BOSTON, Feb. 28, 2019 /PRNewswire/ -- Learning
company Houghton Mifflin Harcourt ("HMH" or the "Company") (Nasdaq:
HMHC) today announced its financial results for the year ended
December 31, 2018.
Operating Highlights:
- Results in-line with 2018 guidance1 for second
consecutive year
- Next Generation Core programs launched; 2019 adoption selling
season underway
- Portfolio enhanced with strategic partnerships and divestiture
of Riverside Standardized Testing business
- Education segment outperforms market, driven by Extensions
billings growth of 8%
- Trade year over year growth of 11%, driven by Orwell agreement
and relaunch of iconic Carmen
Sandiego brand
1
|
Guidance adjusted on
October 5, 2018 to reflect the divestiture of Riverside
Standardized Testing business. No changes to the outlook for
Continuing Operations were made.
|
|
Three Months Ended December 31,
|
|
Year Ended December 31,
|
(in millions of
dollars)
|
2018
2
|
2017
2
|
Change
|
|
2018
2
|
2017
2
|
Change
|
Net
sales3
|
$
249
|
$
234
|
6.5%
|
|
$
1,322
|
$
1,327
|
(0.3)%
|
Billings
|
207
|
205
|
1.0%
|
|
1,315
|
1,314
|
0.1%
|
Loss from continuing
operations3
|
(86)
|
(36)
|
NM 4
|
|
(137)
|
(120)
|
(14.2) %
|
Adjusted EBITDA
3, 5
|
2
|
(10)
|
NM 4
|
|
192
|
185
|
3.7%
|
Pre-publication or
content development
costs
|
(31)
|
(49)
|
35.6%
|
|
(123)
|
(131)
|
6.0%
|
Net cash provided by
operating activities
|
|
|
|
|
104
|
105
|
(0.6) %
|
Free cash flow
5
|
|
|
|
|
(73)
|
(82)
|
10.5%
|
________
2
|
All amounts have been
adjusted to eliminate the impact of the Riverside Standardized
Testing business which has been removed from continuing operations
and classified as discontinued operations.
|
3
|
The 2018 amounts have
been impacted by the January 1, 2018 adoption of the new
revenue standard. Please refer to the annual report on Form 10-K
filed with the Securities and Exchange Commission on February 28,
2019 for further details.
|
4
|
Not
meaningful.
|
5
|
Non-GAAP measure,
please refer to Use of Non-GAAP measures for an explanation and
reconciliation.
|
"During 2018, we took important steps towards optimizing our
product portfolio while also preparing for the larger adoption
opportunities in 2019," said Jack
Lynch, President and Chief Executive Officer of HMH. "We
remain focused on executing against our long-term strategy, and
believe we are well positioned to deliver long term growth."
Joe Abbott, Chief Financial
Officer of HMH added, "We delivered on our guidance for 2018, and
our Education segment outperformed the market in a trough year due
to strong growth in our Extensions offerings. This growth, as well
as our improved profitability and free cash flow, demonstrates
progress made in executing our long-term strategy."
2019 Outlook:
HMH expects 2019 billings to be in the range of $1.490 to $1.590 billion. Content development spend
for 2019 is expected to be in the range of $100 to $120 million, with total capital
expenditures including non-plate capital expenditures in the range
of $150 to $170 million.
Full Year 2018 Financial Results:
Net Sales: Net Sales for the full year decreased
$5 million, or 0.3%, year over year. The net sales decrease
was driven by a $24 million decrease in our Education segment,
partially offset by a $19 million increase in our Trade
Publishing segment. Within our Education segment the net sales
decrease was primarily due to lower net sales from Core Solutions,
which declined by $57 million from $595 million in 2017
to $538 million. The primary drivers of the decrease in
Core Solutions sales were decreases in sales relating to
disciplines reaching the end of their product lifecycle that are
scheduled to be replaced next year with newer programs. Net sales
within our science discipline, which is a new program, increased
year over year offsetting some of the older program declines. Also
contributing to the decline in Core Solutions sales was the
non-recurrence of the $5 million one-time fee we recognized in
2017 in connection with the expiration of a distribution agreement.
Partially offsetting the decrease in our Core Solutions sales was
an increase in sales from our Extensions businesses, which
primarily consist of our Heinemann brand, intervention and
supplemental products as well as professional services. Extensions
businesses net sales for the current period increased
$33 million from $551 million in
2017 to $584 million in 2018 primarily driven by higher
Heinemann net sales. The primary driver of the increase in our
Heinemann net sales was sales of the Fountas & Pinnell
Classroom product, which was introduced in the third quarter of
2017 and additional product launches during the third quarter of
2018. Within our Trade Publishing segment, the $19 million increase was primarily due to
licensing revenue driven by a new agreement pertaining to our
classic backlist titles 1984 and Animal Farm. There
was also additional licensing revenue associated with the new
Netflix original series, Carmen
Sandiego. The increase was partially offset by a
decrease in ebook sales.
Billings: Billings for the full year
increased $1 million, or 0.1%, year over year. The billings
increase was driven by a $20 million increase in our Trade
Publishing segment partially offset by an $19 million decrease
in our Education segment. Within our Trade Publishing segment,
the increase was primarily due to licensing revenue driven by a new
agreement pertaining to our classic backlist titles 1984 and
Animal Farm. There was also additional licensing revenue
associated with the new Netflix original series, Carmen Sandiego. The increase was partially
offset by a decrease in ebook sales. Within our Education
segment, the decrease was primarily due to lower Core Solutions
billings, which declined by $59 million from $585 million
in 2017 to $526 million in 2018. The primary drivers of
the decrease in Core Solutions billings were decreases in billings
relating to disciplines reaching the end of their product lifecycle
that are scheduled to be replaced next year with newer programs.
Billings within our science discipline, which is a new program,
increased year over year offsetting some of the older program
declines. Also contributing to the decline in Core Solutions
billings was the non-recurrence of the $5 million one-time fee
we recognized in 2017 in connection with the expiration of a
distribution agreement. Partially offsetting the decrease in our
Core Solutions billings was an increase in billings from our
Extensions businesses which increased $40 million from
$549 million in 2017 to $588 million in 2018 primarily driven by higher
Heinemann billings. The primary driver of the increase in our
Heinemann billings was the Fountas & Pinnell
Classroom product, which was introduced in the third quarter of
2017, and additional product launches during the third quarter of
2018.
Cost of Sales: Overall cost of sales
decreased by $29 million to
$725 million in 2018 from $754 million in 2017, primarily
due to a $22 million reduction in amortization expense related
to publishing rights and pre-publication assets. Our cost of sales,
excluding publishing rights and pre-publication amortization,
decreased $7 million mostly due to improved profitability. Our
cost of sales, excluding publishing rights and pre-publication
amortization, as a percentage of net sales decreased to 44.0% from
44.3% due to product mix.
Selling and Administrative Costs: Selling and
administrative costs increased by $13 million due to an
increase of $6 million in net labor
costs due to higher employee benefit and medical expenses as well
as planned merit increases offset by actions taken under the 2017
Restructuring Plan, an increase in direct expenses such as samples,
commissions and depository fees of $7 million, an increase in
discretionary costs of $3 million related to travel and
entertainment, promotion expense and professional fees along with
higher depreciation expense of $3
million. Offsetting the increase in selling and
administrative costs was lower IT expenses of $6 million relating to maintenance contracts,
hardware and telecommunications, and facilities.
Operating Loss: Operating loss for the full
year 2018 was $91 million, a $45 million favorable change
from the $135 million operating loss recorded in 2017. The
favorable change was primarily the result of the $33 million
decrease in the charge associated with our 2017 Restructuring Plan,
which primarily occurred in 2017, along with lower cost of sales,
partially offset by higher selling and administrative costs.
Net Loss: Net loss of $94 million for the full year 2018 was
$9 million lower than the net loss of $103 million in
2017. Net loss from continuing operations for full year 2018 was
$137 million, a $17 million unfavorable change from the
$120 million net loss from continuing operations in the same
period of 2017 due primarily to an unfavorable change in our tax
provision of $57 million. The reduction in taxes was primarily
due to the favorability relating to the 2017 Tax Act being recorded
in 2017. Also, income from discontinued operations, net of
tax, increased $26 million to $43
million from $17 million in 2017 primarily attributed
to the $30 million gain on the sale
of Riverside.
Adjusted EBITDA from Continuing
Operations: Adjusted EBITDA from continuing operations
for the full year 2018 was $192 million, an increase of
$7 million from $185 million in 2017, primarily due to
lower normal operating costs.
Cash Flows: Net cash provided by operating
activities for 2018 was $115 million compared with
$135 million in 2017. Net cash provided by operating
activities from continuing operations was $104 million in
2018, a slight decrease compared to $105
million in 2017. Net cash provided by operating activities
included $11 million and $30 million of cash flow from
discontinued operations in 2018 and 2017, respectively. HMH's free
cash flow from continuing operations, defined as net cash from
operating activities minus capital expenditures, in 2018 was a
usage of $73 million compared with a usage of $82 million in 2017. The primary driver of the
favorable change in free cash flow was a decrease in capital
expenditures in 2018. As of December 31,
2018, HMH had $303 million of cash and cash equivalents
and short-term investments compared to $235 million at
December 31, 2017.
Fourth Quarter 2018 Financial Results:
Net Sales and Billings: HMH reported net
sales of $249 million for the fourth quarter of 2018, up 7% or
$15 million compared to $234 million in the same quarter
of 2017. The net sales increase was primarily driven by increases
in our Education and Trade Publishing segments. Education and Trade
Publishing segment net sales for the fourth quarter of 2018 were
$189 million and $60 million, respectively, compared with
$183 million and $50 million, respectively, in the fourth
quarter of 2017. Education and Trade Publishing segment
billings for the fourth quarter of 2018 were $148 million and
$59 million, respectively, compared with $154 million and
$50 million, respectively, for the same period in 2017. The
primary net sales driver of Education segment growth was growth in
Core Solutions; the fourth quarter billings decline in the
Education Segment was attributed to modest declines across the
segment with the exception of Heinemann. Trade net sales and
billings remained strong in the fourth quarter, primarily driven by
licensing revenue associated with the new Netflix original series,
Carmen Sandiego.
Cost of Sales: Overall cost of sales
decreased 3% or $5 million to $157 million in the fourth
quarter of 2018 from $162 million in the same period of 2017,
while cost of sales, excluding publishing rights and
pre-publication amortization increased $2 million from
$118 million in 2017 to $120
million in 2018 due to volume. As a percent of net sales,
cost of sales, excluding pre-publication and publishing rights
amortization, decreased from 50.4% in the fourth quarter of 2017 to
48.2% in the fourth quarter of 2018 due to product mix and
increased Trade licensing sales.
Selling and Administrative Costs: Selling and
administrative costs increased $9 million to $158 million
for the fourth quarter of 2018 from $149 million in the same
period of 2017, primarily due to higher internal and outside labor
related costs and variable costs.
Operating Loss: Operating loss for the fourth
quarter of 2018 was $75 million; a $14 million favorable
change from the $89 million operating loss recorded in the
same period of 2017 due primarily to higher net sales.
Net Loss: Net loss of $56 million for the fourth quarter of 2018 was
$30 million higher than the net loss of $26 million in
the fourth quarter of 2017. Net loss from continuing operations for
the fourth quarter of 2018 was $86 million, a $50 million
increase from the $36 million net loss from continuing
operations in the same period of 2017 due primarily to a
$65 million reduction in tax benefit
due to changes related to the 2017 Tax Act which benefited the
fourth quarter of 2017. Partially offsetting the tax change
were favorable changes in operating loss. Also, income from
discontinued operations, net of tax, increased $20 million to
$30 million from $10 million in 2017 primarily attributed
to the $30 million gain on the sale
of Riverside in the fourth quarter
of 2018.
Adjusted EBITDA from Continuing
Operations: Adjusted EBITDA for the fourth quarter of
2018 was $2 million, an increase of $12 million from
$(10) million in the same quarter of
2017, primarily due to the same factors that impacted operating
loss.
Corporate Initiatives:
The 2017 Restructuring Plan to improve the Company's operational
efficiency and right-size its cost structure was completed
at the end of 2018.
Conference Call:
At 8:30 a.m. ET on Thursday,
February 28, 2019, HMH will also host a conference call to
discuss the results with its investors. The call will be webcast
live at ir.hmhco.com. The following information is provided
for investors who would like to participate:
Toll Free: (844) 835-6565
International: (484) 653-6719
Passcode: 3949817
Moderator: Brian Shipman, Senior Vice President,
Investor Relations
Webcast Link:
https://edge.media-server.com/m6/p/rnx5895j
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 March 9, 2019 via
the following telephone numbers: (855) 859-2056 in
the United States and
(404) 537-3406 internationally using passcode 3949817.
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: fluctuations
in interest rates or effective tax rates; levels of depreciation or
amortization; non-cash charges; fees, expenses or charges relating
to acquisition-related activities, including purchase accounting
adjustments, integration costs and transaction costs, as well as to
securities offering- and debt refinancing-activities; charges
associated with restructuring and cost saving initiatives,
including severance, separation and facility closure costs; certain
legal settlements and awards; and non-routine costs and gains.
Accordingly, management believes that this measure is useful for
comparing our performance from period to period and makes decisions
based on it. In addition, targets in adjusted EBITDA (further
adjusted to include the change in deferred revenue and in certain
instances to exclude pre-publication costs) are used as performance
measures to determine certain incentive compensation of management.
Management also believes that the presentation of free cash flow
provides useful information to our investors because management
regularly reviews free cash flow as an important indicator of how
much cash is generated by general business operations, excluding
capital expenditures, and makes decisions based on it.
Other companies may define these non-GAAP measures differently
and, as a result, our use of these non-GAAP measures may not be
directly comparable to adjusted EBITDA and free cash flow used by
other companies. Although we use these non-GAAP measures as
financial measures to assess our business, the use of non-GAAP
measures is limited as they include and/or do not include certain
items not included and/or included in the most directly comparable
GAAP measure. Adjusted EBITDA should be considered in addition to,
and not as a substitute for, net income or loss prepared in
accordance with GAAP as a measure of performance; and free cash
flow should be considered in addition to, and not as a substitute
for, net cash provided by operating activities prepared in
accordance with GAAP. Adjusted EBITDA is not intended to be a
measure of liquidity nor is free cash flow intended to be a measure
of residual cash flow available for discretionary use. You are
cautioned not to place undue reliance on these non-GAAP measures. A
reconciliation of these non-GAAP financial measures to the most
directly comparable GAAP financial measures (to the extent
available without unreasonable efforts) and related disclosure is
provided in the appendix to this news release.
About Houghton Mifflin Harcourt
Houghton Mifflin Harcourt
(Nasdaq: HMHC) is a global learning company committed to delivering
integrated 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, while its award-winning children's books, novels,
non-fiction, and reference titles are enjoyed by readers throughout
the world. For more information, visit www.hmhco.com
Follow HMH on Twitter, Facebook and YouTube.
Contact
Investors
Brian S.
Shipman, CFA
SVP, Investor Relations
(212) 592-1177
brian.shipman@hmhco.com
Media
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. They include statements regarding our intentions,
beliefs or current expectations concerning, among other things, our
results of operations, including billings and net sales; financial
performance, financial condition; liquidity; products and services,
including for new adoptions; outlook for full year 2019; prospects;
growth; markets and our positions therein; strategies, including
with respect to investing in our Core Solutions and Extensions
businesses and operational excellence; efficiency and cost savings
initiatives, including actions thereunder and expected impact; the
industry in which we operate; and potential business decisions. We
derive many of our forward-looking statements from our operating
budgets and forecasts, which are based upon many detailed
assumptions. While we believe that our assumptions are reasonable,
we caution that it is very difficult to predict the impact of known
factors, and, of course, it is impossible for us to anticipate all
factors that could affect our actual results. All forward-looking
statements are based upon information available to us on the date
of this report.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. We caution
you that forward-looking statements are not guarantees of future
performance and that our actual results may differ materially from
those made in or suggested by the forward-looking statements
contained herein. In addition, even if our results are consistent
with the forward-looking statements contained herein, those results
or developments may not be indicative of results or developments in
subsequent periods.
Important factors that could cause our results to vary from
expectations include, but are not limited to: changes in state and
local education funding and/or related programs, legislation and
procurement processes; changes in state academic standards; state
acceptance of submitted programs and participation rates therefor;
industry cycles and trends; the rate and state of technological
change; state requirements related to digital instruction; changes
in product distribution channels and concentration of retailer
power; changes in our competitive environment, including free and
low cost open educational resources; periods of operating and net
losses; our ability to enforce our intellectual property and
proprietary rights; risks based on information technology systems
and potential breaches of those systems; dependence on a small
number of print and paper vendors; third-party software and
technology development; possible defects in digital products; our
ability to identify, complete, or achieve the expected benefits of,
acquisitions; unanticipated consequences of the recently completed
disposition of our Riverside
clinical and standardized testing business; our ability to execute
on our long-term growth strategy; increases in our operating costs;
exposure to litigation; major disasters or other external threats;
contingent liabilities; risks related to our indebtedness; future
impairment charges; changes in school district payment practices; a
potential increase in the portion of our sales coming from digital
sales; risks related to doing business abroad; changes in tax law
or interpretations; management and other personnel changes; timing,
higher costs and unintended consequences of our operational
efficiency and cost-reduction initiatives; and other factors
discussed in the "Risk Factors" section of our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and other news releases
we issue and filings we make with the SEC. In light of these risks,
uncertainties and assumptions, the forward-looking events described
herein may not occur.
We undertake no obligation, and do not expect, to publicly
update or publicly revise any forward-looking statement, whether as
a result of new information, future events or otherwise, except as
required by law. All subsequent written and oral forward-looking
statements attributable to us or to persons acting on our behalf
are expressly qualified in their entirety by the cautionary
statements contained herein.
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Balance Sheets
|
|
|
December 31,
|
(in thousands of
dollars, except share information)
|
2018
|
|
2017
|
Assets
|
|
|
|
Current
assets
|
|
|
|
Cash and cash
equivalents
|
$
253,365
|
|
$
148,979
|
Short-term
investments
|
49,833
|
|
86,449
|
Accounts receivable,
net
|
203,574
|
|
192,569
|
Inventories
|
184,209
|
|
150,694
|
Prepaid expenses and
other assets
|
15,297
|
|
29,919
|
Assets of discontinued
operations
|
—
|
|
123,761
|
|
|
|
|
Total current
assets
|
706,278
|
|
732,371
|
|
|
|
|
Property, plant, and
equipment, net
|
125,925
|
|
148,659
|
Pre-publication
costs, net
|
323,641
|
|
313,997
|
Royalty advances to
authors, net
|
47,993
|
|
46,469
|
Goodwill
|
716,073
|
|
716,073
|
Other intangible
assets, net
|
520,892
|
|
582,538
|
Deferred income
taxes
|
3,259
|
|
3,593
|
Deferred
commissions
|
22,635
|
|
—
|
Other
assets
|
28,428
|
|
19,891
|
|
|
|
|
Total
assets
|
$
2,495,124
|
|
$
2,563,591
|
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
Current
liabilities
|
|
|
|
Current portion of
long-term debt
|
$
8,000
|
|
$
8,000
|
Accounts
payable
|
76,313
|
|
60,810
|
Royalties
payable
|
66,893
|
|
66,798
|
Salaries, wages, and
commissions payable
|
50,225
|
|
52,838
|
Deferred
revenue
|
251,944
|
|
265,074
|
Interest
payable
|
136
|
|
322
|
Severance and other
charges
|
6,020
|
|
6,926
|
Accrued postretirement
benefits
|
1,512
|
|
1,618
|
Other
liabilities
|
26,649
|
|
19,657
|
Liabilities of
discontinued operations
|
—
|
|
24,706
|
|
|
|
|
Total current
liabilities
|
487,692
|
|
506,749
|
|
|
|
|
Long-term debt, net
of discount and issuance costs
|
755,649
|
|
760,194
|
Long-term deferred
revenue
|
395,500
|
|
418,734
|
Accrued pension
benefits
|
29,320
|
|
24,133
|
Accrued
postretirement benefits
|
14,300
|
|
20,285
|
Deferred income
taxes
|
27,075
|
|
22,269
|
Other
liabilities
|
17,118
|
|
16,034
|
|
|
|
|
Total
liabilities
|
1,726,654
|
|
1,768,398
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
Stockholders'
equity
|
|
|
|
Preferred stock, $0.01
par value: 20,000,000 shares authorized; no shares issued and
outstanding at December 31, 2018 and 2017
|
—
|
|
—
|
Common stock, $0.01
par value: 380,000,000 shares authorized; 148,164,854 and
147,911,466 shares issued at December 31, 2018 and 2017,
respectively; 123,587,820 and 123,334,432 shares
outstanding at December 31, 2018 and 2017,
respectively
|
1,481
|
|
1,479
|
Treasury stock,
24,577,034 shares as of December 31, 2018 and 2017,
respectively, at cost
|
(518,030)
|
|
(518,030)
|
Capital in excess of
par value
|
4,893,174
|
|
4,879,793
|
Accumulated
deficit
|
(3,562,971)
|
|
(3,521,527)
|
Accumulated other
comprehensive loss
|
(45,184)
|
|
(46,522)
|
|
|
|
|
Total stockholders'
equity
|
768,470
|
|
795,193
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$
2,495,124
|
|
$
2,563,591
|
|
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Operations
|
|
|
|
(Unaudited) Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
(in thousands of
dollars, except share and per share information)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net
sales
|
$
249,038
|
|
$
233,745
|
|
$
1,322,417
|
|
$
1,327,029
|
Costs and
expenses
|
|
|
|
|
|
|
|
Cost of sales,
excluding publishing rights and pre-publication
amortization
|
119,928
|
|
117,797
|
|
581,467
|
|
588,518
|
Publishing rights
amortization
|
8,237
|
|
10,986
|
|
34,713
|
|
46,238
|
Pre-publication
amortization
|
29,210
|
|
33,155
|
|
109,257
|
|
119,908
|
|
|
|
|
|
|
|
|
Cost of
sales
|
157,375
|
|
161,938
|
|
725,437
|
|
754,664
|
Selling and
administrative
|
158,243
|
|
149,450
|
|
649,295
|
|
636,326
|
Other intangible
asset amortization
|
6,695
|
|
6,921
|
|
26,933
|
|
29,248
|
Impairment charge for
pre-publication costs
|
—
|
|
3,980
|
|
—
|
|
3,980
|
Restructuring
|
1,580
|
|
1,617
|
|
4,657
|
|
37,775
|
Severance and other
charges
|
441
|
|
(978)
|
|
6,821
|
|
177
|
Gain on sale of
assets
|
(585)
|
|
—
|
|
(201)
|
|
—
|
|
|
|
|
|
|
|
|
Operating
loss
|
(74,711)
|
|
(89,183)
|
|
(90,525)
|
|
(135,141)
|
|
|
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
Retirement benefits
non-service
income
|
320
|
|
871
|
|
1,280
|
|
3,486
|
Interest
expense
|
(11,645)
|
|
(10,825)
|
|
(45,680)
|
|
(42,805)
|
Interest
income
|
1,650
|
|
697
|
|
2,550
|
|
1,338
|
Change in fair value
of derivative
instruments
|
(400 )
|
|
93
|
|
(1,374 )
|
|
1,366
|
Income from
transition services agreement
|
1,889
|
|
—
|
|
1,889
|
|
—
|
|
|
|
|
|
|
|
|
Loss from continuing
operations before taxes
|
(82,897)
|
|
(98,347)
|
|
(131,860)
|
|
(171,756)
|
Income tax (benefit)
expense for continuing
operations
|
3,493
|
|
(61,901)
|
|
5,597
|
|
(51,419)
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
(86,390)
|
|
(36,446)
|
|
(137,457)
|
|
(120,337)
|
|
|
|
|
|
|
|
|
Earnings
from discontinued operations, net of
tax
|
—
|
|
10,278
|
|
12,833
|
|
17,150
|
Gain on
sales of discontinued operations, net of tax
|
30,469
|
|
—
|
|
30,469
|
|
—
|
|
|
|
|
|
|
|
|
Income from
discontinued operations, net of
tax
|
30,469
|
|
10,278
|
|
43,302
|
|
17,150
|
|
|
|
|
|
|
|
|
Net
loss
|
$
(55,921)
|
|
$
(26,168)
|
|
$
(94,155)
|
|
$
(103,187)
|
|
|
|
|
|
|
|
|
Net loss per share
attributable to common stockholders
|
|
|
|
|
|
|
|
Basic and
diluted:
|
|
|
|
|
|
|
|
Continuing
operations
|
$
(0.70)
|
|
$
(0.29)
|
|
$
(1.11)
|
|
$
(0.98)
|
Discontinued
operations
|
0.25
|
|
0.08
|
|
0.35
|
|
0.14
|
|
|
|
|
|
|
|
|
Net
loss
|
$
(0.45)
|
|
$
(0.21)
|
|
$
(0.76)
|
|
$
(0.84)
|
|
|
|
|
|
|
|
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
|
Basic and
diluted
|
123,575,325
|
|
123,055,963
|
|
123,444,943
|
|
122,949,064
|
|
|
|
|
|
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Cash Flows
|
|
|
Years Ended
December 31,
|
(in thousands of
dollars)
|
2018
|
|
2017
|
Cash flows from
operating activities
|
|
|
|
Net loss
|
$
(94,155)
|
|
$
(103,187)
|
Adjustments to
reconcile net loss to net cash provided by operating
activities
|
|
|
|
Earnings from
discontinued operations, net of tax
|
(12,833)
|
|
(17,150)
|
Gain on sale of
discontinued operations, net of tax
|
(30,469)
|
|
—
|
Gain on sale of
assets
|
(201)
|
|
—
|
Depreciation and
amortization expense
|
250,466
|
|
266,443
|
Amortization of debt
discount and deferred financing costs
|
4,181
|
|
4,181
|
Deferred income
taxes
|
5,140
|
|
(49,247)
|
Stock-based
compensation expense
|
13,248
|
|
10,728
|
Impairment charge for
pre-publication costs
|
—
|
|
3,980
|
Restructuring charges
related to property, plant, and equipment
|
—
|
|
9,841
|
Change in fair value
of derivative instruments
|
1,374
|
|
(1,366)
|
Changes in operating
assets and liabilities
|
|
|
|
Accounts
receivable
|
(11,005)
|
|
12,564
|
Inventories
|
(33,515)
|
|
8,122
|
Other
assets
|
3,908
|
|
(10,548)
|
Accounts payable and
accrued expenses
|
16,144
|
|
(5,937)
|
Royalties payable and
author advances, net
|
(1,650)
|
|
(1,449)
|
Deferred
revenue
|
(7,692)
|
|
(13,500)
|
Interest
payable
|
(186)
|
|
129
|
Severance and other
charges
|
(2,823)
|
|
221
|
Accrued pension and
postretirement benefits
|
(904)
|
|
(6,932)
|
Other
liabilities
|
5,056
|
|
(2,145)
|
|
|
|
|
Net cash provided by
operating activities – continuing operations
|
104,084
|
|
104,748
|
Net cash provided by
operating activities – discontinued operations
|
10,831
|
|
30,382
|
|
|
|
|
Net cash provided by
operating activities
|
114,915
|
|
135,130
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
Proceeds from sales
and maturities of short-term investments
|
86,539
|
|
80,690
|
Purchases of
short-term investments
|
(49,553)
|
|
(86,211)
|
Additions to
pre-publication costs
|
(123,403)
|
|
(131,282)
|
Additions to
property, plant, and equipment
|
(53,741)
|
|
(55,092)
|
Proceeds from sale of
business
|
140,000
|
|
—
|
Acquisition of
intangible asset
|
—
|
|
(2,000)
|
Investment in
preferred stock
|
(500)
|
|
—
|
Proceeds from sale of
assets
|
1,085
|
|
—
|
|
|
|
|
Net cash provided by
(used in) investing activities – continuing operations
|
427
|
|
(193,895)
|
Net cash used in
investing activities – discontinued operations
|
(6,832)
|
|
(11,028)
|
|
|
|
|
Net cash used in
investing activities
|
(6,405)
|
|
(204,923)
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
Borrowings under
revolving credit facility
|
50,000
|
|
—
|
Payments of revolving
credit facility
|
(50,000)
|
|
—
|
Payments of long-term
debt
|
(8,000)
|
|
(8,000)
|
Repurchases of common
stock
|
—
|
|
—
|
Tax withholding
payments related to net share settlements of restricted stock units
and awards
|
(1,190)
|
|
(1,450)
|
Proceeds from stock
option exercises
|
—
|
|
512
|
Issuance of common
stock under employee stock purchase plan
|
1,263
|
|
1,608
|
Net collections
(remittances) under transition service agreement
|
3,803
|
|
—
|
|
|
|
|
Net cash used in
financing activities – continuing operations
|
(4,124)
|
|
(7,330)
|
|
|
|
|
Net increase
(decrease) in cash and cash equivalents
|
104,386
|
|
(77,123)
|
Cash and cash
equivalent at the beginning of the period
|
148,979
|
|
226,102
|
|
|
|
|
Cash and cash
equivalent at the end of the period
|
$
253,365
|
|
$
148,979
|
|
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations (Unaudited)
|
|
Adjusted
EBITDA 1
|
Consolidated
|
(in thousands of
dollars)
|
|
|
Three Months Ended
December 31,
|
|
Years Ended
December 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Loss from continuing
operations
|
$ (86,390)
|
|
$ (36,446)
|
|
$
(137,457)
|
|
$
(120,337)
|
Interest
expense
|
11,645
|
|
10,825
|
|
45,680
|
|
42,805
|
Interest
income
|
(1,650)
|
|
(697)
|
|
(2,550)
|
|
(1,338)
|
(Benefit) provision
for income
taxes
|
3,493
|
|
(61,901)
|
|
5,597
|
|
(51,419)
|
Depreciation
expense
|
18,659
|
|
17,525
|
|
75,116
|
|
71,049
|
Amortization expense
film asset
|
6,057
|
|
—
|
|
6,057
|
|
—
|
Amortization
expense
|
44,142
|
|
51,062
|
|
170,903
|
|
195,394
|
Non-cash
charges—stock
compensation
|
3,959
|
|
2,782
|
|
13,248
|
|
10,728
|
Non-cash charges—loss
(gain) on derivative
instrument
|
400
|
|
(93)
|
|
1,374
|
|
(1,366)
|
Non-cash
charges—asset impairment
charges
|
—
|
|
3,980
|
|
—
|
|
3,980
|
Fees, expenses or
charges for equity offerings, debt or
acquisitions/dispositions
|
553
|
|
1,187
|
|
2,883
|
|
1,464
|
2017 Restructuring
Plan
|
1,580
|
|
1,617
|
|
4,657
|
|
37,775
|
Severance, separation
costs and facility
closures
|
441
|
|
(978)
|
|
6,821
|
|
177
|
Legal
reimbursement
|
—
|
|
867
|
|
—
|
|
(3,633)
|
Gain on sale of
assets
|
(585)
|
|
—
|
|
(201)
|
|
—
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from
continuing
operations
|
$
2,304
|
|
$ (10,270)
|
|
$ 192,128
|
|
$ 185,279
|
|
|
|
|
|
|
|
|
|
Free Cash Flow
1
|
Consolidated
|
(in thousands of
dollars)
|
|
|
Years Ended December 31,
|
|
2018
|
|
2017
|
Cash flows from
operating activities
|
|
|
|
Net cash provided by
operating activities
|
$
104,084
|
|
$
104,748
|
Cash flows from
investing activities
|
|
|
|
Additions to
pre-publication costs
|
(123,403)
|
|
(131,282)
|
Additions to
property, plant, and equipment
|
(53,741)
|
|
(55,092)
|
|
|
|
|
Free Cash
Flow
|
$
(73,060)
|
|
$
(81,626)
|
|
|
|
|
|
|
1
|
All amounts have been
adjusted to eliminate the impact of the Riverside Standardized
Testing business which has been removed from continuing operations
and classified as discontinued operations.
|
|
Houghton Mifflin
Harcourt Company
|
Calculation of
Billings (Unaudited)
|
|
Billings
1 (in thousands of
dollars)
|
|
Consolidated
1
|
|
|
Three Months
Ended
December 31,
|
|
Years
Ended
December 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net
sales
|
$249,038
|
|
$ 233,745
|
|
$
1,322,417
|
|
$
1,327,029
|
Change in deferred
revenue
|
(42,055)
|
|
(28,859)
|
|
(7,693)
|
|
(13,500)
|
|
|
|
|
|
|
|
|
Billings
|
$ 206,983
|
|
$ 204,886
|
|
$
1,314,724
|
|
$
1,313,529
|
|
|
|
|
|
|
|
|
|
Education
1
|
|
|
Three Months
Ended
December 31,
|
|
Years
Ended
December 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Core Solutions net
sales
|
$
81,917
|
|
$ 76,345
|
|
$ 538,166
|
|
$ 595,097
|
Change in deferred
revenue
|
(30,677)
|
|
(21,567)
|
|
(11,955)
|
|
(10,258)
|
|
|
|
|
|
|
|
|
Core
Solutions Billings
|
$
51,240
|
|
$ 54,778
|
|
$ 526,211
|
|
$ 584,839
|
Extensions net
sales
|
$ 106,837
|
|
$ 106,990
|
|
$ 584,523
|
|
$ 551,356
|
Change in deferred
revenue
|
(10,418)
|
|
(7,334)
|
|
3,975
|
|
(2,372)
|
|
|
|
|
|
|
|
|
Extensions
Billings
|
$
96,419
|
|
$
99,656
|
|
$ 588,498
|
|
$ 548,984
|
|
|
|
|
|
|
|
|
Education
Billings
|
$ 147,659
|
|
$ 154,434
|
|
$
1,114,709
|
|
$1,133,823
|
|
|
|
|
|
|
|
|
|
Trade
Publishing 1
|
|
|
Three Months
Ended
December 31,
|
|
Years
Ended
December 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net
sales
|
$ 60,284
|
|
$ 50,410
|
|
$ 199,728
|
|
$ 180,576
|
Change in deferred
revenue
|
(960)
|
|
42
|
|
287
|
|
(870)
|
|
|
|
|
|
|
|
|
Trade Publishing
Billings
|
$ 59,324
|
|
$ 50,452
|
|
$ 200,015
|
|
$ 179,706
|
|
|
|
|
|
|
|
|
|
|
|
|
Billings is an
operating measure utilized by the Company derived as shown
above.
|
1
|
All amounts have been
adjusted to eliminate the impact of the Riverside Standardized
Testing business which has been removed from continuing operations
and classified as discontinued operations.
|
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SOURCE Houghton Mifflin Harcourt