Good morning, and welcome to Wiley's Fourth Quarter Fiscal Year 2020 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.

Good morning, and welcome to Wiley's fourth quarter and fiscal 2020 earnings update. On the call with me are Brian Napack, our President and Chief Executive Officer and John Kritzmacher, our Chief Financial Officer. A few reminders to start. The call is being recorded and may include forward-looking statements. You shouldn't rely on these statements, as actual results may differ materially and are subject to factors discussed in our SEC filings. The company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances. Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These performance trends do not have standardized meanings prescribed by U.S. GAAP and therefore, may not be comparable to the calculation of similar measures used by other companies. This should not be viewed as alternatives to measures under GAAP. Please see the reconciliation and explanations of all non-GAAP financial measures presented in the supplementary information included in our press release. Unless otherwise noted, we will refer to non-GAAP metrics on the call, and all variances will exclude the impact of currency. After the call, a copy of this presentation and a playback of the webcast will be available on our Investor Relations webpage. I'll now turn the call over to Wiley's President and CEO, Brian Napack.

Thanks, and good morning, everyone. On behalf of all Wiley's colleagues, I'd like to extend our thoughts to the many lives, many whose lives have been impacted by the global health and economic crisis. The past hundred days have reminded us of the critical importance of community, and that how much we all rely on each other. We've been uplifted by neighbors, essential workers and health professionals as they work to care for all of us. At Wiley, we've seen our community in action with scientists curiously developing testing, therapies and vaccines, with educators innovating and adapting to ensure that learners can continue their developmental journey through these difficult times. We stand in solidarity with those affected by the egregious acts of racial injustice in Minneapolis, Louisville and elsewhere in the world. And with those bringing awareness to this fundamental problem. The core values of community essential to Wiley’s culture, everything that we do is we work to improve access and affordability and education, and to facilitate scientific progress, such as medical breakthroughs. Now more than ever, our work can help to heal, recover, and rebuild trust. Like most businesses, Wiley’s short term performance has been adversely impacted by the pandemic and the resulting economic dislocation. At the outset, our priority was of course, to ensure the safety and wellbeing of our colleagues. We transitioned very smoothly to work from home worldwide. Throughout, we've continued to support our customers, partners and communities without interruption. From a performance perspective, we drove hard through the fourth quarter and finished the year ahead of our April 9 expectations. During this period, we also generated good momentum in our key strategic areas of focus. The company is fundamentally strong. We benefit from modest leverage and ample liquidity. Nonetheless, we do face near term uncertainty…

Thank you, Brian. As a reminder, we issued our annual guidance last June and updated it for our Q3 earnings report on March 4th to reflect the impact of subsequent acquisitions and foreign exchange movements. On April 9th, about three weeks or so into the pandemic shutdown across the U.S. and Europe, we lowered our revenue, adjusted EBITDA and adjusted EPS guidance and we went through our free cash flow guidance given the lack of visibility around the timing of customer payments. Our guidance as of March and then the April revisions are shown here. Our fiscal year actuals are shown in the right hand column. As you can see, our colleagues rose to the challenge in April, closing new business, ratcheting down expenses and collecting on our receivables. Overall, our results trended favorably to our COVID adjusted guidance. In the end, we're estimating that the pandemic shutdown adversely impacted the quarter's revenue and EPS by $30 million to $35 million and $0.15 to $0.20 respectively. Our adjusted EBITDA margin for the year was 19.4%. Earnings for the full year reflect our investments in long-term growth initiatives and strategic acquisitions. The inorganic earnings impact of acquisitions was $0.33 per share of dilution for the year, including interest expense. Free cash flow of $173 million finished ahead of prior year by $24 million or 16%, primarily due to improved working capital performance. Nevertheless, we estimate that approximately $30 million of delayed customer payments slipped into fiscal year 2021. Our cash flow from operations was favorable to prior year by $37 million. As you can see, we continue to deliver solid cash flow performance over time. This foundational strength will enable us to stay the course in executing our strategic plans during the challenging period ahead. Our balance sheet continues to give…

Thanks, John. For over 200 years, Wiley has navigated [Technical Difficulty] uncertainty, operational discipline, fiscal prudence and strategic strategic, and we'll continue to do so through this one too. To recap today's main messages, Wiley’s fourth quarter performance was adversely affected by the pandemic. We drove [Technical Difficulty] ended ahead of our April 9th expectations while continuing to generate good momentum in our key strategic areas. Our business is fundamentally strong and is reinforced by modest leverage and ample liquidity, and we do face near-term uncertainty in our markets due to COVID-19 and its economic impact. Nevertheless, long-term trends remain very favorable for our core business and peer reviewed research, online education and corporate e-learning. Our strategic plans and investments are all focused in these areas, and we are carefully prioritizing the timing of our investments and accelerating our business optimization initiatives in response to COVID-19. Finally, our near-term visibility is just too limited to provide specific guidance at this time. Wiley is one of the most enduring companies in American history for a reason. Our financial position, cash generation and business fundamentals remain solid. We have a long history of adapting to a challenging and changing world. And while today's disruption across the globe presents challenges, our business as always remains essential to the global economy, our core strategies match very well with the future markets needs. Stating the obvious, it's been a difficult period for all. I wish you and your families good health and good luck as we continue to navigate through it and once again, I want to thank our Wiley colleagues around the world for their incredible work and commitment and for their remarkable accomplishments this quarter and this year. I'm grateful for the opportunity to work with such an extraordinary team. With that, we welcome your comments and questions.

Thank you [Operator Instructions]. Our first question comes from Daniel Moore with CJS Securities.

I want to start with the journal subscriptions. Can you give us a sense of where we stand today in terms of calendar '20 versus calendar '19 up or down by how much and roughly what percentage of business is closed to-date?

So with regard to subscriptions, Dan, as you know, we've got an evolving model where we are now entering into both pay to read and pay to publish models in some countries in Europe. So direct comparison across two subscriptions, signed versus prior year is a little bit different. But I would say in terms of our signing on business for this year, inclusive of both the mixed models and our subs agreements, we are, even with prior year, we actually as we noted in the comments earlier, made very good progress in April in closing additional agreements. And we expect to conclude most of our subscription agreements now during the balance of our first fiscal quarter. Again, this is all with regard to the calendar year '20, the calendar year '21 subscription season gets underway in the September, October timeframe.

And on that note, what are you hearing from your university journal customers at this point, obviously, most if not all are under pretty extreme financial stress. What are maybe some of the dialogues and steps that you're taking, whether it’d be temporary price concessions, volume discounts, and/or maybe eliminating noncore titles, just as they navigate through these interest, pretty unusual budget times? Any color there would be extremely helpful.

So, as you said, we feel confident in the essential nature of our content, but you're right to point out that universities and university budgets have been under pressure, or expected to be under pressure. We expect that to be evident as we go forward, really more about next year than this year. To date we've been very close to our, very close to the market. Obviously [Technical Difficulty] to be, we've been speaking for them, we've closed a bunch of deals during the COVID period. We saw no excessive price pressure during that period or under the point as you might worry about. So, so far the signals are good. We continue to keep our ear to the ground, as far as just not putting the pressure [Technical Difficulty] you would expect. Having said that we're really early in this, Dan. As I would say about many of our businesses, the world and the university world in particular is still trying to sort out [Technical Difficulty] librarians are very protective of their collections, they want to keep it, they know the value of it, universities understand the value [Technical Difficulty] research to their research activities, which are key to their university rankings on a global basis. So this is important stuff. To be clear, we've seen no material price pressure, no material unbundling, or anything of the sort. I wouldn't be surprised to see some. You’ve also asked about specific actions that we've taken. We went out early with a commitment to hold prices flat this year. We went public with it before anybody else did anything of the sort. And we were extremely well rewarded in PR for that, the market felt it, an act of good faith. As you know, we have taken the position as a good actor who in this market that wants to make sure that the entire ecosystem is healthy and collaborative in support of research. So that was a bold move on our part [Technical Difficulty] and necessary, and we believe it is allowing to get ahead of [Technical Difficulty] secure the ‘21 renewals with greater ease and greater confidence. So that's basically the story.

I'll sneak in one more, switching gears to education services. Obviously, it seem to be in the catbird seat as it relates to the shift to online. Are there any impacts you're seeing from COVID? Clearly, you continue to sign new business. Do we expect to continue to grow at healthy rates in fiscal '21 and if not, why not?

So '21 is unclear right now. It's easy to say that the COVID disruption is moving everything and everybody online. And in the long run, we believe we are at and beyond that inflection point where that's happening. We can see it in many ways. But we're in an unsettled period right now and we are not going to go out and say that that's going to come flowing through our enrollments immediately. What we do believe is that in the long-term, the trends are very much in our favor. And you see that in the interest level and our services that we're seeing right now. But today, most universities have been actually stunted by this. They're not making the long-term strategic decision. They're making short term decisions on what the hell do I do to get my students back on campus, and what do I do with my teachers who don't want to go into the classroom, because of fear of getting infected. So to-date it's been more tactical. I think these trends play out overtime. Again, specifically what we've seen since the crisis is initially a significant decline in lead generation, which you don't want to see. But happily that's fact that bounced back and right now we're at or above our three year levels even a time when people don't know where left from right. So we're not, we're seeing reason, we have reasonable confidence and we'll [Technical Difficulty] really early days, we won't know. As you know, the fall season, the fall enrollment is what really matters and we won't have a good beat on that for a few months. So as that happens, we'll keep you guys posted. But we are optimistic and we see good tailors tailwinds in this segment as soon as we get through the uncertainty and dislocation that currently is affecting our university partners and students and sorts of stuff.

But as of right now to be clear no change to the fiscal '22 targets on that side of the business?

So Dan, I commented earlier that we're going to, we are withdrawing the fiscal year '22 targets given the uncertainty ahead of us. What I should point out is while top-line performance is less clear in this environment, we're making a lot of progress on the profitability of that business and so the 15% EBITDA target that we set for that business is well in sight. We've made good progress against that this year. We've delivered 9% EBITDA margin on that business this year. And we see a clear path to getting to the 15% EBITDA margin target that we’ve set.

[Operator Instructions]. Our next question comes from David Tang with Stifel.

What was the source of the goodwill impairment for the ed services segment? Was it Learning House or was it Deltak, and what drove the underperformance relative to expectations? And then secondly, can you talk about the inventory levels at college bookstores and what your expectations are for the ordering patterns for the upcoming fall semester? Thanks.

So first, with respect to the impairment of goodwill and the education services business, our balance sheet carries about, ed carried about $200 million in goodwill associated with the combination of the original Deltak acquisition and the more recent Learning House acquisition. As we noted in our comments, the goodwill impairment reflects an underperformance against our acquisition case assumptions and that in particular relates to revenue growth. We had particularly progressive revenue growth assumptions and over time we've not delivered on those. So in light of the lower performance historically in that business and given the economic headwinds that we see in the near-term, the impacts on universities and potentially on online enrollments, we modeled the business for lower revenue performance in the near-term. So the comments I just made to Dan we still expect the profitability of the business on the revenue base to be strong, and we are cautiously optimistic about future growth in the business. But given our track record and given what we've seen in the near-term in terms of COVID related headwinds, we found that the carrying value was in excess of the book value, and so we made an adjustment to goodwill. And we've not attributed particularly to the Deltak or the Learning House businesses, they're integrated now. We did pay a higher revenue multiple, I should notice, for the Deltak business. At the time that we acquired Deltak back in 2012, we paid about four times revenue. Learning House was acquired for 3 times revenue, so at a significantly lower premium. With regard to inventory at bookstores, I would say that what we've observed in the last couple of months given the slowdown in retail is that the inventories have remained relatively flat. What bookstores have tended to do is lower their ordering during this period that they've been shut down, because without the retail traffic they're not doing much to restock shelves. They don't have much following this passing through them for the most part. Now that's true. While the retail outlets have been fully closed, they are beginning to reopen. Some have some online business, but not the smaller ones. But others have, others have, the larger retailers have online business and all are slowly beginning to reopen, first with curbside and then they'll move to be fully open for retail. That is in early days and so I won’t necessarily claim that this is sustainable trends. But in early days, we are seeing some improvements in ordering as the bookstores prepare to continue serving their retail traffic. But again, it's early days. We still are just opening. And so there's some lingering effects here and it won't be fully unwound until bookstores are fully opened, up and running and along with that it’d be beneficial to have students back on campuses at the university bookstores.

So I'll add just a little bit to that answer, which is an excellent answer. Interestingly and not surprisingly the consumer book sales numbers, industry numbers, have been points of purchase inventory numbers have continued relatively strong through this period of time. I'm not surprised by people at home, they go online, they buy books. The channel mix of course has changed. But the volumes have been very good and that's very hard, people like books, they keep buying them. And particularly in the categories that we are in, the segments we focus on in the consumer business, business books and that sort of thing, are our strong categories that continue to grow. On the education side, it’s a very, very thin period right now for book sales. This is not a time when college books, when college students are buying books, which is good. It means that during the peak of the COVID period, you're not worried about losing the bulk of the year. But it will point back to, from an inventory perspective, it'll be very interesting to see what happens in August, because that's when bookstores stock up for the college fall season. So that will be an interesting thing to watch. And that will be completely a function of the enrollment that they've secured between now and then, because that's how it works. They basically say we're going to have this many students in the classroom and we're going to order this many books. So, really it’s fall enrollments that will drive that and we won't have a sense of inventory until we get to August. But that will be good indicator, very good indicator, for us to look at. Having said that, we are seeing significant movement, as I indicated in my remarks, toward the digital material, the digital courseware, that have been growing nicely for the last few years and that have accelerated now. So, there maybe an enhanced shift, which if you've been following that we've been talking about, or the story that we've been talking to for the last couple years. As we move to those digital materials, we may lose a unit at a relatively high price in physical prints. But as we do, we gain multiple units of digital, because the sell-through is 3 times as high, because of the lack of substitutes for the digital courseware. And so we like that shift and so if we see some inventory and ultimate sell through problems in this fall, some of that will come back to us. We're hoping a lot of it will come back to us in digital. But the key number to look at and as we think about leading indicators is fall enrollment, it's all about the fall enrollment in the college business.

Thank you. And next question comes from Daniel Moore with CJS Securities.

Just obviously kind of doing everything that you can, John and Brian, to mitigate any near-term loss revenue as far as some of the restructuring efforts, taking aggressive cost actions even executive pay, et cetera. Netting that out, is there a way to think about kind of detrimental margins to EBIT maybe just a broad range in the areas that maybe you're under more pressure from a revenue perspective in the short-term?

Dan, in the absence of guidance, it's really hard to comment on margin ranges in the go forward business. I think to get a handle though on what the go forward business looks like, start with thinking about the different businesses we're in and how they're impacted by the slowdown. So for example, in the research business as we talked earlier, most of the calendar year '20 subscription revenue and the mixed read and published agreements have been signed. And so they're effectively locked in through the calendar year and then we'll see what impacts we have around library budgets when we make our way through the renewal season in the fall. But the margin, the incremental margins on research sales, as you can imagine is quite strong. Across other businesses and academic and professional learning, which is where we've had most of adverse impacts in terms of top line performance, we see a combination of pressure on book revenue, which has reasonably strong variable margins but not on the order of the margins that we see in research. And there are also, within that segment, there are some training services that have high margins. So, modeling those out where we have the most impact, they're slightly different margins but they’re in that marginal range that we see around academic and professional learning. And then in education services, as Brian said, we're looking into the market ahead it's a bit uncertain. Overall, in that segment, as you know, the overall profitability is relatively low and working on building that up, so we have lot of confidence on bringing that back. But I think if you take a look at the mix of what we see in revenue performance, you can begin to interpret where margins for the business will head next year.

Maybe one or two more, and I'll let you get back. M&A, I think you said was dilutive by $0.33 to fiscal '20. Is that the right way to think about it?

The inorganic impact for fiscal '20 was adverse into the tune of $0.33, yes.

And any commentary on the direction of that dilution as we get into '21, I know you're not giving guidance. So if that falls under that category at the time?

Yes, I would only say, Dan, that we are expecting all to improve, where in particular, some of that dilution comes from the inorganic impact of Learning House. We're making good progress around the integration of learning house into the ed services business and as we've been saying, driving the EBITDA margin in the direction of 15%. So we'll see an improvement there next year. Also, some of the dilution comes from our Newton and zyBooks acquisitions. And again, we're integrating and we're gaining ground rapidly in terms of sales of those products. So, I also expect that the dilutive effects of those acquisitions will be substantially lower as well.

Lastly for me, just some really interesting commentary that Brian had around M3. You know I think you said you were kind of continuing to strain and stockpile high potential talent for when demand increases. So just maybe remind us of the revenue model, how that, is that sort of on your dime, if it requires incremental investment from and hopes to be placing people later? Just the dynamics of that would be really helpful. Thank you.

So those that don’t don't know, basically what M3 does is a terrific and innovative business model where it works with leading corporations and in the dominant number of their clients are the leading, world's leading financial institutions. So, Morgan Stanley and Bank of America, names that you would know, HSBC and so forth. And they really have developed an incredible niche. They work with those companies through, I will say at the beginning and the end, have dramatic and increasing need for tech talent and they take orders from them basically. So Morgan Stanley says I'm opening up a development center in Mumbai or in Toronto, which we’ve done both of those for them, say Toronto or Montreal [Technical Difficulty] was one of those two. Then [Technical Difficulty] they go to leading universities, they take the best students from universities at graduation [Technical Difficulty] both training program to place those people based on those orders, specific orders from directly into jobs. For two year period, they are on our payroll and we charge them out to the client. And after that two year period, they become employees at a very high rate of the client. So that's the model. The revenue model there for us is that we're getting paid from day one by the clients at what they would normally charge for an entry level employee, and we are charging it significantly, excuse me, we are paying that employee a significantly lower amount as they get up to speed to be a full time, so that's a full time employee. Terrific model, very, very lucrative and very consistent. So now what's happened is we have a situation where, the economy taking shot on the side of the head and the clients have basically, are trying to adapt like…

Yes, absolutely. It's helpful. I appreciate it.

We remain really excited about that business, and how it extends our education services portfolio, builds on our career, our mentality and our strategy. Bad timing, I suppose, nobody knew this thing was coming. But I think we're dealing with it pretty well.

But again, as you described a very low fixed cost base to get through the…

Yes, absolutely.

Okay.

And just to give you a sense, I think to keep going on about it, because I think that's probably enough of an answer. But when we acquired M3, they did most of their trainings in person. We had internally an online boot camp that we have merged with M3. So now M3 can do all of its training virtually and doesn't need the fixed [Technical Difficulty] situations. So the reason I point that out [Technical Difficulty] integration and the great synergy right off of that. This is what you guys want to see, right. You want to see us not acquire things that are out in left field, but things that benefit from our existing infrastructure and our existing capabilities.

Thank you [Operator Instructions]. And next question comes from Matilda Darsana with Barclays.

I was wondering research publishing was down on constant currency at 2% in the fourth quarter. I was wondering because you mentioned delays in renewal subscription due to COVID-19. Isn't it the case that usually the subscription as we mentioned before are taken at the end of 2019 for the first quarter? So I was just wondering how exactly COVID-19 impacted the research and publishing segment?

So the subscription base and the research journals business is recognized ratably over time for the majority of the subscription models that we deliver. So in particular, our digital model is recorded ratably over the 12 month calendar year. In the quarter, we had delays in signing some of those subscription agreements. So, subscription agreements are typically being closed between the months of October and March and April. And those that are recorded in March and April get a three or four months effects depending on when they're recorded for the calendar year, because their revenue recognition goes retroactive to the first of the year. So having some small delays in the month of April has a four month effect, if you will, on that period of time. So some of those subscriptions, just being delayed into the next period have that effect. Of course, we'll see the benefit of signing those agreements in the months of May and June. But that's the sort of timing factor that you would absorb, its revenue recognized over time and that delay given the challenges of remotely selling and social existence environment and getting contracts signed and the disruption that we were experiencing at universities around adapting to the current environment, slowed things down a little bit. Overall, we did a very good job of mitigating that impact but we did have some activity that moved into the month of May and June.

Okay, thank you…

And I'll just add a little bit, I'll just add a tiny bit to what John said. And that is that we also have some other businesses in the research segment that are more cash on the barrel, such as our reprint business of articles for the pharmaceutical industry and there are other pieces of it that are not subscriptions related.

Thank you. I'm not doing any further questions at this time. I would now like to turn the call back over to Mr. Napack for closing remarks.

All right. Well, thank you all for joining us today. And we will look forward to giving you updates and news, and presenting our first results in September. Thanks everybody.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.