Q1 2021 John Wiley & Sons Inc Earnings Call
[music].
Good morning at Lucky so while the first quarter fiscal year 2021 earnings call. As a reminder, this crops is being recorded at this time I'd like to reduce while you Vice President of Investor Relations, Brian Campbell. Please go ahead.
Thank you good morning, and welcome to one of these first quarter 2021.
Update on the call with me or Brian <unk>, President and Chief Executive Officer, and John Kritzmacher, Chief Financial Officer.
A few reminders to start the call is being recorded and May include forward looking statements you shouldn't rely on anything.
Actual results may differ materially and are subject to factors discussed interest cc fine.
Comedy does not undertake any obligation to update or revise forward looking statements to reflect subsequent events or circumstances.
Let me provide non-GAAP measures that the supplement to evaluate underlying operating profitability and performance trends.
These measures do not have standardized meanings prescribed by U.S. GAAP and therefore, it may not be comparable similar measures used by other companies.
Nor should they be viewed as alternatives to measures under GAAP.
Please see the reconciliation of all non-GAAP measures presented in the supplementary information included in our press release.
Unless otherwise noted we will refer to non-GAAP metrics on the call and variances are on a year over year basis, and when we exclude the impact of currency unless otherwise specified.
After the call a copy of this presentation and playback of the webcast will be available on our Investor Relations Web page.
I'll now turn the call over to Wileys, President and CEO I need back.
Good morning, everyone.
Right now educators and students around the world are heading back to school and researchers are heading back into their labs in the world significantly altered by coded 19.
As they do their rewriting the Playbooks for education and research.
Vantage point, it's clear that they're turning to digital content platforms and services at unprecedented level.
There are also turning to corporate partners, such as widely who can help them achieve their goals any change world.
The result for Wiley is that across the company demand for our digital products and services has grown market.
This unusual moment is moving our markets improving that strategy that we have been pursuing or not only right for the market today. They are right for where the market is going in the long term.
We had a solid first quarter revenue and earnings and earnings performance. Despite the disrupted environment.
This demonstrated both resilience of our business.
And tight alignment of our strategies with the market's evolving needs.
We'll talk specifics about our performance shortly but it's important to note that today's acute health economic and social problems serve to reinforce the value of Wileys mission.
Over the past months, we've moved faster to validate and publish more research and have made thousands of critical Kobin related research studies freely available.
We have helped many universities schools and corporations around the world.
More quickly migrate from traditional to virtual learning.
And we spent lots of time in our communities raised money for causes that address injustice and taking concrete actions to ensure diversity equity and inclusion within Wiley.
We continue to be reminded of the racial inequality plaguing our society.
And the need for corporate citizens such as US the plan active role in dismantling it.
Our global team takes great pride in the fact that their work is truly helping the world to heal recover and thrive.
Wiley today remains largely in work from home mode. Although we have partially opened a few offices around the world where local health conditions allow.
I want to recognize the great work of our team in executing at a very high level through this challenging period simply stated the team continues to deliver on our key milestones in customer commitments.
In regular surveys the vast majority of our colleagues report feeling productive and happy and their engagement is very high.
This can be attributed to our strong mission driven culture, our tech enabled workflows.
And our consistent emphasis on colleague care.
The pandemic continues to disrupt the global economy and this is directly impacted some of our more traditional revenue sources, such as physical books and in person training.
But despite these focused headwinds we're very encouraged by the underlying momentum were seeing in education and research.
This momentum should continue well beyond the pandemic.
We've been talking for some time about the positive trends that are driving research and education.
Our growth strategy is built on these trends.
Pleased to see that they are accelerating at this moment and that Wiley is capitalizing on them.
Research output is rising rapidly demand for online education into the digital courseware to support it is also rising rapidly.
The acceleration in these areas speaks well to our long term outlook.
Internally, we are using the moment to lean into our operate operational excellence.
This includes the focus on improving content workflows are customer journeys our facilities footprint in more.
John will talk about this later, but there is much we have done and much that we continue to do to improve the efficiency of operations.
With that let me summarize the first quarter's results.
As I said, we continue to see cobot related disruption to printed books and in person training in the quarter.
Offsetting that with strong growth in key strategic areas, including open access publishing research content usage online student enrollment and digital courseware.
The net result, with that revenue rose 2%.
Adjusted EPS rose, 124% in adjusted EBITDA Rose 42%.
Organic revenue was down 1% I'll provide more detail on all this in our segment discussions.
The material earnings improvement this quarter was primarily driven by favorable revenue performance, particularly in research lower discretionary spending and savings from restructuring.
Corporate expenses alone were down 16% were $7 million.
Let's take a look at segments.
Our research business continues to perform well.
Revenue and adjusted EBITDA rose, 6% and 19% respectively.
An important though is that about 4 million of our Q1 revenue came from journal subscription renewals that were delayed from Q4 due to covert 19.
That said our strategies across the research business continue to bear fruit.
Article output was up 13% as you know this is a key driver of our business models.
It's an outcome of good market growth, our strong publishing programs and our market friendly publishing strategies.
We continue to see strong double digit revenue growth from or from our open access publishing program.
Our comprehensive national agreements in Europe are performing well with publishing volumes exceeding our expectations.
Usage of the Wiley online library is growing strongly up 10% over prior year.
Our industry, leading society publishing program is having another great year net society wins will result in around $11 million of incremental publishing revenue in calendar 21.
In June we signed a 10 year extension of our important Cocklin Library partnership to reference Cocklin is the world's preeminent collection of validated evidence for health care decision makers.
Our platform revenue rose, 10%, a new customer launches for literati.
We continue to consolidate litter autumns industry, leading position in research content distribution.
And our customer attention on a trailing 12 month basis was 98%.
Finally, we expanded our partnership with AAA US The American Association for the Advancement of Science. This is one of the world's largest scientific societies.
As part of this will move the full suite of content from science globally celebrated family of journal journals Entre literati.
This follows our recent announcement that we have also partnered with AAA asked to grow their science career Center.
I'll provide a bit of forward looking color for each of our three segments.
In research, our strong market position and diversified revenue streams are providing a solid foundation through this kind of change.
Calendar 2000 subscription agreements are locked in through December of this year and our calendar 21 renewal season, just recently started.
We do anticipate that cobot related budget constraints at libraries will result in some price pressure for 21, but it's too early to quantify.
In any case, we expect to offset this pressure through the continued strong growth of open access research platforms in corporate solutions.
At the same time, we continue to hand enhance our end to end workflows to improve efficiency and enhance the value proposition for researchers.
We've made very good progress already as evidenced in our strong EBITDA performance reduce publishing cycle times and improved researcher engagement.
In summary, we're seeing strong underlying indicators of future growth and long term customer health.
In academic and professional learning or L.
The story is an interesting one.
The quarter was significantly affected by coated due to the closure of bookstores testing centers in car corporate offices.
Naturally this affected the more traditional of air areas today PL, such as print book publishing test prep services and in person corporate training.
Effect was that a PL revenue declined 12%, 13% organically and adjusted EBITDA declined 23%.
But despite this short term pressure, there's good news for the future in our kps.
We're seeing quite positive trends in digital content in courseware as universities and companies pivot to virtual learning.
We appear to be an inflection point for digital content in digital courseware courseware with record growth of 32% in 88%, respectively on a pro forma basis.
Our strategy to focus tightly on high demand skills and careers is paying off.
Higher Ed we are gaining market share our share has grown from 4% in in July 2018 to nearly 5% in July 2020 on a trailing 12 month basis.
Our innovative Zied books, and Alpha digital offerings are winning adoptions that an impressive pace for example, guidebooks our stem platform. So revenue double over the prior year and it is winning consistently in large course adoptions.
So actually I'm feeling good about the future of Hcl. Despite this quarter's kobin related declines in our traditional business lines.
For the remainder of the year.
We expect the current trends will continue namely that print book sales will continue to be challenged by cobot Lockdowns and virtual learning.
Note that print books, representing smaller portion of Wileys overall business.
Digital content and courseware, we'll continue to grow strongly helping to mitigate any potential decline this fall in higher Ed enrollment.
Recovery and test prep will be dependent upon the reopening of testing sites and the resumption of certification exams.
In corporate learning, we're seeing an acceleration of our virtual and hybrid corporate training products.
We anticipate a strong post pandemic recovery based upon what we're seeing in platform usage and new partner signings.
Throughout April we're moving quickly to take advantage of the abrupt shift to digital learning by investing in our platforms in our go to market strategy.
This includes our value driven business models that may content affordable.
An example is our inclusive access program, which continues to grow very strongly.
We are also responding to the moment by publishing timely titles on topics such as running business is virtually and creating diverse inclusive inequitable cultures.
We are driving rapid and significant improvement in our cost structure to improve efficiency and our margin profile.
Our education services segment is positioned very well for this moment as university students in professionals are pivoting hard to both digital learning and online degrees.
It will take time to fully realize the potential of the shift but interest in our services, which help universities to succeed with online education is running very high.
For the quarter revenue was up 29%, 4% organically and our EBITDA margin was 13%, which is up 9% for fiscal 2000.
Revenue growth was driven by $12 million of inorganic contribution from in Threeq as well as 9% growth in student enrollments are mature and new programs are performing well, although organic growth was offset by small partner terminations as part of our continuous portfolio optimization.
Our full service partner Count now stands at 67.
We added two new full service University partners in the quarter University of New Haven in Connecticut, and Carlo University in Pennsylvania, and we signed additional universities for Unbundled service agreements.
Online program enrollment was very healthy this summer and remain so as we enter the fall semester.
And then three we found that the corporate demand for trained IP talent to be more stable in the pandemic than we had expected.
Our existing customer base is solid and we've begun placing new talent at several recently signed customers.
Notably we are gaining momentum in India, where we are currently staffing a major new technology center for one of our global financial services clients.
University services are facing significant pressures. This year universities are facing significant pressure this year as they simultaneously shift the hybrid and virtual learning while also dealing with financial shortfalls brought on by coated related enrollment declines.
Although intermediate and long term trends are very good there is some near term uncertainty to manage through with our clients.
As with digital Courseware online education has now passed the inflection point in is broadly adopted and accepted as mainstream waste get a degree or certification.
This was true before cove, it but the disruption of the past six months is driven home the value of high quality.
Fairly priced education that can fit the life and career needs of the broad public.
This moment is reflected in enrollment trends in good pipeline of potential University partnerships, both in the U.S. and abroad.
And with our key partners, most of whom are evaluating online expansion opportunities.
M. threes I T talent placement volume is anticipated to be steady for the balance of the year as our corporate partners continue to maintain and grow their tech talent capacity.
Major operational focus within education services. The continued improvement of the student journey from lead to enrollment.
These efforts continue to bear fruit in higher conversion rates and lower student acquisition cost.
The business is well on track to realize its fiscal 2002 goal of the 15% EBITDA margin.
I'll now pass the call over to John to take you through our financial profile and optimization initiatives.
Thank you Brian despite a very challenging environment. We are generally pleased with our revenue and earnings performance for this quarter.
That said, our cash flow from operations of free cash flow were unfavorable to prior year by $27 million and $20 million, respectively, primarily due to the timing of changes in working capital.
As a reminder, our cash flow is normally the use of cash in the first half of our fiscal year due the timing of collection for journal subscriptions, which are concentrated in the third and fourth quarters.
Capital expenditures, including technology property and equipment and product development spending.
Buying $6 million to $24 million for the quarter.
As discussed on the last earnings call, we expect full year capital expenditures to be approximately $100 billion with investment focused on new products and service capabilities as well as process redesign and workflow automation.
With respect to investment in acquisitions, we will remain opportunistic and continue our pursuit of attractive opportunities to add scale and provide enhanced tech enabled products and services in both research and online education.
In terms of our balance sheet, our quarter end debt balance was up $117 million, primarily due to acquisitions, but our interest expense was lower by $1.5 million as we realize the benefit of the lower interest rate environment.
Our leverage ratio at quarter end was 2.0 times inclusive of all acquisitions.
In terms of access to capital, we reported $101 billion of cash our hands and we ended the quarter with undrawn revolving credit of $650 million.
Our strong balance sheet.
System. So your annual cash flows and ample liquidity afford us the flexibility to continue investing acquiring and returning cash to shareholders.
In June the company modestly increased its quarterly dividends for the 27th consecutive year.
Our current dividend yield is more than 4%.
As a reminder, due to the economic downturn, we have refrained from repurchasing shares.
We remain fully confident in our continued strategic momentum cash generation and liquidity position and we expect to resume share repurchases as the economic environment recovers.
We are moving quickly on cost reduction and efficiency initiatives to mitigate the adverse impacts of the economic downturn and improve our agility and efficiency.
These programs, our companywide and include optimizing our content development workflows streamlining our customer support operations and achieving benchmark efficiency levels for corporate support functions, such as HR and finance.
Meanwhile, we continue to maintain tight controls are discretionary spending across the company and we have realized significant savings on travel marketing events and professional fees.
In addition, hiring and salary increase seven strictly limited to critical business needs and investment in our top performers and in June the executive leadership team and the board unanimously agreed to take six slug pay cuts ranging from 15% to 30%.
And as you may recall in the fourth quarter fiscal 2020, we recorded a $15 million restructuring charge for actions that will generate annual run rate savings of approximately $30 million.
Additional cost savings actions are anticipated in the current fiscal year.
As an example, we are taking actions to rationalize our real estate portfolio, given our successful transition to a virtual work environment.
We will update you on our progress as the anticipated savings and the anticipated savings we will make throughout the year.
In summary, we are very well positions to navigate the covert related challenges ahead, while investing in key optimization and growth initiatives.
As a reminder, given our limited visibility in the current economic environment, we have suspended our practice of providing annual guidance.
We expect to return to providing guidance for the economic environment becomes more stable and our visibility improves.
I'll now pass the call back to Brian.
Thanks, John.
So to recap the main messages for today.
Our businessmen remain strong through the pandemic with good momentum continuing in both research and education services, we're experiencing kobin related disruptions to print books and in person training of course. This represents a smaller part of Wiley today with nearly 80% of our revenue coming from digital products and tech enabled services.
Core trends remain favorable and Wileys key strategic areas of focus such as peer reviewed research.
Online education.
Digital content in courseware, we're taking full advantage of this unusual moment to drive improvement in the cost structure and core functioning of Wiley focusing on high potential areas such as our content development workflows are management of the customer lifecycle and the tuning of our real estate footprint for an increasingly virtual workforce.
Overall, we're confident in the enduring importance of our research and education content platforms and services, but more importantly, we're optimistic this challenging moment.
At this challenging moment, because we're seeing compelling evidence in our capex guys that are markets are strong and their strategies are working these specific we're experiencing strong growth in demand to publish in our journals and consumer research.
Strong growth in research platform signings recurring revenue in content consumption with 98% client retention strong growth in our digital courseware portfolio strong growth in enrollment at our online degree programs and increased interest of universities and accelerating the transition to online education.
So despite some near term headwinds the data tells me that were tightly aligned with the current and long term needs of our customers. The researchers students professors administrators and corporate leaders that we serve worldwide.
Once again I want to thank our wonderful Wiley colleagues around the world for their grid, they're positive spirit and the remarkable accomplishments this quarter with that I'll open the floor to your comments and questions.
Ladies and gentlemen, if you have a question or comment at this time. Please press Star then one key on your question I'm telephone. If your question has been answered you were saying with yourself from the Q. Please press the pound fees.
First question comes from during the Moore with CJS Securities.
Brian and John Good morning, Thanks for taking the questions.
Let's start with research.
Obviously, I really solid.
Growth in a difficult environment, how much of the jump and article output and content consumption, which would you contribute to covert related research.
And as follow up how much of the jump in research revenue and EBITDA reflects.
Things like reprints and backfile.
Open access.
Just just trying to get a sense for that relative to maybe to the kind of legacy research business. If you will.
Yeah, I'll start and John John can.
And can chip and.
So we're seeing definitely seen good momentum in research publishing.
The Tobin crisis has definitely.
Increased the interest in or the output of researchers.
And we see no no signs of that declining with respect to specific Kobin related research, we certainly our publishing more cobot related papers as you would expect but as a percentage of our total it's a very small percentage, it's really a much broader.
It's a much broader increase in demand that we're seeing.
At this point in time, that's coming across the portfolio and to answer your second question. A large part of that portion of that is coming in open access. So we're seeing really good growth rates in our open access.
Hey to publish models, which as you know is the price times quantity model. So when that happens that translates directly into our into our revenue base. So we're.
We're definitely feeling.
Peeling, consistent and increasing demand and the practices that we've taken in the marketplace, which had been very market friendly we believe our leading researchers to choose Wiley and choose our journey.
Indeed, and I know a specifically is it more article output from the same customers more interest from new parties.
I would just sort of way those two.
Well as you know in open access the retraced researchers themselves, they're just are deciding where to submit their article and as they do they're choosing the titles, meaning the journal titles and the publishers that they want to work with us so increasingly if they almost to a b to C model in that case.
And so things like that that the your reputation the quality of the customer experience. The researcher experiences that go through the publishing process the speed with which the article gets out in the quality with which it gets promoted our what drives.
Or what drives that so we believe that we're seeing of we're seeing researchers juice.
Quite simply stated.
If that answers your question, Dan if I Didnt answer it specifically please follow up you know that helps absolutely if maybe one or two quick follow ups. It if the.
Given the growth and away if we were to break down research between kind of annual contracted revenue versus more variable or consumption based but would that look like at this stage.
Percentage wise.
Well certainly a survivor go ahead, John yes.
Yes, I'll answer this new where there is also responsive to answer your question about what was the composition of revenue in the quarter roughly speaking about 80% of our revenue comes from the combination of subscriptions and open access and within that call. It 70% of our research posing business is subscription and.
10% of is away.
The remaining 20% of our business Dan is frankly largely.
Products and services that are derivatives of articles that are published under subscription such as referenced that you mentioned in such as corporate advertising.
So thats roughly the split of revenue that we have today and of course, the subscription basis is largely contracted right. So that that's well in play, but we're coming up on a renewal season.
You asked whether you asked about our there significant backfile revenues were such in the quarter and the answer to that is no. This was a pretty normal quarter for us in terms of the composition of products and services that drove our revenue.
That's helpful because that can be really high margin.
One more and I will call jump out but.
Do you alluded Brian to obviously, the extraordinary pressures that University is will be facing.
Given where the stock is and has been trading I think theres a lot more fear out there then well may or may not warranted, we'll see but.
I know you don't want to get into the guidance, but when you think about research is there a range. Yes, I guess one how are those initial dialogues going for for calendar 21, and two it was there a range of revenue growth that you might be able to you know at an extreme high extreme low bracket.
You know to sort of bringing in some of the fear is out there maybe it's too early but thought I'd give you the opportunity. Thank you yeah look I mean, it's a completely fair question and it's what we want to know as well, we're we're talking to our customers very very closely and and we're trying to get a sensitive but it's.
Really early in the renewal season, and so it's really is too early to early to tell we do expect some price pressure, but we expect that that price pressure should be offset by this strong growth that you're seeing in a way and in platforms in other areas. So.
The simple answer is it's too early to tell.
But that we believe that the as the price pressure, we've we say will be modest.
And that it will be.
Largely offset if not more than offset by our open access.
Growth.
Okay helpful. My follow up let me jump back in queue with any follow up ticket.
Okay.
Our next question comes from drew Crum with Stifel.
Hey, guys good morning.
So Brian historically, when GDP is fall and unemployment has risen.
Enrollment trends have accelerated and listening to your preamble. It doesnt sound like that's what you're seeing are anticipating for the fall semester, but just wanted to get more detail around that and and then on a related note the 4% organic growth spreads services.
We reported in the quarter is that indicative of what we should anticipate for the balance of.
Fiscal 2001, and then have a follow up thanks.
Got it.
So from an from that perspective of the demand patterns in higher Ed.
This there's no question that there is a relationship between GDP unemployment and college enrolment.
That that historically that relationship has been one with a bit of a lag at 12 to 18 month lag and so we do expect that to play out here and we believe we're already seeing it in our.
In our in our leads in our interest in our enrollment, but but really traditionally that's played out over time, what's happening now in enrollment is different than that though what's happening now is literally a practical preclusion on universities from running unit running schools as they normally have an eight and a and a depression.
Nor a downward pressure on enrollment that's come from.
Hello fears.
Related to related to being in large groups of people as everybody knows so.
So what we're seeing the enrollment pressure, we're seeing is not some sort of an inverse relationship to the tradition. It's in fact, it's a novel pressure and that novel pressure was expected in the fall to be in the name in the neighborhood of 10 or 15%. We think it could be on the lower end of that but from Wileys perspective, and this is really important.
From Wileys perspective hours and that has that by the way will affect our principal sales, but from Wileys perspective, our strategic growth areas or digital courseware and online education and those run counter to the to the trends that we're seeing in the market because if you can't go to school in person you go online or if you're supposed to if you're in.
Usually in the classroom, but now you're going to be studying from home and a virtual environment you have no choice, but to get the digital materials you can't share you can't add a book is no is not going to help because you need to be in the courseware. So that is contributing to a and upswell in the parts of that business that we that we are strong.
Regionally focused on in the future. So both in in the services business, where we're focused on online enrollment and in the courseware business, where the content business, where we're focused on digital content in courseware. We actually believe that this is a material change that we'll have a long term benefit.
Our long term benefit a benefit for the business.
Then answering your second part of your question. We are seeing obviously results our backward looking and in this spring we definitely saw some a shock to the system from cobot that affected enrollment.
It just this is just.
Not surprising but.
Over the summer, we started to see elevated levels of interest in our.
In lead generation and in conversion leading to pretty good.
Moving to pretty good on enrollment trends.
So our enrollment actually was up around 9%.
Recently, and then we should see some of that continue but again, we're just getting into the semester, we'll just see exactly how this how this start goes and so we're not we're not at all pessimistic quite the contrary, we're optimistic about where that business is going and the enrollment trends due to the things that I've been talking about both the short term shift to online.
Yeah.
Translating into a greater acceptance of online learning and online education, where it is really as the norm now in many cases.
For for a large portion of of of people getting post secondary education, and then followed by what we expect to be a significant economically driven.
Increase and interest in education due to the inverse relationship that you identified before between the us the economy and.
And enrollment in schools.
Got it Okay very helpful. And then I know you spent a lot of time talking about open access obviously had a very good quarter, just the any updated thoughts around the sustainability of that growth.
Then separately John can you address the the timing related working capital issues that impacted your cash flow during the quarter. Thanks.
Okay I'll pick up the.
Hi.
Question first.
Okay.
We are long before coded we were seeing significant significantly greater volumes of submissions and.
And consequent volumes of our output.
That has continued an increase through coded we see no reason to believe that it's not going to continue.
There might be a slight elevation now that's related to researchers being at home and finishing up papers you'd think that would have been done already and yet the elevated levels continue and in fact, there increased thanks. So we're we're very bullish on the on those volumes volumes levels continuing it up at a high level.
On a go forward basis.
And then drew on your question with respect to cash flow and in particular, the impact of working capital that I referenced in light in my comments, which were the biggest strikes me by the way we had very strong performance in the quarter from a real earnings growth perspective, but then working capital.
Played against US and in particular I would note that our cash collections associated with journals were pretty strong inline with our expectation. So we're feeling good about collections. There we do have some.
Customers as a request extended terms, but it's not.
Material impact to our results and we feel like Thats flowing well.
Most significant impact on the timing of working capital has to do in payables.
In the March late March and April timeframe like others, we went into a bit of cash conservation note given potential risks around liquidity in the market at that point in time, and so we put some pressure on payables at that time, and then as as things begin to ease up in our first quarter. We also used up on.
So the ground that that we gave up on cash flow in the quarters is particularly concentrated around payables and assist sort of the normal flow back to a balance after conserving cash at the end of the fourth quarter.
Okay, Alright, guys appreciate it thank you.
Thanks, Andrew.
Our next question comes from seven for stopped with excellent.
Okay.
Good morning, Brian Good morning, John Thanks for taking my questions asked three of them. Please the first one is on that.
Topics that I think you just touched on but I would come to that could you, perhaps elaborate a little bit more.
On the open access.
What's the risk that yeah interfaces levers of submission such routine actually reflect the fact that scientists test.
Locked down not told and away from the lapse and had enough time to write papers, but had no ability to your make progress from their scientific research and batch and those three full months will actually a six month 12 months down the road will lead to Eric slowdown.
In open access gross.
I sense do nothing happens for Dropdowns.
Secondly.
On China.
We've seen the Chinese government and communicate new.
Sure.
Appraising pretty season.
Thanks, Chinese sank keys to to publish more into Chinese local language joiners capture the Pcs.
Moving away from Helen you sniping.
Do you seem to China.
Pretty pretty CN regulatory changes may have an impact or is that too small to batteries that.
Not something that to.
Speak on your record read it record radar screen.
And then last year can you elaborate a little bit on how you see the regulatory environment you know pm.
We've had still lag so booked sherman incentive to Warren and look at LTM.
Do you seem to read the luxury yes environment.
Yeah, that's reached culture.
Changing would you think it's a solid.
The gene that you asked today and.
You have no.
Major concerns on the rigs that to be corn four PM. Thank you gentlemen.
Well. Thank you very much for asking three questions each of which is a dissertation so.
I'll take them one at a time there, but they're very good question excellent questions that I'd be asking if are you.
So the first one on the risk of of the elevated level of away sort of.
Bringing back to some lower level later.
We are now six or more months into this stuff pandemic seven or eight depending on where you are looking in the world. We continue to see elevated levels, we continue to see.
We continue to see researchers putting out papers researchers are going back into the labs, absolutely and so where we expected to continue at some level could it come back a little bit of course is good where it is very high level right now, but I will remind you that trends in research are very very positive in terms of overall income.
Preaching increasing volume of output in the marketplace. So in other words, we see mid to high single digit increases in the volume of of of papers on every year and that's one preceded the environmental we continue we consider that that will continue in the future.
The second thing is that is that.
That that the that research continues to be.
Something that is funded at a very high level in countries around the world, We see no we see no.
Signs of that declining so yeah, I mean, there's no question that there could be a little bit of of of an artificial increase but those those artificial lift if those increases.
Have continued for quite some time now the final thing I'd say on that is.
We believe that our that our problem publishing program and our approach to publishing is extremely researcher in market friendly and we think we get more than our fair share of submissions I'll also remind you that have all the submissions we get we.
We publish a very small portion of them and so there's always a there's always inc. increasing potential there. So no I don't see a snap back or.
Rebound that goes the wrong way on us.
In the future.
Now the question of China, another really good question.
China is the is a super important market in the future of research China is a very important producer end consumer research.
China represents around 5% of our research publishing business now.
So from a business perspective it.
It's not going to swing us one way or the other in any given quarter, but it is very important the long run.
And we are and they and the.
The increasing discussion in China about about their their endemic our indigenous publishing I, certainly an important move and important trend.
But we have very very close relationships in China, we have very high.
Very good connection to the government.
Agencies, and so forth there and we continue to stay very close to them.
Trainees researchers want their journals to be in in the best journals in the world. So that they can get get the the recognition in the Andy for their work.
That they are that they desire and and we believe our publishing portfolio leaves us there, but also we're in we're increasingly partnering in China to make sure that we are seen as the publisher of choice.
So while there is some.
There's always some concern when there are discussions going on in China in places like China about changes in policy, we believe that ultimately with very well position to capitalize on what is kill continuing significant growth in both Chinese publishing and Chinese consumption.
On the first what's your comments.
So we believe that squeezing the floor before we move tool pm.
Yes.
Subscription unbundling.
And said some strong K Cup.
Third on one universities on sub within less than a year.
Do you see the trend or risk it towards more and bundling gusted deeds, especially in the U.S. as universities.
Sage budgetary pressure.
Okay. So if the questions about and bundling and whether were whether we are seeing more we'll we'll be seeing more as universities face to face pressure.
They certainly are they certainly are looking for ways to save costs.
We can't really comment on what we expect that pricing pressure to be but as we look into the market. We don't see a lot of everything we.
We see some one off cases, but we don't see a lot of evidence of universities and University librarians, saying.
We don't need that content, our researchers don't need it we're not using it so to the extent that we have a heightened which we do a very high quality portfolios journals that is essential to the success of research.
We will continue to be purchased by those universities I'll remind you that.
That academics make their careers based upon based upon research and universities climb the rankings are descendant rankings based upon their positioning in.
In the.
In the research ecosystem in the bomb both volume and the quality of their output.
So research in research content is is absolutely central to the success.
Of our important clients. So while we may see some edge cases, because to be sure. There is that there is there's pressure in the marketplace. We don't see any sort of any evidence of a large scale trend toward unbundling.
Thank you Okay, Let me move let me move toward Oh pm.
So the conversation about Opn has gone on for a long time and the conversation about the revenue share model has gone on for a long period of time.
We start from the position that we have excellent relationships long term relationships with our universities and we hope those universities fundamentally to succeed we hope to succeed by providing extremely high quality programs by attracting students and by matriculating those students at extremely high completion rates higher completion rates than typically they see.
And they are on ground programs.
So in so far as we're doing that we're helping those university to succeed.
There has long been a conversation about the revenue share model.
Our client seem to be fine with it now to be sure there will be some movement in the marketplace. There and therefore Wiley has has adopted again as we always do vary market friendly practices of working with universities on terms that they believe are fair and we have we have our are bundled revenue share model businesses, we have our.
For service businesses, and so forth. So we believe wherever the market goes we're going to be fine, having said that we participate very closely in the discussions that go on in Washington, and elsewhere on the on the future of educational feature of education, generally speaking and on the future of.
Of higher Ed and its relationship with with service providers.
So we've responded to the various inquiries there they have been ongoing we can we expect them to continue to be ongoing, but we're very close to it and we're not.
Our confidence in the future is based upon the fact that.
That we're in a in a.
Consensual relationship if you call it with our partners, who are getting a tremendous amount out of it.
If they if if they if we together or if they decide they want to go in different direction. We're very happy to go on a different direction with them and we always have been so so we don't view it as a as a major thread, it's something to be to be talked about something to be studied at something to be adapted to.
But we are confident in our position and more importantly, the position and the quality of services and the value of the services that we provide to the marketplace.
This is fantastic and also very convincing center, Brian you said in your opening comments that you had higher completion rates did you mean that youre LPN programs has higher completion rate then equivalent to on campus programs have.
Typically speaking our programs I will say our programs have very high completion rates for the students that starts to this and.
Those that complete the complete the program I'll remind you that historically.
When the industry when the industry has come under pressure it has been for.
For universities and education providers that have had extremely low completion rates such that student started but they never finished and therefore never got value for the education that they paid for or that somebody else such as the government of the taxpayer paid for that is absolutely not the case in our programs. The completion rates are extremely high and our clients are half.
The with them and clearly students are happy with them because they're staying through two they're staying true to completion in achieving.
Achieving.
Career outcomes.
That perpetuate the the demand for the product.
Excellent. Thank you very much for the kind of gives me. Thank you Brent.
Our next question comes from Brett Reece with Janney Montgomery Scott.
Wanting gentlemen.
Yeah.
Prior to two co bid.
Rearing its ugly head margins were were eroding.
With that from you know your conversion from a hard copy to digital or did it relate to stay cutbacks in education.
John do you want to pick that up.
Yeah, I mean I.
Just generally looking back.
Over fiscal year 20, we did see some erosion of our margin I would say.
The most significant drivers behind that erosion of margin were too.
One was the rapid continued rapid decline of print, which has reasonably good margins I'm footprint as we know isn't declines in that rate of decline got a bit faster and in the past fiscal year and had an impact on our bottom line. We are taking actions as we discussed in todays read.
View to improve the profitability that business by focusing and supply in particular, focusing the our future on digital courseware and digital content.
The second factor that contributed overall to the shift and the blended margin of the business there's an increased.
Component of our revenue coming from opium business that we just talked about and we recognize that in its current.
State the market itself and its current state the operating margins are low.
But we've been emphasizing that we're balancing between topline growth, which is very important to us and improving profitability. There and we said that we would drive that business too.
The 1% EBITDA margin by next year, and we're well on the March to get there, but those are the those two factors that have been putting pressure on our margin and both of them are being addressed.
If they going forward there are continued high levels of unemployment.
Is that a tailwind in that.
The tendency for enrollments in school to to go up in that kind of macroeconomic environment.
Yes, so I'll pick that up John and as those indicating earlier there is a long term and in fact I think it was either Dan or drew that pointed it out.
There is a a long term establish a pattern of when the economy goes down and unemployment goes up that people go back to school that that relationship is typically a lags relationship meaning it happens not instantly. It happens 12 to 18 months later and we do expect to see that.
But we have other tailwinds that are hitting US right now, which is simply that people can't go to school and person to physically precluded from going to school fully in person.
And and so therefore.
We have.
Elevated levels of interest from potential students in taking education.
In an online world.
It also is providing a tailwind as I indicated earlier to our digital courseware businesses, which as I indicated in my remarks are seeing record.
Increases in in usage and adoption.
Because again, if you're not in a physical setting you need a learning management system based product something that where you are teacher can make assignments, where you can do homework, where you can get the content predictably the content that the teacher needs not.
Not to have the Google for your curriculum.
And physical books, just aren't as good in those environment. They don't do all those things and so there's a significant tailwinds.
That hits, you in that sense and again as I indicated the.
We believe that these are accelerations of long term trends so that it wont.
It won't be a short term blip, we believe that we're going to see.
Continued elevation of those levels, which is completely all of these trends and I'm talking about our completely in sync and aligned with our strategy that we've been working on for the last few years and it's gratifying to see it start to come to fruition at a time when the world needs, both education and research more than ever.
Great. Thank you for taking my questions I appreciate it.
Absolutely.
I'm not showing any further questions at this time, let's turn the call back over to our hosts for any closing remarks.
Yes, that's me the host thank you very much all for Ah for joining us today.
Well look forward to reviewing our second quarter results in December I wish you all good luck in good health.
And we'll see you soon.
Ladies and gentlemen, just conclude today's presentation. You may now disconnect have a wonderful there.
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