John Wiley & Sons, Inc. (NYSE:WLY) Q3 2024 Earnings Call Transcript

John Wiley & Sons, Inc. (NYSE:WLY) Q3 2024 Earnings Call Transcript March 7, 2024

John Wiley & Sons, Inc. misses on earnings expectations. Reported EPS is $-2.07756 EPS, expectations were $0.45. WLY isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to Wiley’s Q3 Fiscal 2024 Earnings Call. As a reminder, this conference is being recorded. At this time, I’d like to introduce Wiley’s, Vice President of Investor Relations, Brian Campbell. Please go ahead.

Brian Campbell: Thank you and welcome everyone. With me today are Matt Kissner, Wiley’s Interim President and CEO; Christina Van Tassell, Executive Vice President and CFO; and Jay Flynn, Executive Vice President and General Manager of Research and Learning. Note that our comments and responses to your questions reflect management’s views as of today and will include forward-looking statements. Actual results may differ materially from those statements. The company does not undertake any obligation to update them to reflect subsequent events or circumstances. Also Wiley provide non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These measures do not have standardized meanings prescribed by U.S. GAAP and therefore, may not be comparable to similar measures used by other companies nor should they be viewed as alternatives to measures under GAAP.

Unless otherwise noted, we will refer to non-GAAP metrics on the call and variances are on a year-over-year basis and will exclude held-for-sale assets and the impact of currency. Additional information is included in our filings with the SEC. A copy of this presentation and transcript will be available on our Investor Relations web page at investors.wiley.com. I’ll now turn the call over to Matt Kissner.

Matt Kissner: Thank you, Brian and hello everyone. I am fighting a bit of a cold this morning, so if I sound muted, you’ll understand why. Let me start by saying we’re seeing marked improvement as we enter the home stretch of this transition year. I’ll talk about our overall progress to-date, review our third quarter performance, and recap our recent investor event. I’ll also provide some additional color on how we view the evolving AI opportunity. Christina will walk through our VCP progress, segment performance, and full year outlook. We’ll then open it up for questions and Jay will be joining us as well. 2024 marks Wiley’s 217th year. As one of America’s most enduring companies, Wiley is enabling the creation and curation of new knowledge and its application in critical areas of the knowledge economy in science, technology, and engineering and business, economics, and finance.

We are as relevant as ever. Let’s turn to our progress to-date. We have moved decisively to improve the organization, divest non-core assets, and right-size Wiley for future success. We’ve now announced the sale of two of our three divestitures and closed on one of them. Our goal of course is to free ourselves of these non-core assets to focus on our profitable and cash generative core where we have clear competitive advantage, operating leverage, and growth opportunities. We’ve made very good progress on our $130 million cost savings program with 60% of it action to-date. We’ve moved more aggressively on it than originally planned, resulting in higher in-year savings, which Christina will talk to. Learning continues to outperform expectations and positive signs are emerging in Research with Publishing returning to growth this quarter and leading indicators favorable.

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Q&A Session

Overall, we now expect full year revenue to be in the mid- to high range of guidance. Finally, given revenue expectations and accelerated in-year savings, we are raising our full year earnings outlook. In summary, while much work remains, we’re pleased with our progress and continued momentum. Let me now turn to our performance for the quarter. GAAP revenue was down 6% impacted by the sale of our University Services business, and a decline in our held-for-sale assets given market conditions. GAAP EPS declined by $0.79 a share for a GAAP loss of $2.08, primarily due to material non-cash impairments and loss on sale related to our divestitures. Let me acknowledge the obvious that it’s been a long stretch of write-downs and impairments related to these divestitures.

We don’t anticipate any further material write-downs of these assets, and we certainly look forward to putting it all behind us. On to our adjusted results. Note, we’ll be excluding our held-for-sale or sold assets in our commentary performance and outlook, unless otherwise noted. Q3 adjusted revenue growth of 1%, was largely in line with our expectations. In Research, we saw a return to year-on-year growth for Publishing, driven by double-digit gold open access growth, and positive contribution from our multiyear institutional models. This was partially offset by the remaining year-over-year drag of Hindawi. Excluding Hindawi Research Publishing revenue for the quarter was up 2%. So we feel good about the improvement in our core. As a reminder, we are integrating Hindawi’s quality journal portfolio into our own and using its world-class infrastructure for our Open Access program.

So we’ll be talking about the performance of the overall program going forward. In Learning, we continue to see out performance in our academic learning with growth attributed to digital courseware, digital content and licensing. Our zyBooks STEM courseware and inclusive access sales model continue to show strong gains. Inclusive Access, adds the cost of digital course content into students’ tuition and fees. As a reminder, US undergraduate enrollment in the full semester grew for the first time since the pandemic. So Higher Ed market conditions have become more favorable this year. Adjusted EBITDA for the quarter rose 1% to $92 million, with revenue performance and restructuring savings offsetting a materially lower incentive compensation accrual in the prior year.

Adjusted EPS was down 27% as expected, primarily due to higher tax expense related to geographic mix and lower adjusted operating income. For those that may have missed it, we held a virtual investor update on January 25 to share our near- to medium-term plans and financial targets. The feedback so far has been positive, and we’re now focused on executing and delivering on our commitments. Let me briefly summarize our key takeaways. Today’s Wiley is a very different company than before. We are focused on our strongest and most profitable businesses in Research and Learning, where we have our strongest opportunities moats and margins. We’re taking specific actions to drive market share, attract new authors and article submissions and strengthen our brands and partnerships, we will do this while maintaining the quality and impact that Wiley is famous for.

AI and machine learning are attractive opportunities for us, which I’ll talk more about on the next slide. We see a very real opportunity to embed our content into large language models and training engines. Internally, we will be deploying the technology to improve productivity and publishing speed, quality and volume. And finally, we are heavily focused on improving our operating and publishing efficiency. We are moving from multiple disparate publishing platforms to one flagship submission and peer review experience for our research authors. This will make it easier for us to stand up new content offerings and enhance the ones we already have. Moreover, we expect this next-generation platform to lead to a material reduction in article turnaround times and cost per article.

And of course, we’re driving cost savings and efficiency gains across the organization. Let’s turn to the AI opportunity and how we see it shaping up. We are confident that the advancement of these technologies will be a contributor to productivity and growth in the years to come. Today we think of the opportunity in four areas. The first is in licensing our content for large language models and similar applications. Wiley’s strength is in its high-quality structured content in science, learning and innovation, areas that are critical to economic and technological progress. As we discussed on our investor update, our content is foundational for training and fine-tuning these models. I’m pleased to report that after the quarter closed, we executed a $23 million content rights project with a large tech company.

The one-time transaction to be recorded in Q4 includes access to previously published academic and professional book content for specific use in training LLM models. We are working to uncover similar content opportunities with other AI players and remain convinced that the future development of LLMs is best served by the high-quality structured content that Wiley delivers. The second area we focused on is product and publishing innovation. Today we are actively building and deploying AI editing tools to improve speed and quality of our journal content and reduce unit costs through process automation in the value chain. To accomplish this, we have built an award-winning AI R&D team and are actively working with an international AI advisory team that includes professors, Ph.D. researchers and AI thought leaders.