HMH Earnings Call First Quarter 2016

Transcription

1 May 4, 2016 HMH Earnings Call First Quarter 2016

2 FORWARD LOOKING STATEMENTS AND NON-GAAP MEASURES This presentation and oral statements made in connection herewith contain forward-looking statements, which can be identified by the use of forward-looking terminology. These statements include all maters that are not historical facts, including statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, including billings, net sales, deferred revenue; financial condition; pre-publication or content development costs; liquidity; EdTech integration efforts; platform and systems upgrades; products, including product mix and format; our outlook for 2016; prospects; growth; markets and market share; strategies, including with respect to adjacent markets and capital structure and allocation; the industry in which we operate; and potential business decisions. These statements constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Forward-looking statements involve risks and uncertainties. Important factors that could cause our actual results to differ materially from the results expressed 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 04, 2016 and in the Special Note Regarding Forward-Looking Statements and Risk Factors in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. We undertake no obligation, and do not expect, to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. In addition, this presentation and oral statements made in connection herewith reference non-gaap financial measures, such as adjusted EBITDA, adjusted cash EBITDA, adjusted post plate cash EBITDA, billings and free cash flow. These measures are supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. The use of these non-gaap measures is 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 is provided in the appendix to this presentation and in our news release issued on May 04, 2016, which are posted on hmhco.com under the Investor Relations section. hmhco.com / 2

3 Agenda Welcome/Introductions Business Update Financial Overview Questions and Answers hmhco.com / 3

4 Business Update

5 Education Highlights Q1 Wins in Key States Opportunities in Major 2016 New Adoptions hmhco.com / 5 1 The Educational Technology and Services business acquired from Scholastic Corporation on May 29, 2015

6 More than 3,000 resources available at launch Solid conversion rate; Positive user engagement Expanded digital offerings to extend the customer experiences hmhco.com / 6

7 Leveraging Unique Assets & Expanding in Adjacencies Seamless integration of Core and Intervention with Read 180 Universal, the next generation of our industry leading intervention platform Leveraging content in the U.S. and internationally with three 10-year Department of Defense (DoD) contracts Enhance our education content and expand relationship with bestselling Trade author Randall Munroe to include exclusive content for HMH Science programs Expand our core customer base, to grow in pre-k with Curious World; adding to our digital library with new, original content hmhco.com / 7

8 Bestselling Titles in Trade Publishing Over one million copies sold hmhco.com / 8

9 Other Business Highlights Upgrading and standardizing platforms and technology infrastructure, including HMH One and SAP Making progress on the EdTech integration which is exceeding our expectations product development/ sales force largely integrated, integration of back office systems expected by the end of Q2 FY16 Enhancing strategic position in key growth areas, including intervention, early learning and professional services hmhco.com / 9

10 Financial Overview

11 First Quarter 2016 Highlights 1 $ in millions Billings increased 13% year-overyear to $168 million; Net sales increased 27% year-over-year to $206 million $148 Billings 2 $168 $24 $163 Net Sales $206 $37 Adjusted Cash EBITDA was a loss of $79 million vs. a loss of $67 million in Q1 FY15 Repurchase of over 1.5 million in shares, approximately $31 million $144 Q Q EdTech Adjusted Cash EBITDA 2 $169 Q Q HMH Post Plate Adjusted Cash EBITDA 2 Launched Read 180 Universal and HMH Marketplace and continued to demonstrate transformation into a leading educational media company ($67) ($79) ($85) ($112) Q Q Q Q hmhco.com / 11 1 Three months ended March 31, Please see appendix for a reconciliation of non-gaap measures.

12 Financial Highlights $ in Millions Q Variance % Billings % Net Sales % Adjusted Cash EBITDA 1 (67) (79) (19%) Pre-publication costs (Plate) (18) (33) (80%) Post Plate Adjusted Cash EBITDA 1 (85) (112) (33%) Net Loss (160) (165) (3%) Cash and Short Term Investments (45%) Free Cash Flow 1 (125) (170) (36%) Capital Expenditures 3 (32) (58) (78%) 1 Please see the appendix for a reconciliation of non-gaap measures. 2 As of December 31, 2015, cash and short term investments includes cash and cash equivalents of $234.3M and short term investments of $198.1M. As of March 31, 2016, it includes, cash and cash equivalents of $168.9M and short-term investments of $67.5M. 3 Capital expenditures include pre-publication costs and property, plant and equipment expenditures. hmhco.com / 12

13 Questions and Answers

14 Appendix

15 Non-GAAP Reconciliation Adj EBITDA, Adj Cash EBITDA, Post Plate Adj Cash EBITDA 1 ($ in millions) Q Net Loss (160) (165) Interest Expense 6 9 Provision for Income Taxes Depreciation Expense Amortization Expense Non-Cash Charges - Stock Compensation 3 3 Non-Cash Charges- (Gain) Loss on Derivative Instruments 2 (1) Purchase Accounting Adjustments Fees, Expenses or Charges for Equity Offerings, Debt or Acquisitions 3 0 Restructuring 0 4 Severance separation costs and facility closures 1 2 Adjusted EBITDA (52) (41) Change in Deferred Revenue (15) (38) Adjusted Cash EBITDA (67) (79) Additions to Pre-publication Costs (18) (33) Post Plate Adjusted Cash EBITDA (85) (112) 1 Details may not sum to total due to rounding. 2 Represents certain non-cash accounting adjustments, relating to deferred revenue. hmhco.com / 15

16 Non-GAAP Reconciliation Free Cash Flow 1 $ in Millions Three Months Ended Mar Mar Net cash used in operating activities (93) (113) Additions to pre-publication costs (18) (33) Additions to property, plant, and equipment (14) (25) Free Cash Flow (125) (170) 1 Details may not sum to total due to rounding. hmhco.com / 16

17 Non-GAAP Reconciliation Billings $ in millions Q Net Sales Change in Deferred Revenue (15) (38) Billings hmhco.com / 17

18 Balance Sheet ($ in Millions) Unaudited Dec 31, 2015 Mar 31, 2016 Current Assets Cash and cash equivalents $234 $169 Short-term investments Accounts receivable less allowance for bad debts and book returns Inventories Prepaid expenses and other assets Total current assets Property, plant, and equipment, net Pre-publication costs, net Royalty advances to authors, net Goodwill Other intangible assets, net Deferred income taxes 4 4 Other assets Total assets 3,122 2,895 Dec 31, 2015 Mar 31, 2016 Current Liabilities Current portion of long-term debt $8 $8 Accounts payable Royalties payable Salaries, wages, and commissions payable Deferred revenue Severance and other charges 5 5 Accrued postretirement benefits 2 2 Other liabilities Total current liabilities Long-term debt, net of discount and issuance costs Long-term deferred revenue Accrued pension benefits Accrued postretirement benefits Deferred income taxes Other liabilities Total liabilities 1,924 1,888 Stockholders' Equity Common Stock 1 1 Treasury Stock (463) (494) Capital in excess of par value 4,833 4,844 Accumulated deficit (3,134) (3,299) Accumulated other comprehensive loss (40) (46) Total stockholder's equity 1,198 1,006 Total liabilities and stockholder's equity 3,122 2,895 hmhco.com / 18 13

19 Income Statement (unaudited) ($ in Millions) Net Sales $163 $206 Costs and expenses Cost of sales, excluding publishing rights and prepublication amortization Publishing rights amortization Pre-publication amortization Cost of sales Selling and administrative Other intangible asset amortization 3 6 Severance and other charges 1 2 Operating Loss (131) (122) Other Income (Expense) Interest expense, net (6) (9) Change in fair value of derivative instruments (2) 1 Loss before taxes (139) (131) Income tax expense Net Loss (160) (165) Q1 hmhco.com / 19 13

20 Statement of Cash Flows (unaudited) ($ in Millions) Three Months Ended Mar Mar Cash flows from operating activities Net loss ($160) ($165) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization expense Amortization of deferred financing costs 3 1 Deferred income taxes Stock-based compensation expense 3 3 Change in fair value of derivative instruments 2 (1) Changes in operating assets and liabilities Accounts receivable Inventories (29) (51) Other Assets (0) (3) Accounts payable and accrued expenses (22) (13) Royalties, net (25) (26) Deferred revenue (15) (38) Interest payable (0) - Severance and other charges (1) (0) Accrued pension and postretirement benefits (1) (2) Other, net 8 5 Net cash used in operating activities (93) (113) Mar Mar Cash flows from investing activities Purchases of short-term investments $0 $0 Proceeds from sales and maturities of short-term investments Additions to pre-publication costs (18) (33) Additions to property, plant, and equipment (14) (25) Acquisition of business, net of cash acquired - - Net cash provided by (used in) by investing activities Cash flows from financing activities Proceeds from term loan - - Payments of long-term debt (64) (2) Tax withholding payments related to net share settlements of (0) (1) Proceeds from stock option exercises 8 8 Repurchases of common stock - (31) Issuance of common stock under employee stock purchase plan - 1 Advances to affiliates - - Net cash used in financing activities (56) (25) Net (decrease) increase in cash and cash equivalents 105 (65) Cash and cash equivalents at beginning of period Net (decrease) increase in cash and cash equivalents 105 (65) Cash and cash equivalents at end of period hmhco.com / 20 13