Q4 2020 John Wiley & Sons Inc Earnings Call
Good morning, and welcome to Wileys fourth quarter fiscal years 2020 earnings calls as a reminder, this conference is being recorded at this time I'd like to introduce why these vice president of Investor Relations I'm Campbell. Please go ahead.
Good morning, and welcome to while these fourth quarter fiscal 2020 earnings update.
On the call with me are Brian if that our president and Chief Executive Officer, John Kritzmacher, Chief Financial Officer.
A few reminders to start the call is being recorded in May include forward looking statements.
You shouldn't rely on these statements is actual results may differ materially and are subject to factors discussed interest she filings.
The company does not undertake any obligations to update or revise forward looking statements to reflect subsequent events or circumstances.
Let me provide non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends.
If performance trends do not have standardized meanings prescribed by U.S. GAAP and therefore, it may not be comparable to the calculation a similar measures used by other companies.
It should not be viewed as alternatives to measures undergo.
Please see the reconciliation of all non-GAAP financial measures presented in a supplementary information included in our press release.
Unless otherwise noted we will refer to non-GAAP metrics on the call and all bearing physical exclude the impact of currency.
After the call coffee this presentation and a play back to the webcast will be available on our Investor Relations Web page.
I'll now turn the call over to why these president and CEO brining that.
Thanks, and good morning, everyone.
On behalf of all Wiley colleagues I'd like to extend our talks to the many lives many whose lives had been impacted by the global health and economic crisis.
The past hundred days it reminded us of the critical importance of community.
Much we all rely on each other.
We've been up lifted by neighbors essential workers and health professionals as they work to care for all of us.
Wiley we've seen our community in action with scientist pure furiously developing testing therapies and vaccines with educators innovating at adapting to ensure that learners can continue their developmental journeys through these difficult comps.
We said in solidarity with those affected by the egregious acts of racial injustice in Minneapolis, Louisville and elsewhere in the world.
With those bringing awareness to this fundamental problem.
The core values are community are central to why these culture.
Everything that we do as we work to improve access and affordability and education.
Silicate scientific progress that's just medical breakthroughs.
Now more than ever.
Work can help to heal recovery and read the rebuild and thrive.
Like most businesses. While these short term performance has been adversely impacted by the pandemic and the resulting economic dislocation.
At the outset, our priority was of course to ensure the safety and well being of our colleagues, we transitioned very smoothly to work from home worldwide.
Well, we've continued to support our customers partners and communities without interruption.
The performance perspective, we drove hard to the fourth quarter and finished the year ahead of our April nine expectations.
During this period, we also generated good momentum in our key strategic strategic areas of focus.
The company is fundamentally strong we benefit from modest leverage and ample liquidity. Nonetheless, we do face near term uncertainty as universities and corporations worked with death to new market and economic conditions.
Consequently, we're stepping up our business optimization initiative significantly in response to the pandemic well carefully prioritizing the timing of investments to best serve our customers.
Despite short term challenges brought on by coded 19, our key businesses peer reviewed research online education corporate E learning continue enjoy long term positive trends.
This is because each is an essential component of the global economy.
Fact, many of the long term trends driving these businesses on which we built our strategies.
Our accelerating our sabre has resulted the current situation.
Given the limits of our near term visibility, we will not be providing annual guidance for fiscal 21 at this time.
We will both be transparent in the quarters to come about what we're seeing.
We will provide important data points and keep yards as we make our way through the recovery for it.
I want to recognize tireless work of our Wiley colleagues they've kept the Wiley ships sailing strongly forward through the work from home transition and have largely thrives in terms of productivity engagement.
Team has continued to hit our goals and milestones while mitigating any impact on our operations brought on by the pandemic.
Through the period, we've been securing important subscription agreements even in the hotspot areas.
Increasing publishing output.
For a new mobile educators through the urgent transition online and driving strong cash collection.
You know regular surveys and overwhelming majority of our colleagues report feeling so happy and productive.
My heartfelt thanks for the entire team for their accomplishments dedication and come Rotring.
I'm pleased to report that a few of our international offices have already begun to reopen although we do anticipate an extended and careful period of transition.
Back to the office.
For the crisis made large amounts of scientific and medical research digital courseware and online education services freely available.
We specifically opened up thousands of cold and related research studies to help the search for effective testing therapies in vaccines.
And we've helped many universities schools and companies go virtual as their physical operations have been disrupted.
We're also working hard to keep the broader community supported wherever possible.
Among other things.
We are honored to have partnered with two organizations get us P.E. that or which is through the delivered over a million say shields and other pp.
Sure healthcare workers worldwide and digital us, which is focused on working to equip workers with essential digital skills over the next 10 years.
This will be even more critical going forward given the massive job dislocation.
We've always been proud of what we do in research and education, but it's come into Chris focus amid the ongoing health concerns and economic insecurity caused by the current affairs.
Wiley is not immune to the disruption caused by the pandemic, but it's important for masking buys that long standing market trends remain highly favorable to what businesses.
Many of these are accelerating due to covert 19th.
Value of peer reviewed we searches unquestioned and the demand the publishing consume research continues to increase even to the crisis.
The pandemic has caused colleges universities and students to brains embrace online education with unprecedented speed.
Dave educators had have had to be more reactive and strategic but already sudden shift remote learning has made digital courseware deliver that a compelling price point, obviously essential.
And a lousy adoption and usage that show this.
Long term the wide scale transition.
Education will benefit our growing service businesses as people migrate to efficient affordable career focused education to gain the degrees and online credentials that they need to get jobs in it even more challenging labor market.
On the corporate side employers will continue to need help finding training and upskilling employees with hard to find skills in areas such as information technology.
And there is now increasing recognition.
Hi, this change cost effective and powerful solutions.
We are well aligned with our content platform service offerings to help universities and corporations address the persistent skill gaps that exist today and going forward.
Let's turn to the quarter's results.
No it will be excluding the impact of currency when discussing performance.
As I said earlier Cobot 19 has had a significant impact on the fourth quarter.
With revenue adjusted EPS, and adjusted EBITDA down, 2%, 44% in 23%.
The challenge is introduced by the pandemic include the shutdown of retail bookstores and the temporary prioritization of essential goods buy online retailers some significantly impacted print book sales.
The shutdown as testing sites for college entrance and certification exams.
Impacted ourselves of test prep courses.
The closure of corporate offices naturally led to the shutdown of in person corporate training, which impacted the sale of our corporate assessment and training programs.
University closures delayed some journal subscription agreements, although we did finished the quarter strongly.
The GAAP EPS loss in $2, maybe three cents this quarter reflected two noncash or nonrecurring impairment charges.
In education services, we recorded a non cash goodwill impairment charge of $110 million.
Performance below that position expectations and cobot related headwinds contributed to a determination that the carrying value of the education services segment exceeded its fair values that said, we remain fully confident in the strong revenue growth and profit potential Bernt Preston.
This business.
Second we recorded the noncash tradename impairment charge of approximately $90 million related to the Blackwell brand.
This reflects a decision to simplify or brand portfolio by unifying our research journals under the Wiley brand.
It's a which will result in the sharp reduction the use of the Black will trade name acquired 2000 and stuff.
Charges entirely unrelated to cobot 19, or the expected future performance of the research segment.
We also recorded a restructuring charge of approximately $15 million related to our multiyear business optimization program.
Both prior estimates due to additional actions related to the impact of cold and 19.
You know more about or efficiency matches, what I will say.
We are controlling our expenses closely during that time.
Crudes.
Temporary payroll for me and from my direct reports.
Oh Wiley colleagues globally as we navigate this uncertain economic size.
Collectively the three unusual charges for the quarter amounted to $3 and 49 censorship.
The spot despite the obvious financial impact of Kogan 19 on Q4 performance, we had some significant accomplishments.
We closed important journal subscription agreements and drugs strong double digit open access growth.
We achieved impressive research supply and demand metrics, including article submissions and platform usage.
We generated momentum for digital courseware adoption before and during the transition to remote learning.
We added four new University partners and education services.
And we recorded $168 million in free cash flow for the quarter.
For the full year, we continued to see solid revenue and profit growth in our research and education services segments, while academic and professional learning was weighed down by challenging market conditions for print books, and the fourth quarter impact of cold in 19.
Revenue rose 3%.
Adjusted EPS, and adjusted EBITDA declined, 21% and 8%.
Reflecting the dilutive impact of acquisitions investment in or that growth and the impact of cobot 19th.
Free cash flow was up 16% over prior year below fiscal year expectations.
Primarily due to coated hogan related customer payment delays.
Across while even made strong progress in fiscal plenty of most important strategic priorities.
This included publishing more in research driving growth and momentum in digital courseware and online education and improving our operating efficiency.
Today, nearly 80% of why these revenues generated from digital products and Tech enabled services and this continues to rise.
Finally acquisitions this year bolstered our positions and I T career skills training.
Digital courseware and corporate research products and platforms.
The integration of prior acquisitions are all proceeding as expected.
Now, let's take a look at our business segments.
Our research business had another good year with revenue up 2% and adjusted EBITDA of 4%, even after factoring in cobot 19.
In the quarter revenue declined 1% on adjusted EBITDA was flat.
As noted we continue to see strong double digit growth in open access publishing in calendar year 2020 Journal renewals were steady.
The man that met metrics were exceptional in fiscal 20 with article submissions up 13% and Wiley online library usage up 25%.
In the year, we continued to drive the market forward with comprehensive national agreements in the Sweden and Finland.
Finally, our out upon platforms business grew 11% eight new clients.
And recorded a 97% retention rate further extending our market leading position in the distribution of research content.
While the research continues very strong market position with our strong portfolio of coffield journals publishing a growing volume research.
Our focus for fiscal 21 is consistent with our stated strategy and recent momentum.
We will continue to drive article volume growth and lead in open access.
We must six navigate the twin calendar 21 renewal season, as coded nights and uncertainty weighs heavily on University.
Calendar 20 subscriptions are locked in through December.
And our calendar 21 season kicks off in September.
Our content remains essential to researchers inside these institutions, we're cautious confidence.
We will continue to expand our presence in China, given the huge opportunity there to source and publish more high quality research.
We will continue to grow our research revenue streams in corporate solutions, and then research platforms.
Made a couple of small acquisitions that were excited about in the corporate space, one for spectroscopy software and databases that allow researchers and companies to interpret data.
And assess career center platform for societies associations and other organizations.
Just last week, we announced the deal to manage the science careers job for the American Association for the Advancement of Science AAA asked the worlds largest scientific society.
It's just another example of widely consolidating its leading position with the site, enabling more upsell opportunities.
In fiscal 21, we also will continue to drive the optimization of our journal portfolio and arc workflows to both improve our efficiency to enhance the researcher experience.
Despite the world's uncertainties research remains a fundamentally strong business with a recession tolerant profile and steady strategic momentum.
As noted academic and professional learning was severely impacted by the pandemic shutdowns of universities workplaces bookstores.
The most affected sectors for Wiley have been book publishing mainly due to book store closures test prep due to test site testing site closures and in person corporate training programs due to corporate office closures.
All of these have shown improvement in may but the near term remains challenged due to cold in 19.
Academic and professional revenue and adjusted EBITDA for the year were down, 6% and 28% respectively.
We're down 16% and 49% for the quarter.
On the Brightside as noted the force transition to remote learning has driven accelerated demand for digital courseware with strong fourth quarter momentum in our critical learning platforms, Wileyplus Zibond and Delta.
It's important to note that digital courseware and other digital content for <unk> comprised 59% of Wiley higher Ed revenue in the year compared to 35% for print books and 6% for other products.
We also saw good momentum incorporating the learnings with record usage for Crossknowledge SAS learning platform and strong new corporate signings with the new logos signed this year compared to 43 in the prior year.
The question marks for us in academic and professional for fiscal 2001 or fall University enrollment.
Pace of returned to work in corporate training budget.
I expect to have more clarity in the fall.
Near term uncertainty and into across this segment due to cobot 19 long term trends look favorable due to the increasingly robust migration to online learning University and corporate settings.
This move is being driven by the increasing market acceptance.
The proposition of digital learning platforms.
Deliver strong learning outcomes that are reasonable price.
And academic and professional as long as John change for fiscal 21, we will continue to focus investment a high demand career areas business technology Engineering Science math.
And we will continue to deliver the highest quality content on digital learning platforms to drive adoption usage and education impact.
We will leverage the accelerated shift to digital courseware and he learning by delivering a compelling price value proposition and innovative pricing models.
Across the segment, we have major efficiency initiatives under way to address the near term headwinds like transforming our workflows and better aligning our operating models with customer segments.
Education services delivered another solid year.
Revenue up 42%, 11% organically and EBITDA margin, our EBITDA margin tripling from 3% to 9%.
Growth was driven by strong double digit growth in fee based education services revenue.
We added four new University partners in the quarter Drake University in Iowa University of Iowa Methodist University in North Carolina, and point University in Georgia.
Same time, we expanded our partner support during the Koby crisis, providing additional services such as technology resources, and addition, and assistance with course profession to get schools online quickly [noise].
We continue to improve the efficiency of the Ed Ed services business by optimizing the student lifecycle from acquisitions or graduation.
Fine tuning customer acquisition costs by driving student retention rates.
The business remains on track to realize our fiscal 2002 goal of the 15% EBITDA margin.
The integration of M is proceeding as planned although cobot 19 does present in near term challenges companies adapts to the shutdowns and evaluate the hiring plans.
As a reminder, and threed delivers job ready I T talent to the world's leading corporations.
We are mitigating the short term demand issues with innovative programs that will help us accelerate readout of the cobot pause like training and stockpiling high potential talent. So so that it is ready to deploy when the market opens up.
Since the acquisition, we've realized revenue and cost synergies across our growing tech education portfolio by integrating our to boot camp businesses by driving collaboration between three and our Ikea Courseware group and by developing joint go to market approaches for M and Crossknowledge.
That's cobot 19 appeared we saw a steep decline initially in new student lead volumes.
The public focused on the crisis at hand.
In same time colleges and universities close and were forced to go online overnight.
For us than that resulted this disruption remains unclear picture fall enrollment, although lead volumes of generally rebounded in schools are increasingly clear about their fault plants.
Expect to have a clear view of enrollment as we get closer to the start of school in the fall.
Well first fiscal 21 is difficult to predict we do as you've said see a continued acceleration of the movement toward online education by universities corporations and of course by students.
This is reflected in the continued high interest in our education services.
Imports.
And with this trend and this trend will be held by a challenge stock, which typically after delay causes enrollment drives.
In short close cobot people will be looking for ways to quickly and cost effective get the education that can lead to better jobs.
While he continues to lead in the market in helping universities and corporations fine educate and develop talent.
And we're well well position was 69 University partners hundreds a degree programs and a growing list of corporate clients that look to Wiley said leveraged talent.
Key areas of focus in fiscal 21 for Ed services crude moving quickly to supply.
Pardon.
I got to changing conditions.
Adding new partners in programs to our high quality portfolio.
Turning to optimize the cost of student acquisition and to make the entire student journey more efficient.
We haven't even a margins.
It's also finished the integration of scurry, while leveraging revenue cost synergies across our portfolio.
Near term uncertainty is the reality, but I think were in an inflection point for effective career enhancing education in the form of online and hybrid degrees non traditional certifications that allow people to rapidly affordably meet the specific in constantly changing needs of the labor market.
I like where we said.
With that I will pass the call over to John.
Thank you Brian.
As a reminder, we issued our annual guidance last June and updated that for our Q3 earnings report on March four to reflect the impact of subsequent acquisitions and foreign exchange movements.
On April nine about three weeks or so into the pandemic shutdown across the U.S. and Europe.
We lowered our revenue adjusted EBITDA and adjusted EPS guidance, and we withdrew our free cash flow guidance given the lack of visibility is visibility around the timing of customer payments.
Our guidance as of March and then the April revisions are shown here.
Our fiscal year actuals are shown in the right you can call as you can see our colleagues rose to the challenge in April closing, new business ratcheting down expenses and collecting on our receivables.
Overall, our results trended favorably to our cobot adjusted guidance.
In the ends were estimating that the pandemic shutdown adversely impacted the quarter's revenue and EPS by $30 million to $35 million and 15 to 20 cents respectively.
Our adjusted EBITDA margin for the year was 19.4%.
Earnings for the full year reflect our investment in long term growth initiatives and strategic acquisitions.
The inorganic earnings impact of acquisitions was 33 cents per share of dilution for the year, including interest expense.
Free cash flow of $173 million finished ahead of prior year by $24 million or 16%.
Primarily due to improved working capital performance.
Nevertheless, we estimate that approximately $30 million of delayed customer payments slipped into fiscal year 2021.
Our cash flow from operations was favorable to prior year by $37 billion.
As you can see we continue to deliver solid cash flow performance overtime.
Sounds national strength will enable us to stay the course in executing our strategic plans during a challenging period ahead.
Our balance sheet continues to give us the flexibility and capacity to invest acquire and return cash to shareholders.
Our leverage ratio at year end was 1.6, well below the 3.5 times tab under our revolving credit facility.
In addition to our healthy cash flow and balance sheet, we have ample liquidity was $200 million of cash on hand, and undrawn revolving credit in excess of $700 billion at year end.
Our strong record and returning cash to shareholders continue with fiscal year share repurchases and dividends totaling $124 million.
Our current dividend yield is over 3% and our next annual dividend review is scheduled for later this month.
As a reminder, does the economic downturn, we have suspended share repurchases until further notice.
The next slide shows our capital allocation and how it's trended over time.
We've consistently taken a balanced approach between returning cash to shareholders and investing for growth.
In fiscal 2021.
We expect to be opportunistic on the M&A front, we continued focus on expanding our capabilities and scale and strategic areas.
We project Capex spend to be closer to $100 million with investment focused on the development of tech enabled services and platforms as well as workflow and process redesign.
We will resume share repurchases as the economic environment and our business improve.
And as already noted our annual dividend review will take place later this month.
The pandemic uncertainty precludes us from issuing annual guidance at this time, we simply do not have sufficient clarity around the depth and duration of the ongoing healthcare crisis and the economic downturn.
We're also withdrawing our fiscal 22 targets given such limited visibility.
We are actively monitoring several key indicators to effectively manage the new term performance of our business.
On the research side of our business research funding and University finances are fundamentally important.
On the education side of our business campus Reopenings student real enrollments and University, Financers, which are tightly intertwined are driving factors.
Our corporate training businesses or depends upon office reopenings and the duration of reductions in corporate spending on professional growth.
Although our near term visibility is limited.
Our financial position is very strong and we are well positioned to successfully navigate this downturn.
Across our portfolio our business models are predominantly digital and online and as Brian noted, we continue see good momentum in key strategic areas.
Broadly speaking our performance largely depends on the timing and success of unwinding global social distancing measures.
When that happens and clarity returns to the global economic environment, we expect to resume providing annual guidance.
In the interim we're responding quickly to reduce costs and accelerate our efficiency initiatives to mitigate the adverse impacts of the economic downturn.
Among the actions we have recently implemented.
We initiated incremental restructuring actions incurring a charge of $15 million this quarter for actions that will generate run rate savings of approximately $30 million annually.
The executive leadership team and the board unanimously agreed to take six month pay cuts ranging from 15% to 30%, which are not financially necessary for wiley, but are important in demonstrating leaderships shared commitment to our colleagues across the company will be impacted by deferred salary merit increase.
Yes.
We have implemented discretionary spending controls across the company.
We are reviewing our real estate portfolio for rationalization given success to date and working from home and the sensor workforce benefits.
We are significantly accelerating our process reengineering and technology in sourcing initiatives to enable our strategic plans and reduce costs.
We are going well beyond belt tightening simplify standardized and automate our workflows for sustainable efficiency gains.
To further mitigate the impact of the economic downturn additional cost savings actions are anticipated as we make our way through the coming fiscal year.
And with that I'll now pass the call back to Brian.
Thanks, John.
For over 200 years Wiley has navigated.
Certainty.
Racial disciplined fiscal prudence and strategic.
We will continue to do so through this one too.
To recap today's main messages Wileys fourth quarter performance was adversely affected by the end that.
We drove hard to.
Ended ahead of our April nine expectations, while continuing to generate good momentum in our key strategic strategic areas.
Our business is fundamentally strong and is reinforced at modest leverage and ample liquidity, we do face near term uncertainty in our markets due to covert 19 and its economic impact.
Nevertheless, long term trends remain very favorable for our core businesses in peer reviewed research online education and corporate learning.
Our strategic plans and investments are all focused in these areas and we're carefully prioritizing the timing of our investments and accelerating our business optimization initiatives in response to tell the 19.
Finally, our near term visibility is just too limited to provide specific guidance at this time.
Wiley is one of the most enduring companies in American history for reason, our financial position cash generation and business fundamentals remained solid we have a long history of adapting to a challenging and changing world.
And what today's disruption across the globe presents challenges.
Our business as always remains essential the global economy, our core strategies matched very well the future markets needs.
Stating the obvious it's been a difficult period for all.
I wish you and your family's good health and good luck as we continue to navigate TRID and once again I want to thank our Wiley colleagues around the world for their incredible working commitment and for their remarkable accomplishment this quarter in this year.
I'm grateful for the opportunity to work with such an extraordinary team.
With that we welcome your comments and questions.
Thank you to ask a question you will need to press star one on your telephone to withdraw your question comes to Punky. Please standby, we compared to Q1 day roster. Our first question comes from Daniel Moore with CJS Securities.
Your line is now open.
Brian John Good morning, Thank you for all the color this morning and for taking questions.
Good morning to.
Why don't you start with with journal subscriptions can you give us a sense of where we stand today in terms of calendar 20.
Versus calendar 19, you know up or down by how much and roughly what percentage of businesses closed at this.
To date.
Sure I'll take that Brian So so with regard to subscriptions Dan as you know we've got an evolving model, where we are now entering into.
Bill pay to read and pay to publish models in some countries in Europe. So direct comparison across two subscriptions signed versus prior year is a little bit different.
But I would say in terms of ours are signing on business for this year inclusive of both.
The.
Mixed models and our subs agreements, we are even with prior year.
We actually as we noted in the comments earlier made very good progress.
In April and closing additional agreements and we expect to conclude most of our subscription agreements now.
During the balance of our first fiscal quarter.
Again this is all with regard to the calendar year 20.
The calendar year 21 subscription season gets underway in the September October timeframe.
Understood extremely helpful and on that note what are you hearing from your.
University Journal customers at this point, obviously, most if not all are under pretty extreme financial stress.
What or maybe some of the dialogues and steps, you're taking whether it be temporary price concessions volume discounts and limping hours.
Maybe eliminating non core titles just as they navigate through these interest you know pretty unusual budget times any color there extremely helpful.
Absolutely. So as you said we feel.
Confident in the essential nature of our content, but you're right to point out that universities and university budgets have been under pressure or will are expected to be under pressure.
We expect that to be evident.
As we go forward really more about next year than than this year to date, we've been we've been very close to our very close to the market obvious do you expect us to be we've been speaking to them Weve closed a bunch of deals.
In the during the Cobot period, we saw no excessive price pressure during that period or and link as you might.
Worry about.
So so so far this signals are good.
We continue to keep our year to the ground.
As far had just not been not seen the pressure.
I would expect having said that we're really early in this Dan.
The the as I would say about many of our businesses.
The.
The World and the University will particular, we're still trying to sort out with.
Librarians are very protect their collections they want to keep it they know the value of the university's understand that.
If you research to their research activities.
Which are key to their university rankings on a global global basis. So this is important stuff could seem to be clear we've seen no material price pressure.
No material on bundling or anything of the source I wouldn't be surprised to see some you also asked about specific actions that we've taken.
We went out early a with a commitment to hold prices flat. This year, we went public with it before anybody else that anything of the store and we were extremely well.
Rewarded NPR for that the Mark belted enacted this eight as you know we have taken that position as a good actor who in this market that wants to.
Our that the entire ecosystem is healthy and collaborative in support of in support of research.
So that was a bold move on our part.
Supported this story and we believe it is allowing us to get ahead.
Here.
Secure.
One.
Secure the 21 renewals with with greater even greater confidence.
So.
That's perfect great color I'll sneak in one more switching gears to education services.
Obviously seem to be in the cap rates either as it relates to the shift to online.
Are there any impacts you're seeing from co bid clearly you continue to sign new business, we expect to continue to grow at healthy rates in fiscal 2001, and if not why not.
Yes. So 21 is is is unclear right now it's easy to say that that cobot disruption is moving everything and everybody online and in the long run. We believe we are at <unk> and beyond that inflection point, where that's happening we can see it in many ways, but we're in and onset.
Oh period, right now and we're not going to go out and say that that's going to come flowing through our enrollment immediately what we do believe is that in a long term.
In the long term the trends are very much in our favor and you see that any interest level in our services that were seeing right now.
But to date most universities have been have been actually stunted by this that they're not making long term strategic decisions, they're making short term decisions on what the Hell do I do to get my students back on campus and and what do I do like features we don't go into the classroom because of because fear of of of getting infected.
So to date, it's been more tactical I think these trends play out over time again, specifically, what we've seen since the crisis.
Is initially a significant decline will be generation, which you don't want to see.
But happily that's back that bounce back and right now we are at or above our our or your levels.
Even a time when people don't know.
Left from right. So we're not we're seeing reasonably have reasonable confidence.
And we'll see.
But it's still really early days, we won't know you know as you know the fall season. The fall enrollment is what really matters and we won't have a good beat on that for a few months or so as that happens we will.
Well, we'll keep you guys posted.
But we are optimistic.
And we see a we see.
You know good Tailwinds in this segment as soon as we get through the uncertainty and dislocation that currently it's affecting our university partners and students and stuff.
That makes perfect sense, but as of right now to be clear and no change to the fiscal 2002 targets on that on that side of business.
So Dan.
Thomas.
Earlier that we're going to.
We are.
Withdrawing the fiscal year 22 targets given the uncertainty ahead of us.
What I should point out is while.
Off line performance is less clear in this environment.
We're making a lot of progress on the profitability that business and so the 15% EBITDA targets that we set for that business.
As well in sight, we made good progress against that this year, we delivered 9% EBITDA margin on that business. This year.
We see a clear path to getting to the 15% EBITDA margin targets that we set.
I should have been more clear in the question Thats perfect. Thank you I'll I'll jump back with any follow ups I appreciate the color again.
Thank you.
Thank you.
Hi mind to ask a question you will need to press star one on your telephone.
Next question comes from David Pang with Stifel. Your line is now open.
Good morning, everyone.
What was the.
Source of the goodwill.
Impairment for the Ed services segment was it.
Was it learning elsewhere or was it deltek and what drove the underperformance relative to expectations and then secondly.
Can you talk about the inventory levels at college bookstores and what your expectations are for the ordering patterns for the upcoming fall semester. Thanks.
Sure. Good morning, David So first with respect to the impairment of goodwill and the education services business.
Balance sheet carries about head carried about $200 million and goodwill associated with the combination of the original deltak acquisition.
And the more recent learning House acquisition.
As we noted in our comments the goodwill impairment reflects.
Underperformance against our acquisition case assumptions and that in particular relates to revenue growth, we had particularly aggressive revenue growth assumptions and overtime weve not delivered on those.
So in light of the.
Lower.
Performance historically in that business and given the economic headwinds that we see.
In the near term the impacts on on universities and potentially on online enrollments.
We model the business for lower revenue performance in the near term.
So the comments I just made to dead, we still expect the profitability of the business on the revenue base to be strong and we are cautiously optimistic about future growth in the business, but.
Given our track record and given what we see in the near term in terms of Cobiz related headwinds, we found that the carrying value was in excess of the book value and so we made an adjustment to goodwill I would not distributed particularly to the deltak or the learning house businesses, they're integrated now we.
Did pay a higher revenue multiple I should note as for the deltak business at the time that we acquired deltak back in 2012, we paid about four times revenue.
Regarding else was acquired for three times revenue so at a significantly.
Lower premium.
With regard to inventory at bookstores.
[music].
I would say that what we've observed in the last couple of months given the slowdown in retail as the inventories of remains.
Relatively flat what what bookstores have tended to do is lowered their ordering during this period.
That they've been shut down because without the retail traffic, they're not doing much to restock shelves.
They don't have much volume thats passing through them for the most part that's true while the retail outlets have been fully closed they are beginning to reopen.
We have some online business, but not the smaller ones, but others have.
Others have larger retailers have online business and all are slowly beginning to reopen first with curbside and then they'll move to be fully open for retail.
That is in early days, and so and won't necessarily claim but this is that sustainable trends, but in early days, we are seeing some improvements in ordering as the bookstores prepare to continue serving their retail traffic.
But again, it's early days, we still are just opening and so there's that there's some lingering effect here and it won't be fully unwound until bookstores are fully open up and running.
You know along with that will be.
Beneficial to of students back on campuses.
The University bookstores.
Yeah, So I'll add just a little bit to that answer which is an excellent answer.
Seemingly and not surprisingly the consumer book sales numbers industry numbers have been point of purchase in bid seed inventory numbers have contain relatively strong through this period.
Not surprised people at home. They go online they buy see the channel mix of course has changed but the put the volumes have been very good and that's very hard.
Like books, they keep buying them.
And particularly in the categories that we are in the segments, we focus on in the consumer business.
Business books, and and that sort of thing are our strong categories that continue to grow.
On the education side, it's a very very thin period right now for book sales right. This is not a time when college books when when college students are buying books, which is good and it means that debt during the peak of the coated period, you're not worried about about losing the bulk of the of the year, but it will point back to.
From an inventory perspective will be very interesting to see what happens.
I'll, just because that's when bookstore stock up.
For the college fall season.
So that'll be a that'll be an interesting thing to watch and that'll be completely a function of the enrollment that they have secured.
We now and that might be in book because that's what that's how it works. They basically said we're going to have this many students in the classroom and we're going to we're going to order. This many this many books. So so really its fall enrollment that will drive that and we won't have any sense of inventory until we get to August but that will be good indicator.
For a very good indicator for us to look at having said that we are seeing significant movement as I indicated in my remarks.
Toward.
The digital materials, the digital courseware that have been growing nicely for the last few years in that have accelerated now so there may be.
There may be and enhance shift, which if you've been following.
That we've been talking about or the story that we've been talking to for the last couple of years as we move to those digital materials, we may lose a unit at a relatively high price in physical print.
But as we do we gain multiple units of digital because to sell through is three times is high.
Because of the lack of substitutes for for the the.
For the digital courseware, and so we like that shift and so so if we see some inventory and ultimate sell through problems in.
In in this fall some of that will come back to us we're hoping a lot of it will come back to us in digital keen number to look at and as we think about leading indicators has fallen moment, it's all about the fall enrollment in.
College business.
Yes.
Thank you.
And next question comes from Daniel Moore with CJS Securities. Your line is now open.
Thank you again, just obviously.
Kind of doing everything that you can John and Brian Twos to mitigate any me on near term lost revenue as far as some of the restructuring efforts taking aggressive cost actions even.
You know executive pay et cetera.
Netting that out since their way to think about kind of decremental margins in the.
EBIT.
Maybe just a broad range in the areas that maybe are under.
More pressure from a revenue perspective in the short term.
Did.
You know in the absence of guidance, it's really hard to comment on on margin ranges in the go forward business I think to get a handle though on what the go forward business looks like.
To start with thinking about the different businesses, we're in and how they are impacted by the by the slowdown.
So for example in the research businesses as we talked earlier.
Most of the calendar year 20 subscription revenue.
And the mixed breed and publish agreements have been signs and so there are effectively.
Locked in through the calendar year, and then we'll see what impacts we have our library budgets when we make our way through the renewal season than the fall, but the marginal the incremental margin on research sales as you can imagine is quite strong.
Look across other businesses and academic and professional learning, which is where we've had most of.
Adverse impact in terms of topline performance, we see a combination of pressure on book revenue.
Which has reasonably strong variable margins, but thought on the order of the margins that we've seen in research.
And there are also within that segment there are some.
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Corporate training services that have high margins so.
Modeling those out where we have the most impact there.
Who different margins, but but they are in that.
The marginal range that we see a route academic and professional learning.
And then an education services, Brian said it's.
We're looking into the market ahead, it's a bit uncertain.
Overall in that segment as you know.
The overall profitability is relatively low and working on building that up for real outcomes, it's on bringing that back but I think you take a look at the the mix of what we see in revenue performance. You can you can begin to interpret were where margins for the business will have the next year.
Very helpful, one or two more and I'll, let you get back M&A. I think you said was dilutive by 33 cents to fiscal 2000 pounds at the right way to think about it.
The inherent Kmart impact fiscal 20 was adverse to the tune of 33 cents, yet and you.
You know any commentary on the direction of that dilution as we get into 21, I know, you're not giving guidance of that falls into that category that's fine.
Yeah, I would only I would only say down that we are expecting all to improve you know were in particular some of that so that dilution comes from the organic impact of learning house.
You know, we're we're making good progress around the integration of learning house into the Ed services business and as we've been saying I'm driving the EBITDA margin in the direction of 15% so.
We'll see an improvement there next year also.
Some of the dilution comes from our new Cybex acquisition set again, we're integrating and were gaining ground rapidly in terms of sales of those products. So I also expect.
The dilutive effects of those acquisitions will be substantially lower as well.
Perfect Lastly from me just some really interesting commentary that Brian had around M. Three.
No I think you said you are kind of continuing to strengthen in stockpile high potential talent for when.
Demand increases.
So just maybe remind us of the revenue model how that you know if that sort of on the on your dime if it requires incremental investment.
You know and hopes to be placing people leader.
Just the dynamics of that would be really helpful. Thank you.
Absolutely I figured.
That's true.
So.
Those are you. So those that don't know basically what M. Three does is a terrific and innovative business model, where works with leading corporations and in in the dominant number of their of their clients are the leading worlds leading financial institutions, So Morgan Stanley and thanks.
America names that you would know HSBC and so forth.
And they really have has developed an incredible niche they worked with those companies who I will say at the beginning at the end have dramatic increase increasing needs for Fred Tech talent.
And they are they take orders from the basically some Morgan Stanley says I'm opening up a development center in.
Mumbai.
Or in Toronto, which we've done both of those for them They Toronto Montreal.
With one of those two.
Yeah.
First basically they go to leading universities they take the best students.
Overseas as adulation.
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Bespoke training program.
To to place those people.
Based upon though those orders the specific orders from the directly into jobs.
For two year period, they are on our payroll.
And we charge them out to the client and after that two year period.
They become employees at a very high rate of the other clients. So that's the models of the revenue model. There for US is that is that we're getting paid from day one.
Of.
By the clients at a at what they would normally charge for an entry level employee and we're charging a significant excuse me we are paying that employee a significantly lower amount as they get up to speed to be eight.
Welcome.
That's it fulltime plate.
Terrific model I'm, very very lucrative and Americans.
So now what's happened is we have a situation where you know this the economy taken shot on the side of the head and the clients have basically are trying to adapt like everybody else. So they're not putting in new orders right now for students.
Let's say, none there you know that they've significantly decline.
We've lost virtually none of the of the what we call alumni.
This program that we're charging out to the clients. So that the the number students is absolutely steady the scene virtually no detriment in that we've added new ones.
But.
It has become.
But we were selected on on.
New demand new orders basically for this period of time, although again, we've got a good pipeline and alike.
And so now to get to the specific answer to your question.
So instead now of building two specific order we've got this capacity, we've got an online boot camps capacity.
Train students.
So we are still recruiting those students who desperately want peace jobs and you've got these great institutions that weekend.
We are we are taking we are basically telling those students we will make you available to those clients.
Once you get through the program and they start hiring again, so we are putting cohorts of students through the same training that they would get otherwise.
I'm doing it on our Dod, meaning that we're not being paid for it but because we are doing this virtually the costs are very low to get those students up and running.
And so we're basically as I said in my remarks were stockpiling talent and so Morgan Stanley opens the door again, we will have a cohort of 25 developers that we can put into their development shop.
So that's basically.
And is that a satisfactory answer complete perfect no yeah, absolutely. That's helpful. For she really we remain really excited about that business and how it extends our education services portfolio built on our career are.
Mentality and our strategies.
You know that timing I suppose.
Nobody knew this thing was coming but I think where we're pretty well.
But again as we've described a very low fixed cost base.
To get to sorry about.
That helps absolutely absolutely.
And just to give you a sense that I hate to keep going on about it because I think that's probably enough of an answer.
But what we acquired them three.
They they did most of their trainings in person, we had internally and online boot camp that we have merged with them. Three so now in Threeq can do all of its training virtually in doesn't need the the fixed interest.
In these situations. So the reason I point that out so great integration the great synergy right off the bat.
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Which is which is like you guys want to see right you won't see us not acquire things that are out left field, the things that that benefit from our existing infrastructure and our existing capabilities.
Very good that's it for me I appreciate it again.
Thanks, Dan.
Thank you as a reminder to ask the question you'll need to press star one on your telephone and next question comes not material that there is on now with Barclays.
I understand all any.
Hi, Thank you for taking my question I just had one I was wondering.
Okay. I think was down the cost of course, you 2% of the fourth quarter I was wondering because you mentioned the nasally recurring subscription due to Kogan 90.
The key they usually the subscription as you mentioned before are taken at the end of 2019 for the first quarter. So I was just wondering how exactly Colgate 19 impacted them tissue publishing segment.
I'm sitting on if I was hoping to.
Go ahead.
Yes, so some until the so the the.
Subscription based in the research journals business.
Is recognized Ratably over time for the majority of the subscription models that we deliver so in particular, our digital model.
Is recorded Ratably over the 12 month calendar year.
In.
The quarter, we had delays in signing some of those subscription agreements. So subscription agreements are typically being close between the months of October.
March and April.
And those that are recorded in March and April get a three or four month affects depending on when they are recorded for the calendar year because the revenue recognition goes retroactive to the first of the year. So having some small delays in the month of April has.
You know four month effect, if you will.
On that period of time, so some of those subscriptions just being delayed into the next period have that effect of course will see the benefit of signing those agreements in the months of May and June but that's the sort of timing factor that you would absorb its revenue recognized overtime and that delay given the chance.
Im just of remotely selling.
You know certainly distance environment and getting contracts saw in the disruption that we were experiencing.
At universities around.
Shifting to the current environment slowed things down a little bit overall, we did a very good job of mitigating that impact, but we did have some activity that moved into the month of May and June.
Okay. Thank you.
And I'll, just add a little bit I'll, just add a tiny bit did what John said.
And that is that we also have some other businesses in the research segment that are.
More cash on the barrel such as our reprint business of.
Articles for for the pharmaceutical industry in there there are other pieces of it that are not subscription related.
Makes sense. Thank you.
Thank you I'm not showing any further questions at this time I would now like to turn the call back over to Mr. nave packs for closing remarks.
Alright, well, thank you all for joining us today.
We will look forward to give you updates news and presenting our first results in in September.
Thanks, everybody.
Thank you.
Ladies and gentlemen.
Today's conference. Thank you for participating you may not dish.
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