Welcome to the John Wiley & Sons Quarterly Earnings Call. Before introducing Steve Smith, President and Chief Executive Officer, I would like to remind you that 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.

Good morning. Thank you for participating in Wiley's fiscal year 2013 second quarter investor conference Call. Ellis Cousens, Executive Vice President and Chief Financial and Operations Officer; and Brian Campbell, Director of Investor Relations, are with me on the call. I'll take a few moments to provide an overview of Wiley's performance in the second quarter, and we will then respond to your questions and comments. But first, a quick update on my health situation. I disclosed in September that I would be having follow-up radiation and chemotherapy treatment following my earlier treatment for urologic cancer a year ago. I'm happy to report that I am now at the end of that treatment and that my doctors are pleased with my progress and response. Of course, we will keep you informed of any future developments. The prolonged economic downturn continues to depress revenue growth in the markets where Wiley competes, resulting in disappointing performance for the company at the midyear. Structural change in our markets that we have anticipated and prepared for appear to be accelerating. While these changes in market conditions will open exciting new opportunities for Wiley in the medium term, we are concerned about the pressures on our core businesses in the short term. In response, we will move quickly to restructure the cost base supporting those core businesses to generate significant cost savings. Those cost savings will be deployed to generate improved financial results, as well as to support further investments in transformational growth opportunities in the longer term. Wiley's revenue declined by 3% in the second quarter, both including and excluding the effects of foreign exchange. Currency-adjusted revenue growth of 0.5% in STMS was offset by declines of 7% in Professional Development and 6% for Global Education. Tight library budgets, sluggish retail sales and an…

. [Operator Instructions] And we'll take our first question from Drew Crum, Stifel, Nicolaus.

So I want to ask some additional questions concerning the restructuring and the cost savings both for Steve and Ellis. Can you give us some sense as to what the cadence will look like for the timing of those restructurings and any clarity or discussion you can provide around the magnitude of the cost savings you're anticipating would be helpful.

Okay, Drew -- you want to start, Steve, and I'll pick up...

I'm going to quickly hand it to you Ellis. But just to say that we're not --at this point we're not able to quantify the financial impact of those restructuring savings but we do expect to be in that position by March, and I'll let Ellis talk to the -- talk qualitatively to the timing of that.

So true, as Steve says, as I think you know from prior history with us is that our plan cycle runs from pretty much December to March. In March, the board approves the operating plan for the coming year. I think we've also been pretty clear that we've given that $4.8 million charge we took in the first part of the year that we're already in this year undertaking a number of cost restructuring activities that when we disclosed that and discussed that at the end of last year and in the first quarter that, the benefits of those will come over the next 18 months, meaning 18 months from the beginning of this year. So there are some of those savings are reflected in some of the performance of the business to come very little in the first half, a little bit in the second half to come. These activities go above and beyond that, we're in the midst of planning those activities and building those into our FY '14 to '16 plans. So we would expect that when we get to March we can give you a lot of clarity about the size of that overall initiative and quantify that, the areas that will affect and the periods of time in which we should realize savings. I can tell you that we're focused intensely on driving benefits to the bottom line and for reinvestment in some cases over the course of the balance of '13 and in '14. Whatever is included in '13 is included in the guidance we provided so it's not incremental to that. But clearly a lot of the activities will be undertaken over the course of fiscal '14. They're in areas that we've talked a little bit about in the past but with greater…

Another follow-up question. Does it change or accelerate how you think about the margin profile for the company? I think at your investor meeting, you talked about starting to see some benefit from the investments you're making around technology on the next 18 to 24 months. With this accelerated focus on restructuring, does that in any way accelerate the margin expansion? Or does it alter the outlook for the margin profile for the business?

It should certainly accelerate, but that acceleration would come in '14, not in '13. I think if you sort of tee up the time sequence of when I made that statement, that statement would take us to the end of '14 and certainly the performance of the business has disrupted that somewhat. So we've clearly identified the need to take additional actions to, in fact, reflect market realities as we noted in the earnings release and also in Steve's comments is that how the market responds to some of the print products that we've provided in the past is quite different. Some of that relates to economics and the economic downturn. Some of that relates to just structural changes and how people are consuming many of the things that we provide in print, as well as the industry does. And we see that most prominently, I think, in Global Education. As a result of that, we are as part of changing the expense trajectory and improving margins from where they are certainly and where they could have been, we're going to take a look at how it is we support those kinds of activities that in certainly, in the present and the future are performing and behaving quite differently, so we need to structure our cost to reflect those realities and, in fact, get ahead of that in terms of anticipating continued market changes with respect to those -- how those products behave and perform in the marketplace. So the -- sorry for the long answer but the short of it is that we will be back on track to the margin improvements that we had anticipated by the end of '14, but it's going to take us '14 to do that because of this rather somewhat surprising and rapid change particularly in Global Education and some of the things that we had anticipated certainly with respect to restructuring our professional development businesses away from consumer and more toward professional. There will also be some benefits coming certainly from the acquisitions that we've made. Inscape, is a high-margin, high-growth business. Deltak is a high-growth business with margins above the average margins of Wiley overall. So those will certainly add benefits as well, ELS in a smaller way. So certainly there are benefits to come again mostly in '14 and beyond with respect to those acquisitions both from how they perform in sales but also in terms of accelerating some of the digital strategies and transformational strategies we've been pursuing.

Okay. And Steve, just going back to Global Education, can you talk about from your perspective what that keys are to turning the business and maybe the fortunes for the U.S. industry? I think the headwinds have been known for some time, been pretty well articulated. In your mind, what are the keys to turning the business?

Yes, I think what we're seeing over the course of the last year or 2 is an acceleration of a process of transition to digital business that has been ongoing for some time. But it's absolutely clear that the pace of that change has accelerated. And at the same time, we've seen the introduction of new business models in the world of print, particularly around rental that have accelerated the decline of that side of the business. So we feel well-positioned to take advantage of the future growth of digital business opportunities in Global Education. I mentioned the growth of WileyPLUS. That 25% growth year-to-date is also backed up by a significant increase in the validation rate so you're now seeing validation rates of around 78% of students who buy WileyPLUS. That improvement has been fueled in large part by growth in e-commerce sales, as well as by the integration of WileyPLUS with Blackboard where we see particularly high validation rates and our students find it very easy to integrate WileyPLUS into the whole learning experience. And of course, the acquisition of Deltak, I think, fits in very clearly. It's something that we've been saying for some time. We aspired, and I've talked about aspirations to come much more of an educational services provider recognizing that, while our content remains a very high value. In order for us to continue to improve returns on that value and to yield the kind of investment -- return on investment we're looking for. The addition of high value-added services to institutions to teachers and students is a critical part of our growth plan. So we really -- we're very pleased to have this opportunity become [indiscernible] with Deltak. We believe that over the course of the next few years, we will see more and more growth opportunities from the services side of that business. There are some things about the decline of print sales that certainly reflect some uneven patterns within market channels over the last 2 years. So we're expecting to see that normalize a little bit. I am really referring here to the gearing up of some industry [indiscernible] business model and at the same time bricks and mortars store in particular adjusting their inventory holdings. So we have a lot less inventory out in the marketplace today than we would have had even a short while ago. And it's a story we've been talking about for a long time. What I see is we are approaching a point where the digital business models really begin to become the predominant source of growth for the business going forward, and I feel we as a leadership team feel good about how Wiley is positioned to compete in that market.

Okay, great. And I just have one last question and I'll jump back into the queue. Just can you quantify the impact from the hurricane in terms of EPS impact in the quarter, Ellis?

Yes. Drew, it's about $4 million in revenue so EPS on the margin was maybe a $0.01 or so. And by the way we've picked that back up in the third quarter so those deliveries were made right after the storm.

. And we'll take our next question from Michael Corty with Morningstar.

I have a few. In terms of -- in regards to the accounts about the new market reality, in terms of like a long-term projection, is that just your existing businesses might be more in the low single-digit growth range versus maybe what you'd hope for in the past as in terms of mid-single digits? And then a second one, in terms of Deltak, you talked about having the content but needing to provide the service to improve returns, can you talk about the competitive landscape, kind of where Wiley fits in with Deltak? Because I would assume that other -- there's other competitors looking to improve their returns as well.

Sure. So in terms of the new market reality, if you like, I think we've been on a continuum for some time of seeing growth rates of our core businesses have begun to moderate. As customers find alternative ways to acquire content, sometimes at lower price points, and we see some consolidation in distribution channels. I think the key thing here is really the pace of transition from print to digital. We've been talking about that and anticipating that for at least 10 years on these sales. But I think we see that partly driven by economics and partly driven by customer preference, a real rapid acceleration of that and so our key talent here is really to manage the decline and then it will be absolute decline in print revenues going forward, not just limited growth but perhaps absolute declines. But those should transition directly to digital revenue which would still yield growth overall for the core businesses. I think characterizing the core business as being looking forward, we don't give guidance obviously beyond the changing year, but something that's been similar to the pattern of the last few years is a sort of a reasonable projection at this point. To answer your question about Deltak and the competitive landscape, probably the transaction that some of you might have seen that most parallels our acquisition of Deltak was the Pearson acquisition of Embanet in the last quarter. Embanet and Deltak are very similar businesses that indicates what we see as being a critical and an exciting future opportunity for Wiley, probably parallel to what somebody seeing at Pearson. That business is still -- has been growing very nicely over the last 10 years and I'm talking here about the general course creation and course development market. It is a relationship business that is founded on the ability to partner with institutions of learning in order to offer them complete turnkey services to launch new course offerings and to offer course offerings that are closely tied to employment opportunities for students the real focus on value, value for the University, value for the student. I think it's a terrifically exciting business model. I'm sure there will be others who will seek to compete in that marketplace but again I feel that we are early movers there. Deltak has already enviable track record of growth and has some fantastic relationships based on very long-term commitments with those customers and something that we are excited about being able to build upon not just in traditional not-for-profit university sectors but also leveraging the capabilities globally where Wiley has strong presence around the world and also with our customer base in professional, as well as those learning societies that we serve in STMS so there are some really attractive synergistic opportunities there.

Okay. And then one more just on the STMS business itself, I know it's -- you're still speaking out a little bit of growth on the subscription business. Do you get a sense of -- it's a tough market out there. I know it's events in the past that it's hard to get real solid market share data, but do you think you're gaining share in those markets and you're out -- your sales are growing faster than some of your competitors. What's the competitive landscape there in terms of Wiley maybe gaining some market share in a tough environment?

As we look at it, there is a real benefit to scale in that marketplace. There's also a real benefit to having the highest quality. So there is clearly a bit of a move to quality going on as budgets continue to tighten. That benefits those companies with a broad portfolio, as well as those with the highest quality content. And Wiley stands to benefit from that. So we believe that we are continuing to take market share both in terms of subscription growth for our existing content but then also through our addition of -- our growth and addition of new content through new society agreements. I'll remind you that. In January, we'll take on another major society agreement with the American Geophysical Union that will add a lot of growth in calendar year 2013. So we see ourselves taking growth there. That growth -- sorry, taking market share. But the growth of the market overall is not totally heterogeneous around the world. So we continue to see pretty attractive mid-single-digit growth rates coming out of Asia. Again, it's not uniform but our experience over the last couple of years has been that Asia is outgrowing the rest of the world. We've been pleasantly surprised by our performance in North America where subscriptions was held up very nicely, and we continue to see good growth. But not surprisingly, run into some significant challenges in some parts of Europe and more or less in the Middle East as the impact of the deep recession particularly in Southern European countries, as well as some impact from political and economic situations in the Middle East where we've seen some medium-sized markets disappear at least in the short term as we've been unable to serve customers in that region. We don't see that as being structural, but it will require some stabilization of market situation in Europe and Middle East.

. And up next is Ian Whittaker of Liberum Capital.

Two questions please, both on higher education. First of all, can you just comment on your thoughts of what's California's doing. They passed their bill on open-source textbooks and that's due to come into effect from January 1. And given that the price points they're talking about digital content for free, and print content for $20 for some of their most popular courses. I just wondered sort of whether you think that could potentially be a big threat in terms of pricing deflation. And I guess the second question is more of a longer term one. I think you've been very open about the problems facing the industry and sort of your hopes to transition all print to digital, we'll see a growth come back to the overall business in higher education at some point, but can you give sort of a view you think is of how long that will take. And I guess sort of part of the concern there would be the message that you're giving is similar to what for example the newspaper industry has been given for a number of years now talking about digital sales eventually offsetting the declines in print and in virtually all cases that has just not happened. And in fact, in some you've now start to see newspaper digital revenues go backwards. So I'm just wondering sort of how long you think this will take and why you think you're probably a little bit of a different example to let's say the newspaper or other industries that offset additional let's say analog declines but how would we see that come through.

Taking your first question on open-source textbooks, we continue to monitor all of the developments in the area of open-source textbooks and the growth and increasing interest around so-called moocs, massive online open courses that are being offered by several institutions for free. In California particularly, the California digital library and the move towards the creation of a library of content of open-source textbooks, it's not surprising to us, that California was driven towards that more aggressively than some other states or other parts of the world given the economic changes facing California. In the immediate term, we haven't seen any impact that we can discern in terms of lost sales as a result of competition from open-source textbooks. In fact, one for profit provider in that space who had a similar model of digital books free and charging for print has recently moved that model to charge for digital as well finding that frankly free of the fallacy. And if there's going to be quality in the creation of these open-source textbooks, is they're going to be well offered, well reviewed and if they're going to meet the needs of students in terms of better student performance and ultimately employability, then that requires significant investment both in the creation of the content but also in its digitization distribution. We don't see free as being sustainable, someone has to pay for it whether that's the taxpayer or whether it's paid for by the consumers of that content. So I would never be dismissive of changes like this. We don't think that this is a great use of taxpayer's money to develop reinvent something that our marketplace has been working well for generations and that serves the need of teachers and students. And we believe that we can continue to differentiate…

Can I just come back to you on some of the first question? If accept those points are valid but if you look at California, and indeed Washington, which had a similar program, both of their funding is coming from the state itself, both of them have co-opted the state education institutions into devising their open-source textbook programs. So if I understand, it's not worth to acknowledge that they've sort of scrapped that free book service but surely it's a little bit different if you've got the states themselves who fund the educational institutions, who are pushing the open-source textbooks at such a cheap price rather than let's say a full profit provider.

Well I think the questions that remain to be answered and we'll be looking very closely to see if the answers to those questions really relate to breadth of offering. So how much of the curriculum they are able to cover and with what degree of quality. And until we see that, and we see student performance, it's nothing -- it bears watching. But also I would retreat if it is going -- if they're all going to cover the full breadth of the curriculum with high-quality content, with high quality teaching and learning platforms, with all of the assessment and other capability wrapped into that, then it's going to have a very high cost.

. [Operator Instructions] And we will turn next to Daniel Moore of CJS Securities.

Can you talk -- remind us when you expect the closure of the remaining consumer businesses to be completed the divestment? And beyond that, are there any other segments of the remaining portfolio you might consider non-core or potential divestment candidates?

Sure. Let me start on that, Dan, and then Ellis can jump in. So there are a few categories remaining after the divestment of travel, culinary, CliffsNotes and Webster's New Word in particular our general interest publishing program. We are still in conversations with potential acquirers of those businesses and those conversations are ongoing, so I can't speak to them in detail only to say that we are already -- we're well prepared now to begin to wind up those programs if and when we determine that we're not going to be able complete the transactions of terms that are attractive to Wiley. And our colleagues who have ably managed and lead those businesses are all well briefed and understand what we need to do in order to wind them up. So Ellis, I don't know if you want to add anything on that.

Yes, I think that pretty much covers it, Steve, so those programs to the extent that there is a potential to sell any of those remaining businesses, which are Howell House which is pets and nautical are the 2 largest pieces, to the extent that there's is a possible sale there, it would be modest quite frankly. And we're behaving from a publishing perspective as if we're winding those businesses down, so we're not engaging in new publishing, so to speak. And the plan is to run that business through the next few months to its logical conclusion.

Then on the second half of your question, Dan, as to whether there are any additional programs or areas within Wiley. We continue to evaluate and analyze our entire publishing portfolio with a view to the future opportunities to make sure that we are resourcing things appropriately. There is nothing that we see today that does not fit with our vision of where Wiley is headed. As we look at some of the restructuring opportunities and cost saving opportunities, we will be looking at programs that are in areas where there's high growth potential and putting more resources behind those. And at the same time consolidating or reducing the resources that support businesses that seem to be highly material or potentially low growth mode for the future. But nothing else that we would identify as being ripe for divestment.

I will just add to that, Dan, it's that as part of as Steve described the cost restructuring opportunity, we're also looking at, I guess, I would call it portfolio fine tuning and pruning where there may be pieces of business that are performing less than we would like them to. We could look to determine if there is an investment opportunity to restore growth and acceptable levels of profitability. But if not because of the views of the business and where the markets are headed, those would be candidates for us to wind down as well. It's sort of typical, sort of portfolio pruning and tuning. I mean, we do that pretty much on an ongoing basis but for it not to be lost in the answer of the discussion around those things.

And in terms of technology spending, can you give us your expectations for technology spending growth for the remainder of perhaps fiscal '13? Obviously it was flat in the quarter. And are there any things, are there programs or opportunities that are perhaps being delayed or pushed out given the need to look at the cost side of the equation a little bit more closely?

Yes. Dan, I partially answered that question in response to an earlier question. All to say is that in the first half, the rate of spend was affected by a few things not having to do with any particular view, having to do with cost considerations but having to do with sort of the cadence of spend against particular initiatives. But also that we had undertaken some efforts to reduce cost on a structural basis, which we would have done in any set of circumstances in the first half into the second half and again into fiscal '14. Having said all of that, is that the timing of expenditure is such that, and this is not as typical as the second half, will be a bigger half so to speak with respect to spend. Some of that having to do with some changeout in activities and skill sets that positively affected the first half that will "negatively", from an expense perspective, affect the second half. However, the rate of spend in the second half is not a rate that once you take is an annualized spending rate. I can tell you that it will be below that sort of mid- to high teens rate when you add it all together. And even the second half will be something clearly higher than just by virtue of how I'm talking about is in the first half. So something in the mid-teens or so, but I wouldn't characterize that as the run rate going forward. So the effort here, which we've successfully and are successfully working on is to reduce the rate of spend in technology or inflect or deflect the growth rate downward somewhat so as to not see in the future on a sustained basis sort of mid- to high teens growth, but it could periodically sort of bounce around up or down as we've seen this year. But that in effect by the time we exit fiscal '13, we'll be on a run rate basis at a level lower than we were when we exited the prior year or lower than where we would have been, I should say, than had we not taken some of the actions that we did take in fiscal '13. And again most of those are structural actions. They're not -- there isn't a lot of one-time stuff associated with that. So clearly what we've done here just to make sure that it is clear is to look carefully and focus at our technology spend beginning with the retention of a Chief Technology Officer, who is taking a careful look at both the nature of delivery, quality of delivery, the effectiveness and efficiency of spend, all of those things taken together and has seen some pretty significant opportunities to, shall we say get more for what would have been less, so to speak. So we feel better about the effectiveness of our technology organization, and we see greater efficiency around spend in the technology organization.

Helpful. And lastly, just switching gears, perhaps give us a little bit more detail around Deltak with regards to anything you can tell us about operating margins, the operating model itself, how much of the revenue is recurring and what incremental margin profile looks like in that business, that would be very helpful.

Steve, I can sort of start on that. And if you have anything to add either quantitatively or qualitatively, certainly please do so. So as we noted in the earnings release, there's about $36 million worth of revenue that will come from Deltak this year, that's a half year's worth of revenue. We have noted that the growth rate around Deltak is extremely high, meaning top line growth rate. If you just look at that historically and that is public information, the growth has been significant double-digit growth over the last couple of years or so. We expect that to continue. The--I'll characterize it as the operating margin associated with Deltak, is on average higher than the average margin of all of Wiley. However, it is not a high margin play, so to speak, with respect to acquisition. What it is a high-growth play in a market that we felt we could serve very effectively with the inclusion of their capabilities at a margin, which is attractive. So I guess I would characterize it that way, whereas something like Inscape, which is smaller in scale certainly is both high growth and high-margin but coming off of a smaller base. I know you didn't ask about Inscape but just to characterize it.

. We'll go back next to Michael Corty of Morningstar.

I just had one more. I know you've invested a lot in the business recently. And so the balance sheet has changed just a bit. I just want to get your thoughts in terms of capital allocation over the next few years, maybe more specifically, the market disagrees with your optimism, at a certain point, would you be thinking about going back to the market and buying back some of your shares?

So we have 2.1 million shares of open authorization from the Board of Directors. As you saw, we were not active in the second quarter in share repurchase. We were focused on and we're anticipating the acquisition of Deltak and the expenditure of $220 million on that coming on the heels of the acquisition of Inscape a couple of quarters before that and also the acquisition of ELS at a more modest level but certainly a price nonetheless. I will say that on a going-forward basis given the open authorization and given the cash performance of the business, which is attractive, even if the earnings growth is not, quite frankly, that among our capital allocation opportunities, share repurchase would factor into that.

. And we have no further questions. At this time, I'd like to turn the conference back over to Mr. Smith for additional or closing remarks.

Well, just like to thank you for your participation in this second quarter earnings call. We look forward to talking to you again at the end of our third quarter. Thank you very much.

. And this concludes today's presentation. Thank you for joining, and have a nice day.