Good morning, and welcome to Wiley's Fourth Quarter and Fiscal Year 2019 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.

Hello, everyone and welcome to Wiley's fourth quarter and fiscal 2019 earnings update. A few reminders to start, first, 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. Second, Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. Non-GAAP metrics which generally exclude items that impact comparability comprise the following; adjusted EPS, free cash flow less product development spending, adjusted operating income and margin, adjusted contribution to profit, adjusted EBITDA and results on a constant currency basis and results excluding the impact of acquisitions. These performance measures 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. Also note, we abbreviate constant currency as CC. Please see the reconciliation and explanations of all non-GAAP financial measures presented in the supplementary information included in our press release. Important to note all variances in this presentation exclude the impact of currency unless otherwise noted. For those who prefer to listen to the call over the phone, but still want to view the slides, we recommend that you click on the gears icon located on the lower portion of the left-hand side window and select Live Phone. This will eliminate any delays in viewing the slide transitions as well as remove any potential background, if you prefer to ask a question. After the call, a copy of the presentation and a playback of the webcast will be available on our Investor Relations webpage. I'll now turn the call over to Brian Napack, Wiley's President and CEO.

Thanks, Brian, and thank you all for joining us today. Let me start by saying that, I'm proud of our team and the performance that they delivered this past fiscal year. Our mission is to support and drive research and education around the globe, and I'm very optimistic about our future. Let me quickly run through some takeaways as we end the year. First, we achieved our fiscal 2019 revenue and earnings targets. We missed on an updated cash flow target mainly due to some timing-related changes and working capital performance. We'll touch on this a bit later. We see revenue growth accelerating in fiscal 2020, 2021, and 2022 after several years of little to no growth. We're seeing strong growth in critical areas of the business and we intend to build on this momentum. We returned some businesses to growth in fiscal 2019 most notably our Test Preparation and CrossKnowledge businesses and the Professional Assessment business is growing nicely. Our multi-year business optimization program is driving significant efficiency improvement and savings across Wiley. We expect to grow savings over the three-year period to be approximately $100 million, although most of that will be reinvested to drive and sustain profitable revenue growth. As part of this initiative, we will be recording restructuring charge in the first quarter. To achieve our goals for revenue and profitability, we must invest in growth and optimization. Therefore, we will see an earnings dip in fiscal 2020 before earnings growth returns in fiscal 2021 and ramps up from there. Overall, we are pleased with the opportunities that are materializing and the momentum that we're seeing across the company. We will share more at our fiscal 2020 Analyst Day scheduled for Friday, October 4, 2019 in Hoboken, New Jersey. Brian Campbell will reach out with more…

Thank you, Brian. As you mentioned, research had a strong finish to the year, with revenue growth at constant currency of 4% for the quarter and 3% for the year, with the full year driven by 33% growth in Open Access and 9% growth in our Atypon research platforms business. Our subscription business rose 5% in the quarter and was stable for the year. Looking ahead, we continue to see a steady environment for subscriptions, accompanied by rapid growth in Open Access. In addition, demand for new researcher services and corporate products, including advertising and databases, continued to grow. Atypon added eight new clients this year and we continue to see a strong pipeline of opportunities for Atypon's platform business. Adjusted CTP rose 6% in the quarter, primarily due to revenue performance, but declined 1% for the year, as we invested in new researcher services and advanced marketing capabilities to drive article volume growth and additional corporate sales. We're pleased with the continued foundational strength of our Research business and the clear opportunity to build upon our strong and unique market position. Publishing rebounded from a difficult third quarter, as we anticipated, and finished the year largely as expected, with revenue down 6%. STM and professional publishing was down 2% for the quarter, or 6% for the year, with modest gains in technology and professional education, offset by a decline in our Dummies portfolio. Education Publishing was down 14% for the year, mainly due to the continued shift away from new print textbooks. Although, we had also had a very light higher education frontlist for this year. Important to note, we have recently realigned this part of our business and are sharpening our efforts to focus on high-demand disciplines, an expanded frontlist and a more advanced WileyPLUS offering with the…

Thanks, John. Now on to our one-year outlook and three-year target. First, we remain slightly focused on our strategy to lead in research and career-focused education and we are seeing the results of this in our outstanding growth in Open Access Research Publishing, our strong partner and program momentum in Education Services and rapid growth in other strategic parts of the portfolio. At the same time, our business optimization program is starting to drive savings and efficiency improvements across the company. Our strategic investments are gaining traction, which we will touch on later and after the noted earnings dip in fiscal 2020, profitable growth will ramp materially in fiscal 2021 and beyond with revenue, adjusted EBITDA and EPS CAGRs of 3% to 4%, 4% to 5% and 5% to 6% respectively from fiscal 2019 to fiscal 2022. Going forward, we will be aligning our reporting structure with our strategic focus areas. Research Publishing and Platforms, Education and Professional Publishing, which are our content and courseware businesses and Education Services, which is where our OPM business, technology boot camps and other rapidly growing service businesses reside. Research will be essentially the same as today, whereas Education and Professional Publishing will consist of the current Publishing segment plus our corporate training businesses CrossKnowledge and Professional Assessment. Research, our largest and most profitable business continues to enjoy a terrific market position, reputation and a top-tier journal portfolio. Over the three-year period, we expect steady revenue growth with modestly growing EBITDA margins. The macro driver here global investment in research and development remains as strong as ever, consistently growing at about 4% per year. Internally, the core drivers of our performance start with our output of research articles. As stated, submissions to Wiley were up 8% this year. At the same time, we reject…

Thank you. [Operator Instructions] We will now take our first question from Drew Crum of Stifel. Please go ahead. Your line is open.

Okay, thanks. Good morning, guys. You mentioned that journal submissions increased 8% during fiscal 2019. How does that compare to the last couple of years? And would you anticipate any change to the 70% rejection rate you referenced going forward?

Yeah. That's a great question Drew. Thanks for asking it. As we move through this transition where we're moving to these mixed models, the price time’s volume equation is critical, and so those two statistics are absolutely critical. First of all, we are seeing increasing submissions. We believe that we will continue to see that in the future and that's critical to that equation. The 70% rejection rate, the reason we highlight that is that it highlights the opportunity for us, the opportunity when many if not most of those articles get published elsewhere. We have a journal portfolio that includes a couple thousand, not quite, journals, and we have places in those journals for many or most of them. They won't all make the top-tier journals at the top of our pyramid, but they can certainly fit somewhere in our portfolio, and so this is part of what we're investing in. We're investing in the capacity just not – not to just get more submissions by outward reaching to researchers, but also to capitalize by channeling those articles to the editorial boards that can approve them and publish them in our terrific journal portfolio.

Got it. Okay. Thanks. And then just to clarify, I think you said that the organic growth that you're expecting for Education Services through fiscal 2022 is in the mid-teens range, just want to clarify that. And on a related note, is this a business you expect to be profitable during the period through fiscal 2022?

Yeah. So, the answer is we expect to start in the low-to-mid teens and move to the high-to-mid teens through the three-year period from a growth perspective, so that provides enough clarity. John, will you handle the profit part of it?

So, we are expecting over that period of time, Drew, as we scale that we're going to gain advantage and profitability making our way toward a 15% EBITDA margin that will come a bit from scale and significantly from increasing our efficiency around student acquisition. That's one of the important areas of investment that we have in fiscal year '20.

Got it. Okay, and then just one more. Can you talk about the nature of the $15 million to $20 million in restructuring charges you expect to incur in the fiscal first quarter? Is any of that cash related? And would you anticipate any more charges during fiscal '20? Thanks.

Sure. There's -- so with regard to $15 million to $20 million in charge in the first quarter, about 75% of that is going to be severance-related and then the balance relates to the wind down of a small business, essentially non-cash charges there and the exit from our facility. And so, that's the bulk of it. And we're expecting that -- the charge that we take in the first quarter will drive on the order of $30 million in operating savings over time. We'll realize a little more than half of those savings inside of fiscal year '20 against some of the investment program that we've been talking about here. I don't anticipate that you're going to see restructuring charges in the subsequent quarters of this year; say for some additional facilities-related activity that we may have as we continue to drive some efficiency around where we're offering. But I would say this is a multi-year business optimization program, so we will have some further actions to communicate as we make our way late in this year or into fiscal '21.

Okay. Thanks guys.

Thank you.

[Operator Instructions] We will now take our next question from Daniel Moore of CJS Securities. Please go ahead. Your line is open.

Good morning. Thanks for taking the questions Brian and John. I want to start with an apology if I am reiterating parts of the last question, but just wanted to really clarify on the Education Services, all of that growth is organic or what's sort of the breakout between organic and what's been acquired recently from fiscal 2019 to 2022?

The growth rate that we described would be on an organic basis.

From based on the portfolio that we have in hand now. Great. And then...

And then we continue to work adding partners, yes.

Got it. And John you mentioned a 15% margin that EBIT or EBITDA, and maybe any additional cadence you can give in terms of the walk from kind of fiscal 2019 where we are now in terms of EBIT margins for that business and where we might be in 2022?

I generally wouldn't get quite specific to what we're doing in terms of the walk in that particular business. But again, the improvement is going to come year-over-year from the levers that we'll get from revenue growth plus some improvements around the cost of student acquisition over the period. We're looking at -- as we said on an organic basis, apples-to-apples basis, we're looking at growth in that business in the low-to-mid teens. And as we make our way through that though just to be clear on an inorganic basis, we'll have a pickup of about $34 million of incremental revenue as a consequence of having the full year effect in the business. So when we look at the year-over-year comparison, revenue for the year is up $60 million, but a good $30 million plus of that is related to the inorganic growth coming from the acquisition of the Learning House.

For the fiscal '20 guide. Right.

Yes. That's correct.

Got it. And then is there a 15% -- is that an EBITDA margin target that the -- in fiscal '22 or longer term? Just help us think about that?

We're aiming for that target in fiscal '22.

Got it, helpful. And then maybe just talk a little bit more for what you're willing to share around Knewton, a little bit of detail on how it expands your capabilities and offerings around WileyPLUS. And anything you'd be willing to give in terms of purchase price trailing revenue EBITDA margins would be helpful?

Okay. I'll pick up the strategic parts of that. So Knewton brings to us two things. As many know, Knewton was an extremely highly funded adaptive learning platform EdTech play, very, very highly promising at one point. The technology is absolutely leading-edge technology, so among the best adaptive technologies in the marketplace and it is applicable across all of our education businesses. We -- improving the efficiency and the effectiveness of the time student spent learning is critical and so we need to rapidly -- we will succeed by rapidly moving students to that process. So in all of our education businesses, we see theoretic applicability. It will be immediately applied in our -- immediately in this year applied to our WileyPLUS offering, adding a differentiated adaptive learning technology, which gets us up to and ahead of many of our competitors. So that's great news. But in addition to bringing that adaptive learning technology, it is also bringing something to market as demanding on a net growth basis and that is this idea of low-cost, high-quality or high-impact courseware. This is a part of the market that is growing significantly. And we believe that by delivering that as a core offering through our Wiley distribution touch points, we should be able to capture a meaningful part of that in areas of the market where frankly we don't even play right now. So it's a very optimistic thing. So we get two things. We get this leading adaptive technology, which we can broadly apply, most immediately of course in our courseware business to WileyPLUS, but we also get a small, but rapidly growing business in a very disruptive part of the market, which is this low-cost high-impact courseware and that's what's known as this Alta platform.

Got it. And lastly for me and Brian, you gave really good color here, but I'm going to ask you to give as much more as you'd be willing to because I think it's a critical point. Your -- the Education or I should say, the Professional Publishing Services or just Publishing in general has obviously been a struggle and a headwind and you're calling for that to start to grow again in the next two-plus years. So maybe just talk about the rate of decline and what's left of the traditional sort of print text business, what that glide path looks like and how we're -- and the strategic direction and ability to pivot that toward growth in the next year or two would be great. Thanks.

Sure. So as you look across our Education Publishing and Professional Learning portfolio, which as we said are our Publishing businesses, we have several different things going on. We have our courseware business. We have our reference business, our STM business we call it and our Trade Publishing business. We also have -- it's important to note the pieces. We also have our Test Prep business and our Corporate Training businesses. The Test Prep and Corporate Training businesses are growing very nicely. They are doing very well. And so we'll leave those aside, but that's meaningful part of the equation. We have -- we believe in the long-term health of the other three segments of the business and in fact, the trade and the reference pieces have all the signs of businesses that have a long-term runway. They have separate some from the print transition, but by and large healthy. The textbook part of the business or the courseware part of the business represents around 10% of our business now. I'll ask John to check me on the percentage to make sure we get it about right, represents about 10% of Wiley overall right now. We've continued to see some declines, but as we -- in those declines, there's a lot of good things happening. We're starting -- we're not seeing cannibalization -- material cannibalization from free and we are now participating in the print models, the inclusive access models, the rental models and so forth that allow us to deliver what is high-demand content to the market. So in that part of the business, which is the part that has had the most attention, it's important to note that unit sales are actually fine. What's happened is we moved from high-priced print to lower-priced digital and not just lower-priced digital, but lower delivery models. The rental models are models we hadn't participated in before, as a company right? Other companies bought our products and rented them over and over again. We're now participating in those. So in that, A, the market continues to demand the high-quality published content from big publishers; B, that we can deliver that content through the media, through the modes and in the business models that make it very, very affordable; and C, that we now have an approach to markets many of the sub-segments that we didn't even play in before with Knewton, that allow us to deliver truly low-cost high-impact content, gives us a confidence and we see this reflected in our internal statistics that we have a good long-term runway in that 10% of the business that is the textbook or courseware part of the business. So that's where we get our confidence from. There is no evidence that the market is deteriorating in an underlying demand way. What we've seen is this transition. And I think we're now on our way through that transition.

Go ahead. Excuse me. Very helpful. Appreciate it.

Okay. Good. Thank you. I'm happy to take any follow-up questions. It's a complicated market, but our leadership position will allow us to do very well as the transition concludes.

Indeed.

We'll now take our next question from Dan Jacome of Sidoti. Please go ahead. Your line is open.

Hi. Good morning. A couple of questions. Can you talk first a little bit about your working capital initiatives that you have in place to improve that in the next year or two, versus what was shown in the fourth quarter? I know it's a little bit tough for us to dig deeper into the acquisitions, but, look, just thinking about kind of payables, receivables, what you -- the plans for that.

Sure. This is John. So here's what I would say. First, I wouldn't say that there are major, if you will, working capital initiatives, but there are certainly some things we can do to improve our management of working capital. Some of the things that are at play in the working capital movements that we reported in this period actually start back in fiscal 2017. We had -- we ended fiscal year 2017 with a particularly low position on payables outstanding and that benefited fiscal year 2018, which is the comparison that we're now making when we look at 2019. So there was a substantial uptick in fiscal 2018 year's -- 2018's results came from a payables timing shift that happened way back in fiscal 2017. And then what we saw, as I explained around this year's performance, so there are movements in working capital that had to do with not as strong performance on payables and to some degree on our overall receivables, at least in terms of the gains by comparison that we made in fiscal 2018. And again, the most important impact that we had was some issues around the timing of collections on our journal subscriptions. Those had a good bit to do, as I noted with our ERP transition. We implemented order cash on SAP for our journal subscriptions in the year and that put a bit of pressure on us, as we had noted in the third fiscal quarter report around the quoting of new subscriptions, the signing of customers and the issuing of invoicing; all of which, in terms of renewals, has done quite well, but our timing got pushed out a little bit. So we're late in invoicing and we're late on collecting. We had hoped to be further along with that…

Okay. Very helpful. And then just for housekeeping purposes, I'm sorry if I missed it in the press release or the deck. Can you break out specific D&A and CapEx guidance for F '20? Or should I just back into it?

We noted in the comments here that we expect CapEx will be on the order of $125 million for the coming fiscal year and we didn't call out a D&A number. But I think that Brian did note that there is some -- any change in earnings year-over-year that brings us to an estimate of about $2.50 per share earnings. Brian noted that there's an impact in there of increased D&A on the order of $0.11.

$0.11. All right. Great. Okay. Then just to be clear, the F '22 target on the revenue, the implied CAGR is about 3% to 4% that's all organic, right? You're not factoring in any other acquisitions just -- correct?

That's correct. There are no additional acquisitions assumed in those numbers.

Okay. Thank you very much.

Thank you, Dan.

We will now take our next question from Adrien de Saint Hilaire of Bank of America. Please go ahead. Your line is open.

Yes, thank you very much for taking the questions please. Two of them. First of all, you're guiding for about 2% growth in your Research business for fiscal 2020. Can you give us some granularity in terms of what you expect in the different buckets Journal Subscription, Open Access and Atypon? And then secondly, can you discuss the impacts that you expect in Education Publishing from the announced merger between Cengage and McGraw-Hill if you assume that it's completed? Thank you.

So I'll take the first question with respect to revenue growth and then Brian can follow up on the Cengage-McGraw merger. With respect to the expectations around Research revenue growth, the CAGRs that you referenced are correct. Relatively speaking by comparison to the broader Journal Publishing business, Atypon is sort of small. So while we expect Atypon to grow at double-digit rates call it on the order of 10% revenue growth, they're not a big factor in the overall growth of the business because they are relatively small base. Important to us in terms of the market opportunities that they provide is the insights they give us around Research Publishing, but they're a big factor in terms of moving the overall progression of revenue inside the Research business. Broadly speaking, the growth rates that you described are consistent with what we expect around our Journals business. Going forward, it's likely that we're not going to distinguish as much between revenues associated with subscriptions versus Open Access. With these transitional arrangements in place and if you will blended arrangements with our customers, the line between what precisely is subscription revenue and what is Open Access revenue is going to become less clear. And frankly, I think trying to make a distinction between the two will only be more confusing to most investors. But as you look at the combination of the growth that we all see in Open Access publishing along with the revenue stability that we expect to see from subscriptions, you'll get to the 2%, 3% CAGRs that you were just describing.

Okay. And I will pick up the Cengage-McGraw Hill question. So listen, this merger has been anticipated for a very long time. We've been operating in a market as Wiley in our higher Ed business which as you will recall in my earlier comments, represents about 10% of Wiley. We've been operating in this higher Ed courseware business for decades as a smaller focused player who concentrates on very specific disciplines. And those disciplines are disciplines where the content in the courseware is required for course credit, places like in accounting the quantitative discipline, stem and so forth. I'd say that as background because it highlights an underlying strength in our business and tells you why we've been able to compete for so long as a gold standard publisher. Having said that, we've been competing against Pearson, a 45% competitor for a long, long time for well over a decade, in fact quite a lot more than a decade. This is not a business. This textbook and courseware business, where you win or lose based upon the overall volume of your titles. You win – or the size of your revenue line. You win in this business based upon a course-by-course winning, where you get adopted by a professor based upon the quality and now increasingly the effectiveness and impact of your product. And so we've been operating in an environment with a 45% competitor. Now, we have a 40% roughly speaking competitor that will, if the merger gets approved by the – I think it's Justice Department that will approve it, then we will be operating against yet another large competitor. Both of those competitors, our larger competitors have significant pressures on their overall businesses and bottom lines that have prevented them from potentially investing the levels that we are investing in our focus titles. So we are very, very confident in our future in that business, and we see this having an interesting impact in the marketplace. We've already had outreach from many of our professors in the marketplace, and certainly from our authors, and from other authors who like the idea of – who don't like the idea of such a concentration in one company. And so we believe that, we will compete very, very well by doing what we have always done, which is produce the best possible content and deliver that in the means and modes that professors and students and – and institutions – institutions want.

Thank you very much.

And there are no further questions in the queue at this time.

Okay. I just like to say – to thank you all for joining today. We are pleased to have you. We are very, very confident in our future. This a great company with great assets. We performed extremely well in fiscal 2019 according to our plans. We executed very, very well. We expect to continue to do so going forward. There's a lot more we could talk about our markets and about our businesses and we hope that you all will choose to attend our Analyst Day in October. It will be great to have you all there. We are – we'll be pleased to have you. So with that, I will thank you for joining us, and we look forward to updating you next quarter.

Ladies and gentlemen, that concludes the call. Thank you for your participation. You may now disconnect.