Q2 2021 John Wiley & Sons Inc Earnings Call
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Good morning, and welcome to Wiley second quarter fiscal year 2021 earnings call. As a reminder, this conference is being recorded.
At this time I'd like to introduce Wileys, Vice President of Investor Relations, Brian Campbell. Please go ahead.
Thank you good morning, and welcome to Wiley its second quarter 2021 earnings update with.
With me today are Brian Capex, President and Chief Executive Officer, and John Kritzmacher, Chief Financial Officer.
Brian and John will make some formal comments and then we'll open up for some questions.
[music] reminders to start the call is being recorded on May include forward looking statements you Shouldnt rely on these statements as actual results may differ materially and are subject to factors discussed in our SEC filings.
The company does not undertake any obligations to update or revise forward looking statements to reflect.
Subsequent events or circumstances.
Also Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends.
These measures do not have standardized meanings prescribed by us GAAP and therefore may not be comparable to similar measures used by other companies.
Nor should they be viewed as alternatives to measures under GAAP.
Unless otherwise noted we will refer to non-GAAP metrics on the call and variances are on a year over year basis and load on the impact of currency.
After the call a copy of this presentation and the playback of the webcast will be available on our Investor Relations Web page.
I will now turn the call over to Wiley is president and CEO Brian event.
Good morning, everyone. Thanks for joining today.
Our performance this quarter underscores the value of Wileys role in the global economy.
Through the year, we seen an acceleration of the trends that have defined our markets for years.
And this is driving a strong increase in the demand for scientific research and online education.
Our first half performance demonstrates that our long standing strategy to lead an openly search and digital career focused education is paying off especially in these extraordinary in challenging times.
Now more than ever the world is turning to research and education to help solve its unprecedented challenges.
Scientific research is firmly in the spotlight and is more and more integrated into both corporate strategy and public policy.
As part of the United Nations Sustainable development goals countries have pledged to substantially increase their R&D spending and there are number of researchers by 2030.
Today as always we see investment flowing into the most critical fields study, including areas such as renewable energy artificial intelligence and of course vaccine science.
This demonstrates how pure reviewed research always remains essential to both problem solving and innovation.
At research institutions worldwide demand to publish high quality research keeps growing and this is evidenced by a rapidly increasing publishing output.
The man to the demand to apply this research is also growing rapidly and this shows in the record consumption assigned to the content on our platforms.
COVID-19 has brought the future of education forward accelerating the digital transformation of learning and universities in companies and now of course in our homes.
Career, enhancing education is increasingly delivered online and is finally, becoming more affordable and more broadly available exactly what the world needs.
Once again post secondary education is proving to be counter cyclical as people seek a leg up in a tough job market.
Right the practical challenges of delivering education in a pandemic enrollment this fall in both for year in graduate degree programs has been much better than initially anticipated and we've seen very strong demand for our online degree programs.
We've seen similar growth in our digital content in courseware as people have pivoted to these lower price higher impact products.
Beyond the traditional degree demand is also increasing for new forms of credentials that are more focused on more affordable and that demonstrate that workers have exactly the skills that employers need most.
Across Wiley, we view our role is to connect education to career outcomes. The pandemic has only accelerated the global focus on closing the skill gap.
Especially in areas, such as IC and digital skills.
And this is validated our focus on these areas.
Our strategy in research has been consistent.
Publish more and published better.
Accelerate profitable growth in education services.
And drive growth in online curriculum courseware, our investments in these areas are producing results.
Research publishing and platforms delivered robust growth again, this quarter with increasing profitability driven by continued gains in open access.
In education services, we continued to deliver strong online enrollment growth in when University partnerships importantly, we exceeded our fiscal 22 EBITDA margin goal of 15% both in the second quarter and for the first half of fiscal 21 as a reminder, our Ed services plan is for double digit revenue growth with sustainable EBITDA Mark.
One of at least 15%.
In academic and professional learning education publishing continued to gain momentum as the digital transformation of University education accelerated with revenue growth in digital content on courseware now outpacing the decline of print book sales, we continue to gain share in this highly competitive market.
Professional learning remains weighed down by Cobot, 19, Lockdowns, particularly in the face to face corporate training. Although we are seeing very good early results from our rapid transition to online delivery.
We continue to dot.
We continue to drive cost savings throughout Wiley and the pandemic has allowed us to move even faster as a digital company with a mission driven culture, we transitioned rather seamlessly to virtual operating model based on this success, we will be enabling more of our Wiley colleagues to work remotely post cobot, allowing us to reduce.
Our real estate footprint from generate material run rate savings.
Finally, wiley to free cash flow through the first half was $32 million ahead of prior year, primarily due to improved earnings.
Let's talk about our Q2 results in more detail.
Growth in our areas of strategic focus such as research online education, and digital courseware, offset cobot driven declines in print books test prep and in person corporate training.
Revenue rose, 4% over prior year and was even on an organic basis.
Our earnings improvement this quarter was primarily driven by good top line performance cost improvement from business optimization and Kobin related savings adjust.
Adjusted EPS, and EBITDA, and adjusted EBITDA were up 7% and 12%.
On a GAAP basis, we reported an additional $14 million discrete tax benefit related to the US cares Act for.
For the half revenue was up 3% over prior year to $922 million adjusted EPS was up 33% to $1.41 and adjusted EBITDA was up 19% to $202 million.
Our strategies in research to grow open access drive platform growth and optimize our publishing operations continue to bear fruit with revenue and adjusted EBITDA up 5% in 14% our adjusted EBITDA margin in the quarter was 37% up from 35% in the per.
Prior year period.
Underlying the business, we see very strong growth in article output up 22% over prior year.
Some of the increase can be attributed to the unique environment. We're in with the largest growth coming from pandemic related subject areas like clinical medicine and epidemiology.
That said, we believe strong demand to publish is here to stay it's important to note that demand was very robust prior to code and 19 with article submissions up 9% in the nine months through January 2020.
So we're seeing strong secular growth in the demands publish which of course directly benefits us, especially as we grow the volume driven open access model.
Our strategic national agreements in Europe are succeeding.
And they are generating publishing volumes that are materially exceeding our expectations.
As a reminder, these multi year agreements or a combination of pay to read and paid a published models and they are typically done with large national consortia in places like Germany and the UK.
We're seeing great momentum coming from these agreements in the form of increase article output and new publishing opportunities.
This quarter, we launched natural Sciences, a major new flagship Journal brand created in partnership with the influential project deal consortium out of Germany.
We're very excited about this promising top quality journal that will publish only the best research from around the world.
On the consumption side usage of our content continues to be very robust with continued double digit growth in full text downloads on the Wiley online library.
Revenue from our research platforms rose, 11% on new customer launches for literati, our industry, leading content distribution platform.
Our customer retention rate on a trailing 12 month basis continues to be an exceptional 98%.
Corporate solutions, which is another growth area for us in research continues to gain momentum for example, we've been expanding our career center platform offerings and this is starting to pay off in even deeper relationships with our leading network of societies associations and corporations.
For example, we now manage the job board for the world's largest scientific society AAA EPS, The American Association for the advancement of Science.
And we recently secured job board contracts with the global pharmaceutical companies Glaxosmithklines in Pfizer.
As a company we are acutely focused on serving researches in building a vibrant ecosystem that helps them to succeed and our results are showing it.
In the second half we have two key objectives first successfully closed calendar year 21 subscription renewals and second take full advantage of the continued strong demand to publish in our journals.
Through October we've closed about 20% of our annual renewals compared to 16% at this time last year and.
We've made great progress in renewing key accounts.
That said, we continue to anticipate modest pricing pressure in subscriptions due to kobin related constraints in library budgets, but we expect to offset this with strong growth in open access where revenue is a direct function from the quantity of articles published.
As a market leader with nearly 1700 journal brands and an unmatched reputation we're in a terrific position to publish more including publishing more of the submissions we receive.
In the nine months of calendar year 20, we received over 600000 submissions accepting around 25% of them.
Many rejected manuscripts are high quality, but just don't fit a particular journal.
We continue to prove the improve the efficiency and transferring these articles to other wiley journals, where they do fit without sacrificing quality.
We're now using artificial intelligence to seamlessly evaluate and route articles.
[music] appropriate journals.
Given the breadth of our journal portfolio. This cascading capability provides an important competitive advantage and source of growth.
Overall researchers want their work published in the best journals possible and they want it published faster.
And they want it made more discoverable.
Thus, we continue to enhance our publishing portfolio and drive innovation throughout the publishing process.
This allows us to consistently improve the impact of our journal brands and the value proposition from researchers as.
As part of this we continue to continue to reduce publishing cycle times, which increases researcher satisfaction, while also improving our margins.
In academic and professional learning we continue to deliver on our strategy is to grow digital content in courseware focus on career oriented disciplined and pivot to online corporate training.
Education publishing revenue was even with prior year as digital growth offset print declines and the impact of COVID-19 on test prep.
Digital content revenue rose, 32% and Zied books are stem courseware platform rose 46%.
Overall, we continue to gain market share and higher at publishing growing it from 4% in October 18% to 5% in October 20 on it 12 month trailing basis.
Notably fall enrollment numbers in higher education continues to be better than we had anticipated in the early days of coated although still down around 4% overall.
In the past two years, we've been saying that our strategy to drive digital adoption would allow us to return to growth by driving significantly higher digital units from increased sell through as we use digital courseware to recapture units that were lost to the sale of print books through non revenue generating channels.
As you can see in our strong digital growth strategy is working and will continue to capitalize on this favorable momentum.
As noted professional learning continues to be adversely affected by COVID-19.
Revenue was down 13% on.
Merely due to severe limitations on in person training.
Results improved in the second quarter as we shifted the virtual learning grew trade publishing output and benefited from some improvement in our bookstore business.
Our dummies franchise was a bright spot this quarter.
With solid year over year growth from the publishing of timely new titles on topics such as succeeding in virtual work environments.
Overall academic and professional learning revenue declined 5% a significant improvement over the 12% and 16% declines we saw on the prior two quarters Ajay.
Adjusted EBITDA was down 10% for second quarter margin of 29%.
Our strategy to help students achieve better outcomes, while making education affordable and accessible is playing out in the success of our digital courseware platform side.
Hi books in Newton Alto.
We recently completed a breakthrough pilot preside books at the University of Phoenix involving over 800 students.
The data clearly show the die books helps students to persevere with their studies and significantly improve their performance on midterm and final exams. This along with an affordable price, it's helping cybex to win large course adoptions and growth by strong double digits.
In other news, we recently announced a partnership with Southern New Hampshire University to redesign its online and be a program, which effectively removes two huge barriers for learners cost and time to completion.
Southern New Hampshire is the largest non profit provider of online higher education in the country with over 135000.
Yes.
To build this program Wiley collaborated with the CPA. The association of certified public accounts to deliver business courses that allow learners to complete their MBK in one year and at a materially lower costs than traditional degree programs.
For the second half, we expect current trends to continue namely that digital content on courseware will grow strongly despite online enrollment headwind.
Books test prep and corporate training will remain challenged by COVID-19, although corporate training will continue to recover as it transitions from in class to virtual delivery.
I'm pleased to report that 84% of our corporate training sessions are now being delivered virtually up from 20% at the same time last year.
We expect our trade book sales to improve in the second half as we continue to publish more titles on high interest topics ranging from diversity equity and inclusion to remote learning.
Finally, we anticipate profit improvement in the second half as we realize additional business optimization savings.
In education services, our strategy is to grow online program enrollment to sign University partnerships and to drive strong profitable growth are working.
For the quarter revenue rose, 27% or 6% organically driven by 13% growth in student enrollment new student enrollment in our existing degree programs grew 22% a reliable leading indicator of future revenue growth.
Strong gains in our traditional tuition share programs were partially offset offset by lower sales of unbundled services as some clients were constrained by cobot related budget issues.
We signed full service partnerships this quarter with the University of Montana, and Latrobe University in Australia. We also signed one of our largest on bundled service partnerships to date with the University of Wyoming.
The signing of Latrobe, one of Australia's largest universities with a total of 39000 students.
Built on our strong education publishing presence in the Australian market.
The partnership will start with five graduate programs in healthcare in business administration that will launch in March.
An important accomplishment as I mentioned earlier is that we exceeded our fiscal 22 EBITDA margin target of 15%.
For the second quarter margin of 21% and a first half margin of 17%.
This milestone reflects our sharp focus on profitable growth and the optimization of the student journey from marketing to application and enrollment.
We are building a balance growth business for the long term.
Our focus on filling the IP and digital skills gap continues unabated through cobot.
While hiring has been temporarily limited core.
Corporate demand for Tech talent remains higher than we originally anticipated we continue to fill critical roles for our blue chip customers worldwide.
As a reminder, and three create job ready talents of the world's leading corporations, including Bank of America, Morgan Stanley and JP Morgan. It does so by finding training by finding training and placing the right candidates directly into jobs with the specific hard and soft skills. These clients require.
For the second half of the year, we anticipate strong online enrollment growth continue and interest in online programs to remain high we see a solid pipeline of potential new University partners, and an ex and expansive opportunities inside our existing base.
We feel good about the unique position we're in no other competitor in the space has Wiley University reach globally respected brand.
Hi, key count on placement volume is anticipated to be steady for the balance of the year as our corporate partners continue to build out their tech talent capacity, while im threes near term growth prospects remain a bit muted due to cobot, the intermediate and longer term growth opportunity remains strong.
We will continue to make material strides and business optimization in education services. The student journey from lead to enrollment is a particular area of focus with the result, being lower student acquisition costs greater lead conversion and much enhanced user experience for prospective students.
We continue to invest prudently in the business to drive growth by signing new partners launching new programs driving online enrollment and exploiting new opportunities brought on by the accelerated shift to virtual learning.
We're also continuing to expand our offerings to provide learners with a full range of outcomes based pathways to achieve their goals.
For instance, we are gaining momentum with Wiley beyond a strategic education platform for corporation that helps employees to earned degrees in certification through Wiley is unmatched network.
We signed our first corporate partners and see great opportunity ahead Wiley beyond is another area, where we are bridging education to career outcomes.
I'll now pass the call over to John to take you through our financial profile cost saving initiatives and full year outlook.
Thank you Brian.
Our cash flow from operations and free cash flow were favorable to prior year by $23 million and $32 million, respectively, primarily due to improved earnings partially offset by unfavorable timing of working capital items.
As a reminder, cash flow is normally a use of cash in the first half of our fiscal year due to the timing of collections for journal subscriptions, which are concentrated in the third and fourth quarters.
Our strong balance sheet consistency of annual cash flows and ample liquidity affords us the flexibility to continue investing acquiring and returning cash to shareholders.
Capital expenditures, including technology property and equipment and product development spending were $47 million through the second quarter, roughly $9 million lower than prior year.
We expect full year capital expenditures to be approximately $100 million with investment focused on adding and enhancing tech enabled products and services and our core focus areas along with continued investment in process optimization and workflow automation.
With respect to acquisitions, we will remain opportunistic as we look to add scale and capabilities in research publishing and platforms as well as online education.
Our quarter end debt balance was up $43 million compared to the same time last year, primarily due to acquisitions, while our interest expense was down $2 million benefiting from the lower interest rate environment.
Our net debt to EBITDA ratio at quarter end was 1.9 times as compared to 1.8 times in the year ago period.
In terms of liquidity, we reported $86 million of cash on hand, and we ended the quarter with Undrawn capacity.
Of $655 million.
Our current dividend yield is around 4% and we expect to resume share repurchases under our existing repurchase authorizations as global economic stability returns.
As Brian noted, we have been expanding and accelerating our efforts to increase operational effectiveness and efficiency in this unique period.
In research, we continue to invest in our publishing operations to drive improvements in publishing cycle time and cost per article.
Brian has also noted the successful launch of our AI enable transferred out of the system and its immediate benefit to our article Cascade strategy.
In education publishing we are investing in E commerce, and direct channel capabilities to take advantage of the accelerated the shift to digital content and courseware.
Through the half E Commerce sales were up over 8% and now represent roughly 18% of education publishing revenue.
In education services, we are further optimizing student acquisition and marketing operations, which continue to fuel our EBITDA growth there.
As part of our overall business optimization program, we recorded a restructuring charge this quarter of $2 million related to severance costs.
We anticipate $4 million in run rate savings from these actions starting in fiscal 2002.
We continue to generate significant covered related savings on travel events and facilities expenses.
We are taking actions to sustain much of these savings in our post pandemic operations.
Among these actions we will implement a hybrid working model for many of our colleagues and reduced our real estate footprint by approximately 12%.
As a result of these real estate actions, we anticipate a third quarter pre tax charge of approximately $15 million to $20 million, yielding $7 million to $8 million in run rate savings starting in fiscal 2002.
Turning to our forecast we are now initiating full year guidance for fiscal 2021.
Although our visibility remains somewhat limited given the recent surge of covert cases, and the potential return to widespread lockdowns, we have a better handle on the challenges and opportunities triggered by the pandemic and we have confidence in projecting our full year performance.
For the full fiscal year, we expect revenue in a range of $1.865 billion to $1.85 billion up from $1.83 billion in fiscal 2020.
At the segment level, we are projecting low single digit revenue growth in research.
Education services will delivered double digit revenue growth, including the inorganic contribution from our M. Three acquisition and mid single digit growth on a net organic basis.
Growth in research and education services will more than offset a single digit decline on.
Mid single digit decline in academic and professional learning.
Revenue growth foods optimization gains and co. Good related savings will all contribute to improved year over year profit performance.
We anticipate adjusted EBITDA of $380 million to $395 million up from $356 million in fiscal 2020.
On an adjusted EPS of $2.50 to $2.70 up from $2.40 in the prior year.
And finally, we expect free cash flow of $175 million to $200 million up from $173 million in fiscal 2020, the anticipated cash flow improvement reflects improved earnings partly offset by unfavorable timing of working capital items.
Our full year forecast includes second half organic investments in strategic areas to fuel long term profitable growth.
The second half investment will largely be offset by business optimization and covered related savings.
I'll now pass the call back to Brian.
Thanks, John.
So let me recap the key takeaways from our second quarter and first half.
Our business remains strong at the pandemic has accelerated trends that support the core strategies that we've been consistently pursuing open research online education and digital content in courseware.
We're seeing significant results from our efforts to publish more on research and grow our volume driven revenue to accelerate enrollment and profitable growth in education services to return Ed publishing to profitable growth by driving sell through with affordable digital units.
And to improve margins by optimizing our structure and our processes.
To be sure we are experiencing some cobot related disruptions to in person training into print book sales. This represents an increasingly small part of Wiley remember that around 85% of our revenue today is generated from digital products and tech enabled services.
The year has presented numerous unexpected challenges for Wiley performed very well during the first half of 2020, we.
We will continue working hard to deliver strong strong performance for the balance of the year, while taking advantage of this unique moment to accelerate our strategies and improve how we operate.
Although the pandemic continues to weigh on the global economy in parts of our business our core markets are resilient essential and counter cyclical.
Our core strategies and open research and online education are succeeding and prevailing trends in the market are reinforcing our direction of travel.
As always Wileys performance as a team effort and I want to thank our wonderful colleagues around the world for their commitment to our mission and for their many accomplishments this quarter.
And as 2020 comes to a close.
I wish them, all and all of you very joyful holiday season in the best of luck for a happy and healthy 2021 on.
I'll now open the floor to any comments and questions.
Ladies and gentlemen, if youd like to ask a question at this time. Please press the star and the number one key on your Touchtone telephone to withdraw your question press the pound key.
Please standby, we compiled acuity roster.
Our first question comes from Daniel Moore with CJS Securities. Your line is now open.
Brian John Good morning, Congrats on a really solid results. Thanks for taking the questions.
Let's start with.
Now as I call it the online program management.
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But segments on.
Already exceeded your goal of 15% margin.
Do do we anticipate being able to sustain that level of profitability from here going forward. Just wondering if there is anything unusual in terms of seasonality or some of the investments on h. too.
Might push that down before it comes back up.
Yes ill, let John answer that after an initial comment.
Basically.
We set a target of 15 plus percent where over that now were very pleased and proud of that we believe that we can operate this business consistency consistently as we should profitably while growing it significantly.
On.
And I think that the expectation we should have going forward is the 15 plus percent. There is definitely some seasonality in EPS in flows as the.
As the as the year goes through so I would basically reinforced the expectation rather than.
Rather than setting the expectation at a significantly higher level that we've already achieved.
John do you add to that.
Very little other than to say, yes on completely agree that the year to date trend is a better way to think about sustainable performance. They are in line with our expectations around driving growth. So there is some seasonality the six month trend as a better indicator of the momentum of our business there.
Very helpful. Okay.
Switching gears talk a little bit less about it typically but corporate and professional learning wondering that's you anticipate the switch to digital delivery that you're have taken obviously, Tom and Miss the pandemic do you expect that to remain somewhat permanent and what the implications might be for growth and margins longer term.
Yeah, It's a great question on.
Corporate like everywhere else.
And we certainly seeing it in our higher Ed businesses, the transition to digital teaching and learning digital training is one that comes on at the expense of some very long and well established trends and behaviors.
We were extremely positively surprised.
By how how well we would have been recovering from from the initial shutdown of in person training.
It's bounced back significantly better than we thought for example, originally we were down 17% and you can imagine right now in person training means very little very little activity for us there.
But already we're back to down 30% and and that's that's terrific and at this point.
I believe its 80 or 85, I think 85% we had in the in the comments are already virtual and we're getting people who partner.
Partners and companies, who had said they would never go to virtual all the sudden doing virtual so we do expect that this has allowed us as it has across our business to lock in the digital transition in many of the places where teaching and learning exists the how that translates into growth into the profitability.
It remains to be seen but certainly trend that you've seen elsewhere as we move through digital transition should be consistent here. So yeah, we're moving faster than we thought and we think we're locking in the gains on I think thats, what really matters here.
Yes, that's certainly helpful.
Maybe one more just in terms of cash generation the GAAP John.
75 to 200, just remind us timing and magnitude of any benefit of.
Tax deferrals from cares act or.
If I'm getting that right how that impacts cash flow. This year and just wondering if a 100 million capex is sort of the new norm more is that you are sort of pulling forward some investments.
Sure.
So with respect to the cash flow projection for the year again on our expectations around free cash flow are being primarily driven by our earnings improvement year over year, and we're showing some good strength there as indicated by the the full year guide that were given there.
There is some adverse impact that were.
Anticipating with respect to working capital that's mostly due to in some cases elongated.
Payment terms with certain customers, particularly on journal subscriptions by the way I should note that we're very pleased with our progress overall around collections were seeing minimal risk and at this point in terms of.
The debt for defaults from so we're making really good progress on collections, but there is some elongated from that plays into our forecast for the year the expectation with regard to the carrier that's refund that will receive that refund.
Before the end of year, so that will play into our cash result, I would just note, though that on a year over year basis, our cash taxes paid within that reduction will be essentially flat with that refunds. So.
On the fit the neutralizing effect on cash taxes on this year.
Very helpful and I'm going to sneak one more in capital allocation just given the strength of the balance sheet results from stickiness of the business on free cash flow trends that we're seeing clearly better than expected.
I guess why wait for an economic recovery.
To be opportunistic from a share buyback perspective, thanks again.
Dan I would say at this point in time.
We are.
Striking a balance between investment in the business and returning cash to shareholders and at the same time also navigating what is somewhat of an unfair uncertain period. It's on I think we're getting closer to being on the other side of that uncertainty and so.
We continue to closely evaluate the opportunity to begin again share repurchases, but we're going to proceed with some degree of caution there.
Again looking for more economic stability before we go back.
Back deeply into our repurchase program.
Okay. Thank you again for the color and look forward to chat and again on next week. Thanks.
Thank you Dan.
Our next question comes from Sami Kassab with Exane BNP Paribas. Your line is now open.
Thank you and good morning, gentlemen.
I have a few questions first on the research Division.
Could you please comment on the rate of revenue growth, you're assuming no print access in each one.
And also can you discuss how significant.
Might be the risk of seeing unbundling of the Bdcs in.
In the remaining 80%.
Your contracts so that's up for renewal.
That would be for research.
Then secondly on on on hiring publishing.
I understand you guided from mid single digit decline Academy can and professional learning but could.
Could you perhaps guide.
For any revenue growth you expect to see education publishing is it fair to expect every term to sustainably sustainable growth going forward to index sub segment.
And lastly on OTN.
Can you. Please elaborate on what is driving the decrease in student acquisition cost is are you seeing overall deflation in digital advertising price points for instance, or has more to do with some.
Company specific cost actions that you've undertaken thank you Brian.
Terrific. Thank you very much for those questions.
On our rate of growth in open access.
Is very very strong I believe on I'll ask John to actually give me the number now what the growth was in the first half I believe it was well John can you can you quote and were so setting aside if you if you normalize for the impact of the transitional agreements that we have underway and get to a fuel on.
Operational number where we are on the order book, 40% growth.
In open access publishing.
GAAP, which is great right at six the exceptional growth we're seeing.
We're seeing very strong growth in open access great enthusiasm for our brands on the.
The model as you know that peak times Q price times quantity model is one that we like a lot because it allows us to lock into the index growth in the marketplace.
Which as you know the the on the article.
Count in the World tends to go up by mid to high single digits every year and so we were very pleased with the growth we are showing and it comes from a lot of different places.
Certainly, we're getting far more submissions than we had forgotten.
We're up in the.
The.
Hi, Twentys with regard to the volume of submissions I think it's up 28%.
Our article output based on that is up 22%.
And that allows us we get these articles buses to cascade them through our system. So yeah, we're feeling very good about the strong growth in open access if that's answering the question on on that.
The.
With regard to what's going on.
Okay.
Using.
John.
Good day.
Yes, please with regard to the big deal.
Yes, I thought I thought.
John was trying to break ins number on.
Yes with regard to the big deal.
On getting some feedback here some sorry from a little hesitant theres some.
Some noise on the line.
But with regard to the big deal we.
We have a.
That we have seen very consistent high renewals in our in our base of library subscription customers on.
As we've discussed we have some price pressure. This deal. This year, we're seeing no evidence of an on bundling, though because the the bundle that we provide to our our institutional clients is exceptionally important in place is very very important role in the success of their institution research winds of very high on top of the pile of things that they have.
To that they have to have in order to be successful library successful institutions on so they have a successful.
Research and discovery program in the universities.
So we're feeling we're feeling strong confident about that.
With regard to higher Ed.
And you asked a specific question about the expectations going forward there on higher.
Higher Ed is day is a business where print declines have gone on for some time as we said the digital growth is now outpacing the did the print decline, we're very pleased to hear that but we do expect the print declines to continue for some time.
We do expect to return on that business to profitable growth as we've said, we're not providing a time horizon on it because of the uncertainties in the marketplace plus the the.
The strong growth that we're seeing in the adoption of our digital programs and the.
On the sell through of in terms of when we get an adoption.
The portion of the adoption students that we can monetize is significantly.
Higher let me go digital so the math basically says, we'll do better on the long run with lowest price higher impact products with greater sell through.
We were on so we're confident that we will return us to sustainable growth and we'll keep our eye on it you will keep your eye on that in the month in years to come.
With regard to cardiac.
On how over time.
Our cost customer acquisition cost is has gone down because of that expressed on.
Strategy, we made to improve the efficiency and the targeting of.
Of our advertising, we're much more efficient in the targeting of our advertising and the spend and then we are much more efficient in the conversion of the leads that we generate into students are very important on its been a on a bit of a wild ride. This year as you can imagine because of all the disruption from the marketplace, but.
But what we know is students continue to be interested in getting education in order to advance their career prospects and our ability to get the right message to the right student.
On his data is a testament to the the efficiency and effectiveness of our marketing Mark.
Marketing colleagues and then the Sseven journey from once that lead is acquired too.
Two once they are have applied in or accepted.
It is increasing significantly so we.
We're very pleased about that there's there's no on theirs.
There's there's no evidenced those of.
The cost the index market cost going down for a lead but we're just getting better at finding the right students and converting into.
We'll just finding the right potential students on converting them into actual students.
This is very helpful. Thank you very much Brian just on the other standard wise.
The outlook for higher publishing is perhaps a bit more constructive in the sense that.
We now have digital growth offsetting print declines.
Why would you reverse through June we pinch to accelerate is digits. It to slow down what is the uncertainty that kind of puts you back from a more affirmative outreach book it.
Inflection torrents seems behind us.
Well, what I would say is I wouldn't say the inflection points by this what I would say is what I said earlier was from said digital is now outpacing print declines so.
The issue here is that for a number of years the.
The industry and we are not alone has been looking for the bottom and print sales or content continue to be challenged as it as it continues to become less and less on.
On a preferred format for the delivery and consumption of content. So we're just being conservative and in what we're saying about about.
When we will see the benefit from it what we do know and I think it's very important I share your confidence, but it is at four and it is important to know that the vast majority of courses around the world are taught with taught with content that is published by Wiley or one or the other leading publishers and as we move from print to digital.
On it allows us to to repatriate those sales many of which were going through used channels or rental channels.
Our other sorts of non pay channel. So we are we are feeling good about business, but because.
But calling the exact moment on pivoting to is another story.
So it's not a view that OE on it might become more of a competitive pressure going forward for your commercial business or conservative on that has nothing to do with it.
Now you are open education resources went to gain more share.
No. We don't what we have found is that as we as we have as prices for our.
For our courseware has become have become on.
More in line with expectations in the marketplace, we are gaining share not losing share and there is certainly a.
A very small portion of the market that is though we are at this point in time, but.
But we participate in that market with our platforms and so no we don't view that day.
That is a threat to the business and the stuff that is moving in OE on it tends to be Oh, we are that comes at a price point.
And so and by the way most of the OE. Our stuff is based again on publish content. So no. We don't view this as a as a as a Mike.
My comments have no reflection on on the whole we are on.
Phenomenon.
So on caustic many thanks for your time. Thank you Frank Thank you. Thanks.
Thank you Sam.
Our next question comes from Greg Pendy with Sidoti. Your line is now open.
Hey, guys. Thanks for taking my question just wanted to understand the free cash flow guidance, a little bit more you mentioned to free.
On a threeq you charge is that on a cash charge on pretax charge.
On that upwards of $15 million.
The Q3 charge.
It will it will be a cash charge in the sense that.
In the sense of there are expenses that it will be this is through the facility charges right. So there will be cash outlays over time.
To continue to pay the those leases so its cash charge in that sense, but it doesnt change the momentum of cash in the short term.
Does that does that help does that answer your question.
I think so yeah that helps you.
It's just really specific to the to the restructuring charge right and more more more broadly I commented earlier that we've got a few moving pieces there are working cash.
Capital elements that play.
Given just the timing of collections in some of the impacts that we've seen around covered on the extended payment terms with certain customers to help get through a difficult time, so there's a bit of working capital movements, but the cash flows will be primarily driven by stronger earnings performance FLIR offset a bit by working capital.
The restructuring charge really doesn't have a material impact on the timing of cash flows.
For the for the year and as I said the tax refund that we're anticipating is a neutralizing effect on cash taxes for the year.
As compared to the prior year.
Okay, and then just I guess on that topic, just trying to understand I know you mentioned the extended payments for the accounts receivable.
Should we be thinking about that though as in you've gone through 20% of the renewals. So does that stay elevated for a while as yet still have to work through 80% more renewals.
No I would not I would not describe this as being directly tied to the products progress of renewals we're talking about.
Extended payment terms and very limited cases, many of which are related to the timing of government funding.
In various countries around around the globe, but I wouldn't I wouldn't call the timing of our renewals.
On an indicator per se.
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For the broader population, it's really it's a relatively narrow profit part of the population that is on extended payment terms.
Okay, Great and then just one final one just on.
The inflection point, just trying to understand in.
In digital versus print declines and just trying to understand how much of that is potentially just being I know, it's being accelerated given cultivated and you've mentioned that but how many students are potentially getting of.
Courseware bundled with their courses as their online and May.
Pivot back to print I guess, if if classes sort of return in person is that a potential maybe step this slight step back that we might see.
Not that the trend doesn't continue towards digital but just trying to understand because given the inflection point.
Yes, that's it it's always a good question on.
The human behavior changes typically slowly in this case, we've seen a very rapid change and what we see across our client base is that students and professors are are adopting first because they had to because digital.
Just need the digital environment, if you're going to teach virtually but now what we are really they're realizing on.
Is that is that is working and that they can do so much more with it.
We don't we don't view.
But but in terms of a bundle they're not getting.
There are certainly bundles in these in this business, but the courses are typically the content is not typically bundled.
With the course.
On the student typically has to go out and purchase that bundle that purchase that product and sales for the course, so theres not a bundling and bundling effect to be clear Greg.
There there may be some.
From professors or some students that choose to return to print, but we typically haven't seen that where the trends for satisfaction with digital products, particularly versus print products has been increasing consistently over the years and is well above 50% now and so because of that.
What we see is that this will be locked in and.
And move forward, we'll move forward with.
With the digital units I cant say, there wont be some some comeback, but but no. We view the acceleration of trends is an acceleration of trends, it's not a onetime thing to adapt to a adapt to.
On an unusual events in the marketplace.
Understood. Thanks, a lot.
Our next question comes from the tilt, Arizona with Barclays. Your line is now open.
Hi, Thank you for taking my questions. A couple so first I wanted to ask.
Whether your guidance for low single digits.
On research for the year to April after Gulf of 5% from the first top line that we should expect the general growth to decline in calendar from 21. This is calendar 2020 on.
Then I wanted to ask if you could give a bit more color on on the pricing pressure that you're seeing on renewal. It does not limited to us institutions are more global on.
Lastly on what changed in the enrollment from 23 in one versus 2020 are you budgeting for John meaning from the college textbook fitness. Thank you.
Okay, John John you picked that up and if you can I did not get the third question. So you we may need to ask that you need to repeat that one from the call.
Let me respond surprised on the first two and then we can come back for clarification on on the on the third question. So so thank you. So your question with regard to research.
Revenue performance on the.
Second half of the year we.
We are anticipating in the research segment modest growth in the second half.
Compared to the second half of the prior year, so you're you're correct.
It's presumed that we will realize on.
Slower rate of growth.
Some of that in our in our forecast is anticipating.
Some pricing pressure as we've noted arounds.
The subscription renewals for calendar year 21, again, we continue to expect that pressure to be modest.
And so far the evidence that we've seen is consistent with that.
But we.
Have somewhat limited visibility so our presumption at the moment is that we'll see some pressure there, but we will be free.
Any much offset slightly more than offset.
By our growth in open access, but again somewhat limited visibility, but those are our expectations you have pressure on the subscription side upside on the open access side and that those are going to relatively speaking balance them out in terms of the geography around pricing pressure.
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I wouldn't say that distinguish than any particular part of the globe.
As we see it today, it's largely a function of the health of the.
University customers that are on.
Our subscribers.
So research universities and have a strong need for research.
So far.
Pricing pressure has been.
Again.
Limited.
In terms of both its breadth and depth. So there is no particular geography that I would point to a particular customer base other than that the.
The institutions that are going to struggle more here are clearly those that have.
Weaker overall financial position and challenges around getting through a pretty difficult period.
All right you then for your your question around 2021 enrollment.
Yes, I was just wondering basically what your expectations are for 2021 enrollments on how you're planning for that four year College textbook business.
Compared to 2020.
Okay. We havent, we on it has been a bit of a moving target since the beginning of the cobot crisis as we indicated in our comments on it.
Enrollment is has been a significantly better than we expected it to be with undergraduate being down a little bit.
And graduate programs and master's programs being up a little bit significantly community colleges were hit quite hard.
But we don't have too much exposure in this community college market although.
Although it is obviously an important part of the education.
The education ecosystem.
And and so it's been a bit of a moving target we havent projected the following academic year, yet and so we'll come back to that as we start to do an outlook for the for fiscal 2001 on which as you know excuse.
Excuse me fiscal 22, which as you know doesn't start for us until the middle of calendar year.
On a 21 so on so no no real comment on on forward looking although we we will continue to underscore the on.
That that enrollment tends to be on.
Tends to be counter cyclical and we expect the economic effect of coated to last for quite some time.
Right. Thank you.
Our next question comes from Matthew Walker with Credit Suisse. Your line is now open.
Thanks, very much on got three questions. Okay. The first is on open access you've got very strong growth on open access revenue.
On my understanding of the deals that you've been dominated on access they would be like on upper and lower bond of revenue that the University partners would pay.
So.
No sort of day.
Rattling capable exponential linkage to the volume.
Of articles published it seems from what Youre, saying the actually there is a big opportunity to generate revenue from.
The number of articles published I was wondering if you could explain that.
Second question is Youve answered some questions on the renewal season, but John Wilson books.
Have you seen any impact from university of using the on some companies to help them.
Got rid of unnecessary channel.
And then the fact comes from is you mentioned your market share in higher education, I think you said I could be wrong, but it went from four to five days, which has a very strong.
Hold on.
That sort of implies that the market as it was from your performance sorry, what would what would the on growth look like if you haven't gained on.
Any share a tool.
All right.
Got it hopefully we'll be able to cover all those questions on I should say will be able to remember all those questions, let's start with the overlay with the O. a growth.
So first of all let's remember that our OE growth, which is certainly very strong is made up of two parts. One part is the traditional gold away.
Article by article business, which represents roughly two thirds of the growth that we were less than two thirds of the growth that we have.
Talked about this year.
The other is the trade is the.
Is the volume that comes from our strategic deals that we've been talking about for quite some time.
So so that that proportionality on is important first of all second of all every deal is different.
Every deal has a different structure different flavor to it so there's no real way to fully answer your question in a single way, but what I will say is the model itself is is built on price times quantity and typically there may be an upper bound but there are also they're.
There are also ways for those articles to be published anyway, because the articles continued to be delivered on.
And in each one of our deals there is a.
You know that this price tons quantity.
A mechanism exists the question is what.
What happens if you do come to a maximum if there is a maximum.
And the answer is those articles get published anyway, we have to figure out and somebody has to figure out how to fund those articles. So so yes, there are some there.
There is that there is on.
Every deal is different the relationship or price to quantity remains and it plays out in in different ways, depending on the specific deals geographies budgets et cetera.
The of the cases, so hopefully that addresses that question.
Brian if I could if I just jumped on we're just you know I would just point out that our open access business is much larger than just the transitional deals right. They represent a significant element of growth and back perhaps this business, but the majority of our business in open access is actually outside of those transitional deals on so.
There is lots of opportunity for us to drive growth out of our improvements and lower volume.
Yes, yes, absolutely on as I was saying, it's sort of a one third two thirds with one third little more than one third being the deals that John and I are talking about.
If that's what you're referring to John I think it was yeah, yes on.
Yes, no it's fine fine great.
The second question was on renewals and the ability or desire of of the universities or the librarians to use.
Different sorts of services and different sorts of approaches to more.
To figure out how to.
Reduce their day.
They are paid commitment and we have not seen this as it may its certainly in the marketplace certainly any smart buyer is always looking for ways to.
To make sure they are only paying for what they really need and really use and in fact, our relationships over the years have become increasingly focused on the performance, meaning the usage of the of.
Of the subscriptions that people are are paying for meeting the the access to the content. We've talked extensively about how significantly higher how significantly elevated those have become over the last couple of years as our usage of our content increases certainly accelerating in this past year. So there is.
Less belief that.
Than you might expect that that is not something that they ought to be paying for and we have not seen a material impact of of any.
Third party services that seek to help.
To to help libraries tailor their subscriptions, we haven't seen that affect in any material way on our business.
Then the last question, let me see if I can recall that now.
On market share.
So yes, our our market share has been increasing.
On we're very pleased with that we are seeing it in increased adoptions and increased sell through as we succeed with our.
With our programs you will remember.
If you've been following the story, which all of you have.
That we took an approach of being very active and aggressive in our pricing in a in order to make sure that.
Students and schools had access to reasonable pricing.
Which would drive in theory unit sales and happily what we've learned is as we as we significantly reduced our price points and simplified our models and ex and increase the models by which people could get access to content or cheaper that our volume increases significantly offset our significantly offset.
Our.
In fact of our price reduction so that's that's really good to hear right. So what we've been talking about for a long time on the normalization of price and volume and value where in the marketplace for higher Ed content.
This perception that there wasn't enough going on delivered on and the prices were too high.
And everyone's familiar with that with with that story right the $250 textbook well.
Well now we're seeing price point, we have driven price points down to the two.
In many cases.
50, $60 and as we do that and it's in a very simple structure and as we've done that what we've what we've seen is we repatriate more units and we're losing in that and therefore, we're giving these ex these digital products, which has significantly elevated value because of the homework systems the community the ability to collaborate.
On these systems for teachers to work with students directly. So we this elevated outcomes out elevated value at a significantly lower price.
And therefore, the marketplaces kind of happy with it and rewards and we've been particularly aggressive on that in that area.
So.
The to the market.
The market is sold at a lot of noise in the market as as print declines on the digital gross.
But what we are clearing confident on is that we are doing very well relative to the market.
Because of the various actions we've taken to to both increase quality reduce price and ultimately service the market in a very very tailored way. The other thing to say is we tend to focus we're much more focused than most of them. Most of the larger competitors. We are focused on areas where the content is.
Absolutely necessary for the course for the soon to be successful and of course in areas like accounting or Ti and so forth and that's why we and it's one of the reasons why.
Why we can do better because the students can do without our content. So hopefully that gives you some color on the market share on the market share facts and we we continue to be pleased with how we're performing there.
I think what I was trying to say is that older people who.
Quotes about being close to the tipping point. It just so happens that day individually have gained a lot of market share.
Got to John so the underlying market.
There is not as healthy if you haven't gained any market share.
I would argue that you should study the industry statistics closely and you'll see that there has materially been share shift and there has been been consistent increase in the number of units sold in the industry. So we are on where.
We won't go into discussion of relative performance the competitors on but what we can say is that we feel in the long run we will have.
We will have the units in the unit growth and we will have we will continue to perform well relative to our competitors.
Okay. Thank you very much thanks.
We have a follow up question from the line of Daniel Moore with CJS Securities. Your line is that what.
Thank you and I realize you've cut or covered a lot already.
Just Ed services, just following up on the decline in marketing costs can you just talk briefly about the profitability curve today for a new partner institution compared to what maybe that was a couple of years ago.
How quickly they become get to breakeven and ramp to more mature levels of margins. Thank you.
Yes. So every partner is different every partner requires a different upfront investment and every partner as a different profile to get to to get to maturity.
What I can say is that the relationship between marketing cost.
And that is a significant relationship and that our ability to be a much more efficient acquirer of student leads is helping us to.
To make sure that not just.
We get there faster, but that all of our programs are profitable as you know, we're very attentive to the profitability of our portfolio.
So so I won't make specific comments on the on the time to profitability because it's so variable.
But I will say that our efforts to.
To improve the efficiency of marketing and improve the efficiency of the student journey.
Allows us to get there allows us to get there faster I mean thats the point as you know.
Dan as well as anybody on.
The upfront marketing investment is a is a big part of what we invest in when we stand up a new partner.
And what we.
And what we do so so that the more efficient we can be there.
The net of the whole portfolio does but certainly the faster we are too.
To profitability in a new partner.
Understood. Okay. Thank you again.
I'm showing no further questions in queue at this time I would like to turn the call back to Mr. any back for closing remarks.
Alright, all I'll say is thanks for joining us today and once again happy holidays, we look forward to talking to you around the time of our third quarter results in in March.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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