Good morning, and welcome to Wiley's Second 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, Investor Relations, Brian Campbell. Please go ahead.

Good morning, and welcome to Wiley's second quarter of fiscal 2020 earnings update. In the room with me are Brian Napack, President and CEO; and John Kritzmacher, CFO and EVP, Operations. 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, which generally exclude adjusted EPS, free cash flow less product development spending, adjusted operating income and margin, adjusted contribution of 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 US 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 the 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 noise 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. Let me start with a brief refresher about our business and our mission. In a sentence, Wiley empowers researchers, learners, universities and corporations to achieve their goals in an ever-changing world. We do this by delivering research and education in the high-demand subjects and careers that are fueling the global knowledge economy. We deliver must have content, platforms, and services that drive real outcomes in these areas. And we are committed to delivering a compelling value proposition to our customers with business models and pricing that meet the needs of today's demanding markets. In total, Wiley accelerates scientific discovery and advances powerful career-focused education. Our wonderful colleagues around the world are very proud of who we are and what we do. As a reminder, we operate and report in three segments. Our largest segment, Research Publishing & Platforms is a strong performer with favorable market and cash generation fundamentals. Wiley is a leader in this market, which is growing around 3% annually; the highest rate since 2011. We are investing in this business to publish more with increased quality and speed, and to support a more open research ecosystem. Through the first half, the business made up 52% of Wiley's revenue with an adjusted EBITDA margin of 34%. Our Academic & Professional Learning segment includes educational content and courseware used in both university and corporate settings. While the transition away from traditional books is weighing on results, we see increasing momentum in our shift to innovative digital courseware, especially those that target high-growth subjects and career areas. This segment represented 36% of Wiley's revenue in the first half and yielded a 24% adjusted EBITDA margin. Today, our Education Service segment engages in the comprehensive management of online degree programs for universities and has grown to include a broad…

Thank you, Brian. For the quarter revenue of $466 million was up 5% driven by contributions from our Learning House, Knewton and zyBooks acquisitions. Excluding acquisitions, revenue declined 1% with challenges in Academic & Professional Learning book sales, offsetting strong organic growth in research and education Services. GAAP EPS of $0.79, rose 4% with lower restructuring charges and a lower effective tax rate, offsetting higher interest expense and foreign exchange transaction losses. Adjusted EPS was down modestly, primarily due to investments in growth and optimization initiatives. Adjusted EBITDA rose 3% to $110 million and our adjusted EBITDA margin for the quarter was 24%. For the half, revenue of $890 million was up 5% in total and 0.5% organically, again driven by growth in research and education services. GAAP EPS declined by $0.36, driven by $0.15 in higher restructuring charges, investment in growth and optimization initiatives and higher interest expense. Our effective tax rate was 20% through six months, down from 22% in the year-ago period. Adjusted EPS declined 18% to $1.06, while adjusted EBITDA was down 5% to $168 million. I would note that our consolidated earnings performance was in line with our expectations for the first half of the year. Our cash flow used in operations and free cash flow results were favorable to prior year by $17 million and $7 million respectively. As a reminder, Wiley's cash flow is typically a use of cash in the first half of the fiscal year, principally due to the timing of collections for annual journal subscriptions, which is heavily skewed towards late fall and winter months. We expect free cash flow for the year to be in line with our prior guidance, up $60 million to $80 million over prior year. Capital expenditures rose $9 million to $56 million, due to…

We at Wiley are making moves today that will drive profitable growth for years to come. As you know, we take a very long-term point of view. We have a terrific team, strong outlet strategy to capitalize on the big opportunities that exist in research and education. Path forward will always be smooth from quarter-to-quarter. We're feeling good about our markets, our direction and our progress. By now, you know that Wiley strategy is five elements; one, focused squarely on the disciplined skills and careers that the world demands; two, deliver the brands, content, platforms and services that our customers need to achieve their goals; three, enable all of our offerings with powerful technology that drives real outcomes; four, ensure a compelling price value proposition for our customers; and five, continually optimize Wiley for efficiency and effectiveness. We see plenty of reason for optimism. Fundamentals in research and education are favorable for the long term. We see increasing momentum in many key strategic areas of the business. Our business profile is solid with 80% of our revenue coming from digital and tech-enabled services and 50% - 55% of our revenue recurring. Our balance sheet and cash flow are enduring strengths, and we continue to return cash to our shareholders while investing to grow. As always and as we enter the holiday season, I want to thank our wonderful Wiley colleagues for their great contributions to our ongoing success throughout the year. And thank you all for joining us today. For those, who didn't have a chance to attend our October Investor Day, I encourage you to access the replay, which is available on our website under About Wiley. With that, as background, we welcome your comments and your questions.

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

I wanted to start with Research, 4% underlying growth, obviously, ex-currency, a nice pick up and very healthy and you mentioned the market growing at about the fastest clip in maybe six, seven years. Was there any timing-related impacts, selling of larger newer contracts that boosted growth in the quarter? Just trying to get a handle on the sustainability of the growth that we saw.

I don't think so. No, in fact, there weren't. Basically, our growth is being driven by advances in our publishing volume. We're basically publishing more. We're expanding our publishing program. In addition, we have a set of smaller businesses such as our corporate training and digital businesses, which are growing nicely and rapidly. So, it's core underlying growth stemming from the strength of the publishing program and our move into adjacent business opportunities.

And in Education Services, what are - maybe I should be able to get back into this, but underlying organic growth for Learning House, specifically just trying to get a sense of the trends there, an acceleration or deceleration in momentum since coming under the Wiley umbrella?

This is John. I would say at this point we didn't actually break that out separately. We've integrated the operations, and so we don't really think of what we've got Learning House clients or we've got ed services clients. So organic growth overall for the Ed Services business was in the - around the 10%. So, continuing at double-digit rates consistent with our expectations. But there is not - they are not a distinguishable difference now.

And I'll just add that we've done a very good job of integrating the two businesses, so all the colleagues working on these businesses considered one business as well. So, we are not thinking of them separately anymore.

Lastly, just as far as the tax rate, a little lower than our expectations as - what's your - what are your tax rate assumptions or expectations for H2? And there have been - the full-year EPS guide is unchanged. Is there any change in the tax rate relative to the beginning of the year? Thanks.

So Dan, we've been guiding, as you know, to 22% to 23% for the full year. It's clear now at this point halfway through the year that they will be headed toward the low end of that range, but will be in that zone of 22% for the year.

Our next question comes from Drew Crum with Stifel.

So some adjustments - or maybe on the adjustment to the Academic & Professional Publishing revenue guidance for the year, but the total revenue guidance remains unchanged. So, is there any adjustments you're making to Research and/or Education Services within that?

So Drew, you are absolutely right. We have had a shift in expectations among the segments, and we noted that we're seeing a bit lighter performance out of the Academic & Professional Learning segment. But on balance, relative to our business plan overall, we're seeing some improved performance in other parts of the business, notably in the Research business. So, on balance, we're still in the zone on a consolidated view and feeling good about the year.

And then shifting over to Research. You mentioned, you achieved or you're looking for society publishing net wins of about 8 million for calendar 2020. Can you remind us what the comparison is or was for calendar 2019, and are you comfortable with that 88% renewal rate and what are the implications there on gross margin? I know royalties have been up the last couple of years, which has had a negative impact on gross margin.

So, Drew. I don't have off the top of my head what the net wins were for last year. I'm guessing it was somewhere lower than that. But yes. I think - I'm sure it was up. I just don't recall to what extent that was up in the prior year, but plus $8 million is a solid performance for calendar year 2020 for sure. And in terms of our overall renewal rate in the high 80s, I think that's quite good. We have had some fluctuation in our renewal rates over the past few years with that rate, as you know, veering toward the high-end in the past year. In fact, last year's renewal rate was in the high 90s. We're trying to balance that out a bit as we look at managing our portfolio for overall growth and profitability. And so, there were some - we're making some choices about renewals that will push that rate down a little bit, and I think we're doing a better job around reading where we need to be in the market given the quality of services that we're delivering to earn those renewals with our current clients. We've put a lot of focus on customer service in the last couple of years to help drive those renewal rates, and so I think we've begun to find a better balance there. All that said, we're managing our overall portfolio to balance out the royalty rates, ensure that we're getting the right balance there, and driving for profitable growth over time. And the net wins for the prior year, the net society wins were $3 million. So, we're up from $3 million to $8 million.

And then just last question. On Education Services, you demonstrated some nice year-on-year profit improvement. You did mention some favorable timing of expenses in the quarter. Can you address that in more detail and what the implications are for the second half of fiscal 2020? Thanks.

There were a few things that were - there was one item that was revenue related that was a matter of the timing something coming in the quarter that is non-recurring. And there was also the matter of some timing around expenses, which will probably even them their way out over the balance of the year, including things like accruals for bonuses and accruals for benefits and such. So, on balance, we would say the second quarter from a profit perspective is not a trend. But if you look across the year, as Brian commented, we're expecting adjusted EBITDA for the Ed Services business to be in the mid-to-high single-digit range and that would be up from 3% for fiscal-year 2019.

And John, remind me, was that the prior guidance? I don't recall you guys giving an adjusted EBITDA margin range for fiscal 2020. Is that…

So we had - we reported, as I noted, 3% last year, and we said in our view for fiscal 2022 that we're targeting 15% adjusted EBITDA. We had not previously given a view on the year. But we are now, because we didn't want to call out that the uptick in the second quarter is not a trend in and of itself but across the full year. We are expecting to see a significant improvement in adjusted EBITDA for that part of the business.

Our next question comes from Daniel Moore with CJS Securities.

Thank you, again. And I appreciate the color, John, as it relates to FX. And I just want to make sure I'm hearing you correctly. Essentially, negligible impact year-to-date thus far on - from an earnings perspective and if we - if the rate stayed around where we are now would also be negligible relative to your full-year guide. Is that right?

Yes. That's correct. The adverse to revenue by about $15 million at the current rates. But the impact to earnings is immaterial for the year.

And if we play that out to your fiscal 2022 goals similar $3.50 adjusted EPS goal, right now there hasn't been any material impact relative to where we started?

No. We're still sticking to our fiscal-year 2022 targets. We have not made any changes there. Obviously, we've got a bit of a challenge around the Academic & Professional Learning books business. But again on balance, as we look across the first year of that three-year horizon, overall, we are performing in line with our business plan, and we've seen some improvements in other parts of the business that are helping to offset the decline in the books business.

And one more if I may, just in terms of M&A pipeline, as we look to the balance of fiscal 2020 at least, are you kind of more in the digestion mode as far as integrating Learning House and zyBooks and some of these others or are you still kind of very active near term and longer term?

Yes. We are continuing in the market to be active with looking at opportunities that can materially advance our strategy. And so that is - we certainly always continue to have a pipeline of opportunities. We are doing a very good and consistent job of integrating the acquisitions that we have. But we will continue to look at opportunities as they come up. And as I said, we have an active pipeline.

And I'm not showing any further questions at this time.

All right. Well, thank you for joining us on the call today, and we'll look forward to presenting our third quarter results in March.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.