JOHN WILEY & SONS, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
July 31, 2022
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from_____ to _____
Commission File No.
001-11507
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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Zip Code
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(
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Registrant’s telephone number, including area code
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Not Applicable
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Former name, former address and former fiscal year, if changed since last report
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Accelerated filer
☐
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Non-accelerated filer
☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
The number of shares outstanding of each of the Registrant’s classes of common stock as of August 31, 2022 were:
Class A, par value $1.00 –
46,673,476
Class B, par value $1.00 –
9,029,198
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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5
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6
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7
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8
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9
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Notes to Unaudited Condensed Consolidated Financial Statements
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10
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10
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11
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12
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15
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17
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18
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19
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23
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24
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25
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27
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Item 2.
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28
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Item 3.
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40
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Item 4.
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41
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PART II
-
OTHER INFORMATION
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Item 1.
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42
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Item 1A.
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42
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Item 2.
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42
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Item 6.
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43
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44
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Cautionary Notice Regarding Forward-Looking Statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition and results of operations. The Securities and Exchange Commission (SEC) encourages companies to disclose forward-looking information so that investors can better understand a company’s prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by such words as “anticipates,” “believes,” “plan,” “assumes,” “could,” “should,” “estimates,” “expects,” “intends,” “potential,” “seek,” “predict,” “may,” “will” and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding our fiscal year 2023 outlook, the anticipated impact on the ability of our employees, contractors, customers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business in the future due to the coronavirus (COVID-19) outbreak, anticipated restructuring charges and savings, operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those described in any forward-looking statements. Any such forward-looking statements are based upon many assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond our control, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment by Wiley in new technologies and products; (ii) subscriber renewal rates for our journals; (iii) the financial stability and liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key retailers; (vi) the seasonal nature of our educational business and the impact of the used book market; (vii) worldwide economic and political conditions; (viii) our ability to protect our copyrights and other intellectual property worldwide; (ix) our ability to successfully integrate acquired operations and realize expected opportunities; (x) the ability to realize operating savings over time and in fiscal year 2023 in connection with our multiyear Business Optimization Program and our Fiscal Year 2023 Restructuring Program; (xi) the impact of COVID-19 on our operations, performance, and financial condition; and (xii) other factors detailed from time to time in our filings with the SEC. We undertake no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.
Please refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and as revised and updated by our Quarterly Reports in Form 10-Q for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Non-GAAP Financial Measures:
We present financial information that conforms to Generally Accepted Accounting Principles in the United States of America (US GAAP). We also present financial information that does not conform to US GAAP, which we refer to as non-GAAP.
In this report, we may present the following non-GAAP performance measures:
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Adjusted Earnings Per Share (Adjusted EPS);
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Free Cash Flow less Product Development Spending;
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Adjusted Contribution to Profit and margin;
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Adjusted Operating Income and margin;
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Adjusted Income Before Taxes;
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Adjusted Income Tax Provision;
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Adjusted Effective Tax Rate;
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EBITDA, Adjusted EBITDA and margin;
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Organic revenue; and
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Results on a constant currency basis.
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Management uses these non-GAAP performance measures as supplemental indicators of our operating performance and financial position as well as for internal reporting and forecasting purposes, when publicly providing our outlook, to evaluate our performance and calculate incentive compensation. We present these non-GAAP performance measures in addition to US GAAP financial results because we believe that these non-GAAP performance measures provide useful information to certain investors and financial analysts for operational trends and comparisons over time. The use of these non-GAAP performance measures may also provide a consistent basis to evaluate operating profitability and performance trends by excluding items that we do not consider to be controllable activities for this purpose.
The performance metric used by our chief operating decision maker to evaluate performance of our reportable segments is Adjusted Contribution to Profit. We present both Adjusted Contribution to Profit and Adjusted EBITDA for each of our reportable segments as we believe Adjusted EBITDA provides additional useful information to certain investors and financial analysts for operational trends and comparisons over time. It removes the impact of depreciation and amortization expense, as well as presents a consistent basis to evaluate operating profitability and compare our financial performance to that of our peer companies and competitors.
For example:
| ● |
Adjusted EPS, Adjusted Contribution to Profit, Adjusted Operating Income, Adjusted Income Before Taxes, Adjusted Income Tax Provision, Adjusted Effective Tax Rate, Adjusted EBITDA, and organic revenue (excluding acquisitions) provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance.
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Free Cash Flow less Product Development Spending helps assess our ability, over the long term, to create value for our shareholders as it represents cash available to repay debt, pay common stock dividends, and fund share repurchases and acquisitions.
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Results on a constant currency basis remove distortion from the effects of foreign currency movements to provide better comparability of our business trends from period to period. We measure our performance excluding the impact of foreign currency (or at constant currency), which means that we apply the same foreign currency exchange rates for the current and equivalent prior period.
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In addition, we have historically provided these or similar non-GAAP performance measures and understand that some investors and financial analysts find this information helpful in analyzing our operating margins and net income, and in comparing our financial performance to that of our peer companies and competitors. Based on interactions with investors, we also believe that our non-GAAP performance measures are regarded as useful to our investors as supplemental to our US GAAP financial results, and that there is no confusion regarding the adjustments or our operating performance to our investors due to the comprehensive nature of our disclosures. We have not provided our 2023 outlook for the most directly comparable US GAAP financial measures, as they are not available without unreasonable effort due to the high variability, complexity, and low visibility with respect to certain items, including restructuring charges and credits, gains and losses on foreign currency, and other gains and losses. These items are uncertain, depend on various factors, and could be material to our consolidated results computed in accordance with US GAAP.
Non-GAAP performance measures do not have standardized meanings prescribed by US GAAP and therefore may not be comparable to the calculation of similar measures used by other companies and should not be viewed as alternatives to measures of financial results under US GAAP. The adjusted metrics have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, US GAAP information. It does not purport to represent any similarly titled US GAAP information and is not an indicator of our performance under US GAAP. Non-GAAP financial metrics that we present may not be comparable with similarly titled measures used by others. Investors are cautioned against placing undue reliance on these non-GAAP measures.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
In thousands
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July 31, 2022
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April 30, 2022
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Assets:
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Current assets
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Cash and cash equivalents
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$
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$
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Accounts receivable, net of allowance for credit losses of $
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Inventories, net
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Prepaid expenses and other current assets
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Total current assets
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Technology, property and equipment, net
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Intangible assets, net
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Goodwill
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Operating lease right-of-use assets
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Other non-current assets
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Total assets
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$
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$
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Liabilities and shareholders' equity:
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Current liabilities
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Accounts payable
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$
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$
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Accrued royalties
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Short-term portion of long-term debt
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Contract liabilities
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Accrued employment costs
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Short-term portion of operating lease liabilities
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Other accrued liabilities
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Total current liabilities
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Long-term debt
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Accrued pension liability
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Deferred income tax liabilities
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Operating lease liabilities
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Other long-term liabilities
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Total liabilities
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Shareholders’ equity
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Preferred stock, $
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Class A common stock, $
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Class B common stock, $
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Additional paid-in-capital
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Retained earnings
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Accumulated other comprehensive loss, net of tax
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(
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)
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(
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)
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Less treasury shares at cost (Class A –
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(
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)
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(
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)
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||||
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Total shareholders’ equity
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||||||
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Total liabilities and shareholders' equity
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$
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$
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|
||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
Dollars in thousands except per share information
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Three Months Ended
July 31,
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2022
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2021
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Revenue, net
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$
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$
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Costs and expenses
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Cost of sales
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Operating and administrative expenses
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||||||
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Restructuring and related charges (credits)
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(
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)
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|||||
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Amortization of intangible assets
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Total costs and expenses
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||||||
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Operating (loss) income
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(
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)
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|||||
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Interest expense
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(
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)
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(
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)
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||||
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Foreign exchange transaction (losses) gains
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(
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)
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|||||
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Gain on sale of certain assets
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Other income, net
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||||||
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(Loss) income before taxes
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(
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)
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|
|||||
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(Benefit) Provision for income taxes
|
(
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)
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|
|||||
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Net (loss) income
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$
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(
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)
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$
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|||
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(Loss) Earnings per share:
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||||||||
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Basic
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$
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(
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)
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$
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Diluted
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$
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(
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)
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$
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Weighted average number of common shares outstanding:
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Basic
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Diluted
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See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
Dollars in thousands
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Three Months Ended
July 31,
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2022
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2021
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|||||||
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Net (loss) income
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$
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(
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)
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$
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Other comprehensive (loss) income:
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Foreign currency translation adjustment
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(
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)
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(
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)
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||||
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Unamortized retirement credits, net of tax (expense) of $(
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||||||
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Unrealized (loss) gain on interest rate swaps, net of tax benefit (expense) of $
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(
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)
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|||||
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Total other comprehensive loss
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(
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)
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(
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)
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||||
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Comprehensive (loss) income
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$
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(
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)
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$
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|||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
Dollars in thousands
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Three Months Ended
July 31,
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2022
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2021
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Operating activities
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Net (loss) income
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$
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(
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)
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$
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|||
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Adjustments to reconcile net income to net cash used in operating activities:
|
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Amortization of intangible assets
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Amortization of product development assets
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Depreciation and amortization of technology, property and equipment
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Restructuring and related charges (credits)
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(
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)
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Stock-based compensation expense
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Employee retirement plan expense
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Foreign exchange transaction losses (gains)
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(
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)
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Gain on sale of certain assets
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(
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)
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|||||
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Other noncash (credits) charges
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(
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)
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|||||
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Net change in operating assets and liabilities
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(
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)
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(
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)
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||||
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Net cash used in operating activities
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(
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)
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(
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)
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||||
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Investing activities
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Product development spending
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(
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)
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(
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)
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||||
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Additions to technology, property and equipment
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(
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)
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(
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)
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||||
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Businesses acquired in purchase transactions, net of cash acquired
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(
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)
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(
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)
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Proceeds related to the sale of certain assets
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||||||
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Acquisitions of publication rights and other
|
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(
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)
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|||||
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Net cash used in investing activities
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(
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)
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(
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)
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||||
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Financing activities
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||||||||
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Repayments of long-term debt
|
(
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)
|
(
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)
|
||||
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Borrowings of long-term debt
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|
||||||
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Purchases of treasury shares
|
(
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)
|
(
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)
|
||||
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Change in book overdrafts
|
(
|
)
|
(
|
)
|
||||
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Cash dividends
|
(
|
)
|
(
|
)
|
||||
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Impact of tax withholding on stock-based compensation and other
|
(
|
)
|
(
|
)
|
||||
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Net cash provided by financing activities
|
|
|
||||||
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Effects of exchange rate changes on cash, cash equivalents, and restricted cash
|
(
|
)
|
(
|
)
|
||||
|
Cash reconciliation:
|
||||||||
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Cash and cash equivalents
|
|
|
||||||
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Restricted cash included in Prepaid expenses and other current assets
|
|
|
||||||
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Balance at beginning of period
|
|
|
||||||
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Increase/(decrease) for the period
|
|
(
|
)
|
|||||
|
Cash and cash equivalents
|
|
|
||||||
|
Restricted cash included in Prepaid expenses and other current assets
|
|
|
||||||
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Balance at end of period
|
$
|
|
$
|
|
||||
|
Cash paid during the period for:
|
||||||||
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Interest
|
$
|
|
$
|
|
||||
|
Income taxes, net of refunds
|
$
|
|
$
|
|
||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
JOHN WILEY & SONS, INC., AND SUBSIDIARIES
Dollars in thousands
|
|
Class A common stock
|
Class B common stock
|
Additional
paid-in capital
|
Retained
earnings
|
Accumulated other comprehensive loss, net of tax
|
Treasury stock
|
Total
shareholders' equity
|
|||||||||||||||||||||
|
Balance at April 30, 2022
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Restricted shares issued under stock-based compensation plans
|
|
|
(
|
)
|
|
|
|
|
||||||||||||||||||||
|
Impact of tax withholding on stock-based compensation and other
|
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchases of treasury shares
|
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Class A common stock dividends ($
|
|
—
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Class B common stock dividends ($
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Comprehensive loss, net of tax
|
|
|
|
(
|
)
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||
|
Balance at
July 31, 2022
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
|
Class A common stock
|
Class B common stock
|
Additional
paid-in capital
|
Retained
earnings
|
Accumulated other
comprehensive loss, net of tax
|
Treasury stock
|
Total
shareholders' equity
|
|||||||||||||||||||||
|
Balance at
April 30, 2021
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
|
Restricted shares issued under stock-based compensation plans
|
|
|
(
|
)
|
(
|
)
|
|
|
|
|||||||||||||||||||
|
Impact of tax withholding on stock-based compensation and other
|
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Stock-based compensation expense
|
|
|
|
|
|
|
|
|||||||||||||||||||||
|
Purchases of treasury shares
|
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||
|
Class A common stock dividends ($
|
|
—
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Class B common stock dividends ($
|
—
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||
|
Common stock class conversions
|
|
(
|
)
|
|
|
|
|
|
||||||||||||||||||||
|
Comprehensive income, net of tax
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||
|
Balance at
July 31, 2021
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||||||||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
.
JOHN WILEY & SONS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1
—
Basis of Presentation
Throughout this report, when we refer to “Wiley,” the “Company,” “we,” “our,” or “us,” we are referring to John Wiley & Sons, Inc. and all our subsidiaries, except where the context indicates otherwise.
Our Unaudited Condensed Consolidated Financial Statements include all the accounts of the Company and our subsidiaries. We have eliminated all intercompany transactions and balances in consolidation. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Unaudited Condensed Consolidated Financial Condition, Results of Operations, Comprehensive Income and Cash Flows for the periods presented. Operating results for the interim period are not necessarily indicative of the results expected for the full year. All amounts are in thousands, except per share amounts, and approximate due to rounding. These financial statements should be read in conjunction with the most recent audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022 as filed with the SEC on June 24, 2022 (2022 Form 10-K).
Our Unaudited Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the SEC. As permitted under those rules, annual footnotes or other financial information that are normally required by US GAAP have been condensed or omitted. The preparation of our Unaudited Condensed Consolidated Financial Statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to the current year’s presentation.
Note 2
—
Recent Accounting Standards
Recently Adopted Accounting Standards
Convertible Debt Instruments, Derivatives and EPS
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40)”. This ASU reduces the number of accounting models for convertible debt instruments and convertible preferred stock, as well as amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. In addition, this ASU improves and amends the related earnings-per-share (EPS) guidance. We adopted ASU 2020-06 on May 1, 2022. The adoption did not have an impact on our consolidated financial statements at the time of adoption.
Recently Issued Accounting Standards
Accounting for Contract Assets and Contract Liabilities from Contracts with Customers
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. This ASU requires that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 “Revenue from Contracts with Customers” (Topic 606) as if it had originated the contracts. Generally, this would result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements if the acquiree prepared financial statements in accordance with US GAAP. This standard is effective for us on May 1, 2023, including interim periods within the fiscal year. Early adoption is permitted. The standard is applied prospectively to business combinations occurring on or after the effective date of the amendments. The impact will be based on future business combinations after we adopt the standard.
Note 3
—
Acquisitions
Pro forma financial information related to these acquisitions has not been provided as it is not material to our consolidated results of operations.
Fiscal Year 2022
XYZ Media
On December 29, 2021, we completed the acquisition of certain assets of XYZ Media Inc. (XYZ Media). XYZ Media is a company that generates leads for higher education institutions. The results of XYZ Media are included in our Education Services segment results. The fair value of consideration transferred at the date of acquisition was $
45.4
million which included $
38.0
million of cash, and approximately
129
thousand shares of Wiley Class A common stock, or approximately $
7.4
million.
We financed the payment of the cash consideration with a combination of cash on hand and borrowings under our Amended and Restated RCA (as defined below in Note 15, “Debt and Available Credit Facilities”).
XYZ Media’s revenue and operating loss included in our Education Services segment results for the
three
months ended
July 31, 2022
was $
2.5
million and $
(
1.5
)
million, respectively.
During the three months ended July 31, 2022, no revisions were made to the allocation of the consideration transferred to the assets acquired and liabilities assumed.
We recorded the preliminary fair value of the assets acquired and liabilities assumed on the acquisition date, which included a preliminary allocation of $
22.2
million of goodwill allocated to the Education Services segment and $
22.7
million of intangible assets subject to amortization.
The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed is preliminary, and could be revised as a result of additional information obtained due to the finalization of the
third
-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables, but such amounts will be finalized within the measurement period, which will not exceed
one
year from the acquisition date.
Other Acquisitions in Fiscal Year
2022
On
November 30, 2021
, we acquired the assets of the eJournalPress business (EJP) from Precision Computer Works, Inc. EJP is a technology platform company with an established journal submission and peer review management system.
The results of EJP are included in our Research segment results.
On October 1, 2021, we completed the acquisition of certain assets of J&J Editorial Services, LLC. (J&J). J&J is a publishing services company providing expert offerings in editorial operations, production, copyediting, system support and consulting. The results of J&J are included in our Research segment results.
We also completed the acquisition of
two
immaterial business included in our Research segment and the acquisition of
one
immaterial business in our Education Services segment.
The aggregate preliminary fair value of consideration transferred for these other acquisitions was approximately $
41.2
million which included $
36.2
million of cash paid at the acquisition dates and $
5.0
million of additional cash to be paid after the acquisition dates. The fair value of the cash consideration transferred, net of $
1.2
million of cash acquired was approximately $
34.9
million.
The incremental revenue and operating loss included in the Research segment for the three months ended July 31, 2022 related to these other acquisitions was approximately $
4.6
million and $(
2.3
), respectively.
During the three months ended July 31, 2022, no revisions were made to the allocation of the consideration transferred to the assets acquired and liabilities assumed. Associated with these other acquisitions, we recorded the preliminary aggregate excess purchase price over identifiable net tangible and intangible assets acquired and
liabilities assumed, which included a preliminary allocation
of $
24.8
million of goodwill allocated to the Research segment and $
15.6
million of intangible assets subject to amortization.
No
goodwill was allocated to the Education Services segment.
The
allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed is preliminary, and could be revised as a result of additional information obtained due to the finalization of the
third
-party valuation report, leases and related commitments, tax related matters and contingencies and certain assets and liabilities, including receivables and payables, but such amounts will be finalized within the measurement period, which will not exceed
one
year from the acquisition dates.
Note 4
—
Revenue Recognition, Contracts with Customers
Disaggregation of Revenue
The following table presents our revenue from contracts with customers disaggregated by segment and product type.
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Research
(1)
:
|
||||||||
|
Research Publishing
(2)
|
$
|
|
$
|
|
||||
|
Research Solutions
(2)
|
|
|
||||||
|
Total Research
|
|
|
||||||
|
Academic & Professional Learning:
|
||||||||
|
Education Publishing
|
|
|
||||||
|
Professional Learning
|
|
|
||||||
|
Total Academic & Professional Learning
|
|
|
||||||
|
Education Services:
|
||||||||
|
University Services
(3)
|
|
|
||||||
|
Talent Development Services
(3)
|
|
|
||||||
|
Total Education Services
|
|
|
||||||
|
Total Revenue
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
| (3) |
|
The following information describes our disaggregation of revenue by segment and product type. Overall, the majority of our revenue is recognized over time.
Research
Research customers include academic, corporate, government, and public libraries, funders of research, researchers, scientists, clinicians, engineers and technologists, scholarly and professional societies, and students and professors. Research products are sold and distributed globally through multiple channels, including research libraries and library consortia, independent subscription agents, direct sales to professional society members, and other customers. Publishing centers include Australia, China, Germany, India, the United Kingdom (UK), and the United States (US). The majority of revenue generated from Research products is recognized over time. Total Research revenue was $
274.9
million in the three months ended July 31, 2022.
We disaggregated revenue by Research Publishing and Research Solutions to reflect the different type of products and services provided.
Research Publishing Products
Research Publishing products provide scientific, technical, medical, and scholarly journals, as well as related content and services to academic, corporate, and government libraries, learned societies, and individual researchers and other professionals. Research Publishing revenue was $
239.5
million in the three months ended July 31, 2022 and the majority is recognized over time.
Research Publishing products generate approximately
87
% of its revenue from contracts with its customers from Journal Subscriptions (pay to read), Open Access (pay to publish) and Transformational Agreements (read and publish) and the remainder from Licensing, Reprints, Backfiles, and Other.
Research Solutions Products and Services
Research Solutions services include Atypon Systems, Inc (Atypon) a publishing software and service provider that enables scholarly and professional societies and publishers to deliver, host, enhance, market, and manage their content on the web through the
Literatum
platform. In addition, Research Solutions includes advertising, spectroscopy software and spectral databases, and job board software and career center services, which includes the products and services from the recent acquisitions of Madgex and Informatics. As well as product and service offerings related to recent acquisitions such as
J&J Editorial Services, LLC. (J&J) and the eJournalPress (EJP) business. J&J is a publishing services company providing expert offerings in editorial operations, production, copyediting, system support and consulting. EJP is a technology platform company with an established journal submission and peer-review management system.
Research Solutions revenue was $
35.4
million in the three months ended July 31, 2022 and the majority is recognized over time.
Academic & Professional Learning
Academic & Professional Learning provides Education Publishing and Professional Learning products and services including scientific, professional, and education print and digital books, digital courseware, and test preparation services to libraries, corporations, students, professionals, and researchers, as well as learning, development, and assessment services for businesses and professionals. Communities served include business, finance, accounting, workplace learning, management, leadership, technology, behavioral health, engineering/architecture, science and medicine, and education. Products are developed for worldwide distribution through multiple channels, including chain and online booksellers, libraries, colleges and universities, corporations, direct to consumer, web sites, distributor networks and other online applications. Publishing centers include Australia, Germany, India, the UK, and the US.
Total Academic & Professional Learning revenue was $
133.0
million in the
three months ended
July 31, 2022
.
We disaggregated revenue by type of products provided. Academic & Professional Learning products are Education Publishing and Professional Learning. Academic & Professional Learning revenues are mainly recognized at a point in time
.
Education Publishing Products
Education Publishing products revenue was $
63.1
million in the three months ended July 31, 2022. Education Publishing products generate approximately
74
% of its revenue from contracts with its customers from Education (print and digital) Publishing, which is recognized at a point in time, and
7
% from Digital Courseware which is recognized over time. The remainder of its revenues were from Test Preparation and Certification, and Licensing and Other, which has a mix of revenue recognized at a point in time and over time.
Professional Learning Products
Professional Learning products revenue was $
69.9
million in the three months ended July 31, 2022. Professional Learning (print and digital) products generate approximately
59
% of revenue from contracts with its customers from Professional Publishing, and Licensing and Other, and both are mainly recognized at a point in time. Approximately
41
% of Professional Learning products revenue is from contracts with its customers from Corporate Training and Corporate Learning, which is recognized mainly over time.
Education Services
Education Services revenue was $
79.7
million in the three months ended July 31, 2022 and the majority is recognized over time. We disaggregated revenue by
type of services provided, which are University Services and Talent Development Services.
University Services
University Services revenue was $
47.8
million in the three months ended July 31, 2022 and is mainly recognized over time. University Services primarily engages in the comprehensive management of online degree programs for universities and has grown to include a broad array of technology enabled service offerings that address our partner specific pain points. Increasingly, this includes delivering career credentialing education that advances specific careers with in-demand skills.
Talent Development Services
Talent Development Services revenue was $
31.9
million in the
three months ended
July 31, 2022
and is recognized at the point in time the services are provided to its customers. Talent Development Services
is a talent placement provider that finds, trains and places job-ready technology talent in roles with leading corporations worldwide.
Accounts Receivable, net and Contract Liability Balances
When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue when, or as, control of the products or services are transferred to the customer and all revenue recognition criteria have been met.
The following table provides information about accounts receivable, net and contract liabilities from contracts with customers.
|
|
July 31, 2022
|
April 30, 2022
|
Increase/
(Decrease)
|
|||||||||
|
Balances from contracts with customers:
|
||||||||||||
|
Accounts receivable, net
|
$
|
|
$
|
|
$
|
(
|
)
|
|||||
|
Contract liabilities
(1)
|
|
|
(
|
)
|
||||||||
|
Contract liabilities (included in Other long-term liabilities)
|
$
|
|
$
|
|
$
|
|
||||||
| (1) |
|
For the three months ended July 31, 2022,
we estimate that we recognized revenue of approximately
43
%
that was included in the current contract liability at
April 30, 2022
.
The decrease in contract liabilities excluding the sales return reserve, was primarily driven by revenue earned on journal subscription agreements, transformational agreements, and open access, partially offset by renewals of journal subscription agreements, transformational agreements, and open access.
Remaining Performance Obligations included in Contract Liability
As of July 31, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $
427.3
million, which included the sales return reserve of $
29.6
million. Excluding the sales return reserve, we expect that approximately $
377.5
million will be recognized in the next
twelve months
with the remaining $
20.2
million to be recognized
.
Assets Recognized for the Costs to Fulfill a Contract
Costs to fulfill a contract are directly related to a contract that will be used to satisfy a performance obligation in the future and are expected to be recovered. These costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. These types of costs are incurred in the following product types, (1)
Research Solutions services, which includes customer specific implementation costs per the terms of the contract and (2) University Services, which includes customer specific costs to develop courses per the terms of the contract.
Our assets associated with incremental costs to fulfill a contract were $
10.7
million and $
10.9
million at July 31, 2022 and April 30, 2022, respectively, and are included within Other non-current assets on our Unaudited Condensed Consolidated Statements of Financial Position. We recorded amortization expense of $
1.2
million and $
1.5
million in the three months ended July 31, 2022 and 2021, respectively, related to these assets within Cost of sales on our Unaudited Condensed Consolidated Statements of Net (Loss) Income.
Sales and value-added taxes are excluded from revenues. Shipping and handling costs, which are primarily incurred within the Academic & Professional Learning segment, occur before the transfer of control of the related goods. Therefore, in accordance with the revenue standard, it is not considered a promised service to the customer and would be considered a cost to fulfill our promise to transfer the goods. Costs incurred for third party shipping and handling are primarily reflected in Operating and administrative expenses on our Unaudited Condensed Consolidated Statements of Net (Loss) Income. We incurred $
6.5
million and $
6.8
million in shipping and handling costs in the three months ended July 31, 2022 and 2021, respectively.
Note 5
—
Operating Leases
Lessee
We have contractual obligations as a lessee with respect to offices, warehouses and distribution centers, automobiles, and office equipment.
We determine if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the lease standard and we perform the lease classification test as of the lease commencement date. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
The present value of the lease payments is calculated using an incremental borrowing rate, which was determined based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use an unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate.
Under the leasing standard, leases that are more than one year in duration are capitalized and recorded on our Unaudited Condensed Consolidated Statements of Financial Position. Some of our leases offer an option to extend the term of such leases. We utilize the reasonably certain threshold criteria in determining which options we will exercise. Furthermore, some of our lease payments are based on index rates with minimum annual increases. These represent fixed payments and are captured in the future minimum lease payments calculation.
For operating leases, the ROU assets and lease liabilities are presented on our
Unaudited
Condensed Consolidated Statement of Financial Position as follows:
|
|
July 31, 2022
|
April 30, 2022
|
||||||
|
Operating lease ROU assets
|
$
|
|
$
|
|
||||
|
Short-term portion of operating lease liabilities
|
|
|
||||||
|
Operating lease liabilities, non-current
|
$
|
|
$
|
|
||||
During the three months ended July 31, 2022, we added less than $
0.1
million to the ROU assets and operating lease liabilities due to new leases, as well as modifications and remeasurements to our existing operating leases.
As a result of the Fiscal Year
2023
Restructuring Program, which included the exit of certain leased office space beginning in the
three
months ended
July 31, 2022
, we incurred an initial pretax restructuring charge of $
20.0
million in the
three
months ended
July 31, 2022
. This initial charge included severance, impairment charges and acceleration of expense associated with certain operating lease ROU assets. See Note
9
, “Restructuring and Related Charges (Credits)” for more information on this program and the charges incurred.
Our total net lease costs are as follows:
|
Three Months Ended
July 31,
|
||||||||
|
|
2022
|
2021
|
||||||
|
Operating lease cost
|
$
|
|
$
|
|
||||
|
Variable lease cost
|
|
|
||||||
|
Short-term lease cost
|
|
|
||||||
|
Sublease income
|
(
|
)
|
(
|
)
|
||||
|
Total net lease cost
(1)
|
$
|
|
$
|
|
||||
| (1) |
|
Other supplemental information includes the following:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Weighted-average remaining contractual lease term (years)
|
|
|
||||||
|
Weighted-average discount rate
|
|
%
|
|
%
|
||||
|
Cash paid for amounts included in the measurement of lease liabilities:
|
||||||||
|
Operating cash flows from operating leases
|
$
|
|
$
|
|
||||
The table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded on our Unaudited Condensed Consolidated Statement of Financial Position as of July 31, 2022:
|
Fiscal Year
|
Operating Lease
Liabilities
|
|||
|
2023 (remaining 9 months)
|
$
|
|
||
|
2024
|
|
|||
|
2025
|
|
|||
|
2026
|
|
|||
|
2027
|
|
|||
|
Thereafter
|
|
|||
|
Total future undiscounted minimum lease payments
|
|
|||
|
Less: Imputed interest
|
|
|||
|
Present value of minimum lease payments
|
|
|||
|
Less: Current portion
|
|
|||
|
Noncurrent portion
|
$
|
|
||
Note 6
—
Stock-Based Compensation
We have stock-based compensation plans under which employees may be granted performance-based stock awards, other restricted stock awards and options. We recognize the grant date fair value of stock-based compensation in net income on a straight-line basis, net of estimated forfeitures over the requisite service period. The measurement of performance for performance-based stock awards is based on actual financial results for targets established up to
three years
in advance, or less.
For the three months ended July 31, 2022 and 2021, we recognized stock-based compensation expense, on a pretax basis, of $
7.1
million and $
6.3
million, respectively.
Performance-Based and Other Restricted Stock Activity
Under the terms of our long-term incentive plans, performance-based restricted unit awards are payable in restricted shares of our Class A Common Stock upon the achievement of certain
three-year
or less financial performance-based targets. During each
three-year
period or less, we adjust compensation expense based upon our best estimate of expected performance.
We may also grant individual restricted unit awards payable in restricted shares of our Class A Common Stock to key employees in connection with their employment.
The following table summarizes awards we granted to employees (shares in thousands):
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Restricted Stock
:
|
||||||||
|
Awards granted (shares)
|
|
|
||||||
|
Weighted average fair value of grant
|
$
|
|
$
|
|
||||
Stock Option Activity
We granted
10,000
and
220,000
stock option awards during the
three
months ended
July 31, 2022
and
2021
, respectively. Options are exercisable over a maximum period of
ten years
from the date of grant. These options generally vest
10
%
,
20
%
,
30
%
, and
40
%
on
April 30
, or on each anniversary date after the award is granted.
The following table provides the estimated weighted average fair value for options granted during the
three
months ended
July 31, 2022
and
2021
using the Black-Scholes option-pricing model
, and the significant weighted average assumptions used in their determination.
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Weighted average fair value of options on grant date
|
$
|
|
$
|
|
||||
|
Weighted Average Assumptions
:
|
||||||||
|
Expected life of options (years)
|
|
|
||||||
|
Risk-free interest rate
|
|
%
|
|
%
|
||||
|
Expected volatility
|
|
%
|
|
%
|
||||
|
Expected dividend yield
|
|
%
|
|
%
|
||||
|
Fair value of common stock on grant date
|
$
|
|
$
|
|
||||
|
Exercise price of stock option grant
|
$
|
|
$
|
|
||||
Note 7
—
Accumulated Other Comprehensive Loss
Changes in Accumulated other comprehensive loss by component, net of tax, for the three months ended July 31, 2022 and 2021 were as follows:
|
|
Foreign
Currency Translation
|
Unamortized
Retirement Costs
|
Interest
Rate Swaps
|
Total
|
||||||||||||
|
Balance at
April 30, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Other comprehensive (loss) income before reclassifications
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Amounts reclassified from Accumulated other comprehensive loss
|
|
|
|
|
||||||||||||
|
Total other comprehensive (loss) income
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Balance at
July 31, 2022
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
|||||
|
Balance at
April 30, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Other comprehensive (loss) income before reclassifications
|
(
|
)
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Amounts reclassified from Accumulated other comprehensive loss
|
|
|
|
|
||||||||||||
|
Total other comprehensive (loss) income
|
(
|
)
|
|
|
(
|
)
|
||||||||||
|
Balance at July 31, 2021
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
During the three months ended July 31, 2022 and 2021, pretax actuarial losses included in Unamortized Retirement Costs of approximately $
1.5
million and $
1.8
million, respectively, were amortized from Accumulated other comprehensive loss and recognized as pension and post-retirement benefit expense primarily in Operating and administrative expenses and Other income, net on our Unaudited Condensed Consolidated Statements of Net (Loss) Income.
Our policy for releasing the income tax effects from accumulated other comprehensive (loss) income is to release when the corresponding pretax accumulated other comprehensive (loss) income items are reclassified to earnings.
Note 8
—
Reconciliation of Weighted Average Shares Outstanding
A reconciliation of the shares used in the computation of (loss) earnings per share follows (shares in thousands):
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Weighted average shares outstanding
|
|
|
||||||
|
Shares used for basic (loss) earnings per share
|
|
|
||||||
|
Dilutive effect of unvested restricted stock units and other stock awards
|
|
|
||||||
|
Shares used for diluted (loss) earnings per share
|
|
|
||||||
|
Antidilutive options to purchase Class A common shares, restricted shares, warrants to purchase Class A common shares, and contingently issuable restricted stock which are excluded from the table above
|
|
|
||||||
In calculating diluted net loss per common share for the three months ended July 31, 2022 our diluted weighted average number of common shares outstanding excludes the effect of unvested restricted stock units and other stock awards as the effect was anti-dilutive. This occurs when a US GAAP net loss is reported and the effect of using dilutive shares is antidilutive.
The shares associated with performance-based stock awards are considered contingently issuable shares and will be included in the diluted weighted average number of common shares outstanding when they have met the performance conditions and when their effect is dilutive
.
Note 9
—
Restructuring and Related Charges (Credits)
Fiscal Year 2023 Restructuring Program
In May 2022, the Company initiated a global program to restructure and align our cost base with current and anticipated future market conditions (Fiscal Year 2023 Restructuring Program).
The following tables summarize the pretax restructuring charges related to this program:
|
|
Three Months Ended
July 31,
|
|||
|
2022
|
||||
|
Charges by Segment:
|
||||
|
Research
|
$
|
|
||
|
Academic & Professional Learning
|
|
|||
|
Education Services
|
|
|||
|
Corporate Expenses
|
|
|||
|
Total Restructuring and Related Charges
|
$
|
|
||
|
Charges by Activity:
|
||||
|
Severance and termination benefits
|
$
|
|
||
|
Impairment of operating lease ROU assets and property and equipment
|
|
|||
|
Acceleration of expense related to operating lease ROU assets and property and equipment
|
|
|||
|
Facility related charges, net
|
|
|||
|
Total Restructuring and Related Charges
|
$
|
|
||
This program includes the exit of certain leased office space beginning in the three months ended July 31, 2022 and the reduction of our occupancy at other facilities. We
are reducing our real estate square footage occupancy by approximately
17
%
. In addition, the program includes severance related charges for the elimination of certain positions. These actions resulted in an initial pretax restructuring charge of $
20.0
million in the
three
months ended
July 31, 2022
. This restructuring charge primarily reflects the following charges:
|
•
|
Severance charges of $
|
|
•
|
Impairment charges of $
|
|
•
|
Acceleration of expense of $
|
Due to the actions taken above, we tested the operating lease ROU assets and the related property and equipment for those being subleased for recoverability by comparing the carrying value of the asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset groups were below the carrying values. Therefore, there was an indication of impairment. We then determined the fair value of the asset groups by utilizing the present value of the estimated future cash flows attributable to the assets. The fair value of these operating lease ROU assets and the property and equipment immediately subsequent to the impairment was $
2.4
million and was categorized as Level
3
within the FASB ASC Topic
820
, “Fair Value Measurements” fair value hierarchy.
In addition, we also incurred ongoing facility-related costs associated with certain properties that resulted in additional restructuring charges of $
1.7
million in the
three
months ended
July 31, 2022
.
The following table summarizes the activity for the Fiscal Year 2023 Restructuring Program liability for the three months ended July 31, 2022:
|
|
April 30, 2022
|
Charges
|
Payments
|
Foreign
Translation
& Other Adjustments
|
July 31, 2022
|
|||||||||||||||
|
Severance and termination benefits
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
|
Total
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
|||||||||
The restructuring liability
for accrued severance and termination benefits is reflected in Accrued employment costs on our Unaudited Condensed Consolidated Statement of Financial Position as of
July 31, 2022.
Business Optimization Program
Beginning in fiscal year 2020, we initiated a multi-year Business Optimization Program (the Business Optimization Program) to drive efficiency improvement and operating savings.
The following tables summarize the pretax restructuring charges (credits) related to this program:
|
|
Three Months Ended
July 31,
|
Total Charges
|
||||||||||
|
2022
|
2021
|
Incurred to Date
|
||||||||||
|
Charges (Credits) by Segment:
|
||||||||||||
|
Research
|
$
|
|
$
|
|
$
|
|
||||||
|
Academic & Professional Learning
|
(
|
)
|
|
|
||||||||
|
Education Services
|
|
(
|
)
|
|
||||||||
|
Corporate Expenses
|
|
(
|
)
|
|
||||||||
|
Total Restructuring and Related Charges (Credits)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Charges (Credits) by Activity:
|
||||||||||||
|
Severance and termination benefits
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
||||
|
Impairment of operating lease ROU assets and property and equipment
|
|
|
|
|||||||||
|
Acceleration of expense related to operating lease ROU assets and property and equipment
|
|
|
|
|||||||||
|
Facility related charges, net
|
|
|
|
|||||||||
|
Other activities
|
|
|
|
|||||||||
|
Total Restructuring and Related Charges (Credits)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
The credits in severance and termination benefits activities for the
three
months ended
July 31, 2022
and
2021
, primarily reflects changes in the number of headcount reductions and estimates for previously accrued costs.
Facilities related charges include sublease income related to those operating leases we had identified in the year ended
April 30, 2021
a
s part of our Business Optimization program that would be subleased.
The following table summarizes the activity for the Business Optimization Program liability for the three months ended July 31, 2022:
|
|
April 30, 2022
|
(Credits)
|
Payments
|
Foreign
Translation
& Other Adjustments
|
July 31, 2022
|
|||||||||||||||
|
Severance and termination benefits
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||
|
Total
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||
The restructuring liability
for accrued severance and termination benefits is reflected in Accrued employment costs on our Unaudited Condensed Consolidated Statement of Financial Position as of
July 31, 2022.
Note 10
—
Segment Information
We
report our segment information in accordance with the provisions of FASB Accounting Standards Codification (ASC) Topic 280, “Segment Reporting”. These segments reflect the way our chief operating decision maker evaluates our business performance and manages the operations. The performance metric used by our chief operating decision maker to evaluate performance of our reportable segments is Adjusted Contribution to Profit. Our segment reporting structure consists of
three
reportable segments, which are listed below, as well as a Corporate category, which includes certain costs that are not allocated to the reportable segments:
| ● |
Research
|
| ● |
Academic & Professional Learning
|
| ● |
Education
Services
|
Segment information is as follows:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Revenue:
|
||||||||
|
Research
(1)
|
$
|
|
$
|
|
||||
|
Academic & Professional Learning
|
|
|
||||||
|
Education Services
|
|
|
||||||
|
Total revenue
|
$
|
|
$
|
|
||||
|
Adjusted Contribution to Profit:
|
||||||||
|
Research
(1)
|
$
|
|
$
|
|
||||
|
Academic & Professional Learning
|
|
|
||||||
|
Education Services
(2)
|
(
|
)
|
(
|
)
|
||||
|
Total adjusted contribution to profit
|
|
|
||||||
|
Adjusted corporate contribution to profit
|
(
|
)
|
(
|
)
|
||||
|
Total adjusted operating income
|
$
|
|
$
|
|
||||
|
Depreciation and Amortization:
|
||||||||
|
Research
(1)
|
$
|
|
$
|
|
||||
|
Academic & Professional Learning
|
|
|
||||||
|
Education Services
(2)
|
|
|
||||||
|
Total depreciation and amortization
|
|
|
||||||
|
Corporate depreciation and amortization
|
|
|
||||||
|
Total depreciation and amortization
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
The following table shows a reconciliation of our consolidated US GAAP Operating (Loss) Income to Non-GAAP Adjusted Operating Income:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
US GAAP Operating (Loss) Income
|
$
|
(
|
)
|
$
|
|
|||
|
Adjustments:
|
||||||||
|
Restructuring and related charges (credits)
(1)
|
|
(
|
)
|
|||||
|
Accelerated amortization of an intangible asset
(2)
|
|
|
||||||
|
Non-GAAP Adjusted Operating Income
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
See Note 4, “Revenue Recognition, Contracts with Customers,” for revenue from contracts with customers disaggregated by segment and product type for the three months ended July 31, 2022 and 2021.
Note 11
—
Inventories
Inventories, net consisted of the following:
|
|
July 31, 2022
|
April 30, 2022
|
||||||
|
Finished goods
|
$
|
|
$
|
|
||||
|
Work-in-process
|
|
|
||||||
|
Paper and other materials
|
|
|
||||||
|
Total inventories before estimated sales returns and LIFO reserve
|
$
|
|
$
|
|
||||
|
Inventory value of estimated sales returns
|
|
|
||||||
|
LIFO reserve
|
(
|
)
|
(
|
)
|
||||
|
Inventories, net
|
$
|
|
$
|
|
||||
Note 12
—
Goodwill and Intangible Assets
Goodwill
The following table summarizes the activity in goodwill by segment as of July 31, 2022:
|
|
April 30, 2022
|
Foreign
Translation
Adjustment
|
July 31, 2022
|
|||||||||
|
Research
(1)
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
|
Academic & Professional Learning
|
|
(
|
)
|
|
||||||||
|
Education Services
(2)
|
|
(
|
)
|
|
||||||||
|
Total
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||
| (1) |
|
| (2) |
|
Intangible Assets
Intangible assets, net were as follows:
|
|
July 31, 2022
|
April 30, 2022
(1)
|
||||||
|
Intangible assets with definite lives, net:
|
||||||||
|
Content and publishing rights
|
$
|
|
$
|
|
||||
|
Customer relationships
|
|
|
||||||
|
Developed technology
|
|
|
||||||
|
Brands and trademarks
(2)
|
|
|
||||||
|
Covenants not to compete
|
|
|
||||||
|
Total intangible assets with definite lives, net
|
|
|
||||||
|
Intangible assets with indefinite lives:
|
||||||||
|
Brands and trademarks
|
|
|
||||||
|
Publishing rights
|
|
|
||||||
|
Total intangible assets with indefinite lives
|
|
|
||||||
|
Total intangible assets, net
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
Note 13
—
Income Taxes
Our effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. The effective tax rate for the three months ended July 31, 2022 was
23.7
% compared to
68.6
% for the three months ended July 31, 2021.
The rate for the three months ended July 31, 2022 was greater than the US statutory rate primarily due to the mix of foreign earnings, the impact of US state taxes, the tax impact of the restructuring programs described in Note 9, “Restructuring and Related Charges (Credits),” and a discrete item relating to restricted stock compensation.
The rate for the three months ended July 31, 2022 was lower than the rate for the three months ended July 31, 2021 primarily due to an increase in the UK statutory rate announced during the first three months of fiscal 2022 and reflected in the effective tax rate for the three months ended July 31, 2021. On June 10, 2021, the UK enacted legislation that increased its statutory rate from
19
% to
25
% effective April 1, 2023, resulting in a $
20.7
million non-cash deferred tax expense.
Each year we file many tax returns given the number of national, state, and local tax jurisdictions in which we operate. These tax returns are subject to examination and possible challenge by the tax authorities, and positions challenged by the tax authorities may be settled or appealed by us. As a result, there is an uncertainty in income taxes recognized in our financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties, however, is not expected to have a material impact on the results of our operations.
On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was signed into law, enacting a book-minimum tax for certain US corporations, an excise tax on repurchases of stock by certain publicly traded corporations, and certain clean energy tax provisions. Based on our currently anticipated operations, we believe that these new provisions would not result in material additional tax liabilities, and do not anticipate that the IRA will have a material adverse impact on our operations. Nonetheless, we will continue to review as regulations and interpretations are adopted by the Internal Revenue Service to implement the IRA.
Note 14
—
Retirement Plans
The components of net pension income for our defined benefit plans were as follows:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Service cost
|
$
|
|
$
|
|
||||
|
Interest cost
|
|
|
||||||
|
Expected return on plan assets
|
(
|
)
|
(
|
)
|
||||
|
Amortization of prior service cost
|
(
|
)
|
(
|
)
|
||||
|
Amortization of net actuarial loss
|
|
|
||||||
|
Net pension income
|
$
|
(
|
)
|
$
|
(
|
)
|
||
The service cost component of net pension income is reflected in Operating and administrative expenses on our Unaudited Condensed Consolidated Statements of Net (Loss) Income. The other components of net pension income are reported separately from the service cost component and below Operating (loss) income. Such amounts are reflected in Other income, net on our Unaudited Condensed Consolidated Statements of Net (Loss) Income.
Employer defined benefit pension plan contributions were $
3.9
million and $
4.5
million for the three months ended July 31, 2022 and 2021, respectively.
Defined Contribution Savings Plans
The expense for employer defined contribution savings plans was $
8.8
million and $
9.1
million for the three months ended July 31, 2022 and 2021, respectively.
Note 15
—
Debt and Available Credit Facilities
Our total debt outstanding consisted of the amounts set forth in the following table:
|
|
July 31, 2022
|
April 30, 2022
|
||||||
|
Short-term portion of long-term debt
(1)
|
$
|
|
$
|
|
||||
|
Term loan A - Amended and Restated RCA
(2)
|
|
|
||||||
|
Revolving credit facility - Amended and Restated RCA
|
|
|
||||||
|
Total long-term debt, less current portion
|
|
|
||||||
|
Total debt
|
$
|
|
$
|
|
||||
| (1) |
|
| (2) |
|
Amended and Restated RCA
On May 30, 2019, we entered into a credit agreement that amended and restated our existing revolving credit agreement, which was then amended on December 22, 2021 as described below (collectively, the Amended and Restated RCA). The Amended and Restated RCA provides for senior unsecured credit facilities comprised of a (i)
five-year
revolving credit facility in an aggregate principal amount up to $
1.25
billion, and (ii) a
five-year
term loan A facility consisting of $
250
million.
Under the terms of the Amended and Restated RCA, which can be drawn in multiple currencies, we have the option of borrowing at the following floating interest rates: (i) at a rate based on the London Interbank Offered Rate (LIBOR) plus an applicable margin ranging from
0.98
% to
1.50
%, depending on our consolidated net leverage ratio, as defined, or (ii) at the lender’s base rate plus an applicable margin ranging from
zero
to
0.50
%, depending on our consolidated net leverage ratio. The lender’s base rate is defined as the highest of (i) the US federal funds effective rate plus a
0.50
% margin, (ii) the Eurocurrency rate, as defined, plus a
1.00
% margin, or (iii) the Bank of America prime lending rate. In addition, we pay a facility fee for the revolving credit facility ranging from
0.15
% to
0.25
% depending on our consolidated net leverage ratio. We also have the option to request an increase in the revolving credit facility by an amount not to exceed $
500
million, in minimum increments of $
50
million, subject to the approval of the lenders.
On December 22, 2021, we entered into the first amendment (the “First Amendment”) to the Amended and Restated RCA. The First Amendment, among other things, (i) changes the rate under the Amended and Restated RCA for borrowings denominated in Sterling from a LIBOR-based rate to a daily simple Sterling Overnight Index Average (SONIA) subject to certain adjustments specified in the Amended and Restated RCA, (ii) changes the rate under the Amended and Restated RCAfor borrowings denominated in Euro from a LIBOR-based rate to a EURIBOR-based rate or a Euro Short Term Rate subject to certain adjustments specified in the Amended and Restated RCA, and (iii) updates certain other provisions regarding successor interest rates to LIBOR.
The
Amended and Restated RCA
contains certain customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio, which we were in compliance with as of July 31, 2022.
The amortization expense of the costs incurred related to the Amended and Restated RCA related to the lender and non-lender fees is recognized over the
five-year
term of the Amended and Restated RCA. Total amortization expense was $
0.3
million for both the three months ended
July 31, 2022
and 2021, respectively and is included in Interest expense
on our Unaudited Condensed Consolidated Statements of Net (Loss) Income
.
As of July 31, 2022, we had approximately $
531.9
million of unused borrowing capacity under our Amended and Restated RCA and other facilities.
The weighted average interest rates on total debt outstanding during the three months ended July 31, 2022 and 2021 were
2.83
%
and
2.02
%
, respectively. As of July 31, 2022 and April 30, 2022, the weighted average interest rates for total debt were
2.99
%
and
2.55
%
, respectively.
Note 16
—
Derivative Instruments and Hedging Activities
From time-to-time, we enter into forward exchange and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates and anticipated transaction exposures, including intercompany sales and purchases. All derivatives are recognized as assets or liabilities and measured at fair value. Derivatives that are not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. We do not use financial instruments for trading or speculative purposes.
Interest Rate Contracts
As of July 31, 2022, we had total debt outstanding of $
939.1
million, net of unamortized issuance costs of $
0.3
million of which $
939.4
million are variable rate loans outstanding under the Amended and Restated RCA, which approximated fair value.
We had outstanding interest rate swap agreements with combined notional amounts of $
500.0
million as of July 31, 2022 and April 30, 2022, respectively. These agreements were accounted for as cash flow hedges which fixed a portion of the variable interest
due on our Amended and Restated RCA
.
On
June 24, 2019
, we entered into a forward starting interest rate swap agreement which fixed a portion of the variable interest due on our Amended and Restated RCA. Under the terms of the agreement, which expired on
July 15, 2022
, we paid a fixed rate of
1.650
% and received a variable rate of interest based on
one-month
LIBOR from the counterparty which was reset every month for a
three-year
period ending
July 15, 2022
. Prior to expiration, the notional amount of the interest rate swap was $
100.0
million.
On
June 16, 2022
we entered into a forward starting interest rate swap agreement, which fixed a portion of the variable interest due on our Amended and Restated RCA. Under the terms of the agreement, we pay a fixed rate of
3.500
%
and receive a variable rate of interest based on
one month
LIBOR from the counterparty which is reset every month for a
three-year
period ending
May 15, 2024
. As of July 31, 2022, the notional amount of the interest rate swap was $
100.0
million.
We record the fair value of our interest rate swaps on a recurring basis using Level 2 inputs of quoted prices for similar assets or liabilities in active markets. The fair value of the interest rate swaps as of July 31, 2022 was a deferred loss of $
0.9
million and a deferred gain of $
6.3
million. Based on the maturity dates of the contracts, the entire deferred loss as of July 31, 2022 was recorded within Other long-term liabilities, $
1.3
million of the deferred gain was recorded within Prepaid expenses and other current assets, and $
5.0
million was recorded within Other non-current assets.
The fair value of the interest rate swaps as of April 30, 2022 was a deferred loss of $
0.2
million and a deferred gain of $
5.8
million. Based on the maturity dates of the contracts, the entire deferred loss as of April 30, 2022 was recorded within Other accrued liabilities, $
0.9
million of the deferred gain was recorded within Prepaid expenses and other current assets, and $
4.9
million was recorded within Other non-current assets
The pretax (losses) that were reclassified from Accumulated other comprehensive loss into Interest expense for the three months ended July 31, 2022 and 2021 were $(
0.4
) million and $(
1.1
) million, respectively.
Foreign Currency Contracts
We may enter into forward exchange contracts to manage our exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts are marked to market through Foreign exchange transaction (losses) gains on our Unaudited Condensed Consolidated Statements of Net (Loss) Income and carried at fair value on our Unaudited Condensed Consolidated Statements of Financial Position. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign exchange transaction (losses) gains on our Unaudited Condensed Consolidated Statements of Net (Loss) Income.
As of July 31, 2022, and April 30, 2022, we did not maintain any open forward exchange contracts. In addition, we did not maintain any open forward contracts during the three months ended July 31, 2022 and 2021.
Note 17
—
Capital Stock and Changes in Capital Accounts
Share Repurchases
The following table summarizes the share repurchases of Class A and Class B Common Stock (shares in thousands):
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Shares repurchased - Class A
|
|
|
||||||
|
Shares repurchased - Class B
|
|
|
||||||
|
Average price - Class A and Class B
|
$
|
|
$
|
|
||||
Dividends
The following table summarizes the cash dividends paid during the three months ended July 31, 2022:
|
Date of Declaration by
Board of Directors
|
Quarterly Cash Dividend
|
Total Dividend
|
Class of
Common
Stock
|
Dividend Paid
Date
|
Shareholders of
Record as of Date
|
|||||
|
|
$
|
$
|
Class A and Class B
|
|
|
Changes in Common Stock
The following is a summary of changes during the three months ended July 31, in shares of our common stock and common stock in treasury (shares in thousands):
|
Changes in Common Stock A:
|
2022
|
2021
|
||||||
|
Number of shares, beginning of year
|
|
|
||||||
|
Common stock class conversions
|
|
|
||||||
|
Number of shares issued, end of period
|
|
|
||||||
|
Changes in Common Stock A in treasury:
|
||||||||
|
Number of shares held, beginning of year
|
|
|
||||||
|
Purchases of treasury shares
|
|
|
||||||
|
Restricted shares issued under stock-based compensation plans - non-PSU Awards
|
(
|
)
|
(
|
)
|
||||
|
Restricted shares issued under stock-based compensation plans - PSU Awards
|
(
|
)
|
(
|
)
|
||||
|
Restricted shares issued from exercise of stock options
|
|
(
|
)
|
|||||
|
Shares withheld for taxes
|
|
|
||||||
|
Number of shares held, end of period
|
|
|
||||||
|
Number of Common Stock A outstanding, end of period
|
|
|
||||||
|
Changes in Common Stock B:
|
2022
|
2021
|
||||||
|
Number of shares, beginning of year
|
|
|
||||||
|
Common stock class conversions
|
|
(
|
)
|
|||||
|
Number of shares issued, end of period
|
|
|
||||||
|
Changes in Common Stock B in treasury:
|
||||||||
|
Number of shares held, beginning of year
|
|
|
||||||
|
Purchases of treasury shares
|
|
|
||||||
|
Number of shares held, end of period
|
|
|
||||||
|
Number of Common Stock B outstanding, end of period
|
|
|
||||||
Note 18
—
Commitments and Contingencies
We are involved in routine litigation in the ordinary course of our business. A provision for litigation is accrued when information available to us indicates that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment may be required to determine both the probability and estimates of loss. When the amount of the loss can only be estimated within a range, the most likely outcome within that range is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount within the range is accrued. When uncertainties exist related to the probable outcome of litigation and/or the amount or range of loss, we do not record a liability, but disclose facts related to the nature of the contingency and possible losses if management considers the information to be material. Reserves for legal defense costs are recognized when incurred. The accruals for loss contingencies and legal costs are reviewed regularly and may be adjusted to reflect updated information on the status of litigation and advice of legal counsel. In the opinion of management, the ultimate resolution of all pending litigation as of July 31, 2022, will not have a material effect upon our consolidated financial condition or results of operations.
The information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read together with our Condensed Consolidated Financial Statements and related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 2022 Form 10-K and our Consolidated Financial Statements and related notes set forth in Item 8 of Part II of our 2022 Form 10-K. See Part II, Item 1A, “Risk Factors,” below and “Cautionary Notice Regarding Forward-Looking Statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995,” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. All amounts and percentages are approximate due to rounding and all dollars are in thousands, except per share amounts or where otherwise noted. When we cross-reference to a “Note,” we are referring to our “Notes to Unaudited Condensed Consolidated Financial Statements,” unless the context indicates otherwise.
OVERVIEW
Wiley is a global leader in scientific research and career-connected education, unlocking human potential by enabling discovery, powering education, and shaping workforces. For over 200 years, Wiley has fueled the world’s knowledge ecosystem. Today, our high-impact content, platforms, and services help researchers, learners, institutions, and corporations achieve their goals in an ever-changing world. Wiley is a predominantly digital company with approximately 83% of revenue generated by digital products and tech-enabled services, and 58% of revenue is recurring which includes revenue that is contractually obligated or set to recur with a high degree of certainty for the three months ended July 31, 2022.
We report financial information for the following segments, as well as a Corporate category, which includes certain costs that are not allocated to the reportable segments:
| ● |
Research (which was previously referred to as Research Publishing & Platforms)
|
| ● |
Academic & Professional Learning
|
| ● |
Education Services
|
Through the Research segment, we provide peer-reviewed STM publishing, content platforms, and related services to academic, corporate, and government customers, academic societies, and individual researchers. The Academic & Professional Learning segment provides Education Publishing and Professional Learning content and courseware, training, and learning services, to students, professionals, and corporations. The Education Services segment provides University Services (online program management or OPM services) for academic institutions and Talent Development Services including placement and training for professionals and businesses.
Wiley’s business strategies are tightly aligned with accelerating growth trends, including open research, career-connected education, and talent development. Research strategies include driving publishing output to meet the global demand for peer-reviewed research and expanding platform and service offerings for corporations and societies. Education strategies include expanding online degree programs and driving online enrollment for university partners, scaling digital content and courseware, and expanding IT talent placement and reskilling programs for corporate partners.
CONSOLIDATED RESULTS OF OPERATIONS
– THREE MONTHS ENDED
JULY 31, 2022
Revenue:
Revenue for the three months ended July 31, 2022 was flat as compared with the prior year on a reported basis and increased 4% on a constant currency basis including contributions from acquisitions. Excluding the contributions from acquisitions, organic revenue increased 2% on a constant currency basis.
See the “Segment Operating Results” below for additional details on each segment’s revenue and Adjusted EBITDA performance.
Cost of Sales:
Cost of sales for the three months ended July 31, 2022 increased $8.1 million, or 5%, as compared with the prior year.
On a constant currency basis, cost of sales increased 10% as compared with the prior year. This increase was primarily due to higher employee costs to support the growth in Talent Development Services within the Education Services segment.
Operating and Administrative Expenses:
Operating and administrative expenses for the three months ended July 31, 2022 increased $22.2 million, or 9%, as compared with the prior year.
On a constant currency basis, operating and administrative expenses increased 13% as compared with the prior year primarily reflecting higher employment costs, notably in technology to support growth initiatives, and in editorial due to additional resources to support investments in growth. Additionally, travel and entertainment costs increased due to the resumption of in-person activities.
Restructuring and Related Charges (Credits):
Fiscal Year 2023 Restructuring Program
In May 2022, the Company initiated a global program to restructure and align our cost base with current and anticipated future market conditions. This program includes the exit of certain leased office space beginning in the first quarter of fiscal year 2023 and the reduction of our occupancy at other facilities. We
are reducing our real estate square footage occupancy by approximately 17%. In addition, the program includes severance related charges for the elimination of certain positions. We anticipate $25 million in savings from actions starting in fiscal year 2023. These actions resulted in an initial pretax restructuring charge of $20.0 million in the three months ended July 31, 2022. This restructuring charge primarily reflects the following charges:
|
•
|
Severance charges of $12.1 million for the elimination of certain positions.
|
|
•
|
Impairment charges of $6.1 million recorded in our corporate category, which included the impairment of operating lease ROU assets of $2.9 million related to certain leases that will be subleased, and the related property and equipment of $3.2 million described further below, and
|
|
•
|
Acceleration of expense of $1.8 million, which included the acceleration of rent expense associated with operating lease ROU assets of $0.9 million related to certain leases that will be abandoned or terminated and the related depreciation and amortization of property and equipment of $0.9 million.
|
In addition, we also incurred ongoing facility-related costs associated with certain properties that resulted in additional restructuring charges of $1.7 million in the three months ended July 31, 2022.
These actions are anticipated to yield annualized cost savings estimated to be approximately $35 million. We anticipate ongoing facility-related costs associated with certain properties to result in additional restructuring charges in future periods.
See Note 9, “Restructuring and Related Charges (Credits)” for more details on these charges.
Business Optimization Program
For the three months ended July 31, 2022 and 2021, we recorded pretax restructuring charges of $0.7 million and credits of $(0.3) million, respectively, related to this program. We anticipated $10.0 million in run rate savings from actions starting in fiscal 2022. These charges and credits are reflected in Restructuring and related charges (credits) on our Unaudited Condensed Consolidated Statements of Net (Loss) Income. See Note 9, “Restructuring and Related Charges (Credits)” for more details on these charges and credits.
For the impact of our restructuring programs on diluted earnings per share, see the section below, “Diluted (Loss) Earnings per Share (EPS).”
Amortization of Intangible Assets:
Amortization of intangible assets was $25.3 million for the three months ended July 31, 2022, an increase of $4.1 million, or 20%, as compared with the prior year.
On a constant currency basis, amortization of intangible assets increased 23% as compared with the prior year primarily due to the acceleration of expense of $4.6 million related to the discontinued use of the mthree trademark and, to a lesser extent, other acquisitions completed in fiscal year 2022. These were partially offset by the completion of amortization of certain acquired intangible assets. See Note 3, “Acquisitions” for more details on these acquisitions
.
In January 1, 2020, Wiley acquired mthree, a talent placement provider that addresses the IT skills gap by finding, training, and placing job-ready technology talent in roles with leading corporations worldwide. Its results of operations are included in our Education Services segment. In late May 2022, Wiley renamed the mthree talent development solution to Wiley Edge and discontinued use of the mthree trademark during the three months ended July 31, 2022. As a result of these actions, we determined that a revision of the useful life was warranted and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022.
Operating (Loss) Income
, Adjusted Operating Income (OI) and Adjusted EBITDA
:
Operating loss was $(17.0) million for the three months ended July 31, 2022 compared with prior year income of $41.0
million. The decrease was primarily due to restructuring charges in the three months ended July 31, 2022, and the increase in operating and administrative expenses as described above.
Adjusted OI on a constant currency basis and excluding restructuring charges (credits) and the accelerated amortization of an intangible asset, decreased 81% as compared with the prior year primarily due to an increase in operating and administrative expenses, and cost of sales, partially offset by higher revenues as described above.
Adjusted EBITDA on a constant currency basis and excluding restructuring charges (credits), decreased 34% as compared with the prior year primarily due to an increase in operating and administrative expenses, and cost of sales, partially offset by revenue performance.
Adjusted OI
Below is a reconciliation of our consolidated US GAAP Operating (Loss) Income to Non-GAAP Adjusted OI:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
US GAAP Operating (Loss) Income
|
$
|
(16,965
|
)
|
$
|
40,968
|
|||
|
Adjustments:
|
||||||||
|
Restructuring and related charges (credits)
|
22,441
|
(276
|
)
|
|||||
|
Accelerated amortization of an intangible asset
(1)
|
4,594
|
—
|
||||||
|
Non-GAAP Adjusted OI
|
$
|
10,070
|
$
|
40,692
|
||||
| (1) |
As described above, we determined that a revision of the useful life of the mthree trademark was warranted and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022.
|
Adjusted EBITDA
Below is a reconciliation of our consolidated US GAAP Net (Loss) Income to Non-GAAP EBITDA and Adjusted EBITDA:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Net (Loss) Income
|
$
|
(17,835
|
)
|
$
|
13,830
|
|||
|
Interest expense
|
6,332
|
4,639
|
||||||
|
(Benefit) provision for income taxes
|
(5,552
|
)
|
30,172
|
|||||
|
Depreciation and amortization
|
58,279
|
54,566
|
||||||
|
Non-GAAP EBITDA
|
41,224
|
103,207
|
||||||
|
Restructuring and related charges (credits)
|
22,441
|
(276
|
)
|
|||||
|
Foreign exchange transaction losses (gains)
|
616
|
(370
|
)
|
|||||
|
Gain on sale of certain assets
|
—
|
(3,750
|
)
|
|||||
|
Other income, net
|
(526
|
)
|
(3,553
|
)
|
||||
|
Non-GAAP Adjusted EBITDA
|
$
|
63,755
|
$
|
95,258
|
||||
Interest Expense:
Interest expense was $6.3 million for the three months ended July 31, 2022 compared with the prior year of $4.6 million.
This increase was primarily due to a higher weighted average effective interest rate.
Foreign Exchange Transaction (Losses) Gains:
Foreign exchange transaction losses were
$(0.6) million for the three months ended July 31, 2022 and were primarily due to losses on our intercompany accounts receivable and payable balances and, to a lesser extent, losses on our third-party receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the US dollar
.
Foreign exchange transaction gains were
$0.4 million for the three months ended July 31, 2021 and were primarily due to gains on our intercompany accounts receivable and payable balances, partially offset by losses on our third-party receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the US dollar
.
Gain on Sale of Certain Assets:
The gain on the sale of certain assets is
due to the sale
of our world languages product portfolio which was included in our
Academic & Professional Learning segment
and resulted in a pretax gain of approximately $3.8 million during the three months ended July 31, 2021.
Provision for Income Taxes:
Below is a reconciliation of our US GAAP (Loss) Income Before Taxes to Non-GAAP Adjusted Income Before Taxes:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
US GAAP (Loss) Income Before Taxes
|
$
|
(23,387
|
)
|
$
|
44,002
|
|||
|
Pretax Impact of Adjustments:
|
||||||||
|
Restructuring and related charges (credits)
|
22,441
|
(276
|
)
|
|||||
|
Foreign exchange losses (gains) on intercompany transactions
|
666
|
(795
|
)
|
|||||
|
Amortization of acquired intangible assets
|
26,385
|
22,284
|
||||||
|
Gain on sale of certain assets
|
—
|
(3,750
|
)
|
|||||
|
Non-GAAP Adjusted Income Before Taxes
|
$
|
26,105
|
$
|
61,465
|
||||
Below is a reconciliation of our US GAAP Income Tax (Benefit) Provision to Non-GAAP Adjusted Income Tax Provision, including our US GAAP Effective Tax Rate and our Non-GAAP Adjusted Effective Tax Rate:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
US GAAP Income Tax (Benefit) Provision
|
$
|
(5,552
|
)
|
$
|
30,172
|
|||
|
Income Tax Impact of Adjustments
(1)
:
|
||||||||
|
Restructuring and related charges (credits)
|
5,517
|
45
|
||||||
|
Foreign exchange losses (gains) on intercompany transactions
|
175
|
(101
|
)
|
|||||
|
Amortization of acquired intangible assets
|
5,832
|
4,843
|
||||||
|
Gain on sale of certain assets
|
—
|
(936
|
)
|
|||||
|
Income Tax Adjustments:
|
||||||||
|
Impact of increase in UK statutory rate on deferred tax balances
(2)
|
—
|
(20,726
|
)
|
|||||
|
Non-GAAP Adjusted Income Tax Provision
|
$
|
5,972
|
$
|
13,297
|
||||
|
US GAAP Effective Tax Rate
|
23.7
|
%
|
68.6
|
%
|
||||
|
Non-GAAP Adjusted Effective Tax Rate
|
22.9
|
%
|
21.6
|
%
|
||||
| (1) |
For the three months ended July 31, 2022 and 2021, substantially all of the tax impact was from deferred taxes.
|
| (2) |
These adjustments impacted deferred taxes in the three months ended July 31, 2021.
|
Our effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. The effective tax rate for the three months ended July 31, 2022, was 23.7% compared to 68.6% for the three months ended July 31, 2021. The rate for the three months ended July 31, 2022, was greater than the US statutory rate primarily due to the mix of foreign earnings, the impact of US state taxes, the tax impact of the restructuring programs described in Note 9, “Restructuring and Related Charges (Credits),” and a discrete item relating to restricted stock compensation.
Excluding the tax impact of restructuring and other adjustments noted in the table above, the Non-GAAP Adjusted Effective Tax Rate was 22.9.% for the three months ended July 31, 2022, compared to 21.6% for the three months ended July 31, 2021. The increase in the Non-GAAP Effective Tax Rate for the three months ended July 31, 2022 compared with the prior year is primarily due to the same factors as noted above.
On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was signed into law, enacting a book-minimum tax for certain US corporations, an excise tax on repurchases of stock by certain publicly traded corporations, and certain clean energy tax provisions. Based on our currently anticipated operations, we believe that these new provisions would not result in material additional tax liabilities, and do not anticipate that the IRA will have a material adverse impact on our operations. Nonetheless, we will continue to review as regulations and interpretations are adopted by the Internal Revenue Service to implement the IRA.
Diluted (Loss) Earnings per Share (EPS):
EPS for the three months ended July 31, 2022 was a loss of $(0.32) per share compared with earnings of $0.24 per share for the three months ended July 31, 2021. This decrease was primarily due to
an operating loss in the three months ended July 31, 2022, partially offset by an income tax benefit in the three months ended July 31, 2022.
Below is a reconciliation of our US GAAP (Loss) Earnings Per Share to Non-GAAP Adjusted EPS.
The amount of the pretax, and the related income tax impact for the adjustments included in the table below, are presented in the section above, “Provision for Income Taxes”.
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
US GAAP (Loss) Earnings Per Share
|
$
|
(0.32
|
)
|
$
|
0.24
|
|||
|
Adjustments:
|
||||||||
|
Restructuring and related charges (credits)
|
0.30
|
(0.01
|
)
|
|||||
|
Foreign exchange losses (gains) on intercompany transactions
|
0.01
|
(0.01
|
)
|
|||||
|
Amortization of acquired intangible assets
|
0.36
|
0.31
|
||||||
|
Gain on sale of certain assets
|
—
|
(0.05
|
)
|
|||||
|
Income tax adjustments
|
—
|
0.37
|
||||||
|
EPS impact of using weighted-average dilutive shares for adjusted EPS calculation
(1)
|
0.01
|
—
|
||||||
|
Non-GAAP Adjusted EPS
|
$
|
0.36
|
$
|
0.85
|
||||
|
(1)
|
Represents the impact of using diluted weighted-average number of common shares outstanding (56.5 million shares for the three months ended July 31, 2022)
|
On a constant currency basis, Adjusted EPS decreased 60% primarily due to
a decrease in Adjusted OI, partially offset by a lower Adjusted Income Tax Provision.
SEGMENT OPERATING RESULTS:
|
|
Three Months Ended
July 31,
|
Constant Currency
|
||||||||||||||
|
RESEARCH:
|
2022
|
2021
|
% Change
Favorable
(Unfavorable)
|
% Change
Favorable
(Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Research Publishing
(1)
|
$
|
239,523
|
$
|
243,284
|
(2
|
)%
|
2
|
%
|
||||||||
|
Research Solutions
(1)
|
35,390
|
31,472
|
12
|
%
|
17
|
%
|
||||||||||
|
Total Research Revenue
|
274,913
|
274,756
|
—
|
4
|
%
|
|||||||||||
|
Cost of Sales
|
71,270
|
72,631
|
2
|
%
|
(5
|
)%
|
||||||||||
|
Operating Expenses
|
122,718
|
111,195
|
(10
|
)%
|
(16
|
)%
|
||||||||||
|
Amortization of Intangible Assets
|
11,821
|
11,906
|
1
|
%
|
(4
|
)%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
81
|
216
|
63
|
%
|
63
|
%
|
||||||||||
|
Contribution to Profit
|
69,023
|
78,808
|
(12
|
)%
|
(13
|
)%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
81
|
216
|
63
|
%
|
63
|
%
|
||||||||||
|
Adjusted Contribution to Profit
|
69,104
|
79,024
|
(13
|
)%
|
(13
|
)%
|
||||||||||
|
Depreciation and amortization
|
23,801
|
23,762
|
—
|
(3
|
)%
|
|||||||||||
|
Adjusted EBITDA
|
$
|
92,905
|
$
|
102,786
|
(10
|
)%
|
(9
|
)%
|
||||||||
|
Adjusted EBITDA Margin
|
33.8
|
%
|
37.4
|
%
|
||||||||||||
# Not meaningful
| (1) |
As previously announced in May 2022, our revenue by product type previously referred to as Research Platforms was changed to Research Solutions. Research Solutions includes infrastructure and publishing services that help societies and corporations thrive in a complex knowledge ecosystem. In addition to Platforms (Atypon), certain product offerings such as corporate sales which included the recent acquisitions of Madgex Holdings Limited (Madgex), and Bio-Rad Laboratories Inc.’s Informatics products (Informatics) that were previously included in Research Publishing moved to Research Solutions to align with our strategic focus. Research Solutions also includes product offerings related to certain recent acquisitions such as J&J, and EJP. Prior period results have been revised to the new presentation. There were no changes to the total Research segment or our consolidated financial results. The revenue reclassified was $20.0 million for the three months ended July 31, 2021, $93.3 million for the year ended April 30, 2022, and $80.3 million for the year ended April 30, 2021.
|
Revenue:
Research revenue for the three months ended July 31, 2022 was flat
compared with the prior year on a reported basis. On a constant currency basis, revenue increased 4% as compared with the prior year. Excluding revenue from acquisitions, organic revenue increased 2% on a constant currency basis. This increase was primarily due to an increase in open access publishing. Open Access article output growth was approximately 25% for the three months ended July 31, 2022 as compared with the prior year.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA de
creased 9% as compared with the prior year. This decrease was primarily due to higher employment costs including additional resources to support investments in growth, as well as higher travel and entertainment costs due to the resumption of in-person activities, which more than offset the increase in revenue.
|
|
Three Months Ended
July 31,
|
Constant Currency
|
||||||||||||||
|
ACADEMIC & PROFESSIONAL LEARNING:
|
2022
|
2021
|
% Change
Favorable
(Unfavorable)
|
% Change
Favorable
(Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
Education Publishing
|
$
|
63,056
|
$
|
66,380
|
(5
|
)%
|
(2
|
)%
|
||||||||
|
Professional Learning
|
69,903
|
72,884
|
(4
|
)%
|
—
|
|||||||||||
|
Total Academic & Professional Learning
|
132,959
|
139,264
|
(5
|
)%
|
(1
|
)%
|
||||||||||
|
Cost of Sales
|
38,731
|
42,071
|
8
|
%
|
4
|
%
|
||||||||||
|
Operating Expenses
|
90,097
|
85,246
|
(6
|
)%
|
(9
|
)%
|
||||||||||
|
Amortization of Intangible Assets
|
2,756
|
3,624
|
24
|
%
|
22
|
%
|
||||||||||
|
Restructuring Charges (see Note 9)
|
5,790
|
171
|
#
|
#
|
||||||||||||
|
Contribution to Profit
|
(4,415
|
)
|
8,152
|
#
|
#
|
|||||||||||
|
Restructuring Charges (see Note 9)
|
5,790
|
171
|
#
|
#
|
||||||||||||
|
Adjusted Contribution to Profit
|
1,375
|
8,323
|
(83
|
)%
|
(80
|
)%
|
||||||||||
|
Depreciation and amortization
|
16,532
|
18,364
|
10
|
%
|
7
|
%
|
||||||||||
|
Adjusted EBITDA
|
$
|
17,907
|
$
|
26,687
|
(33
|
)%
|
(30
|
)%
|
||||||||
|
Adjusted EBITDA Margin
|
13.5
|
%
|
19.2
|
%
|
||||||||||||
# Not meaningful
Revenue:
Academic & Professional Learning revenue de
creased $6.3 million, or 5%, as compared with the prior year on a reported basis. On a constant currency basis, revenue decreased 1% as compared with the prior year. This decrease was primarily due to a decrease in print textbooks in Education Publishing. Professional Learning increased due to corporate training, offset by a decrease in professional publishing and corporate learning.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA de
creased 30% as compared with the prior year. This decrease was due to higher employment costs, higher travel and entertainment costs due to the resumption of in-person activities, as well as the timing of certain expenses.
|
|
Three Months Ended
July 31,
|
Constant Currency
|
||||||||||||||
|
EDUCATION SERVICES:
|
2022
|
2021
|
% Change
Favorable
(Unfavorable)
|
% Change
Favorable
(Unfavorable)
|
||||||||||||
|
Revenue:
|
||||||||||||||||
|
University Services
(1)
|
$
|
47,811
|
$
|
54,968
|
(13
|
)%
|
(12
|
)%
|
||||||||
|
Talent Development Services
(1)
|
31,886
|
19,400
|
64
|
%
|
76
|
%
|
||||||||||
|
Total Education Services Revenue
|
79,697
|
74,368
|
7
|
%
|
11
|
%
|
||||||||||
|
Cost of Sales
|
64,030
|
51,252
|
(25
|
)%
|
(29
|
)%
|
||||||||||
|
Operating Expenses
|
21,390
|
19,355
|
(11
|
)%
|
(13
|
)%
|
||||||||||
|
Amortization of Intangible Assets
|
10,613
|
5,622
|
(89
|
)%
|
(90
|
)%
|
||||||||||
|
Restructuring Charges (Credits) (see Note 9)
|
833
|
(34
|
)
|
#
|
#
|
|||||||||||
|
Contribution to Profit
|
(17,169
|
)
|
(1,827
|
)
|
#
|
#
|
||||||||||
|
Restructuring Charges (Credits) (see Note 9)
|
833
|
(34
|
)
|
#
|
#
|
|||||||||||
|
Accelerated amortization of an intangible asset
(2)
|
4,594
|
—
|
#
|
#
|
||||||||||||
|
Adjusted Contribution to Profit
|
(11,742
|
)
|
(1,861
|
)
|
#
|
#
|
||||||||||
|
Depreciation and amortization
|
9,196
|
8,303
|
(11
|
)%
|
(12
|
)%
|
||||||||||
|
Adjusted EBITDA
|
$
|
(2,546
|
)
|
$
|
6,442
|
#
|
#
|
|||||||||
|
Adjusted EBITDA Margin
|
(3.2
|
)%
|
8.7
|
%
|
||||||||||||
# Not meaningful
| (1) |
In May 2022, we moved the WileyNXT product offering from Talent Development Services to University Services and the prior period results have been included in University Services. The revenue reclassified was $0.6 million for the three months ended July 31, 2021. There were no changes to the total Education Services segment or our total consolidated financial results.
|
| (2) |
On January 1, 2020, Wiley acquired mthree, a talent placement provider that addresses the IT skills gap by finding, training, and placing job-ready technology talent in roles with leading corporations worldwide. Its results of operations are included in our Education Services segment. In late May 2022, Wiley renamed the mthree talent development solution to Wiley Edge and discontinued use of the mthree trademark during the three months ended July 31, 2022. As a result of these actions, we determined that a revision of the useful life was warranted, and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022.
|
Revenue:
Education Services revenue
increased $5.3 million, or 7%, as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 11% as compared with the prior year. Excluding revenue from acquisitions, organic revenue increased 7% on a constant currency basis. This was primarily due to increased revenues from placements in Talent Development Services, partially offset by a decrease in University Services primarily driven by lower student enrollments. For the three months ended July 31, 2022, we delivered approximately 97% growth in talent placements in Talent Development Services. For the three months ended July 31, 2022, University Services experienced a 9% decrease in online enrollment.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA decreased $8.9 million as compared with the prior year. This was primarily a result of revenue mix. Total expenses increased due to higher employee costs to support growth in Talent Development Services and, to a lesser extent, higher technology and marketing related costs.
Education Services Partners and Programs:
As of
July 31, 2022
, Wiley had 66 university partners under contract, compared to 65 as of
July 31, 2021.
CORPORATE EXPENSES
Corporate expenses for the three months ended July 31, 2022 increased $20.2 million, or 46%, as compared with the prior year. On a constant currency basis and excluding restructuring charges (credits), these expenses increased 13% as compared with the prior year. This was primarily due to higher employee costs, and the timing of certain expenses.
FISCAL YEAR
2023
OUTLOOK:
The Company is reaffirming its full year outlook.
(amounts in millions, except Adjusted EPS)
|
Metric
|
Fiscal Year 2022 Actual
(1)
|
Fiscal Year 2023 Outlook
At constant currency
(1)
|
FX Impact
At Q1 average rates
(2)
|
Fiscal Year 2023 Outlook
At Q1 average rates
(3)
|
||||
|
Revenue
|
$2,083
|
$2,175 to $2,215
|
$(50)
|
$2,125 to $2,165
|
||||
|
Adjusted EBITDA
|
$433
|
$425 to $450
|
Immaterial
|
$425 to $450
|
||||
|
Adjusted EPS
|
$4.16
|
$3.70 to $4.05
|
Immaterial
|
$3.70 to $4.05
|
||||
|
Free Cash Flow
|
$223
|
$210 to $235
|
Immaterial
|
$210 to $235
|
|
(1)
|
Based on fiscal year 2022 average rates of 1.15 euro and 1.36 British pound.
|
|
(2)
|
Variance between fiscal year 2022 average rates and first quarter fiscal year 2023 average rates: 1.04 euro and 1.23 British pound.
|
|
(3)
|
Fiscal year 2023 outlook at first quarter fiscal year 2023 average rates.
|
|
•
|
Revenue Outlook:
We expect mid-single digit growth at constant currency driven by Research and corporate Talent Development in Education Services.
|
|
•
|
Adjusted EBITDA Outlook:
Adjusted EBITDA at constant currency is expected to be in the range of $425 and $450 million. Solid revenue growth and restructuring savings will be partially offset by targeted investments in Research Publishing, Research Solutions, and corporate Talent Development in Education Services, as well as higher employee costs overall.
|
|
•
|
Adjusted EPS Outlook:
Adjusted EPS at constant currency is expected to be in the range of $3.70 to $4.05. In addition to targeted investments and wage inflation, we expect higher interest expense, higher tax expense, and lower pension income. As previously disclosed, these three items are expected to account for 35-cents of additional adverse impact. Our adjusted effective tax rate is expected to rise this year from 20% to between 22% and 23%. This is primarily due to a less favorable mix of earnings by country and an increase in the UK statutory rate. In terms of the lower pension income, it's important to note that our pensions have been frozen since 2015 and we are above 90% funded.
|
|
•
|
Free Cash Flow Outlook:
Free Cash Flow is expected to be in the range of $210 and $235 million. Positive cash earnings and lower incentive payouts for Fiscal 2022 performance are expected to be offset by higher cash taxes, interest, and capital expenditures. Capital expenditures of $115 to $125 million compared to $116 million in the prior year. Capital investment will be focused on platform and product development in our core growth areas of Research and corporate Talent Development in Education Services.
|
|
•
|
In terms of our
outlook
including FX, currency remains a headwind at the revenue line but since most of our global business is denominated in US dollars, and given our large expense base in Europe, we are largely-self hedged from an earnings and cash flow standpoint.
|
In August 2022, the White House Office of Science and Technology Policy (OSTP) issued guidance for US federal agencies to make federally funded research freely available starting no later than December 31, 2025, without an embargo. For reference, less than 10% of Wiley’s published articles today are funded by US federal departments impacted by this guidance, and a third of those articles are already open access. Wiley has been working for several years with the OSTP and other stakeholders around the world to support the orderly transition to open research. This new guidance is aligned with Wiley’s stated strategy and mission, and is supported by the growth the Company is seeing in open research publishing. Wiley supports multiple publishing models to execute against the industry’s shared objective of unlocking access to scientific research and improving the efficiency of peer review and publication. Those models include journal subscriptions (“pay to read”), transformational agreements (“pay to read and publish”) and open access (“pay to publish”). In the past three years, our open access revenues, including from transformational agreements, have increased from less than 6% of total Research Publishing revenues to approximately 33% today. Therefore, while we are continuing to assess the guidance and its implications, we do not believe it will have a material financial impact on our Company.
LIQUIDITY AND CAPITAL RESOURCES
Principal Sources of Liquidity
We believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing and financing needs in the foreseeable future. There can be no assurance that continued or increased volatility in the global capital and credit markets will not impair our ability to access these markets on terms commercially acceptable in the future. We do not have any off-balance-sheet debt.
We will continue to pursue attractive opportunities to add scale and provide enhanced
technology
-enabled services in research and online education.
As of July 31, 2022, we had cash and cash equivalents of $104.5 million, of which approximately $96.3 million, or 92%, was located outside the US. Maintenance of these cash and cash equivalent balances outside the US does not have a material impact on the liquidity or capital resources of our operations. Notwithstanding the Tax Cuts and Jobs Act of 2017 (the Tax Act), which generally eliminated federal income tax on future cash repatriation to the US, cash repatriation may be subject to state and local taxes or withholding or similar taxes.
In addition, as a result of the UK exit from the European Union (EU), referred to as Brexit, certain tax benefits applicable to distributions from subsidiaries of our UK companies were eliminated or reduced effective January 1, 2021. Since April 30, 2018, we no longer intend to permanently reinvest earnings outside the US. We have a $2.7 million liability related to the estimated taxes that would be incurred upon repatriating certain non-US earnings.
On May 30, 2019, we entered into a credit agreement that amended and restated our existing revolving credit agreement, which was then amended on December 22, 2021 (collectively, the Amended and Restated RCA). See Note 15, “Debt and Available Credit Facilities” for more details on the amendment. The Amended and Restated RCA provides for senior unsecured credit facilities comprised of a (i) five-year revolving credit facility in an aggregate principal amount up to $1.25 billion, and (ii) a five-year term loan A facility consisting of $250 million. The agreement contains customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio.
As of July 31, 2022, we had approximately $939.1 million of debt outstanding, net of unamortized issuance costs of $0.3 million, and approximately $531.9 million of unused borrowing capacity under our Amended and Restated RCA and other facilities. Our Amended and Restated RCA contains certain restrictive covenants related to our consolidated leverage ratio and interest coverage ratio, which we were in compliance with as of July 31, 2022.
Analysis of Historical Cash Flow
The following table shows the changes on our Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended July 31, 2022 and 2021.
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Net cash used in operating activities
|
$
|
(89,939
|
)
|
$
|
(84,774
|
)
|
||
|
Net cash used in investing activities
|
(21,806
|
)
|
(23,532
|
)
|
||||
|
Net cash provided by financing activities
|
117,989
|
99,089
|
||||||
|
Effect of foreign currency exchange rate changes on cash, cash equivalents and restricted cash
|
$
|
(1,985
|
)
|
$
|
(1,586
|
)
|
||
Cash flow from operations is seasonally a use of cash in the first half of Wiley’s fiscal year principally due to the timing of collections for annual journal subscriptions, which occurs in the beginning of the second half of our fiscal year.
Free cash flow less product development spending helps assess our ability, over the long term, to create value for our shareholders, as it represents cash available to repay debt, pay common dividends, and fund share repurchases, and acquisitions. Below are the details of Free cash flow less product development spending.
Free Cash Flow less Product Development Spending:
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Net cash used in operating activities
|
$
|
(89,939
|
)
|
$
|
(84,774
|
)
|
||
|
Less: Additions to technology, property and equipment
|
(17,923
|
)
|
(17,910
|
)
|
||||
|
Less: Product development spending
|
(5,825
|
)
|
(5,670
|
)
|
||||
|
Free cash flow less product development spending
|
$
|
(113,687
|
)
|
$
|
(108,354
|
)
|
||
Net Cash Used In Operating Activities
The following is a summary of the $5.2 million change in Net cash used in operating activities for the three months ended July 31, 2022 as compared with the three months ended July 31, 2021 (amounts in millions).
|
Net cash used in operating activities – Three months ended July 31, 2021
|
$
|
(84.8
|
)
|
|
|
Net income adjusted for items to reconcile net income to net cash used in operating activities, including the following noncash items: depreciation and amortization, and the change in deferred taxes
|
(36.1
|
)
|
||
|
Working capital changes:
|
|
|||
|
Accounts payable and accrued royalties
|
(14.9
|
)
|
||
|
Accounts receivable, net and contract liabilities
|
25.3
|
|||
|
Changes in other assets and liabilities
|
20.5
|
|||
|
Net cash used in operating activities – Three months ended July 31, 2022
|
$
|
(90.0
|
)
|
The unfavorable change in accounts payable and accrued royalties was primarily due to the timing of payments.
The favorable change in accounts receivable, net and contract liabilities was primarily due to the timing of collections with customers.
The favorable changes in other assets and liabilities noted in the table above was primarily due to a decrease in employee-related costs, including lower payments for annual incentive compensation in fiscal year 2023 related to the prior fiscal year.
Our negative working capital (current assets less current liabilities) was $280.0 million and $418.6 million as of July 31, 2022 and April 30, 2022, respectively. This $138.6 million change in negative working capital was primarily due to the seasonality of our business. The primary driver of the negative working capital is the benefit realized from unearned contract liabilities related to subscriptions for which cash has been collected in advance. The contract liabilities will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of July 31, 2022 and as of April 30, 2022 includes $407.1 million and $538.1 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.
Cash collected in advance for subscriptions is used by us for a number of purposes, including funding operations, capital expenditures, acquisitions, debt repayments, dividend payments, and share repurchases.
Net Cash Used In Investing Activities
Net cash used in investing activities for the three months ended July 31, 2022 was $21.8 million compared to $23.5 million in the prior year. The
decrease in cash used in investing activities was due to a decrease of $2.9 million in cash used to acquire businesses and $2.3 million increase in cash proceeds related to other activities in the three months ended July 31, 2022, partially offset by cash proceeds of $3.4 million in the three months ended July 31, 2021 due to the
sale of
our world language product portfolio as described above.
Net Cash Provided By Financing Activities
Net cash provided by financing activities was $118.0 million for the three months ended July 31, 2022 compared to $99.1 million for the three months ended July 31, 2021. This
increase in cash provided by financing activities was primarily due to an increase in net borrowings of long-term debt of $14.2 million, and an $8.1 million change from book overdrafts, partially offset by a $2.6 million increase in cash used for purchases of treasury shares.
Dividends and Share Repurchases
In the three months ended July 31, 2022, we increased our quarterly dividend to shareholders to $1.39 per share annualized versus $1.38 per share annualized in the prior year.
The following table summarizes the shares repurchased of Class A and Class B Common Stock for the three months ended July 31, 2022 and 2021 (shares in thousands):
|
|
Three Months Ended
July 31,
|
|||||||
|
2022
|
2021
|
|||||||
|
Shares repurchased – Class A
|
212
|
129
|
||||||
|
Shares repurchased – Class B
|
—
|
1
|
||||||
|
Average price – Class A and Class B
|
$
|
47.12
|
$
|
56.88
|
||||
We are exposed to market risk primarily related to interest rates, foreign exchange, and credit risk. It is our policy to monitor these exposures and to use derivative financial investments and/or insurance contracts from time to time to reduce fluctuations in earnings and cash flows when it is deemed appropriate to do so. We do not use derivative financial instruments for trading or speculative purposes.
Interest Rates
From time to time, we may use interest rate swaps, collars, or options to manage our exposure to fluctuations in interest rates. It is management’s intention that the notional amount of interest rate swaps be less than the variable rate loans outstanding during the life of the derivatives.
The information set forth in Note 16, "Derivatives Instruments and Hedging Activities," of the Notes to Unaudited Condensed Consolidated Financial Statements under the caption "Interest Rate Contracts," is incorporated herein by reference.
On an annual basis, a hypothetical one percent change in interest rates for the $439.1 million of unhedged variable rate debt as of July 31, 2022 would affect net income and cash flow by approximately $3.4 million.
Foreign Exchange Rates
Fluctuations in the currencies of countries where we operate outside the US may have a significant impact on financial results. We are primarily exposed to movements in British pound sterling, euros, Canadian and Australian dollars, and certain currencies in Asia. The statements of financial position of non-US business units are translated into US dollars using period-end exchange rates for assets and liabilities and the statements of income are translated into US dollars using weighted-average exchange rates for revenues and expenses.
Our significant investments in non-US businesses are exposed to foreign currency risk. Adjustments resulting from translating assets and liabilities are reported as a separate component of Accumulated other comprehensive loss, net of tax within Shareholders’ Equity under the caption Foreign currency translation adjustment. During the three months ended July 31, 2022, we recorded foreign currency translation losses in Accumulated other comprehensive loss, net of tax of approximately $19.8 million primarily as a result of the fluctuations of the US dollar relative to the euro and the British pound sterling.
During the three months ended July 31, 2021, we recorded foreign currency translation losses in Accumulated other comprehensive loss, net of tax of approximately $5.9 million, primarily as a result of the fluctuations of the US dollar relative to the euro and, to a lesser extent the Australian dollar.
Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses on our Unaudited Condensed Consolidated Statements of Net (Loss) Income as incurred. Under certain circumstances, we may enter into derivative financial instruments in the form of foreign currency forward contracts to hedge against specific transactions, including intercompany purchases and loans.
The information set forth in Note 16, "Derivatives Instruments and Hedging Activities," of the Notes to Unaudited Condensed Consolidated Financial Statements under the caption "Foreign Currency Contracts," is incorporated herein by reference.
Sales Return Reserves
The estimated allowance for print book sales returns is based upon historical return patterns, as well as current market trends in the businesses in which we operate. In connection with the estimated sales return reserves, we also include a related increase to inventory and a reduction to accrued royalties as a result of the expected returns.
The reserves are reflected in the following accounts on our Unaudited Condensed Consolidated Statements of Financial Position:
|
|
July 31, 2022
|
April 30, 2022
|
||||||
|
Increase in Inventories, net
|
$
|
7,455
|
$
|
7,820
|
||||
|
Decrease in Accrued royalties
|
(4,072
|
)
|
(3,893
|
)
|
||||
|
Increase in Contract liabilities
|
29,647
|
31,135
|
||||||
|
Print book sales return reserve net liability balance
|
$
|
(18,120
|
)
|
$
|
(19,422
|
)
|
||
A one percent change in the estimated sales return rate could affect net income by approximately $0.3 million. A change in the pattern or trends in returns could affect the estimated allowance.
Customer Credit Risk
In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is generally collected in advance from subscribers by the subscription agents and is principally remitted to us between the months of December and April. Although currently we have minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 15% of total annual consolidated revenue, and no one affiliated group of subscription agents accounts for more than 10% of total annual consolidated revenue.
Our book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. No single book customer accounts for more than 7% of total consolidated revenue and more than 14% of accounts receivable at July 31, 2022. The top 10 book customers account for approximately 10% of total consolidated revenue and approximately 23% of accounts receivable at July 31, 2022.
The
Company's Chief Executive Officer and Chief Financial Officer, together with the Chief Accounting Officer and other members of the Company's management, have conducted an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure
.
T
here were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the quarter ended July 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting
.
PART II - OTHER INFORMATION
There have been no significant developments related to legal proceedings during the three months ended July 31, 2022. For information regarding legal proceedings, see our Annual Report on Form 10-K for the fiscal year ended April 30, 2022 Note 16, “Commitment and Contingencies”.
See Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. Except as required by the federal securities law, we undertake no obligation to update or revise any risk factor, whether as a result of new information, future events or otherwise.
During the three months ended July 31, 2022, we made the following purchases of Class A and Class B Common Stock under our publicly announced stock repurchase programs:
|
|
Total Number
of Shares
Purchased
|
Average
Price Paid
Per Share
|
Total Number
of Shares Purchased
as part of a Publicly
Announced Program
|
Maximum Number
of Shares that May
Be Purchased
Under the Program
|
Maximum Dollar
Value of Shares
that May Yet Be Purchased
Under Additional Plans or Programs
(Dollars in millions)
|
|||||||||
|
May 2022
|
—
|
$
|
—
|
—
|
—
|
$
|
197.5
|
|||||||
|
June 2022
|
105,421
|
47.53
|
105,421
|
—
|
192.5
|
|||||||||
|
July 2022
|
106,789
|
46.72
|
106,789
|
—
|
187.5
|
|||||||||
|
Total
|
212,210
|
$
|
47.12
|
212,210
|
—
|
$
|
187.5
|
|||||||
|
Articles of Incorporation and By-Laws
|
|
|
3.1*
|
Restated Certificate of Incorporation of John Wiley and Sons, Inc. July 1, 1992.
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Material Contracts
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10.1*
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Form of the Fiscal Year 2023 Executive Annual Incentive Plan.
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10.2*
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Form of the Fiscal Year 2023 Executive Long Term Incentive Plan.
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10.3*
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Restricted Share Unit Grant Agreement Under the Executive Long-Term Incentive Plan, Under the Business Officer Equity Program Pursuant to the 2014 Key Employee Stock Plan.
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10.4*
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Performance Share Unit Grant Agreement Under the Executive Long-Term Incentive Plan, Under the Business Officer Equity Program Pursuant to the 2014 Key Employee Stock Plan.
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Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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Inline XBRL
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101.INS*
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Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
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101.SCH*
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Inline XBRL Taxonomy Extension Schema Document.
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101.CAL*
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Inline XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF*
|
Inline XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB*
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE*
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Inline XBRL Taxonomy Extension Presentation Linkbase Document.
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104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
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*
Filed herewith
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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JOHN WILEY & SONS, INC.
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|||
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Registrant
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By
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/s/ Brian A. Napack
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||
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Brian A. Napack
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President and Chief Executive Officer
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By
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/s/ Christina Van Tassell
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Christina Van Tassell
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Executive Vice President and Chief Financial Officer
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By
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/s/ Christopher F. Caridi
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||
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Christopher F. Caridi
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Senior Vice President, Global Corporate Controller and Chief Accounting Officer
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Dated: September 7, 2022
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TABLE OF CONTENTS
Part I - Financial InformationItem 1. Financial StatementsNote 1 Basis Of PresentationNote 2 Recent Accounting StandardsNote 3 AcquisitionsNote 4 Revenue Recognition, Contracts with CustomersNote 5 Operating LeasesNote 6 Stock-based CompensationNote 7 Accumulated Other Comprehensive LossNote 8 Reconciliation Of Weighted Average Shares OutstandingNote 9 Restructuring and Related Charges (credits)Note 10 Segment InformationNote 11 InventoriesNote 12 Goodwill and Intangible AssetsNote 13 Income TaxesNote 14 Retirement PlansNote 15 Debt and Available Credit FacilitiesNote 16 Derivative Instruments and Hedging ActivitiesNote 17 Capital Stock and Changes in Capital AccountsNote 18 Commitments and ContingenciesItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II - Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits