[December 05, 2018]

Wiley Reports Second Quarter Fiscal 2019 Results

John Wiley & Sons (News - Alert), Inc. (NYSE: JW-A and JW-B), a global leader in research and education, today announced results for the second quarter ended October 31, 2018.

SECOND QUARTER 2019 HIGHLIGHTS

• Reported results (GAAP): Revenue of $449 million (-1% vs. prior year), Operating Income of $57 million (-29%), and EPS of $0.76 (-27%), with earnings performance impacted by $10 million in restructuring charges in the current quarter
• Non-GAAP results (constant currency): Revenue +1%, Adjusted Operating Income -10%, and Adjusted EPS -9%, with lower adjusted earnings performance primarily due to investments in growth initiatives, including publishing more in Research and driving enrollment growth in Education Services
• Acquisition of The Learning House (completed on November 1) strengthens Wiley's leadership in the rapidly-growing $10 billion education services market for universities and corporations
• Full-year guidance reaffirmed (excluding Learning House acquisition)

FIRST HALF 2019 HIGHLIGHTS

• Reported results (GAAP): Revenue of $860 million (flat with prior year), Operating Income of $94 million (flat), and EPS of $1.21 (+1%), with earnings performance impacted by higher restructuring charges in prior year
• Non-GAAP results (constant currency): Revenue flat, Adjusted Operating Income -16%, and Adjusted EPS -17%, with lower adjusted earnings performance primarily due to investments in growth initiatives, including publishing more in Research and driving enrollment growth in Education Services
• Calendar Year 2019 society journal publishing net wins +$3 million; Open Access growth +36%
• New Education Services partnership agreements signed with Michigan State University, University of Glasgow, and University of Bath; long-term partnership extensions signed with Our Lady of the Lake University (TX) and Saint Mary's University (MN)

MANAGEMENT COMMENTARY

"We continued to make good progress in the second quarter, with 3% constant currency growth in Research, fueled by double-digit growth in Open Access and Atypon, and 9% constant currency growth in our Solutions segment," said Brian Napack, Wiley's President and CEO. "We are successfully signing high-profile university partners, winning new research publishing business and growing in important areas such as Open Access publishing, Corporate Learning, WileyPLUS, Test Prep, and Professional Assessment. We are also making important progress on our operational effectiveness and cost reduction initiatives. We are particularly excited about our acquisition of The Learning House, which strengthens our leadership position in a rapidly-growing $10 billion market for tech-enabled services that help universities and corporations deliver powerful, career-enhancing learning, and expands our education delivery offerings to include career-enhancing short courses, certification programs, and continuing education programs."

FINANCIAL SUMMARY

Wiley provides non-GAAP financial measures and performance results such as "Adjusted EPS," "Adjusted Operating Income," "Adjusted CTP," "Free Cash Flow less Product Development Spending," and results on a Constant Currency (or "CC") basis to assess underlying business performance and trends. Management believes non-GAAP financial measures, which exclude the impact of restructuring charges and credits and certain other items, provide for a more comparable basis to analyze operating results and earnings. See the reconciliations of non-GAAP financial measures and explanations of the uses of non-GAAP measures in the supplementary information accompanying this press release.

Second Quarter Results

Wiley recorded foreign currency variances in the quarter of $8.7 million unfavorable in revenue, $3.9 million unfavorable in operating income, and $0.05 unfavorable in EPS.

• Revenue reflected steady momentum in Research (0% reported, +3% CC) and high single-digit growth in Solutions (+8%, +9% CC) offset by a decline in Publishing (-5%, -3% CC).
  • Research segment results were driven by double-digit growth in Open Access (+47%, 50% CC) and Atypon Publishing Technology Services (+17%). Journal Subscriptions were flat at constant currency.
  • Publishing segment results reflected declines in Education Publishing (-10%, -8% CC) and STM and Professional Publishing (-6%, -5% CC), which offset higher revenue in WileyPLUS (+13%, +14% CC, mostly due to prior-year revenue deferrals for courses extending across two semesters) and growth in Test Preparation (+6%, +7% CC).
  • Solutions segment growth was driven by Corporate Learning (+24%, +28% CC) and Professional Assessment (+9%). Education Services performance (0%, +1% CC) saw same-school growth (9%) offset by the termination of certain underperforming partnerships, as previously reported.
• GAAP Operating Income decline reflected investment in growth initiatives and the timing of restructuring charges and credits ($10.0 million charge this period and a $1.4 million credit in prior year), as well as unfavorable foreign exchange impacts. Adjusted Operating Income declined mainly due to investment in growth initiatives.
  • Research CTP declined 16% on a reported basis and 7% on an adjusted basis at constant currency, reflecting higher society publishing royalties and investments in editorial resources to support increased journal publishing, as well as investments in increased sales resources.
  • Publishing CTP declined 6% reported and 2% adjusted at constant currency due to lower revenue.
  • Solutions CTP declined 4% reported but rose 22% adjusted at constant currency due to revenue growth and efficiency gains, offsetting higher investment in Education Services to drive enrollment growth.
  • Corporate Expenses rose 24% on a reported basis due to restructuring charges, or 10% on an adjusted basis at constant currency, primarily due to costs associated with strategic planning.
• GAAP EPS performance mainly reflected lower operating income. Adjusted EPS declined primarily due to investments in growth initiatives.
• Restructuring Charges: Wiley recorded $10 million of restructuring charges in the quarter reflecting continued cost reduction actions across the business. These actions will yield approximately $15 million in run rate savings commencing in the second half of fiscal 2020. The charges are primarily related to severance costs.

First Half Results

Wiley recorded foreign currency variances in the first six months of $6.3 million unfavorable in revenue, $4.4 million unfavorable in operating income, and $0.04 unfavorable in EPS

• Revenue reflected steady performance in Research (0% reported, +1% CC) and growth in Solutions (+8%) offset by a decline in Publishing (-5%, -4% CC).
  • Research segment results were driven by double-digit growth in Open Access (+36%) and Atypon Publishing Technology Services (+10%), offsetting a decline in Journal Subscriptions, primarily related to timing of publications.
  • Publishing segment performance primarily reflected a decline in Education Publishing (-13% reported, -12% CC). Education Publishing represents approximately 10% of total Wiley revenue. Modest declines in STM and Professional Publishing (-2%, -1% CC) offset higher revenue in WileyPLUS (+10%, +11% CC), due in large part to revenue recognition timing, and growth in Test Preparation (+2% reported, +3% CC).
  • Solutions segment growth included higher revenue in all three businesses: Education Services (+5%), Corporate Learning (+13%), and Professional Assessment (+8%).
• GAAP Operating Income largely reflected higher restructuring charges in prior year. Adjusted Operating Income declined mainly due to investment in growth initiatives.
  • Research CTP declined 11% on a reported basis and 10% on an adjusted basis at constant currency. Performance reflected higher society publishing royalties and investments in editorial resources to support increased journal publishing, as well as investments in increased sales resources.
  • Publishing CTP rose 15% on a reported basis due to higher restructuring and impairment charges in the prior year period but declined 6% on an adjusted basis at constant currency due to lower revenue.
  • Solutions CTP grew 92% on a reported basis or 47% adjusted a constant currency due to higher revenue and efficiency gains, offsetting higher investment in Education Services to drive enrollment growth.
  • Corporate Expenses decreased 3% on a reported basis due to higher restructuring charges in the prior year period but increased 8% on an adjusted basis at constant currency primarily due to costs associated with strategic planning.
• GAAP EPS largely reflected higher reported operating income and lower foreign exchange losses. Adjusted EPS decline was primarily due to lower adjusted operating income.
• Net Cash Used in Operating Activities was primarily due to timing swings in working capital including a delay in billings and subsequent collections for calendar year 2019 subscriptions and, to a lesser extent, higher payments for expenses. Free Cash Flow less Product Development Spending performance was due to higher cash used in operating activities. Cash flow from operations is a use of cash in the first half of Wiley's fiscal year principally due to the timing of collections for annual journal subscriptions. Capital expenditures, including Technology, Property, and Equipment and Product Development Spending, declined $29 million to $42 million due to the completion of Wiley's headquarters transformation, the May 2018 implementation of our ERP order-to-cash release for journal subscriptions, and reporting changes from the adoption of ASC (News - Alert) 606.
• Shareholder Return: In June, Wiley raised its annual dividend for the 25^th consecutive year to $0.33 per quarter (+3%). In the half, the Company utilized $38 million of cash for dividends and approximately $25 million for share repurchases with an average per share cost of $58.79.

FISCAL YEAR 2019 OUTLOOK

The Company reaffirms its fiscal 2019 guidance.

*Outlook excludes contributions from The Learning House acquisition (closed on November 1). For fiscal 2019, we anticipate The Learning House to contribute approximately $30 million in Revenue and be dilutive to EPS by approximately $0.10.

• Wiley anticipates low-single digit Revenue growth in Research and Solutions offset by a low-single digit Revenue decline in Publishing.
• Adjusted EPS is expected to decline primarily due to increased investment in growth initiatives, including publishing more in Research and driving enrollment growth in Education Services
• Cash Provided by Operating Activities reflects the impact of growth investments and substantially lower gains in working capital. In addition, implementation of ASC 606 will move approximately $10 million of spending from Capital Expenditures to Cash from Operating Activities.
• Capital Expenditures are expected to be lower by $30 million primarily due to the completion of the Company's headquarters transformation. In addition, implementation of ASC 606 will move approximately $10 million of spending from Capital Expenditures to Cash from Operating Activities.
• Non-GAAP effective tax rate for the year is expected to be approximately 23-24%.

EARNINGS CONFERENCE CALL

Scheduled for today, December 5 at 10:00 a.m. (ET). Access the webcast at https://edge.media-server.com/m6/p/mm9am8gc, or on Wiley.com at https://www.wiley.com/en-us/investors. U.S. callers, please dial 866-548-4713 and enter the participant code 3834926#. International callers, please dial 866-548-4713 and enter the participant code 3834926#.

ABOUT WILEY

Wiley, a global research and education company, helps people and organizations develop the skills and knowledge they need to succeed. Our online scientific, technical, medical, and scholarly journals, combined with our digital learning, assessment and certification solutions help universities, academic societies, businesses, governments and individuals increase the academic and professional impact of their work. For more than 200 years, we have delivered consistent performance to our stakeholders. The Company's website can be accessed at www.wiley.com.

FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements concerning the Company's Fiscal Year 2019 Outlook, 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; (x) achievement of targeted run rate savings through restructuring actions; and (xi) 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.

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