6 | | Operating (Loss) Income | $(54.3) | $224.0 | $231.5 | | Net (Loss) Income | $(74.3) | $168.3 | $192.2 | | Diluted (Loss) Earnings Per Share | $(1.32) | $2.91 | $3.32 | | Cash Dividends (Class A) | $1.36 | $1.32 | $1.28 | - The company's negative working capital is primarily driven by unearned contract liabilities from advance cash collections for subscriptions[140] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses FY2020 financial performance, noting 2% revenue growth to $1.83 billion, a GAAP net loss due to impairment charges, 19% Adjusted EPS decline, and the withdrawal of the FY2021 outlook amid COVID-19 uncertainty Results of Operations (FY 2020 vs. FY 2019) FY2020 revenue grew 2% to $1.83 billion, but a $54.3 million GAAP operating loss resulted from $202.3 million in impairment charges, leading to a 19% decrease in Adjusted EPS to $2.40 - The COVID-19 pandemic negatively impacted Q4 revenue by an estimated $30-$35 million and EPS by $0.15-$0.20 per share[145] - The company recorded non-cash impairment charges totaling $202.3 million, including $110.0 million for Education Services goodwill and $92.3 million for intangible assets (primarily the Blackwell trademark)[151][153][154] GAAP vs. Non-GAAP EPS Reconciliation (FY 2020) | Metric | Amount | | :--- | :--- | | U.S. GAAP Loss Per Share | $(1.32) | | Impairment Adjustments | $3.29 | | Restructuring Charges | $0.43 | | Other Adjustments | $0.00 | | Non-GAAP Adjusted EPS | $2.40 | Results of Operations (FY 2019 vs. FY 2018) FY2019 revenue was flat at $1.80 billion (up 2% constant currency), driven by the Learning House acquisition, while operating income decreased 3% to $224.0 million, and Adjusted EPS fell 14% to $2.96 - Revenue growth was primarily driven by the acquisition of Learning House, which contributed $31.5 million[180] - Adjusted EPS decreased 8% on a constant currency basis, impacted by lower Adjusted Operating Income and a $0.15 per share dilutive effect from the Learning House acquisition[197] Fiscal Year 2021 Outlook Due to COVID-19 uncertainty, the company withdrew its FY2021 outlook and FY2022 targets, anticipating continued pressure and implementing cost-saving measures including pay reductions and suspended share repurchases - The company withdrew its FY2021 outlook and 2022 targets due to limited visibility from the COVID-19 pandemic[212] - Cost mitigation efforts include six-month base pay reductions for the CEO (30%), Executive Leadership Team (15%), and Board of Directors (30% of cash retainer)[215] - Share repurchases were temporarily suspended as of April 9, 2020, due to market uncertainty[216] Liquidity and Capital Resources The company maintains strong liquidity with $202.5 million cash and $722.3 million unused borrowing capacity, as net cash from operations increased to $288.4 million in FY2020 Key Liquidity Metrics (as of April 30, 2020) | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $202.5 | | Debt outstanding | $775.1 | | Unused borrowing capacity | $722.3 | Cash Flow Summary (Years Ended April 30, in millions) | Cash Flow | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $288.4 | $250.8 | $382.3 | | Net Cash Used in Investing Activities | $(346.7) | $(301.5) | $(177.4) | | Net Cash from (Used in) Financing Activities | $172.7 | $(17.6) | $(96.8) | - Free Cash Flow less Product Development Spending increased to $173.2 million in FY2020, up from $149.2 million in FY2019[227] Critical Accounting Policies and Estimates This section outlines critical accounting policies, including sales return reserves, acquisition purchase price allocation, and impairment testing, noting $110.0 million goodwill impairment and $89.5 million trademark impairment in FY2020 - Goodwill impairment testing is performed annually using income and market approaches, with key assumptions including forecasted revenues, operating cash flows, and discount rates[255][256] - A goodwill impairment of $110.0 million was recorded for the Education Services reporting unit due to underperformance and COVID-19 headwinds[258] - A non-cash impairment charge of $89.5 million was recorded for the Blackwell trademark, reflecting a strategic decision to unify research journal content under the Wiley brand[267] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign exchange (with 44% of FY2020 revenue from non-U.S. sources), and customer credit concentration, utilizing derivatives to hedge exposures - Non-U.S. dollar revenues constituted 44% of total consolidated revenues in FY2020, primarily in British pound sterling (26%) and euro (10%)[276] - The company faces customer credit risk concentration, with subscription agents representing approximately 20% of annual revenue and the top 10 book customers accounting for about 12% of annual revenue[280][281] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2020, including the independent auditor's report, key financial statements, and detailed notes on accounting policies, acquisitions, and segment information - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[296][297] - Critical Audit Matters included evaluating revenue recognition across IT systems, valuing intangible assets from mthree and Zyante acquisitions, and assessing the fair value of the Education Services reporting unit for goodwill impairment[301][303][306][311] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of April 30, 2020, excluding the mthree acquisition from the FY2020 assessment - Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of April 30, 2020[586][587] - The mthree acquisition in FY2020 was excluded from the scope of management's assessment of internal control over financial reporting[589] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance practices is incorporated by reference from the company's 2020 Annual Meeting of Shareholders proxy statement - Information on directors and corporate governance is incorporated by reference from the 2020 Proxy Statement[594][595] Executive Compensation Details regarding executive and director compensation are incorporated by reference from the company's 2020 Proxy Statement - Details on executive and director compensation are incorporated by reference from the 2020 Proxy Statement[596] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2020 Proxy Statement, with 3,501,116 securities available for future issuance under equity plans - Information on security ownership is incorporated by reference from the 2020 Proxy Statement[597] Equity Compensation Plan Information (as of April 30, 2020) | Plan Category | Securities to be Issued Upon Exercise | Weighted Average Exercise Price | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 1,228,430 | $50.14 | 3,501,116 | Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's 2020 Proxy Statement - Details on related transactions and director independence are incorporated by reference from the 2020 Proxy Statement[602][603] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the company's 2020 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2020 Proxy Statement[604] PART IV Exhibits, Financial Statement Schedules This section provides an index of financial statements, schedules, and exhibits filed with the Annual Report on Form 10-K, including auditor consent and CEO/CFO certifications - This item provides an index of all financial statements, schedules, and exhibits filed with the 10-K report[605][606]