8-K: Wiley Reports Mixed Q3 Results, Raises Full-Year Earnings Guidance

Wiley's third quarter results show a GAAP revenue decrease due to divestitures, but adjusted results indicate growth in core businesses, leading to an increased full-year earnings outlook.

Summary

• Wiley reported a GAAP revenue of $461 million, a 6% decrease, and a GAAP operating loss of $46 million for the third quarter of fiscal year 2024.
• The GAAP results were impacted by $82 million in goodwill impairments, $26 million in held-for-sale impairments, and a $26 million loss on a completed divestiture.
• Restructuring charges of $15 million were also recorded.
• Adjusted revenue, excluding held-for-sale or sold segments, was $403 million, a 1% increase at constant currency.
• Adjusted EBITDA was $92 million, a 1% increase, and adjusted EPS was $0.59, a 27% decrease.
• The company is trending towards the mid-to-high end of its adjusted revenue range of $1,580 to $1,630 million for the full year.
• Adjusted EBITDA guidance was raised to $335 to $355 million, and adjusted EPS guidance was raised to $2.45 to $2.65.
• Research revenue was $256 million, up 1% as reported, and flat at constant currency, with growth in Research Publishing offset by a decline in Research Solutions.
• Learning revenue was $146 million, up 2% as reported and at constant currency, with growth in Academic offsetting a decline in Professional.
• Businesses held for sale or sold had a revenue of $58 million, down 38% on a reported basis.
• Net cash provided by operating activities year-to-date was $24 million, compared to $54 million in the prior year period.
• Free cash flow less product development spending year-to-date was a use of $45 million, compared to a use of $22 million in the prior year period.
• Wiley allocated $87 million towards dividends and share repurchases year-to-date, acquiring 872,000 shares at an average cost of $33.24.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the raised earnings guidance and progress on cost savings, despite the GAAP losses and some segment declines. The focus on future growth and AI is also encouraging.

Positives

• Adjusted revenue showed a 1% increase at constant currency, indicating growth in core operations.
• The Learning segment demonstrated strong performance, with a 5% growth in Academic revenue.
• The company is making progress on its cost savings program, having actioned $80 million of the $130 million target.
• Wiley raised its full-year adjusted EBITDA and EPS guidance, reflecting confidence in future performance.
• The company is actively repurchasing shares, indicating a belief in its long-term value.
• Research Publishing is showing signs of improvement with double-digit submission growth.
• Wiley is actively exploring AI opportunities for content licensing, product innovation, and productivity gains.

Negatives

• GAAP revenue decreased by 6% due to divestitures and declines in held-for-sale businesses.
• GAAP EPS showed a loss of $2.08, impacted by significant impairment charges and divestiture losses.
• Adjusted EPS decreased by 27%, primarily due to higher tax and interest expenses.
• Net cash provided by operating activities decreased significantly year-over-year.
• Free cash flow less product development spending was a use of $45 million, compared to a use of $22 million in the prior year period.
• The Research segment's adjusted EBITDA declined by 2% at constant currency, impacted by higher costs and the Hindawi profit impact.
• The Professional segment within Learning experienced a 3% decline.

Risks

• The company faces risks related to the level of investment in new technologies and products.
• Subscriber renewal rates for journals and the financial stability of journal subscription agents pose potential challenges.
• The consolidation of book wholesalers and retail accounts could impact sales.
• Worldwide economic and political conditions may affect the company's performance.
• The company's ability to protect its copyrights and intellectual property is crucial.
• Successfully integrating acquired operations and realizing expected opportunities is not guaranteed.
• The company's ability to realize operating savings over time is subject to execution risks.
• The possibility that divestitures will not be pursued or completed is a risk.
• The company is exposed to the seasonal nature of the educational business and the impact of the used book market.

Future Outlook

Wiley expects revenue to trend towards the mid-to-high end of its range, with adjusted EBITDA between $335 to $355 million and adjusted EPS between $2.45 to $2.65 for fiscal year 2024. The company anticipates material performance and profit improvement in fiscal years 2025 and 2026.

Management Comments

• Matthew Kissner, Interim President and CEO, stated that they are increasingly confident in their underlying momentum and recovery in Research and continued outperformance in Learning.
• Management expects a strong fourth quarter as Research continues to recover, Learning continues to outperform, and in-year cost savings accelerate.
• Management believes their disciplined execution and positive momentum are allowing them to raise earnings guidance and set them up well for material performance and profit improvement in Fiscal 2025 and 2026.

Industry Context

Wiley's performance reflects the ongoing shift in the publishing industry towards digital content and open access models. The company's focus on AI and cost optimization aligns with broader industry trends aimed at improving efficiency and revenue streams. The divestiture of non-core assets is a common strategy for companies looking to streamline operations and focus on core competencies.

Comparison to Industry Standards

• Wiley's adjusted revenue growth of 1% is modest compared to some digital-first educational publishers, such as Coursera, which have seen higher growth rates in recent quarters, but is in line with traditional publishers.
• The adjusted EBITDA margin of 22.7% is comparable to other established academic publishers like Elsevier, but lower than some more profitable tech-focused education companies.
• The company's focus on cost savings and restructuring is similar to moves made by other legacy publishers facing digital disruption, such as Pearson.
• The divestiture of non-core assets is a strategy also seen in other publishing companies, such as Houghton Mifflin Harcourt, as they focus on core business segments.
• Wiley's investment in AI and machine learning is in line with the industry's move towards leveraging technology for content creation and delivery, similar to efforts by companies like Chegg.

Stakeholder Impact

• Shareholders will benefit from the increased earnings guidance and share repurchases.
• Employees may be impacted by the ongoing restructuring and cost savings initiatives.
• Customers will benefit from the company's focus on improving its products and services.
• Suppliers may be affected by the company's divestiture of non-core assets.
• Creditors will be impacted by the company's debt management and cash flow.

Next Steps

• Wiley will continue to execute its value creation plan.
• The company will focus on driving Research market share and strengthening brands.
• Wiley will accelerate the deployment of its new publishing platform.
• The company will continue to explore AI opportunities for growth and productivity.
• Wiley expects to complete the sale of Wiley Edge and CrossKnowledge by the first quarter of fiscal year 2025.

Key Dates

Keywords

Wiley, Financial Results, Third Quarter, Adjusted EBITDA, Adjusted EPS, Revenue, Divestiture, Research, Learning, Restructuring, Impairment, AI, Cost Savings, Share Repurchase