Q3 2020 Earnings Call
Good morning, and welcome Wileys third quarter fiscal year 2020 earnings call.
Reminder, this conference is being recorded.
At this time I like to introduce Wileys, Vice President of Investor Relations, Brian Campbell. Please go ahead.
Good morning, and welcome to why was third quarter fiscal 2020 earnings update a few reminders to start first the call. It being recorded a may include forward looking statements.
Should rely on these statements is actual results may differ materially and are subject to factors discussed in our SEC filings.
Somebody does not undertake any obligations to update or revise forward looking statements to reflect subsequent events or circumstances.
Second one of the provides non-GAAP measures of the supplement to evaluate underlying operating profitability and performance trends.
Non-GAAP measures, which generally exclude items that impact comparability comprised the phone.
<unk> free cash flow, that's product development spending adjusted operating income and margin.
<unk> contribution to profit adjusted EBITDA results on a constant currency basis and results excluding the impact of acquisitions.
These performance measures do not have standardized meanings prescribed by U.S. GAAP and therefore not be comparable to the calculation similar measures used by other companies.
They should not be viewed as alternatives to measures under GAAP.
So no we abbreviate constant currency as Cc. Please see the reconciliation explanations all non-GAAP financial measures presented in the supplementary information included in our press release.
Importantly, no Oh variances in this presentation exclude the impact of currency unless otherwise noted.
After the call a copy of this presentation and a play back in the webcast will be available on our Investor Relations Web page.
I'll turn the call over to Brian It why these president <unk> CEO.
Thanks, Brian.
Good morning, everyone and thanks for joining.
Let me start off by underscoring the valuable role that our business plays in the global knowledge economy.
At its core Wiley powers, two essential drivers of the economy scientific research and career focused education.
Our research business is a critical enabler scientific technological and medical discoveries and these drive innovation growth and human advancement.
Origination business helps people gain the specific skills and knowledge they need to succeed in their careers.
It's an exciting time for the global research industry R&D spending continues to rise as institutions companies and even nations compete to achieve breakthroughs that will lead to improvements in the human condition and economic gain.
This competition drive steady growth of the research output that we publish.
It also drives the need to continually improve and accelerate the research process itself.
New fields of study are forming an existing research message methods are being improved.
He plays a critical role in this ecosystem as a leading publisher of validated research and as a provider of the platforms.
Which the research output is created endorsed shared consumed.
In many ways Wiley directly helps researchers succeed in their careers, while also helping universities to improve their standing incorporations to accelerate innovation.
In education, the World is focused on greatly increasing access while improving relevance affordability and impact.
The overarching goal worldwide is to solve critical skill gaps such as the massive one between supply and demand for technology talent.
While these addressing these gaps by focusing on the highest demand disciplines and careers and by delivering courseware in training that helps students to gain the skills the degrees and the career credentials that the world is demanding.
We have a long history of empowering education and University settings.
Today, we are increasingly the education partner of choice for corporations seeking to onboard and upskill their talent.
So just like with researchers widely helps students and professionals and their employers to achieve and to succeed.
Our Wiley colleagues worldwide are very proud of what we do have the businesses. We are building and of the role we play in advancing the knowledge economy.
Now I will talk about the quarter's results.
First please note that will be excluding the impact of currency when discussing their financial performance.
Revenue and adjusted EBITDA for the quarter Rose, 4% and 7%, respectively. We continued to see favorable revenue and profit performance in research and education services.
Downward revenue pressure in the academic and professional learning segment ease this quarter, particularly in higher Ed publishing, which realized marginal organic growth after sharp declines in the first two quarters.
While he continues to gain momentum in key areas of strategic focus in research, we're attracting more article submissions growing publishing volume and driving the innovative publishing models at the World wants including recent open science agreements with the UK, Sweden and Finland.
In academic and professional to shift of our publishing program toward high demand disciplines in high impact the lower cost digital courseware continued with our Ziad Bucks, an alpha offerings posting strong double digit gains.
In education services, we are signing new University partnerships and growing our Alec card services revenue by nearly 80% year to date.
Our focus strategy is accelerated by the acquisition of them three which is addressing one of the biggest education opportunities in today's economy, namely the creation of job ready Tech talent.
I'll go into more detail on M. Three later.
Finally, we continue to improve operating efficiency across right why like with steady progress against our stated business optimization goals.
Adjusted EPS grew 10 grew 10% driven through a mix of revenue growth and savings from business optimization.
Free cash flow was favorable by $22 million year to date.
Before I talk about our segment results I want to make a few comments regarding the Corona virus.
As you would expect we're closely monitoring this fast moving situation.
Our first priority of course is the health and wellbeing of her colleagues.
Why do we maintained specific strategic response plans for challenges like this and we have a dedicated global team actively managing this situation to ensure the health and safety of our colleagues around the world.
In addition, as a key player in the science ecosystem. We are also doing what we can to make sure scientists healthcare professionals and policymakers have easy access to the research and data that they need to fight this fast moving virus.
In January we launched multiple Corona virus related web sites on both the Wiley online library and add upon glitterati platform, including freely available journal articles and studies book chapters and other important resources.
Add upon is uniquely positioned to support this global effort considering that it host over half the world's English language journals and generates billions of user sessions every year.
Global scientific community is working together to solve this epidemic and Wiley is doing its part.
From a business perspective, we don't currently ASC expect this situation to have a material impact on our Q4 results nor on the full year outlook. It's too early to talk about any impact beyond that while economic slowdown travel restrictions and the like could have an impact Wiley is digital company with 75% of our.
Revenue generated by digital products built on digital workflows, we have only only limited reliance on physical supply chains further the research and education sectors tend to be counter cyclical. Nonetheless, we will remain vigilant and currently expect minimal disruption to our business.
Now I'll talk about our business segments.
Our research business continued to perform well with revenue up 3% and adjusted EBITDA up 8%.
We saw strong double digit growth again in open access publishing and subscriptions remained steady.
Our AD upon platforms business grew 12% with strong renewal rates.
In the quarter, we signed two comprehensive read and publish agreements in Europe.
Finally in just a major UK consortium announced the multi year comprehensive agreement just this week combining subscription with open access publishing.
The size of the dealers on par with our Germany agreement last year or around $30 million.
Which is on par with the value we received under the previous subscription model.
Wiley ingest keeping collaborating on open access model since 2015, resulting in 25% of our UK content being published openly.
I'll talk about our different publishing models in a bet.
Demand metrics continue to be robust with article submissions up 10% and online usage up 17%.
Context, Wiley online library is averaging around 130 million full text downloads a quarter showcasing the tremendous content consumption our journals generate.
Researchers around the world aimed to publish with Wiley and access and access our millions of articles and data shows we're gaining share we are fully focused on publishing more and with greater efficiency.
Academic societies continued its use widely as their publishing partner net society wins for the calendar year 2020 are worth over $8 million annually and our renewal rate is 92%.
In the quarter, we added the journal of clinical and translational Medicine, which helps bridge bridge laboratory discoveries with the diagnosis and treatment of human disease.
Revenue and adjusted EBITDA through the nine months grew 3% and 6% respectively year to date research made over fit made up over 51% total Wiley revenue generated a 34% EBITDA margin.
As noted we've signed three new comprehensive publishing agreements with the consortia in the UK, Sweden and Finland.
This is very important for Wiley and for the future of this sector.
To ensure clarity let me provide a refresher on our three publishing models. They are subscription open access and comprehensive.
Subscription is our traditional pay to read model, where research library subscribe to a bundle of Wiley journals were flat fee subscription remains the dominant business model around the world and generates most of our research revenue performance remained steady.
Beyond the subscription model. There are two newer models that are growing in the marketplace open access is the pay to publish model through which researchers submit an article for review and after acceptance pay Wiley a fee to publish it.
That article is then freely available to the public.
Funding for this usually comes from either the researcher or from the group that funded the research.
Open access continues to grow by strong double digits for Wiley totaling 7% of our research segments revenue through nine months.
Comprehensive is the innovative new model that blends subscription and open access you'll recall that we first pioneered this model with Germany last year to great acclaim.
Essentially for single fee, a nation or consortia can pay for full access to our access to our journal portfolio and enable its research says to publish their work under an open access arrangement.
Like the subscription model comprehensive deals are recurring bring revenue agreements with multiyear terms.
These deals also allow for upside revenue growth based on how many articles we publish.
Business goal of course is to our enhance our volume by being a great publisher and by meeting the needs of our customers. Today. This means supporting several complimentary business models.
The comprehensive model is particularly popular in Europe, while quite varied in nature. All of these agreements position us for higher researcher satisfaction higher market share and sustainable long term economics.
Wiley is a leader in this drive to open science and a reputation in growing share it tested this.
Overall comprehensive models account for around 5% of our research segments revenue.
As we always say no one size fits all and we expect to see a mix of business models around the world for the foreseeable future.
Our academic and professional learning segment saw improvement this quarter as book publishing as book publishing declines moderated.
Revenue was up 2% to $178 million, but down 2%, excluding these ibooks and new acquisitions.
Education publishing rose, 6% professional learning declined 4% adjusted EBITDA for the quarter was down 9% to $48 million due to book publishing revenue declines overall and investments in growth initiatives, including acquisitions.
Segment highlights include our higher Ed business, achieving modest organic growth for this quarter driven by higher digital book sales and stable print revenue, although some of that is due to timing.
Our acquired courseware products I books, and Alta are up a combined 44% on a normalized basis, albeit off a relatively small base.
Our new leadership team in Education publishing continues to make great progress in executing its focused strategy to publish more great digital courseware in high demand disciplines, such as Stemen business to deliver the digital products and pricing models that customers are calling for and importantly to optimize its organizational effectiveness.
On the corporate side, we signed 30 corporate partners in the quarter for Crossknowledge, adding to our base of over 400 partners. New clients include the Paris 2024 Olympic Committee, HSBC, South Africa International flavors, and Fragrances, Brazil Foods and Heineken Holdings.
Crossknowledge was awarded the number one global ranking for corporate learning systems by prominent industry analysts Craig wise.
As shown in our core strong corporate signings this quarter customers are responding.
Through nine months revenue and adjusted EBITDA are down, 3% and 20%, reflecting the market driven decline of the book business. This year, excluding the Newton Zied books acquisitions revenue was down 6% for context academic and professional learning made up 37% of year to date Wiley revenue and generated a 25.
And adjusted EBITDA margin.
Higher education, which includes both content in courseware makes up 13% of total Wiley revenue, but generates considerable investor inquiry. So I want to spend a few minutes on the current dynamics of this market and transition.
It's no secret that this side of the education market has experienced multi year declines.
Nonetheless, it is critical to know that high quality content from top publishers like Wiley is predominantly not being replaced in universities around the world.
Teachers are still assigning and students are still consuming our content.
But instead of buying high priced new printed books students have been choosing less expensive digital formats, and buying books rented or resold by others at lower price points. This substitution has resulted in reduced publisher revenue on units sold and the migration of revenue to resellers and renters.
Over the past couple of years, we've aggressively shifted our approach to gain more value from the great content that we publish.
As noted we are focused on growing disciplines like stemming business, which require digital content for student's success.
We've acquired powerful digital courseware platforms to support these chosen disciplines.
We've added pricing expertise introduced new business models and ramped up piracy enforcement.
As we have consistently said, we don't know when growth will return to this market, but we do have strong evidence that when we provide high impact digital courseware at a fair price. This market rewards you with sales and share.
Our continued strong growth inside book and Alta are a testament to that.
Books, our computer science and stem Courseware has received overwhelmingly positive feedback in recent student and Professen surveys, we signed over 50 news Ibooks University accounts. This semester and we continued to generate strong double digit growth in student uptake.
Wileys actively meeting the needs of this evolving market.
The market transition like this takes time and it takes focus.
But the market clearly values our products our approach.
And it's beginning to work.
Education services delivered another solid quarter with red revenue up 19% to $55 million or 10% organically. No. This is the first full quarter with learning house in the year over the year year over year comparison.
Additionally, M three contributes $5 million of revenue in its first month under Wiley.
I'll talk more about M. Shortly.
Adjusted EBITDA Rose again, this quarter from $2 million loss in the year ago period to a $1 million game.
We added three new University partners in the quarter Greenville, and Calvin for online program management, and Southern New Hampshire University for teachers certification courses.
We also discontinued one partnership as we continue to manage our portfolio for profitable growth at quarter close we had 66 LPM partners in total with a solid pipeline of new opportunities in place.
Student enrollments were up 9% year over year, driven by the implementation of new programs and partnerships no spring enrollments have been trending lower than expected. We're following that closely.
We continue to see strong demand and ill, let card service offerings that fill specific university needs revenue here was up over 120% to $7 million in the quarter.
These services, which includes student recruitment academic design marketing students support more represent 14% of opium revenue year to date up from 10% in the prior prior year.
While growth in full tuition share O PM has slowed our card service revenue is growing and strong double digit rates.
Revenue through nine months was up 51%.
Excluding the impact of learning house, and Im three acquisitions organic revenue growth was 10%.
Year to date, adjusted EBITDA was $9 million or 6% of revenue compared to a loss of 1 million in the prior year.
We will continue to manage this business prudently to achieve and sustain profitable growth.
Through nine months education services made up 12% of why the revenue and generated at 6% adjusted EBITDA margin.
In January we acquired M. M is an innovator in the delivery of job ready I T talent to the world's leading corporations.
We'll start with the basics around about M and then discuss.
Skus, where it fits in our tech education growth strategy.
Mm three specializes in the sourcing training and placement of tech talent for leading corporations.
We are calling this demand side education, the preparation of talent directly for corporations, the demand side of the labor market.
To date M. Three has focused on the financial services sector with Blue Chip clients that include Morgan Stanley JP, Morgan and Bank of America.
Essentially M. Three fills large scale orders for tech talent.
Let's say a global blank banking client requires 50, cyber security specialist per year in Toronto or Bangalore.
Under contract and three will recruit top students from good universities for these roles.
They will put these trainees through a month long training program that is customized for the specific clients need.
Needs.
Lets train these trainees are placed into a real job at a client location and then supported to ensure they succeed the trainees started out as consultants employed by M. Three before converting into full time employees of the client typically after two years.
M. threes recruitment is selective with only 5% to 10% of their applicants excepted into the program.
And it's rigorous training and on the job support ensure very high success rates.
Nearly 80% of trainees convert to full time employment after two years with the client and 80% of all M. Three trained employees are still with the end client today with stats going back to 2015.
As you can see this model creates real value on all sides.
Client gets top talent, specifically trained for their needs and their culture with no upfront investment and significantly reduced hiring risk.
Essentially the client has two years to assess the candidate for full time employment.
The trainee gets a top notch job with a brand name employer, along with training in a high demand digital skill area all at no cost and no long term obligation.
And finally gets a rapidly growing company with an attractive business model and material synergies with Wileys other businesses and education.
Revenue for their fiscal year 2019, ending December 30, Onest was over $50 million. The pipeline is robust for the next calendar year and very strong revenue growth is expected.
Today, and three is modestly EBITDA positive.
As we ramp we should see EBITDA margins in the mid teens or better.
The business with primary offices in London in New York is part of our Education services segment, given the compatibility of what they do and the significant synergies with our existing education service businesses.
One of why these core strategies is to leverage all that we do to close the ITC skill gap.
As we know demand far exceeds supply for talent, especially in the us in Europe.
Without a doubt this is a major hindrance to economic growth and a contributor to systemic under employment.
In the us in UK combined there are well over a million unfilled technology positions with annual computer science graduates, making up just a fraction of that number.
There is no sign of this problem abating.
Why leads directly targeting this tech skills gap by aligning our education businesses to solve this big problem.
Across Wiley, we are creating content in courseware, such as Cybex and developing degree and Credentialing programs that are targeting the critical tech skills that the economy is demanding.
And we are doing so across both school and corporate settings, while exploiting the many synergies that exist across our units.
Wiley has long been unique in our service of both University education, the supply side and corporate training the demand side of education.
Now within three we're literally bridging talent from school to employment, we are doing so by finding students, giving them the needed technology skill sets and placing them into real jobs with great employers, where we're ensuring that they succeed as we say at Wiley in Tech education, we're having an impact.
I'll now pass the call over to John to take you through our consolidated financials.
Thank you Brian.
Third quarter revenue of $467 million was up 4% over prior year, driven by organic growth of 2% and combined revenue contributions of $11 million from our Newton Zibond and three acquisitions.
Solid revenue growth and profit improvement continued in research and education services.
And academic and professional learning revenue performance improved over challenging first half largely due to an easing downward pressure on education publishing revenue.
In fact, as Brian noted earlier, our higher education business delivered modest organic revenue growth in the quarter.
GAAP EPS of 63 cents rose, 3%, including restructuring charge of four cents, which reflected a combination of cost related to severance and facility closures.
A lower effective tax rate of 21% and lower foreign exchange transaction losses, offset higher interest expense.
Adjusted EPS was up 10% to 68 cents driven by organic revenue growth and savings from business optimization, partly offset by investment in growth initiatives, including acquisitions.
Adjusted EBITDA rose, 7% to $96 million and our adjusted EBITDA margin for the quarter was 20%.
Revenue through nine months was 1.36 billion up 5% as reported and 1% organically driven by growth in research and education services.
Academic and professional learning revenue to date was down 4% as reported and 8% organically due to declines in book publishing.
GAAP EPS for the nine months declined by 33 cents driven by an unfavorable restructuring charge variance of 19 cents investment in growth and optimization initiatives and $7 million of higher interest expense related to increased outstanding debt.
Our effective tax rate was 20% through nine months down about one of the half percent from the prior year.
Adjusted EPS declined 9% to $1.74, while adjusted EBITDA was down 1% to $263 million.
Adjusted EBITDA growth of 6% in research and an improvement in education services of $10 million was offset by a 20% decline in academic and professional learning, reflecting the market driven decline in book publishing revenue and our investments and acquisitions and other growth initiatives.
Corporate expenses on an adjusted basis were lower by $8 million, mostly due to a decrease in employment and technology costs as well as an insurance recovery.
Our consolidated adjusted EBITDA margin year to date was 19%.
No Wileys consolidated earnings performance through three quarters was in line with our expectations and we are tracking well to our full year guidance.
Our cash flow from operations and free cash flow results were favorable prior year by $37 million and $22 million respectively.
As a reminder, wileys cash flow is typically light through the first nine months of the year, primarily due to the timing of cash collections for annual research Journal subscriptions, which is heavily skewed toward December to April.
We expect free cash flow for the year to be inline with expectations up $60 million to $80 million over prior year to between 210 and $230 million.
Capex for the nine months was up $15 million to $84 million due to investment in tech enabled products and services.
Our balance sheet continues to give us the flexibility and capacity to invest acquire and return cash to shareholders. Our leverage ratio is currently at 1.8.
Through nine months, we spent a total of $201 million on acquisitions, including Newton Cybex an M.
Our strong record of returning cash to shareholders continues with year to date share repurchases and dividends totaling $93 million slightly above prior year.
Our current dividend yield is over 3% and 1.1 million shares remain in the current authorization for repurchases.
And finally, a brief update on our outlook for the full year with just one quarter remaining.
Based on our performance through nine months as well as leading indicators for the remainder of the year.
We are modestly raising EPS guidance, while reaffirming our outlook for revenue EBITDA and free cash flow.
Our updated outlook is based upon actual foreign exchange rates through three quarters and assumes the current foreign exchange rates carried through the fourth quarter.
It also includes all acquisitions today, including free which itself will add about $20 million of revenue.
While delivering adjusted EBITDA by $2 million and adjusted EPS by seven cents.
Note that foreign exchange rate movements adversely impacted our year to date revenue by $13 million and had only a modest impact on earnings.
For the full year, we expect FX to be unfavorable to revenue by $17 million.
Yes by six cents EBITDA by $5 million and free cash flow by $5 million.
Our current outlook now reflects the following.
Revenue reaffirmed at a range of $1.855 billion to $1.85 billion.
Adjusted EBITDA reaffirmed at $357 million to $372 million.
Adjusted EPS raised to a range of $2.45 to $2.55.
The improvement is mainly due to a slower pace of investment than originally anticipated.
Free cash flow has reaffirmed 210.
The $230 million.
As a reminder, the earning journeys debt. This year is primarily related to investments for growth including acquisitions.
Those investments include growing our research article volume.
Proving our journal publishing operations, and launching new researcher workflow tools and our research business.
They also include growing our high impact courseware businesses and growing partnerships programs and service offerings in education services.
I'll now pass the call back to Brian.
Thanks, John.
As a reminder, we're focused on five strategic pillars across Wiley.
One we focus squarely on the disciplines skills and careers that the world demand.
Two we deliver the content platforms and services that our customers need to achieve their goals.
Free we enable our offerings with powerful technology that drives real outcomes for we ensure that everything we do has a compelling price value proposition five we continually optimize for efficiency and effectiveness.
To recap we saw good momentum again this quarter.
And our comprehensive client agreements driving Openreach open science in research to our M acquisition closing the skill gap for tech talent to our digital courseware momentum in higher education to our ongoing success in signing new corporate University in society partnerships.
Hence Wiley is meeting the ever increasing demands of the knowledge economy.
As always I want to thank our Wiley colleagues for their great contributions to our ongoing success this quarter and throughout the year and thank you all for joining us today with that as background. We welcome your comments and questions.
Ladies and gentlemen ask a question you would need to press star one on your telephone.
Destroy your question press the pound Keith please standby what compiled acumen a roster.
Our first question comes from drew Crum of Stifel. Your line is open.
Okay. Thanks, good morning, guys.
Maybe a question on on the guidance to start John.
The implied guidance for Fourq, you would imply a decline.
You grew in the third quarters are there one or two factors that you're anticipating or baking into the guidance, that's driving that year on year decline versus growth in fiscal Threeq Q.
And I have a couple other questions, but I'll wait for your response on that one.
Through I would say the difference is principally related to the timing of investment in the period, including the effects of the acquisitions. So we've added in the in this period. We've added M. Two are.
To our results for one quarter ago. So I'd say, that's principal influence, but it's more just the timing thing.
Expanding across the year.
Got it okay. Okay, and then shifting gears to the education services business, Brian I think you made a comment that you're seeing slowing enrollment trends for the spring semester could you expound upon that.
And I know there were some attention given to the opium model by some prominent politicians earlier in the or is that in any way.
Changing the behavior of your University partners, and what you're seeing in the market.
Yes, I'll answer the second question first with regard to the environment. There continues to be a lot of discussion in the market about the future of the traditional Opn model.
And the.
There were there was a letter.
Referring to from a couple of senators directed at the industry asking for information, which we've responded to and we continue to be in dialogue with them.
But no there's no there's no major impact that's happening at the client level everything that you would see in our performance is related to two clients specific situations in the market that we participate in the degrees where would that we're servicing and providing so.
So I think that.
From that from the perspective of the.
Of the enrollment.
Such an important it's such an important indicator for this business, we followed very closely obviously.
It's something that we want to we what we want to monitor we want to manage.
Our this business is basically the growth in the core Opn business basically comes.
From the development of new partnerships, the the implementation of new programs and the enrollment of students. We've got to a great line of lineup of new partnerships. We are building new programs have a great pipeline of them and we're trying to optimize our enrollment pipeline at all times.
There was.
And so that's that's really what we're doing and where we're watching it very closely theres, no systemic or or.
Or.
Broad based.
The reason for for the despite slowing but we're just keeping our eye on it and driving forward. It's our way of of keeping focus on what really matters in this business.
Okay got it and then just one more question ill jump back into the queue.
John can you remind us what the puts and takes our on free cash flow for fiscal 2000, and I guess, specifically to fiscal for Q the guidance would imply.
We will look through one of the best performances for the business from a cash flow perspective over the last 10 years is that that working capital related.
So so drew a couple of things one is I would say is it won't be are.
Cash flow performance over that long period of time, but it will certainly be used a stronger free cash flow performance and key contribute to that is actually the timing of working capital you recall that we were delayed on journal subscription collections last year at the end of fiscal year, which has a big impact on our.
Cash for the year overall this is the fourth quarter is very strong around cash collections on journals as is the third to a degree.
So with that delay we pushed about $35 million of research terminal cash collections into this fiscal year and then we expect to be back at our prior.
We ended the year, so thats the biggest driver in the year over year swing.
To that $210 million to $230 million range that we've been guiding to all year.
Got it okay. Thanks, guys.
Thank you.
As a reminder to ask your question. Please press Star then one.
Our next question comes from Daniel Moore of CJS Securities. Your line is open.
Good morning, gentlemen, thanks for all the color this morning.
Hi, Dan.
Wanted to start with M. three.
And Brian I appreciate that overview in detail I think I heard you say their modestly EBITDA positive today is that correct first second maybe just elaborate on the revenue model.
And what are some margin profile of a student look like over that sort of two year I'm, calling an internship program, but the period where there.
Employed by three and a quick follow up for two there.
Yeah, so I'll be a little bit more clear about the revenue model and John can comment on the on the margin profile.
So the way this business works is the students.
Our recruited out of school.
Become.
Mm three employees through the training period, and then convert to.
Full time employees of the of the client.
During that period of time.
We are charging.
For basically every day of that period.
A full.
A full full equivalent of what that that client would be paying to a new employee anyway.
We are in three will will compensate.
The students.
Now called trainees.
For for every day right their employees, so, they're making money, but theres a delta between the.
Between the amount that three is charging these people out to the.
To the clients.
And the amount that the training is being paid so thats, how the business model works and thats throughout the entire period, even when they're being trained.
So effectively.
We are paying for their education, and we're earning money on the and their support and we're earning money.
The the difference between what the.
Employers paying and what we are paying the training.
Hello, and from a margin perspective, the answer is yes. It is EBITDA. It is slightly EBITDA positive now is very attractive economic model and as we said earlier, we expect it to migrate into the.
Into.
The.
Very attractive margins John do you want to comment further let me just elaborate a bit more so suez.
Commented earlier, we expect really strong revenue growth out of them through we're anticipating very strong double digit revenue growth in the business looking into fiscal year 21.
The business is currently modestly EBITDA positive as Brian known and we're expecting that im through the EBITDA positive in mid single digit rates in fiscal year 21.
And from an EPS perspective, I noted the.
Three will be dilutive to earnings this year by about seven cents for four months in the business next year the dilution should be on the order of 10 cents from the business. So EBITDA positive.
And making its way to be accretive to earnings in the following fiscal year.
Bread my mind on follow ups perfect.
So I will switch gears and maybe just talk a little bit about.
Forgive me if from torturing the pronunciation, but that the agreement in the UK, which risk.
And I know you said, Brian that it would be essentially comparable from a value perspective at 30 million.
Maybe just talk about any margin impact and similarities or just similarities relative to the agreement in Germany.
As far as kind of upside and.
Leverage to volume publication overtime.
Yes. So each of these deals is a little bit different because the funding sources a different the nature of the tastes of the consortia are different and so forth.
But they all have certain things in common such as the blend between what we would have called subscription revenues and what we would have called open access revenues.
From the comparative perspective, the deal will be public in 30 days. So we're not going to comment on the on the very specific.
Sure that.
But this one just like the German deal and just like all of our deals are fundamentally volume based.
Meaning that the peak times Q.
Wage in holds the more we publish the warm we make.
And so so we in those are the dynamics of these that we like and so we expect that over time too.
To to newer to our benefit as our share continues to increase in the marketplace from a from a margin perspective. We view. These deals is as in the long run.
Roughly equivalent to that business that we have and we are we're continuing to evolve in that direction and we believe that there are sustainable that these businesses that that the business becomes a sustainable but now has the overall.
Enhance characteristic of being able to grow based upon the share that we are gaining.
So so thats the way, we the way we're thinking about them.
Very helpful away was talking about this deal and in the short run no material change for fiscal 21.
From a financial perspective.
No the mark the market is evolving according to our expectations. There is nothing unusual about this it's a slow transition as you can see as you know the this the open access.
As part of businesses are significantly less than 10% school of business, we will continue to see it.
To see it evolve.
And it's all in line with our expectations were very.
We're very common comfortable that with it.
Very good I'll sneak one more and switching gears to the print text the decline.
Yes, Thanks, Thad I will say that it it is notable.
That our.
Not to Pat ourselves on the back but our leadership in this area has resulted in healthy and positive discussions all around the world and.
And I think it is being of is it is coming through in our article submissions, which are significantly above market. At this point in time people are choosing to work with Wiley and and Thats a very positive.
Very positive effect and that we believe in the long term sustainable economics of this fleet with growth on top of it.
Leads us to have a lot of confidence in the future of the of the research business and gives us confidence in the investments we're making there.
For growth.
Perfect.
There and noteworthy point last question on the print text declines moderating this quarter. It seems like we've seen this the last couple of years kind of a big drop at the beginning of the academic year, followed by some moderation.
Is that sort of the new norm of.
How universities are purchasing.
Being more conservative upfront.
Or is it.
Just more of an anomaly that pattern.
Well, what I, what I would say is is first and foremost in this discussion we're not.
We're not saying that we completed the understand where this market is going to go in the long run from a volume revenue volume perspective as per my comments, we believe.
In the in the unit there is the unit consumption has indicated and we are repatriating those units on a regular basis, sometimes at a lower price, but as you've heard in my comments over time.
We sort of like that.
That.
That transition because we get significantly more sell through.
And even at lower unit cost the the sell through which for as ibooks might be 90 plus percent.
Oh, it winds up with us in a better price that revenue at a better profit perspective, but we're not call and bottom right Thats just not we don't know the print revenues are continue will continue to be a bit unpredictable. There's certainly been a number of things from a.
From Ed.
Amount of inventory and market perspective and movements there.
I think we are.
And there have been changes in the.
In the cycles, which universities, it's not universities, but which bookstores and the channels by inventory and how they're thinking about returning them. All of those are that we've identified our anomalous trends.
Certain large distributors.
Certain large distributors seeking to reduce their working capital in one period or seeking stock up into different period or better match supply and demand, they're all trying to figure out this market as well so no nothing nothing that I would consider predictable or or endemic to the marketplace with the exception of when we moved to digital revenue.
The purchase tends to be a little bit later.
But there are no returns and we like that so we but we've seen over time, a little bit of slippage from say August to September or from December to January.
Because of course digital revenues don't require a selling.
And when the Abbott.
So I think thats the best I can say on that at this point in time.
Understood appreciate it again.
There are no further questions like to turn the call back over to Brian APEC for any closing remarks.
Alright, thanks, everyone for joining us on the call today, we look forward to given you our fourth quarter results and full year results in June.
Thanks again.
Thank you ladies ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.
So.
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