John Wiley & Sons, Inc.

Good morning and welcome to Wiley's fourth quarter fiscal year 2020 earnings call. As a reminder, this conference is being recorded. At this time, I'd like to introduce Wiley's vice president of investor relations, Brian Campbell. Please go ahead.

Good morning and welcome to Wiley's fourth quarter and fiscal 2020 earnings update. On the call with me are Brian Netak, our president and chief executive officer, and John Kurtzmacher, our chief financial officer. A few reminders to start. The call is being recorded and may include forward-looking statements. You shouldn't rely on these statements as actual results may differ materially and are subject to factors discussed in our SEC filings. The company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances. Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These performance trends do not have standardized meanings prescribed by U.S. GAAP and therefore may not be comparable to the calculation of similar measures used by other companies. They should not be viewed as alternatives to measures under GAAP. Please see the reconciliation of all non-GAAP financial measures presented in the supplementary information included in our press release. Unless otherwise noted, we will refer to non-GAAP metrics on the call and all variances will exclude the impact of currency. After the call, a copy of this presentation and a playback of the webcast will be available on our Investor Relations webpage. I'll now turn the call over to Wiley's President and CEO, Brian Natak.

Thanks, and good morning, everyone. On behalf of all Wiley colleagues, I'd like to extend our thoughts to the many lives, many whose lives have been impacted by the global health and economic crisis. The past hundred days have reminded us of the critical importance of community and of how much we all rely on each other. We've been uplifted by neighbors, essential workers, and health professionals as they work to care for all of us. At Wiley, we've seen our community in action with scientists furiously developing testing, therapies, and vaccines, and with educators innovating and adapting to ensure that learners can continue their developmental journeys through these difficult times. We stand in solidarity with those affected by the egregious acts of racial injustice in Minneapolis, Louisville, and elsewhere in the world, and with those bringing awareness to this fundamental problem. The core values of community are central to Wiley's culture. Everything that we do as we work to improve access and affordability in education and to facilitate scientific progress, such as medical breakthroughs, now more than ever Our work can help to heal, recover, rebuild, and thrive. Like most businesses, Wiley's short-term performance has been adversely impacted by the pandemic and the resulting economic dislocation. At the outset, our priority was, of course, to ensure the safety and well-being of our colleagues. We transitioned very smoothly to work from home worldwide. Throughout, we've continued to support our customers, partners, and communities without interruptions. From a performance perspective, we drove hard through the fourth quarter and finished the year ahead of our April 9 expectations. During this period, we also generated good momentum in our key strategic areas of focus. The company is fundamentally strong. We benefit from modest leverage and ample liquidity. Nonetheless, we do face near-term uncertainty as universities and corporations work to adapt to new market and economic conditions. Consequently, we're stepping up our business optimization initiatives significantly in response to the pandemic, while carefully prioritizing the timing of investments to best serve our customers. Despite short-term challenges brought on by COVID-19, our key businesses, peer-reviewed research, online education, and corporate e-learning, continue to enjoy long-term positive trends. This is because each is an essential component of the global economy. In fact, Many of the long-term trends driving these businesses, on which we've built our strategies, are accelerating in our favor as a result of the current situation. Given the limits of our near-term visibility, we will not be providing annual guidance for fiscal 21 at this time. We will, though, be transparent in the quarters to come about what we're seeing and will provide important data points and KPIs as we make our way through the recovery period. I want to recognize the tireless work of our Wiley colleagues. They have kept the Wiley ship sailing strongly forward through the work-from-home transition and have largely thrived in terms of productivity and engagement. The team has continued to hit our goals and milestones while mitigating any impact on our operations brought on by the pandemic. Through the period, we've been securing important subscription agreements, even in hotspot areas, increasing publishing output, Thank you for joining us. We've made large amounts of scientific and medical research, digital courseware, and online education services freely available. We specifically opened up thousands of COVID-related research studies to help the search for effective testing, therapies, and vaccines. And we've helped many universities, schools, and companies go virtual as their physical operations have been disrupted. We're also working hard to keep the broader community supported wherever possible. Among other things, we are honored to have partnered with two organizations, GetUsPPE.org, which has delivered over a million face shields and other PPE to healthcare workers worldwide, and Digital Us, which is focused on working to equip workers with essential digital skills over the next 10 years. This will be even more critical going forward given the massive job dislocations. We've always been proud of what we do in research and education, but it's come into crisp focus amid the ongoing health concerns and economic insecurity caused by the coronavirus. Wiley is not immune to the disruption caused by the pandemic, but it's important to recognize that longstanding market trends remain highly favorable to Wiley businesses. Many of these are accelerating due to COVID-19. The value of peer-reviewed research is unquestioned, and the demand to publish and consume research continues to increase even through the crisis. The pandemic has caused colleges, universities, and students to embrace online education with unprecedented speed. To date, educators have had to be more reactive than strategic. But already, the sudden shift to remote learning has made digital courseware delivered at a compelling price point obviously essential. Our rising adoption and usage stats show this. Long-term, the wide-scale transition to education will benefit our growing service businesses as people migrate to efficient, affordable, career-focused education to gain the degrees and online credentials that they need to get jobs in an even more challenging labor market. On the corporate side, employers will continue to need help finding training and upskilling employees with hard-to-find skills in areas such as information technology, and there is now increasing recognition of cost-effective and powerful solutions. We are well aligned with our content platform and service offerings to help universities and corporations address the persistent skill gaps that exist today and going forward. Let's turn to the quarter's results. Note that we'll be excluding the impact of currency when discussing performance. As I said earlier, COVID-19 has had a significant impact on the fourth quarter, with revenue adjusted EPS and adjusted EBITDA down 2%, 44%, and 23%. The challenges introduced by the pandemic include the shutdown of retail bookstores and the temporary prioritization of essential goods by online retailers, which has significantly impacted print book sales. The shutdown of testing sites for college entrance and certification exams impacted our sales of test prep courses. The closure of corporate offices naturally led to the shutdown of in-person corporate training, which impacted the sale of our corporate assessment and training programs. And university closures delayed some journal subscription agreements, although we did finish the quarter strongly. The GAAP EPS loss of $2.83 this quarter reflected two non-cash, non-recurring impairment charges. In education services, we recorded a non-cash goodwill impairment charge of $110 million. Performance below acquisition expectations in COVID-related headwinds contributed to a determination that the carrying value of the education services segment exceeded its fair value. That said, we remain fully confident in the strong revenue growth and profit potential for our education services business. Second, we recorded a non-cash trade name impairment charge of approximately $90 million related to the Blackwell brand. This reflects a decision to simplify our brand portfolio by unifying our research journals under the Wiley brand. This approach will result in a sharp reduction in the use of the Blackwell trade name acquired in 2007. The charge is entirely unrelated to COVID-19 or the expected future performance of the research segment. We also recorded a restructuring charge of approximately $15 million related to our multi-year business optimization program. Both prior estimates due to additional actions related to the impact of COVID-19. I'll talk more about our efficiency measures, but I will say that we are controlling our expenses closely during the time. Temporary pay reductions for me and for my direct reports. and our Wiley colleagues globally as we navigate this uncertain economic phase. Collectively, the three unusual charges for the quarter amounted to $3.49 a share. Despite the obvious financial impact of COVID-19 on Q4 performance, we had some significant accomplishments. We closed important journal subscription agreements and drove strong double-digit open access growth. We achieved impressive research supply and demand metrics, including article submissions and platform usage. We generated momentum for digital courseware adoption before and during the transition to remote learning. We added four new university partners in education services, and we recorded $168 million in free cash flow per quarter. For the full year, We continue to see solid revenue and profit growth in our research and education services segments, while academic and professional learning was weighed down by challenging market conditions for print books and the fourth quarter impact of COVID-19. Revenue rose 3%, while adjusted EPS and adjusted EBITDA declined 21% and 8%, reflecting the dilutive impact of acquisitions, investment in organic growth, and the impact of COVID-19. Free cash flow is up 16% over prior year, but below fiscal year expectations, primarily due to COVID-related customer payment delays. Across Wiley, we made strong progress in fiscal 20 on our most important strategic priorities. This included publishing more in research, driving growth and momentum in digital courseware and online education, and improving our operating efficiency. Today, nearly 80% of Wiley's revenue is generated from digital products and tech-enabled services, and this continues to rise. Finally, our acquisitions this year bolstered our positions in IT career skills training, digital courseware, and corporate research products and platforms. The integration of prior acquisitions are all proceeding as expected. Now, let's take a look at our business segments. Our research business had another good year, with revenue up 2% and adjusted EBITDA up 4%, even after factoring in COVID-19. In the quarter, revenue declined 1%, while adjusted EBITDA was flat. As noted, we continue to see strong double-digit growth in open access publishing, and calendar year 2020 journal renewals were steady. Demand metrics were exceptional in fiscal 20, with article submissions up 13%, and Wiley Online Library usage up 25%. In the year, we continued to drive the market forward with comprehensive national agreements in the UK, Sweden and Finland. Finally, our add-upon platform's business grew 11% with eight new clients and recorded a 97% retention rate, further extending our market-leading position in the distribution of research content. Wiley Research continues to join a very strong market position with our strong portfolio of top field journals publishing a growing volume of research. Our focus for fiscal 21 is consistent with our stated strategy and recent momentum. We will continue to drive article volume growth and lead in open access. We must successfully navigate the calendar 21 renewal season as COVID-19 uncertainty weighs heavily on universities. Our calendar 20 Subscriptions are locked in through December, and our calendar 21 season kicks off in September. Our content remains essential to researchers inside these institutions, so we're cautious but confident. We will continue to expand our presence in China, given the huge opportunity there to source and publish more high-quality research. We will continue to grow our research web streams in corporate solutions and in research platforms. We made a couple of small acquisitions that we're excited about in the corporate space, one for spectroscopy software and databases that allow researchers and companies to interpret data, and a SAS Career Center platform for societies, associations, and other organizations. Just last week, we announced a deal to manage the science careers job for the American Association for the Advancement of Science, AAAS, the world's largest scientific society. This is just another example of Wiley consolidating its leading position with the science enabling more upsell opportunities. In fiscal 21, we also will continue to drive the optimization of our journal portfolio and our workflows to both improve our efficiency and to enhance the researcher experience. Despite the world's uncertainties, research remains a fundamentally strong business with a recession-tolerant profile and steady strategic momentum. As noted, academic and professional learning was severely impacted by the pandemic shutdowns of universities, workplaces, and bookstores. The most affected sectors for Wiley have been book publishing, mainly due to bookstore closures, test prep due to testing site closures, and in-person corporate training programs due to corporate office closures. All of these have shown improvement in May, but the near term remains challenged due to COVID-19. Academic and professional revenue and adjusted EBITDA for the year were down 6% and 28%, respectively. We're down 16% and 49% per quarter. On the bright side, as noted, the forced transition to remote learning has driven accelerated demand for digital courseware, with strong fourth quarter momentum in our critical learning platforms, Wiley Plus, Zybox, and Alpha. It's important to note that digital courseware and other digital content for comprised 59% of Wiley higher ed revenue in the year compared to 35% for print books and 6% for other products. We also saw good momentum in corporate e-learning with record usage for our cross-knowledge SAS learning platform and strong new corporate signings with 60 new logos signed this year compared to 43 in the prior year. The question marks for us in academic and professional for fiscal 21 are fall university enrollment We expect to have more clarity in the fall. While near-term uncertainty is evident across this segment due to COVID-19, long-term trends look favorable due to the increasingly robust migration to online learning in university and corporate settings. This move is being driven by the increasing market acceptance value proposition of digital learning platforms. Deliver strong learning outcomes at a reasonable price. We will continue to focus investment on high demand career areas, business, technology, engineering, science, math, and we will continue to deliver the highest quality content on digital learning platforms that drive adoption, usage, and education impact. We will leverage the accelerated shifts to digital courseware and e-learning by delivering a compelling price value proposition and innovative pricing models. Across the segment, we have major efficiency initiatives underway to address the near-term headwinds by transforming our workflows and better aligning our operating models with customer segments. Education Services delivered another solid year, with revenue up 42%, 11% organically, and our EBITDA margin tripling from 3% to 9%. Growth was driven by strong double-digit growth in fee-based education services revenue. We added four new university partners in the quarter, Drake University in Iowa, University of Iowa, Methodist University in North Carolina and Point University in Georgia. At the same time, we expanded our partner support during the COVID crisis, providing additional services such as technology resources, and assistance with course progression to get schools online quickly. We continue to improve the efficiency of the ed services business by optimizing the student lifecycle from acquisition to graduation by fine-tuning customer acquisition costs and by driving student retention rates. The business remains on track to realize our fiscal 22 goal of a 15% EBITDA margin. The integration of M3 is proceeding as planned, although COVID-19 does present a near-term challenge as companies adapt to these shutdowns and evaluate their hiring plans. As a reminder, M3 delivers job-ready IT talent to the world's leading corporations. We are mitigating the short-term demand issues with innovative programs that will help us accelerate out of the COVID pause by training and stockpiling high-potential talent So that it is ready to deploy when the market opens up. Since the acquisition, we've realized revenue and cost synergies across our growing tech education portfolio by integrating our two boot camp businesses, by driving collaboration between M3 and our IT courseware group, and by developing joint go-to-market approaches to M3 and cross-knowledge. As COVID-19 appeared, we saw a steep decline initially in new student lead bodies. as the public focused on the crisis at hand. At the same time, colleges and universities closed and were forced to go online overnight. For us, the net result of this disruption remains an unclear picture of fall enrollment, although lead bodies have generally rebounded and schools are increasingly clear about their fall plans. Expect to have a clearer view of enrollment as we get closer to the start of school in the fall. While fiscal 21 is difficult to predict, we do, as you said, see a continued acceleration of the movement toward online education by universities, by corporations, and, of course, by students. This is reflected in the continued high interest in our education services. And with this trend, and this trend will be helped by a challenge which typically, after a delay, causes enrollment to rise. In short, post-COVID, People will be looking for ways to quickly and cost-effectively get the education that can lead to better jobs. Wiley continues to lead in the market in helping universities and corporations find, educate, and develop talent. And we're well-positioned with 69 university partners, hundreds of degree programs, and a growing list of corporate clients that look to Wiley to deliver job talent. Key areas of focus in fiscal 21 for ed services include Moving quickly to support our senior partners in adapting to changing conditions, adding new partners and programs to our high quality portfolio, continuing to optimize the cost of student acquisition and to make the entire student journey more efficient. We have even a margin to also finish the integration screen while leveraging revenue cost synergies across our portfolio. Near-term uncertainty is the reality, but I think we're at an inflection point for effective career-enhancing education in the form of online and hybrid degrees and non-traditional certifications that allow people to rapidly and affordably meet the specific and constantly changing needs of the labor market. I like where we sit. With that, I will pass the call over to John.