Wiley Reports Third Quarter Fiscal 2019 Results

HOBOKEN, N.J.--(BUSINESS WIRE)-- John Wiley & Sons, Inc. (NYSE:JWA)(NYSE:JWB), a global leader in research and education, today announced results for the third quarter ended January 31, 2019:

• GAAP results: Revenue of $449 million (-1%), Operating Income of $50 million (-23%), and EPS of $0.61 (-$0.58)
• Adjusted results (non-GAAP, constant currency): Revenue +1%, Adjusted Operating Income -21%, and Adjusted EPS -22%
• Revenue and Adjusted EPS guidance reaffirmed; Cash from Operations outlook lowered; impact to Free Cash Flow to be mitigated by substantially lower Capex

“We made significant progress throughout Wiley this quarter, securing a groundbreaking Research publishing partnership with Germany’s DEAL consortium, growing Open Access publishing by 48%, closing and integrating our Learning House acquisition, signing eight strategic university partnerships, and ramping up our cross-Wiley optimization initiative to improve our cost structure, agility, and effectiveness," said Brian Napack, Wiley's President and CEO. "Growth was evident across the portfolio except for our traditional book businesses, which weighed heavily on results. We are confident the plans we already have in motion will help mitigate this pressure in books and continue the overall progress that we are making.”

• Non-GAAP EPS excludes prior year impact from: (a) US Tax Cuts and Jobs Act implementation benefit of $0.43 per share; (b) foreign exchange losses associated with intercompany transactions of $0.07 per share; and (c) restructuring charges of $0.04 per share.
• Results include one full quarter of Learning House (acquired Nov 1) +$13 million in revenue, -$6 million in operating income, and -$0.11 in EPS.
• Wiley recorded foreign currency variances in the quarter of $11 million unfavorable in revenue, $3 million unfavorable in operating income, and $0.07 unfavorable in EPS.

Non-GAAP

Wiley provides non-GAAP financial measures and performance results such as “Adjusted EPS,” “Adjusted Operating Income,” “Adjusted CTP,” “Free Cash Flow less Product Development Spending,” and results on a Constant Currency (or “CC”) basis to assess underlying business performance and trends. Management believes non-GAAP financial measures, which exclude the impact of restructuring charges and credits and certain other items, provide for a more comparable basis to analyze operating results and earnings. See the reconciliations of non-GAAP financial measures and explanations of the uses of non-GAAP measures in the supplementary information accompanying this press release.

Revenue reflected growth in Research (+1% reported, +5% CC) and Solutions (+25%, +26% CC, or +3%, +5% CC excluding Learning House acquisition) offset by a decline in Publishing (-14%, -13% CC).

Research segment results were driven by double-digit growth in Open Access (+43%, +48% CC) and Atypon (+10%). Journal Subscriptions revenue was down 5% on a reported basis, -1% at constant currency.

Publishing segment results reflected declines in Education Publishing (-23%, -21% CC) and STM and Professional Publishing (-20%, -18% CC), which offset growth in Test Preparation and Certification (+23%, +24% CC) and WileyPLUS (+7%, +8% CC).

Solutions segment growth was driven by the contribution from the Learning House acquisition (+$13.4 million) and growth in Professional Assessment (+10%), Corporate Learning (+1%, +5% CC) and Education Services (+2% excluding Learning House). Eight new university partnerships were announced, including East Central University (OK), Emmanuel College (MA), Illinois College (IL), University of Kentucky, Loyola University Law School (Los Angeles), Notre Dame College (OH), Shawnee State University (OH), and University of West Florida.

GAAP Operating Income and Adjusted Operating Income declines reflect investment in growth initiatives, the dilutive impact of the Learning House acquisition, and unfavorable foreign exchange impacts.

Research CTP grew 4% on a reported basis and 8% on an adjusted basis at constant currency, reflecting higher revenue.

Publishing CTP declined 30% on a reported basis and 28% adjusted at constant currency mainly due to lower revenue.

Solutions CTP declined by $10 million on a reported basis and $11 million adjusted at constant currency due to the dilutive impact of the Learning House acquisition ($5 million, including $3 million of acquired intangibles amortization) and increased marketing costs to drive future enrollment growth.

Corporate Expenses declined 14% on a reported basis due to restructuring charges, or 11% on an adjusted basis at constant currency, primarily due to lower employment costs.

GAAP EPS year-over-year variance mainly reflected lower operating income along with a $0.43 implementation benefit in the prior year related to the US Tax Cuts and Jobs Act. Adjusted EPS at constant currency declined primarily due to investments in growth initiatives and dilution related to the Learning House acquisition.

• Non-GAAP EPS excludes current year impact from (a) foreign exchange losses associated with intercompany transactions of $0.06 per share and (b) restructuring charges of $0.05 per share and the prior year impact from (a) US Tax Cuts and Jobs Act implementation benefit of $0.43 per share; (b) restructuring charges totalling $0.37 per share; and (c) foreign exchange losses associated with intercompany transactions of $0.16 per share.
• Results include one full quarter of Learning House (acquired Nov 1) +$13 million in revenue, -$6 million in operating income, and -$0.11 in EPS
• Wiley recorded foreign currency variances in the nine months of $17 million unfavorable to revenue, $8 million unfavorable to operating income, and $0.11 unfavorable to EPS.

Revenue reflected growth in Research (+1% reported, +2% CC) and Solutions (+14%) offset by a decline in Publishing (-8%, -7% CC).

Research segment results were driven by growth in Open Access (+39% reported, +40% CC) and Atypon (+10%), offsetting a decline in Journal Subscriptions (-3% reported, -1% CC), primarily related to delays in quoting and closing calendar year 2019 subscription agreements.

Publishing segment performance primarily reflected declines in STM and Professional Publishing (-8%) and Education Publishing (-16% reported, -15% CC). Education Publishing now represents less than 10% of total Wiley revenue. These book revenue declines were partially offset by higher revenue in WileyPLUS (+8 % reported, +9% CC), due in large part to revenue recognition timing, and growth in Test Preparation (+8% reported, +9% CC).

Solutions segment growth included higher revenue in all three businesses: Education Services (+19%, or +4% excluding Learning House), Corporate Learning (+9% reported, +10% CC), and Professional Assessment (+8%).

GAAP Operating Income largely reflected revenue performance and higher restructuring charges in the prior year. Adjusted Operating Income declined mainly due to investment in growth initiatives.

Research CTP declined 7% on a reported basis and 4% on an adjusted basis at constant currency. Performance reflected higher society publishing royalties and investments in editorial resources to support increased journal publishing, as well as higher investment in sales and marketing resources.

Publishing CTP declined 8% on a reported basis and 16% at constant currency, reflecting revenue performance.

Solutions CTP declined 42% on a reported basis or 49% adjusted at constant currency due to dilution from the Learning House acquisition (-$5 million, including $3 million of acquired intangibles amortization) and investment to drive future enrollment growth in Education Services.

Corporate Expenses decreased 7% on a reported basis due to higher restructuring charges in the prior year but increased 1% on an adjusted basis at constant currency primarily due to first half costs associated with strategic planning.

GAAP EPS largely reflected lower reported operating income in the current year and the prior year implementation benefit from the US Tax Cuts and Jobs Act, offset by higher restructuring charges and foreign exchange losses in the prior year. Adjusted EPS declined primarily due to lower adjusted operating income.

Net Cash Provided by Operating Activities declined primarily due to lower earnings and unfavorable working capital performance, including ERP transition-related delays in quoting and closing calendar year 2019 journal subscription agreements, which have in turn delayed collections. Cash performance also includes a $10 million discretionary contribution to the US pension plan in the quarter. Free Cash Flow less Product Development Spending performance declined due to lower cash provided by operating activities, which was partially offset by lower capital expenditures. Capital investment, which includes Technology, Property, and Equipment and Product Development Spending, declined $45 million to $64 million due to the completion of Wiley’s headquarters transformation, the May 2018 implementation of our ERP order-to-cash release for journal subscriptions and reporting changes related to the adoption of ASC 606.

Shareholder Return: In June 2018, Wiley raised its annual dividend for the 25^th consecutive year to $0.33 per quarter (+3%). In the nine months, the Company utilized approximately $57 million of cash for dividends and $35 million for share repurchases with an average per share cost of $55.21.

FISCAL YEAR 2019 OUTLOOK

The Company is reaffirming its Revenue, Adjusted EPS and Capex guidance but reducing its outlook for Cash Provided by Operations.

*Outlook excludes contributions from The Learning House acquisition (closed on November 1). For fiscal 2019, the Company anticipates The Learning House to contribute approximately $30 million in Revenue and be dilutive to EPS by approximately $0.15.

• Cash Provided by Operations update reflects lower working capital performance, implementation of ASC 606, which moves approximately $10 million of spending from Capital Expenditures to Cash Provided by Operations, and a discretionary $10 million pension contribution.
• Capital Expenditures are expected to be lower by approximately $50 million primarily due to the completion of the Company’s headquarters transformation, the May 2018 implementation of our ERP order-to-cash release for journal subscriptions and reporting changes related to the adoption of ASC 606.
• Non-GAAP effective tax rate for the year is expected to be approximately 22-23%.

EARNINGS CONFERENCE CALL

Scheduled for today, March 5 at 10:00 a.m. (ET). Access the webcast at https://edge.media-server.com/m6/p/v7pc4sbn, or on Wiley.com at https://www.wiley.com/en-us/investors. U.S. callers, please dial (877) 260-1479 and enter the participant code 2197585#. International callers please dial (334) 323-0522 and enter the participant code 2197585#.

ABOUT WILEY

Wiley is a global leader in research and education. Our research and education content, platforms, and services help universities, corporations, researchers, and learners to achieve their academic and professional goals. For more than 200 years, we have delivered consistent performance to our stakeholders. The company's website can be accessed at www.wiley.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements concerning the Company's Fiscal Year 2019 Outlook, operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements. Any such forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for the Company's 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 online retailers; (vi) the seasonal nature of the Company's educational business and the impact of the used book market; (vii) worldwide economic and political conditions; (viii) the Company's ability to protect its copyrights and other intellectual property worldwide (ix) the ability of the Company to successfully integrate acquired operations and realize expected opportunities; (x) achievement of targeted run rate savings through restructuring actions; and (xi) other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.

(1) See Explanation of Usage of Non-GAAP performance measures included in this supplementary information for additional details on the reasons why management believes presentation of each non-GAAP performance measure provides useful information to investors. The supplementary information included in this press release for the three and nine months ended January 31, 2019 is preliminary and subject to change prior to the filing of our upcoming Quarterly Report on Form 10-Q with the Securities and Exchange Commission.

JOHN WILEY & SONS, INC.
Explanation of Usage of NON-GAAP Performance Measures

In this earnings release and supplemental information, management presents the following non-GAAP performance measures:

• Adjusted Earnings Per Share (“Adjusted EPS”);
• Free Cash Flow less product development spending;
• Adjusted Operating Income and margin;
• Adjusted Contribution to Profit ("CTP") and margin; and
• Results on a constant currency basis.

Management uses these non-GAAP performance measures as supplemental indicators of our operating performance and financial position as well for internal reporting and forecasting purposes, when publicly providing its outlook, to evaluate the Company's performance and to evaluate and calculate incentive compensation. 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 Company presents these non-GAAP performance measures in addition to GAAP financial results because it believes that these non-GAAP performance measures provide useful information to certain investors and financial analysts for operational trends and comparisons across accounting periods. The use of these non-GAAP performance measures provides 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. For example:

• Adjusted EPS, Adjusted Operating Profit, Adjusted Contribution to Profit provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance.
• 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 new acquisitions.
• Results on a constant currency basis removes distortion from the effects of foreign currency movements to provide better comparability of our business trends from period to period. We measure our performance before 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.

In addition, the Company has historically provided these or similar non-GAAP performance measures and understands that some investors and financial analysts find this information helpful in analyzing the Company's operating margins, and net income and comparing the Company's financial performance to that of its 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 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.

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