Good morning, and welcome to Wiley's Q4 Fiscal 2023 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.

Thank you, and welcome, everyone. Joining me today are Brian Napack, Wiley's President and CEO; and Christina Van Tassell, Executive Vice President, and CFO. 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 provides 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 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 Brian Napack.

Hello, everyone, and thanks for joining. We have a lot to talk about. As you saw in our press release, we're announcing today a set of actions that will unlock significant value for our shareholders. These actions will focus Wiley on its greatest strengths, its best opportunities and its most profitable business lines. They will significantly simplify Wiley and in doing so, increase both our competitive advantage and our financial performance. Today, Wiley leans into its strength as a global knowledge company, a leader in research and the creation of new knowledge, and in the application of this knowledge to solve real world problems. We are very excited about the next phase of Wiley's journey, and we're looking forward to sharing this vision with you. Before we dive all the way in, let me give you a top of the waves view of today's main messages. First, regarding performance, fiscal ‘23 did not play out as we expected. As discussed through the year, macro and market headwinds drove lower spending in our education markets. In addition to this, we proactively decided to temporarily suspend a fast growing Publishing program due to a content integrity issue that we have now resolved. For these reasons, Wiley's revenue performance significantly under delivered. We moved aggressively and mitigated the impact on profitability, but we were nonetheless disappointed in our results. Second, we are taking decisive action to unlock value by sharpening Wiley's focus. You've heard me say before that a simpler Wiley is a better Wiley, and we are now acting to achieve this goal. We are focusing Wiley on our strong and highly profitable core and our best opportunities in Research and Learning where we are a global leader. As we focus Wiley, we are divesting certain non-strategic assets, and we are restructuring…

Thank you, Brian. Yes. We are embarking on a clear and decisive plan to simplify our portfolio. This will enable us to focus on our most competitively advantaged businesses in order to drive consistent growth while streamlining the organization, expanding profit margins and deploying our capital more efficiently. We have execution teams managing on multiple fronts and we're moving swiftly and with care. We look forward to updating you on our progress to create significant value for our shareholders. Let's turn now to our performance. Brian walked you through our full year results. I'll talk to the fourth quarter. Revenue was down 2%, mainly due to a $39 (ph) million hit related to Hindawi disruption. On the earnings front, adjusted EPS and adjusted EBITDA were up 32% and 23%, respectively, driven by committed restructuring savings and prudent expense management. As a reminder, the actions we took this year generated $35 million of in-year savings, $18 million of it in the fourth quarter alone. Our adjusted EBITDA margin for the quarter was 26% compared to 20.3% in the prior year. Let's move now to our segments, where I'll touch on both the quarter and full year results. Research Publishing revenue declined 5% this quarter and 1% for the year. Results were impacted by the Hindawi disruption and lower article volume, as Brian discussed. Absent Hindawi publishing revenue for the quarter was essentially flat and up modestly for the year. As a reminder, we expect the Hindawi pause to continue to weigh on our results in fiscal '24 but largely recover in fiscal '25. We are executing well on our strategy to convert legacy read-only subscriptions to our multiyear transformational read and publish models. We closed the year with 35 new transformational agreements for a total of 79, representing nearly 3,000 institutions.…

Thanks, Christina. Let's now talk a bit about our growth outlook. As Christina noted, we're growth constrained in fiscal '24 due to the special issue situation and the continued cyclical softness in print publishing. Despite these short-term issues, we're quite optimistic about growth as our core revenue drivers resume their more normal trajectories. The research market remains consistently strong due to the ever increasing global R&D spend that drives demand for research publishing. As such, article volumes are now resuming their normal mid-single digit growth patterns and as they do, Wiley will get at least our share. We will benefit from Hindawi's return to strong growth as we ramp up its publishing program. Our growing list of solutions partners will be another source of renewed growth. We see them requiring more Wiley services as the OA transition continues and we have a deep pipeline of upsell opportunities. The growing Wiley network also bodes well for audience monetization. It will benefit as corporate marketing spend bounces back and as our audience monetization offerings grow. We continue to see increased corporate spending on professional development as workforces adapt to hybrid work models and changing skill sets. We also expect our learning publishing lines to benefit from a recovery in consumer spending and enrollment after a rough 2023. In short, we feel very good about the growth profile of Wiley as we move through fiscal '24 to fiscal '25 and '26. Before I close, I want to say just a few words about generative AI, a topic that I know is on everybody's minds. Not surprisingly, we've been keeping our eye on GAI for a while, and in short, we believe that these technologies present far more opportunity than risk. In all of its knowledge businesses, Wiley plays at the top of the…

[Operator Instructions] Your first question is from Daniel Moore of CJS Securities. Please go ahead. Your line is open.

Thank you, Brian and Christina for all the color. And as you said at the outset, lots will unpack, so I've got a number of questions. We'll start with Hindawi. Just if you could give the specific revenue and EBITDA contribution or loss embedded in your fiscal '24 guide. How much of the year-over-year decline in EBITDA on an adjusted basis is Hindawi driven?

Hey, Dan. Sure. It's Christine here. I'll take that one. So for fiscal year '24, we were expected to decline year-on-year about $30 million to $35 million in revenue, which drops about $20 million to $25 million of EBITDA.

The EBITDA lower $20 million to $25 million versus fiscal '23, correct?

Yes.

Got it. Very helpful. More important there, talk a little bit about the revenue opportunity and margin profile longer term relative to your initial expectations for that business, and just help us understand your confidence why the issues experienced year-to-date won't recur.

Yeah. It's a seminal question, Dan, and thanks for it. So our position was certainly affected last year. Our financial performance was certainly affected significantly. We unpacked -- if we unpack the issue, it's very easy to see that this is a onetime short-term issue. Bad actors got involved, it's Wiley leapt to the fore, and we publicly took control of the situation, teaching the industry what to do based upon it. It had a significant impact on our revenue and we are slowly ramping up the program again to make sure that we do it prudently because at the end of the day, we are our brands We're the Wiley brand and we're our journal brands. And we must make sure that we always do what is necessary to ensure that both the knowledge creators and the knowledge of consumers have trust in those brands. So that's a little rhetoric, but it is really what we believe. Now as we look forward, there -- our Open Access businesses are -- have been growing very quickly. They're growing very quickly now and they are accelerating through the year. When we look into last year, we know about -- because I discussed earlier about the short-term declines we saw in article volumes that were due to the COVID thing unwinding. And as we've come out of that, what we've seen throughout the year is an acceleration in our OA output. So for example, across last year, our OA output across the company was, I think, at 6%. And it grew by the fourth quarter to 11% and we expect it to go up from there. Our pure gold output is growing even faster. So we're seeing that acceleration. We're seeing the signs that we are on the right track. As you…

And Dan, I just want to jump back in. I just want to correct myself on the EBITDA year-on-year. It is $25 million to $30 million between '23 and '24.

And what is the EBITDA loss then implied for fiscal '24?

The EBITDA loss for...

Not the delta, but the actual impact, the negative impact of EBITDA and the overall for Hindawi in '24?

We'll get back to you on the details behind that. But for now, you could just -- you could summarize it by saying that our revenue will be down and [Multiple Speakers] together, yes.

Got it. Sticking with Research, just pretty healthy growth, obviously, 3% projected ex-Hindawi. In terms of the P times Q model, is there any way as OA and mix model become a bigger piece, how to think about the relative mix of P times Q embedded in that guidance?

Yeah. As you know, we've been discussing for a while, as we move through these transformative agreements or transitional agreements, we stopped discussing them as individual items. I will say that OA, if you were to separate it out now, is around 33%, 34%, maybe a little bit less than that. But it's growing significantly. We made a bet on the P times Q model, that has played out. So as we've moved from more traditional subscription or remodels to the P times Q model, we've certainly seen a direct correlation and the math play out about our assumptions there. So how should we -- I'm not sure I'm 100% getting at your question, Dan, if you want to clarify if I missed something.

Yeah. That's -- it's obviously a volume driven model to some extent and just kind of getting a sense of pricing relative to the volume growth.

So relative -- yeah, relative to both parts of it. So if you simplified the world into a binary between subscription and OA or P times Q, you would -- I would say a couple of things. One is, it's all driven by volume ultimately because the value of our subscription model is about the volume of product we put in there and the quality of our brands, that's sort of the equation. And the same is true on the other side, on the P times Q side. If we have the brands, we have the pricing power. If we have the brands, we get the volume. If we get the volume and we have pricing power, the future is bright. Because I will say that we -- as you would expect, we modeled this out at the beginning with multiple scenarios to see whether we could be bold enough to make the commitment we have to OA, and we have been at or above our expected case all the way through since we began this four years ago. So good pricing power on the side of OA. And I'll say -- yes, I'll just leave it at that.

Makes perfect sense. Switching gears, in terms of the divestments, I understand timing is very much out of your control, and hopefully, there'll be patience there. But are the expectations that these would be sold as a package or individually and any way to sort of put maybe even large guardrails around what your expectations would look like from a proceeds perspective?

Yeah. We won't be commenting on proceeds today. We're making a strategic decision here, not a financial one. And we're not -- so as we look forward, what I will say is, we are proceeding as rapidly as the markets will allow and in some cases, we're proceeding very rapidly. These are very high quality assets with lots of potential in parts of the market that should do very well in the long run. And we, in each of them, have assets that are considered gold standard. So we expect a very healthy market for them. Having said that, it's a very odd time to be coming to market. And so we have to be patient in how we look at it. The valuations in the space are not what they once were, and we have to be reasonable in our expectation. So I don't want to set expectations too high. Having said that, to repeat what I said a minute ago, these are great assets and we expect significant interest. And in fact, we've already seen significant interest in them, not just in the past years, but actually we've got plenty of -- we've had plenty of inbound even without this call. And I expect we'll get more from here on in.

Makes sense. The...

Yeah. You also asked another question -- Dan, you also asked another question, which was packaged or individual. The answer is, if I were bet man, I would say we're selling it individually, but they are fantastic assets. And for investors who understand -- deeply understand this space, they'll recognize that these are terrific assets and there could be a packaged sale. But I'm not going to odds make it at this point in time.

Sure. Shifting back to the core -- or the remaining businesses, the Learning business. Academic and Professional Publishing have been under some pressure, obviously cyclical here, but some longer term pressures on print. The shift to digital is well documented. Looking out beyond this year, is there inflection to -- and I understand the synergies between that and the Research business, obviously. But is there an inflection to positive growth kind of over the next one, two, three years that you see? And what would drive that?

Yeah. So specifically with regard to the last question, I don't want to set outsized expectations regarding those businesses. What I'll say is that there are significant pockets of growth within our Academic -- excuse me, within our Learning business. We've seen our platform -- our digital and platform businesses such as zyBooks grow at an extremely fast rate. The digital products do very well. And as we look to the Professional lines, the traditional publishing part of it, what we always call our trading business tends to go up and down based upon the trends in publishing, which are consumer demand driven. But a very solid business. I don't expect lots of growth out of it for sure, but it's a very solid business. And on the Professional, on the assessment or team development business, it's a terrific business with lots of growth and great profitability characteristics. We -- the only thing that I would say in addition about growth itself is that print is -- has continued to be an issue. It will continue to be issue. But overall, it contributes to a very solid base that is very profitable and very compatible with the rest of the businesses. The choices we're making today are about aligning businesses where we are strong, we have proven assets and brands where we have compatibility and can drive synergies to reduce redundancy and duplication, where we can win and where they can benefit Wiley financially. So while we're not looking at that overall segment as a profound growth driver, it has very attractive financial characteristics from a profitability perspective. And so as such, with its compatibility and synergy, it fits very well with the overall portfolio. And I think you'll see increasing synergies over time.

Indeed, no doubt. Christina, just to...

I also want to -- Dan, I also want to stress that what we saw last year was were market related headwinds related more to consumer demand than to structural changes in the business. We've continued to see unit volumes hold up. The issue is -- has been inventory channel over time. But we saw consumer demand issues, we saw some enrollment issues. And we all know consumer demand ebbs and flows, we all know enrollment has ebbed in the last couple of years. We expected to return to growth. So some of the things, just as we talked about on the Research side, some of the things that were going on demand-wise weren't really about profound structural changes in the market. They were just about the ebbs and flows of demand.

Understood. Christina, I just want to clarify one or two things that I heard. I think I heard 23% plus EBITDA margin kind of entering fiscal '25, expect to get back to that level on a run rate basis. Did I hear that correctly?

Yes. Yes, correct.

And the $100 million...

As we exit '23 to '24, yeah.

Yeah, as we exit '23 and '24.

'24 to '25, yes.

We're going to be gaining speed...

'24 to '25, yeah, that makes sense. And you mentioned $100 million in cost savings over a three year period, I believe. Is that incremental to the 60 plus that we've been talking about or is that included in that?

It is incremental to the 60 that we've talked about previously. And that is our best thinking as we sit today. And it's over -- we're doing our best to operationalize as much as we can. But as you know, with divestitures, you can't really predict the timing. But we are going aggressively against our infrastructure, and we're going to give you some updates as we get them next quarter and into Investor Day.

Yeah, Dan. We have a broad program outlined to identify the opportunities that will result from the new focusing, the alignment and the slimming down of the organization. We -- it will take us a little bit of time for us to work through it. But as we work toward our October Investor Day, we will get significant clarity on it and expect to be given much more clarity, not just on the program at the time, but on our growth and profit trajectories in the future. I misspoke a minute ago so I want to clarify it. I jumped into clarify, but I said the wrong thing. As we go through fiscal '24, we will be gaining steam, as we go on our way to fiscal '25. I said '23, and that was just a miss.

No worries. That's great. Last one for me. I appreciate the patience. And I understand this year is a very challenging year from a cash flow perspective or at least from a clarity perspective given all the moving pieces. But just thinking about the algorithm or the core. If the new base of adjusted net income is $130 million this year, backing into that based on your EPS guide, and hopefully, growing significantly thereafter as you just described, how do we think about free cash flow conversion kind of beyond '24 and looking beyond divestments, your priorities for capital allocation? Is M&A still part of the mix or is it more likely to be internal investments and more aggressively returning cash to shareholders? I know there was a lot for the last question, but I appreciate it.

You want to jump on it.

[indiscernible]

Yeah. So look, our business, as we have decided to focus and prune, Wiley (ph) has -- and you can see it, Dan, already, with just what we've shared. Our cash flow characteristics will be increasing, not decreasing. The business that we are in are more profitable. You can see it in our EBITDA, even though we're not providing cash flow characteristics. So on a go-forward basis, our conversion should be significantly good in proportion to our -- proportional to our revenue growth as we go forward. So I feel very good about it. We will most certainly -- we most certainly be gaining steam as we go through this year and into next year. So as we think about capital and capital allocation, our priorities are clear. We're focusing on our Research and Publishing businesses and in the knowledge solutions business, our platform businesses that support and extend those businesses and our market position. In addition, we're focusing on the vertical markets where we have strength and we'll continue to invest in those. So with those as our priorities, we don't expect to be particularly active this year. In fact, we'll be extremely conscious this year from an acquisition perspective. But we will keep our eyes out and we would align our investments against those priorities as we go forward.

And just to add to that, Dan, we just made some really important decisions as we talked about today. So it takes some time to work through the details and also our use of proceeds. But we are going to evaluate all our options, including what Brian just mentioned. Also, we're also keeping going out for our debt structure in light of the macro environment, we also always look at our share repurchases, all those things. And as a reminder, about half of our cash flow is dedicated to dividends and buybacks.

Very good. Thank you again for taking the questions and color.

Great. Well, look, I want to thank you all -- are there any other questions?

There are no further questions at this time.

Okay. With none, I want to thank everybody for joining today. It's been a big call for us. We're looking forward to the year to come as we gain more clarity and more momentum around our new strategy. I definitely want to re-thank our colleagues worldwide for their continued support and passion in this journey. We are committed to unlocking potential. And now we have a more clear focused aligned strategy that would go forward into the future and generate -- unlock value for our shareholders and all of our stakeholders. So thanks very much. We look forward to sharing results in Q1 and updates in September. Look forward to seeing you all at our Investor Day in October.

This concludes today's conference call. Thank you for your participation. You may now disconnect.