BOSTON, Nov. 4, 2021 /PRNewswire/ -- HMH (Nasdaq:
HMHC), a learning technology company, announced strong financial
results for the third quarter which ended Sept. 30, 2021.
"Propelled by strong demand for our comprehensive portfolio of
learning solutions, HMH delivered an impressive 22% year-over-year
increase in third quarter billings. As a result of the continued
momentum across our business, we are raising our full year guidance
for the second time this year," said Jack
Lynch, President and Chief Executive Officer of HMH. "In
just the last two years, we dramatically transformed our business,
strengthened our balance sheet and significantly lowered our cost
structure to drive incredibly strong free cash flow while
successfully executing our digital first, connected
strategy—we plan to build on this success."
"HMH is now among the largest and fastest growing companies in
the edtech market. Through execution of our digital first,
connected strategy we have grown our connected billings
substantially with ARR growing 123% to $120
million or 11% of trailing twelve-month billings,"
added Lynch.
Q3 2021 Financial Results and Headlines:
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
(in millions of
dollars)
|
|
2021
1
|
|
|
2020
1
|
|
|
Change
|
|
|
2021
1
|
|
|
2020
1
|
|
|
Change
|
|
Net sales
|
|
$
|
417
|
|
|
$
|
331
|
|
|
|
25.9
|
%
|
|
$
|
872
|
|
|
$
|
699
|
|
|
|
24.7
|
%
|
Change in deferred
revenue
|
|
|
130
|
|
|
|
119
|
|
|
|
9.2
|
%
|
|
|
106
|
|
|
|
106
|
|
|
|
(0.2)
|
%
|
Billings
2
|
|
|
548
|
|
|
|
451
|
|
|
|
21.5
|
%
|
|
|
978
|
|
|
|
806
|
|
|
|
21.4
|
%
|
Impairment charge for
goodwill
|
|
|
—
|
|
|
|
—
|
|
|
NM
|
|
|
|
—
|
|
|
|
262
|
|
|
NM
|
|
Income (loss) from
continuing operations
|
|
|
95
|
|
|
|
(12)
|
|
|
NM
|
|
|
|
48
|
|
|
|
(382)
|
|
|
NM
|
|
Adjusted EBITDA
3
|
|
|
146
|
|
|
|
83
|
|
|
|
76.7
|
%
|
|
|
246
|
|
|
|
95
|
|
|
NM
|
|
Pre-publication or
content development costs
|
|
|
(13)
|
|
|
|
(16)
|
|
|
|
23.5
|
%
|
|
|
(42)
|
|
|
|
(51)
|
|
|
|
17.3
|
%
|
Net cash provided by
operating activities
|
|
|
288
|
|
|
|
257
|
|
|
|
11.9
|
%
|
|
|
193
|
|
|
|
66
|
|
|
NM
|
|
Free cash flow
3
|
|
|
265
|
|
|
|
230
|
|
|
|
15.5
|
%
|
|
|
122
|
|
|
|
(20)
|
|
|
NM
|
|
_______________
|
|
|
|
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
|
A non-GAAP measure.
Please refer to Use of Non-GAAP Financial Measures for an
explanation and reconciliation. We are unable to reconcile forward
looking unlevered free cash flow without unreasonable
efforts.
|
NM = not
meaningful
|
Highlights from the quarter include:
- Raising FY 2021 billings2 guidance to $1,075-$1,095
million, unlevered free cash flow guidance to 17-19% of
billings and Annualized Recurring Revenue (ARR) 2
guidance to 12-15% of billings
- Strong billings growth across the Company of 22% in Q3 and 21%
YTD as demand for teaching and learning solutions continued as
students returned to classrooms this fall and teachers further
assessed instructional needs for the remainder of the school
year
- ARR2 growth accelerated to 123% bringing ARR to
$120 million, or 11% of trailing
twelve-month billings. Net Retention Rate (NRR)2 was
153%
- Trailing twelve-month free cash flow3 of
$137 million, an improvement of
$36 million compared to the second
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 1.4x, below HMH's target leverage ratio
of 2.0x adjusted EBITDA
Joe Abbott, HMH's Chief Financial
Officer said, "Our digital first, connected business exhibits high
operating leverage, strong free cash flow and rapidly growing
annual recurring revenue which fueled strong third quarter
results. We expect that our transition to digital will
continue, leading to a lower variable cost rate and additional
opportunities to reduce fixed costs which in turn will lead to
increased free cash flow."
2021 Outlook:
In light of strong year to date financial results in 2021, the
Company is raising its billings, unlevered free cash flow and
annualized recurring revenue guidance. Our updated guidance is as
follows:
Estimate
|
|
Outlook for Year
ending December
31, 2021 (Updated on August 5, 2021)
|
|
Outlook for Year
ending December 31,
2021 (Updated on November 4, 2021)
|
Total
Billings
|
|
$980 to $1,020
million
|
|
$1,075 to $1,095
million
|
Unlevered Free Cash
Flow
|
|
12-14% of
billings
|
|
17-19% of
billings
|
Annualized Recurring
Revenue
|
|
10-15% of
billings
|
|
12-15% of
billings
|
Third Quarter 2021 Financial Results:
Net Sales: HMH reported net sales of
$417 million for the third quarter of 2021, up 26% compared to
$331 million in 2020. The increase was primarily due to strong
net sales in Extensions, consisting of our Heinemann brand,
intervention and supplemental products as well as professional
services, which increased by $58 million from $124 million in 2020 to $182 million. Within
Extensions, net sales of our Heinemann products increased due to
the return of in-person learning for most of our customers, as well
as in supplemental and professional services due to strong customer
demand. Further, net sales in Core Solutions increased by
$28 million from $207 million in 2020 to $235 million, driven by strong open territory net
sales as a result of the market recovery.
Billings2: Billings for 2021
increased $97 million, or 22%, from 2020. The billings
increase was driven by an increase in Extensions, which increased
by $82 million as billings of our
Heinemann products increased due to the return of in-person
learning for most of our customers, as well as in supplemental and
professional services due to strong customer demand. Further, Core
Solutions increased $15 million,
driven by strong open territory billings as a result of the market
recovery.
Cost of Sales: Overall cost of sales
increased by $2 million to $183 million in 2021,
primarily due to increased sales volume offset partially by lower
print costs, increased virtual delivery of products and services
along with a favorable inventory obsolescence.
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. Further, there was an
increase in incentive compensation compared to the prior year due
to higher achievement of performance measures in 2021 compared to
2020.
Operating Income: Operating income for 2021
was $96 million, a $101 million favorable change from the
$6 million operating loss in 2020, primarily due to an
increase in net sales of $86 million,
along with a $32 million
decrease in restructuring/severance and other charges due to the
timing of the 2020 restructuring plan.
Net Income: Net income of $95 million
for 2021 was $108 million higher compared to a net loss of
$13 million in the same period of 2020. Income from continuing
operations for 2021 was $95 million, a $107 million
improvement from the $12 million loss from continuing
operations in the same period of 2020 due primarily to the same
factors impacting operating income. Also, loss from discontinued
operations, net of tax, was $1 million in 2020.
Adjusted EBITDA from continuing
operations: Adjusted EBITDA from continuing operations
for 2021 was $146 million, a $63 million favorable change
from 2020.
Nine Months Ended September 30,
2021 Financial Results:
Net Sales: HMH reported net sales of
$872 million for the first nine months of 2021, up 25%
compared to $699 million in 2020. The increase was due to
strong net sales in Extensions consisting of our Heinemann brand,
intervention and supplemental products as well as professional
services, which increased by $95
million from $308 million in 2020 to $403 million.
Within Extensions, nets sales of our Heinemann products increased
due to strong demand across most product portfolios. Further, net
sales in Core Solutions increased by $78
million to $469 million,
driven by strong open territory net sales as a result of market
recovery in 2021.
Billings2: Billings for 2021
increased $172 million, or 21%, from 2020. The billings
increase was driven by an increase in Extensions which increased by
$132 million due to strong demand
across all product portfolios. Billings of professional services
increased due to the recovery of the in-person learning
environment. Further, Core Solutions increased $40 million, driven by strong open territory
billings as a result of market recovery.
Cost of Sales: Overall cost of sales
increased by $7 million to $423 million in 2021,
primarily due to increased sales 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 slightly decreased, primarily due to the 2020
restructuring plan with reduced labor, professional fees and travel
and marketing costs. Partially offsetting the aforementioned was an
increase in variable expenses such as commissions and
transportation due to higher billings along with an increase in
incentive compensation.
Operating Income: Operating income for 2021
was $81 million, a $448 million favorable change from the
$367 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 $173 million and a $22
million favorable change in restructuring/severance and
other charges.
Net Income: Net income of $262 million
for 2021 was $659 million higher compared to a net loss of
$397 million in the same period of 2020. Income from
continuing operations for 2021 was $48 million, a
$431 million improvement from the $382 million loss from
continuing operations in the same period of 2020 due primarily to
the same factors impacting operating income, along with a
$13 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 $246 million, a $151 million favorable
change from $95 million in
2020.
Cash Flows and Liquidity: Net cash provided by
operating activities for 2021 was $197 million compared to
$75 million in 2020. Net cash provided by operating activities
from continuing operations was $193 million in 2021, a
$127 million increase compared to 2020. The improvement in net
cash provided by operating activities from continuing operations
resulted from an increase in operating profit, net of non-cash
items, of $173 million. The
improvement was partially offset by unfavorable changes in net
operating assets and liabilities of $46 million. Net cash
provided by operating activities included $4 million and
$9 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 $142
million from a usage of $20 million in 2020 to cash
flow of $122 million in 2021.
As of Nov. 4, 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, Nov.
4, 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: 4666615
Moderator: Chris Symanoskie, Vice President, Investor
Relations
Webcast Link:
https://edge.media-server.com/mmc/p/ybhqjui4
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 November
14, 2021 via the following telephone numbers:
(855) 859-2056 in the United
States and (404) 537-3406 internationally using
passcode 4666615.
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 HMH
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, opportunities to reduce
costs and our expected cash runway and 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 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)
|
|
|
|
September
30,
|
|
|
December
31,
|
|
(in thousands of
dollars, except share information)
|
|
2021
|
|
|
2020
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
420,318
|
|
|
$
|
281,200
|
|
Accounts receivable,
net
|
|
|
299,413
|
|
|
|
88,830
|
|
Inventories
|
|
|
96,471
|
|
|
|
145,553
|
|
Prepaid expenses and
other assets
|
|
|
26,193
|
|
|
|
19,276
|
|
Assets of discontinued
operations
|
|
|
—
|
|
|
|
160,053
|
|
Total current
assets
|
|
|
842,395
|
|
|
|
694,912
|
|
|
|
|
|
|
|
|
|
|
Property, plant, and
equipment, net
|
|
|
80,978
|
|
|
|
88,801
|
|
Pre-publication
costs, net
|
|
|
163,255
|
|
|
|
202,820
|
|
Royalty advances to
authors, net
|
|
|
1,581
|
|
|
|
2,425
|
|
Goodwill
|
|
|
437,977
|
|
|
|
437,977
|
|
Other intangible
assets, net
|
|
|
370,047
|
|
|
|
402,484
|
|
Operating lease
assets
|
|
|
117,410
|
|
|
|
126,850
|
|
Deferred income
taxes
|
|
|
2,415
|
|
|
|
2,415
|
|
Deferred
commissions
|
|
|
37,309
|
|
|
|
30,659
|
|
Other
assets
|
|
|
32,980
|
|
|
|
31,783
|
|
Total
assets
|
|
$
|
2,086,347
|
|
|
$
|
2,021,126
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Current portion of
long-term debt
|
|
$
|
—
|
|
|
$
|
19,000
|
|
Accounts
payable
|
|
|
49,736
|
|
|
|
38,751
|
|
Royalties
payable
|
|
|
44,766
|
|
|
|
34,765
|
|
Salaries, wages, and
commissions payable
|
|
|
61,133
|
|
|
|
21,723
|
|
Deferred
revenue
|
|
|
386,431
|
|
|
|
342,605
|
|
Interest
payable
|
|
|
4,260
|
|
|
|
11,017
|
|
Severance and other
charges
|
|
|
1,283
|
|
|
|
19,590
|
|
Accrued pension
benefits
|
|
|
118
|
|
|
|
1,593
|
|
Accrued postretirement
benefits
|
|
|
1,555
|
|
|
|
1,555
|
|
Operating lease
liabilities
|
|
|
10,506
|
|
|
|
9,669
|
|
Other
liabilities
|
|
|
40,273
|
|
|
|
22,912
|
|
Liabilities of
discontinued operations
|
|
|
—
|
|
|
|
30,662
|
|
Total current
liabilities
|
|
|
600,061
|
|
|
|
553,842
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net
of discount and issuance costs
|
|
|
317,095
|
|
|
|
624,692
|
|
Operating lease
liabilities
|
|
|
131,582
|
|
|
|
132,014
|
|
Long-term deferred
revenue
|
|
|
624,953
|
|
|
|
562,679
|
|
Accrued pension
benefits
|
|
|
15,021
|
|
|
|
24,061
|
|
Accrued
postretirement benefits
|
|
|
15,338
|
|
|
|
16,566
|
|
Deferred income
taxes
|
|
|
11,885
|
|
|
|
16,411
|
|
Other
liabilities
|
|
|
215
|
|
|
|
398
|
|
Total
liabilities
|
|
|
1,716,150
|
|
|
|
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
September 30, 2021 and December 31, 2020
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01
par value: 380,000,000 shares authorized; 152,257,784
and 150,459,034 shares issued
at September 30, 2021 and December 31, 2020, respectively;
127,680,750 and 125,882,000 shares outstanding at September 30,
2021 and December 31, 2020, respectively
|
|
|
1,523
|
|
|
|
1,505
|
|
Treasury stock,
24,577,034 shares as of September 30, 2021 and December 31, 2020,
respectively, at cost
|
|
|
(518,030)
|
|
|
|
(518,030)
|
|
Capital in excess of
par value
|
|
|
4,927,934
|
|
|
|
4,918,542
|
|
Accumulated
deficit
|
|
|
(3,993,826)
|
|
|
|
(4,255,830)
|
|
Accumulated other
comprehensive loss
|
|
|
(47,404)
|
|
|
|
(55,724)
|
|
Total stockholders'
equity
|
|
|
370,197
|
|
|
|
90,463
|
|
Total liabilities and
stockholders' equity
|
|
$
|
2,086,347
|
|
|
$
|
2,021,126
|
|
Houghton Mifflin
Harcourt Company
Consolidated
Statements of Operations (Unaudited)
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
(in thousands of
dollars, except share and per share information)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net
sales
|
|
$
|
417,130
|
|
|
$
|
331,205
|
|
|
$
|
871,997
|
|
|
$
|
699,287
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales,
excluding publishing rights and pre-publication
amortization
|
|
|
152,893
|
|
|
|
146,155
|
|
|
|
335,390
|
|
|
|
310,351
|
|
Publishing rights
amortization
|
|
|
2,516
|
|
|
|
3,469
|
|
|
|
8,171
|
|
|
|
11,332
|
|
Pre-publication
amortization
|
|
|
27,620
|
|
|
|
31,570
|
|
|
|
79,177
|
|
|
|
93,791
|
|
Cost of
sales
|
|
|
183,029
|
|
|
|
181,194
|
|
|
|
422,738
|
|
|
|
415,474
|
|
Selling and
administrative
|
|
|
134,951
|
|
|
|
118,275
|
|
|
|
338,953
|
|
|
|
339,815
|
|
Other intangible
assets amortization
|
|
|
7,241
|
|
|
|
5,857
|
|
|
|
23,016
|
|
|
|
17,568
|
|
Impairment charge for
goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
262,000
|
|
Restructuring/severance and other charges
|
|
|
33
|
|
|
|
31,776
|
|
|
|
9,880
|
|
|
|
31,776
|
|
Gain on sale of
assets
|
|
|
(3,661)
|
|
|
|
—
|
|
|
|
(3,661)
|
|
|
|
—
|
|
Operating income
(loss)
|
|
|
95,537
|
|
|
|
(5,897)
|
|
|
|
81,071
|
|
|
|
(367,346)
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement benefits
non-service income (expense)
|
|
|
214
|
|
|
|
61
|
|
|
|
(12)
|
|
|
|
183
|
|
Interest
expense
|
|
|
(8,239)
|
|
|
|
(9,311)
|
|
|
|
(26,788)
|
|
|
|
(29,178)
|
|
Interest
income
|
|
|
18
|
|
|
|
32
|
|
|
|
52
|
|
|
|
873
|
|
Change in fair value
of derivative instruments
|
|
|
(368)
|
|
|
|
432
|
|
|
|
(915)
|
|
|
|
172
|
|
Gain on
investments
|
|
|
606
|
|
|
|
1,738
|
|
|
|
1,442
|
|
|
|
1,738
|
|
Income from
transition services agreement
|
|
|
1,399
|
|
|
|
—
|
|
|
|
2,253
|
|
|
|
—
|
|
Loss on
extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(12,505)
|
|
|
|
—
|
|
Income (loss) from
continuing operations before taxes
|
|
|
89,167
|
|
|
|
(12,945)
|
|
|
|
44,598
|
|
|
|
(393,558)
|
|
Income tax benefit
for continuing operations
|
|
|
(6,192)
|
|
|
|
(1,060)
|
|
|
|
(3,891)
|
|
|
|
(11,210)
|
|
Income (loss) from
continuing operations
|
|
|
95,359
|
|
|
|
(11,885)
|
|
|
|
48,489
|
|
|
|
(382,348)
|
|
Loss from
discontinued operations, net of tax
|
|
|
—
|
|
|
|
(667)
|
|
|
|
(1,005)
|
|
|
|
(14,345)
|
|
Gain on sale of
discontinued operations, net of tax
|
|
|
—
|
|
|
|
—
|
|
|
|
214,520
|
|
|
|
—
|
|
(Loss) income from
discontinued operations, net of tax
|
|
|
—
|
|
|
|
(667)
|
|
|
|
213,515
|
|
|
|
(14,345)
|
|
Net income
(loss)
|
|
$
|
95,359
|
|
|
$
|
(12,552)
|
|
|
$
|
262,004
|
|
|
$
|
(396,693)
|
|
Net income (loss) per
share attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.75
|
|
|
$
|
(0.09)
|
|
|
$
|
0.38
|
|
|
$
|
(3.05)
|
|
Discontinued
operations
|
|
|
—
|
|
|
|
(0.01)
|
|
|
|
1.68
|
|
|
|
(0.12)
|
|
Net income
(loss)
|
|
$
|
0.75
|
|
|
$
|
(0.10)
|
|
|
$
|
2.06
|
|
|
$
|
(3.17)
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
0.72
|
|
|
$
|
(0.09)
|
|
|
$
|
0.37
|
|
|
$
|
(3.05)
|
|
Discontinued
operations
|
|
|
—
|
|
|
|
(0.01)
|
|
|
|
1.64
|
|
|
|
(0.12)
|
|
Net income
(loss)
|
|
$
|
0.72
|
|
|
$
|
(0.10)
|
|
|
$
|
2.01
|
|
|
$
|
(3.17)
|
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
127,674,513
|
|
|
|
125,799,018
|
|
|
|
127,220,429
|
|
|
|
125,317,284
|
|
Diluted
|
|
|
131,652,417
|
|
|
|
125,799,018
|
|
|
|
130,667,785
|
|
|
|
125,317,284
|
|
Houghton Mifflin
Harcourt Company
Consolidated
Statements of Cash Flows (Unaudited)
|
|
|
|
Nine Months
Ended
September 30,
|
|
(in thousands of
dollars)
|
|
2021
|
|
|
2020
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
262,004
|
|
|
$
|
(396,693)
|
|
Adjustments to
reconcile net income (loss) to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Loss from discontinued
operations, net of tax
|
|
|
1,005
|
|
|
|
14,345
|
|
Gain on sale of
discontinued operations, net of tax
|
|
|
(214,520)
|
|
|
|
—
|
|
Gain on sale of
assets
|
|
|
(3,661)
|
|
|
|
—
|
|
Depreciation and
amortization expense
|
|
|
144,698
|
|
|
|
160,073
|
|
Operating lease
assets, amortization and impairments
|
|
|
9,411
|
|
|
|
9,565
|
|
Amortization of debt
discount and deferred financing costs
|
|
|
2,096
|
|
|
|
1,979
|
|
Gain on
investments
|
|
|
(1,442)
|
|
|
|
(1,738)
|
|
Deferred income
taxes
|
|
|
(4,526)
|
|
|
|
(12,084)
|
|
Stock-based
compensation expense
|
|
|
8,727
|
|
|
|
8,295
|
|
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
|
|
|
915
|
|
|
|
(172)
|
|
Changes in operating
assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(200,632)
|
|
|
|
(106,852)
|
|
Inventories
|
|
|
49,081
|
|
|
|
38,566
|
|
Other
assets
|
|
|
(13,767)
|
|
|
|
(10,663)
|
|
Accounts payable and
accrued expenses
|
|
|
53,878
|
|
|
|
4,764
|
|
Royalties payable and
author advances, net
|
|
|
12,467
|
|
|
|
(21,169)
|
|
Deferred
revenue
|
|
|
106,100
|
|
|
|
105,347
|
|
Interest
payable
|
|
|
(6,757)
|
|
|
|
155
|
|
Severance and other
charges
|
|
|
(18,307)
|
|
|
|
22,494
|
|
Accrued pension and
postretirement benefits
|
|
|
(2,656)
|
|
|
|
(5,532)
|
|
Operating lease
liabilities
|
|
|
436
|
|
|
|
(7,598)
|
|
Other
liabilities
|
|
|
(5,964)
|
|
|
|
935
|
|
Net cash provided by
operating activities - continuing operations
|
|
|
192,697
|
|
|
|
66,017
|
|
Net cash provided by
operating activities - discontinued operations
|
|
|
3,880
|
|
|
|
9,149
|
|
Net cash provided by
operating activities
|
|
|
196,577
|
|
|
|
75,166
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
(42,104)
|
|
|
|
(50,919)
|
|
Additions to
property, plant, and equipment
|
|
|
(28,672)
|
|
|
|
(35,275)
|
|
Proceeds from sale of
business
|
|
|
349,000
|
|
|
|
—
|
|
Proceeds from sale of
assets
|
|
|
5,000
|
|
|
|
—
|
|
Net cash provided by
(used in) investing activities - continuing operations
|
|
|
283,224
|
|
|
|
(86,194)
|
|
Net cash used in
investing activities - discontinued operations
|
|
|
(647)
|
|
|
|
(402)
|
|
Net cash provided by
(used in) investing activities
|
|
|
282,577
|
|
|
|
(86,596)
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
Borrowings under
revolving credit facility
|
|
|
—
|
|
|
|
150,000
|
|
Payments of revolving
credit facility
|
|
|
—
|
|
|
|
(150,000)
|
|
Payments of long-term
debt
|
|
|
(342,031)
|
|
|
|
(14,250)
|
|
Tax withholding
payments related to net share settlements of restricted stock
units
|
|
|
—
|
|
|
|
(48)
|
|
Issuance of common
stock under employee stock purchase plan
|
|
|
410
|
|
|
|
918
|
|
Net collections under
transition services agreement
|
|
|
1,585
|
|
|
|
—
|
|
Net cash used in
financing activities - continuing operations
|
|
|
(340,036)
|
|
|
|
(13,380)
|
|
Net increase
(decrease) in cash and cash equivalents
|
|
|
139,118
|
|
|
|
(24,810)
|
|
Cash and cash
equivalents at beginning of the period
|
|
|
281,200
|
|
|
|
296,353
|
|
Cash and cash
equivalents at end of the period
|
|
$
|
420,318
|
|
|
$
|
271,543
|
|
Houghton Mifflin
Harcourt Company
Non-GAAP
Reconciliations (Unaudited)
|
|
Adjusted EBITDA
1
|
|
(in thousands of
dollars)
|
|
|
|
Three Months
Ended
September 30,
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net income (loss)
from continuing operations
|
|
$
|
95,359
|
|
|
$
|
(11,885)
|
|
|
$
|
48,489
|
|
|
$
|
(382,348)
|
|
Interest
expense
|
|
|
8,239
|
|
|
|
9,311
|
|
|
|
26,788
|
|
|
|
29,178
|
|
Interest
income
|
|
|
(18)
|
|
|
|
(32)
|
|
|
|
(52)
|
|
|
|
(873)
|
|
Provision (benefit)
for income taxes
|
|
|
(6,192)
|
|
|
|
(1,060)
|
|
|
|
(3,891)
|
|
|
|
(11,210)
|
|
Depreciation
expense
|
|
|
11,063
|
|
|
|
12,358
|
|
|
|
34,334
|
|
|
|
37,382
|
|
Amortization
expense
|
|
|
37,377
|
|
|
|
40,896
|
|
|
|
110,364
|
|
|
|
122,691
|
|
Non-cash charges –
goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
262,000
|
|
Non-cash charges –
stock compensation
|
|
|
3,177
|
|
|
|
2,971
|
|
|
|
8,727
|
|
|
|
8,295
|
|
Non-cash charges –
(gain) loss on derivative instruments
|
|
|
368
|
|
|
|
(432)
|
|
|
|
915
|
|
|
|
(172)
|
|
Fees, expenses or
charges for equity offerings, debt or
acquisitions/dispositions
|
|
|
676
|
|
|
|
339
|
|
|
|
866
|
|
|
|
366
|
|
Gain on
investments
|
|
|
(606)
|
|
|
|
(1,738)
|
|
|
|
(1,442)
|
|
|
|
(1,738)
|
|
Gain on sale of
assets
|
|
|
(3,661)
|
|
|
|
—
|
|
|
|
(3,661)
|
|
|
|
—
|
|
Loss on debt
extinguishment
|
|
|
—
|
|
|
|
—
|
|
|
|
12,505
|
|
|
|
—
|
|
Legal
settlement
|
|
|
—
|
|
|
|
—
|
|
|
|
2,470
|
|
|
|
—
|
|
Restructuring/severance and other charges
|
|
|
33
|
|
|
|
31,776
|
|
|
|
9,880
|
|
|
|
31,776
|
|
Adjusted EBITDA from
continuing operations
|
|
$
|
145,815
|
|
|
$
|
82,504
|
|
|
$
|
246,292
|
|
|
$
|
95,347
|
|
Free Cash Flow
1
|
|
(in thousands of
dollars)
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
$
|
287,630
|
|
|
$
|
257,084
|
|
|
$
|
192,697
|
|
|
$
|
66,017
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
(12,563)
|
|
|
|
(16,423)
|
|
|
|
(42,104)
|
|
|
|
(50,919)
|
|
Additions to
property, plant, and equipment
|
|
|
(9,614)
|
|
|
|
(10,917)
|
|
|
|
(28,672)
|
|
|
|
(35,275)
|
|
Free Cash
Flow
|
|
$
|
265,453
|
|
|
$
|
229,744
|
|
|
$
|
121,921
|
|
|
$
|
(20,177)
|
|
|
|
|
|
|
|
Trailing Twelve
Months Ended
September 30, 2021
|
|
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
|
$
|
233,165
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
|
(52,057)
|
|
|
|
Additions to
property, plant, and
equipment
|
|
|
|
(44,337)
|
|
|
|
Free Cash
Flow
|
|
|
$
|
136,771
|
|
|
|
|
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 free 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
September
30,
|
|
|
Nine Months
Ended
September
30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Net sales
|
|
$
|
417,130
|
|
|
$
|
331,205
|
|
|
$
|
871,997
|
|
|
$
|
699,287
|
|
Change in deferred
revenue
|
|
|
130,419
|
|
|
|
119,426
|
|
|
|
106,100
|
|
|
|
106,347
|
|
Billings
|
|
$
|
547,549
|
|
|
$
|
450,631
|
|
|
$
|
978,097
|
|
|
$
|
805,634
|
|
|
|
|
|
|
|
Trailing Twelve
Months Ended
September 30, 2021
|
|
|
|
Net sales
|
|
|
$
|
1,013,164
|
|
|
|
Change in deferred
revenue
|
|
|
|
57,931
|
|
|
|
Billings
|
|
|
$
|
1,071,095
|
|
Billings is an
operating measure utilized by the Company derived as shown
above.
|
Gross Leverage
Ratio 1
|
|
|
|
|
(in thousands of
dollars)
|
|
|
|
|
|
|
|
|
|
September 30,
2021
|
|
|
|
Gross debt
|
|
$
|
324,969
|
|
|
|
Trailing twelve
months Adjusted
EBITDA
|
|
$
|
239,610
|
|
|
|
Gross leverage
ratio
|
|
|
1.4
|
|
Trailing Twelve
Months Ended
September 30, 2021
|
|
Net loss from
continuing operations
|
|
$
|
(39,853)
|
|
Interest
expense
|
|
|
35,541
|
|
Interest
income
|
|
(78)
|
|
Provision (benefit)
for income taxes
|
|
(5,138)
|
|
Depreciation
expense
|
|
|
46,826
|
|
Amortization
expense
|
|
|
152,228
|
|
Non-cash charges –
goodwill impairment
|
|
|
17,000
|
|
Non-cash charges –
stock compensation
|
|
|
11,592
|
|
Non-cash charges –
(gain) loss on derivative instruments
|
|
415
|
|
Fees, expenses or
charges for equity offerings, debt or
acquisitions/dispositions
|
|
|
1,580
|
|
Gain on
investments
|
|
(1,795)
|
|
Gain on sale of
assets
|
|
|
(3,661)
|
|
Loss on debt
extinguishment
|
|
12,505
|
|
Legal
settlement
|
|
|
2,470
|
|
Restructuring/severance and other charges
|
|
9,978
|
|
Adjusted EBITDA from
continuing operations
|
|
$
|
239,610
|
|
|
|
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/hmh-announces-strong-third-quarter-2021-results-delivers-billings-growth-of-22-raises-full-year-guidance-again-301415932.html
SOURCE Houghton Mifflin Harcourt