HMH Earnings Call First Quarter 2018 - May 3, 2018 - AWS
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HMH Earnings Call
First Quarter 2018
May 3, 2018
TMForward-Looking Statements
and Non-GAAP Measures
This presentation and oral statements made in connection with this presentation contain certain statements that are not historical facts, including
information regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, including billings and
net sales; financial performance and condition; liquidity; products and services, including for new adoptions; outlook for full year 2018; prospects; growth;
markets and market share; strategies, including with respect to investing in our core solutions and extensions businesses and operational excellence;
efficiency and cost savings initiatives; the industry in which we operate; and potential business decisions. Those statements constitute “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that could cause our actual results to differ materially from the results express in or implied by our forward-looking statements,
including, but not limited to, those identified under the caption “Forward-Looking Statements” in our news release issued on May 3, 2018 and in the “Special Note
Regarding Forward-Looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. We undertake
no obligation, and do not expect, to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
In addition, this presentation and oral statements made in connection with this presentation reference non-GAAP financial measures, such as adj
usted EBITDA
and free cash flow, and operating measures, such as billings. The use of these non-GAAP measures are limited as they include and/or do not include certain
items not included and/or included in the most directly comparable GAAP measure. A reconciliation of non-GAAP financial measures to the most directly
comparable GAAP financial measures (to the extent available without unreasonable efforts) and a calculation of operating measures are provided in the
appendix to this presentation and in our news release issued on May 3, 2018, which are posted on hmhco.com under the Investor Relations section.
2Introduction
Solid Start to 2018;
Reaffirming our 2018 Guidance
• Net sales and billings1 each declined slightly by 1% in Q1 2018
• On an adjusted basis, net sales2 and billings3 grew 1% excluding a
one-time $5 million fee in connection with the expiration of a
distribution agreement that was recognized in Q1 2017
Strategic Partnerships
• Renaissance, a leader in pre-K-12 analytics
o Brings together deep data analytics, assessment capabilities
and core curricula
• Writable, a SaaS-based, guided writing practice program that allows
educators to save time and manage feedback
o Connected to our ELA program and also sold as a stand-alone
1 An operating measure which we derive from net sales taking into account the change in deferred revenue. See appendix for a
calculation of this measure.
2 Please see appendix for a reconciliation of non-GAAP measures.
3 Please see appendix for a reconciliation of this adjusted operating measure.
3Q1 2018 Financial Highlights:
Growth Continues in Extensions & Trade
Core Solutions Extensions Trade
• Core Solutions billings1 • Billings1 up $7 million or • Billings1 up 2%
declined $10 million 6% year-over-year year-over-year
year-over-year • Growth driven by Heinemann • Monetizing legacy
• Driven by reduction in and Professional Services brands and assets
reading sales into the • Read 180 showed significant (Netflix investment in
CA ELA adoption as well improvement; conversions Carmen Sandiego)
as the one-time fee we offsetting declines in older
received last year versions
1 An operating measure which we derive from net sales taking into account the change in deferred revenue. See appendix for a calculation of this measure.
4Upcoming Adoptions
and Looking Ahead
Adoptions
2019 California, Texas and Florida are buying new science, English
Language Arts and Reading, and math programs, respectively
Submitted Texas K-8 English Language Arts and Reading in
April 2018
Submitting Florida K-12 Math and California K-8 Science
later in Q2
2020 Texas English Language Arts and Reading 6-12
Florida English Language Arts K-12
Looking Ahead
• Re-affirming our guidance
• Focused on execution and previously announced cost-cutting
and efficiency initiatives, which will help ensure we are prepared
for market upturn
5First Quarter 2018 Results 6
First Quarter 2018 Highlights 1
Net Sales Billings2 • Net Sales and Billings
declined slightly YOY by
$222 $220 $184 $182 1%, respectively
• Net Income improved by
16% YOY
• Free Cash Flow improved
by 5% YOY
Q1 2017 Q1 2018 Q1 2017 Q1 2018 • Adjusted EBITDA improved
by 36% YOY
Net Loss Free Cash Flow3 Adjusted EBITDA3
Q1 2017 Q1 2018 Q1 2017 Q1 2018 Q1 2017 Q1 2018
($101) ($134)
($15)
($121)
($141)
($24)
1 Three Months ended March 31, 2018.
2 An operating measure which we derive from net sales taking into account the change in deferred revenue. See calculation of this metric in the appendix to this presentation.
3 Please see appendix for a reconciliationof non-GAAP measures.
7Questions &
Answers
8Appendix 9
2018 Billings Calculation/2017 Billings
& Net Sales Reclassification1, 2
$ in Millions 2017 Reclassified 2018
Q1 Q2 Q3 Q4 Total Q1
Core Solutions
Net Sales $65 $176 $277 76 595 $61
Change in Deferred Revenue (19) 9 22 (21) (10) (25)
Billings $46 $185 $299 $55 $585 $36
Extensions
Net Sales $120 174 $204 134 632 $122
Change in Deferred Revenue (18) (7) 31 (10) (5) (14)
Billings $102 $168 $234 $124 $628 $108
Total Education $148 $353 $533 $179 $1,213 $145
Trade
Net Sales $37 $42 $51 50 181 $37
Change in Deferred Revenue (0) 0 (1) 0 (1) 0
Billings $36 $42 $50 $50 $180 $37
Consolidated
Net Sales $222 $393 $532 $261 $1,408 $220
Change in Deferred Revenue (38) 2 52 (31) (15) (38)
Total HMH $184 $395 $584 $229 $1,392 $182
1 The Company has recast prior results to report International net sales and billings in the Core Solutions and Extension categories of our Education segment, whereas previously all
International net sales and billings were reported in the Core Solutions category. Further, certain other products and/or certain other products have been recast between the Core
Solutions and Extension categories to better align with the manner that the businesses are now viewed and managed. Lastly, an elimination entry impacting each of our Education and
Trade segments in the fourth quarter of 2017 has been recast to attribute certain revenue to the Education segment originally reported in the Trade segment to better align such sales to
the segment selling to the end customer. The Company’s first quarter 2018 quarterly report on Form 10-Q dated May 3, 2018 is the first to reflect the above changes on a comparative
basis.
10 2 Details may not sum due to rounding.Financial Highlights
$ in Millions Q1
2017 2018 Variance %
Net Sales $222 $220 (1%)
Change in Deferred Revenue (38) (38) 1%
Billings1 184 182 (1%)
Net Loss (121) (101) 16%
Adjusted EBITDA2 (24) (15) 36%
Cash and Short Term Investments3 235 99 (58%)
Free Cash Flow2 (141) (134) 5%
Pre-publication Costs (28) (26) 8%
Capital Expenditures4 ($45) ($38) 16%
1 An operating measure which we derive from net sales taking into account the change in deferred revenue. See calculation of this metric in the appendix to this presentation.
2 Please see the appendix for a reconciliation of non-GAAP measures.
3 As of December 31, 2017, cash and short term investments included cash and cash equivalents of $149M and short term investments of $86.4M. As of March 31, 2018, it includes
cash and cash equivalents of $98.7M.
4 Capital expenditures include pre-publication costs and property, plant, and equipment expenditures.
11Non-GAAP Reconciliation –
Adjusted EBITDA 1
$ in Millions Three Months Ended March 31,
2017 2018
Net Loss (121) (101)
Interest Expense 10 11
Interest Income (0) (1)
Provisions for income taxes 14 5
Depreciation Expense 19 19
Amortization Expense 49 44
Non-Cash Charges – Stock Compensation 3 3
Non-Cash Charges – Gain on Derivative Instruments (0) (0)
Fees, expenses or charges for equity offerings, debt or acquisitions 1 0
2017 Restructuring Plan 4 -
Severance, separation costs and facility closures 1 4
Loss on sale of assets - 1
Legal reimbursement (5) -
Adjusted EBITDA (24) (15)
1 Details may not sum due to rounding.
12Non-GAAP Reconciliation –
Free Cash Flow 1
$ in Millions Three Months Ended March 31,
2017 2018
Net Cash Used in Operating Activities ($96) ($97)
Additions to Pre-publication Costs (28) (26)
Additions to Property, Plant, and Equipment (17) (12)
Free Cash Flow ($141) ($134)
1 Details may not sum due to rounding.
13Reconciliation of Adjusted Net Sales
and Adjusted Billings Growth Rates
$ in Millions Three Months Ended March 31,
2017 2018 % Change
Net sales 222 220
Adjustment for one-time 2017 fee1 (5) -
Net sales, adjusted 217 220 1%
Change in deferred revenue (38) (38)
Billings, adjusted 179 182 1%
1 Adjustment to exclude a one-time $5 million fee in connection with the expriation of a distribution agreement that was recognized in Q1 2017.
14TM 15
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