Ladies and gentlemen, thank you for standing by and welcome to Wiley's Third Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Wiley's Vice President of Investor Relations, Brian Campbell. Please go ahead.

Thank you. Hello, everyone. Welcome to Wiley's third quarter 2021 earnings update. With me are Brian Napack, President and Chief Executive Officer; and John Kritzmacher, Chief Financial Officer. Brian and John will make some formal comments and then we'll open it up for questions. Just a few reminders to start. 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. Also, Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These measures do not have standardized meanings prescribed by U.S. GAAP and therefore may not be comparable to similar measures used by other companies, nor should they be viewed as alternatives to measures under GAAP. Unless otherwise noted, we will refer to non-GAAP metrics on the call and variances are on a year-over-year basis and will exclude the impact of currency. After the call a copy of this presentation and a playback of the webcast will be available on our Investor Relations web page. I'll now turn the call over to Wiley's President and CEO, Brian Napack.

Good morning, everyone. Thanks for joining us today. Wiley continued to deliver strong results in the third quarter, based on the consistent execution of our customer-centric strategies in research and education. More than a year into the pandemic, it is clear that Wiley is very well positioned to help our core customers, researchers and learners to achieve their goals in a very different and sometimes very challenging world. Learners were settled into online and hybrid education like never before and Wiley has what they need to succeed on their personal career journeys. Researchers are conducting their work in increasingly virtual and open ways and Wiley has what they need to get their discoveries out to the world as quickly as possible, where they can drive understanding and innovation. Without doubt the COVID pandemic has demonstrated, yet again, the enduring strength of the research and education markets. The demand for high-quality peer-reviewed research continues to grow and the need has never been more urgent for affordable education that connects people directly to good jobs. Wiley is committed to making the overall knowledge ecosystem more productive. Digitally, in all that we do, our goal is to increase the speed volume and impact of research and education. By succeeding at this, we will achieve our company's mission, which is to unlock human potential. Today Wiley is a digital company that draws 83% of its revenue from digital products and services, which grew at 7% in total over the past 12 months. Overall 55% of Wiley's revenue today is recurring. Our digital research content and platforms generate billions of user sessions each year. And our digital courseware and online degree programs support greater affordability and impact in education and thus rapidly increasing unit volumes. Beyond revenue growth, our digital revenue streams deliver strong profitability…

Thank you Brian and good morning everyone. As Brian noted our team continues to effectively execute on our growth strategies and business optimization initiatives delivering favorable results and building momentum. Our strong balance sheet consistency of annual cash flows and ample liquidity enable us to confidently invest acquire and return cash to shareholders. Our improved year-to-date earnings reflect a 15% increase in adjusted EBITDA including a 240 basis point improvement in our adjusted EBITDA margin to nearly 22%. Adjusted EPS growth of 22% contributed to cash flow performance well ahead of prior year with cash from operations and free cash flow favorable to prior year by $66 million and $75 million respectively. Capital expenditures including technology, property and equipment and product development spending were $75 million for the 9-month period running $8 million lower than prior year. We continue to expect full year capital expenditures to be around $100 million with investment focused on developing and enhancing tech-enabled products and services in our core growth areas and optimizing workflows particularly in research. We acquired Hindawi this quarter for $298 million funded by cash on hand and borrowings from our existing revolving credit facility. As noted at the time of acquisition, Hindawi's attractive financial profile includes strong revenue growth and EBITDA margin in excess of 40%. In combining Hindawi with Wiley's Research business, we are well positioned to realize significant revenue and cost synergies and the acquisition is expected to be accretive to our adjusted EPS in fiscal year '23. Our net debt-to-EBITDA ratio inclusive of borrowings for Hindawi was 2.2 at quarter end. With respect to acquisitions, we will remain opportunistic as we look to add scale and tech-enabled capabilities in research and online education. Our quarter end debt balance was $163 million higher than the same time last year…

Thanks, John. So let me recap the key takeaways from the third quarter. Our business has remained strong through the year thus far. In a challenging year for all, we have continued to execute our strategy which builds on the core trends in our important markets namely open research, online education, and digital curriculum. As a result, we're growing research output significantly and growing our digital platforms business. We're growing the adoption and consumption of high-impact affordable digital content and courseware. We're growing enrollment in our high-quality career-focused degree programs. We are expanding our unmatched network of leading universities, societies, and corporate partners. This unique asset supports Wiley's success across research and education. We continue to selectively advance our core strategy through M&A adding Hindawi this quarter to accelerate our open research growth strategy and we are consistently working to improve our efficiency and our profitability. The upshot is that the Wiley team has delivered solid results for the quarter and year-to-date, and this is allowing us to raise our full year outlook. As always Wiley's performance is a team effort. Year in and year out, our wonderful colleagues around the world demonstrate their dedication to each other, to our customers and to our important mission, which remains to unlock human potential through the advancement of research and education. I thank the team for its extraordinary efforts and its many accomplishments and I will now open the floor to any comments and questions.

Thank you. [Operator Instructions] Your first question comes from Daniel Moore from CJS Securities. Your line is open.

Brian and John, good morning. Thanks for taking questions.

Hi, Dan.

I wanted to -- a lot of color on Hindawi, but I did want to pick up there as well. Can you Brian maybe just give a little bit more color into the potential revenue synergies that you've described or alluded to over time, just how the two fit together and how you see that one plus one equaling a little bit more than two?

Yes. Absolutely. So as a baseline, Hindawi is obviously an extremely successful company in and of itself. It was growing very rapidly and was nicely profitable as you know. But by becoming part of the Wiley portfolio, it really is a one plus one equals three. It's really critical as we move forward that we maintain scale and grow scale, but that we grow scale in the right ways. So the number one way that these two companies Wiley and Hindawi complement each other has to do with the exploitation of that scale, which we've talked about in a variety of calls. Researchers want to get their research out to the world in the best possible journal as quickly as they can in that order. And so what they do is they choose a journal, want to say one of our leading health science journals and they submit it to that journal. Sometimes that article gets accepted, sometimes it gets rejected. If it gets rejected, the author is forced to resubmit that journal somewhere else. To the extent that we in our portfolio have a high-quality journal that fits that article better, we can move the article from journal one to journal two or to journal three or to journal four and we can do it quickly and seamlessly. And this is an important part of our strategy, thereby allowing the researchers to get their article out faster. So I think you know Dan, we today publish about 25% of the articles that we receive. We believe that there is the opportunity to publish that even more -- to publish even more greater percentage, significantly greater percentage of those articles. We know this because those articles get published elsewhere and so we track them and we see that a large…

Very helpful. And I just want to confirm. I think you did say dilutive for the year by $0.15 and that included $0.12 in fiscal Q3. Is that right John?

Yes, that's correct Dan.

Got it. And I don't want to push you but do you see the potential at least for the deal to be maybe accretive on it a little faster than your fiscal 2023 goal? Or are there discrete investments that you intend to continue to make around it?

I think it's a little early for us to call Dan. We've only had the team on board with us now for two months. We feel very good about the progress that we're making and the rate at which the business will grow. So, we can give you an update on that when we come back around with our expectations for fiscal 2022 in June.

Sounds good. Switching gears Education Services margins once again really strong, easily exceeding the 15% goal. I'm wondering if you don't see maybe a little bit of that goal as being modestly conservative. Or do you see an opportunity to perhaps accelerate investment given the strong results we've seen?

Yes. Look it's a great question and I can certainly understand why you're asking. The answer is we have a growth business here a growth business in a changing market. We are a leader. We intend to continue to be a leader and we continue to treat it as a profitable growth business. At 15% -- we are very comfortable at that 15% plus number that we've put out there for a long time and we're going to continue to look for opportunities to invest to keep our growth rate good and higher. As you know this is a business that is at a higher profitability rate than ever before and we're very, very pleased with that. But we also recognize that the huge potential that exists in the transformation of education from traditional to hybrid and online and in many ways this is our moment to capitalize on that. And we need to be targeting those opportunities to bring on new partners to stand them up, to make them successful and to ultimately grow our enrollment and the breadth of our services that we provide to those people. So, I think we're going to stick with 15% plus is the answer.

Understood. Certainly makes sense. And maybe one more and I'll jump back in queue. Academic & Professional Learning, I think, we -- as we said, it looks like courseware is now offsetting the declines in print. Just talk maybe about your confidence in that on a go-forward basis. And similarly in Professional Learning with the vaccines accelerating, it sounds like your corporate professional partners are feeling a little bit better. Any more color or commentary there would be really helpful.

Both good questions. So, with respect to the Education Publishing side, we really are optimistic about the trajectory and what I called in my comments, the maturation of the digital courseware market. We're very pleased with our offerings. We feel very strongly about them and we love the trajectory that we're on. Having said that, we still have a good portion of our business that's print and print will continue to decline. The good news is that, we are gaining units dramatically and unit share. So while we're not ready to call bottom in terms of that trajectory, we do like where it's going. We're exceeding -- we are increasingly optimistic. And it's always a great temptation to say now is the moment, but I think what we can say is we have a business that is moving definitively in the right direction, where the price/value proposition has normalized to an extent that people are buying the products that we are selling instead of looking for alternatives or substitutes. And if the growth rate of zyBooks isn't an example of that, I don't know what is. So, we're feeling good about it. And so, we're going to avoid a specific statement about an inflection point per se, but the trends are going definitively in the right direction.

Great. And then on the professional side, sounds like you're seeing some green shoots there as well.

Yes. Forgot it. Sorry, I forgot part two. The Professional Learning is most definitely rebounding. As you may recall, we were down up to 70% in our businesses that support in-person training in the beginning and we were very worried about corporate budgets and the like. And what we're seeing is that, our retention rate and our upsell rate, in our corporate e-learning business is very good. And so, we're -- it's been a little troubling for companies, as they've been trying to look out into the future. But we had some concern as you know about what happened when we cross into calendar year 2021. But in fact, our upsells and our retention have remained high and our pipeline looks very good. And in the parts of our business that support in-person training, that part that was down 70%, we're now back up to between 80% and 90% of where we were before, which is terrific, given that we're still in a significant COVID situation. And one of the main reasons that we're there is that, 85% of our trainings are now done virtually. So yes, it's bouncing back on both sides. We like those businesses -- those parts of our business. They're going to continue to do well and come back and I think we're really on the right trajectory, but also, this movement toward virtual team training and virtual professional development, which used to require an instructor in front of a classroom, that's a really optimistic development for those businesses. And frankly, it has far exceeded -- that transition has far exceeded my expectation, spurred by COVID. I don't think we would have moved anywhere near as fast there. So once we get back -- obviously, we need to get back to where we were before and 85% in the 100%. But I'm really pleased because obviously, when we go digital, we not only have a business that moves into more sustainable and recurring revenue models, but great profitability. And also, we can reach much larger audiences, when you don't have to get a bunch of people together in classrooms. So again, we're not exactly where we want to be and you can see by the segment financials. But the trajectory again is where we want to go and consistent and aligned with the Wiley strategy.

Really helpful. I'll pass it on and perhaps circle back if there are no others. Thanks.

Thank you.

[Operator Instructions] Your next question comes from Greg Pendy from Sidoti. Your line is open.

Hey, guys. Thanks for taking my questions. Can you -- I guess, first off, can you help us understand a little bit around the swings in accounts receivable? They seem to have spiked in 2Q, and then came way down in 3Q. Can you give us a little color on that, on a year-over-year basis, I'm talking?

The -- so, you're looking at the comparison back to year-end April, is that what you're comparing?

Correct. Yes. I'm just trying to gauge the seasonality of -- you had a large spike on a year-over-year basis in receivables in 2Q. And on a year-over-year basis, it looks like it came way down. Just kind of trying to triangulate that with where you might end up the year in receivables, so that I understand your cash flow guidance a little bit better.

So, there is a good bit of seasonality to our receivables, and a lot of that seasonality swings around the timing of our subscription renewal season as well as we've introduced some other elements to our business, the addition of mthree and Hindawi to our business. So, there are some things that are going to inorganically move around our receivable balances as well. What I would say is that you should be aware that from a collections perspective, our collections performance continues to be strong. We have not encountered any significant issues in terms of defaults. We do have a little bit of upward pressure on receivables coming from some of our customers, who are, particularly on the library side, struggling a bit with budget challenges, and so have had challenges around payment schedules. So we've extended in rare cases the payment periods for our customers try to be accommodating to their particular budget challenges. But overall, most of what you're seeing is seasonality, as I said. And, what you're not seeing, I want to be really clear about is any risks around collectibility.

Understood. And then, just switching gears, just trying to understand that new student growth and just kind of -- if you could give us a little bit more color behind why -- I think you said, it was 29% up. And just trying to understand, is that reflective, in addition of some of the new account wins? Or -- and just trying to understand, do you think those will be full-time students or is there going to be maybe a lower retention rate given COVID-19 on that new student spike?

Yes, super question. The first thing I'll say is answer the last bit. We have exceedingly high retention rates through to graduation in our online programs. It has been consistent throughout the period leading up to COVID and through COVID. We've see no evidence that there would be any increase in deterioration of our retention rate in the go-forward period. So, we're very pleased. And by the way, we're really proud of that, because we're in the business of getting people degrees, affordable degrees that get them jobs. And so, to the extent that we, as a company, don't focus on impact first, we will lose and our clients will lose and the students will lose and that's unacceptable. So, now where is it coming from? The answer is, it's -- certainly our new clients are -- will take a little while to stand up. There's always -- there are always new clients coming online. And inside new clients, we are always adding new programs. And then most importantly, we're trying to grow those programs that we do have, the degree programs. And that's where it's coming from, right? It's really coming from the existing clients and the existing programs. To be sure, we're always adding new ones, but that's not the core here. The core is endemic underlying growth in interest in online education and in the success with which we are finding students, efficiently and effectively, which is what drives our terrific profitability. We find them efficiently effectively. We match them up with a program that works for them at a university that works for them, and we ensure that they are successful through to graduation. So, this is not some cyclical or COVID-related, sort of move this is the way we've been over time. Having said that, of course, COVID has accelerated the interest in online degrees, but we believe a large part of that is permanent. And much remains to be seen. So there's -- that will be sorted out, as we get toward next year and so forth. But once you're in the program, we expect retention rates that are as outstanding as the retention rates we have always delivered to our clients and to students.

Great. And then, just one final one, just trying to understand the 25% published article percentage. And I appreciate all the colour on, Hindawi. But also, if I'm not mistaken, some of the opportunities were missed in the past? Was it due to not having the right systems in place to find? Where that article might land and that's why you sort of lost that article opportunity? I don't want to throw the word AI, but I believe, you're building a system that would hopefully identify, a -- where some of these submissions could go. Is that correct? And where are you -- if so, where are you in the process?

Yes. The topic is a really important topic. I would not agree that we lost or missed opportunities. What I would say is that, there is an unexploited opportunity that has always existed for all publishers and exists for us to, do a better job. We've been on a pathway from the old print world where you had a limited number of articles that you could squeeze between two pages and ship out the people to the digital world where there's sort of unlimited shelf space. And through that process, the editorial standards must remain high. But with the high editorial standards, we want to try to find a home for all those articles. I think 25% is just a fine rate, but it's not good enough. It's not -- so I wouldn't characterize it as a deficit, which really for us, it's an unexploited opportunity. And yes, you're absolutely right. We are working very hard to make the process -- to organize ourselves to develop the systems including AI-driven, submissions and editorial review systems that allow us, to process articles faster and to route them to the appropriate, journal faster. And then, should they be rejected by that journal, send them on to their next journal, and ask people -- the author's permission for submission, to another journal. We're absolutely investing in that. You're absolutely right to focus on. It's hugely important. And we do think that there's that big opportunity. And it's a source of significant investment for us. When we do it, we gain a higher return on investment, because we publish a higher percentage of articles, but we also make the authors happy. This is what they want right? They don't want to have to go to another multi-month process, of submitting it to another journal where they have to get the review. And I would also agree with you, that in the past, we haven't been and all publishers haven't been as efficient as they could be. And we're also moving from a largely manual process to a very much automated process which is the point that you very wisely underlined. And that automated process is a source of great focus for us, and great opportunity going forward.

That's very helpful. Thanks a lot.

At this time, I have no further questions in queue. I turn the call back over, to Mr. Napack for closing remarks.

Terrific. Well, thanks again for joining us today. And we will very much look forward to sharing our fourth quarter results and full year results, in June.

Thank you everyone. This will conclude today's conference call. You may now disconnect.