HMHC - Earnings call transcript Q3 2018 | Houghton Mifflin Harcourt Co

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Operator

Good day ladies and gentlemen and welcome to the Houghton Mifflin Harcourt Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder this conference call may be recorded. I would now like to turn the conference over to Brian Shipman.

begin. may You

Brian Shipman

good and Thank morning you everyone.

year. website begin, out available our point we found will the of be one like today's November website replay call the to the slides on webcast our section relations XXXX would available that investor hmhco.com. referred call on be A of Before can I at XX, to and until today's on be will for

earnings press Our also XXXX our earlier third morning this with XX-Q along release. was filed quarter

Before a today's presentation the could our also discuss that encourage the to recent differ discussion forward-looking we measures results, cause our you slide call. and financial actual review to I on results for statement from refer in of two, the Please statements. and these the use forward-looking statements to factors Forms on risks most cautionary of non-GAAP materially which slide XX-Q XX-K explains and of

for the refer please GAAP our addition, In will most prepared directly to from remarks, to open measures. investors. presentation to these comparable After questions we appendix of non-GAAP measures call the the slide reconciliations the of

Q&A, please follow-up. to one limit question plus one yourself the During

questions. and queue third Officer; President back as company's as This get results. have provide company HMH's will Mifflin a the Joe You may an XXXX of quarter morning, update Chief well Houghton if Abbott, and you Lynch, into and the Jack overview Executive additional Harcourt's year-to-date Chief Financial Officer

to Now, Jack. the I'll turn call over

John Lynch

us call. quarter earnings Brian Thank on for you, today's and you, third joining thank everyone XXXX

year-to-date highlights results. few through our I'd and I like begin, Before run QX a to from

approval our programs for in XXXX upcoming adoptions. on First, new are track

performance And Extensions underscores a the strategy. billings and of in QX key market, of growth in HMH with pillar importance QX were company billings year-to-date, flat finally, year-to-date. total extending of core XX% X% of X.X% our the our and grew business, Next, XXXX strong

guidance performance reaffirming for XXXX. and solid. suggest, the As remained quarter our year these our third We're year-to-date highlights full

said adoptions before, in is and cyclical XXXX businesses. with backdrop, trough large our our a place. state year this taking well we market in fewer growth trade performed As Against strong Extensions industry with we

expect portfolio in increased HMH. offer we cash improve of our our the core ability continued Extensions integrated our year, that flow programs, new generation growth and solutions, with to combined Next will next-generation free fundamentals

Just after testing of the on business divestiture cash. previously $XXX in we QX, million also closed Riverside announced standardized for the

approximately divestiture We are business. planning of to our this into the invest $XXX from Extensions proceeds net million

on from and value us shows position QX creation shareholders. learning market execute a Our vision, strategic These outcomes. are on for leadership and and content continued great for to performance on publishing evolving year-to-date company company will continuing our focused educators, efforts a that we great students, focused long-term to

adoption buying three previously, Texas, are Florida science, As largest states programs, and with reading the we new discussed you in and XXXX. math have California, respectively,

remain our for in next-generation programs that Commission approved states. has HMH our Quality to continue adoption. In California, science We confident Instructional these the Dimensions, program, recommended Science will be

districts. selection math month. its it to program school California, this are make Education decision to evaluating education's We decision for in recommended English-language programs to currently we panel processes our expect State In several expect final final Texas the we arts board Similar and imminent. Florida, state approval Texas' the to approval of the districts of final California made review our Board have and be has key approval,

X-XX in K-XX Florida; ahead will expect ELA XXXX, California. further and for continuation billings significant in for adoption grades Texas, adoptions in in of the ELA we drive to Looking large science opportunities

as highly the they on trough us peak our cycle. XXXX for execution, XXXX, With focused remain and to business these of from key adoptions on move the will horizon we the

update to as states, open-territory are in ready purchased for materials XXXX the and Additionally, we in common growth XXXX. expect of they many core the states those

segment Now Education segment-specific in billings QX. our results. X% declined for

about with billings nine For market Education in X%, first our line our AAP the decline addressable months, that the measures. declined portion of of the

billings Core Education the our with Solutions declines core of reading, legacy line in offsetting $XX softer declined $XX demand important market million entering programs in an driven ahead year-to-date. literature, from in year, the market, RFP declined math and of our the and billings and programs million were by total our third Rico. win with Our legacy partially decline These Puerto next for programs, the new billings quarter

areas Texas, replacing will in Florida believe our help year science. feedback are both opportunities well and grow in and customer to our based adoption to-date offerings next large We core nationally legacy year. as share programs this California; us in success subject the as compete these We offerings in brand-new with on these

program, science and Our XXXX us in gain launched next-generation in science which successful. gives be has helped will that XXXX, share our market the new launches portfolio program confidence

attributed focus in core the cycle. pleased in AAP K-XX are X% quarter areas process XX% with by demand. of Billings This of such a core I will to not our as performance. portfolios driven to as very of services. match measured and solutions integration was Extensions portions are to again we win building by the previously and This us, customers. Puerto the legacy growth strength our were Extensions business, The the Extensions our year-to-date. our subject integrated highlights help core was programs. somewhat for out mentioned in its to offering lesser third once growth less Rico market portfolio we extent, our business Billings Heinemann be with offset and Turning up decline and, are which services the solutions, to as intervention a area key by remain in solutions in these to can they to offset programs, tighter our supplemental goal

declines a these AAP share about year-to-date, addressable As of the the down market of our points. portion result of is two

market of AAP $XX coming on in companies share. expect our XXXX the areas HMH market segment more the performance. within coming as a we international Education of market and $XX to opportunities performance U.S. addressable. see measures It measurement addressable K-XX our companies portion of growth of of many increasing limitations market In billion narrow we larger materials of the company compete an indicator well the execute we our AAP utility measurement see we currently set versus as six that fall reporting continue evolve to years, consider learning and a billion that defined the subset where from AAP As for as of into strategy, an a the as outside larger instructional the

Animal XX% of X% quarter classic year-to-date. new and very growth strong pertaining Growth Orwell's of our XXXX was to in QX largely attributable Now, for this our titles, trade segment. to Trade delivered deal Farm. and backlist growth licensing

examples Beautiful that, call a and shared. our high-end to important turn examples with ahead, titles Carmen our other will over Joe, releases results. focus A a driver trade the few as for provide deeper who such I Boy. Looking valuable planned Poppins, a quarter titles is third such multimedia and strategy Joe? With into as year-to-date leveraging I'll Mary key Sandiego, the backlist strategy just on in the of include the our dive

Joe Abbott

earlier; us of and our Thank Jack year-to-date three were and everyone. on making are strong echo XXXX dimensions on results our testament progress to we you, the Thanks third To joining Jack HMH said a the for quarter good strategy. the morning what call.

we third highlights the assume results our in I quarter be the will for result continuing variances discuss a financial own in nine XXXX first My this XXXX. the operations year. will Now, and basis. Riverside discussion and did either of the or months morning of on Thus, not

restructuring from the declined attributed XXXX The remain at to essentially as a the full year-to-date decline by of net we in to to million billion. the a [Indiscernible], in X.X% million in to billings X% X% EBITDA to EBITDA period deferred income million, drivers track year-to-date third be were third while our months I'll decline realize $XXX in billion. were was our quarter change sales remained X% the billings the to exit sales declined adjusted and quarter flat related plan. Our to Billings, continuing net year-to-date EBITDA consolidated to the XXXX. the $XXX plus first sales, the for million, our We improved to offset million. the defined net discuss a segment up revenue, $XX the unchanged from by as XXXX while in million. $X.XX partially for while million net of in nine-month we in to loss basis; adjusted in savings XX% savings nine can which $XX Net $XXX on year level net decreased down restructuring from Adjusted plan million continuing third quarter operations $X.XXX on the $XXX for third quarter operations cost $XX moment. $X at

million was year-to-date the same million a flow compared of of to cash last usage a $XXX $XXX during free year. Our period usage

Our increased was year-to-date higher year. as well $XXX working same the driven capital to capital period Total of increased adoptions levels capital anticipation expenditures cash and Heinemann, in inventory in as XXXX primarily growth usage compared were the last increased upcoming due million in continued by expenditures. to million $XXX

and October XXth, on had proceeds $XXX We of at closed our balance net million As Xst, we $XXX Riverside adds cash $XXX transaction equivalents XXth, cash pro which September compared September forma on cash to XXXX, the of XXXX. basis. a of million million to

were billings basis basis, to open-territory performance win billings Education HMH the Solutions down offsetting down Partially offset Core Rico highlights. year-to-date segment in on several XX% due a a strong by and states. were by year-to-date across to was sales Puerto a million Extensions. our $XXX and X% decline driven to on on a Core decline in Solutions in year-to-date to Core Moving million $XXX programs. adoption in lower large Solutions in

demand in reading market. ahead we new position the intercept anticipate believe release the and math of Looking HMH increase will programs we the in year, next to to the

XXXX. by somewhat to million to billings X services, by with growth of Heinemann supplemental Growth intervention. to first continues for and Turning strong remained the performance and months of driven offset XX% $XXX be Extensions,

basis our market expect as our XX% below a addressable share around the the market, for share of the mentioned, of addressable we to Jack now by points fall declined measured the on As two year-to-date year. full AAP, and level

programs, for of strong in we which to reading been However, science XXXX. also believe new the next-generation Jack program are math new be have year. sales our market in set well mentioned, as and this bodes our next And

for nine Pot our general billings Growth franchise. was what we X% guidance new classic in executing a XXXX coupled outlook such vision. In and we for year given Jack backlist longer-term million call, results, earlier for sales are XXXX. focused are interest upcoming from Animal well-positioned our Our we so and with are trade pertaining Farm successfully our and adoptions. our remain to intercept on segment have XXXX strategic the XXXX. Into deal said of higher to we for And in Learning titles to licensing We echoing and attributed $XXX new Instant the and on titles the our programs to year-to-date exciting, the as adoptions increased these frontlist introduced first XXXX conclusion largely execution our that reaffirming months successfully on titles this

remain the achieving We Jack. realize And call pieces that, savings like to Jack? plan to focused year the to with end. by over on full turn restructuring I'd also potential final of cost XXXX back our

John Lynch

Joe. you, Thank

take we've summarize morning. would what we with like you before your to Now, questions, this I covered

is guidance. QX The solid, XXXX this year-to-date year-to-date and Our reaffirming our results the to results strategy. HMH and coming of our are demonstrate combined and merits with QX outlook; financial strategy our were XXXX we fruition

our offsetting extending achieve Extensions our in in offerings, the declines to continued growth business QX, investing are in We above target Solutions. Core by core which

we for both science and that major be will programs, programs new panels respectively, anticipate ELA track California in on and have is execution and recommended the adoptions in approved Texas our Review for Our XXXX. our approval.

these new ability fundamentals solutions, growth our combined next-generation portfolio will cash continued generation HMH. and with that programs, of offer Extensions expect to increased improve our core we free integrated flow Finally, in the

back up line call questions. operator the Operator? to Now, we over the for open turn will to the

Operator

comes question Warmington the Fargo. first line of of you. Bill from Thank Our [Operator Instructions] Wells

Your is open. now line

Bill Warmington

everyone. morning Good

kind you you're the to reading share question what given XXXX about for about on math, market and into talk there? thinking get of a little XXXX, if for science how you're you So, and programs planning new expectations could heading a bit

Joe Abbott

Yes, Bill.

program science we've XXXX. the guiding for not point tell on a customers doing What though, and at based the we're thus that on we're So reviewed very, they can you, that new reception programs share we fact this well is our specific that from for very far, the in to with a received based as in year. launched those year. overall that when program market good really XXXX. the contribute feel out out this in This are this going XXXX the market. seeing to like the market share in success market is this broader is of growth in We're programs all We

Bill Warmington

Got review continuing it. the over we're success going to and to panels. the hope California, at the able there? are then Florida, few What those you success of for to evidence be move will can next And mentioned investors are months Texas, that see What to programs that see milestones as forward? indicate the

John Lynch

the Yes Bill, that Board program. Education will State the now our California thing science first day -- any is the of approve

see you'll California those we've that's and in Board Once programs for Education then after the districts you'll XXXX, few next see is the K-X. approves thing then probably way first month, and so you'll begun approve Texas the half in purchases ELA the for first days. the decisions. that are -- Texas. see our State state month, Florida the made preselling also, So, in actually already this this Florida their over And made what Also, you works is of the in will -- approved of math, programs have

to quarter fourth actually So, next year and this the decisions of in see quarter in the you'll begin made year. first

So, those milestones. are the major

Bill Warmington

you Thank much. very

Operator

you. Thank

comes Appert line Peter of of Jaffray. Our next Piper question from the

now is open. line Your

Kevin Estok

This Appert. guy. good is for in Hey Peter morning Estok Kevin

John Lynch

Hey Kevin.

Kevin Estok

far, you Hi content just and transition wondering model, revenue morning. the is good discuss I question I impacted margins? guess digital was how your business My specifically if so has to can

Joe Abbott

customers it's and think really digital business for We've that ago. been I many our operating transition recognize and that Yes, to world has been format in the to our years sure. our a for both digital business important to Well, a occurred print content. in offering

So, using that to the the important largely revenue aspect of if business effective profile for offer you're educators, of what content our for of you customers. and outcomes. and teachers empower margin programs the aspects a is and that are continue And important to we the now using for engaging most perspective, the digital our really from for to most digital Really customers most that go-forward deliver does effects help think about digital content way the it that's make our us, best. to us make seeing for sure the is we and us

Kevin Estok

you. Thank

Operator

Thank you.

the from Jeff Goldstein next of Stanley. Morgan line Our question of comes

Your line is now open.

Jeff Goldstein

questions. my taking for Thanks guys. Hey

programs in drove Was your in XXXX? mentioned You could some some of of this the so programs newer business, was given Solutions investing year? outlook lower this which decision softer decline have older in demand year, kind retrospect, this Core I the market think for Or do curious. a benefited concerted strategic you

John Lynch

decline, think, Jeff, look really if three there's at Yes, the share I you reasons.

We agreement the is discontinuation apologize first for the participating share I at noise distribution about XXXX. at the programs; that hearing. programs. the And The first point -- is to -- state you're these of first first, that the of That But you're in in life then XXXX to the of think unattractive not and contributing the it legacy stands share in that legacy that I finally, mentioned we're is contributed reason previously we're contributed. California the not end adoption. making

entering they're not new we are we they as competitive the are, programs as XXXX. that's were, So, excited in as market once why the and aren't but

And much as math. as the and a for laid And reading, it reading, effort so developed up for California, and concerted programs so Florida, wasn't Texas, -- science, we much respectively, math calendar the way it did. our adoption

Jeff Goldstein

for I deal, so the now on issuing was a so, That be acquisition, debt. EdTech pipeline. color. been what the it to Thanks. are just if since areas M&A the And curious want another helpful about the main if meant of at? couple then Got ask it. appetite years It's looking And you'd

John Lynch

higher And strategy the we've space and areas allocate is said intervention since we our a capital business. supplemental is we intervention. the it's what Yes, see margin we even announced that and reason fast-growing, And in Extensions XXXX within specifically business. classroom HMH our particular, will that more that in to for

see inorganic and category, we that growing, the because are fragmented So but that Extensions margin, it's growth. be -- it's do fast for growth, organic because there area, highly of significant opportunities for area target a will inorganic within higher

Jeff Goldstein

Thanks.

Operator

you. Thank

line Citi. question comes the Bazinet next Jason from of Our of

is now Your line open.

Jason Bazinet

that just that related, spend just question can I the Yes. and how million sort benefits of would see talk on $XXX you're that the line quick the then on on between M&A period subsequent and top the had back you make is second the a the a investment flow to invest statement? about of not extent and impact in organic going some market. investment, sort the the gestation P&L you cash that To what of end? you might Extensions is might And

Joe Abbott

Jason. sure, Yes,

we that to know development investment it you our an that of about to think CapEx. a what, inorganic organically, show would investment, see to that's as and has an When to in reemploy market term see you relates extent of content were So, cycle where the opportunities non-content-related the the proceeds type that the development speed we bit spend, longer that up. approach. you associated benefits would organic And our with everything, really initial first perhaps in

that to about we're So, you Extensions certainty, that in buy question versus it as with example, but can build when between, for answer portfolio. the considering are making that all difficult think we factors determination

Jason Bazinet

Sorry.

product topline the to opposed you long sort to take buying, see did develop and you does of how might If a hits before building, benefits? market end up it as it

John Lynch

Yes, depends scope. the and really on its product Jason, it

research-based develop couple does They're evidence, again think years. quality a our it but on are it's programs to a of typically multiyear there's general a in so process product, depend programs. I -- -- high instructional these

Jason Bazinet

Okay. Thank you.

Operator

you. Thank

of comes of Silber Markets. from the Capital BMO question Jeff line next Our

Your line is now open.

Jeffrey Silber

much. so Thanks

want next an Just market next back I know earlier go share year? for not that you're will think you guidance year, but specific to question. gain to know you do providing I little metric right we'll this a think iffy, see market turn year? bit you tight in there's but the on share just direction do -- is Thanks. that, based on a next

John Lynch

And Jeff, beginning I to we'll the $X.X we know, We're that recall One, the because likely see and math. to is XX% couple the market may so share Solutions of and the to particularly category. a major to billion you'll anticipated year guiding sweet you year. is in Core AAP at it XXXX. this we think of in we you market be the $X.X market of in spot, looking Yes, for the increased that will, that's billion. will -- tracking that if the reason so reading of you are adoptions because addressable points. that, where Core Solutions addressable way strong, about of guided That as we I in out play -- stands our We're

Jeffrey Silber

Okay, some Was for positive I we that appreciate had developed to or in specific business? big in And your either the you elections states there past clarifying negative Thanks. that. days. anything couple any

John Lynch

No and no. by large, news. Yes,

the level of and so as at not federal news not And at no elections. the level. result the big a state It's

Jeffrey Silber

so much. Thanks great. Okay,

Operator

Thank you. is Sachs. of Tong next line from George Goldman [Operator the question coming of Instructions] Our

Your line is now open.

George Tong

morning. Thanks. Good

recommended what potential sales performance? science factors and you discuss You've Texas. in in programs indicated are adoption your Once variability you could make for cause list, the and can that ultimate adoption approved ELA California being

John Lynch

list a I hunting like almost is I Yes. of think -- to mean list, think a you the will. adoption if the way

eyes level in the make the decisions those competitive of decisions. it are at to down the folks, district comes folks the so at district really how the you So, those are who made and

then of the their makes program, state of they own make a that after And been their it's it wish those which states individual they to a to so decision district-by-district, to evaluation have standards. -- by as that decisions meets programs And an approved purchase.

George Tong

share you're can it, segment? in some in of the territory And you the open competitive Got then on performance market that's helpful. elaborate seeing dynamics

John Lynch

we've driven territory, seen we've mean primary, territory. in open I share of first, And the in of was George. in of the What again, secondary. way of open are at at in their X% the new I open territory in in good XXXX -- seen we've by is end trough actually view core. XXXX for our an implementation Yes. cycle and seen programs And about and a the right it's seen we've increase we is is open they for territory adoption decline the We've timeframe, a that think seen common which open refresh question, territory now territory K-X, science. open in the the slight for -- the demand cycle purchased us they kind decline growth and the

start territory the by into a was guided So, open releasing expect It's coming result down year. year. we're down substantially will open It demand last We next of be that programs this flat. we would new year. X% that territory as will

George Tong

it. helpful. Got Very Thank you.

Operator

final comes of our the line Thank from you. And question Drew Stifel. of Crum

Your is open. now line

Drew Crum

Okay. Thanks. Good everyone. morning

a districts as what sense program. are a as to and adoption. what of what districts? percentage you this XXXX, $XXX Could earlier that compare then of of just for evaluating I to which the students I above I are and free is think the several just If districts were consider? sense opportunity believe you to percentage go you are separately, said want you for And as looking not want to up heard some was takes correctly, Florida. are mentioned back to what generate puts looking but million, specific flow the give that the should guidance, for we I represented cash I Thanks. in get or districts what able XXXX. to program improve the are there to So, expectations XXXX program these by at you Not to then us in considering

Joe Abbott

Yes, sure, Drew.

bears cash thinking sets flow this you first and know say take we of the me compared Every about think Let Every XXXX. year, it to repeating. I differently. frequently, piece terms -- up pretty as in year free but

the XXXX specific and are what takes products of purchased terms and in important what what's states given any XXXX the between in puts so year. being is specific and And

is so That very compared adoption Texas us of in reading know, reading very, you one a for the biggest adoptions out not Texas. that's important was As there, in to XXXX.

one relative performance. is Another our competitive

And year. you year market share strong that we had a saw in also in very, so as XXXX, very particular

performance our in will impact So, an total well. have as

seeing these the state we of -- and typically adoption see variable our benefits opportunities our cost so in very that costs. We large do of some sales -- been have in

And the then and beyond the two adoption an a has so and need one to relationship next that can because to between further, is XXXX impact And be fixed that, Actually, has directly -- extent in benefit. development continues the more continue years the relative an on the the just our that year to have addition or calendars XXXX well cost XXXX structure side. impacts XXXX content that between investing impact. as

-- specifically. to So, to number as about colors fourth you we think insight that of consider more of and XXXX we'll quarter factors Drew. be providing course, get here, And a our call, to

Drew Crum

Okay. Thank you.

John Lynch

entire Florida Florida, schools school particular students students, question to X to adoption. the to covered percentage by on represents, entire and Florida. addressable so It's want Florida the by all in Drew, the are are the actually state, was say, and and the close math districts going I what million state which adoption be of this this

Operator

have we is the today. any back to remarks. That you. to questions for I'd like all over Jack hand call the closing Thank Lynch for

John Lynch

you. joining Thank to for call today. February. to QX And everyone, you, earnings our speaking on we in us forward you well, look Okay, thank

Operator

conclude thank and for participating today's This you gentlemen, program. in today's does conference. Ladies

disconnect. You may day. have great all Everyone a

Houghton Mifflin Harcourt (HMHC) 8 Nov 182018 Q3 Earnings call transcript