John Wiley & Sons, Inc.

Good morning and welcome to Wiley's second quarter fiscal year 2021 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.

Thank you. Good morning and welcome to Wiley's second quarter 2021 earnings update. With me today are Brian Apak, President and Chief Executive Officer, and John Kritzmacher, Chief Financial Officer. Brian and John will make some formal comments and then we'll open up for some questions. 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. Also, Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These measures do not have standardized meanings prescribed by US GAAP and, therefore, may not be comparable to similar measures used by other companies, nor should they be viewed as alternatives to measures under GAAP. Unless otherwise noted, we will refer to non-GAAP metrics on the call, and variances are on a year-over-year basis, similar to 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 Aback.

Good morning, everyone. Thanks for joining today. Our performance this quarter underscores the value of Wiley's role in the global economy. Through the year, we've seen an acceleration of the trends that have defined our markets for years, and this is driving a strong increase in the demand for scientific research and online education. Our first half performance demonstrates that our long-standing strategy to lead in open research and digital career-focused education is paying off, especially in these extraordinary and challenging times. Now, more than ever, the world is turning to research and education to help solve its unprecedented challenges. Scientific research is firmly in the spotlight and is more and more integrated into both corporate strategy and public policy. As part of the United Nations Sustainable Development Goals, countries have pledged to substantially increase their R&D spending and their number of researchers by 2030. Today, as always, we see investment flowing into the most critical fields of study, including areas such as renewable energy, artificial intelligence, and of course, vaccine science. This demonstrates how peer-reviewed research always remains essential to both problem solving and innovation. At research institutions worldwide, demand to publish high quality research keeps growing, and this is evidenced by a rapidly increasing publishing output. The demand to apply this research is also growing rapidly, and this shows in the record consumption of scientific content on our platforms. COVID-19 has brought the future of education forward, accelerating the digital transformation of learning in universities, in companies, and now, of course, in our homes. Career Enhancing Education is increasingly delivered online, and it is finally becoming more affordable and more broadly available, exactly what the world needs. Once again, postsecondary education is proving to be countercyclical as people seek a leg up in a tough job market. Despite the practical challenges of delivering education in a pandemic, enrollment this fall in both four-year and graduate degree programs has been much better than initially anticipated. and we've seen very strong demand for our online degree programs. We've seen similar growth in our digital content and courseware as people have pivoted to these lower priced, higher impact products. Beyond the traditional degree, demand is also increasing for new forms of credentials that are more focused and more affordable and that demonstrate that workers have exactly the skills that employers need most. Across Wiley, we view our role as to connect education to career outcomes. The pandemic has only accelerated the global focus on closing the skill gap, especially in areas such as IT and digital skills, and this has validated our focus on these areas. Our strategy and research has been consistent. Publish more and publish better. Accelerate profitable growth in education services and drive growth in online curriculum and courseware. Our investments in these areas are producing results. Research, publishing, and platforms delivered robust growth again this quarter with increasing profitability, driven by continued gains in open access. In education services, we continued to deliver strong online enrollment growth and win university partnerships. Importantly, we exceeded our fiscal 22 EBITDA margin goal of 15%, both in the second quarter and for the first half of fiscal 21. As a reminder, our Ed Services plan is for double-digit revenue growth with sustainable EBITDA margin of at least 15%. In academic and professional learning, education publishing continued to gain momentum as the digital transformation of university education accelerated, with revenue growth in digital content and courseware now outpacing the decline of print book sales. We continue to gain share in this highly competitive market. Professional learning remains weighed down by COVID-19 lockdowns, particularly in face-to-face corporate training, although we are seeing very good early results from our rapid transition to online delivery. We continue to drive cost savings throughout Wiley, and the pandemic has allowed us to move even faster. As a digital company with a mission-driven culture, we transitioned rather seamlessly to a virtual operating model. Based on this success, we will be enabling more of our Wiley colleagues to work remotely post-COVID, allowing us to reduce our real estate footprint and generate material run rate savings. Finally, Wiley's free cash flow through the first half was $32 million ahead of prior year, primarily due to improved earnings. Let's talk about our Q2 results in more detail. Growth in our areas of strategic focus, such as research, Online education and digital courseware offset COVID-driven declines in print books, test prep, and in-person corporate training. Revenue rose 4% over prior year and was even on an organic basis. Our earnings improvement this quarter was primarily driven by good top-line performance, cost improvement from business optimization, and COVID-related savings. Adjusted EPS and EBITDA and adjusted EBITDA were up 7% and 12%. On a GAAP basis, we reported an additional $14 million discrete tax benefit related to the U.S. CARES Act. For the half, revenue was up 3% over prior year to $922 million. Adjusted EPS was up 33% to $1.41, and adjusted EBITDA was up 19% to $202 million. Our strategies and research. to grow open access, drive platform growth, and optimize our publishing operations continue to bear fruit, with revenue and adjusted EBITDA up 5% and 14%. Our adjusted EBITDA margin in the quarter was 37%, up from 35% in the prior year period. Underlying the business, we see very strong growth in article output, up 22% over prior year. Some of the increase can be attributed to the unique environment we're in, with the largest growth coming from pandemic-related subject areas like clinical medicine and epidemiology. That said, we believe strong demand to publish is here to stay. It's important to note that demand was very robust prior to COVID-19, with article submissions up 9% in the nine months through January 2020. So we're seeing strong secular growth in the demands to publish, which of course directly benefits us, Especially as we grow the volume-driven open access model. Our strategic national agreements in Europe are succeeding, and they are generating publishing volumes that are materially exceeding our expectations. As a reminder, these multi-year agreements are a combination of pay-to-read and pay-to-publish models, and they are typically done with large national consortia in places like Germany and the UK. We're seeing great momentum coming from these agreements in the form of increased article output and new publishing opportunities. This quarter, we launched Natural Sciences, a major new flagship journal brand created in partnership with the influential Project Yield Consortium out of Germany. We're very excited about this promising top-quality journal that will publish only the best research from around the world. On the consumption side, usage of our content continues to be very robust, with continued double-digit growth in full-text downloads on the Wiley Online Library. Revenue from our research platforms rose 11% on new customer launches for Literata, our industry-leading content distribution platform. Our customer retention rate on a trailing 12-month basis continues to be an exceptional 98%. Corporate Solutions, which is another growth area for us in research, continues to gain momentum. For example, we've been expanding our career center platform offerings, and this is starting to pay off in even deeper relationships with our leading network of societies, associations, and corporations. For example, we now manage the job board for the world's largest scientific society, AAAS, the American Association for the Advancement of Science, and we recently secured job board contracts with the global pharmaceutical companies GlaxoSmithKline and Pfizer. As a company, we're acutely focused on serving researchers and building a vibrant ecosystem that helps them to succeed, and our results are showing it. In the second half, we have two key objectives. First, successfully close calendar year 21 subscription renewals, and second, take full advantage of the continued strong demand to publish in our journals. Through October, we've closed about 20% of our annual renewals compared to 16% at this time last year, and we've made great progress in renewing key accounts. That said, we continue to anticipate modest pricing pressure in subscriptions due to COVID-related constraints in library budgets, but we expect to offset this with strong growth in open access, where revenue is a direct function of the quantity of articles published. As a market leader with nearly 1,700 journal brands and an unmatched reputation, we're in a terrific position to publish more, including publishing more of the submissions we receive. In the nine months of calendar year 20, we received over 600,000 submissions, accepting around 25% of them. Many rejected manuscripts are high quality but just don't fit a particular journal. We continue to improve the efficiency in transferring these articles to other Wiley journals where they do fit without sacrificing quality. We're now using artificial intelligence to seamlessly evaluate and route articles to appropriate journals. Given the breadth of our journal portfolio, this cascading capability provides an important competitive advantage and source of growth. Overall, researchers want their work published in the best journals possible and they want it published faster and they want it made more discoverable. Thus, we continue to enhance our publishing portfolio and drive innovation throughout the publishing process. This allows us to consistently improve the impact of our journal brands and the value proposition for researchers. As part of this, we continue to reduce publishing cycle times, which increases researcher satisfaction while also improving our margins. In academic and professional learning, We continue to deliver on our strategies to grow digital content and courseware, focus on career-oriented disciplines, and pivot to online corporate training. Education publishing revenue was even with prior year, as digital growth offset print declines and the impact of COVID-19 on test prep. Digital content revenue rose 32%, and ZyBooks, our STEM courseware platform, rose 46%. Overall, we continue to gain market share in higher ed publishing, growing it from 4% in October 18 to 5% in October 20 on a 12-month trailing basis. Notably, fall enrollment numbers in higher education continue to be better than we had anticipated in the early days of COVID, although still down around 4% overall. In the past two years, we've been saying that our strategy to drive digital adoption would allow us to return to growth by driving significantly higher digital units from increased sell-through as we use digital courseware to recapture units that were lost for the sale of print books through non-revenue generating channels. As you can see in our strong digital growth, the strategy is working and we'll continue to capitalize on this favorable momentum. As noted, Professional learning continues to be adversely affected by COVID-19. Revenue was down 13%, primarily due to severe limitations on in-person training. Results improved in the second quarter as we shifted to virtual learning, grew trade publishing output, and benefited from some improvement in our bookstore business. Our Dummies franchise was a bright spot this quarter. with solid year-over-year growth from the publishing of timely new titles on topics such as succeeding in virtual work environments. Overall, academic and professional learning revenue declined 5%, a significant improvement over the 12% and 16% declines we saw in the prior two quarters. Adjusted EBITDA was down 10% for a second quarter margin of 29%. Our strategy to help students achieve better outcomes while making education affordable and accessible is playing out in the success of our digital courseware platforms. XyBooks and NewtonAlta. We recently completed a breakthrough pilot for XyBooks at the University of Phoenix involving over 800 students. The data clearly showed that XyBooks helps students to persevere with their studies and significantly improve their performance on midterm and final exams. This, along with an affordable price, It's helping Zybooks to win large course adoptions and grow by strong double digits. In other news, we recently announced a partnership with Southern New Hampshire University to redesign its online MBA program, which effectively removes two huge barriers for learners, cost and time to completion. Southern New Hampshire is the largest nonprofit provider of online higher education in the country with over 135,000 students. To build this program, Wiley collaborated with the AICPA, the Association of Certified Public Accountants, to deliver business courses that allow learners to complete their MBA in one year and at a materially lower cost than traditional degree programs. For the second half, we expect current trends to continue, namely that digital content and courseware will grow strongly despite online enrollment headwinds. Print books, test prep, and corporate training will remain challenged by COVID-19, although corporate training will continue to recover as it transitions from in-class to virtual delivery. I'm pleased to report that 84% of our corporate training sessions are now being delivered virtually, up from 20% at the same time last year. We expect our trade book sales to improve in the second half as we continue to publish more titles on high-interest topics ranging from diversity, equity, and inclusion to remote learning. Finally, we anticipate profit improvement in the second half as we realize additional business optimization savings. In education services, our strategies to grow online program enrollment, to sign university partnerships, and to drive strong profitable growth are working. For the quarter, revenue rose 27% or 6% organically, driven by 13% growth in student enrollment. New student enrollment in our existing degree programs grew 22%, a reliable leading indicator of future revenue growth. Strong gains in our traditional tuition share programs were partially offset by lower sales of unbundled services as some clients were constrained by COVID-related budget issues. We signed full-service partnerships this quarter with the University of Montana and La Trobe University in Australia. We also signed one of our largest unbundled service partnerships to date with the University of Wyoming. The signing of La Trobe, one of Australia's largest universities with a total of 39,000 students, builds on our strong education publishing presence in the Australian market. The partnership will start with five graduate programs in healthcare and business administration that will launch in March. An important accomplishment, as I mentioned earlier, is that we exceeded our fiscal 22 EBITDA margin target of 15% with a second quarter margin of 21% and a first half margin of 17%. This milestone reflects our sharp focus on profitable growth and the optimization of the student journey from marketing to application and enrollment. We are building a balanced growth business for the long term. Our focus on filling the IT and digital skills gap continues unabated through COVID. While hiring has been temporarily limited, corporate demand for tech talent remains higher than we originally anticipated, and we continue to fill critical roles for our blue-chip customers worldwide. As a reminder, M3 creates job-ready talent for the world's leading corporations, including Bank of America, Morgan Stanley, and JP Morgan. It does so by finding training, By finding, training, and placing the right candidates directly into jobs with the specific hard and soft skills these clients require. For the second half of the year, we anticipate strong online enrollment growth to continue and interest in online programs to remain high. We see a solid pipeline of potential new university partners and expansive opportunities inside our existing base. We feel good about the unique position we're in. No other competitor in the space has Wiley's university reach and globally respected brand. IT talent placement volume is anticipated to be steady for the balance of the year as our corporate partners continue to build out their tech talent capacity. While M3's near-term growth prospects remain a bit muted due to COVID, the intermediate and longer-term growth opportunity remains strong. We will continue to make material strides in business optimization and education services. The student journey from lead to enrollment is a particular area of focus with the result being lower student acquisition costs, greater lead conversion, and much enhanced user experience for prospective students. We continue to invest prudently in the business to drive growth by signing new partners, launching new programs, driving online enrollment, and exploiting new opportunities brought on by the accelerated shift to virtual learning. We are also continuing to expand our offerings to provide learners with a full range of outcomes-based pathways to achieve their goals. For instance, we're gaining momentum with Wiley Beyond, a strategic education platform for corporations that helps employees to earn degrees and certifications through Wiley's unmatched network. We've signed our first corporate partners and see great opportunity ahead. Wiley Beyond is another area where we are bridging education to career outcomes. We'll now pass the call over to John to take you through our financial profile, cost saving initiatives, and full year outlook.