John Wiley & Sons, Inc.

Good morning and welcome to Wiley's Q3 fiscal 2025 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 thank you all for joining us. On the call with me are Matt Kistner, Wiley's President and CEO, Christopher Caridi, Interim CFO, and Jay Flynn, Executive Vice President and General Manager of Research and Learning. Note that our comments and responses 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. 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 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 divested 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 and investors.wiley.com. I'll now turn the call over to Matt Kistner.

Thank you, Brian, and good morning, everyone. Thank you for joining our third quarter update. We continue to capitalize on the increasing demand for scientific research and responsible AI development. We're executing well on our objectives of driving recovery and growth in research and material margin expansion overall. And We remain on track to achieving our outlook for this year and next. In fact, we are raising our fiscal 26 margin target. For those who may be new to the story, Wiley delivers authoritative content and data-driven insights to institutions, corporations, researchers, and learners. Our extensive catalog includes some of the most valuable and important content in the world, essential in the advancement of science, technology, and medicine, in the responsible development of AI and other machine learning applications, and in future high-value use cases supporting research and development, such as science analytics and information services. Let me acknowledge the economic uncertainty out there. ranging from consumer confidence and inflation to tariffs, policy swings, and geopolitical unrest. As a reminder, for over 200 years, Wiley has been a safe haven through many economic cycles and periods of disruption. We demonstrated this resiliency during the Great Recession and the COVID pandemic. Our publishing services, content, and brands remain must-have resources and our markets continue to prosper. Supporting this is our strong balance sheet and consistent cash generation over time, as evidenced by 31 consecutive years of dividend increases. What makes Wiley unique and compelling over the long term? As noted, our markets are robust and demand remains consistent, directly correlated with increasing global R&D investment. We are recognized as a wide mode business with essential, authoritative content and trusted brands. We deliver resilient, compounding growth in markets that remain stable even during economic downturns. Approximately half of our revenue is recurring. In our research segment, this number is nearly 75%. We are an early AI beneficiary with emerging long-term opportunities in the corporate sector, particularly in research and development. Our financial characteristics are strong, with healthy margins in cash generation, low leverage, and ample liquidity. And finally, the leadership team at Wiley is aligned and committed to continuous improvement and value creation. Let's talk about some of the favorable underlying trends we're seeing. Global R&D spend continues as the primary driver of research output, remaining strong in 2024 with growth of 8%. Growth projections for 2025 are similar. Second, the demand to publish continues to increase, reflecting its vital importance to the careers of researchers. Year-to-date, research article submissions are up 18%, with publishing output up 8%. Third, our recurring revenue models demonstrate strong health with solid pricing power supported by consistently higher volume. Recurring revenue models include our subscription read-only and transformational read and publish agreements. Fourth, quality and scale matter, and Wiley excels in both areas. Quality has become more important than ever for researchers as they seek to publish in trusted, high impact journals. At the same time, scale has become more important given the increasing complexity of this mixed model ecosystem with customers ranging from individual researchers to national governments. Our top tier quality and scale give us an opportunity to outpace the market over time. Finally, Wiley's strategic position in AI development and application offers multiple advantages. As previously discussed, our content serves as a foundation for training large language models and bringing to market vertical-specific LLMs. Additionally, as a publisher, the nature of our work enables us to greatly benefit from AI productivity tools. Let me shift gears and focus on our headlines for the quarter. Revenue growth was driven by mid-single digit growth in research, including an expanded AI licensing project with an existing technology customer. Learning was down due to challenging comparisons to prior year, as discussed in our last earnings call, and some softness in academic books. Chris will go into further detail on our segment performance. Key takeaways from the quarter include our calendar 25 journal subscription and TA renewal season is nearly 80% complete, and we are seeing encouraging growth trends. Open access continues to demonstrate rapid growth across our journal portfolio. We expanded a corporate AI licensing agreement this quarter and continue to build a pipeline of vertical specific opportunities. It's very early days in the development of this vertical specific market, but we're seeing considerable interest from leading research intensive corporations. Margin expansion remains a multi-year strategic focus. and I'm pleased to report 280 basis points of operating margin improvement and 50 basis points of adjusted EBITDA margin improvement over prior year. As we will discuss later, we see significant opportunities for continued margin improvement. Chris will talk to our fiscal 25 outlook and fiscal 26 targets, but we see our EBITDA margin and EBS trending towards the high end of guidance and we're raising next year's margin target. On to our results. Throughout my commentary, I'll exclude divested assets and currency impacts. Revenue was up 1%, driven by research growth of 5%, offsetting an expected 6% decline in learning. This year-over-year swing stemmed from a $6 million licensing renewal in the prior year, and softness this quarter in academic books. Adjusted EPS increased 39% due to higher adjusted operating income and a lower adjusted effective tax rate. Our operating margin rose 280 basis points to 14.2%. Adjusted EBITDA grew 4%, reflecting revenue growth partially offset by investments in growth and productivity initiatives. Our adjusted EBITDA margin for the quarter was 23.2%, up from 22.7%. Let's talk about how we're executing on our core objectives this year. First, driving recovery and growth in research. Year-to-date, this segment is up 3% with growth across all key areas, including our recurring revenue models, open access publishing program, licensing, and solutions. Leading indicators continue to be favorable. The expansion of our advanced journal franchise has been a great success story. This portfolio encompasses over 20 high-impact journal titles, of course disciplines, and we continue to expand in critical areas such as life sciences, AI, and machine learning. Our multidisciplinary journal, Advanced Science, is delivering exceptional growth this year, while our newest titles, Advanced Intelligent Discovery and Advanced Robotics Research, recently published their inaugural articles. We anticipate launching additional advanced journals in 2025 and 2026, and as a reminder, Top-tier journal franchises like Advanced are differentiators for large publishers. Second, moving decisively on AI opportunities. Year-to-date, we've generated $30 million in licensing revenue relating to trading models and executed an early but important agreement for vertical specific models. This market is evolving and our pipeline remains very active. Third, driving continued margin improvement. Through nine months, our adjusted operating margin increased 330 basis points to 13.3%, and adjusted EBITDA has improved by 160 basis points to 22.3%. Let me say a few words about the current U.S. funding environment. We're keeping a close eye on the potential impact of US government actions on research funding. We don't anticipate any near-term impact on our research publishing programs, given the exceptional volume in our article pipeline, the lead times associated with any potential impact, and the recurring nature of our multi-year agreements. Importantly, As I'll describe in a moment, U.S. federal funding only supports a small percentage of our research output. All of this is evident in today's confident reaffirmation of our fiscal 25 outlook and fiscal 26 targets, including the margin improvement. Moreover, it's too early to weigh any potential long-term impact given the high level of uncertainty and the critical importance of scientific and technological activity in driving economic growth. Peer-reviewed research is how these advancements are communicated, evaluated, and applied. It is referred to as the global knowledge ecosystem, and Wiley stands at the center of it. Historically, this industry has advanced in good times and bad, It's always risen above politics, it's been excluded from tariffs and trade wars, and it's continued on even through conflict. It is an industry that is geographically well distributed and powered by many different funding sources. Every region participates with remarkable balance as illustrated here. For context, China leads as the number one source of research output worldwide, followed by the US, the UK, Germany, and Japan. Governments in these countries considered this positioning strategically important, contributing to Wiley's broad geographic diversification. In terms of regional breakouts, Asia Pacific is responsible for around 45% of our article output, EMEA around 30%, North America around 20%, and other makes up about 5%. As for the US, direct federal funding is only responsible for a single digit percentage of our total article output. Of course, we are fully confident that the US scientific, technical, and medical research will continue to receive federal support given the essential role that research plays in U.S. economic growth, global competitiveness, and societal wellbeing. Where are we today? Mature markets have returned to steady growth supported by continued R&D investment, and growth markets have seen some remarkable new developments. Consider India's innovative One Nation, One Subscription initiative. We recently executed this multi-year agreement expanding access to over 6,000 Indian institutions and supporting 18 million researchers and students. While this expansion increases profitable revenue for us in India, its significance extends beyond financial metrics. The agreement unifies the research ecosystem of the world's second most populated country. And as our India country lead, Ritesh Kumar stated, it empowers Indian researchers to lead global scientific conversations and accelerate the country's research output. Our presence in India positions us well as these initiatives drives progress and growth in Indian research. Similarly, in Brazil, we secured a new multi-year transformational agreement that expands access to over 430 research academic institutions, reaching upwards of 6 million researchers. Both these landmark agreements serve strategic purposes that transcend immediate financial benefits. They expand access in emerging growth markets and deliver additional revenue streams and ultimately enlarge both the scientific community and the global supply of quality research. Let's examine R&D and publication funding, which shows similar geographic diversification. Our institutional models draw support from a diverse range of funding sources, including national governments, such as our single licenses in Germany and India, national funding bodies and agencies, state governments, private endowments, foundations, tuition revenue, and corporations. I'll emphasize again that nearly 75% of our research publishing revenue is recurring. Also, while many associate USR&D with federal government funding, corporations fund 80% of total USR&D investment. This reality reveals one of our most promising long-term opportunities. Currently, corporations represent a relatively small percentage of our overall revenue. However, we believe there is significant sustained value in integrating our content and data more deeply into the corporate research process, such as AI model enablement and providing data and analytics to support the research process. Taken together, all these factors position research as both resilient and poised for continued expansion. To summarize, we continue to see growth this year in our recurring models and open access program. Renewals and leading indicators are favorable and give us strong visibility. Over the long term, Our quality and scale will remain essential elements for attracting and retaining research authors and driving market share gains. Let's now turn to AI growth, particularly the long-term corporate opportunity I mentioned earlier. This quarter, we executed an expanded agreement for AI model training purposes and we're seeing promising developments in the broader vertical-specific market. The agreement builds on the project announced in Q1 involving backlisted learning content for training large language models. This Q3 expansion incorporates backlist research content defined as previously published material older than three years. The $9 million agreement brings our total AI revenue this year to $30 million, following $23 million realized last year. As a reminder, these phase one trading agreements are non-recurring. It's important to reemphasize that licensing represents a core business activity for Wiley. As we take on new AI-specific initiatives, Our guiding principles remain straightforward. We recognize our responsibility to engage with AI developers to secure scientific accuracy and deliver optimal learning outcomes. These models require training on trusted, authoritative content, such as Wiley's, while protecting the rights of authors and other copyright holders, a fundamental responsibility we embrace as a knowledge company. Beyond these large-scale training agreements, we're seeing encouraging demand from multinational R&D-centric companies across critical sectors, including healthcare, biopharmaceuticals, and industrial chemistry. Distinct from our LLM training agreements, these R&D-intensive corporations are using AI-powered content and tools to speed up product development identify breakthroughs, and reduce internal cycle times. And although the individual opportunities are materially smaller in size, they represent a much larger addressable market, and the revenue is highly likely to be recurring. Enhanced support for corporate research initiatives represents phase two of our content licensing strategy. with a broad set of applications across the many disciplines we support. These types of collaborations would extend beyond generating new licensing revenue streams to function as strategic partnerships, enabling mutual learning about AI application development and its impact on improving research outcomes. The market will take time to fully develop, but we are encouraged by the early demand we're seeing. I'll now pass the call to Chris to take you through our year-to-date results, segment performance, outlook, and financial position.