Exhibit 99.1
HOUGHTON MIFFLIN HARCOURT ANNOUNCES SECOND QUARTER 2017 RESULTS
Reports net sales of $393 million and billings of $395 million
Reaffirms full-year 2017 outlook
BOSTON – August 3, 2017 – Global learning company Houghton Mifflin Harcourt (“HMH” or the “Company”) (NASDAQ: HMHC) today announced its financial results for the second quarter ended June 30, 2017.
Financial Highlights:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||
| (in millions of dollars) | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Net sales | $ | 393 | $ | 392 | 0.3 | % | $ | 615 | $ | 598 | 2.9 | % | ||||||||||||
Billings | 395 | 413 | (4.2 | )% | 579 | 580 | (0.2 | )% | ||||||||||||||||
Net loss | (47 | ) | (28 | ) | (65.1 | )% | (168 | ) | (194 | ) | 13.4 | % | ||||||||||||
Adjusted EBITDA | 73 | 75 | (3.3 | )% | 49 | 34 | 42.8 | % | ||||||||||||||||
Pre-publication or content development costs | (29 | ) | (32 | ) | 9.3 | % | (57 | ) | (65 | ) | 12.2 | % | ||||||||||||
Net cash used in operating activities | (44 | ) | (56 | ) | 20.9 | % | (140 | ) | (169 | ) | 16.9 | % | ||||||||||||
Free cash flow | (83 | ) | (120 | ) | 30.8 | % | (224 | ) | (290 | ) | 22.8 | % | ||||||||||||
“As we head into the third quarter, which is historically the busiest quarter in HMH’s selling season, we are encouraged by our results for the first half of 2017,” said Jack Lynch, Chief Executive Officer of HMH. “We experienced strong net sales and billings growth within the extensions of our core Basal business, which are comprised of intervention, professional learning, and supplemental products and services, and we took important steps to reduce our fixed cost base and improve our operating efficiency.”
Joe Abbott, Chief Financial Officer of HMH added, “We remain on track to deliver against the targets we set at the start of the year and continue to progress our next generation program and platform development in advance of the large new adoption opportunities we anticipate in 2018 and 2019.”
Second Quarter 2017 Financial Results:
Net Sales and Billings: Sales for the second quarter were $393 million, up 0.3% or $1 million, year over year. The net sales increase was driven by a $4 million increase in our Trade Publishing segment, partially offset by a $3 million decrease in our Education Segment. Within our Trade business, the increase was due to frontlist releasesPapi and the latest edition to the Tolkien anthologyBeren and Luthien, stronger eBooks, such asHandmaid’s Tale, and backlist print title sales. Within our Education Segment, which includes our Basal business and our Extension businesses, the decline in year over year net sales was attributed to our Basal business, which declined by $27 million from $214 million in 2016 to $187 million. The primary drivers of the decrease on our Basal business, which includes international sales, were lower net sales of Basal math programs across adoption and open territory states and lower net sales from our international business, primarily due to a large Department of Defense order in the prior year not repeating in 2017. Partially offsetting the decrease in our Basal business were higher net sales of our Extension businesses, which primarily consists of Heinemann, intervention, supplemental and assessment products as well as professional services. Extensions for the quarter increased $25 million from $139 million in 2016 to $164 million. The primary drivers of the increase in our Extensions were higher intervention sales primarily due toRead 180 Universal and an increase in our Heinemann business net sales driven primarily by our Classroom Libraries offering. Billings for the second quarter of 2017 were $395 million, down 4% or $18 million compared with $413 million for the same period in 2016.
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Cost of Sales: Overall cost of sales decreased 1% or $3 million to $216 million in the second quarter of 2017 from $219 million in the same period of 2016, primarily due to a $5 million reduction in amortization expense related to publishing rights and pre-publication assets. Our cost of sales, excluding publishing rights and pre-publication amortization, increased $2 million, as our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of net sales increased to 44.7% from 44.2% due to a product mix carrying higher costs.
Selling and Administrative Costs: Selling and administrative costs decreased $18 million from $184 million in the second quarter of 2016 to $166 million for the same period in 2017, primarily due to a $10.0 million legal settlement in the prior period for permissions litigation. Further, there was reduction of internal and outside labor related costs of $11 million and lower travel and entertainment expenses of $3 million, all due to actions taken under the 2017 Restructuring Plan. The decrease was partially offset by $7 million of higher incentive compensation, primarily higher commission expense due to greater sales quota achievement levels than in the prior year.
Operating Loss: Operating loss for the second quarter of 2017 was $31 million, $10 million higher than the $21 million operating loss recorded in the same period of 2016 due to a $33 million charge associated with the 2017 Restructuring Plan partially offset by the aforementioned changes in net sales, cost of sales, and selling and administrative costs.
Net Loss: Net loss of $47 million in the second quarter of 2017 was $18 million, or 65%, higher compared to a net loss of $28 million in the same quarter of 2016, due primarily to the same factors impacting operating loss and by an unfavorable change in our income tax expense of $9 million, from an income tax benefit of $3 million for the same period in 2016 to an income tax expense of $6 million in 2017, primarily related to a change to our estimated annual effective tax rate during the prior year period. Further, interest expense increased by $1 million primarily due to net settlement payments on our interest rate derivatives during the current period offset by a favorable change in the fair value of derivative instruments.
Adjusted EBITDA: Adjusted EBITDA for the second quarter of 2017 was $73 million, a decrease of $2 million from $75 million in the same quarter of 2016, primarily due to higher cost of sales, excluding publishing rights and pre-publication amortization, partially offset by higher net sales.
Six Months Ended June 30, 2017 Financial Results:
Net Sales and Billings: Net sales for the six months ended June 30, 2017 increased $17 million, or 3%, from $598 million for the same period in 2016 to $615 million. The net sales increase was driven by a $9 million increase in our Trade Publishing segment and an $8 million increase in our Education Segment. Within our Trade business, the increase was primarily due to sales of the Whole30series, Tools of TitansandPapi, stronger eBook sales, such asHandmaid’s Tale, and backlist print title sales. Within our Education Segment, the increase was primarily due to greater sales of our Extension businesses, which primarily consists of Heinemann, intervention, supplemental and assessment products as well as professional services. Extensions for the six-month period increased $29 million from $250 million in the 2016 period to $279 million. The primary drivers of the increase in our Extensions were higher intervention sales, primarily due toRead 180 Universal, and an increase in Heinemann net sales driven primarily by our Classroom Libraries offering. Partially offsetting the increase in our Extension net sales were lower Basal sales, which declined by $21 million from $278 million in the 2016 period to $257 million. The primary drivers behind the decrease were lower net sales of Basal math programs across adoption and open territory states and lower sales from our international business, primarily due to a large Department of Defense order in the prior year not repeating in 2017. Partially offsetting the decrease in Basal net sales was a $5.0 million one-time fee recognized in association with the expiration of a distribution agreement in 2017. Billings for the six months ended June 30, 2017 were $579 million, essentially flat compared with $580 million for the same period in 2016.
Cost of Sales: Overall cost of sales decreased 2% or $6 million to $365 million in the first half of 2017 from $371 million in the same period of 2016, primarily due to a $10 million reduction in amortization expense related to publishing rights and pre-publication assets. Our cost of sales, excluding publishing rights and pre-publication amortization, increased $4 million of which $8 million is attributed to higher sales volume partially offset by $4 million of lower costs as our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of net sales decreased to 46.1% from 46.7% due to a product mix of increased Trade eBook sales along with a $5 million one-time fee associated with a distribution agreement that did not carry any cost of sales.
Selling and Administrative Costs:
Selling and administrative costs decreased $31 million primarily due to a reduction in marketing and advertising costs of $5 million, lower professional fees of $20 million (of which $10 million relates to legal settlement costs for permissions litigation during the prior period coupled with a $5 million for an insurance reimbursement during the current period), a reduction of internal and outside labor related costs of $6 million, and lower travel and entertainment expenses of $7 million, all largely due to actions taken under the 2017 Restructuring Plan. Additionally, samples and depository fees were $5 million lower in the period. The decrease was partially offset by $8 million of higher incentive compensation, primarily commissions due to greater sales quota achievement levels, $3 million of higher office lease cost due to the expiration of favorable office leases and $3 million of higher depreciation as a result of our increased investment in business systems, technology platforms and infrastructure.
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Operating Loss: Operating loss for the six months ended June 30, 2017 were $127 million, $16 million lower than the $143 million for the same period in 2016 primarily due to the aforementioned changes in net sales, cost of sales, and selling and administrative costs partially offset by the 2017 Restructuring Plan.
Net Loss: Net loss of $168 million in the first half of 2017 was $26 million, or 13%, better compared to a net loss of $194 million in the same quarter of 2016, due primarily to the same factors impacting operating loss and by a favorable change in our income tax expense of $11 million, from an income tax expense of $32 million for the same period in 2016 to an income tax expense of $21 million in 2017, primarily related to a lower estimated annual effective tax rate during the current year period. Further, interest expense increased by $2 million primarily due to net settlement payments on our interest rate derivatives during the current period offset by a favorable change in the fair value of derivative instruments.
Adjusted EBITDA: Adjusted EBITDA for the first half of 2017 was $49 million, an increase of $15 million from $34 million in the same period of 2016, primarily due to the aforementioned changes in net sales, cost of sales, and selling and administrative costs.
Cash Flow:Net cash used in operating activities for the six months ended June 30, 2017 was $140 million compared with $169 million for the same period in 2016. The $29 million decrease in cash used in operating activities from 2016 to 2017 was primarily driven by more profitable operations, net of non-cash items, of $18 million, and by favorable net changes in operating assets and liabilities of $10 million. As of June 30, 2017, HMH had $79 million of cash and cash equivalents and short-term investments compared to $307 million at December 31, 2016. Operating cash flow is impacted by the inherent seasonality of the academic calendar. Consequently, the performance of the business is difficult to compare quarter to consecutive quarter and should be considered on the basis of results for the whole year. HMH’s free cash flow, defined as net cash from operating activities minus capital expenditures, for the six months ended June 30, 2017 was a usage of $224 million compared with a usage of $290 million for the same period in 2016.
Corporate Initiatives: HMH continues to implement its ongoing initiatives to improve the Company’s operational efficiency and right-size its cost structure. Organizational design changes, aimed at reducing complexity in the organization, were largely completed by May 2017, and HMH expects to substantially complete the remaining planned actions by the end of 2018. The identified initiatives are expected to result in approximately $70 to $80 million in annualized cost savings by the end of 2018 and will result in total charges of $41 to $45 million, of which $32 to $36 million will be cash charges.
Reaffirmed Full Year 2017 Outlook:
HMH continues to expect 2017 net sales to be in a range of $1.325 to $1.405 billion and billings to be in the range of $1.375 to $1.455 billion. Expectations for content development spend for 2017 continues to be in the range of $140 to $160 million, with total capital expenditure including non-plate capital expenditures continuing to be in the range of $190 to $220 million.
Conference Call:
At 8:30 a.m. EST on Thursday, August 3, 2017, HMH will also host a conference call to discuss the results with its investors. The call will be webcast live at ir.hmhco.com. The following information is provided for investors who would like to participate:
Toll Free: (844) 835-6565
International: (484) 653-6719
Passcode: 53427462
Moderator: Brian Shipman
Webcast Link: http://edge.media-server.com/m/p/6uetwxyh
An archived webcast with the accompanying slides will be available at ir.hmhco.com for one year for those unable to participate in the live event. An audio replay of this conference will also be available until August 11, 2017 via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally using passcode 53427462.
Use of Non-GAAP Financial Measures:
To supplement our financial statements presented in accordance with Generally Accepted Accounting Principles (GAAP) and to provide additional insights into our performance (for a completed period and/or on a forward looking basis), we have presented adjusted EBITDA and free cash flow. These measures are not prepared in accordance with GAAP. This information should be
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considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Management believes that the presentation of these non-GAAP measures provides useful information to investors regarding our results of operations and/or our expected results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.
Management believes that the presentation of adjusted EBITDA provides useful information to our investors and management as an indicator of our performance that is not affected by: fluctuations in interest rates or effective tax rates; levels of depreciation or amortization; non-cash charges; fees, expenses or charges relating to acquisition-related activities, including purchase accounting adjustments, integration costs and transaction costs, as well as to securities offering- and debt refinancing-activities; charges associated with restructuring and cost saving initiatives, including severance, separation and facility closure costs; certain legal settlements and awards; and non-routine costs and gains. Accordingly, management believes that this measure is useful for comparing our performance from period to period and makes decisions based on it. In addition, targets in adjusted EBITDA (further adjusted to include the change in deferred revenue and in certain instances to exclude pre-publication costs) are used as performance measures to determine certain incentive compensation of management. Management also believes that the presentation of free cash flow provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by general business operations, excluding capital expenditures, and makes decisions based on it.
Other companies may define these non-GAAP measures differently and, as a result, our use of these non-GAAP measures may not be directly comparable to adjusted EBITDA and free cash flow used by other companies. Although we use these non-GAAP measures as financial measures to assess the performance of our business, the use of 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. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income or loss prepared in accordance with GAAP as a measure of performance; and free cash flow should be considered in addition to, and not as a substitute for, net cash provided by operating activities prepared in accordance with GAAP as a measure of performance. Adjusted EBITDA is not intended to be a measure of liquidity nor is free cash flow intended to be a measure of residual cash flow available for discretionary use. You are cautioned not to place undue reliance on these non-GAAP measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures (to the extent available without unreasonable efforts) and related disclosure is provided in the appendix to this news release.
About Houghton Mifflin Harcourt
Houghton Mifflin Harcourt (NASDAQ:HMHC) is a global learning company dedicated to changing people’s lives by fostering passionate, curious learners. As a leading provider of pre-K–12 education content, services, and cutting-edge technology solutions across a variety of media, HMH enables learning in a changing landscape. HMH is uniquely positioned to create engaging and effective educational content and experiences from early childhood to beyond the classroom. HMH serves more than 50 million students in over 150 countries worldwide, while its award-winning children’s books, novels, non-fiction, and reference titles are enjoyed by readers throughout the world. For more information, visitwww.hmhco.com.
Follow HMH onTwitter,Facebook andYouTube.
Contact
Brian S. Shipman, CFA
Senior Vice President, Investor Relations
(212) 592-1177
brian.shipman@hmhco.com
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Forward-Looking Statements
The statements contained herein include forward-looking statements, which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “projects,” “anticipates,” “expects,” “could,” “intends,” “may,” “will” or “should,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, including billings and net sales; financial performance, financial condition; liquidity; products and services, including for new adoptions; outlook for full year 2017; prospects; growth; markets; strategies, including with respect to investing in our core basal business and the extension businesses thereof; efficiency and cost savings initiatives, including actions thereunder and expected impact; the industry in which we operate; and potential business decisions. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this report.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our results are consistent with the forward looking statements contained herein, those results or developments may not be indicative of results or developments in subsequent periods.
Important factors that could cause our results to vary from expectations include, but are not limited to: changes in state and local education funding and/or related programs, legislation and procurement processes; industry cycles and trends; the rate and state of technological change; changes in product distribution channels and concentration of retailer power; changes in our competitive environment; periods of operating and net losses; our ability to enforce our intellectual property and proprietary rights; risks based on information technology systems; dependence on a small number of print and paper vendors; third-party software and technology development; our ability to identify, complete, or achieve the expected benefits of, acquisitions; increases in our operating costs; exposure to litigation; major disasters or other external threats; contingent liabilities; risks related to our indebtedness; future impairment charges; changes in school district payment practices; a potential increase in the portion of our sales coming from digital sales; risks related to doing business abroad; changes in tax law or interpretations; the commitments and decisions of our new CEO; the timing and results of our efficiency and cost-savings initiatives; and other factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other news releases we issue and filings we make with the SEC. In light of these risks, uncertainties and assumptions, the forward-looking events described herein may not occur.
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. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein.
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Houghton Mifflin Harcourt Company
Consolidated Balance Sheets(Unaudited)
| (in thousands of dollars, except share information) | June 30, 2017 | December 31, 2016 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 78,735 | $ | 226,102 | ||||
Short-term investments | — | 80,841 | ||||||
Accounts receivable, net | 304,301 | 216,006 | ||||||
Inventories | 197,903 | 162,415 | ||||||
Prepaid expenses and other assets | 26,147 | 20,356 | ||||||
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Total current assets | 607,086 | 705,720 | ||||||
Property, plant, and equipment, net | 157,083 | 175,202 | ||||||
Pre-publication costs, net | 317,336 | 314,784 | ||||||
Royalty advances to authors, net | 48,965 | 43,977 | ||||||
Goodwill | 783,073 | 783,073 | ||||||
Other intangible assets, net | 645,180 | 685,649 | ||||||
Deferred income taxes | 3,458 | 3,458 | ||||||
Other assets | 21,813 | 19,608 | ||||||
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Total assets | $ | 2,583,994 | $ | 2,731,471 | ||||
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Liabilities and Stockholders’ Equity | ||||||||
Current liabilities | ||||||||
Current portion of long-term debt | $ | 8,000 | $ | 8,000 | ||||
Accounts payable | 91,953 | 76,181 | ||||||
Royalties payable | 69,389 | 72,233 | ||||||
Salaries, wages, and commissions payable | 43,931 | 41,289 | ||||||
Deferred revenue | 242,793 | 272,828 | ||||||
Interest payable | 110 | 193 | ||||||
Severance and other charges | 15,854 | 8,863 | ||||||
Accrued postretirement benefits | 1,928 | 1,928 | ||||||
Other liabilities | 38,219 | 23,635 | ||||||
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Total current liabilities | 512,177 | 505,150 | ||||||
Long-term debt, net of discount and issuance costs | 762,466 | 764,738 | ||||||
Long-term deferred revenue | 431,151 | 436,627 | ||||||
Accrued pension benefits | 27,451 | 28,956 | ||||||
Accrued postretirement benefits | 20,616 | 22,084 | ||||||
Deferred income taxes | 90,409 | 71,381 | ||||||
Other liabilities | 20,879 | 22,495 | ||||||
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Total liabilities | 1,865,149 | 1,851,431 | ||||||
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Commitments and contingencies | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, $0.01 par value: 20,000,000 shares authorized; no shares issued and outstanding at June 30, 2017 and December 31, 2016 | — | — | ||||||
Common stock, $0.01 par value: 380,000,000 shares authorized; 147,836,621 and 147,556,804 shares issued at June 30, 2017 and December 31, 2016, respectively; 123,259,587 and 122,979,770 shares outstanding at June 30, 2017 and December 31, 2016, respectively | 1,478 | 1,475 | ||||||
Treasury stock, 24,577,034 shares as of June 30, 2017 and December 31, 2016, respectively, at cost (related parties of $193,493 at 2017 and 2016) | (518,030 | ) | (518,030 | ) | ||||
Capital in excess of par value | 4,873,638 | 4,868,230 | ||||||
Accumulated deficit | (3,585,865 | ) | (3,418,340 | ) | ||||
Accumulated other comprehensive loss | (52,376 | ) | (53,295 | ) | ||||
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Total stockholders’ equity | 718,845 | 880,040 | ||||||
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Total liabilities and stockholders’ equity | $ | 2,583,994 | $ | 2,731,471 | ||||
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Houghton Mifflin Harcourt Company
Consolidated Statements of Operations (Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands of dollars, except share and per share information) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net sales | $ | 393,051 | $ | 392,042 | $ | 614,968 | $ | 597,858 | ||||||||
Costs and expenses | ||||||||||||||||
Cost of sales, excluding publishing rights and pre-publication amortization | 175,693 | 173,466 | 283,229 | 278,984 | ||||||||||||
Publishing rights amortization | 10,867 | 14,413 | 24,265 | 32,206 | ||||||||||||
Pre-publication amortization | 29,758 | 31,315 | 57,335 | 59,596 | ||||||||||||
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Cost of sales | 216,318 | 219,194 | 364,829 | 370,786 | ||||||||||||
Selling and administrative | 166,165 | 184,479 | 322,517 | 353,154 | ||||||||||||
Other intangible asset amortization | 8,128 | 5,968 | 16,204 | 12,144 | ||||||||||||
Restructuring | 33,393 | — | 37,268 | — | ||||||||||||
Severance and other charges | 213 | 3,553 | 1,419 | 5,130 | ||||||||||||
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Operating loss | (31,166 | ) | (21,152 | ) | (127,269 | ) | (143,356 | ) | ||||||||
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Other income (expense) | ||||||||||||||||
Interest expense | (10,432 | ) | (9,402 | ) | (20,640 | ) | (18,735 | ) | ||||||||
Change in fair value of derivative instruments | 851 | (619 | ) | 896 | 165 | |||||||||||
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Loss before taxes | (40,747 | ) | (31,173 | ) | (147,013 | ) | (161,926 | ) | ||||||||
Income tax expense (benefit) | 6,120 | (2,782 | ) | 20,512 | 31,613 | |||||||||||
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Net loss | $ | (46,867 | ) | $ | (28,391 | ) | $ | (167,525 | ) | $ | (193,539 | ) | ||||
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Net loss per share attributable to common stockholders | ||||||||||||||||
Basic | $ | (0.38 | ) | $ | (0.23 | ) | $ | (1.36 | ) | $ | (1.58 | ) | ||||
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Diluted | $ | (0.38 | ) | $ | (0.23 | ) | $ | (1.36 | ) | $ | (1.58 | ) | ||||
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Weighted average shares outstanding | ||||||||||||||||
Basic | 122,919,853 | 122,143,971 | 122,849,127 | 122,520,786 | ||||||||||||
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Diluted | 122,919,853 | 122,143,971 | 122,849,127 | 122,520,786 | ||||||||||||
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Houghton Mifflin Harcourt Company
Consolidated Statements of Cash Flows (Unaudited)
| Six Months Ended June 30, | ||||||||
| (in thousands of dollars) | 2017 | 2016 | ||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (167,525 | ) | $ | (193,539 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization expense | 136,188 | 141,680 | ||||||
Amortization of debt discount and deferred financing costs | 2,090 | 2,090 | ||||||
Deferred income taxes | 19,028 | 29,252 | ||||||
Stock-based compensation expense | 5,475 | 6,673 | ||||||
Restructuring charges related to property, plant, and equipment | 10,035 | — | ||||||
Change in fair value of derivative instruments | (896 | ) | (165 | ) | ||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (88,295 | ) | (91,073 | ) | ||||
Inventories | (35,488 | ) | (47,478 | ) | ||||
Other assets | (7,997 | ) | (9,800 | ) | ||||
Accounts payable and accrued expenses | 11,505 | 12,137 | ||||||
Royalties payable and author advances, net | (7,832 | ) | (3,422 | ) | ||||
Deferred revenue | (35,511 | ) | (17,365 | ) | ||||
Interest payable | (83 | ) | — | |||||
Severance and other charges | 9,859 | 328 | ||||||
Accrued pension and postretirement benefits | (2,973 | ) | (3,014 | ) | ||||
Other liabilities | 12,218 | 4,919 | ||||||
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Net cash used in operating activities | (140,202 | ) | (168,777 | ) | ||||
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Cash flows from investing activities | ||||||||
Proceeds from sales and maturities of short-term investments | 80,690 | 197,724 | ||||||
Additions to pre-publication costs | (57,294 | ) | (65,232 | ) | ||||
Additions to property, plant, and equipment | (26,534 | ) | (56,238 | ) | ||||
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Net cash (used in) provided by investing activities | (3,138 | ) | 76,254 | |||||
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Cash flows from financing activities | ||||||||
Payments of long-term debt | (4,000 | ) | (4,000 | ) | ||||
Repurchases of common stock | — | (51,018 | ) | |||||
Tax withholding payments related to net share settlements of restricted stock units and awards | (1,434 | ) | (1,039 | ) | ||||
Proceeds from stock option exercises | 512 | 11,220 | ||||||
Issuance of common stock under employee stock purchase plan | 895 | 1,113 | ||||||
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Net cash used in financing activities | (4,027 | ) | (43,724 | ) | ||||
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Net decrease in cash and cash equivalents | (147,367 | ) | (136,247 | ) | ||||
Cash and cash equivalent at the beginning of the period | 226,102 | 234,257 | ||||||
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Cash and cash equivalent at the end of the period | $ | 78,735 | $ | 98,010 | ||||
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8
Houghton Mifflin Harcourt Company
Non-GAAP Reconciliations (Unaudited)
Adjusted EBITDA
Consolidated
(in thousands of dollars)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
Net loss | $ | (46,867 | ) | $ | (28,391 | ) | $ | (167,525 | ) | $ | (193,539 | ) | ||||
Interest expense | 10,432 | 9,402 | 20,640 | 18,735 | ||||||||||||
Provision (benefit) for income taxes | 6,120 | (2,782 | ) | 20,512 | 31,613 | |||||||||||
Depreciation expense | 19,115 | 19,390 | 38,385 | 37,734 | ||||||||||||
Amortization expense | 48,753 | 51,696 | 97,804 | 103,946 | ||||||||||||
Non-cash charges—stock compensation | 2,931 | 3,670 | 5,475 | 6,673 | ||||||||||||
Non-cash charges—(gain) loss on derivative instrument | (851 | ) | 619 | (896 | ) | (165 | ) | |||||||||
Purchase accounting adjustments | — | 1,236 | — | 3,088 | ||||||||||||
Fees, expenses or charges for equity offerings, debt or acquisitions | (288 | ) | 812 | 277 | 979 | |||||||||||
2017 Restructuring Plan | 33,393 | — | 37,268 | — | ||||||||||||
Restructuring/Integration | — | 6,198 | — | 10,014 | ||||||||||||
Severance, separation costs and facility closures | 213 | 3,553 | 1,419 | 5,130 | ||||||||||||
Legal settlement | — | 10,000 | (4,500 | ) | 10,000 | |||||||||||
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Adjusted EBITDA | $ | 72,951 | $ | 75,403 | $ | 48,859 | $ | 34,208 | ||||||||
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Free Cash Flow
Consolidated
(in thousands of dollars)
| Six Months Ended June 30, | ||||||||
| 2017 | 2016 | |||||||
Cash flows from operating activities | ||||||||
Net cash used in operating activities | $ | (140,202 | ) | $ | (168,777 | ) | ||
Cash flows from investing activities | ||||||||
Additions to pre-publication costs | (57,294 | ) | (65,232 | ) | ||||
Additions to property, plant, and equipment | (26,534 | ) | (56,238 | ) | ||||
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Free Cash Flow | $ | (224,030 | ) | $ | (290,247 | ) | ||
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9
Houghton Mifflin Harcourt Company
Calculation of Billings (Unaudited)
Billings
Consolidated
(in thousands of dollars)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (in thousands of dollars) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net sales | $ | 393,051 | $ | 392,042 | $ | 614,968 | $ | 597,858 | ||||||||
Change in deferred revenue | 2,393 | 20,616 | (35,511 | ) | (17,365 | ) | ||||||||||
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Billings | $ | 395,444 | $ | 412,658 | $ | 579,457 | $ | 580,493 | ||||||||
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Billings is an operating measure utilized by the company derived as shown above.
10