John Wiley & Sons(WLYB) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company reported a 2% revenue increase to $431.3 million and net income of $16.3 million for the quarter Condensed Consolidated Statements of Financial Position Total assets decreased to $3.07 billion, liabilities to $2.10 billion, and equity rose to $973.7 million Condensed Consolidated Statements of Financial Position (Unaudited, in thousands) | Account | July 31, 2020 ($ in thousands) | April 30, 2020 ($ in thousands) | | :--- | :--- | :--- | | Total Current Assets | $488,003 | $614,927 | | Total Assets | $3,068,946 | $3,168,794 | | Total Current Liabilities | $716,136 | $927,269 | | Total Liabilities | $2,095,201 | $2,235,170 | | Total Shareholders' Equity | $973,745 | $933,624 | Condensed Consolidated Statements of Income Revenue increased to $431.3 million, operating income surged to $30.0 million, leading to $16.3 million net income Condensed Consolidated Statements of Income (Unaudited, in thousands, except per share data) | Metric | Three Months Ended July 31, 2020 | Three Months Ended July 31, 2019 | | :--- | :--- | :--- | | Revenue, net | $431,326 | $423,530 | | Operating Income | $30,039 | $4,559 | | Net Income | $16,334 | $3,624 | | Diluted EPS | $0.29 | $0.06 | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $120.8 million, investing $28.3 million, and financing provided $43.5 million Cash Flow Summary (Unaudited, in thousands) | Cash Flow Activity | Three Months Ended July 31, 2020 ($ in thousands) | Three Months Ended July 31, 2019 ($ in thousands) | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | $(120,783) | $(94,168) | | Net Cash Used In Investing Activities | $(28,280) | $(105,892) | | Net Cash Provided By Financing Activities | $43,484 | $213,333 | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting standards, mthree acquisition, restructuring charges, and effective tax rate changes - The company adopted a new standard for measuring credit losses on financial instruments (ASU 2016-13) on May 1, 2020, resulting in a cumulative effect adjustment to retained earnings of $1.776 million[29][30][33] - The acquisition of mthree in January 2020 for $128.6 million contributed $12.4 million in revenue for the quarter and added $82.6 million in goodwill to the Education Services segment[39][40][41] - The company initiated a multi-year Business Optimization Program in fiscal year 2020, incurring $2.2 million in restructuring charges for the quarter, with total charges to date of $35.0 million[79] - The effective tax rate for the quarter was 45.1%, up from 8.6% in the prior year, primarily due to a $6.7 million non-cash deferred tax expense from the re-measurement of UK deferred tax liabilities after a statutory rate increase from 17% to 19%[93][94] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A reports 2% revenue growth, substantial income increase, no FY2021 outlook, and adequate liquidity Consolidated Operating Results Consolidated revenue rose 2% to $431.3 million, operating income surged to $30.0 million, and adjusted EPS was $0.42 Q1 FY2021 vs Q1 FY2020 Performance | Metric | Q1 FY2021 ($) | Q1 FY2020 ($) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $431.3M | $423.5M | +2% | | Operating Income | $30.0M | $4.6M | +559% | | Diluted EPS | $0.29 | $0.06 | +383% | | Adjusted EPS | $0.42 | $0.21 | +100% | - Revenue growth was primarily driven by acquisitions; on an organic, constant currency basis, revenue decreased 1%[118] - Operating and administrative expenses decreased by $12.8 million (5%), reflecting lower discretionary spending and employee-related costs[121] Segment Operating Results Research and Education Services saw revenue growth, while Academic & Professional Learning declined due to market impacts - Research Publishing & Platforms: Revenue increased 6% (constant currency) to $240.8 million, with Adjusted EBITDA up 19% to $89.3 million, driven by Open Access growth and lower spending[135][136][137] - Academic & Professional Learning: Revenue decreased 12% to $126.9 million, with Adjusted EBITDA down 23% (constant currency) to $18.5 million, due to print declines and COVID-19 impacts[138][139][140] - Education Services: Revenue grew 29% to $63.6 million, driven by the mthree acquisition, with organic revenue growth of 4% and Adjusted EBITDA of $8.0 million[142][144][145] Fiscal Year 2021 Outlook No specific FY2021 outlook due to COVID-19 uncertainty, with cost reductions and dividend increase planned - The company has not provided a specific fiscal year 2021 outlook due to uncertainty surrounding the COVID-19 pandemic's impact[149] - Cost reduction initiatives are underway, including executive pay cuts, discretionary spending controls, and a review of the real estate portfolio[150][151] - Capital allocation plans for FY2021 include capex of ~$100 million, a dividend increase for the 27th consecutive year, and a temporary suspension of share repurchases[151] Liquidity and Capital Resources The company maintains adequate liquidity with $101.4 million cash and $648.1 million unused credit - As of July 31, 2020, the company had $101.4 million in cash and cash equivalents and $648.1 million of unused borrowing capacity under its credit facilities[153][155] Free Cash Flow less Product Development Spending (in thousands) | Metric | Three Months Ended July 31, 2020 ($ in thousands) | Three Months Ended July 31, 2019 ($ in thousands) | | :--- | :--- | :--- | | Net Cash Used In Operating Activities | $(120,783) | $(94,168) | | Less: Additions to Technology, Property and Equipment | $(18,964) | $(24,202) | | Less: Product Development Spending | $(5,325) | $(6,211) | | Free Cash Flow less Product Development Spending | $(145,072) | $(124,581) | - The increase in cash used in operating activities was primarily due to the timing of payments for accounts payable, royalties, and income taxes[160][161] Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate, foreign exchange, and credit risks, with derivatives used for hedging - A hypothetical one percent change in interest rates on the $547.3 million of unhedged variable rate debt would affect net income by approximately $4.3 million annually[169] - The company is primarily exposed to foreign exchange rate fluctuations in the British pound sterling, euro, Canadian and Australian dollars[170] - Significant customer credit risk exists with journal subscription agents, who account for ~20% of annual revenue, and with the top 10 book customers, who account for ~15% of revenue[176][177] Controls and Procedures Disclosure controls were effective, with ongoing integration of mthree and new ERP system implementation - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[179] - The company is in the process of integrating the acquisition of mthree into its overall internal control over financial reporting[180] PART II - OTHER INFORMATION Legal Proceedings No significant developments in legal proceedings occurred during the quarter - No significant developments in legal proceedings occurred during the quarter[184] Risk Factors The company refers to risk factors detailed in its Annual Report on Form 10-K - The company refers to the risk factors disclosed in its Annual Report on Form 10-K for the fiscal year ended April 30, 2020[185] Unregistered Sales of Equity Securities and Use of Proceeds No share repurchases were conducted during the three months ended July 31, 2020 - There were no share repurchases during the three months ended July 31, 2020[186] Exhibits This section lists various exhibits filed, including incentive plans and officer certifications - Lists various exhibits filed with the report, including executive compensation plans and officer certifications[190]