John Wiley & Sons, Inc.

Good morning and welcome to Wiley's second quarter fiscal 2024 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. Brian, please go ahead.

Thank you and welcome everyone. With me today are Matt Kistner, Wiley's Interim President and CEO, and Christina Van Tassel, Executive Vice President and CFO. Also with us is Jay Flynn, Executive Vice President and General Manager of Research and Learning. He will be participating in our Q&A session along with Matt and Christina. 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 meetings prescribed 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 held-for-sale assets and 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 Matt Kister.

Thank you, Brian, and thank you all for joining. I'm pleased to be here with Christina and Jay. We and the rest of the leadership team are moving decisively on our value creation plan, which I'll talk about in a bit. I'll give you an update on my first 60 days and discuss my role in the transition. And of course, we'll review our second quarter performance and how we see the year shaping up. I'd like to speak a few moments about the interim CEO role and my first 60 days. The board of directors and I think about my role as a transition more than an interim. My responsibility is to execute the plans previously approved by the board and improve the company's operating performance and profitability. From a personal perspective, it's a privilege to be back at Wiley during this critical juncture in our evolution. As a result of my long association with Wiley in various roles, I have an in-depth knowledge of the company's businesses, operations, and markets, and I have strong relationships with Wiley colleagues across the globe. Frankly, I know our strengths, and I know the areas requiring improvement. and I am in an excellent position to help drive the changes needed to significantly improve our performance. We are moving decisively to streamline the organization, divest non-core assets, and right-size Wiley for future success. During my first 60 days, we continued to execute on our reorg, announced the sale of university services, and moved aggressively on our cost base. While the leadership team and I are focused on executing, the board is carefully considering various options for the future leadership of the company. In that regard, an important objective of mine is to assist the board by assessing and enabling internal talent. We previously characterized fiscal 24 as a transition year, a period in which we would be keenly focused on our core businesses. That has not changed. I'm now responsible for leading us through this transition and laying the foundation for the next CEO. In summary, and for the avoidance of any doubt whatsoever, we are not in a holding pattern. We are moving forward with conviction. I hope these thoughts on my role are helpful. Finally, I recently met with colleagues in our European offices and in our Hoboken headquarters. And while it's early days, I find the culture to be reinvigorated by our renewed focus and our improvement initiatives. It's pretty obvious to colleagues that we have to improve how we operate and make it much easier to get things done. I also participated in listening sessions with a few of our largest shareholders and found their observations very helpful. I am a long-term shareholder myself, of course, and personally bought more shares. All to say, after listening intently, our goals are aligned. As a reminder, we're now reorganized into two operating segments, down from three. The two segments, research and learning, complement one another as they both deliver high-value content and solutions in related markets and verticals, including science and medicine, technology and innovation, and business and finance. As a quick reminder, research is our largest and most profitable business, and it's at the core of our strategy. The market for new scientific, technical, medical, and scholarly research grows steadily, and Wiley has one of the world's leading journal portfolios and the industry's most widely used delivery platform. The business has large recurring revenue base that is 95% digital. Learning includes academic and professional publishing and platforms in business and finance, technology, management, team development, and reference. Our competitive advantage in learning includes our brands, author relationships, category leadership, and reputation. As a reminder, we recently coupled these businesses into one team under Jay Flynn. Jay is already identifying and acting upon synergies across these businesses. And with this change, we expect to drive much greater operating and capital efficiency. Let's talk about how we're progressing with our value creation plan. I'm pleased that we are driving this plan forward on multiple fronts. During the quarter, as noted, we reorganized from three business units to one market-facing research and learning team. We also consolidated our marketing teams to leverage our capabilities and author relationships and realize potential synergies. As noted, we recently announced an agreement to sell university services, our largest divestiture for up to $150 million in total consideration, including $110 million base price and $40 million in potential earnouts, plus a 10% equity stake in the combined company. The transaction is expected to close in early 2024. We're working diligently on our remaining divestitures, but I want to emphasize that it remains a challenging environment. We're moving aggressively on our cost base, as noted by our restructuring actions this quarter. Christina will talk to what we're doing there. We centralized our global operations team under one leader to drive toward a lighter infrastructure, simplified processes, and improved analytics and insight. Finally, we will hold an investor update on Thursday, January 25th. It will be virtual and will include myself, Christina, and Jay. It's an opportunity for us to share more detail on our performance, profit improvement plans, our fiscal 26 targets, and field any questions you might have. Let's turn to our performance for the quarter as we make our way through this transition year. I will be excluding our help for sale or sold assets in my commentary unless otherwise noted. Overall Q2 was largely in line with expectations, but mixed in terms of research versus learning. In research, we saw year-on-year revenue declines reflecting the Hindawi disruption and a soft market for recruiting. Excluding Hindawi's $18 million impact, research revenue was flat. In learning, we saw growth in our academic and professional publishing lines, including print and digital content and courseware in the business and technology categories. GAAP EPS was a loss of $0.35, reflecting $52 million of additional impairment charges related to our held-for-sale assets and $25 million of restructuring charges as we execute on our rightsizing plans. Adjusted EBITDA declined by 13% to $92 million. Endowee's EBITDA impact was $14 million, offsetting restructuring savings. Adjusted EPS was down 25% due to lower adjusted operating income and higher interest expense. In the quarter, the held-for-sale businesses collectively generated $86 million of revenue, down 18% driven by declines in university services and course knowledge due to challenging market conditions, and adjusted EBITDA of $19 million, up 4%. As indicated, we're reporting on this as a separate segment, and you can find this in the tables attached to our earnings release. I'd like to provide a brief update on research publishing given the near-term dynamics. We continue to see healthy demand to publish driven by growth in global R&D spend. Year-to-date, article submissions in our core are up 9%. This is an important demand indicator as we recover from the COVID demand spike and snapback. However, there is a natural lag between submission and publication, so output is only up 1% ex-Hindawi. We expect output to improve in the second half as submissions flow through our publishing pipeline. That said, largely due to this timing issue, we now expect research revenue to fall modestly below expectations. For the full year, we expected research revenue to be flat overall and now anticipated to be flat to down low single digits. For our core, excluding Hendawi, we expected 3% revenue growth and now projected to be up 2%. As a reminder, The Hindawi recovery is expected to take time as we turn around impacted journals and finalize historical retractions. This year, we project the revenue impact to be $35 to $40 million. In fiscal 25, we expect revenue to begin to recover as we prioritize our impact journals and improve our marketing efforts. To that end, we feel that now is the time to sunset the Hindawi brand and begin to fully integrate its 200 journals into Wiley's 2,000-journal portfolio. This reflects the now close alignment of the practices and infrastructure behind the two portfolios and enables a much wider audience. We anticipate the Hindawi transition to conclude in mid-calendar 2024. I'll now turn it over to Christina to discuss our segment performance, cost savings initiatives, and outlook.