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(Exact name of Registrant as
specified in its charter)
iNew York
i13-5593032
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i111 River Street, iHoboken, iNew
Jersey
i07030
(Address of principal executive offices)
Zip Code
(i201)
i748-6000
Registrant’s telephone number, including area code
Not Applicable
Former name, former address and former fiscal year, if changed since last report
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
iClass A Common Stock, par value $1.00 per share
iWLY
iNew
York Stock Exchange
iClass B Common Stock, par value $1.00 per share
iWLYB
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesx No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesx No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge accelerated filerx
Accelerated filer o
Non-accelerated
filer o
iSmaller reporting company o
iEmerging growth company o
If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes io No x
Cautionary
Notice Regarding Forward-Looking Statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
This report contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 concerning our business, consolidated financial condition and results of operations. The Securities and Exchange Commission (SEC) encourages companies to disclose forward-looking information so that investors can better understand a company’s prospects and make informed investment decisions. Forward-looking statements are subject to risks and uncertainties, many of which are outside our control, which could cause actual results to differ materially from these statements. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements can be identified by
such words as “anticipates,”“believes,”“plan,”“assumes,”“could,”“should,”“estimates,”“expects,”“intends,”“potential,”“seek,”“predict,”“may,”“will” and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, anticipated restructuring charges and savings, operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those described in any forward-looking statements. Any such forward-looking statements are based upon many assumptions and estimates that are inherently subject to uncertainties and contingencies, many of
which are beyond our control, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment by Wiley in new technologies and products; (ii) subscriber renewal rates for our journals; (iii) the financial stability and liquidity of journal subscription agents; (iv) the consolidation of book wholesalers and retail accounts; (v) the market position and financial stability of key retailers; (vi) the seasonal nature of our educational business and the impact of the used book market; (vii) worldwide economic and political conditions; (viii) our ability to protect our copyrights and other intellectual property worldwide; (ix) our ability to successfully integrate acquired operations and realize expected opportunities; (x) the ability to realize operating savings over time and in fiscal year 2024 in connection with our multiyear Global Restructuring Program and planned and completed dispositions; (xi) the possibility
that the divestitures will not be pursued, failure to obtain necessary regulatory approvals or required financing or to satisfy any of the other conditions to planned dispositions; (xii) cyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business; (xiii) as a result of acquisitions, we have and may record a significant amount of goodwill and other identifiable intangible assets and we may never realize the full carrying value of these assets; and (xiv) other factors detailed from time to time in our filings with the SEC. We undertake no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.
Please refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K and as revised and updated by our Quarterly Reports on Form
10-Q for important factors that we believe could cause actual results to differ materially from those in our forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.
Non-GAAP Financial Measures:
We present financial information that conforms to Generally Accepted Accounting Principles in the United States of America (US GAAP). We also present financial information that does not conform to US GAAP, which we refer to as non-GAAP.
In this report, we may present the following non-GAAP performance measures:
•Adjusted
Earnings Per Share (Adjusted EPS);
•Free Cash Flow less Product Development Spending;
•Adjusted Revenue;
•Adjusted Contribution to Profit and margin;
•Adjusted Operating Income and margin;
•Adjusted Income Before Taxes;
•Adjusted Income Tax Provision;
•Adjusted Effective Tax Rate;
•EBITDA (earnings before interest, taxes, depreciation and amortization), Adjusted EBITDA and margin;
Management uses these non-GAAP performance measures as supplemental indicators of our operating performance and financial position as well as for internal reporting and forecasting purposes, when publicly providing our outlook, to evaluate our performance and calculate incentive compensation. We present these non-GAAP performance measures in addition to US GAAP financial results because we believe that these non-GAAP performance measures provide useful information to certain
investors and financial analysts for operational trends and comparisons over time. The use of these non-GAAP performance measures may also provide a consistent basis to evaluate operating profitability and performance trends by excluding items that we do not consider to be controllable activities for this purpose.
The performance metric used by our chief operating decision maker to evaluate performance of our reportable segments is Adjusted Contribution to Profit. We present both Adjusted Contribution to Profit and Adjusted EBITDA for each of our reportable segments as we believe Adjusted EBITDA provides additional useful information to certain investors and financial analysts for operational trends and comparisons over time. It removes the impact of depreciation and amortization expense, as well as presents a consistent basis to evaluate operating profitability and compare our financial performance
to that of our peer companies and competitors.
For example:
•Adjusted EPS, Adjusted Revenue, Adjusted Contribution to Profit and margin, Adjusted Operating Income and margin, Adjusted Income Before Taxes, Adjusted Income Tax Provision, Adjusted Effective Tax Rate, EBITDA, Adjusted EBITDA and margin, and organic revenue (excluding acquisitions) provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance.
•Free Cash Flow less Product Development Spending helps assess our ability, over the long term, to create value for our shareholders as it represents cash available to repay debt, pay common stock dividends, and fund share
repurchases and acquisitions.
•Results on a constant currency basis remove distortion from the effects of foreign currency movements to provide better comparability of our business trends from period to period. We measure our performance excluding the impact of foreign currency (or at constant currency), which means that we apply the same foreign currency exchange rates for the current and equivalent prior period.
In addition, we have historically provided these or similar non-GAAP performance measures and understand that some investors and financial analysts find this information helpful in analyzing our operating margins and net income, and in comparing our financial performance to that of our peer companies and competitors. Based on interactions with investors, we also believe that our non-GAAP performance measures are regarded
as useful to our investors as supplemental to our US GAAP financial results, and that there is no confusion regarding the adjustments or our operating performance to our investors due to the comprehensive nature of our disclosures.
Non-GAAP performance measures do not have standardized meanings prescribed by US GAAP and therefore may not be comparable to the calculation of similar measures used by other companies and should not be viewed as alternatives to measures of financial results under US GAAP. The adjusted metrics have limitations as analytical tools, and should not be considered in isolation from, or as a substitute for, US GAAP information. It does not purport to represent any similarly titled US GAAP information and is not an indicator of our performance under US GAAP. Non-GAAP financial metrics that we present may not be comparable with similarly titled measures used by others. Investors
are cautioned against placing undue reliance on these non-GAAP measures.
Preferred stock, $ii1/
par value per share: Authorized shares – ii2/ million, Issued shares - ii0/
i—
i—
Class
A common stock, $ii1/ par value per share: Authorized shares - ii180/
million, Issued shares - i70,238 and i70,231 as of January 31, 2024 and April 30, 2023, respectively
i70,238
i70,231
Class
B common stock, $ii1/ par value per share: Authorized shares - ii72/
million, Issued shares - i12,944 and i12,951 as of January 31, 2024 and April 30, 2023, respectively
Adjustments
to reconcile net loss to net cash provided by operating activities:
Impairment of goodwill
i108,449
i99,800
Losses
on sale of businesses and impairment charges related to assets held-for-sale
i179,747
i—
Amortization
of intangible assets
i42,730
i65,389
Amortization
of product development assets
i17,894
i25,175
Depreciation
and amortization of technology, property and equipment
i68,752
i72,578
Restructuring
and related charges
i52,033
i45,204
Stock-based
compensation expense
i19,065
i20,613
Employee
retirement plan expense
i26,260
i22,326
Foreign
exchange transaction losses (gains)
i3,489
(i283)
Other
noncash credits
(i50,701)
(i16,200)
Net
change in operating assets and liabilities
(i217,782)
(i229,773)
Net
cash provided by operating activities
i24,352
i53,718
Investing
activities
Product development spending
(i12,324)
(i17,763)
Additions
to technology, property and equipment
(i57,275)
(i57,616)
Businesses
acquired in purchase transactions, net of cash acquired
(i3,116)
(i5,792)
(Costs)
proceeds related to the sale of businesses and certain assets
(i1,237)
i40
Acquisitions
of publication rights and other
(i4,541)
i1,059
Net
cash used in investing activities
(i78,493)
(i80,072)
Financing
activities
Repayments of long-term debt
(i741,123)
(i475,576)
Borrowings
of long-term debt
i899,804
i637,879
Payment
of debt issuance cost
i—
(i4,493)
Purchases
of treasury shares
(i29,000)
(i24,000)
Change
in book overdrafts
(i10,941)
(i14,990)
Cash
dividends
(i57,869)
(i58,067)
Impact
of tax withholding on stock-based compensation and other
(i5,517)
(i5,469)
Net
cash provided by financing activities
i55,354
i55,284
Effects
of exchange rate changes on cash, cash equivalents, and restricted cash
i432
(i2,670)
Cash
reconciliation:
Cash and cash equivalents
i106,714
i100,397
Restricted
cash included in Prepaid expenses and other current assets
i548
i330
Balance
at beginning of period
i107,262
i100,727
Increase
for the period
i1,645
i26,260
Cash
and cash equivalents
i108,803
i126,449
Restricted
cash included in Prepaid expenses and other current assets
i104
i538
Balance
at end of period (1)
$
i108,907
$
i126,987
Cash
paid during the period for:
Interest
$
i36,293
$
i25,796
Income
taxes, net of refunds
$
i38,522
$
i38,816
(1)
The
balance as of January 31, 2024 includes held-for-sale cash, cash equivalents and restricted cash. See Note 3, "Acquisitions and Divestitures" for further details.
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 —iiBasis of Presentation/
Throughout this report, when we refer to “Wiley,” the “Company,”“we,”“our,” or “us,” we are referring to John Wiley & Sons, Inc. and
all our subsidiaries, except where the context indicates otherwise.
Our Unaudited Condensed Consolidated Financial Statements include all the accounts of the Company and our subsidiaries. We have eliminated all intercompany transactions and balances in consolidation. In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the Unaudited Condensed Consolidated Financial Condition, Results of Operations, Comprehensive Loss and Cash Flows for the periods presented. Operating results for the interim period are not necessarily
indicative of the results expected for the full year. All amounts are presented in United States (US) dollars, unless otherwise specified. All amounts are in thousands, except per share amounts, and approximate due to rounding. These financial statements should be read in conjunction with the most recent audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2023 as filed with the SEC on June 26, 2023 (2023 Form 10-K).
Our Unaudited Condensed Consolidated Financial Statements were prepared in accordance with the interim reporting requirements of the SEC. As permitted under those rules, annual footnotes or other financial information that are normally required by US GAAP have been condensed or omitted. The preparation of our Unaudited Condensed Consolidated Financial
Statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain prior year amounts have been reclassified to conform to the current year’s presentation.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations
(Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” This ASU requires that an acquirer recognize, and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606 “Revenue from Contracts with Customers” (Topic 606) as if it had originated the contracts.
Generally, this would result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements if the acquiree prepared financial statements in accordance with US GAAP. We adopted ASU 2021-08 on May 1, 2023. The standard is applied prospectively to business combinations occurring on or after the effective date of the amendments. The adoption did not have an impact on our consolidated financial statements at the time of adoption.
Recently Issued Accounting Standards
Improvements to Income Tax Disclosures
In
December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740) - Improvements to Income Tax Disclosures.” This ASU enhances the transparency, effectiveness and comparability of income tax disclosures by requiring consistent categories and greater disaggregation of information related to income tax rate reconciliations and the jurisdictions in which income taxes are paid. This ASU is effective for our annual disclosures starting fiscal year 2026. Early adoption is permitted. A public entity should apply the amendments in this ASU on a prospective basis with the option to apply the standard retrospectively. We are currently assessing the impact of the disclosure requirements on our consolidated financial statements.
Segment
Reporting - Improvements to Reportable Segment Disclosures
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.” This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. This ASU is effective for our annual fiscal year 2025, and interim periods starting in fiscal year 2026. Early adoption is permitted. A public entity should apply the amendments in this ASU retrospectively to all prior periods presented in the financial statements. We are currently assessing the impact of the disclosure requirements on our consolidated financial statements.
Disclosure Improvements - Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative
In October 2023, the
FASB issued ASU 2023-06, “Disclosure Improvements - Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU modified the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations. The amendments to the various topics should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of the SEC’s removal of the related disclosure. If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, then this ASU will not become effective. Early adoption is prohibited. We do not expect the amendments in this ASU to have a material impact to our disclosures in our consolidated financial statements.
Pro forma financial information related to the following acquisition has not been provided as it is not material to our condensed consolidated results of operations.
Fiscal Year 2023
On November 1, 2022, we completed the acquisition of an immaterial business included in our Learning segment.
The fair value of consideration transferred was $i6.1 million, which included $i5.2 million of cash at the acquisition date and $i0.9 million
to be paid after the acquisition date. The acquisition was accounted for using the acquisition method of accounting. We recorded the aggregate excess purchase price over identifiable net tangible and intangible assets acquired and liabilities assumed, which included an allocation of $i3.9 million of goodwill allocated to the Learning segment and $i3.7 million
of intangible assets subject to amortization.
The allocation of the total consideration transferred to the assets acquired, including intangible assets and goodwill, and the liabilities assumed was finalized during the three months ended October 31, 2023.
Divestitures
As part of our ongoing initiatives to simplify our portfolio to drive sustained performance improvement, we have completed certain dispositions as of January 31, 2024, and committed to a plan to divest additional businesses which are expected to be completed by the first quarter of fiscal year 2025.
On June 1, 2023, Wiley’s Board of Directors approved a plan to divest certain businesses
that we determined are non-core businesses. Those businesses are University Services, Wiley Edge, and CrossKnowledge. In accordance with FASB Accounting Standards Codification (ASC) Topic 205, "Presentation of Financial Statements," we determined that the planned divestitures of University Services, Wiley Edge and CrossKnowledge each do not represent a strategic shift that will have a major effect on our consolidated results of operations, and therefore their results of operations were not reported as discontinued operations. We applied the criteria in ASC 360-10-45-9, "Property, Plant and Equipment - Long-Lived Assets Classified as Held for Sale," to determine whether any of the aforementioned long-lived asset groups would be classified as held-for-sale. Criteria include management commitment to sell the disposal group in its present condition and the sale being deemed probable of being completed within one year. We concluded that the businesses met all
the requisite criteria as of June 1, 2023 and, therefore, the related assets and liabilities are reclassified as held-for-sale on the Unaudited Condensed Consolidated Statement of Financial Position until the date of sale.
As a result of these planned divestitures, in the three months ended July 31, 2023 we reorganized our segments and our new structure consists of ithree reportable segments which includes Research (no change), Learning, and Held for Sale or Sold, as well as a Corporate
expense category (no change). The operations of University Services, Wiley Edge, and CrossKnowledge are reported in the Held for Sale or Sold segment until the date of sale. See Note 10, "Segment Information" for more details regarding our reportable segments. See Note 12, "Goodwill and Intangible Assets" for more details on the interim goodwill impairment tests and the impairment charges.
On January 1, 2024, we sold University Services. On January 8, 2024, we entered into an agreement to sell Wiley Edge. Both Wiley Edge and CrossKnowledge continue to be reported as held-for-sale, and these dispositions are expected to be completed by the first quarter of fiscal year 2025.
On January 1, 2024, we completed the sale of University Services pursuant to a Membership Interest and Asset Purchase Agreement with Academic Partnerships LLC, a Delaware limited liability company (Academic Partnerships), and Education Services Upper Holdings Corp., a Delaware corporation. The selling price for University Services at the date of sale had a fair value of $i122.6 million,
paid in the form of (i) an unsecured promissory note with an initial aggregate principal amount of $i92.9 million (Seller Note), subject to customary working capital adjustments; (ii) $i17.8 million
of additional contingent consideration in the form of an earnout recorded at fair value based on revenue targets during each of the two fiscal years in the period from May 1, 2024 through April 30, 2026 (Earnout); and (iii) a number of common units of TVG-Academic Partnerships Holdings, LLC, the ultimate parent company of Academic Partnerships equal to i10% of the total common units outstanding at the
date of sale valued at $i11.9 million (TVG Investment). The Seller Note, Earnout, and TVG Investment are reflected in Other non-current assets in our Unaudited Condensed Consolidated Statements of Financial Position.
The principal amount of the Seller Note is subject to an increase of up to approximately $i12 million
in the event certain third-party customer consents are obtained prior to January 1, 2025. The maximum amount of the Earnout at the end of the target periods noted above will be impacted by the third-party customer consents up to approximately $i4 million. The fair value of the Earnout will be impacted by these third-party customer consents until settled. Our total common units in the TVG Investment will also increase as certain third-party customer
consents are obtained.
The Seller Note has a maturity date that is the earlier of (i) one year after the maturity date of Academic Partnerships’ material secured indebtedness for borrowed money and (ii) January 1, 2031. The Seller Note bears interest at the rate of i10% per annum commencing on January 2, 2024, increasing to i12%
per annum on and after January 1, 2026.
The maximum Earnout amount is $i40.0 million, subject to adjustments for the third-party customer consents as noted above. We elected to record the fair value of the Earnout as of the date of the sale, and will update that fair value as applicable until settled. The fair value of the Earnout was based on a Monte Carlo simulation. This fair value was categorized as Level 3 within the FASB
ASC Topic 820, “Fair Value Measurements” (ASC Topic 820) fair value hierarchy. This method considers the terms and conditions in the Membership Interest and Asset Purchase Agreement, our best estimates of forecasted revenue for the Earnout periods and simulates a range of revenues over the applicable periods based on an estimate of revenue volatility. The fair value of the Earnout was estimated as the present value of the potential range of payouts averaged across the range of simulated revenues.The other key assumptions include a weighted average cost of capital for the reporting unit based on the risk associated with the business and its projections. In addition, a risk-adjusted discount rate for the simulated revenue was determined by adjusting the weighted average cost of capital to reflect term risk and an implied operational leverage factor.
The assumptions included in the operational leverage factor include estimates of asset volatility and revenue volatility. The Earnout amount is subject to change based on final results and calculations.
Our TVG Investment will be accounted for under the cost method minus impairment.
The pretax loss on sale was $i101.4 million after accounting for the assets sold, liabilities transferred upon sale, and transaction costs. In connection with the held-for-sale classification prior to the sale, we recognized cumulative
impairment charges of $i75.4 million in the six months ended October 31, 2023 on the remeasurement of the disposal group at the lower of carrying value or fair value less cost to sell. This resulted in an additional loss of $i26.0
million in the three months ended January 31, 2024. The additional loss in the three months ended January 31, 2024 was due to subsequent changes in the fair value less costs to sell resulting from the completion of the sale, as well as changes in the carrying amount of the disposal group. These losses and impairments are included in Losses on sale of businesses and impairment charges related to assets held-for-sale in our Unaudited Condensed Consolidated Statements of Net Loss for the three and nine months ended January 31, 2024.
The assets and liabilities related to certain third-party customers will continue to be presented as held-for-sale until those consents are obtained.
We
entered into a transition services agreement (TSA) to facilitate the transition of the divested business. Fees we receive are recognized as other income within our Corporate expense category. In the three and nine months ended January 31, 2024, we recorded TSA fees of $ii0.6/
million in Operating and administrative expenses in our Unaudited Condensed Consolidated Statements of Net Loss.
Tuition Manager
On May 31, 2023, we completed the sale of our tuition manager business (Tuition Manager), which was included in our Held for Sale or Sold segment. The divestiture did not represent a strategic shift that would have a major effect on our consolidated results of operations, and therefore its results of operations were not reported as discontinued operations. The cash received net of transaction costs at the date of sale was $i0.5
million, and $i0.5 million of additional cash was received after the date of sale. The pretax loss on sale was $i1.5 million after accounting for the assets sold, liabilities transferred upon sale, and transaction costs
and is included in Losses on sale of businesses and impairment charges related to assets held-for-sale in our Unaudited Condensed Consolidated Statements of Net Loss for the nine months ended January 31, 2024. The carrying value of the net assets included in the pretax loss on sale was $i2.5 million, including intangible assets of $i1.0
million and no goodwill.
Assets and Liabilities Held-for-Sale
As of January 31, 2024, Wiley Edge, CrossKnowledge, and the assets and liabilities related to certain third-party customers who have not yet consented related to University Services continue to be reported as held-for-sale. We measured each disposal group at the lower of carrying value or fair value less cost to sell. In the three and nine months ended January 31, 2024, we recorded a held-for-sale pretax impairment of $i26.4
million and $i76.8 million, respectively. The impairment charge for Wiley Edge in both the three and nine months ended January 31, 2024 was $ii20.6/
million. The total impairment charge for CrossKnowledge in the nine months ended January 31, 2024 was $i56.2 million, which includes $i5.8
million in the three months ended January 31, 2024. The additional impairment charges in the three months ended January 31, 2024 was due to subsequent changes in the fair value less costs to sell resulting from the continued progression of the selling process and indications of changes in the consideration for the business, as well as changes in the carrying amounts of the disposal group. The pretax noncash impairment charges are reflected in Losses on sale of businesses and impairment charges related to assets held-for-sale on the Unaudited Condensed Consolidated Statements of Net Loss. The impairments are included as a valuation allowance or contra-asset account within Current assets held-for-sale and Non-current assets held-for-sale on the Unaudited Condensed Consolidated Statement of Financial Position as of January 31,
2024.
The major categories of assets and liabilities that have been classified as held-for-sale on the Unaudited Condensed Consolidated
Statement of Financial Position as of January 31, 2024 were as follows:
The
following table shows a reconciliation of our cash, cash equivalents, and restricted cash included in current assets held-for-sale in our Unaudited Condensed Consolidated Statement of Financial Position to our Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended January 31, 2024:
ii
Cash
and cash equivalents
$
i93,100
Restricted cash included in Prepaid expenses and other current assets
i50
Total
cash, cash equivalents, and restricted cash per Unaudited Condensed Consolidated Statement of Financial Position as of January 31, 2024
i93,150
Cash and cash equivalents held-for-sale
i15,703
Restricted
cash held-for-sale included in Prepaid expenses and other current assets
i54
Total cash, cash equivalents, and restricted cash held-for-sale as of January 31, 2024
i15,757
Total
cash, cash equivalents, and restricted cash per Unaudited Condensed Consolidated Statement of Cash Flows for the nine months ended January 31, 2024
$
i108,907
//
On
January 8, 2024, we entered into a stock and asset purchase agreement (Purchase Agreement) with Inspirit Vulcan Bidco Limited, a private limited company incorporated in England & Wales (Inspirit), pursuant to which we agreed to sell our emerging talent and reskill training business, Wiley Edge (Business), to Inspirit (Transaction). We expect the Transaction to close in the first quarter of fiscal year 2025.
The selling price for the Business includes total consideration of up to $i62.2 million
and will consist of: (i) $i10 million in cash, (ii) $i18.3 million in the form of a loan note to be issued by Inspirit, subject to a customary purchase price
adjustments, including for working capital, and (iii) up to $i33.9 million in the form of an earnout based on the gross profit generated by the Business relative to mutually agreed profit targets during each of the three fiscal years in the period beginning May 1, 2024 and ending April 30, 2027.
The results of Wiley Edge will continue to be reported in our operating results in the Held for
Sale or Sold segment until the sale is finalized. We will enter into a transition services agreement to facilitate the transition of the divested business.
Note 4 —iRevenue
Recognition, Contracts with Customers
Disaggregation of Revenue
In the three months ended July 31, 2023, we reorganized our segments. Our new segment structure consists of ithree reportable segments which includes (1) Research (no change), (2) Learning, (3) Held For Sale or Sold, as well as a Corporate expense category (no change), which includes certain costs
that are not allocated to the reportable segments. Research includes reporting lines of Research Publishing and Research Solutions. Learning includes reporting lines of Academic and Professional. Held for Sale or Sold includes those non-core businesses which we have sold or previously announced we are divesting and include University Services, Wiley Edge, and CrossKnowledge.Prior period segment results have been revised to the new segment presentation. There were no changes to our consolidated financial results. See Note 10, “Segment Information,” for more details.
i
The
following table presents our revenue from contracts with customers disaggregated by segment and product type.
The
following information describes our disaggregation of revenue by segment and product type. Overall, the majority of our revenue is recognized over time.
i
Research
Research customers include academic, corporate, government, and public libraries, funders of research, researchers, scientists, clinicians, engineers and technologists, scholarly and professional societies, and students and professors. Research products are sold and distributed globally through multiple channels, including research libraries and library consortia, independent subscription
agents, direct sales to researchers and professional society members, and other customers. Publishing centers include Australia, China, Germany, India, the United Kingdom (UK), and the United States (US). The majority of revenue generated from Research products is recognized over time. Total Research revenue was $i256.2 million and $i771.7
million in the three and nine months ended January 31, 2024, respectively.
We disaggregated revenue by Research Publishing and Research Solutions to reflect the different type of products and services provided.
Research Publishing Products
Research Publishing products provide scientific, technical, medical, and scholarly journals, as well as related content and services, to academic, corporate, and government libraries, learned societies, and individual researchers and other professionals. Research Publishing revenue was $i216.6
million and $i659.3 million in the three and nine months ended January 31, 2024, respectively, and the majority is recognized over time.
In
both the three and nine months ended January 31, 2024, Research Publishing products generated approximately ii86/% of their revenue from contracts
with their customers from Journal Subscriptions (pay to read), Open Access (pay to publish) and Transformational Agreements (read and publish), and the remainder from Licensing, Backfiles, and Other.
Research Solutions Products and Services
Research Solutions products and services include corporate and society service offerings such as advertising, spectroscopy software and spectral databases, job board software and career center services, publishing services such as editorial operations, production, copyediting, system support and consulting, and a journal submission and peer-review management system. In addition, Research Solutions includes Atypon platforms and services. Atypon is a publishing software and service provider that enables scholarly and professional societies and publishers to deliver, host, enhance, market, and manage their content on the web through the LiteratumTM
platform. Research Solutions revenue was $i39.6 million and $i112.3 million in the three and nine months ended January 31,
2024, respectively, and the majority is recognized over time.
In the three and nine months ended January 31, 2024, Research Solutions products and services generated approximately i68% and i67%, respectively, of their revenue
from contracts with their customers from corporate and society offerings and i32% and i33%, respectively, from Atypon platforms and services.
Learning
Learning
customers include chain and online booksellers, libraries, colleges and universities, corporations, direct to consumer, web sites, and other online applications. Total Learning revenue was $i146.3 million and $i404.6
million in the three and nine months ended January 31, 2024, respectively.
We disaggregated revenue by type of products provided. Learning products are Academic and Professional.
Academic
Academic products revenue was $i87.2 million and $i224.6
million in the three and nine months ended January 31, 2024, respectively. Academic products and services including scientific, professional, and education print and digital books, and digital courseware to libraries, corporations, students, professionals, and researchers. Communities served include business, finance, accounting, management, leadership, technology, behavioral health, engineering/architecture, science and medicine, and education. Products are developed for worldwide distribution through multiple channels, including chain and online booksellers, libraries, colleges and universities, corporations, direct to consumer, websites, distributor networks and other online applications.
In the three and nine months
ended January 31, 2024, Academic products generated approximately i53% and i60%, respectively, of their revenue from contracts with their customers for print and digital publishing,
which is recognized at a point in time. Digital Courseware products in the three and nine months ended January 31, 2024 generate approximately i36% and i31%, respectively, of their revenue from contracts
with their customers which is recognized over time. The remainder of their revenues were from Licensing and Other, which has a mix of revenue recognized at a point in time and over time.
Professional
Professional products revenue was $i59.1 million and $i180.0
million in the three and nine months ended January 31, 2024, respectively. Professional provides learning, development, publishing, and assessment services for businesses and professionals.
Our trade publishing produces professional books, which includes business and finance, technology, professional development for educators, test preparation books and other professional categories, as well as the For Dummies® brand. Products are sold to brick-and-mortar and online retailers, wholesalers who supply such bookstores, college bookstores, individual practitioners, corporations, and government agencies.
Our assessments offering includes high-demand soft-skills training solutions that are delivered to organizational
clients through online digital delivery platforms, either directly or through an authorized distributor network of independent consultants, trainers, and coaches.
In the three and nine months ended January 31, 2024, Professional products generated approximately i55%
and i57%, respectively, of their revenue from contracts with their customers for trade print and digital publishing, which is recognized at a point in time. Our assessments offering in the three and nine months ended January 31, 2024 generates approximately i28%
and i31%, respectively, of their revenue from contracts with their customers which has a mix of revenue recognized at a point in time and over time. The remainder of their revenues were from Licensing and Other, which has a mix of revenue recognized at a point in time and over time.
Held for Sale or Sold
Held for Sale or Sold revenue was $i58.2
million and $i228.3 million in the three and nine months ended January 31, 2024, respectively. Offerings include University Services, Wiley Edge and CrossKnowledge.
The University Services business was sold on January 1, 2024, and it previously offered institutions and their students a rich portfolio of education technology and student and faculty support services, allowing the institutions to reach more students online
with their own quality academic programs. University Services revenue was mainly recognized over time.
Wiley Edge sources, trains, and prepares aspiring students and professionals to meet the skill needs of today’s technology careers, and then places them with some of the world's largest financial institutions, technology companies, and government agencies. Wiley Edge also works with its clients to retrain and retain existing employees so they can continue to meet the changing demands of today’s technology landscape. Wiley Edge revenue is recognized at the point in time the services are provided to its customers.
CrossKnowledge services includes corporate learning online learning and training solutions for global corporations, universities, and small and medium-sized enterprises sold on a subscription or fee basis. CrossKnowledge revenue is recognized over time.
Held
for Sale or Sold also includes the revenue associated with those businesses which have been sold which includes Wiley's Efficient Learning test prep portfolio business, and our advancement courses business which were both sold in fiscal year 2023, and our Tuition Manager business which was sold in the three months ended July 31, 2023.
Accounts Receivable, net and Contract Liability Balances
When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract
liability is recorded. Contract liabilities are recognized as revenue when, or as, control of the products or services are transferred to the customer and all revenue recognition criteria have been met.
i
The following table provides information about accounts receivable, net and contract liabilities from contracts with customers.
Contract
liabilities (included in Other long-term liabilities)
$
i15,114
$
i17,426
$
(i2,312)
(1)
The
sales return reserve recorded in Contract liabilities is $i25.9 million and $i24.6 million, as
of January 31, 2024 and April 30, 2023, respectively.
/
For the nine months ended January 31, 2024, we estimate that we recognized revenue of approximately i98% that was included in the current contract
liability balance at April 30, 2023. For the nine months ended January 31, 2023, we estimated that i93% of revenue recognized was included in the current contract liability at April 30, 2022.
The
decrease in contract liabilities excluding the sales return reserve, was primarily driven by revenue earned on journal subscription agreements, transformational agreements, and open access, partially offset by renewals of journal subscription agreements, transformational agreements, and open access. In addition, contract liabilities decreased due to the reclassification of the held-for-sale amounts to Current liabilities held-for-sale on the Unaudited Condensed Consolidated Statement of Financial Position as of January 31, 2024.
Remaining Performance Obligations included in Contract Liability
As
of January 31, 2024, the aggregate amount of the transaction price allocated to the remaining performance obligations is approximately $i315.8 million, which included the sales return reserve of $i25.9
million. Excluding the sales return reserve, we expect that approximately $i274.8 million will be recognized in the next itwelve months
with the remaining $i15.1 million to be recognized thereafter.
Assets Recognized for the Costs to Fulfill a Contract
Costs to fulfill a contract are directly related to a contract
that will be used to satisfy a performance obligation in the future and are expected to be recovered. These costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. These types of costs are incurred in the following product types, (1) Research Solutions services, which includes customer specific implementation costs per the terms of the contract and (2) University Services, which is included in the Held for Sale or Sold segment and includes customer specific costs to develop courses per the terms of the contract. As of January 31, 2024, we no longer have costs to fulfill related to the University Services business since it was
sold on January 1, 2024, except for those assets related to certain third-party customers who continue to be presented as held-for-sale.
Our assets associated with incremental costs to fulfill a contract, were $i4.7 million and $i10.6
million at January 31, 2024 and April 30, 2023, respectively, and are included within Other non-current assets and Non-current assets held-for-sale on our Unaudited Condensed Consolidated Statements of Financial Position. We recorded amortization expense of $i1.5 million and $i4.2
million in the three and nine months ended January 31, 2024, respectively, related to these assets within Cost of sales on our Unaudited Condensed Consolidated Statements of Net Loss. We recorded amortization expense of $i1.1 million and $i3.4
million in the three and nine months ended January 31, 2023, respectively, related to these assets within Cost of sales on our Unaudited Condensed Consolidated Statements of Net Loss.
Sales and value-added taxes are excluded from revenues. Shipping and handling costs, which are primarily incurred within the Learning segment, occur before the transfer of control of the related goods. Therefore, in accordance with the revenue standard, it is not considered a promised service to the customer and would be considered a cost to fulfill our promise to transfer the goods. Costs incurred for third party shipping and handling are primarily reflected in Operating and administrative expenses on our Unaudited Condensed Consolidated Statements of Net Loss. We incurred $i6.5
million and $i19.7 million in shipping and handling costs in the three and nine months ended January 31, 2024, respectively. We incurred $i7.1 million and $i20.6
million in shipping and handling costs in the three and nine months ended January 31, 2023, respectively.
We
have contractual obligations as a lessee with respect to offices, warehouses and distribution centers, automobiles, and office equipment.
We determine if an arrangement is a lease at inception of the contract in accordance with guidance detailed in the lease standard and we perform the lease classification test as of the lease commencement date. Right-of-use (ROU) assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.
The present value of the lease payments is calculated using an incremental borrowing rate, which was determined based on the
rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use an unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate.
We recognize operating lease expense on a straight-line basis over the term of the lease. Lease payments may be fixed or variable. Only lease payments that are fixed, in-substance fixed or depend on a rate or index are included in determining the lease liability. Variable lease payments include payments made to the lessor for taxes, insurance and maintenance of the leased asset and are recognized as operating costs as incurred.
We apply certain practical expedients allowed by ASC 842, "Leases." Leases that are more than one year in duration are capitalized and recorded on our Unaudited Condensed Consolidated Statements
of Financial Position. Leases with an initial term of 12 months or less are recognized as short term lease operating costs on a straight-line basis over the term. We have also elected to account for the lease and non-lease components as a single component. Some of our leases offer an option to extend the term of such leases. We utilize the reasonably certain threshold criteria in determining which options we will exercise.
i
For operating leases, the ROU assets and liabilities are presented on our Unaudited Condensed Consolidated Statement of Financial Position as follows:
During
the nine months ended January 31, 2024, we added $i0.7 million to the ROU assets and $i0.7 million to the operating lease liabilities
due to modifications to our existing operating leases.
As a result of the Global Restructuring Program, which included the exit of certain leased office space, we recorded restructuring and related charges. These charges included severance, impairment charges and acceleration of expense associated with certain operating lease ROU assets. See Note 9, “Restructuring and Related Charges” for more information on this program and the charges incurred.
Total
net lease cost does not include those costs and sublease income included in Restructuring and related charges on our Unaudited Condensed Consolidated Statements of Net Loss. This includes those operating leases we had identified as part of our restructuring program that would be subleased. See Note 9, “Restructuring and Related Charges” for more information on this program.
/i
Other supplemental information includes the following:
Weighted-average remaining contractual lease term (years)
i8
i8
Weighted-average
discount rate
i6.02
%
i5.93
%
Cash
paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
i19,545
$
i20,264
/i
The
table below reconciles the undiscounted cash flows for the first five years and total of the remaining years to the operating lease liabilities recorded in our Unaudited Condensed Consolidated Statement of Financial Position as of January 31, 2024:
We have stock-based compensation plans under which employees may be granted performance-based stock awards, other restricted stock awards and options. We recognize the grant date fair value of stock-based compensation in net income generally on a straight-line basis, net of estimated forfeitures over the requisite service period. The measurement of performance for performance-based stock awards is based on actual financial results for targets established up to
ithree years in advance, or less. For the three and nine months ended January 31, 2024, we recognized stock-based compensation expense, on a pretax basis, of $i6.3
million and $i19.1 million, respectively. For the three and nine months ended January 31, 2023, we recognized stock-based compensation expense, on a pretax basis, of $i6.6 million and $i20.6
million, respectively.
Performance-Based and Other Restricted Stock Activity
Under the terms of our long-term incentive plans, performance-based restricted unit awards are payable in restricted shares of our Class A Common Stock upon the achievement of certain ithree-year or less financial performance-based targets. During each ithree-year
period or less, we adjust compensation expense based upon our best estimate of expected performance.
We may also grant individual restricted unit awards payable in restricted shares of our Class A Common Stock to key employees in connection with their employment.
i
The following table summarizes awards we granted to employees (shares in thousands):
We granted i170,000 and i10,000
stock option awards during the nine months ended January 31, 2024 and 2023, respectively. The grants in the nine months ended January 31, 2024 included i160,000 stock options to our executive leadership team, at a premium grant price of $i35.00,
which was above the fair market value at the time of grant, and i10,000 stock options granted to other leaders at fair market value on date of grant. Options are exercisable over a maximum period of iten
years from the date of grant. These options generally vest i10%, i20%,
i30%, and i40% on April 30, or on each anniversary date after the
award is granted.
i
The following table provides the estimated weighted average fair value for options granted during the nine months ended January 31, 2024 and 2023 using the Black-Scholes option-pricing model, and the significant weighted average assumptions used in their determination.
On October 10, 2023, the Company named Mr. Matthew Kissner interim President and CEO and entered into an employment agreement (Employment Agreement) with him. Under the Employment Agreement, Mr. Kissner will be eligible to participate in the 2024 Executive Long-Term Incentive Plan (ELTIP), with a target long-term incentive equal to $i1.8 million.
iSixty percent of the ELTIP value will be delivered in the form of target performance share units and iforty percent in
restricted share units. The grant date fair value for the restricted share units which were granted in the three months ended October 31, 2023 was $i30.95 per share and included i20,028
restricted share units which vest iiii25///%
each year starting on April 30, 2024 to April 30, 2027. The grant date fair value for the performance share units which were granted in the three months ended January 31, 2024 was $i30.23 per share and included i35,538
performance share units which vest i100% on June 30, 2026. Awards are subject to forfeiture in the case of voluntary termination prior to vesting, and continued vesting in the case of earlier termination of employment without cause or due to constructive discharge. All other terms and conditions are the same as for other executives, as outlined in the ELTIP grant agreements.
Note
7 —iAccumulated Other Comprehensive Loss
i
Changes in Accumulated other comprehensive loss by component, net of tax, for the three and nine months ended January 31, 2024
and 2023 were as follows:
During
the three and nine months ended January 31, 2024, pretax actuarial losses included in Unamortized Retirement Costs of approximately $i2.0 million and $i5.9
million, respectively, and in the three and nine months ended January 31, 2023, of approximately $i1.5 million and $i4.4 million, respectively,
were amortized from Accumulated other comprehensive loss and recognized as pension and post-retirement benefit expense primarily in Operating and administrative expenses and Other (expense) income, net on our Unaudited Condensed Consolidated Statements of Net Loss.
Our policy for releasing the income tax effects from accumulated other comprehensive (loss) income is to release when the corresponding pretax accumulated other comprehensive (loss) income items are reclassified to earnings.
Note 8 —iReconciliation of Weighted Average Shares Outstanding
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share further includes any common shares available to be issued upon the exercise of unvested, outstanding restricted stock units and other stock awards if such inclusions would be dilutive. The shares associated with performance-based stock awards (PSU) are considered contingently issuable shares and are included in the diluted weighted average number of common shares outstanding when they have met the performance conditions,
and when their effect is dilutive. We determine the potentially dilutive common shares for all awards using the treasury stock method.
i
A reconciliation of the shares used in the computation of loss per share follows (shares in thousands):
Dilutive
effect of unvested restricted stock units and other stock awards
i—
i—
i—
i—
Shares
used for diluted loss per share
i54,812
i55,514
i55,061
i55,625
Antidilutive
options to purchase Class A common shares, restricted shares, and contingently issuable restricted stock which are excluded from the table above
i1,139
i1,141
i1,084
i1,155
/
In
calculating diluted net loss per common share for the three and nine months ended January 31, 2024 and 2023, our diluted weighted average number of common shares outstanding excludes the effect of unvested restricted stock units and other stock awards as the effect was anti-dilutive. This occurs when a net loss is reported and the effect of using dilutive shares is antidilutive.
In May 2022, the Company initiated a global program (Global Restructuring Program) to restructure and align our cost base with current and anticipated future market conditions, which was previously referred to as the Fiscal Year 2023 Restructuring Program. This program included severance related charges for the elimination of certain positions, the exit of certain leased office space, and the reduction of our occupancy at other facilities. Under this program, we reduced our real estate square footage occupancy by approximately i22%.
In
the three months ended July 31, 2023, we expanded the scope of the program to include those actions that will focus Wiley on its leading global position in the development and application of new knowledge and drive greater profitability, growth, and cash flow. We will focus on our strongest and most profitable businesses and large market opportunities in Research and Learning, as well as streamline our organization and rightsize our cost structure to reflect these portfolio actions. As part of the Global Restructuring Program, we are further reducing our real estate square footage occupancy by approximately i13%
due to actions taken in the nine months ended January 31, 2024.
i
The following tables summarize the pretax restructuring and related charges related to the Global Restructuring Program:
Three
Months Ended January 31,
Nine Months Ended January 31,
Total Charges Incurred to Date
2024
2023
2024
2023
(Credits) Charges by Segment:
Research
$
(i749)
$
i319
$
i5,953
$
i1,579
$
i8,366
Learning
i1,313
i1,387
i7,390
i8,179
i15,194
Held
for Sale or Sold
i1,498
i614
i6,143
i4,395
i11,929
Corporate
Expenses
i12,352
i6,540
i31,463
i30,129
i64,342
Total
Restructuring and Related Charges
$
i14,414
$
i8,860
$
i50,949
$
i44,282
$
i99,831
Charges
by Activity:
Severance and termination benefits
$
i1,098
$
i7,049
$
i25,661
$
i24,613
$
i51,488
Impairment
of operating lease ROU assets and property and equipment
i7,149
i—
i8,724
i12,696
i21,420
Acceleration
of expense related to operating lease ROU assets and property and equipment
i548
i152
i1,064
i1,992
i3,204
Facility
related charges, net
i1,531
i706
i2,918
i3,403
i7,067
Consulting
costs
i2,032
i167
i7,821
i597
i10,106
Other
activities
i2,056
i786
i4,761
i981
i6,546
Total
Restructuring and Related Charges
$
i14,414
$
i8,860
$
i50,949
$
i44,282
$
i99,831
/
The
severance related charges are for certain employees affected by the reduction in force under this program who are entitled to severance payments and certain termination benefits. The credits in Research for the three months ended January 31, 2024 relate to severance and termination benefits activities primarily due to changes in the number of headcount reductions, and estimates for previously accrued costs.
The impairment charges include the impairment of operating lease ROU assets related to certain leases that will be subleased, and the related property and equipment described further below. In the three and nine months ended January 31, 2024, these charges were recorded in Corporate Expenses and the Research segment. In the nine months ended January
31, 2023, these charges were recorded in Corporate Expenses.
The acceleration of expense includes the acceleration of rent expense associated with operating lease ROU assets related to certain leases that will be abandoned or terminated, and the related depreciation and amortization of property and equipment.
Due to the actions taken above, we tested the operating lease ROU assets and the related property and equipment for those being subleased for recoverability by comparing the carrying value of the asset group to an estimate of the future
undiscounted cash flows expected to result from the use and eventual disposition of the asset group. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset groups were below the carrying values. Therefore, there was an indication of impairment. We then determined the fair value of the asset groups by utilizing the present value of the estimated future cash flows attributable to the assets. The fair value of these operating lease ROU assets and the property and equipment immediately subsequent to the impairment was $i8.7 million and $i12.1
million in the nine months ended January 31, 2024 and 2023, respectively, and were categorized as Level 3 within the fair value hierarchy.
In addition, we incurred ongoing facility-related costs associated with certain properties, consulting costs, and other costs for other activities, which includes relocation and other employee related costs.
i
The
following table summarizes the activity for the Global Restructuring Program liability for the nine months ended January 31, 2024:
Approximately
$i5.0 million of the restructuring liability for accrued severance and termination benefits is reflected in Accrued employment costs and approximately $i0.3 million is reflected in Other long-term liabilities on our Unaudited Condensed
Consolidated Statement of Financial Position. The liabilities for Consulting costs and Other activities are reflected in Other accrued liabilities on our Unaudited Condensed Consolidated Statement of Financial Position.
Business Optimization Program
For the three and nine months ended January 31, 2024, we recorded pretax restructuring charges of $i0.4 million
and $i1.1 million, respectively, related to this program. For the three and nine months ended January 31, 2023, we recorded pretax restructuring credits of $(i0.1) million
and charges of $i0.9 million, respectively, related to this program. We currently do not anticipate any further material charges related to the Business Optimization Program, except for ongoing facility related charges.
On June 1, 2023, Wiley’s Board of Directors approved a plan to divest certain businesses that we determined are non-core businesses. Those businesses are University Services, Wiley Edge, and CrossKnowledge. On January 1, 2024 we completed the sale of University Services, and on January 8, 2024 we signed an agreement to sell Wiley Edge. We expect to complete the sale of Wiley Edge and
CrossKnowledge by the first quarter of fiscal year 2025. As a result of these planned divestitures, in the three months ended July 31, 2023 we reorganized our segments and our new structure consists of ithree reportable segments which includes Research (no change), Learning, and Held for Sale or Sold, as well as a Corporate expense category (no change), which includes certain costs that are not allocated to the reportable segments. The operations of University Services, Wiley Edge, and CrossKnowledge are reported in the Held for Sale or Sold segment until sold. Prior period segment
results have been revised to the new segment presentation. There were no changes to our consolidated financial results.
•Research is unchanged and includes the reporting lines of Research Publishing and Research Solutions;
•Learning includes the Academic and Professional reporting lines and consists of publishing and related knowledge solutions;
•Held for Sale or Sold includes businesses held-for-sale including Wiley Edge and CrossKnowledge, as well as those sold in fiscal year 2024 which includes University Services and Tuition Manager, and in fiscal year 2023 Test Prep and Advancement Courses.
We report our segment
information in accordance with the provisions of ASC Topic 280, “Segment Reporting.” These segments reflect the way our chief operating decision maker evaluates our business performance and manages the operations. The performance metric used by our chief operating decision maker to evaluate performance of our reportable segments is Adjusted Contribution to Profit.
Less:
Held for Sale or Sold Segment Adjusted Contribution to Profit (1)
(i4,118)
i3,565
(i26,302)
i10,811
Total
adjusted operating income
$
i46,033
$
i48,787
$
i117,659
$
i137,498
Depreciation
and Amortization:
Research
$
i22,029
$
i23,123
$
i67,909
$
i70,308
Learning
i13,812
i14,490
i41,338
i42,445
Held
for Sale or Sold (2)
i—
i10,890
i3,437
i38,384
Total
depreciation and amortization
i35,841
i48,503
i112,684
i151,137
Corporate
depreciation and amortization (3)
i9,633
i3,939
i16,692
i12,005
Total
depreciation and amortization
$
i45,474
$
i52,442
$
i129,376
$
i163,142
(1)
Our
Adjusted Operating Income excludes the impact of our Held for Sale or Sold Segment Adjusted Operating Income or Loss results.
(2)
We ceased to record depreciation and amortization of long-lived assets for these businesses as of the date the assets were classified as held-for-sale.
On January 1, 2020, Wiley acquired mthree, a talent placement provider that addresses the IT skills gap by finding, training, and placing job-ready technology talent in roles with leading corporations worldwide. Its results of operations are included in our Held for Sale or Sold segment. In late May 2022, Wiley renamed the mthree talent development solution to Wiley Edge and discontinued use of the mthree trademark
during the three months ended July 31, 2022. As a result of these actions, we determined that a revision of the useful life was warranted and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $i4.6 million in the three months ended July 31, 2022. This amortization expense was an adjustment to the Held for Sale or Sold Adjusted contribution to profit. In addition, it was included in Depreciation and amortization in the
table above.
(3)
As a result of our decision to discontinue the use of certain capitalized software included in Technology, property, and equipment, net on our Unaudited Condensed Consolidated Statement of Financial Position, we recorded a pretax noncash impairment charge of $ii6.4/ million
in the three and nine months ended January 31, 2024. The impairment charge was included in Corporate depreciation and amortization reflected in Operating and administrative expenses on our Unaudited Condensed Consolidated Statements of Net Loss.
Accelerated
amortization of an intangible asset (3)
i—
i—
i—
i4,594
Held
for Sale or Sold segment Adjusted Contribution to Profit (4)
(i4,118)
i3,565
(i26,302)
i10,811
Non-GAAP
Adjusted Operating Income
$
i46,033
$
i48,787
$
i117,659
$
i137,498
(1)
See
Note 9, “Restructuring and Related Charges” and Note 12, “Goodwill and Intangible Assets” for these charges by segment.
(2)
In the three months ended January 31, 2023, we settled a litigation matter related to consideration for a previous acquisition for $i3.7 million which is included in Corporate Expenses.
(3)
As
described above, this accelerated amortization relates to the mthree trademark.
(4)
Our Adjusted Operating Income excludes the impact of our Held for Sale or Sold segment Adjusted Operating Income or Loss results.
/
See Note 4, “Revenue Recognition, Contracts with Customers,” for revenue from contracts with customers disaggregated by segment and product type for the
three and nine months ended January 31, 2024 and 2023.
The
Held for Sale or Sold goodwill balance as of April 30, 2023 includes a cumulative pretax noncash goodwill impairment of $i209.8 million.
(2)
In the three months ended July 31, 2023, we reorganized our segments and due to this realignment have reallocated goodwill.
/
Wiley
Edge Interim Impairment Test
As a result of signing the Purchase Agreement with Inspirit and the decrease in the fair value of the Business, in the three months ended January 31, 2024 we tested the goodwill of the Wiley Edge reporting unit for impairment. We estimated the fair value of the reporting unit based on the terms and conditions in the Purchase Agreement which reflected a selling price that included $i10.0 million in cash, $i18.3
million in the form of a loan, a fair value estimate for an earnout, and an estimate for a working capital adjustment. The maximum amount of the earnout is $i33.9 million based on the gross profit generated by the Business relative to mutually agreed profit targets during each of the three fiscal years in the period beginning May 1, 2024 and ending April 30, 2027.
We
concluded that the carrying value of the Wiley Edge reporting unit was above its fair value which resulted in a pretax noncash goodwill impairment of approximately $ii81.7/
million in the three and nine months ended January 31, 2024. Such impairment reduced the goodwill of the Wiley Edge reporting unit to zero. This charge is reflected in Impairment of goodwill in the Unaudited Condensed Consolidated Statements of Net Loss. The impairment was due to subsequent changes in the fair value resulting from the continued progression of the selling process and indications of changes in the consideration for the business, as well as changes in the carrying amounts of the disposal group.
The fair value of the earnout was based on a Monte Carlo simulation. This method considers the terms and conditions in the Purchase Agreement, our best estimates of forecasted gross profit for the earnout periods and simulates a range of gross profits over the applicable periods based on an estimate of gross profit volatility. The
fair value of the earnout was estimated as the present value of the potential range of payouts averaged across the range of simulated gross profits.The other key assumptions include a weighted average cost of capital for the reporting unit based on the risk associated with the business and its projections. In addition, a risk-adjusted discount rate for the simulated gross profit was determined by adjusting the weighted average cost of capital to reflect term risk and an implied operational leverage factor. The assumptions included in the operational leverage factor include estimates of asset volatility and gross profit volatility. The earnout amount is subject to change based on final results and calculations.
Prior
to performing the goodwill impairment test for Wiley Edge, we also evaluated the recoverability of long-lived assets of the reporting unit. The carrying value of the long-lived assets that were tested for impairment was approximately $i141.5 million. When indicators of impairment are present, we test definite lived and long-lived assets for recoverability by comparing the carrying value of an asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. We considered the changes in the fair value
of the consideration for the business due to the continued progression of the selling process to be an indicator of impairment for its long-lived assets. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset group of the Wiley Edge reporting unit exceeded the carrying value. Therefore, there was no impairment.
Change in Segment Reporting Structure and New Reporting Units
In the three months ended July 31, 2023, we reorganized our segments. Our new segment reporting structure consists of ithree
reportable segments which includes Research (no changes), Learning, and Held for Sale or Sold, as well as a Corporate expense category (no change), which includes certain costs that are not allocated to the reportable segments. See Note 10, “Segment Information,” for more details. The Learning reportable segment includes itwo reporting units, Academic and Professional. The Held for Sale or Sold reportable segment includes ithree
reporting units, University Services, Wiley Edge and CrossKnowledge. No changes were made to the Research reportable segment.
Due to this realignment, we have reallocated goodwill to our reporting units on a relative fair value basis.
As a result of this realignment, we are required to test goodwill for impairment immediately before and after the realignment. Since there were no changes to the Research reportable segment, no impairment test of the Research segment goodwill was required.
We estimated the fair value of the reporting units using a weighting of fair values derived from an income and a market approach. Under the income approach, we determined the fair value of a reporting unit based on the present value
of estimated future cash flows. Cash flow projections are based on our best estimates of forecasted economic and market conditions over the period including growth rates, expected changes in operating cash flows and cash expenditures. The discount rate used is based on a weighted average cost of capital adjusted for the relevant risk associated with the characteristics of the business and the projected cash flows. The market approach estimates fair value based on market multiples of current and forward 12-month revenue or EBITDA, as applicable, derived from comparable publicly traded companies with similar operating and investment characteristics as the reporting unit.
Goodwill Impairment Before Realignment
Prior to the realignment, we concluded that the fair value of the Academic Publishing, Talent
Development (which includes Wiley Edge) and Professional Learning reporting units were above their carrying values. Therefore, there was no indication of impairment. The carrying value of the University Services reporting unit was above its fair value which resulted in a pretax noncash goodwill impairment of $i11.4 million. Such impairment reduced the goodwill of the University Services reporting unit to zero. This charge is reflected in Impairment of goodwill in the Unaudited Condensed Consolidated Statements of Net Loss.
University Services was adversely
impacted by market conditions and headwinds for online degree programs, which lead to a decline in projected enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term which adversely impacted forecasted revenue growth and operating cash flows.
Prior to performing the goodwill impairment test for University Services, we also evaluated the recoverability of long-lived assets of the reporting unit. The carrying value of the long-lived assets that were tested for impairment was approximately $i231.0
million. When indicators of impairment are present, we test definite lived and long-lived assets for recoverability by comparing the carrying value of an asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. We considered the lower-than-expected revenue and forecasted operating cash flows over a sustained period of time, and downward revisions to our cash flow forecasts for this reporting unit to be indicators of impairment for their long-lived assets. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset group of the University Services reporting unit exceeded the carrying value. Therefore, there was no impairment.
After the realignment, we concluded that the fair value of the Academic, Professional, and Wiley Edge reporting units were above their carrying values. Therefore, there was no indication of impairment. As noted above, the goodwill of the University Services reporting unit was zero and no further testing of goodwill for impairment was required. The carrying value of the CrossKnowledge reporting unit was above its fair value which resulted in a pretax noncash goodwill impairment of $i15.3 million. This charge is
reflected in Impairment of goodwill in the Unaudited Condensed Consolidated Statements of Net Loss.
CrossKnowledge was adversely impacted by a decline in the demand for its offerings, which have resulted in lower sales and a decline in average contract value, that adversely impacted forecasted revenue growth and operating cash flows.
Prior to performing the goodwill impairment test for CrossKnowledge, we also evaluated the recoverability of long-lived assets of the reporting unit. The carrying value of the long-lived assets that were tested for impairment was approximately $i50.2
million. When indicators of impairment are present, we test definite lived and long-lived assets for recoverability by comparing the carrying value of an asset group to an estimate of the future undiscounted cash flows expected to result from the use and eventual disposition of the asset group. We considered the lower-than-expected revenue and forecasted operating cash flows over a sustained period of time, and downward revisions to our cash flow forecasts for this reporting unit to be indicators of impairment for their long-lived assets. Based on the results of the recoverability test, we determined that the undiscounted cash flows of the asset group of the CrossKnowledge reporting unit exceeded the carrying value. Therefore, there was no impairment.
The
developed technology balance as of April 30, 2023 is presented net of accumulated impairments and write-offs of $i2.8 million. The indefinite-lived brands and trademarks balance as of April 30, 2023 is net of accumulated impairments of $i93.1
million.
Our
effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. The effective tax rate for the three and nine months ended January 31, 2024, was (i1.4)% and i6.4%,
compared with i7.7% and i2.7% for the three and nine months ended January 31, 2023.
The effective tax rate for the three months and nine months ended January 31,
2024 was lower than the US statutory rate primarily due to the impairment of goodwill resulting from the segment realignment described in Note 12, "Goodwill and Intangible Assets," as well as losses on sale of businesses and impairment charges related to assets held-for-sale described in Note 3, "Acquisitions and Divestitures," which resulted in a deferred tax benefit, the impact of US tax incentives and other discrete items offset by the mix of non-US income.
The effective tax rate for the three months ended January 31, 2024, was lower than the effective tax rate for the three months ended January 31, 2023, primarily due to the same factors described above. The effective tax rate for the nine months ended January 31, 2024 was higher than the effective tax rate
for the nine months ended January 31, 2023 primarily due to certain discrete items related to the filing of the consolidated federal income tax return for the year ended April 30, 2022. The impairment of goodwill resulting from the segment realignment described in Note 12, "Goodwill and Intangible Assets," results in a relatively small tax benefit of $i2.7 million and the losses on sale of businesses and impairment charges related to assets held-for-sale
described in Note 3, "Acquisitions and Divestitures" results in a tax benefit of $i25.7 million.
Each year we file many tax returns given the number of national, state, and local tax jurisdictions in which we operate. These tax returns are subject to examination by the tax authorities. As a result, there is an uncertainty in income taxes recognized in our financial statements in accordance with accounting for income taxes and accounting for uncertainty in income taxes. The ultimate resolution of such uncertainties is not expected to have a material
impact on the results of our operations.
Note 14 —iRetirement Plans
i
The
components of net pension expense (income) for our defined benefit plans were as follows:
The
service cost component of net pension expense (income) is reflected in Operating and administrative expenses on our Unaudited Condensed Consolidated Statements of Net Loss. The other components of net pension expense (income) are reported separately from the service cost component and below Operating loss. Such amounts are reflected in Other (expense) income, net on our Unaudited Condensed Consolidated Statements of Net Loss.
Employer defined benefit pension plan contributions were $i3.9 million and $i11.6
million for the three and nine months ended January 31, 2024, respectively, and $i3.6 million and $i11.0 million for the three and nine months
ended January 31, 2023, respectively.
Defined Contribution Savings Plans
The expense for employer defined contribution savings plans was $i7.1 million and $i21.5
million for the three and nine months ended January 31, 2024, respectively, and $i7.9 million and $i23.5 million for the three and nine months ended January 31,
2023, respectively.
Revolving
credit facility - Amended and Restated CA
i713,646
i551,535
Total
long-term debt, less current portion
i900,524
i743,292
Total
debt
$
i906,774
$
i748,292
(1)
Relates
to our term loan A under the Amended and Restated CA.
(2)
Amounts are shown net of unamortized issuance costs of $i0.6 million as of January 31, 2024 and $i0.7
million as of April 30, 2023.
/
Amended and Restated CA
On November 30, 2022, we entered into the second amendment to the Third Amended and Restated Credit Agreement (collectively, the Amended and Restated CA). The Amended and Restated CA as of November 30, 2022 provided for senior unsecured credit facilities comprised of a (i) ifive-year
revolving credit facility in an aggregate principal amount up to $i1.115 billion, which matures November 2027, (ii) a ifive-year term loan A facility consisting of $i200 million,
which matures November 2027, and (iii) $i185 million aggregate principal amount revolving credit facility through May 2024.
Under the terms of the Amended and Restated CA, which can be drawn in multiple currencies, we have the option of borrowing at the following floating interest rates depending on the currency borrowed: (i) at a rate based on the US Secured Overnight Financing Rate (SOFR), the Sterling Overnight Index Average Rate (SONIA) or a EURIBOR-based rate, each rate plus an applicable margin
ranging from i0.98% to i1.50%, depending on our consolidated net leverage ratio, as defined, or (ii) at the lender’s base rate plus an applicable margin ranging from izero
to i0.50%, depending on our consolidated net leverage ratio. With respect to SOFR loans, there is a SOFR adjustment of between i0.10% and i0.25%
depending on the duration of the loan. The lender’s base rate is defined as the highest of (i) the US federal funds effective rate plus a i0.50% margin, (ii) the Daily SOFR rate, as defined, plus a i1.00% margin, or (iii) the Bank of America prime lending
rate. In addition, we pay a facility fee for the Amended and Restated CA ranging from i0.15% to i0.25% depending on our consolidated net leverage ratio. We also have the option to request an increase in the revolving credit facility by an amount not
to exceed $i500 million, in minimum increments of $i50 million, subject to the approval of the lenders.
The
Amended and Restated CA contains certain customary affirmative and negative covenants, including a financial covenant in the form of a consolidated net leverage ratio and consolidated interest coverage ratio, which we were in compliance with as of January 31, 2024.
In the three months ended January 31, 2023, we incurred $i4.5 million of costs related to the second amendment of the Amended and Restated CA which resulted in total costs capitalized of $i5.8 million
for the Amended and Restated CA. The amount related to the term loan A facility was $i0.8 million, consisting of lender fees of $i0.8 million recorded as
a reduction to Long-term debt and non-lender fees of less than $i0.1 million included in Other non-current assets on our Unaudited Condensed Consolidated Statement of Financial Position. The amount related to the revolving credit facility of which a portion matures in May 2024 and in November 2027 was $i0.2 million
and $i4.8 million, respectively, all of which is included in Other non-current assets on our Unaudited Condensed Consolidated Statement of Financial Position.
We incurred a loss of $(i0.2) million
on the write-off of unamortized deferred costs in connection with the second amendment of the Amended and Restated CA which is reflected in Other (expense) income, net on our Unaudited Condensed Consolidated Statements of Net Loss for the three months ended January 31, 2023.
The amortization expense of the costs incurred related to the Amended and Restated CA related to the lender and non-lender fees is recognized over a ifive-year
term for credit commitments that mature in November 2027 and an i18-month term for credit commitments that mature in May 2024. Total amortization expense was $i0.3 million and $i0.9
million for the three and nine months ended January 31, 2024, respectively, and is included in Interest expense on our Unaudited Condensed Consolidated Statements of Net Loss. Total amortization expense was $i0.3 million and $i0.8
million for the three and nine months ended January 31, 2023, respectively, and is included in Interest expense on our Unaudited Condensed Consolidated Statements of Net Loss.
As of January 31, 2024, we had approximately $i587.4 million of unused borrowing capacity under our Amended and Restated CA and other facilities.
The
weighted average interest rates on total debt outstanding during the three and nine months ended January 31, 2024 were i5.66% and i5.52%, respectively. The weighted average interest rates on total debt outstanding during the
three and nine months ended January 31, 2023 were i4.70% and i3.78%, respectively. As of January 31, 2024 and April 30, 2023,
the weighted average interest rates for total debt were i5.50% and i4.76%, respectively.
Note
16 —iDerivative Instruments and Hedging Activities
From time-to-time, we enter into forward exchange and interest rate swap contracts as a hedge against foreign currency asset and liability commitments, changes in interest rates and anticipated transaction exposures, including intercompany sales and purchases. All derivatives are recognized as assets or liabilities and measured at fair value. Derivatives that are
not determined to be effective hedges are adjusted to fair value with a corresponding adjustment to earnings. We do not use financial instruments for trading or speculative purposes.
As of January 31, 2024, we had total debt outstanding of $i906.8 million, net of unamortized issuance costs of $i0.6
million of which $i907.4 million are variable rate loans outstanding under the Amended and Restated CA, which approximated fair value.
i
The following table summarizes our interest rate swaps
designated as cash flow hedges:
On
November 30, 2022, we entered into the Second Amendment to our Amended and Restated CA. Refer to Note 15, "Debt and Available Credit Facilities" for more information related to our Amended and Restated CA.
(2)
During the third quarter of fiscal 2024, we entered into $i150.0 million notional amount of forward starting interest rate swap agreements to hedge the cash flow risk of variability in interest payments on our variable
rate borrowings. The effective date of these forward starting interest rate swap agreements is April 15, 2024. As of January 31, 2024, these contracts met the criteria of a cash flow hedge.
We record the fair value of our interest rate swaps on a recurring basis using Level 2 inputs of quoted prices for similar assets or liabilities in active markets. The fair value of the interest rate swaps as of January 31, 2024 was a deferred loss of $(i0.6)
million and a deferred gain of $i3.5 million. Based on the maturity dates of the contracts, the entire deferred loss as of January 31, 2024 was recorded within Other long-term liabilities, $i2.5
million of the deferred gain was recorded within Prepaid expenses and other current assets, and $i1.0 million of the deferred gain was recorded within Other non-current assets.
The fair value of the interest rate swaps as of April 30, 2023 was a deferred loss of $(i0.6)
million and a deferred gain of $i7.8 million. Based on the maturity dates of the contracts, the entire deferred loss as of April 30, 2023 was recorded within Other long-term liabilities, $i6.4
million of the deferred gain was recorded within Prepaid expenses and other current assets, and $i1.4 million was recorded within Other non-current assets.
The pretax gains that were reclassified from Accumulated other comprehensive loss into Interest expense for the three and nine months ended January 31, 2024 were $i3.3
million and $i9.3 million, respectively. The pretax gains that were reclassified from Accumulated other comprehensive loss into Interest expense for the three and nine months ended January 31, 2023 were $i2.2
million and $i2.5 million, respectively.
We may enter into forward exchange contracts to manage our exposure on certain foreign currency denominated assets and liabilities. The forward exchange contracts
are marked to market through Foreign exchange transaction gains (losses) on our Unaudited Condensed Consolidated Statements of Net Loss and carried at fair value on our Unaudited Condensed Consolidated Statements of Financial Position. Foreign currency denominated assets and liabilities are remeasured at spot rates in effect on the balance sheet date, with the effects of changes in spot rates reported in Foreign exchange transaction gains (losses) on our Unaudited Condensed Consolidated Statements of Net Loss.
The following is a summary of changes during the nine months ended January 31, in shares of our common stock and common stock in treasury (shares in thousands):
Changes in Common Stock A:
2024
2023
Number
of shares issued, beginning of year
i70,231
i70,226
Common stock class
conversions
i7
i2
Number of shares issued, end of period
i70,238
i70,228
Changes
in Common Stock A in treasury:
Number of shares held, beginning of year
i23,983
i23,515
Purchases
of treasury shares
i870
i539
Restricted shares issued under stock-based compensation plans – non-PSU Awards
(i234)
(i208)
Restricted
shares issued under stock-based compensation plans – PSU Awards
(i233)
(i150)
Shares
issued to directors
(i29)
(i3)
Restricted
shares issued from exercise of stock options
i—
(i14)
Shares
withheld for taxes
i162
i129
Number
of shares held, end of period
i24,519
i23,808
Number of Common
Stock A outstanding, end of period
i45,719
i46,420
Changes
in Common Stock B:
2024
2023
Number of shares issued, beginning of year
i12,951
i12,956
Common
stock class conversions
(i7)
(i2)
Number of shares issued, end of period
i12,944
i12,954
Changes
in Common Stock B in treasury:
Number of shares held, beginning of year
i3,925
i3,924
Purchases
of treasury shares
i2
i1
Number of shares held, end of period
i3,927
i3,925
Number
of Common Stock B outstanding, end of period
We are involved in routine litigation in the ordinary course of our business. A provision for litigation is accrued when information available to us indicates that it is probable a liability has been incurred and the amount of loss can be reasonably estimated. Significant judgment may be required to determine both the probability and estimates of loss. When the amount of the loss can only be estimated within a range, the most likely outcome
within that range is accrued. If no amount within the range is a better estimate than any other amount, the minimum amount within the range is accrued. When uncertainties exist related to the probable outcome of litigation and/or the amount or range of loss, we do not record a liability, but disclose facts related to the nature of the contingency and possible losses if management considers the information to be material. Reserves for legal defense costs are recognized when incurred. The accruals for loss contingencies and legal costs are reviewed regularly and may be adjusted to reflect updated information on the status of litigation and advice of legal counsel. In the opinion of management, the ultimate resolution of all pending litigation as of January 31, 2024, will not have a material effect on our consolidated financial condition or results of operations.
Non-Income Tax
Matters
We conduct operations in many tax jurisdictions, and non-income-based taxes, such as sales, use, value-added, goods and services, and other taxes, are assessed on our operations in many jurisdictions. Although we are diligent in collecting and remitting such taxes, there is uncertainty as to the appropriate tax treatment of digital goods and services in many jurisdictions. No assessment has been made, and we have received no indication that an assessment will be made, with respect to such taxes. Therefore, no provisions have been recorded for uncertainties in sales, use, value-added, goods and services, or other indirect tax liabilities in the accompanying consolidated financial statements. Nonetheless, changes in law or interpretation may occur in the future, which may have a material effect on the consolidated results of operations or cash flows in the period in which a new determination is made.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read together with our Condensed Consolidated Financial Statements and related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in Item 7 of Part II of our 2023 Form 10-K and our Consolidated Financial Statements and related notes set forth in Item 8 of Part II of our 2023 Form 10-K. See Part II, Item 1A, “Risk Factors,” below and “Cautionary Notice Regarding Forward-Looking Statements “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995,” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those
in our forward-looking statements. All amounts and percentages are approximate due to rounding and all dollars are in thousands, except per share amounts or where otherwise noted. When we cross-reference to a “Note,” we are referring to our “Notes to Unaudited Condensed Consolidated Financial Statements,” unless the context indicates otherwise.
OVERVIEW
Wiley is a knowledge company and a global leader in research, publishing, and knowledge solutions. Dedicated to the creation and application of knowledge, Wiley serves the world’s researchers, learners, innovators, and leaders, helping them achieve their goals and solve the world's most important challenges. For more than two centuries, Wiley has been delivering
on its timeless mission to unlock human potential. Wiley is a predominantly digital company with over 80% of Wiley's revenue for fiscal year 2023 generated by digital products excluding the Held for Sale or Sold segment revenue. For fiscal year 2023, 50% of revenue excluding the Held for Sale or Sold segment revenue is recurring which includes revenue that is contractually obligated or set to recur with a high degree of certainty.
On June 1, 2023, Wiley’s Board of Directors approved a plan to divest certain businesses that we determined are non-core businesses. Those businesses are University Services, Wiley Edge, and CrossKnowledge. On January 1, 2024 we completed the sale of University Services, and on January 8, 2024 we signed an agreement to sell Wiley
Edge. We expect to complete the sale of Wiley Edge and CrossKnowledge by the first quarter of fiscal year 2025. As a result of these planned divestitures, in the three months ended July 31, 2023 we reorganized our segments and our new structure consists of three reportable segments which includes Research (no change), Learning, and Held for Sale or Sold, as well as a Corporate expense category (no change). The operations of University Services, Wiley Edge, and CrossKnowledge are reported in the Held for Sale or Sold segment until sold. Prior period segment results have been revised to the new segment presentation. There were no changes to our consolidated financial results.
•Research is unchanged and includes the reporting lines of Research Publishing and Research Solutions;
•Learning
includes the Academic and Professional reporting lines and consists of publishing and related knowledge solutions;
•Held for Sale or Sold includes businesses held-for-sale including Wiley Edge, and CrossKnowledge, as well as those sold in fiscal year 2024 which includes University Services, and Tuition Manager, and in fiscal year 2023 Test Prep and Advancement Courses.
Through the Research segment, we provide peer-reviewed scientific, technical, and medical (STM) publishing, content platforms, and related services to academic, corporate, and government customers, academic societies, and individual researchers. The Learning segment provides scientific, professional, and education print and digital books, digital courseware to libraries, corporations, students, professionals, and researchers, as well as assessment services to businesses
and professionals.
Wiley’s business strategies are tightly aligned with solid growth trends, including ever-increasing global R&D spend leading to consistent growth in scientific research output, the transition to open research, and the increasing application of new knowledge into solutions to solve real world problems. These strategies include driving publishing output to meet the global demand for peer-reviewed research and expanding platform and service offerings for corporations and societies. Learning strategies include scaling high-value digital content, courseware, and assessments.
On
January 1, 2024, we completed the sale of University Services pursuant to a Membership Interest and Asset Purchase Agreement with Academic Partnerships LLC, a Delaware limited liability company (Academic Partnerships), and Education Services Upper Holdings Corp., a Delaware corporation. The selling price for University Services at the date of sale had a fair value of $122.6 million, paid in the form of (i) an unsecured promissory note with an initial aggregate principal amount of $92.9 million (Seller Note), subject to customary working capital adjustments; (ii) $17.8 million of additional contingent consideration in the form of an earnout recorded at fair value based on revenue targets during each of the two fiscal years in the period from May 1, 2024 through April 30, 2026 (Earnout); and (iii)
a number of common units of TVG-Academic Partnerships Holdings, LLC, the ultimate parent company of Academic Partnerships equal to 10% of the total common units outstanding at the date of sale valued at $11.9 million (TVG Investment). We have also entered into a transition services agreement to facilitate the transition of the divested business.
On January 8, 2024, we entered into a stock and asset purchase agreement (Purchase Agreement) with Inspirit Vulcan Bidco Limited, a private limited company incorporated in England & Wales (Inspirit), pursuant to which we agreed to sell our emerging talent and reskill training business, Wiley Edge (the Business), to Inspirit (the Transaction). We expect the Transaction to close in the first quarter of fiscal year 2025. The selling price for the Business includes total consideration of up to $62.2 million and will consist of: (i)
$10 million in cash, (ii) $18.3 million in the form of a loan note to be issued by Inspirit, subject to a customary purchase price adjustment, including for working capital, and (iii) up to $33.9 million in the form of an earnout based on the gross profit generated by the Business relative to mutually agreed profit targets during each of the three fiscal years in the period beginning May 1, 2024 and ending April 30, 2027. The results of Wiley Edge will continue to be reported in our operating results in the Held for Sale or Sold segment until the sale is finalized. We will enter into a transition services agreement to facilitate the transition of the divested business.
•US GAAP Results: Consolidated Revenue of $460.7 million (-6%, compared with the prior year), Operating Loss of $46.4 million (+$20.6 million, compared with the prior year operating loss), and Diluted Loss per Share of $(2.08) (-$0.79, compared with the prior year diluted loss per share). US GAAP revenue decrease due to completed divestiture and declines in other held for sale businesses. US GAAP results impacted by goodwill impairment of $81.7 million, losses on sale of businesses and impairment charges related to assets held-for-sale of $52.4 million, and restructuring charges of $14.8 million.
•Adjusted Results at Constant Currency (excluding
Held for Sale or Sold segment results): Adjusted Revenue of $402.5 million (+1%, compared with the prior year), Adjusted EBITDA of $91.5 million (+1%, compared with the prior year), and Adjusted EPS of $0.59 (-27%, compared with the prior year).
CONSOLIDATED RESULTS OF OPERATIONS
Revenue:
Revenue for the three months ended January 31, 2024, decreased $30.7 million, or 6%, as compared with the prior year. On a constant currency basis, revenue decreased 7% as compared with the prior year. Excluding the revenues from the Held for Sale or Sold segment, Adjusted Revenue increased 1% on a constant currency basis.
Adjusted Revenue
Below
is a reconciliation of our consolidated US GAAP Revenue to Non-GAAP Adjusted Revenue:
See the “Segment Operating Results” below for additional details on each segment’s revenue and Adjusted EBITDA performance.
Cost of Sales:
Cost of sales for the three months ended January 31, 2024, decreased $30.4 million, or 17%, as compared with the prior year. On a constant currency basis, cost of sales decreased 18% as compared with the prior year. This was primarily due to lower employee costs related to the Wiley Edge business
and, to a lesser extent, lower marketing and employee costs for the University Services business. Excluding the cost of sales from the Held for Sale or Sold segment, cost of sales decreased 3% as compared with the prior year on a constant currency basis primarily due to lower print product costs, lower costs driven by the revenue decline in Research, partially offset by higher royalty costs in the Learning segment.
Operating and Administrative Expenses:
Operating and administrative expenses for the three months ended January 31, 2024, decreased $2.4 million, or 1% as compared with the prior year. On a constant currency basis, operating and administrative expenses decreased 2% as compared with the prior year primarily reflecting lower employment costs, a $3.7 million
charge related to the settlement of a litigation mater related to consideration for a previous acquisition in the three months ended January 31, 2023, and professional fees, partially offset by higher depreciation due to the decision in the three months ended January 31, 2024 to discontinue the use of certain capitalized software resulting in an impairment of $6.4 million and, to a lesser extent, higher technology related costs. Excluding operating and administrative expenses from the Held for Sale or Sold segment, expenses increased 3% on a constant currency basis.
Impairment of Goodwill:
We recorded an impairment of goodwill for the three months ended January 31, 2024 and 2023
of $81.7 million and $99.8 million, respectively. These charges are reflected in the Impairment of goodwill in the Unaudited Condensed Consolidated Statements of Net Loss.
Fiscal Year 2024
As a result of signing the Purchase Agreement with Inspirit and the decrease in the fair value of the business, we tested the goodwill of the Wiley Edge reporting unit within the Held for Sale or Sold segment for impairment. We estimated the fair value of the reporting unit based on the terms and conditions in the Purchase Agreement which included a selling price that included $10 million in cash, $18.3 million in the form of a loan, a fair value estimate for the earnout, and an estimate for a working capital adjustment. We concluded that the fair value of the Wiley Edge reporting unit was below its carrying value, which resulted in a pretax noncash goodwill impairment of
$81.7 million in the three months ended January 31, 2024. This charge is reflected in the Impairment of goodwill in the Unaudited Condensed Consolidated Statements of Net Loss.
See Note 12, “Goodwill and Intangible Assets” for more details on these charges.
Fiscal Year 2023
Due to the segment realignment in the third quarter of fiscal year 2023, we were required to test goodwill for impairment immediately before and after our segment realignment in accordance with applicable accounting standards. Prior to the realignment, we concluded that the fair value of the Education Services reporting unit was below its carrying value, which resulted in a pretax noncash goodwill impairment of $31.0 million in the three months ended January 31, 2023.
Education Services was adversely impacted by market conditions and headwinds for online degree programs. This has led to a decline in projected student enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term, which adversely impacted forecasted revenue growth and operating cash flows. This was partially offset by projected growth in talent placements, partially due to expansion into new regions and the addition of new corporate clients, which are forecasted to have a positive impact on revenue growth and operating cash flows.
After
the realignment, we concluded that the fair value of the University Services reporting unit within the Academic segment was below its carrying value, which resulted in an additional pretax noncash goodwill impairment of $68.8 million. University Services was adversely impacted by market conditions and headwinds for online degree programs, which lead to a decline in projected enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term which adversely impacted forecasted revenue growth and operating cash flows.
Restructuring and Related Charges:
Global Restructuring Program
In May 2022, the
Company initiated a global program (Global Restructuring Program) to restructure and align our cost base with current and anticipated future market conditions, which was previously referred to as the Fiscal Year 2023 Restructuring Program. This program included severance related charges for the elimination of certain positions, the exit of certain leased office space, and the reduction of our occupancy at other facilities. Under this program, we reduced our real estate square footage occupancy by approximately 22%.
In the three months ended July 31, 2023, we expanded the scope of the program to include those actions that will focus Wiley on its leading global position in the development and application of new knowledge and drive greater profitability, growth, and
cash flow. We will focus on our strongest and most profitable businesses and large market opportunities in Research and Learning, as well as streamline our organization and rightsize our cost structure to reflect these portfolio actions. As part of the Global Restructuring Program, we are further reducing our real estate square footage occupancy by approximately 13%.
Excluding actions related to the Held for Sale or Sold segment, we anticipate to yield annualized cost savings of approximately $65 million, with approximately $35 million of that to be realized this fiscal year from actions taken starting in fiscal year 2024.
For the three months ended January 31,
2024 and 2023, we recorded pretax restructuring charges of $14.4 million and $8.9 million, respectively, related to this program.
We anticipate ongoing severance related charges and facility-related costs associated with certain properties to result in additional restructuring charges in future periods.
See Note 9, “Restructuring and Related Charges” for more details on the Global Restructuring Program charges.
Business Optimization Program
For the three months ended January 31, 2024 and 2023,
we recorded pretax restructuring charges of $0.4 million and credits of $(0.1) million, respectively, related to this program.
These charges and credits are reflected in Restructuring and related charges on our Unaudited Condensed Consolidated Statements of Net Loss.
For the impact of our restructuring programs on diluted loss per share, see the section below, “Diluted Loss per Share.”
Amortization of Intangible Assets:
Amortization of intangible assets was $13.5 million for the three months ended January 31, 2024, a decrease of $6.5 million, or 32%, as compared with the prior year. On a constant currency
basis, amortization of intangible assets decreased 33% as compared with the prior year primarily due to the cessation of amortization for held-for-sale assets. See Note 3, “Acquisitions and Divestitures” for more details on these held-for-sale assets.
Operating Loss, Adjusted Operating Income (OI) and Adjusted EBITDA:
Our operating loss was $46.4 million for the three months ended January 31, 2024, compared with the prior year operating loss of $67.1 million. The decrease was primarily
due to lower costs of sales, a lower goodwill impairment in the three months ended January 31, 2024 and, to a lesser extent, a decrease in the amortization of intangible assets. These were partially offset by a decrease in revenue and, to a lesser extent, an increase in restructuring charges.
Adjusted OI on a constant currency basis and excluding restructuring charges, impairment of goodwill, legal settlement, and the adjusted contribution to profit for the Held for Sale or Sold segment decreased 5% as compared with the prior year. The decrease in Adjusted OI was primarily due to an increase in operating and administrative expenses, partially offset by lower costs of sales, and an increase in Adjusted Revenue.
Adjusted EBITDA on a constant currency basis increased 1% as compared with
the prior year primarily due to lower cost of sales, and an increase in Adjusted Revenue, partially offset by an increase in operating and administrative expense.
Adjusted OI
Below is a reconciliation of our consolidated US GAAP Operating Loss to Non-GAAP Adjusted OI:
Foreign exchange gains, including the write off of certain cumulative translation adjustments
(488)
(421)
Losses on sale of businesses and impairment charges related to assets held-for-sale
52,404
—
Other
expense (income), net
648
(705)
Held for Sale or Sold segment Adjusted EBITDA (1)
(4,118)
(7,325)
Non-GAAP Adjusted EBITDA
$
91,507
$
90,339
(1)
Our
Non-GAAP Adjusted EBITDA excludes the Held for Sale or Sold segment Non-GAAP Adjusted EBITDA.
Interest Expense:
Interest expense for the three months ended January 31, 2024, was $13.3 million compared with the prior year of $11.5 million. This increase was primarily due to a higher weighted average effective interest rate.
Foreign Exchange Transaction Gains:
Foreign exchange transaction gains of $0.5 million for the three months ended January 31, 2024 were primarily due to gains on our foreign currency denominated intercompany accounts receivable
and payable balances, partially offset by losses on our third-party receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the US dollar.
Foreign exchange transaction gains of $0.4 million for the three months ended January 31, 2023 were primarily due to gains on our foreign currency denominated intercompany accounts receivable and payables balances, partially offset by losses on our third party accounts receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the US dollar.
Losses
on Sale of Businesses and Impairment Charges Related to Assets Held-For-Sale:
For the three months ended January 31, 2024, we recorded pretax losses on sale of businesses and impairment charges related to assets held-for-sale of $52.4 million.
As part of our ongoing initiatives to simplify our portfolio and focus our attention on core growth areas, we previously announced that we are divesting non-core businesses including University Services, Wiley Edge, and CrossKnowledge. These three businesses met the held-for-sale criteria in the first quarter of fiscal year 2024. We measured each disposal group at the lower of carrying value or fair value less cost to sell prior to its disposition.
On January 1,
2024 we completed the sale of University Services, and on January 8, 2024 we signed an agreement to sell Wiley Edge. We expect to complete the sale of Wiley Edge and CrossKnowledge by the first quarter of fiscal year 2025.
The pretax loss on the sale of University Services was $101.4 million after accounting for the assets sold, liabilities transferred upon sale, and transaction costs. Prior to the disposition, we had recorded a held-for-sale impairment of $75.4 million for University Services. This resulted in an additional loss of $26.0 million in the three months ended January 31, 2024. This additional pretax loss is included in Losses on sale of businesses and impairment charges related
to assets held-for-sale in our Unaudited Condensed Consolidated Statements of Net Loss for the three months ended January 31, 2024.
As of January 31, 2024, Wiley Edge and CrossKnowledge continue to be reported as held-for-sale. We measured each disposal group at the lower of carrying value or fair value less cost to sell. In the three months ended January 31, 2024, we recorded a held-for-sale pretax impairment of $20.6 million and $5.8 million, respectively, related to Wiley Edge and CrossKnowledge. The additional impairment charges in the three months ended January 31, 2024 was due to subsequent changes in the fair value less cost to sell resulting
from the continued progression of the selling processes and indications of changes in the expected consideration for the business, as well as changes in the carrying amount of the disposal group. Additional impairment charges related to all of our assets held-for-sale could be identified as we continue with the disposition process until completion of such actions.
See Note 3, “Acquisitions and Divestitures” for more details on the divestiture and the held-for-sale businesses.
Provision (Benefit) for Income Taxes:
Below is a reconciliation of our US GAAP Loss Before Taxes to Non-GAAP Adjusted Income Before Taxes:
Below
is a reconciliation of our US GAAP Income Tax Provision (Benefit) to Non-GAAP Adjusted Income Tax Provision, including our US GAAP Effective Tax Rate and our Non-GAAP Adjusted Effective Tax Rate:
Foreign
exchange gains on intercompany transactions, including the write off of certain cumulative translation adjustments
(742)
(596)
Amortization of acquired intangible assets
1,152
4,591
Losses on sale of businesses and impairment charges related to assets held-for-sale
6,508
—
Held for Sale or Sold segment Adjusted Tax Provision (2)
(1,252)
(531)
Non-GAAP
Adjusted Income Tax Provision
$
11,230
$
5,276
US GAAP Effective Tax Rate
(1.4)
%
7.7
%
Non-GAAP Adjusted Effective Tax Rate
25.5
%
10.4
%
(1)
For
the three months ended January 31, 2024, substantially all of the tax impact was from deferred taxes. For the three months ended January 31, 2023, the tax impact was $4.0 million from current taxes and $7.2 million from deferred taxes.
(2)
Our Adjusted Income Tax Provision excludes the Adjusted Tax Provision of our Held for Sale or Sold segment.
Our effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. The US GAAP effective tax rate for the three months ended January 31, 2024, was (1.4)% compared to 7.7% for the three months ended January 31,
2023. The US GAAP effective tax rate for the three months ended January 31, 2024, was less than the US GAAP effective tax rate for the three months ended January 31, 2023 primarily due to losses on sale of businesses and impairment charges related to assets held-for-sale described in Note 3, "Acquisitions and Divestitures" which resulted in a deferred tax benefit, the impact of US tax incentives, and other discrete items offset by the mix of non-US income.
The Non-GAAP adjusted effective tax rate was 25.5% for the three months ended January 31, 2024, compared to 10.4% for the three months ended January 31, 2023. The increase in the Non-GAAP adjusted effective tax rate for the
three months ended January 31, 2024, compared with the three months ended January 31, 2023, was primarily due to the mix of non-US income offset by tax incentives in the US.
Diluted Loss per Share:
Diluted loss per share for the three months ended January 31, 2024 was $(2.08) per share compared with loss per share of $(1.29) per share for the three months ended January 31, 2023. This decrease was primarily due to losses on the sale of businesses and impairment charges related to assets held-for-sale in the three months ended January 31, 2024 and, to a lesser extent, an income provision for
the three months ended January 31, 2024 compared to a benefit in the prior year, partially offset by a lower operating loss in the three months ended January 31, 2024.
Below is a reconciliation of our US GAAP Loss per Share to Non-GAAP Adjusted EPS. The amount of the pretax, and the related income tax impact for the adjustments included in the table below are presented in the section above, “Provision (Benefit) for Income Taxes.”
Foreign exchange gains on intercompany transactions, including the write off of certain cumulative translation adjustments
(0.03)
(0.03)
Amortization of
acquired intangible assets
0.22
0.29
Losses on sale of businesses and impairment charges related to assets held-for-sale
0.83
—
Held for Sale or Sold segment Adjusted Net Income (1)
(0.05)
(0.04)
EPS
impact of using weighted-average dilutive shares for adjusted EPS calculation (2)
0.02
0.02
Non-GAAP Adjusted EPS
$
0.59
$
0.81
(1)
Our Adjusted EPS excludes
the Adjusted Net Income of our Held for Sale or Sold segment.
(2)
Represents the impact of using diluted weighted-average number of common shares outstanding (55.3 million shares and 56.1 million shares for the three months ended January 31, 2024 and 2023, respectively) included in the Non-GAAP Adjusted EPS calculation in order to apply the dilutive impact on adjusted net income due to the effect of unvested restricted stock units and other stock awards. This impact occurs when a US GAAP net loss is reported and the effect of using dilutive shares is antidilutive.
On a constant currency basis, Adjusted EPS decreased 27% primarily due to an increase in Adjusted
Income Tax Provision and, to a lesser extent, a decrease in Adjusted Operating Income.
Research
revenue for the three months ended January 31, 2024 increased $2.6 million, or 1%, as compared with the prior year on a reported basis. On a constant currency basis, revenue was consistent as compared with the prior year. Research Publishing revenue was consistent on a constant currency basis as compared with the prior year primarily due to continued growth in our core open access publishing program and institutional models which includes both read-only subscriptions and read-and-publish transformational agreements, offset by the carryover of the Hindawi publishing disruption experienced in fiscal year 2023. Hindawi’s special issues program was suspended in the third quarter of fiscal year 2023 due to the presence in certain special issues of compromised articles. On a constant currency basis excluding Hindawi, Research Publishing revenue increased 2% as compared with the prior year. Research Solutions decreased 1% as
compared with the prior year on a constant currency basis primarily due to continued market softness in our corporate offerings. On a constant currency basis excluding Hindawi, Research revenue increased 1% as compared with the prior year.
Open access article output growth was approximately 10% as compared with the prior year. Excluding Hindawi, open access article output growth was approximately 16% for the three months ended January 31, 2024.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA decreased 2% as compared with the prior year. This decrease was primarily due to higher editorial and marketing costs, partially offset by lower costs of sales due
to revenue performance. Excluding Hindawi, Adjusted EBITDA decreased 1%.
Learning
revenue increased $3.1 million, or 2%, as compared with the prior year on a reported basis. On a constant currency basis, revenue increased 2% as compared with the prior year. This was primarily due to an increase in Academic from continued growth in digital courseware, digital content, and licensing, partially offset by a decrease in print book sales due to lower demand. Professional decreased due to lower print sales due to softness in business and technology publishing categories, partially offset by higher licensing revenue.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 15% as compared with the prior year. This increase was primarily due to revenue performance and product mix, and a decrease in operating expenses due to restructuring savings.
Revenue
for Held for Sale or Sold decreased $36.4 million, or 38%, as compared with the prior year on a reported basis. On a constant currency basis, revenue decreased 39% as compared with the prior year. This was due to a decrease in University Services revenue due to lower enrollments and the sale of the business on January 1, 2024, placement revenues and, to a lesser extent, the disposition of certain businesses in the fourth quarter of fiscal year 2023 and the first quarter of fiscal year 2024. For the three months ended January 31, 2024, placements declined 51% and enrollments declined 3%.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA decreased 45% as compared with the prior year. This decrease was primarily due to lower revenue,
partially offset by placement savings, and lower marketing and employment costs in University Services due to restructuring actions and, to a lesser extent, the impact of the disposition of certain businesses in the fourth quarter of fiscal year 2023 and in fiscal year 2024.
Three Months Ended
January 31,
%
Change
Favorable
(Unfavorable)
Constant Currency
% Change
Favorable
(Unfavorable)
CORPORATE EXPENSES
2024
2023
Operating Expenses
$
48,578
$
38,258
(27)
%
(26)
%
Adjusted
Contribution to Profit
(48,578)
(38,258)
(27)
%
(26)
%
Depreciation and amortization
9,633
3,939
#
#
Adjusted EBITDA
$
(38,945)
$
(34,319)
(13)
%
(13)
%
#
Not meaningful
On a constant currency basis, adjusted corporate expenses of $38.9 million on an Adjusted EBITDA basis increased 13% as compared with the prior year. This was primarily due to a lower incentive compensation accrual in the prior year.
•US
GAAP Results: Consolidated Revenue of $1,404.5 million (-6%, compared with the prior year), Operating Loss of $16.5 million (+$10.1 million, compared with the prior year operating loss), and Diluted Loss per Share of $(4.10) ($-3.18, compared with the prior year diluted loss per share). US GAAP results impacted by goodwill impairment of $108.4 million, losses on sale of businesses and impairment charges related to assets held-for-sale of $179.7 million, and restructuring charges of $52.0 million.
•Adjusted Results at Constant Currency (excluding Held for Sale or Sold segment results): Adjusted Revenue of $1,176.3 million (-3%, compared with the prior year), Adjusted EBITDA of $243.6 million (-7%, compared with the prior year), and Adjusted EPS of $1.59 (-29%, compared with the prior year).
CONSOLIDATED
RESULTS OF OPERATIONS
Revenue:
Revenue for the nine months ended January 31, 2024, decreased $89.2 million, or 6%, as compared with the prior year. On a constant currency basis, revenue decreased 7% as compared with the prior year. Excluding the revenues from the Held for Sale or Sold segment, Adjusted Revenue decreased 3% on a constant currency basis.
Adjusted Revenue
Below is a reconciliation of our consolidated US GAAP Revenue to Non-GAAP Adjusted Revenue:
Our Adjusted Revenue, net excludes the impact of our Held for Sale or Sold segment revenue.
See the “Segment Operating Results” below for additional details on each segment’s revenue and Adjusted EBITDA performance.
Cost of Sales:
Cost
of sales for the nine months ended January 31, 2024, decreased $62.0 million, or 12%, as compared with the prior year. On a constant currency basis, cost of sales decreased 13% as compared with the prior year. This was primarily due to lower employee costs related to the Wiley Edge business, and to a lesser extent, lower marketing and employee costs for the University Services business. In addition, lower amortization primarily due to the cessation of amortization for held-for-sale assets. Excluding the cost of sales from the Held for Sale or Sold segment, cost of sales decreased 3% on a constant currency basis, primarily due to a decrease in revenue.
Operating and Administrative Expenses:
Operating and administrative expenses for the nine months ended January 31,
2024, decreased $30.1 million, or 4%, as compared with the prior year. On a constant currency basis, operating and administrative expenses decreased 5% as compared with the prior year primarily reflecting lower employee costs associated with recent restructuring actions and, to a lesser extent, lower professional fees, travel and entertainment costs, and a $3.7 million charge related to the settlement of a litigation mater related to consideration for a previous acquisition in the three months ended January 31, 2023. These were partially offset by higher depreciation due to the decision in the three months ended January 31, 2024 to discontinue the use of certain capitalized software resulting in an impairment of $6.4 million, and higher technology related costs. Excluding operating and administrative expenses from the Held for Sale or Sold segment, operating and administrative
expenses decreased 1% on a constant currency basis.
We recorded an impairment of goodwill in the nine months ended January 31, 2024 and 2023 of $108.4 million and $99.8 million, respectively. These charges are reflected in the Impairment of goodwill in the Unaudited Condensed Consolidated Statements of Net Loss.
Fiscal Year 2024
As
a result of signing the Purchase Agreement with Inspirit and the decrease in the fair value of the business, we tested the goodwill of the Wiley Edge reporting unit within the Held for Sale or Sold segment for impairment. We concluded that the fair value of the Wiley Edge reporting unit was below its carrying value, which resulted in a pretax noncash goodwill impairment of $81.7 million in the nine months ended January 31, 2024. See above for more details on these charges.
Due to the segment realignment in the first quarter of fiscal year 2024, we were required to test goodwill for impairment immediately before and after our segment realignment in accordance with applicable accounting standards. Prior to the realignment, we concluded that the fair value of the University Services reporting unit within the
former Academic segment was below its carrying value, which resulted in a pretax noncash goodwill impairment of $11.4 million in the nine months ended January 31, 2024. University Services was adversely impacted by market conditions and headwinds for online degree programs, which lead to a decline in projected enrollments from existing partners, pricing pressures and revenue share concessions, and a decline in new partner additions over both the short-term and long-term which adversely impacted forecasted revenue growth and operating cash flows.
After the realignment, we concluded that the fair value of the CrossKnowledge reporting unit within the Held for Sale or Sold segment was below its carrying value, which resulted in a pretax noncash goodwill impairment of $15.3 million in the nine months ended January 31,
2024. CrossKnowledge was adversely impacted by a decline in the demand for its offerings, which have resulted in lower sales and a decline in average contract value, that adversely impacted forecasted revenue growth and operating cash flows.
See Note 12, "Goodwill and Intangible Assets" for details on these charges.
Fiscal year 2023
We recorded an impairment of goodwill for the nine months ended January 31, 2023 of $99.8 million. This charge is reflected in the Impairment of goodwill in the Unaudited Condensed Consolidated Statements of Net Loss. See above for more details on these charges.
Restructuring
and Related Charges:
Global Restructuring Program
For the nine months ended January 31, 2024 and 2023, we recorded pretax restructuring charges of $50.9 million and $44.3 million, respectively, related to the Global Restructuring Program.
We anticipate ongoing severance related charges and facility-related costs associated with certain properties to result in additional restructuring charges in future periods.
See Note 9, “Restructuring and Related Charges” for more details on the Global Restructuring Program charges.
Business
Optimization Program
For the nine months ended January 31, 2024 and 2023, we recorded pretax restructuring charges of $1.1 million and $0.9 million, respectively, related to this program.
These charges are reflected in Restructuring and related charges on our Unaudited Condensed Consolidated Statements of Net Loss.
For the impact of our restructuring programs on diluted loss per share, see the section below, “Diluted Loss per Share.”
Amortization of intangible assets was $42.7 million for the nine months ended January 31, 2024, a decrease of $22.7 million, or 35%, as compared with the prior year. On a constant currency basis, amortization of intangible assets decreased 35% as compared with the prior year primarily due to the cessation of amortization for held-for-sale assets and, to a lesser extent, the prior year period including $4.6 million due to the acceleration of expense related to the discontinued use of the mthree trademark, and the completion of amortization of certain acquired intangible assets. See Note 3, “Acquisitions and Divestitures” for more details on these held-for-sale assets.
Operating Loss, Adjusted Operating Income (OI) and Adjusted EBITDA:
Operating
loss was $16.5 million for the nine months ended January 31, 2024 compared with the prior year loss of $26.6 million. The decrease was primarily due to lower costs of sales and, to a lesser extent, lower operating and administrative expenses, and a decrease in the amortization of intangible assets, partially offset by a decrease in revenue.
Adjusted OI on a constant currency basis and excluding restructuring charges, impairment of goodwill, legal settlement, the accelerated amortization of an intangible asset, and the adjusted contribution to profit for the Held for Sale or Sold segment decreased 14% as compared with the prior year. The decrease in Adjusted OI was primarily due to lower revenues, partially offset by a lower costs of sales and operating and administrative expenses.
Adjusted
EBITDA on a constant currency basis decreased 7% as compared with the prior year primarily due to lower Adjusted OI.
Adjusted OI
Below is a reconciliation of our consolidated US GAAP Operating Loss to Non-GAAP Adjusted OI:
Accelerated amortization of an intangible asset (1)
—
4,594
Held for Sale or Sold segment Adjusted Contribution to Profit (2)
(26,302)
10,811
Non-GAAP
Adjusted OI
$
117,659
$
137,498
(1)
We determined that a revision of the useful life of the mthree trademark was warranted and the intangible asset was fully amortized over its remaining useful life resulting in accelerated amortization expense of $4.6 million in the three months ended July 31, 2022.
(2)
Our
Adjusted OI excludes the impact of our Held for Sale or Sold segment Adjusted Contribution to Profit.
Foreign exchange losses (gains), including the write off of certain cumulative translation adjustments
3,489
(283)
Losses on sale of businesses and impairment charges related to assets held-for-sale
179,747
—
Other
expense (income), net
3,700
(976)
Held for Sale or Sold segment Adjusted EBITDA (1)
(29,739)
(22,979)
Non-GAAP Adjusted EBITDA
$
243,598
$
262,256
(1)
Our
Non-GAAP Adjusted EBITDA excludes the Held for Sale or Sold segment Non-GAAP Adjusted EBITDA.
Interest Expense:
Interest expense for the nine months ended January 31, 2024, was $37.6 million compared with the prior year of $27.2 million. This increase was primarily due to a higher weighted average effective interest rate.
Foreign Exchange Transaction (Losses) Gains:
Foreign exchange transaction losses of $(3.5) million for the nine months ended January 31, 2024 were primarily due to losses on our foreign currency denominated third-party receivable
and payable balances and, to a lesser extent, losses on our intercompany accounts receivable and payable balances due to the impact of the change in average foreign exchange rates as compared to the US dollar. In fiscal year 2023, due to the closure of our operations in Russia, our Russian entity was deemed substantially liquidated. As a result, cumulative translation adjustments associated with that entity were recognized. In the nine months ended January 31, 2024, we wrote off an additional net $0.8 million in cumulative translation adjustments from our Russian entity.
Foreign exchange transaction gains of $0.3 million for the nine months ended January 31, 2023 were primarily due to losses on our foreign currency denominated third-party accounts receivable and payable balances
due to the impact of the change in average foreign exchange rates as compared to the US dollar.
Losses on Sale of Businesses and Impairment Charges Related to Assets Held-For-Sale:
For the nine months ended January 31, 2024, we recorded pretax losses on sale of businesses and impairment charges related to assets held-for-sale of $179.7 million.
The losses on sale of businesses is due to the sale of our University Services and Tuition Manager businesses previously in our Held for Sale or Sold
segment, which resulted in a pretax loss of approximately $101.4 million and $1.5 million, respectively, during the nine months ended January 31, 2024.
Wiley Edge and CrossKnowledge continue to be reported as held-for-sale and these dispositions are expected to be completed by the first quarter of fiscal year 2025. We measured each disposal group at the lower of carrying value or fair value less cost to sell. We recorded a held-for-sale pretax impairment of $76.8 million, which includes $20.6 million for Wiley Edge and $56.2 million for CrossKnowledge during the nine months ended January 31, 2024. As noted above, on January 8, 2024 we entered into an agreement
to sell our Wiley Edge business.
See Note 3, “Acquisitions and Divestitures” for more details on the divestitures and the held-for-sale businesses.
Benefit for Income Taxes:
Below is a reconciliation of our US GAAP Loss Before Taxes to Non-GAAP Adjusted Income Before Taxes:
Below is a reconciliation of our US GAAP Income Tax Benefit to Non-GAAP Adjusted Income Tax Provision, including our US GAAP Effective Tax Rate and our Non-GAAP Adjusted Effective Tax Rate:
Foreign exchange losses on intercompany transactions, including the write off of certain cumulative translation adjustments
112
274
Amortization of acquired intangible assets
8,668
14,811
Losses
on sale of businesses and impairment charges related to assets held-for-sale
25,711
—
Held for Sale or Sold segment Adjusted Tax Provision (2)
(6,518)
(1,977)
Non-GAAP Adjusted Income Tax Provision
$
28,442
$
28,443
US
GAAP Effective Tax Rate
6.4
%
2.7
%
Non-GAAP Adjusted Effective Tax Rate
24.4
%
18.1
%
(1)
For the nine months ended January 31,
2024, substantially all of the tax impact was from deferred taxes. For the nine months ended January 31, 2023, the tax impact was $5.5 million from current taxes and $24.3 million from deferred taxes.
(2)
Our Adjusted Income Tax Provision excludes the Adjusted Tax Provision of our Held for Sale or Sold segment.
Our effective tax rate fluctuates based on, among other factors, where income is earned and the level of income relative to tax attributes. The US GAAP effective tax rate for the nine months ended January 31, 2024, was 6.4% compared to 2.7% for the nine months ended
January 31, 2023. The US GAAP effective tax rate for the nine months ended January 31, 2024, was greater than the US GAAP effective tax rate for the nine months ended January 31, 2023 primarily due to certain discrete items related to the filing of the consolidated federal income tax return for the year ended April 30, 2022 which resulted in a deferred tax benefit, the impact of US tax incentives, and other discrete items offset by the mix of non-US income. The impairment of goodwill resulting from the segment realignment described in Note 12, "Goodwill and Intangible Assets," results in a relatively small tax benefit of $2.7
million and losses on sale of businesses and impairment charges related to assets held-for-sale described in Note 3, "Acquisitions and Divestitures" results in a tax benefit of $25.7 million.
Excluding the $2.7 million tax benefit from the impairment of goodwill and $25.7 million tax benefit of the losses on sale of businesses and impairment charges related to assets held-for-sale, restructuring and other adjustments noted in the table above, the Non-GAAP adjusted effective tax rate was 24.4% for the nine months ended January 31, 2024, compared to 18.1% for the nine months ended January 31, 2023. The increase in the Non-GAAP adjusted effective tax rate for the nine
months ended January 31, 2024, compared with the prior year ended January 31, 2023, was primarily due to the mix of non-US income offset by tax incentives in the US.
Diluted Loss per Share:
Diluted loss for the nine months ended January 31, 2024 was $(4.10) per share compared with diluted loss of $(0.92) per share for the nine months ended January 31, 2023. This decrease was primarily due to the losses on the sale of businesses, and the held-for-sale impairment charges in the nine months ended January 31, 2024 and, to a lesser extent, higher interest expense, partially offset by a higher benefit
for income taxes in fiscal year 2024, and lower operating loss in fiscal year 2024.
Below is a reconciliation of our US GAAP Loss Per Share to Non-GAAP Adjusted EPS. The amount of the pretax, and the related income tax impact for the adjustments included in the table below are presented in the section above, “Benefit for Income Taxes”.
Foreign exchange losses on intercompany transactions, including the write off of certain cumulative translation adjustments
0.02
0.01
Amortization of
acquired intangible assets
0.65
0.96
Losses on sale of businesses and impairment charges related to assets held-for-sale
2.77
—
Held for Sale or Sold segment Adjusted Net Income (1)
(0.39)
(0.11)
EPS
impact of using weighted-average dilutive shares for adjusted EPS calculation (2)
0.04
0.01
Non-GAAP Adjusted EPS
$
1.59
$
2.29
(1)
Our Adjusted EPS excludes
the Adjusted Net Income of our Held for Sale or Sold segment.
(2)
Represents the impact of using diluted weighted-average number of common shares outstanding (55.6 million shares and 56.3 million shares for the nine months ended January 31, 2024 and 2023, respectively) included in the Non-GAAP Adjusted EPS calculation in order to apply the dilutive impact on adjusted net income due to the effect of unvested restricted stock units and other stock awards. This impact occurs when a US GAAP net loss is reported and the effect of using dilutive shares is antidilutive.
On a constant currency basis, Adjusted EPS decreased 29% primarily due to a decrease in Adjusted
Operating Income, and to a lesser extent, higher interest expense and lower pension income.
Research
revenue for the nine months ended January 31, 2024 decreased $28.2 million, or 4%, as compared with the prior year on a reported basis. On a constant currency basis, revenue decreased 5% as compared with the prior year primarily due to the carryover of the Hindawi publishing disruption experienced in fiscal year 2023. Additionally, to a lesser extent, revenues were unfavorably impacted by continued market softness in our corporate offerings. These impacts were partially offset by continued strong growth in our core open access publishing program. Excluding Hindawi, Research revenue was consistent with the prior year. Hindawi’s special issues program was suspended in the third quarter of fiscal year 2023 due to the presence in certain special issues of compromised articles. Open access article output declined 29% as compared with the prior year. Excluding
Hindawi, open access article output growth was approximately 18% for the nine months ended January 31, 2024.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA decreased 13% as compared with the prior year. This decrease was primarily due to revenue performance as cost of sales declined and operating expenses were flat. Excluding Hindawi, Adjusted EBITDA decreased 1%. On a constant currency basis, Hindawi Adjusted EBITDA for the nine months ended January 31, 2024 decreased $31.9 million as compared with the prior year.
Learning
revenue for the nine months ended January 31, 2024 increased $2.1 million, or 1% as compared with the prior year on a reported basis. On a constant currency basis, revenue was consistent with the prior year. Academic revenue was consistent with the prior year due to a decrease in print book sales, offset by growth in digital courseware and, to a lesser extent, digital content. Professional revenue was consistent with the prior year due to a decrease in print and digital trade sales, offset by an increase in licensing revenue and professional assessments.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 15% as compared with the prior year. This increase was primarily due to lower print product
related costs, a decrease in employee costs after recent restructuring actions and, to a lesser extent, a decrease in travel and entertainment expense.
Held for Sale or Sold revenue for the nine months ended January 31, 2024 decreased $63.1 million, or 22%, as compared with the prior year on a reported basis. On a constant currency basis, revenue decreased 23% as compared with the prior year. This was due to declines in placement revenues, a decrease in University Services due to lower enrollments and the sale of the business on January
1, 2024 and, to a lesser extent, the disposition of certain businesses in the fourth quarter of fiscal year 2023 and in the first quarter of fiscal year 2024. For the nine months ended January 31, 2024, placements declined 51% and online enrollment declined 5%.
Adjusted EBITDA:
On a constant currency basis, Adjusted EBITDA increased 28% as compared with the prior year. This increase was primarily due to lower cost of sales and operating expenses, partially offset by lower revenue. The lower cost of sales was due to lower placement costs, a decrease in marketing and employment costs in University Services due to restructuring actions and, to a lesser extent, the impact of the disposition of certain businesses in the fourth quarter of fiscal year 2023 and in fiscal year 2024.
Nine
Months Ended January 31,
% Change
Favorable
(Unfavorable)
Constant Currency
% Change
Favorable
(Unfavorable)
CORPORATE EXPENSES
2024
2023
Operating
Expenses
$
136,873
$
130,305
(5)
%
(4)
%
Amortization of Intangible Assets
—
121
#
#
Adjusted Contribution
to Profit
(136,873)
(130,426)
(5)
%
(4)
%
Depreciation and amortization
16,692
12,005
(39)
%
(39)
%
Adjusted
EBITDA
$
(120,181)
$
(118,421)
(1)
%
(1)
%
# Not meaningful
On a constant currency basis, adjusted corporate expenses of $120.2 million on an Adjusted EBITDA basis increased 1% as compared with the prior year. This was primarily due to lower incentive compensation accruals in the prior year, partially offset by lower marketing and occupancy costs.
We believe that our operating cash flow, together with our revolving credit facilities and other available debt financing, will be adequate to meet our operating, investing, and financing needs for at least the next twelve months. Operating cash flow provides the primary source of cash to fund operating needs and capital expenditures. Excess operating cash is used to fund shareholder dividends. Other discretionary uses of cash flow include share repurchases and acquisitions to complement our portfolio of businesses. As necessary, we may supplement operating cash flow with debt to fund these activities. The overall cash position of the Company reflects our durable business results and a global cash management
strategy that considers liquidity management, economic factors and tax considerations. Our cash and cash equivalents are maintained at a number of financial institutions. To mitigate the risk of uninsured balances, we select financial institutions based on their credit ratings and financial strength, and we perform ongoing evaluations of these institutions to limit our concentration risk exposure to any financial institution.
As of January 31, 2024, we had cash and cash equivalents of $108.8 million, including cash and cash equivalents classified as held-for-sale of $15.7 million, of which approximately $107.1 million, or 98%, was located outside the US. Maintenance of these cash and cash equivalent balances outside the US does not have a material impact on the liquidity or capital resources of our operations. We intend to repatriate earnings from
our non-US subsidiaries, and to the extent we repatriate these funds to the US, we will be required to pay income taxes in various US state and local jurisdictions and applicable non-US withholding or similar taxes in the periods in which such repatriation occurs. Accordingly, as of January 31, 2024, we have recorded a deferred tax liability of approximately $2.5 million related to the estimated taxes that would be incurred upon repatriating certain non-US earnings to the US.
On November 30, 2022, we entered into the second amendment to the Third Amended and Restated Credit Agreement (collectively, the Amended and Restated CA). See Note 15, “Debt and Available Credit Facilities” for more
details on the amendment. The Amended and Restated CA provided for senior unsecured credit facilities comprised of a (i) five-year revolving credit facility in an aggregate principal amount up to $1.115 billion, which matures November 2027, (ii) a five-year term loan A facility consisting of $200 million, which matures November 2027, and (iii) $185 million aggregate principal amount revolving credit facility through May 2024.
As of January 31, 2024, we had approximately $906.8 million of debt outstanding, net of unamortized issuance costs of $0.6 million, and approximately $587.4 million of unused borrowing capacity under our Amended and Restated CA and other facilities. Our Amended and Restated CA contains certain restrictive covenants related to our consolidated leverage ratio and interest coverage ratio, which we were in compliance
with as of January 31, 2024.
Analysis of Historical Cash Flows
The following table shows the changes in our Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2024 and 2023.
Effect of
foreign currency exchange rate changes on cash, cash equivalents and restricted cash
$
432
$
(2,670)
Cash flow from operations is seasonally a use of cash in the first half of Wiley’s fiscal year principally due to the timing of collections for annual journal subscriptions, which typically occurs in the beginning of the second half of our fiscal year.
Free cash flow less product development spending helps assess our ability, over the long term, to create value for our shareholders, as it represents cash available to repay debt, pay common dividends, and fund share repurchases, and acquisitions. Below are the details
of Free cash flow less product development spending.
Less: Additions to technology, property and equipment
(57,275)
(57,616)
Less: Product development spending
(12,324)
(17,763)
Free cash flow less product
development spending
$
(45,247)
$
(21,661)
Net Cash Provided by Operating Activities
The following is a summary of the $29.3 million change in Net cash provided by operating activities for the nine months ended January 31, 2024 compared with the nine months ended January 31, 2023 (amounts in millions).
Net cash provided by operating activities
– Nine months ended January 31, 2023
$
53.7
Net loss adjusted for items to reconcile net loss to net cash provided by operating activities, which would include such noncash items as depreciation and amortization, impairment of goodwill, losses on sale of businesses and impairment charges related to assets held-for-sale, restructuring charges, and the change in deferred taxes
Net cash provided by operating activities – Nine months ended January 31, 2024
$
24.4
The unfavorable change in accounts receivable, net and contract
liabilities was primarily due to lower revenue, and the timing of invoicing and collections with customers.
The unfavorable change in accounts payable and accrued royalties was primarily due to the timing of payments.
The favorable changes in other assets and liabilities noted in the table above was primarily due to a decrease in employee-related costs, including lower payments for annual incentive compensation in fiscal year 2024 related to the prior fiscal year, partially offset by an increase in restructuring payments.
Our negative working capital (current assets less current liabilities) was $328.1 million and $354.3 million as of January 31, 2024 and April 30,
2023, respectively. This $26.2 million change in negative working capital was primarily due to the seasonality of our business. The primary driver of the negative working capital is the benefit realized from unearned contract liabilities related to subscriptions for which cash has been collected in advance. The contract liabilities will be recognized as income when the products are shipped or made available online to the customers over the term of the subscription. Current liabilities as of January 31, 2024 and as of April 30, 2023 includes $300.7 million and $504.7 million, respectively, primarily related to deferred subscription revenue for which cash was collected in advance.
Cash
collected in advance for subscriptions is used by us for a number of purposes, including funding operations, capital expenditures, acquisitions, debt repayments, dividend payments, and share repurchases.
Net Cash Used In Investing Activities
Net cash used in investing activities for the nine months ended January 31, 2024 was $78.5 million compared to $80.1 million in the prior year. The decrease in cash used in investing activities was primarily due to a decrease in cash used of $5.4 million for product development spending, and a decrease of $2.7 million in cash used to acquire businesses, partially offset by an increase of $3.2 million for the acquisition of publication rights.
Net cash provided by financing activities was $55.4 million for the nine months ended January 31, 2024 compared to $55.3 million for the nine months ended January 31, 2023. This slight increase in cash provided by financing activities was primarily due to a decrease of $4.5 million in cash used for deferred financing costs in the nine months ended January 31, 2023, and a $4.0 million change from book overdrafts, offset by an increase in cash used to repurchase shares of $5.0 million, and lower net borrowings in the nine months ended January 31, 2024.
In
the nine months ended January 31, 2024, we increased our quarterly dividend to shareholders to $1.40 per share annualized versus $1.39 per share annualized in the prior year.
The following table summarizes the shares repurchased of Class A and Class B Common Stock for the nine months ended January 31, 2024 and 2023 (shares in thousands):
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk primarily related to interest rates, foreign exchange, and credit risk. It is our policy to monitor these exposures and to use derivative financial investments and/or insurance contracts from time to time to reduce fluctuations in earnings and cash flows when it is deemed appropriate to do so. We do not use derivative financial instruments for trading or speculative purposes.
Interest Rates
From time to time, we may use interest rate swaps, collars, or options to manage our exposure to fluctuations in interest rates. It is management’s intention that the notional amount of interest rate swaps be less than the variable
rate loans outstanding during the life of the derivatives.
The information set forth in Note 16, “Derivatives Instruments and Hedging Activities,” of the Notes to Unaudited Condensed Consolidated Financial Statements under the caption “Interest Rate Contracts,” is incorporated herein by reference.
On an annual basis, a hypothetical one percent change in interest rates for the $357.4 million of unhedged variable rate debt as of January 31, 2024 would affect net income and cash flow by approximately $2.7 million.
Foreign Exchange Rates
Fluctuations
in the currencies of countries where we operate outside the US may have a significant impact on financial results. We are primarily exposed to movements in British pound sterling, euros, Canadian and Australian dollars, and certain currencies in Asia. The statements of financial position of non-US business units are translated into US dollars using period-end exchange rates for assets and liabilities and the statements of income are translated into US dollars using weighted-average exchange rates for revenues and expenses.
Our significant investments in non-US businesses are exposed to foreign currency risk. Adjustments resulting from translating assets and liabilities are reported as a separate component of Accumulated other comprehensive loss, net of tax within Shareholders’ Equity under the caption Foreign currency translation adjustment.
During the three months ended January 31,
2024, we recorded foreign currency translation gains in Accumulated other comprehensive loss, net of tax of approximately $25.1 million primarily as a result of the fluctuations of the US dollar relative to the British pound sterling and, to a lesser extent, the euro. During the nine months ended January 31, 2024, we recorded foreign currency translation gains in Accumulated other comprehensive loss, net of tax of approximately $2.4 million, primarily as a result of the fluctuations of the US dollar relative to the British pound sterling, partially offset by fluctuations of the US dollar relative to the euro.
During the three months ended January 31, 2023, we recorded foreign currency translation gains in Accumulated other comprehensive loss, net of tax of approximately $50.3 million, primarily as a result of the fluctuations
of the US dollar relative to the British pound sterling and, to a lesser extent, the euro. During the nine months ended January 31, 2023, we recorded foreign currency translation (losses) in Accumulated other comprehensive loss, net of tax of approximately $(5.6) million, primarily as a result of the fluctuations of the US dollar relative to the British pound sterling, partially offset by fluctuations of the US dollar relative to the euro.
Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses on the Unaudited Condensed Consolidated Statements of Net Loss as incurred. Under certain circumstances, we may enter into derivative financial instruments in the form of foreign currency forward contracts to hedge against specific transactions,
including intercompany purchases and loans.
The information set forth in Note 16, “Derivatives Instruments and Hedging Activities,” of the Notes to Unaudited Condensed Consolidated Financial Statements under the caption “Foreign Currency Contracts,” is incorporated herein by reference.
The
estimated allowance for print book sales returns is based upon historical return patterns, as well as current market trends in the businesses in which we operate. In connection with the estimated sales return reserves, we also include a related increase to inventory and a reduction to accrued royalties as a result of the expected returns.
The reserves are reflected in the following accounts of our Unaudited Condensed Consolidated Statements of Financial Position:
Print
book sales return reserve net liability balance
$
(14,971)
$
(14,419)
A one percent change in the estimated sales return rate could affect net income by approximately $1.2 million. A change in the pattern or trends in returns could affect the estimated allowance.
Customer Credit Risk
In the journal publishing business, subscriptions are primarily sourced through journal subscription agents who, acting as agents for library customers, facilitate ordering by consolidating the subscription orders/billings of each subscriber with various publishers. Cash is
generally collected in advance from subscribers by the subscription agents and is principally remitted to us between the months of December and April. Although currently we have minimal credit risk exposure to these agents, future calendar-year subscription receipts from these agents are highly dependent on their financial condition and liquidity. Subscription agents account for approximately 15% of total annual consolidated revenue, and no one affiliated group of subscription agents accounts for more than 10% of total annual consolidated revenue.
Our book business is not dependent upon a single customer; however, the industry is concentrated in national, regional, and online bookstore chains. No single book customer accounts for more than 7% of total consolidated revenue and 19% of accounts receivable at January 31, 2024. The top 10 book customers
account for approximately 12% of total consolidated revenue and approximately 36% of accounts receivable at January 31, 2024.
ITEM 4. CONTROLS AND PROCEDURES
The Company’s Chief Executive Officer and Chief Financial Officer, together with the Chief Accounting Officer and other members of the Company’s management, have conducted an evaluation of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There
were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the quarter ended January 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There have been no significant developments related to legal proceedings during the three months ended January 31, 2024. For information regarding legal proceedings, see our Annual Report on Form 10-K for the fiscal year ended April 30, 2023 Note 16, “Commitment and Contingencies”.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended April 30, 2023, that if they were to occur, could materially adversely affect our businesses, consolidated
financial condition, and results of operations. For a discussion of our risk factors, refer to Item 1A. “Risk Factors” contained in our annual report on Form 10-K for the fiscal year ended April 30, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended January 31, 2024, we made the following purchases of Class A and Class B Common Stock under our publicly announced stock repurchase programs:
Total
Number of Shares Purchased
Average Price Paid Per Share
Total Number of Shares Purchased as part of a Publicly Announced Program
Maximum Number of Shares that May be Purchased Under the Program
Maximum Dollar Value of Shares that May be Purchased Under Additional Plans or Programs (Dollars in millions)
November 2023
—
$
—
—
—
$
140.0
December
2023
118,350
32.21
118,350
—
136.2
January 2024
85,259
31.52
85,259
—
133.5
Total
203,609
$
31.92
203,609
—
$
133.5
ITEM
5. OTHER INFORMATION
Directors and Executive Officers Trading Arrangements
During the period covered by this Quarterly Report on Form 10-Q, none of our directors or officers iiadopted/, modified or iiterminated/
a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” as such terms are defined under Item 408 of Regulation S-K.
On December 13, 2023, the Board of Directors (Board) of John Wiley & Sons, Inc. (Company) approved the amendment and restatement of the Company’s Bylaws
(Amended & Restated Bylaws), thereby amending and restating the Company’s existing bylaws, dated September 20, 2007 (Existing Bylaws). The Amended & Restated Bylaws became effective as of the date approved by the Board, and include:
•revisions to the procedural and disclosure requirements for director nominees nominated by shareholders, including a requirement to provide completed and signed questionnaires;
•revisions
to the procedural and disclosure requirements for shareholders intending to nominate directors or propose other business (other than proposals to be included in the Company’s proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (Exchange Act)) at annual or special meetings of shareholders pursuant to the advance notice provisions, including without limitation, to:
▪require nomination notices or proposals of other business to be delivered within a window of not less than 120 days and no more than 150 calendar days in advance of the date in the then current year corresponding to the previous year’s annual meeting of shareholders;
▪information and certifications to be provided in connection with solicitations
subject to Rule 14a-19 promulgated under the Exchange Act (i.e., universal proxy card rules);
•require that a shareholder directly or indirectly soliciting proxies from other shareholders use a proxy card color other than white;
•updates to conform and/or reflect changes in the New York Business Corporation Law (NYBCL) that have occurred since the Existing Bylaws were adopted, including:
◦the manner in which meetings of shareholders and directors may be held (i.e., via a virtual meeting);
◦the manner in
which a meeting of shareholders may be waived or adjourned;
•establish emergency bylaws, which are intended to grant the Board powers to continue its operations during an emergency, such as an earthquake, fire, hurricane, tornado, flood, pandemic, or terrorist attack on the United States, even when certain requirements under state law or the organizational documents cannot be met;
•revisions to clarify when directors can be removed with and without cause;
•revisions to designate (i) the courts in the state of New York as the exclusive forum for the resolution of any derivative actions, actions asserting claims of breach of fiduciary duties, actions arising pursuant to the NYBCL,
the Company’s Certificate of Incorporation or the Amended and Restated By-laws, or actions asserting claims governed by the internal affairs doctrine, and (ii) U.S. federal district courts as the exclusive forum for resolution of actions asserting claims arising under the Securities Act of 1933, as amended; and
•procedural revisions to the indemnification provisions for the Company’s officers and directors.
The foregoing description of the Amended and Restated Bylaws
is qualified in its entirety by reference to the full text of the Amended and Restated Bylaws, which is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q and incorporated by reference herein.
Certification of Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL
101.INS*
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
