John Wiley & Sons Announces Third Quarter Fiscal Year 2010 Results
- Revenue growth of 5% on a currency neutral basis; STMS +2%, P/T +7%, HE +13%.
- Revenue growth of 14% on a reported basis; STMS+13%, P/T +10%, HE +23%.
- EPS growth of +25% on a reported basis; -19% on a currency neutral basis, mainly due to a significant reduction in prior year's incentive compensation; 2010 EPS includes a $0.03 charge for restructuring and asset impairment.
- Revenue growth of 3% on a currency neutral basis; 5% on a reported basis.
- Adjusted EPS growth of 3% on a currency neutral basis, excluding impairment and restructuring charges of $0.17 per share primarily related to GIT Verlag; +12% on a reported basis.
- Net debt (long term debt less cash and cash equivalents) reduced by $246 million from prior year.
- Free cash flow up $95 million over prior year.
- Reiterating full-year outlook of revenue growth in all three businesses and reported EPS growth in mid-to-high teens, excluding impairment and restructuring charges.
|$ millions||FY10||FY09||Excluding FX||Including FX|
|Adjusted EPS: *|
*Excludes asset impairment and restructuring charges of $0.03 per share, or $2.8 million pre-tax, in third quarter and $0.17 per share, or $14 million pre-tax, in the nine months.
John Wiley & Sons, Inc. (NYSE: JWa and JWb) announced today that revenue for the third quarter of fiscal year 2010 grew 14%, or 5% on a currency neutral basis. Strong growth in Higher Education (HE) and Professional/Trade (P/T), and modest growth in Scientific, Technical, Medical and Scholarly (STMS), drove the top-line results.
For the quarter, adjusted earnings per share (EPS) rose 30%, but fell 13% on a currency neutral basis. Adjusted EPS excludes a $0.03 per share asset impairment and restructuring charge primarily for GIT Verlag. Revenue growth and lower interest expense were more than offset by an unfavorable comparison to the significant reduction in incentive compensation in last year's third quarter and a higher income tax rate in 2010 due to lower foreign tax benefits.
Revenue for the nine months of fiscal year 2010 advanced 5%, or 3% on a currency neutral basis. Adjusted EPS for the nine months rose 22% to $2.12, or 3% on a currency neutral basis. Adjusted EPS excludes a $0.17 per share asset impairment and restructuring charge primarily for GIT Verlag. Top-line results and lower interest expense were partly offset by a $5 million insurance receipt in the prior year. Reported EPS increased 12% to $1.95.
"All of our global businesses performed well in the third quarter," said William J. Pesce, President and CEO. "In STMS, we are navigating through challenging market conditions due to tight library funding. The quality of our journals and books, as well as our strong relationships with prestigious scholarly societies, are contributing significantly to our results. In calendar year 2009, journal subscription revenue grew 5% over the prior year."
Mr. Pesce continued: "The P/T business enjoyed a successful holiday season. Higher Education is having a record-setting year, out-performing the market with strong results in all geographic regions and subject categories. Revenue related to WileyPLUS, eBooks, institutional (digital-only) sales and custom publishing, now account for 26% of total Higher Education revenue. In all of our businesses, we are collaborating with several eBook, mobile device and platform partners to provide more access to more content by more customers than at any other time in Wiley's long history."
Mr. Pesce concluded, "Based on year-to-date results, market conditions and leading indicators, we reiterate our guidance of full-year revenue growth for each of our businesses. We continue to project EPS growth on a reported basis, excluding impairment and restructuring, in the mid-to-high teens, from the $2.15 reported in fiscal year 2009."
Impairment and Restructuring Charges
In the third quarter, Wiley recorded a pre-tax asset impairment and restructuring charge of approximately $2.8 million, $0.03 per share, principally related to the Company's controlled circulation magazine business. In the second quarter, Wiley concluded that GIT Verlag, a B2B German-language, controlled circulation magazine business acquired in 2002, would not fully realize the value of the assets reflected on the balance sheet.
Incentive Compensation Costs
As reported, EPS in last year's third quarter benefitted significantly from reduced incentive compensation accruals, primarily related to the performance of P/T. As noted in our full-year guidance, the Company anticipates revenue growth for each of our businesses, on a performance basis, and strong EPS growth, excluding the charges associated with GIT Verlag. As a result, incentive compensation accruals are higher this year. For analytical purposes, it is noteworthy that adjusted EPS in the third quarter of fiscal year 2010 would have grown by double-digits on a performance basis, excluding the increased incentive compensation accruals.
Cost Savings from Off-shoring and Out-sourcing
Wiley is reducing costs associated with the STMS business to finance investments in enabling technology and new businesses. These cost savings are the result of increased off-shoring and out-sourcing of certain functions and activities from high cost locations to Singapore and other countries in Asia. The Company anticipates restructuring charges of up to $2 million, principally in the fourth quarter of this fiscal year, related to off-shoring and out-sourcing. These charges are expected to be fully recovered within 18 months following implementation.
The foregoing and following references to "currency neutral basis"; "excluding foreign exchange" and "performance basis" exclude the effect of foreign exchange transactions and translations.
SCIENTIFIC, TECHNICAL, MEDICAL AND SCHOLARLY (STMS)
- Third quarter revenue +2% and nine-month revenue flat on a currency neutral basis.
- Third quarter contribution to profit +6% and nine-month contribution to profit -2% on a currency neutral basis, excluding asset impairment and restructuring charges.
- Asset impairment and restructuring charges, principally for GIT Verlag, totalled approximately $2.8 million ($0.03 per share) in the third quarter and $14 million ($0.17 per share) for the nine-month period.
- Signed new contracts in the quarter to publish 2 society journals; renewed or extended contracts for 37 journals; none were lost.
- Calendar year 2009 journal subscription revenue grew 5% over 2008, excluding foreign exchange.
Global STMS revenue for the third quarter of fiscal year 2010 rose 13% to $228 million, or 2% excluding favorable foreign exchange. Modest growth in journal subscription, backfile, reprints, and translation revenue was offset by lower B2B advertising revenue. Journal revenue increased 1% on a currency neutral basis, with the Americas driving growth. Book revenue declined 3% on a currency neutral and comparable basis, excluding a prior year sales return reserve adjustment of $3 million.
Direct contribution to profit for the third quarter increased 18% to $89 million, or 2% excluding favorable foreign exchange. The increase reflects top-line results, the effect of out-sourcing initiatives in journal production and expense control, offset by the timing of accrued incentive compensation costs and asset impairment and restructuring charges of $2.8 million.
For the nine months, global STMS revenue was up 2% to $709 million, but was flat excluding favorable foreign exchange. Revenue growth from journal subscriptions, article sales, reprints and the Cochrane subscription-based database was offset by lower book and B2B advertising revenue. Direct contribution to profit for the first nine months was up 1%, but off 7% on a currency neutral basis due to the $14 million asset impairment and restructuring charges, increased costs associated with new business and a prior year favorable bankruptcy settlement, partially mitigated by expense savings, lower production costs due to off-shoring and out-sourcing, and the completion of Blackwell-related integration activities.
Calendar Year 2010 Journal License Renewals
As expected, we are experiencing modest journal subscription growth in most regions, except Asia, where growth has exceeded our expectations. Major renewals were completed with consortia in the US, Canada, UK, Germany, Spain, Austria, the Netherlands and South Africa. In the Asia-Pacific region, approximately 90% of licenses have been renewed. Leading indicators in Russia, France, Eastern Europe and the Middle East are positive, while market conditions remain difficult in Greece, Hungary and Ireland. Significant new business includes journal licenses in Spain and Romania, and backfile sales in the US, Netherlands, Australia and New Zealand.
For the quarter, journal revenue increased $2 million on a currency neutral basis, mainly due to journal renewal processing delays in the prior year. Modest current year growth in journal subscriptions and increased reprint, translation and backfile revenue were partially offset by lower advertising revenue. B2B advertising continues to be soft. On a calendar year basis (through December 31, 2009), journal subscription revenue increased 5% over prior year, excluding foreign exchange.
Society Journal Activity
- New signings: 2 journals in the third quarter; 26 for the nine months
- Renewed/extended contracts: 37 journals in the third quarter; 71 for the nine months
- Contracts not renewed: 0 journals in the third quarter; 2 for the nine months
Key New Journals
- Allergy & Rhinology on behalf of the American Academy of Otolaryngic Allergy and the American Rhinologic Society
- Thoracic Cancer on behalf of the Tianjin Lung Cancer Institute
- The Bulletin of the Institute of Classical Studies (BICS), one of the world's most prestigious classics journals
Books and Reference
Books and reference revenue for the quarter declined $1 million on a currency neutral basis, excluding a sales return reserve adjustment of $3 million in the third quarter of fiscal year 2009. On a reported basis book revenue increased $4 million.
Database and Online Initiatives
- A national license agreement will enable about 60 million Internet users in India access to The Cochrane Library's internationally renowned collection of healthcare databases. The Cochrane Library helps clinicians and consumers make decisions about the best treatments for their patients.
- Essential Evidence, a new product added to the online, evidence-based Essential Evidence Plus, was launched. This resource tool will help clinicians make diagnoses, chart treatment plans and determine prognoses. The product currently features approximately 700 structured medical topics with approximately 100 more in development.
- A books co-publishing agreement was signed with The Minerals, Metals & Materials Society. The society is closely affiliated with the American Ceramic Society (ACerS) and ASM International.
- An agreement was signed with the Royal Geographical Society for a book series. Wiley also publishes The Royal Geographical Society's Geographical Journal, Area and Transactions of the Institute of British Geographers.
- An agreement was signed with The American Geographical Society to co-publish both the Geographical Review and FOCUS on Geography. Geographical Review is a leading scholarly periodical.
- Through a partnership with the Australian Psychological Society, Wiley will publish three flagship journals – Australian Journal of Psychology, Australian Psychologist and Clinical Psychologist.
- Acquired Microcirculation, the journal of The Microcirculatory Society. The haematology/vascular medicine publication is in its sixteenth year.
- Acquired the Israel Journal of Chemistry from Laser Pages Publishing Ltd. Launched in 1951 as the Bulletin of the Research Council of Israel, Section A, it was re-launched in 1963 under its current name.
- Sold two journals to Maney Publishing: Cochlear Implants International and Deafness & Education International.
- Third quarter revenue growth +7% and nine-month revenue growth +3%, both on a currency neutral basis.
- Third quarter contribution to profit -2% and nine-month contribution to profit +4%, on a currency neutral basis. Top line growth was offset by higher accrued incentive compensation costs over prior year.
- Consumer, technology and business categories drove results.
Global P/T revenue grew 10% to $107 million in the third quarter of fiscal year 2010, or 7% on a currency neutral basis. Sales growth was strong in all regions, especially the US, where the holiday season was solid. Business publishing was driven by social media books; technology by books on new windows operating systems and certification; and consumer by the Meredith publishing agreement and "For Dummies" brand sales.
Direct contribution to profit rose 3% to $24 million for the third quarter of fiscal year 2010, but declined 2% on a currency neutral basis. Top-line results and expense savings were offset by higher incentive compensation cost accruals compared to last year. As previously reported, last year's third quarter included reduced accrued incentive compensation costs based upon P/T's performance in a difficult market.
For the nine months, global P/T revenue of $317 million was up 3% over prior year, on a currency neutral and on a reported basis. Strong second and third quarter results were driven by consumer, business, psychology and technology and the Meredith and GMAC agreements, all of which more than offset weak first quarter results. North America exhibited the most growth followed by EMEA. Direct contribution to profit was up 4% in the first nine months, on a currency neutral and reported basis, due to higher revenue and expense control.
Notable New Books
- Business and Finance: Common Sense of Mutual Funds 10th Anniversary Edition by John Bogle, a complete revision of one of Wiley's all-time best-selling investing books; Investor Manifesto by William Bernstein; and The Elements of Investing by Burton Makiel and Charles Ellis. In leadership, we published Patrick Lencioni's Getting Naked: a Business Fable about Shedding the Three Fears that Sabotage Client Loyalty. In his career, Patrick Lencioni has sold 2.5 million books through the Wiley franchise. Other finance books include China and the Credit Crisis: The Emergence of a New World Order by Giles Chance; Post Crisis Risk Management: Bracing for the Next Perfect Storm by Tsuyoshi Oyama; and the Stability of Islamic Finance by Iqbal, Askari and Mirakhor.
- Psychology: Handbook of Social Psychology, Fifth Edition, Two Volume Set by Susan T. Fiske, Daniel T. Gilbert, Gardner Lindzey; The Corsini Encyclopedia of Psychology, Fourth Edition, 4 Volume Set, by Irving B. Weiner and W. Edward Craighead. This is the go-to reference for psychologists, researchers and students, both in print and online. The first four videos of the Evidenced-Based Training DVD series, including: The Evidence-Based Practice Overview, Evidence-Based Treatment Planning for Panic Disorder, Evidence-Based Treatment Planning for Depression and Evidence-Based Treatment Planning for Social Anxiety. Upon completion, the series will offer twelve continuing education training videos to help bring mental health agencies and professionals into compliance with new standards. Continuing education credits will be provided through Essential Learning, with whom we are partnering.
- Technology: QuickBooks 2010 For Dummies by Stephen L. Nelson; Mastering Windows Server 2008 R2; and Laptops For Dummies, 4th Edition by Dan Gookin.
- Consumer: Hero of the Pacific by John Brady, about Marine legend John Basilone; Teach Yourself Visually Knitting 2E, part of the Teach Yourself Visually program; Calorie Counter For Dummies by Rosanne Rust and Meri Raffetto; and iPod and iTunes For Dummies DVD, a 90-minute instructional video that outlines the new iPod products, and features of the iPod software.
- Culinary: Amy's Bread by Amy Scherber and three notable Culinary Institute of America books: Artisan Breads at Home by Eric Castel; Modern Café by Francisco Migoya; Chocolates and Confections at Home by Peter Greweling.
- Architecture: Mechanical and Electrical Equipment for Buildings; 11th edition by Grondzik and Kwok and Architectural Graphics, 5e by Francis Ching.
- Publishing agreement signed with Facebook.com to produce "Official" branded Facebook instruction guides, The Definitive Facebook Guides. The series will be launched in fiscal year 2011.
- Wiley-Pfeiffer (HR development and management) signed an agreement with Korean Management Association to deliver products in Korea.
- Agreement signed with the Construction Specifications Institute (CSI) to become the publisher of the CSI Professional Practice Guides. These guides align with CSI's certification program for Architecture, Engineering and Construction industry professionals.
HIGHER EDUCATION (HE)
- Third quarter revenue +13% and nine-month revenue +14%, on currency neutral basis.
- Third quarter contribution to profit +11% and nine-month contribution to profit +21%, on currency neutral basis.
- All regions contributing to growth; sales outside the US increased 12% and 15% for the quarter and nine-month period, respectively, on a currency neutral basis.
- Third quarter revenue growth by region on a currency neutral basis: North America +13%, EMEA +9%, Asia/Australia +13%.
- Sales driven by strong frontlist and WileyPLUS
- One-third of WileyPLUS sales are now digital-only.
Third quarter HE revenue grew 23% to $92 million, or 13% on a currency neutral basis. Strong growth occurred in every region and in every subject category. Contributing to the results were a strong frontlist, particularly in accounting and mathematics, increased enrollment and growth in WileyPLUS and custom publishing. Revenue for the school business in Australia increased 18% over the third quarter of fiscal year 2009 on a performance basis. Revenue outside of traditional textbook sales, including WileyPLUS, custom publishing, desktop and binder editions, is up 40% for the nine months and now represents 26% of all HE revenue.
Direct contribution to profit grew 25% in the third quarter to $38 million, or 11% on a currency neutral basis, reflecting top-line results and increased sales of higher-margin digital products, partially offset by higher accrued incentive compensation costs and development costs to support new products. Gross margin continues to improve with increased digital-only revenue and manufacturing efficiencies.
For the nine months, global HE revenue was up 17% compared to prior year, or 14% on a currency neutral basis. Double-digit growth was experienced in all regions. Year-to-date results include revenue of $2.5 million from books previously reported in STMS and $1 million from books previously reported in P/T. Excluding these books, HE growth was 13% on a performance basis. Direct contribution to profit in the nine months increased 25%, or 21% on a currency neutral basis, primarily due to top-line growth and gross margin improvement.
Nine-Month Results by Subject Category (currency neutral)
- In business and accounting, revenue exceeded prior year by 16%. A strong accounting frontlist continued to drive growth, particularly Kieso: Intermediate Accounting 13e, Kimmel: Financial Accounting 5e and Weygandt: Accounting Principles 9e.
- In engineering and computer science, revenue exceeded prior year by 20%. Key books included Munson: Fluid Mechanics 6e, Turban: Information Management 7e and Fitzgerald: Data Communications, 10e.
- In mathematics and statistics, revenue exceeded prior year by 26%. Key books included Hughes Hallett: Calculus 5e, Anton: Calculus 9e, Boyce: Elementary Differential Equations 9e and Young: College Algebra 2e.
- In sciences, revenue exceeded prior year by 8%. Growth was attributed to Cutnell: Physics 8e, Berg: Visualizing Environmental Science 1e and 2e and Jenkins: Anatomy and Physiology 2e.
- In social sciences, revenue exceeded prior year by 20%. Key books included Huffman: Psychology 9e, deBlij: Concepts Geography 4e, Kring: Abnormal Psychology 11e and Lucas Murillo: Con Brio – Beginning Spanish.
- Revenue from the Visualizing series exceeded prior year by 89%. Growth was driven by Berg: Visualizing Environmental Science, Ireland: Visualizing Human Biology and Murck: Visualizing Geology.
- Global fiscal year-to-date billings increased 39% over the prior year period to $28 million.
- Deferred WileyPLUS revenue at quarter end was $7 million.
- Strong sales increases in the US, Asia, Australia, and the UK.
- The first institutional agreement signed in the United Arab Emirates.
Wiley will hold a conference call today, March 11, 2010 at 10:00 a.m. (EST) to discuss its financial results for the third quarter of fiscal year 2010.
To participate in the conference call, please dial the following number approximately ten minutes prior to the 10:00 a.m. start time: (866) 551-3680 and enter the participant code 2632908#. International callers, please dial the following number approximately ten minutes prior to the 10:00 a.m. start time: (212) 401-6760 and enter the participant code 2632908#.
You may also listen to a live audio webcast of the call by accessing www.wiley.com> Investor Relations> Events and Presentations, or http://www.wiley.com/WileyCDA/Section/id-370238.html
A replay of the conference call will be available through March 18th and may be accessed by calling (866) 551-4520 and entering pin code 260922#. Additionally, an archive of the webcast will be available at 1 p.m. on Thursday, March 11th at http://www.wiley.com/WileyCDA/Section/id-370238.html for a period of up to 14 days.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995
This release contains certain forward-looking statements concerning the Company's operations, performance, and financial condition. Reliance should not be placed on forward-looking statements, as actual results may differ materially from those in any forward-looking statements. Any such forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to uncertainties and contingencies, many of which are beyond the control of the Company, and are subject to change based on many important factors. Such factors include, but are not limited to (i) the level of investment in new technologies and products; (ii) subscriber renewal rates for the Company's 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 online retailers; (vi) the seasonal nature of the Company's educational business and the impact of the used book market; (vii) worldwide economic and political conditions; (viii) the Company's ability to protect its copyrights and other intellectual property worldwide (ix) the ability of the Company to successfully integrate acquired operations and realize expected opportunities and (x) other factors detailed from time to time in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any such forward-looking statements to reflect subsequent events or circumstances.
Founded in 1807, John Wiley & Sons, Inc. has been a valued source of information and understanding for more than 200 years, helping people around the world meet their needs and fulfill their aspirations. Wiley and its acquired companies have published the works of more than 400 Nobel laureates in all categories: Literature, Economics, Physiology or Medicine, Physics, Chemistry, and Peace.
Our core businesses publish scientific, technical, medical, and scholarly journals, encyclopedias, books, and online products and services; professional/trade books, subscription products, training materials, and online applications and Web sites; and educational materials for undergraduate and graduate students and lifelong learners. Wiley's global headquarters are located in Hoboken, New Jersey, with operations in the U.S., Europe, Asia, Canada, and Australia. The Company's Web site can be accessed at http://www.wiley.com. The Company is listed on the New York Stock Exchange under the symbols JWa and JWb.
Investor Relations: http://www.wiley.com/WileyCDA/Section/id-370238.html