Billings: Billings for the first six months of 2019 increased $107 million, or 20%, from the same period in 2018. The billings increase was driven by a $102 million increase in our Education segment, coupled with a $6 million increase in our HMH Books & Media segment. Within our Education segment, the increase was primarily due to higher Core Solutions billings, driven by billings of the Texas and national versions of theInto Reading andInto Literature programs. The HMH Books & Media billings increase was driven by licensing income attributed to the animated seriesCarmen Sandiegoon Netflix.
Cost of Sales: Overall cost of sales increased by $40 million to $370 million in the first six months of 2019 from $330 million in the same period in 2018, primarily due to higher billings volume and royalty costs associated with such billings, and an increase inpre-publication amortization expense related to the timing of 2019 major product releases.
Selling and Administrative Costs: Selling and administrative costs increased by $12 million in the first six months of 2019, primarily due to inflationary increases in labor costs and an increase in commissions due to higher net sales and product mix.
Operating Loss: Operating loss for the first six months of 2019 was $132 million, a $24 million unfavorable change from the $108 million operating loss recorded in the same period in 2018. The unfavorable change was primarily the result of higher cost of sales coupled with an increase in selling and administrative expenses as noted herein.
Net Loss: Net loss of $158 million for the first six months of 2019 was $33 million more than the net loss of $125 million in the same period of 2018. Net loss from continuing operations for the first six months of 2019 was $158 million, a $23 million unfavorable change from the $135 million net loss from continuing operations in the same period of 2018, due primarily to the same factors impacting operating loss, slightly offset by income from a transition services agreement of $4 million that did not occur in 2018.
Adjusted EBITDA from Continuing Operations: Adjusted EBITDA from continuing operations for the six months of 2019 was $21 million, a $9 million unfavorable change from $30 million in the same period of 2018. Certain variable costs such as royalty, transportation and commissions are higher due to the increase in billings over the prior year.
Cash Flows: Net cash used in operating activities for the first six months of 2019 was $266 million compared with $164 million in the same period of 2018. Net cash used in operating activities from continuing operations was $266 million in the first six months of 2019, an increase of $91 million compared to $175 million in the same period of 2018. Net cash used in operating activities included $11 million of cash flow from discontinued operations in 2018. HMH’s free cash flow, defined as net cash from operating activities minus capital expenditures, in the first six months of 2019 was a usage of $340 million compared with a usage of $258 million in the same period of 2018. The primary driver of the unfavorable change in free cash flow was an increase in net working capital associated with large billings in the first six months of 2019 coupled with inventory purchases ahead of large new adoption opportunities in 2019. As of June 30, 2019, $60.0 million was drawn on the revolving credit facility. As of August 8, 2019, the outstanding balance was paid in full.
Conference Call:
At 8:30 a.m. ET on Thursday, August 8, 2019, HMH will also host a conference call to discuss the results with its investors. The call will be webcast live atir.hmhco.com. The following information is provided for investors who would like to participate:
Toll Free: (844) 835-6565
International: (484)653-6719
Passcode:8781822
Moderator: Brian Shipman, Senior Vice President, Investor Relations
Webcast Link:https://edge.media-server.com/mmc/p/odox5ufh
An archived webcast with the accompanying slides will be available atir.hmhco.com for one year for those unable to participate in the live event. An audio replay of this conference call will also be available until August 18, 2019 via the following telephone numbers:(855) 859-2056 in the United States and(404) 537-3406 internationally using passcode 8781822.
Use ofNon-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 from continuing operations and free cash flow. These measures are not prepared in accordance with GAAP. This information should be 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 thesenon-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.
3