John Wiley & Sons, Inc.

Good morning, and welcome to Wiley's Q4 Fiscal 2023 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, and welcome everyone. Joining me today are Brian Napak, Wiley's President and CEO, and Christina Van Tassel, Executive Vice President and CFO. Note that our comments and responses to your questions reflect management's views as of today and will include forward-looking statements. Actual results may differ materially from those statements. The company does not undertake any obligation to update them 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 described by U.S. 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 and will exclude the impact of currency. Additional information is included in our filings with the SEC. A copy of this presentation and transcript will be available on our investor relations webpage at investors.wiley.com. I'll now turn the call over to Brian Napek.

Hello, everyone, and thanks for joining. We have a lot to talk about. As you saw in our press release, we're announcing today a set of actions that will unlock significant value for our shareholders. These actions will focus Wiley on its greatest strengths, its best opportunities, and its most profitable business lines. They will significantly simplify Wiley, and in doing so, increase both our competitive advantage and our financial performance. Today, Wiley leans into its strength as a global knowledge company, a leader in research and the creation of new knowledge, and in the application of this knowledge to solve real-world problems. We are very excited about the next phase of Wiley's journey, and we're looking forward to sharing this vision with you. Before we dive all the way in, let me give you a top-of-the-waves view of today's main messages. First, regarding performance, fiscal 23 did not play out as we expected. As discussed through the year, macro and market headwinds drove lower spending in our education markets. In addition to this, we proactively decided to temporarily suspend a fast-growing publishing program due to a content integrity issue that we have now resolved. For these reasons, Wiley's revenue performance significantly under-delivered. We moved aggressively and mitigated the impact on profitability, but we were nonetheless disappointed in our results. We are taking decisive action to unlock value by sharpening Wiley's focus. You've heard me say before that a simpler Wiley is a better Wiley, and we are now acting to achieve this goal. We are focusing Wiley on our strong and highly profitable core and our best opportunities in research and learning where we are a global leader. As we focus Wiley, we are divesting certain non-strategic assets. and we are restructuring and rightsizing the company to drive sustained performance improvement. It'll take some time to work through these changes and also to shake off the unusual market events of 2023. As we do, we'll continue to invest actively in our future, so fiscal 24 will be a transition year for Wiley. We expect to begin realizing benefits from all these actions later in fiscal 24, building toward their full realization in fiscal 25 and 26, and beyond. Wiley is a special company with a rich legacy, an extraordinary team, and a bright future. We are financially strong, and we are leaders in the market for new knowledge. We have many large opportunities in front of us, and we are now focusing the company to deliver the results that our stakeholders deserve. Now I'll talk about full-year performance. As I said, fiscal year 2023 was a challenging and unpredictable year in our markets. and Wiley's results were simply not good enough. We ended the year with revenue flat on a constant currency basis due to soft demand in education and lower than expected publishing volume and research, most notably from the Hindawi Special Issues publishing pause. Our GAAP EPS was 31 cents compared to $2.62 in the prior year. This large variance was due to a $1.77 per share non-cash goodwill impairment to university services and 66 cents of restructuring charges related to targeted workforce reductions and real estate consolidation. Adjusted EBITDA declined 2% to $422 million with increased investment in research, offsetting expense management and lower incentive compensation driven by underperformance. That said, our adjusted EBITDA margin of 21% was modestly ahead of prior year. Our adjusted EPS declined 8% to $3.84 with higher interest expense as the primary contributor. As I mentioned, the revenue shortfall against expectations was substantial, but reacted quickly and effectively. We actioned significant cost savings in year, and these actions largely mitigated the impact on profitability. EPS landed in our original guidance range, and EBITDA landed slightly below the range. Free cash flow of $173 million was down by $50 million. The difference between earnings and cash flow was largely a result of restructuring payments and higher interest expense. Christina will talk about all this in more detail. I want to give you some context about research's performance this past year, which was atypical. There were three primary short-term drivers of the shortfall, and they do not alter our confidence in the trajectory of the business. The most significant was our special issues publishing pause at Hindawi, which we discussed in depth last quarter. The second driver was article volume, which was lower than expected. A third was the cyclical downturn in spending on advertising and other marketing services, which led to lower corporate solutions revenue. I'll now talk about the first two. Throughout fiscal 23, both submissions and publishing output lagged both our expectations and historical norms. This was true across the industry. Industry article volume declined in 18 of the top 20 geographic markets in calendar 22. This unusual softness is attributed to two separate but related shorter-term issues. The first is the unwinding of the well-documented COVID bump up in research article submissions that occurred during the COVID years of 2020 and 2021. And the second is the material loss in researcher productivity during those same years, which inevitably led to reduced output. Essentially, many researchers weren't unable to conduct new research during the lockdown, so they spent their time writing papers. At the same time, the world was urgently pushing to get new COVID research out, so there was an explosion of health science papers spurred on by the pandemic. The net result was that our article growth was 15% in 21 and 7% in 22. The flip side of this pandemic benefit, however, was that new research projects were largely on hold in 20 and 21 due to lockdowns and lab closures. So, we saw the number of new research projects drop off precipitously, and this led to the decline in papers produced in 2022. We are now seeing all of this unwind and expect to see more normalized output growth in the mid-single-digit range in fiscal 24. Notably, global R&D spending, our underlying leading indicator, remains strong, and this inevitably leads to greater research article volume. The publishing pause at Hindawi was also a drag on performance in fiscal 23. As discussed in Q3, we suspended the fast-growing special issues program after identifying a research integrity issue. This issue was the result of external misconduct by non-Wiley editors and reviewers. Essentially, Wiley decided to take a short-term hit to preserve the integrity of our journals and the value of our highly respected Wiley brand. This industry-wide issue has been widely reported on, and we believe that we now have it fully remediated in Wiley. Nonetheless, in Q4, we retracted 1,200 articles for a total of 1,700, and we closed four impacted journals. We also learned that 19 Hindawi journals would be removed from the annual Clarivate Web of Science Index. These journals were among more than 80 delisted from publishers across the industry. Wiley has one of the highest-ranked journal portfolios in the world, so we were obviously disappointed in its development. The disruption at Hindawi was consequential in fiscal 23, reducing our revenue growth expectations by $30 million, and this will spill over into fiscal 24, reducing our projected revenue by $30 to $35 million. This was the second half event in fiscal 23, so most of the year-on-year comparative impact will be seen in H1 of fiscal 24. Fiscal 24 will be a year of revitalization for Hindawi with positive signs already emerging. We've now named a new leader of Hindawi, a talented Wiley veteran with deep expertise in the area. We've restarted the special issues program, and we will be ramping it up throughout the year. We're working through the large article backlog, and we are executing our journal growth plans. Happily, we expect a very strong showing for Hindawi and Wiley overall when this year's journal impact factors are released in Q2. It will take some time to see all the benefits, but the outlook beyond this year looks very good. I said at the top that we are now taking decisive action to unlock value by focusing Wiley, and I want to say a few words about exactly what we are focusing on. It's actually quite simple. At its core, Wiley is a knowledge company. Our core strength is in the development of new knowledge and the delivery of solutions that help the world take full advantage of that new knowledge. And this is what we will focus on going forward. This means three things for Wiley. One, we will focus on research and publishing, where Wiley is one of the world's leading sources of new knowledge in the form of science, scholarship, and thought leadership. Two, we will focus on our digital platforms and solutions which deliver powerful capabilities that help people to use new knowledge to innovate and solve problems. And three, we will focus on critical, in-demand vertical markets such as health sciences, material science, technology, and business where Wiley is a global leader. So Wiley is all about knowledge creation and knowledge application in critical vertical markets. This is a very large opportunity that I'm talking about, and it's underpinned by strong, durable market trends. Moreover, Wiley has sustainable, defensible competitive advantage that will drive consistent growth and increasing profitability. These advantages start with our branded content, most notably in the strong draw of our globally respected journal brands. Wiley's 2,000 peer-reviewed journals connect us deeply and defensively into the world's knowledge network. Wiley's industry-leading knowledge platforms include the world's number one research content delivery platform, which enjoys billions of user sessions a year. Other examples include our research knowledge hubs, our XyBooks courseware, and our Catalyst team effectiveness platform. Together, our content and platform businesses form a virtuous circle of knowledge creation and knowledge application. Our critical mass in key science verticals such as climate science, oncology, and chemistry further accelerate our advantage. For example, as we publish more top-quality oncology research, our brands grow stronger and we attract more oncology authors and practitioners. As the volume grows, our health science offerings grow stronger. A further network effect is created by Wiley's global roster of research, academic, and corporate partnerships. We've rallied this network over the past few years to create new ways to generate value from and for the research ecosystem. Wiley's market position gives us direct access to one of the more valuable audiences in the world, the global community of 15 million researchers and many millions of problem solvers that leverage their work. As a central player in the ecosystem, we provide access to this network and accelerate the work of its participants. We're moving swiftly to realize this powerful vision for Wiley, and this will result in a more focused company with unique defensible assets, sustainable untapped opportunity, and significantly better financial characteristics. We've now taken a very hard look at our portfolio and have now made some important choices about what is core to our future growth and profitability and what no longer fits with our long-term strategy. Specifically, on the left side of this page, you'll see that we will be divesting three substantial non-core businesses, University Services, Wiley Edge, and Cross Knowledge. Going forward, these assets will be classified as held for sale. Combined, these assets held for sale generated $393 million, or 19% of Wiley's FY23 revenue, but only 10% of our adjusted EBITDA. The collective EBITDA margin of these assets was 10.9%. As a reminder, University Services, or OPM, helps leading universities manage their online degree programs. Wiley Edge, also known as Talent Development, works with global corporations to find, train, and place hard-to-find digital talent. And CrossKnowledge provides digital professional development content platforms to major multinational corporations. These businesses have wonderful colleagues, strong client lists, and good long-term potential. Nonetheless, we've determined that they are non-strategic to Wiley's knowledge company direction and that each of them will need more attention and investment than we are able to deliver. Note that we also completed the divestiture of test prep and advancement courses in the fourth quarter, so they're listed here as well. Now, when you peel those pieces away, you can see on the right side of the page that the assets that make up the new Wiley generated $1.6 billion of revenue. You'll notice that focusing Wiley is greatly improving our margin profile. These assets represented 81% of our reported fiscal 23 revenue, but they generated 90% of our reported EBITDA. New Wiley's EBITDA margin in fiscal 23 would have been 23.3% compared to 20.9% for Wiley before our portfolio moves. And this is before we right-size our cost base and eliminate stranded cost. This work has begun, and the benefits will begin to show up later in the year. Going forward, research will continue to be the primary driver of our growth, profit, and cash flow. In fiscal 23, research represented two-thirds of New Wiley's ongoing revenue, and it delivered a 35% EBITDA margin. Its revenue is over 95% digital, and it is largely recurring. Going forward, our current reporting lines of research publishing and research solutions will remain unchanged. Our new learning segment includes our gold standard education and professional content, courseware, and platforms. About a third of New Wiley's fiscal 23 revenue, excluding the businesses held for sale, was generated by these learning lines. Going forward, the two reporting lines for learning will be academic, which is education publishing, and professional, which includes professional publishing in our team development or assessment business. Collectively, learning generates a strong EBITDA margin. We will begin reporting on this segment in Q1. The new research and learning segments complement each other strategically and operationally. Both develop and deliver high-value content and content platforms in similar in-demand verticals, and we anticipate capturing cost and revenue synergies as we move forward. In fact, a portion of our academic titles are already authored by leading researchers from our research network. To summarize, we are deep in implementation of a three-part program to unlock value for our shareholders. We are focusing widely on the large sustainable opportunities in research, publishing, and the delivery of knowledge solutions. In fiscal 24, we will be driving article volume, improving our publishing operations, and driving scale and solutions. Two, we're divesting several assets that we've determined are non-core and that distract from our ability to win in our core focus areas. We're not able to provide a precise timeline right now, but we're progressing at a promising pace. And three, we're streamlining our organization to support our new strategy and right-sizing our cost base to reflect these changes. We'll see related restructuring charges in fiscal 24. Fiscal 24 will be a transition year as we move rapidly to implement this plan, and we will update you on our progress as we make our way through the year. I'll now turn it over to Christina to discuss more details about our fiscal year 23 performance and our outlook for 24.