BOSTON, Aug. 5, 2021 /PRNewswire/ -- Learning
technology company Houghton Mifflin
Harcourt ("HMH" or the "Company") (Nasdaq: HMHC) announced
financial results for the second quarter which ended June 30, 2021.
"We delivered a strong quarter with 25% billings growth; based
on this growth and our robust pipeline, we are raising our full
year guidance," said Jack Lynch,
President and Chief Executive Officer of Houghton Mifflin Harcourt.
"As educators plan for the return to classrooms and school funding
begins to stabilize, we are seeing growing demand for our teaching
and learning solutions. School districts are looking for support
and partnership to address achievement gaps created by interrupted
learning, and HMH is collaborating with them to increase student
outcomes. Importantly, we continue to execute on our Digital First,
Connected strategy and our growth in ARR accelerated to 106% in the
second quarter."
Q2 2021 Financial Results and Headlines:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(in millions of
dollars)
|
|
2021
1
|
|
|
2020
1
|
|
|
Change
|
|
|
2021
1
|
|
|
2020
1
|
|
|
Change
|
|
Net sales
|
|
$
|
309
|
|
|
$
|
216
|
|
|
|
42.7
|
%
|
|
$
|
455
|
|
|
$
|
368
|
|
|
|
23.6
|
%
|
Change in deferred
revenue
|
|
|
18
|
|
|
|
45
|
|
|
|
(60.6)
|
%
|
|
|
(24)
|
|
|
|
(13)
|
|
|
|
(85.9)
|
%
|
Billings
2
|
|
|
327
|
|
|
|
262
|
|
|
|
24.8
|
%
|
|
|
431
|
|
|
|
355
|
|
|
|
21.3
|
%
|
Impairment charge for
goodwill
|
|
|
—
|
|
|
|
—
|
|
|
NM
|
|
|
|
—
|
|
|
|
262
|
|
|
NM
|
|
Income (loss) from
continuing operations
|
|
|
2
|
|
|
|
(32)
|
|
|
NM
|
|
|
|
(47)
|
|
|
|
(370)
|
|
|
|
87.3
|
%
|
Adjusted EBITDA
3
|
|
|
86
|
|
|
|
32
|
|
|
NM
|
|
|
|
100
|
|
|
|
13
|
|
|
NM
|
|
Pre-publication or
content development costs
|
|
|
(15)
|
|
|
|
(16)
|
|
|
|
5.1
|
%
|
|
|
(30)
|
|
|
|
(34)
|
|
|
|
14.4
|
%
|
Net cash provided by
(used in) operating activities
|
|
|
6
|
|
|
|
(19)
|
|
|
NM
|
|
|
|
(95)
|
|
|
|
(191)
|
|
|
|
50.3
|
%
|
Free cash flow
3
|
|
|
(19)
|
|
|
|
(48)
|
|
|
|
60.7
|
%
|
|
|
(144)
|
|
|
|
(250)
|
|
|
|
42.6
|
%
|
1
|
All amounts have been
adjusted to eliminate the impact of the HMH Books & Media
business which has been removed from continuing
operations and classified as discontinued operations since the
first quarter of 2021.
|
2
|
An operating measure.
Please refer to "Operating Metrics" for an explanation.
|
3
|
Non-GAAP measure,
please refer to Use of Non-GAAP Financial Measures for an
explanation and reconciliation.
|
NM = not
meaningful
|
Highlights from the quarter include:
- Raising 2021 billings guidance to $980-1,020 million and unlevered free cash flow
guidance to 12-14% of billings
- Strong billings growth across the Company of 25% in Q2 and 21%
YTD as demand for teaching and learning solutions grows with
students returning to classrooms this fall
- Annualized Recurring Revenue (ARR)2 growth
accelerated 106% bringing ARR to $77
million, or 8% of trailing twelve-month billings. Net
Retention Rate (NRR)2 was 154%
- Trailing twelve-month free cash flow of $101 million, an improvement of $29 million compared to the first quarter of
2021, reflecting strong operating leverage and the benefits of 2020
actions to align HMH's cost structure with its Digital First,
Connected strategy
- Gross leverage ratio of 1.8x, below HMH's target leverage ratio
of 2.0x adjusted EBITDA
Joe Abbott, HMH's Chief Financial
Officer said, "The robust billings recovery and high operating
leverage in our business, made stronger by the actions we took last
year to reduce costs, propelled free cash flow growth during the
second quarter. Furthermore, our recent efforts to strengthen
our balance sheet resulted in upgrades from two rating agencies
this year. This underscores our commitment to maintaining a strong
financial position as we grow, which gives us the flexibility to
further broaden our solutions portfolio."
2021 Outlook:
In light of strong year to date financial results and a pipeline
of opportunities for the remainder of 2021, the Company is raising
its billings guidance and unlevered free cash flow guidance.
Annualized Recurring Revenue guidance remains unchanged. Our
updated guidance is as follows:
Estimate
|
|
Outlook for Year
ending December
31, 2021 (Reiterated on May 6, 2021)
|
|
Outlook for Year
ending December
31, 2021 (Updated on August 5, 2021)
|
Total
Billings
|
|
$905 to $955
million
|
|
$980 to $1,020
million
|
Unlevered Free Cash
Flow
|
|
9-11% of
billings
|
|
12-14% of
billings
|
Annualized Recurring
Revenue
|
|
10-15% of
billings
|
|
10-15% of
billings
|
Second Quarter 2021 Financial Results:
Net Sales: HMH reported net sales of
$309 million for the second quarter of 2021, up 43% compared
to $216 million in 2020. The increase was primarily due to
increased net sales in Core Solutions of $46
million to $166 million,
driven by strong open territory net sales as a result of the market
recovery as well as higher state adoption net sales. Further, there
was strong net sales in Extensions, which primarily consist of our
Heinemann brand, intervention and supplemental products as well as
professional services, which increased by $46 million to
$143 million. Within Extensions, net sales of our Heinemann
products increased due to the expectation of most of our customers
that learning will largely be done in-person in the upcoming school
year, as well as in professional services due to strong customer
demand for virtually-delivered, connected professional development
experiences.
Billings2: Billings for 2021
increased $65 million, or 25%, from 2020. The billings
increase was driven by an increase in Extensions which increased by
$58 million due to the expectation of
most of our customers that learning will largely be done in-person
in the upcoming school year, as well as in professional services
due to strong customer demand for virtually-delivered, connected
professional development experiences. Further, Core Solutions
increased $7 million, driven by
strong open territory billings as a result of the market
recovery.
Cost of Sales: Overall cost of sales
increased by $18 million to $153 million in 2021,
primarily due to volume offset partially by lower print costs,
increased virtual delivery of products and services and lower
amortization expense.
Selling and Administrative Costs: Selling and
administrative costs increased by $17 million in 2021,
primarily due to higher variable expenses, such as commissions, and
transportation due to higher billings.
Operating Income: Operating income for 2021
was $23 million, a $46 million favorable change from the
$23 million operating loss in 2020, primarily due to an
increase in net sales of $93 million.
Partially offsetting the improvement was an increase in cost of
sales and selling and administrative expenses along
with $9.8 million non-cash restructuring/severance
charges primarily related to vacated office space formerly utilized
by employees of the HMH Books & Media business.
Net Income: Net income of $219 million
for 2021 was $257 million higher compared to a net loss of
$38 million in the same period of 2020. Income from continuing
operations for 2021 was $2 million, a $34 million
improvement from the $32 million loss from continuing
operations in the same period of 2020 due primarily to the same
factors impacting operating income, and a $12.5 million non-cash charge for the write off
of unamortized deferred financing charges associated with our debt
repayment in the quarter. Also, income from discontinued
operations, net of tax, increased $222 million to
$216 million from a loss of $6 million in 2020, due to
the recognition of the gain on the sale of the HMH Books &
Media business of $215 million during
2021.
Adjusted EBITDA from continuing
operations: Adjusted EBITDA from continuing operations
for 2021 was $86 million, a $54 million favorable change
from 2020.
Six Months Ended June 30,
2021 Financial Results:
Net Sales: HMH reported net sales of
$455 million for the first six months of 2021, up 24% compared
to $368 million in 2020. The increase was primarily due to
increased net sales in Core Solutions of $50
million, from $184 million in
2020 to $234 million, driven by
strong open territory net sales as a result of market recovery as
well as higher state adoption net sales. Further, Extensions which
primarily consist of our Heinemann brand, intervention and
supplemental products as well as professional services increased by
$37 million from $184 million in 2020 to $221 million. Within Extensions, net sales of our
Heinemann products increased due to strong demand across all
product portfolios.
Billings2: Billings for 2021
increased $76 million, or 21%, from 2020. The billings
increase was driven by an increase in Extensions which increased by
$51 million due to strong demand
across all product portfolios. Billings of professional services
increased due to the recovery of the in-person learning environment
as a result of the easing of COVID-19 restrictions. Further, Core
Solutions increased $25 million,
driven by strong open territory billings as a result of market
recovery.
Cost of Sales: Overall cost of sales
increased by $5 million to $240 million in 2021,
primarily due to volume increase offset partially by lower print
costs, increased virtual delivery of products and services and
lower amortization expense.
Selling and Administrative Costs: Selling and
administrative costs decreased by $18 million in 2021,
primarily due to lower labor costs, resulting from cost savings
associated with our 2020 Restructuring Plan partially offset by
higher incentive compensation. There was also a decrease in
discretionary costs such as travel and marketing due to expense
reduction measures. Partially offsetting the decrease in selling
and administrative costs was an increase in variable expenses, such
as commissions, and transportation due to higher billings.
Operating Loss: Operating loss for 2021 was
$14 million, a $347 million favorable change from the
$361 million operating loss in 2020 primarily due an
impairment charge for goodwill in 2020 of $262 million that did not reoccur in 2021. This
non-cash impairment was a direct result of the adverse impact that
the COVID-19 pandemic had on the Company in 2020. The increase was
further driven by an increase in net sales of $87 million and lower selling and administrative
costs. Partially offsetting the improvement was a $9.8 million non-cash
restructuring/severance charge primarily related to vacated office
space formerly utilized by employees of the HMH Books & Media
business.
Net Income: Net income of $167 million
for 2021 was $551 million higher compared to a net loss of
$384 million in the same period of 2020. Loss from continuing
operations for 2021 was $47 million, a $323 million
improvement from the $370 million loss from continuing
operations in the same period of 2020 due primarily to the same
factors impacting operating loss, along with a $12.5 million non-cash charge for the write off
of unamortized deferred financing charges associated with our debt
repayment in the second quarter of 2021. Income from discontinued
operations, net of tax, also increased $228 million to
$214 million from a loss of $14 million in 2020, due to
the recognition of the gain on the sale of the HMH Books &
Media business of $215 million during
2021.
Adjusted EBITDA from continuing
operations: Adjusted EBITDA from continuing operations
for 2021 was $100 million, a $87 million favorable change
from 2020.
Cash Flows and Liquidity: Net cash used in
operating activities for 2021 was $91 million compared to
$189 million in 2020. Net cash used in operating activities
from continuing operations was $95 million in 2021, a
$96 million favorable change compared to 2020. The improvement
in net cash used in operating activities from continuing operations
resulted from an increase in operating profit, net of non-cash
items, of $78 million. The
improvement was also due to favorable changes in net operating
assets and liabilities of $18 million. Net cash used in
operating activities included $4 million and $2 million
of cash flow from discontinued operations in 2021 and 2020,
respectively. HMH's free cash flow from continuing operations,
defined as net cash from operating activities minus capital
expenditures, favorably changed $106
million from a usage of $250 million in 2020 to a usage
of $144 million in 2021.
As of August 5, 2021, there were
no amounts outstanding under our revolving credit facility. We
expect our net cash from operations combined with our cash and cash
equivalents and borrowing availability under our revolving credit
facility to provide sufficient liquidity to fund our current
obligations, capital spending, debt service requirements and
working capital requirements over at least the next twelve
months.
Conference Call:
At 9:30 a.m. ET on Thursday, August 5,
2021, HMH will 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: 2599041
Moderator: Chris Symanoskie, Vice President, Investor
Relations
Webcast Link: https://edge.media-server.com/mmc/p/7q2bp73q
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
call will also be available until August 15,
2021 via the following telephone numbers:
(855) 859-2056 in the United
States and (404) 537-3406 internationally using
passcode 2599041.
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 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 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 debt
restructurings, fluctuations in interest rates or effective tax
rates, gains or losses on investments, non-cash charges and
impairment charges, levels of depreciation or amortization, and
acquisition/disposition-related activity costs, legal settlement
costs, restructuring costs and integration costs. 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) 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 these metrics 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 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 from operating activities prepared in accordance with
GAAP. 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 in the case of forward-looking measures) and
related disclosure is provided in the appendix to this news
release.
Operating Metrics:
Annualized Recurring Revenue (ARR) for a given
period is the annualized revenues derived from termed subscription
contracts existing at the end of the period. ARR excludes contracts
that are one-time in nature. ARR is currently one of the key
performance metrics being used by management to assess the health
and trajectory of our business. ARR does not have a standardized
definition and is therefore unlikely to be comparable to similarly
titled measures presented by other companies. ARR should be viewed
independently of U.S. GAAP revenue, deferred revenue and unbilled
revenue and is not intended to be combined with or to replace those
items. ARR does not represent revenue for any particular period or
remaining revenue that will be recognized in future periods. ARR is
not a forecast and the active contracts at the end of a reporting
period used in calculating ARR may or may not be extended or
renewed by our customers.
Billings is an operating measure which we derive
from net sales taking into account the change in deferred revenue.
Billings for Core Solutions and Extensions is an operating measure
based on invoiced sales adjusted for returns, other publishing
income and change in deferred revenue.
Connected Sales are billings from the sale of core,
intervention, supplemental, assessment and service offerings hosted
on or transitioning to be hosted on our Ed: Your Friend
in Learning® teaching and learning platform.
Gross Leverage Ratio is the total amount of outstanding
gross financial debt on a consolidated basis divided by the
trailing twelve months Adjusted EBITDA from continuing
operations.
Net Retention Rate (NRR) is the rate at which existing
customers are renewing and expanding. The dollar-based net
retention rate is calculated as of a period end by starting with
the ARR from all customers as of the 12 months prior to such period
end. The ARR is then calculated from these same customers as of the
current period end, which includes customer renewals, upsells and
expansion and is net of contraction or churn over the trailing 12
months, but excludes revenue from new customers in the current
period. The dollar-based net retention rate is calculated by
dividing the ARR from these customers as of the current period end
by the ARR from these customers as of 12 months prior to such
period end.
About Houghton Mifflin Harcourt
Houghton Mifflin Harcourt
(Nasdaq: HMHC) is a learning technology company committed to
delivering connected solutions that engage learners, empower
educators and improve student outcomes. As a leading provider of
K–12 core curriculum, supplemental and intervention solutions, and
professional learning services, HMH partners with educators and
school districts to uncover solutions that unlock students'
potential and extend teachers' capabilities. HMH serves more than
50 million students and 3 million educators in 150
countries. For more information, visit www.hmhco.com
Follow HMH
on Twitter, Facebook, Instagram and YouTube.
Contact
Investor Relations
Chris
Symanoskie, IRC
VP, Investor Relations
(410) 215-1405
Chris.Symanoskie@hmhco.com
Media Relations
Bianca
Olson
SVP, Corporate Affairs
(617) 351-3841
Bianca.Olson@hmhco.com
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," "should," "forecast," "intend," "plan," "potential,"
"project," "target" or, in each case, their negative, or other
variations or comparable terminology. Forward-looking statements
include all statements that are not statements of historical facts,
including statements regarding our 2021 outlook, efforts to execute
on our Digital First, Connected strategy, being well-positioned for
growth in 2021 and meaningful free cash flow generation. They
include statements regarding our intentions, beliefs or current
expectations concerning, among other things, the impact of the
actions described in this press release; our results of operations;
financial condition; liquidity; prospects, growth and strategies;
the expected impact of the COVID-19 pandemic; the timing, structure
and expected impact of our operational efficiency and
cost-reduction initiatives and the estimated savings and amounts
expected to be incurred in connection therewith; 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. 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 actual results may differ materially from
those made in or suggested by the forward-looking statements
contained herein. In addition, even if actual 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 actual results to vary from
expectations include, but are not limited to: the duration and
severity of the COVID-19 pandemic and its impact on the federal,
state and local economies and on K–12 schools; any disruption
resulting from the completed sale of our HMH Books & Media
business that adversely affects our businesses and business
relationships, including with employees and suppliers; the rate and
state of technological change; state requirements related to
digital instructional materials; our ability to execute on our
Digital First, Connected growth strategy; increases in our
operating costs; management and personnel changes; timing, higher
costs and unintended consequences of our operational efficiency and
cost-reduction initiatives; and other factors discussed in our news
releases, public statements and/or filings with the U.S. Securities
and Exchange Commission, including our most recent Annual and
Quarterly Reports on Form 10-K and Form 10-Q. 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.
Houghton Mifflin
Harcourt Company Consolidated Balance Sheets
(Unaudited)
|
|
|
|
June
30,
|
|
|
December
31,
|
|
(in thousands of
dollars, except share information)
|
|
2021
|
|
|
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
146,541
|
|
|
$
|
281,200
|
|
Accounts receivable,
net
|
|
|
266,739
|
|
|
|
88,830
|
|
Inventories
|
|
|
145,027
|
|
|
|
145,553
|
|
Prepaid expenses and
other assets
|
|
|
27,234
|
|
|
|
19,276
|
|
Assets of discontinued
operations
|
|
|
—
|
|
|
|
160,053
|
|
Total current
assets
|
|
|
585,541
|
|
|
|
694,912
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and
equipment, net
|
|
|
82,386
|
|
|
|
88,801
|
|
Pre-publication
costs, net
|
|
|
179,756
|
|
|
|
202,820
|
|
Royalty advances to
authors, net
|
|
|
2,137
|
|
|
|
2,425
|
|
Goodwill
|
|
|
437,977
|
|
|
|
437,977
|
|
Other intangible
assets, net
|
|
|
381,054
|
|
|
|
402,484
|
|
Operating lease
assets
|
|
|
119,113
|
|
|
|
126,850
|
|
Deferred income
taxes
|
|
|
2,415
|
|
|
|
2,415
|
|
Deferred
commissions
|
|
|
32,388
|
|
|
|
30,659
|
|
Other
assets
|
|
|
35,128
|
|
|
|
31,783
|
|
Total
assets
|
|
$
|
1,857,895
|
|
|
$
|
2,021,126
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
—
|
|
|
$
|
19,000
|
|
Accounts
payable
|
|
|
45,789
|
|
|
|
38,751
|
|
Royalties
payable
|
|
|
42,228
|
|
|
|
34,765
|
|
Salaries, wages, and
commissions payable
|
|
|
35,486
|
|
|
|
21,723
|
|
Deferred
revenue
|
|
|
316,410
|
|
|
|
342,605
|
|
Interest
payable
|
|
|
10,933
|
|
|
|
11,017
|
|
Severance and other
charges
|
|
|
5,052
|
|
|
|
19,590
|
|
Accrued pension
benefits
|
|
|
1,593
|
|
|
|
1,593
|
|
Accrued postretirement
benefits
|
|
|
1,555
|
|
|
|
1,555
|
|
Operating lease
liabilities
|
|
|
10,490
|
|
|
|
9,669
|
|
Other
liabilities
|
|
|
52,643
|
|
|
|
22,912
|
|
Liabilities of
discontinued operations
|
|
|
—
|
|
|
|
30,662
|
|
Total current
liabilities
|
|
|
522,179
|
|
|
|
553,842
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
of discount and issuance costs
|
|
|
316,611
|
|
|
|
624,692
|
|
Operating lease
liabilities
|
|
|
134,292
|
|
|
|
132,014
|
|
Long-term deferred
revenue
|
|
|
564,555
|
|
|
|
562,679
|
|
Accrued pension
benefits
|
|
|
15,093
|
|
|
|
24,061
|
|
Accrued
postretirement benefits
|
|
|
15,471
|
|
|
|
16,566
|
|
Deferred income
taxes
|
|
|
18,285
|
|
|
|
16,411
|
|
Other
liabilities
|
|
|
105
|
|
|
|
398
|
|
Total
liabilities
|
|
|
1,586,591
|
|
|
|
1,930,663
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01
par value: 20,000,000 shares authorized; no shares issued
and outstanding
at June 30, 2021 and December 31, 2020
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01
par value: 380,000,000 shares authorized; 152,244,204
and 150,459,034
shares issued at June 30, 2021 and December 31, 2020,
respectively;
127,667,170 and 125,882,000 shares outstanding at June 30, 2021 and
December 31,
2020, respectively
|
|
|
1,522
|
|
|
|
1,505
|
|
Treasury stock,
24,577,034 shares as of June 30, 2021 and December 31, 2020,
respectively, at cost
|
|
|
(518,030)
|
|
|
|
(518,030)
|
|
Capital in excess of
par value
|
|
|
4,924,827
|
|
|
|
4,918,542
|
|
Accumulated
deficit
|
|
|
(4,089,185)
|
|
|
|
(4,255,830)
|
|
Accumulated other
comprehensive loss
|
|
|
(47,830)
|
|
|
|
(55,724)
|
|
Total stockholders'
equity
|
|
|
271,304
|
|
|
|
90,463
|
|
Total liabilities and
stockholders' equity
|
|
$
|
1,857,895
|
|
|
$
|
2,021,126
|
|
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)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net
sales
|
|
$
|
308,672
|
|
|
$
|
216,239
|
|
|
$
|
454,867
|
|
|
$
|
368,082
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales,
excluding publishing rights and pre-publication
amortization
|
|
|
124,360
|
|
|
|
100,544
|
|
|
|
182,497
|
|
|
|
164,196
|
|
Publishing rights
amortization
|
|
|
2,489
|
|
|
|
3,431
|
|
|
|
5,655
|
|
|
|
7,863
|
|
Pre-publication
amortization
|
|
|
26,506
|
|
|
|
31,659
|
|
|
|
51,557
|
|
|
|
62,221
|
|
Cost of
sales
|
|
|
153,355
|
|
|
|
135,634
|
|
|
|
239,709
|
|
|
|
234,280
|
|
Selling and
administrative
|
|
|
114,767
|
|
|
|
98,199
|
|
|
|
204,002
|
|
|
|
221,540
|
|
Other intangible
assets amortization
|
|
|
7,869
|
|
|
|
5,855
|
|
|
|
15,775
|
|
|
|
11,711
|
|
Impairment charge for
goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
262,000
|
|
Restructuring/severance and other charges
|
|
|
9,847
|
|
|
|
—
|
|
|
|
9,847
|
|
|
|
—
|
|
Operating income
(loss)
|
|
|
22,834
|
|
|
|
(23,449)
|
|
|
|
(14,466)
|
|
|
|
(361,449)
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement benefits
non-service (expense) income
|
|
|
(26)
|
|
|
|
61
|
|
|
|
(226)
|
|
|
|
122
|
|
Interest
expense
|
|
|
(9,985)
|
|
|
|
(10,614)
|
|
|
|
(18,549)
|
|
|
|
(19,867)
|
|
Interest
income
|
|
|
14
|
|
|
|
75
|
|
|
|
34
|
|
|
|
841
|
|
Change in fair value
of derivative instruments
|
|
|
127
|
|
|
|
120
|
|
|
|
(547)
|
|
|
|
(260)
|
|
Gain on
investments
|
|
|
836
|
|
|
|
—
|
|
|
|
836
|
|
|
|
—
|
|
Income from
transition services agreement
|
|
|
854
|
|
|
|
—
|
|
|
|
854
|
|
|
|
—
|
|
Loss on
extinguishment of debt
|
|
|
(12,505)
|
|
|
|
—
|
|
|
|
(12,505)
|
|
|
|
—
|
|
Income (loss) from
continuing operations before taxes
|
|
|
2,149
|
|
|
|
(33,807)
|
|
|
|
(44,569)
|
|
|
|
(380,613)
|
|
Income tax (benefit)
expense for continuing operations
|
|
|
(9)
|
|
|
|
(1,370)
|
|
|
|
2,301
|
|
|
|
(10,150)
|
|
Income (loss) from
continuing operations
|
|
|
2,158
|
|
|
|
(32,437)
|
|
|
|
(46,870)
|
|
|
|
(370,463)
|
|
Earnings (loss) from
discontinued operations, net of tax
|
|
|
1,950
|
|
|
|
(5,731)
|
|
|
|
(1,005)
|
|
|
|
(13,678)
|
|
Gain on sale of
discontinued operations, net of tax
|
|
|
214,520
|
|
|
|
—
|
|
|
|
214,520
|
|
|
|
—
|
|
Income (loss) from
discontinued operations, net of tax
|
|
|
216,470
|
|
|
|
(5,731)
|
|
|
|
213,515
|
|
|
|
(13,678)
|
|
Net income
(loss)
|
|
$
|
218,628
|
|
|
$
|
(38,168)
|
|
|
$
|
166,645
|
|
|
$
|
(384,141)
|
|
Net income (loss) per
share attributable to common
stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.01
|
|
|
$
|
(0.25)
|
|
|
$
|
(0.38)
|
|
|
$
|
(2.96)
|
|
Discontinued
operations
|
|
|
1.70
|
|
|
|
(0.05)
|
|
|
|
1.69
|
|
|
|
(0.11)
|
|
Net income
(loss)
|
|
$
|
1.71
|
|
|
$
|
(0.30)
|
|
|
$
|
1.31
|
|
|
$
|
(3.07)
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.02
|
|
|
$
|
(0.25)
|
|
|
$
|
(0.37)
|
|
|
$
|
(2.96)
|
|
Discontinued
operations
|
|
|
1.66
|
|
|
|
(0.05)
|
|
|
|
1.65
|
|
|
|
(0.11)
|
|
Net income
(loss)
|
|
$
|
1.68
|
|
|
$
|
(0.30)
|
|
|
$
|
1.28
|
|
|
$
|
(3.07)
|
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
127,500,256
|
|
|
|
125,458,566
|
|
|
|
126,989,623
|
|
|
|
125,073,770
|
|
Diluted
|
|
|
130,350,602
|
|
|
|
125,458,566
|
|
|
|
129,761,257
|
|
|
|
125,073,770
|
|
Houghton Mifflin
Harcourt Company Consolidated Statements of Cash
Flows (Unaudited)
|
|
|
|
Six Months
Ended
June 30,
|
|
(in thousands of
dollars)
|
|
2021
|
|
|
2020
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
166,645
|
|
|
$
|
(384,141)
|
|
Adjustments to
reconcile net income (loss) to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations, net of tax
|
|
|
1,005
|
|
|
|
13,678
|
|
Gain on sale of
discontinued operations, net of tax
|
|
|
(214,520)
|
|
|
|
—
|
|
Depreciation and
amortization expense
|
|
|
96,258
|
|
|
|
106,819
|
|
Operating lease
assets, amortization and impairments
|
|
|
7,708
|
|
|
|
6,654
|
|
Amortization of debt
discount and deferred financing costs
|
|
|
1,488
|
|
|
|
1,306
|
|
Gain on
investments
|
|
|
(836)
|
|
|
|
—
|
|
Deferred income
taxes
|
|
|
1,874
|
|
|
|
(10,495)
|
|
Stock-based
compensation expense
|
|
|
5,550
|
|
|
|
5,324
|
|
Write-off of property,
plant, and equipment
|
|
|
1,606
|
|
|
|
—
|
|
Loss on extinguishment
of debt
|
|
|
12,505
|
|
|
|
—
|
|
Impairment charge for
goodwill
|
|
|
—
|
|
|
|
262,000
|
|
Change in fair value
of derivative instruments
|
|
|
547
|
|
|
|
260
|
|
Changes in operating
assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(162,819)
|
|
|
|
(107,091)
|
|
Inventories
|
|
|
525
|
|
|
|
(22,440)
|
|
Other
assets
|
|
|
(12,496)
|
|
|
|
(13,141)
|
|
Accounts payable and
accrued expenses
|
|
|
23,045
|
|
|
|
(10,669)
|
|
Royalties payable and
author advances, net
|
|
|
9,373
|
|
|
|
(19,074)
|
|
Deferred
revenue
|
|
|
(24,319)
|
|
|
|
(14,079)
|
|
Interest
payable
|
|
|
(84)
|
|
|
|
6,924
|
|
Severance and other
charges
|
|
|
(14,538)
|
|
|
|
(8,317)
|
|
Accrued pension and
postretirement benefits
|
|
|
(1,680)
|
|
|
|
(1,561)
|
|
Operating lease
liabilities
|
|
|
3,130
|
|
|
|
(5,500)
|
|
Other
liabilities
|
|
|
5,100
|
|
|
|
2,476
|
|
Net cash used in
operating activities - continuing operations
|
|
|
(94,933)
|
|
|
|
(191,067)
|
|
Net cash provided by
operating activities - discontinued operations
|
|
|
3,880
|
|
|
|
1,791
|
|
Net cash used in
operating activities
|
|
|
(91,053)
|
|
|
|
(189,276)
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
(29,541)
|
|
|
|
(34,496)
|
|
Additions to
property, plant, and equipment
|
|
|
(19,058)
|
|
|
|
(24,358)
|
|
Proceeds from sale of
business
|
|
|
349,000
|
|
|
|
—
|
|
Net cash provided by
(used in) investing activities - continuing operations
|
|
|
300,401
|
|
|
|
(58,854)
|
|
Net cash used in
investing activities - discontinued operations
|
|
|
(647)
|
|
|
|
(354)
|
|
Net cash provided by
(used in) investing activities
|
|
|
299,754
|
|
|
|
(59,208)
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
Borrowings under
revolving credit facility
|
|
|
—
|
|
|
|
150,000
|
|
Payments of revolving
credit facility
|
|
|
—
|
|
|
|
(50,000)
|
|
Payments of long-term
debt
|
|
|
(342,031)
|
|
|
|
(9,500)
|
|
Tax withholding
payments related to net share settlements of restricted stock
units
|
|
|
—
|
|
|
|
(48)
|
|
Issuance of common
stock under employee stock purchase plan
|
|
|
410
|
|
|
|
503
|
|
Net remittances under
transition services agreement
|
|
|
(1,739)
|
|
|
|
—
|
|
Net cash (used in)
provided by financing activities - continuing operations
|
|
|
(343,360)
|
|
|
|
90,955
|
|
Net decrease in cash
and cash equivalents
|
|
|
(134,659)
|
|
|
|
(157,529)
|
|
Cash and cash
equivalents at beginning of the period
|
|
|
281,200
|
|
|
|
296,353
|
|
Cash and cash
equivalents at end of the period
|
|
$
|
146,541
|
|
|
$
|
138,824
|
|
Houghton Mifflin
Harcourt Company Non-GAAP Reconciliations
(Unaudited)
|
|
Adjusted EBITDA
1
(in thousands of dollars)
|
|
|
|
Three Months
Ended
June 30,
|
|
|
For the Six
Months
Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net income (loss)
from continuing operations
|
|
$
|
2,158
|
|
|
$
|
(32,437)
|
|
|
$
|
(46,870)
|
|
|
$
|
(370,463)
|
|
Interest
expense
|
|
|
9,985
|
|
|
|
10,614
|
|
|
|
18,549
|
|
|
|
19,867
|
|
Interest
income
|
|
|
(14)
|
|
|
|
(75)
|
|
|
|
(34)
|
|
|
|
(841)
|
|
Provision (benefit)
for income taxes
|
|
|
(9)
|
|
|
|
(1,370)
|
|
|
|
2,301
|
|
|
|
(10,150)
|
|
Depreciation
expense
|
|
|
11,576
|
|
|
|
12,841
|
|
|
|
23,271
|
|
|
|
25,024
|
|
Amortization
expense
|
|
|
36,864
|
|
|
|
40,945
|
|
|
|
72,987
|
|
|
|
81,795
|
|
Non-cash charges –
goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
262,000
|
|
Non-cash charges –
stock compensation
|
|
|
2,943
|
|
|
|
2,056
|
|
|
|
5,550
|
|
|
|
5,324
|
|
Non-cash charges –
(gain) loss on derivative instruments
|
|
|
(127)
|
|
|
|
(120)
|
|
|
|
547
|
|
|
|
260
|
|
Fees, expenses or
charges for equity offerings, debt or
acquisitions/dispositions
|
|
|
(1,636)
|
|
|
|
—
|
|
|
|
190
|
|
|
|
27
|
|
Gain on
investments
|
|
|
(836)
|
|
|
|
—
|
|
|
|
(836)
|
|
|
|
—
|
|
Loss on debt
extinguishment
|
|
|
12,505
|
|
|
|
—
|
|
|
|
12,505
|
|
|
|
—
|
|
Legal
settlement
|
|
|
2,470
|
|
|
|
—
|
|
|
|
2,470
|
|
|
|
—
|
|
Restructuring/severance and other charges
|
|
|
9,847
|
|
|
|
—
|
|
|
|
9,847
|
|
|
|
—
|
|
Adjusted EBITDA from
continuing operations
|
|
$
|
85,726
|
|
|
$
|
32,454
|
|
|
$
|
100,477
|
|
|
$
|
12,843
|
|
Free Cash Flow
1
(in thousands of dollars)
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
(used in) operating
activities
|
|
$
|
5,613
|
|
|
$
|
(19,099)
|
|
|
$
|
(94,933)
|
|
|
$
|
(191,067)
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
(15,187)
|
|
|
|
(16,007)
|
|
|
|
(29,541)
|
|
|
|
(34,496)
|
|
Additions to
property, plant, and equipment
|
|
|
(9,109)
|
|
|
|
(12,483)
|
|
|
|
(19,058)
|
|
|
|
(24,358)
|
|
Free Cash
Flow
|
|
$
|
(18,683)
|
|
|
$
|
(47,589)
|
|
|
$
|
(143,532)
|
|
|
$
|
(249,921)
|
|
|
|
|
Trailing Twelve
Months Ended
June 30, 2021
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
|
$
|
202,619
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
|
(55,917)
|
|
|
Additions to
property, plant, and equipment
|
|
|
|
(45,640)
|
|
|
Free Cash
Flow
|
|
|
$
|
101,062
|
|
|
1
|
All amounts have been
adjusted to eliminate the impact of the HMH Books & Media
business which has been removed from continuing operations and
classified as discontinued operations.
|
We are unable to reconcile forward looking cash flow (both
before and after interest payments) and related margin without
unreasonable efforts. Unlevered free cash flow margin is the ratio
of free cash flow before interest payments to billings.
Houghton Mifflin
Harcourt Company
Calculation of Billings and Gross Leverage Ratio
(Unaudited)
|
Billings
1
(in thousands of dollars)
|
|
|
|
Three Months
Ended
June
30,
|
|
|
Six Months
Ended
June
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net sales
|
|
$
|
308,672
|
|
|
$
|
216,239
|
|
|
$
|
454,867
|
|
|
$
|
368,082
|
|
Change in deferred
revenue
|
|
|
17,912
|
|
|
|
45,450
|
|
|
|
(24,319)
|
|
|
|
(13,079)
|
|
Billings
|
|
$
|
326,584
|
|
|
$
|
261,689
|
|
|
$
|
430,548
|
|
|
$
|
355,003
|
|
|
Billings is an
operating measure utilized by the Company derived as shown
above.
|
Gross Leverage
Ratio 1
(in thousands of dollars)
|
|
|
|
June 30,
2021
|
Gross debt
|
|
$
|
324,969
|
Trailing twelve
months Adjusted EBITDA
|
|
$
|
176,299
|
Gross leverage
ratio
|
|
|
1.8
|
|
|
|
|
Trailing
Twelve
Months
Ended June
30, 2021
|
Net loss from
continuing operations
|
|
$
|
(147,097)
|
Interest
expense
|
|
|
36,613
|
Interest
income
|
|
|
(92)
|
Provision (benefit)
for income taxes
|
|
|
(6)
|
Depreciation
expense
|
|
|
48,121
|
Amortization
expense
|
|
|
155,747
|
Non-cash charges –
goodwill impairment
|
|
|
17,000
|
Non-cash charges –
stock compensation
|
|
|
11,386
|
Non-cash charges –
(gain) loss on derivative instruments
|
|
|
(385)
|
Fees, expenses or
charges for equity offerings, debt or
acquisitions/dispositions
|
|
|
1,243
|
Gain on
investments
|
|
|
(2,927)
|
Loss on debt
extinguishment
|
|
|
12,505
|
Legal
settlement
|
|
|
2,470
|
Restructuring/severance and other charges
|
|
|
41,721
|
Adjusted EBITDA from
continuing operations
|
|
$
|
176,299
|
Gross leverage ratio
is an operating measure utilized by the Company derived as shown
above.
|
1
|
All amounts have been
adjusted to eliminate the impact of the HMH Books & Media
business which has been removed from continuing operations and
classified as discontinued operations.
|
View original content to download
multimedia:https://www.prnewswire.com/news-releases/houghton-mifflin-harcourt-announces-strong-second-quarter-2021-results-delivers-billings-growth-of-25-raises-full-year-guidance-301348965.html
SOURCE Houghton Mifflin Harcourt