John Wiley & Sons' CEO Discusses Q3 2011 Results - Earnings Call Transcript

John Wiley & Sons. ( JW.A)

Q3 2011 Earnings Call

March 8, 2012 10:30 a.m. ET

Executives

Stephen Smith -- President, CEO and Director

Ellis Cousens -- EVP and CFO

Analysts

Drew E. Crum -- Stifel Nicolaus

Michael Corty – Morningstar

David M. Lewis – JPMorgan

Daniel Moore -- CJS Securities

Presentation

Operator

Good morning and welcome to the John Wiley & Sons Quarterly Earnings Call. Before introducing Mr. Steve Smith, President and Chief Executive Officer, I would like to remind you this call is being recorded and may include forward-looking statements. You should not rely on such statements as actual results may differ materially and are subject to factors that are discussed in detail in the company’s 10-K and 10-Q filings with the SEC.

The company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances. Mr. Smith, please go ahead.

Stephen Smith

Good morning. Thank you for participating in Wiley’s Fiscal Year 2012 Third Quarter Investor Conference Call. I’m with Ellis Cousens, Executive Vice President and Chief Financial Operations Officer. I will take a few moments to provide an overview of Wiley’s performance in the third quarter and we will then respond to your questions and comments.

In a difficult global economy Wiley achieved revenue growth of 1% in the third quarter both including and excluding foreign exchange. Currency-adjusted revenue growth of 3% in STMS and 2% for Global Education was offset by a decline of 5% for Professional Trades. Adjusted EPS of $0.91 excluding a $0.12 per share one-time tax benefit in the third quarter of fiscal year 2012 and a $0.10 per share bad debt charge in the third quarter of fiscal year 2011 increased by 8%, or 6% excluding the effects of foreign exchange. Higher revenues, proven expense management, lower interest expense and lower income taxes contributed to the result.

For the nine month revenue of $1.328 billion was flat on a currency neutral basis, but grew 2% including the positive foreign exchange impact. Adjusted earnings per share for the nine months grew 2% to $2.42. Excluding favorable foreign exchange adjusted EPS fell 1%, reflecting top line results and higher technology and facility costs partially offset by lower interest expense.

Year-to-date gross profit as a percent of revenue was 69.5%, 0.5% ahead of the prior-year figure of 69% due to increased digital product sales and product mix. Year-to-date Shared Services and administrative costs of $284 million were up 8% currency neutral due to ongoing investments in digital products and infrastructure and increased facility costs, partially offset by lower distribution expense.

Free cash flow for the nine months declined 12% to $181 million, principally due to technology spending and the timing of income tax payments partially offset by journal subscription cash collections. Net debt, long-term debt less cash and cash equivalents, was reduced from prior year by $128 million to $199 million. During the quarter Wiley repurchased 520,000 shares at a cost of $23 million.

Now I’d like to provide some information regarding performance of Wiley’s global businesses. During the quarter we’ve made significant announcements that herald an exciting new direction for our Professional Trade business. In mid-February we announced the acquisition of Inscape, a leader – leading provider of assessment-based training products in interpersonal business skills including leadership and management. Inscape, with annual revenue of approximately $20 million, strengthens Wiley’s position in the global training market and brings a number of key strategic and financial advantages, chiefly a global customer base with associated sales channel reach and capabilities, a technology platform for product delivery and customer support as well as strong revenue growth and attractive financial performance.

Inscape derives approximately two-thirds of its revenue from digital products and strongly complements Wiley’s existing portfolio of training products published under the Pfeiffer brand. Inscape and Pfeiffer will be integrated to create a powerful force in the growing workplace learning industry. The Inscape network of authorized distributors and consultants extends Pfeiffer’s global reach and approximately one-third of Inscape revenues are earned outside the United States.

In a separate statement this week we announced that we will explore the sale of a number of consumer print and digital publishing assets in Professional Trade that no longer align with our long-term strategies. The assets offered for sale are in travel, including the well-known Promus brand, culinary, general interest, nautical, pets, crafts, Webster’s New World and CliffsNotes. The planned divestiture follows a strategic review of the company’s business portfolio, which led to a renewed – new focus on opportunities in categories that meet the strong global demand for high-quality information for professionals in life-long learning enabled by new technology.

In Wiley’s fiscal year 2011 the publishing assets offered for sale generated approximately $85 million of revenue and approximately $6 million in profit contribution before related Shared Service expenses.

Third quarter professional trade revenue of $108 million declined 6% or 5% excluding the unfavorable effect of foreign currency. The decline is largely attributable for softness in the business book market and reduced retail shelf space for some prints consumer categories, particularly cooking and travel.

eBook sales doubled again in the quarter to $9 million or $28 million year-to-date. Strong global sales, growth at Amazon, Barnes & Noble, Kobo and Apple contributed to the increase in eBook sales. Year-to-date gross profit at 62.7% of revenue reflects a 1.1% improvement compared to the same quarter in the prior year due to the EBIT growth partially offset by higher author advanced revisions. Adjusted direct contribution to profit fell 7% to $28 million reflecting top line results partially mitigated by prudent cost control measures.

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