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Edited Transcript of CNGO.PK earnings conference call or presentation 15-Nov-19 1:30pm GMT

Q2 2020 Cengage Learning Holdings II Inc Earnings Call

STAMFORD Nov 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Cengage Learning Holdings II Inc earnings conference call or presentation Friday, November 15, 2019 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bob Munro

Cengage Learning Holdings II, Inc. - CFO & Executive VP

* Michael E. Hansen

Cengage Learning Holdings II, Inc. - CEO & Director

* Richard Veith

Cengage Learning Holdings II, Inc. - Senior VP & Treasurer

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Conference Call Participants

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* Benjamin Briggs

INTL FCStone Markets, LLC - VP of Credit Analyst

* David Scott Farber

Crédit Suisse AG, Research Division - Research Analyst

* Kenneth Silver

KLS Diversified Asset Management LP - Analyst

* Mary Ross Gilbert

Imperial Capital, LLC, Research Division - MD of Institutional Research Group

* Nicholas Michael Edward Dempsey

Barclays Bank PLC, Research Division - Research Analyst

* Sami Kassab

Exane BNP Paribas, Research Division - Media Research Director, Co-Head of the European Media Team & Analyst of Media

* Todd Cranston Morgan

Jefferies LLC, Fixed Income Research - Analyst

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Presentation

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Operator [1]

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Good morning. And welcome to the Cengage Fiscal 2020 Second Quarter Investor Update. Participating on the call will be Michael Hansen, Chief Executive Officer; Bob Munro, Chief Financial Officer; and Richard Veith, Senior Vice President and Treasurer. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce Richard Veith.

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Richard Veith, Cengage Learning Holdings II, Inc. - Senior VP & Treasurer [2]

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Good morning, and welcome to Cengage's Fiscal 2020 Second Quarter Investor Update. A copy of the slide presentation for today's call has been posted to the company's website at cengage.com/investor.

The following discussion may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future results and events, and they are based on Cengage's current expectations and assumptions. Actual results may differ materially from those currently expected and are subject to the risks and uncertainties discussed in the Risk Factors section of our fiscal 2019 annual report for the year ended March 31, 2019, the special note regarding forward-looking statements section of the same report, and the Risk Factors section of our fiscal 2020 second quarter report for the 3 and 6 months ended September 30, 2019. The company disclaims any duty or intention to update or revise any forward-looking statements.

This presentation, including the appendix, contains disclosures of adjusted revenue, adjusted cash revenue, adjusted EBITDA, adjusted cash EBITDA, adjusted EBITDA less prepub and adjusted cash EBITDA less prepub on a quarterly and year-to-date basis and free cash flow and levered cash flow on a year-to-date basis, all of which are non-GAAP financial measures. Adjusted revenues and adjusted EBITDA measures are on a constant currency basis. Definitions, rationale for the use of these measures and reconciliations of each to its most directly comparable GAAP financial measure is provided in the appendix to today's slide deck.

We may also discuss digital product sales, which represents gross sales less actual returns of digital stand-alone products and bundled print and digital products.

And now we can turn to Slide 3 for today's agenda. Michael Hansen, Chief Executive Officer, will provide an update on the business; followed by Bob Munro, Chief Financial Officer, who will take you through the details of our financial results before we open the call for questions.

Let me now introduce the Chief Executive Officer of Cengage Learning, Michael Hansen.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [3]

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Thank you, Richard, and good morning, everyone. I will cover the first half business performance, focusing on the higher education performance through the key back-to-school season, and also address the implications of the first half performance on the outlook for the full fiscal year. I will also update you on the progress of the merger with McGraw-Hill before handing over to Bob to take you through the financials in more detail. As usual, we will answer questions following the presentation.

You will see from the financial highlights that the Learning segment drives an overall decline in adjusted cash revenue and adjusted cash ELPP in the Cengage first half results. These headline results are significantly impacted by phasing, depressing the first half revenue performance. Notwithstanding these timing effects, however, our first half results are meaningfully behind our expectations going into the fall season as the Higher Ed market has declined faster than anticipated. Over the past 6 to 8 weeks, we have undertaken an in-depth analysis of our higher education performance to understand and address the implications for this fiscal year and inform course corrections we need to make to our go-to-market approach for both the forthcoming fiscal '20 spring season and fiscal '21.

Turning first to the overall financial implications for this fiscal year. Against our previous guidance of broadly flat revenues, we now expect full year adjusted cash revenues to be down in the mid-single-digit range, driven principally by a revised outlook for higher education. However, our adjusted cash EBITDA expectations are unchanged, and we expect to deliver strong adjusted cash ELPP growth and margin expansion. This unchanged EBITDA outlook is underpinned by effective cost management in the year-to-date and decisive actions to restructure the business that were fully implemented in October and November of this year. These actions were taken to structurally lower our ongoing costs to serve in light of the pressures we are seeing in the higher education market and consistent with our intent to simplify our cost structure following the introduction of Cengage Unlimited.

We are confident in our second half and full year expectations as they rest principally on reversal of timing differences and favorable channel/product mix in higher education. We are not assuming significant improvement in underlying gross sale trends in the industry. I will come back to provide some more color around timing differences in higher education and full year guidance later in the presentation.

Turning back to the first half year results. Our adjusted cash revenues declined by 8% to $771 million. This was driven by the Learning segment, where adjusted cash revenues were $527 million, 12% down year-over-year. Both the International and Gale businesses are tracking broadly to expectations and together delivered adjusted cash revenue of $244 million, broadly flat year-over-year.

Breaking apart the Learning segment. Adjusted cash revenue in higher education and skills was $391 million, down 14%, with the school business down 7% at $128 million.

With the second quarter and back-to-school season behind us, the K-12 business is now approximately 80% through the adoption season. The first half revenue performance reflects good momentum in the K-8 business, which has delivered mid-single-digit growth. The K-8 results are underpinned by a strong showing in the California social studies adoption and in open territories. The year-to-date growth in K-8 is outweighed by weakness in high school-focused advanced placement and career and technical programs. We are continuing to work to stabilize our high school business through a program of product upgrades.

The 14% decline in higher education and skills was driven wholly by the higher education nonprofit sector. Adjusting for known channel purchase order and returns timing differences, we estimate that the nonprofit sector was down around 9% on a net sales basis.

Whilst our revenues are down, our performance remains ahead of the overall industry, which has further softened. Based on MPI data through October calendar year-to-date, the industry is down over 13%, a worse-than-expected trend and one we now expect to see maintained for the full year.

Our like-for-like cash revenue performance in the same time period, calendar year-to-date, is down only mid-single digits as you can see in Slide 26 in the appendix. In looking at the overall market development, we are seeing the following key trends. Customer and students continue to shift to more affordable options. This is driving declines in ARPU with both print and digital product, something we largely expected.

Affordability concerns are also putting pressure on courseware growth. We have seen lower rates of faculty requiring the use of digital in the classroom, making it optional instead. In addition to affordability, there are barriers to digital courseware adoption in large segments of the market which are still print-dominated. In these segments, courseware penetration is increasing slowly. There is higher risk of reversion to print and smaller low-cost print-focused publishers are taking share.

These market trends and our competitive performance strongly support our focus on student affordability and our strategy leading with Cengage Unlimited, which has continued to make strong progress in the market. Unlimited successfully drove further net adoption share gains through the fall season. And since the launch, we estimate that we gained approximately 2 percentage point net share gains in adoption.

Over this fall season, the digital unit volume benefits of the net adoption share gains have been offset to a large extent by declines in the installed base. These negative impacts in the installed base are being driven by the affordability pressures and barriers to digital I referred to earlier.

In response to these emerging trends, we are making adjustments to our approach to improve our fiscal '20 and '21 trajectory. Specifically, we are making course corrections to better align our go-to-market approach and product offerings to different account types. These changes aim to improve retention of at-risk courseware adoptions and gain additional share. Beyond this evolution of our go-to-market approach in response to the broader industry weakness and clear demand from the market to continue to improve affordability, we accelerated the planned restructuring of our business in Q3 to further lower our cost to serve. These actions were fully implemented in October and November and will generate incremental savings over the first half exit run rate of $18 million in the current year. These savings, combined with realized first half savings, will lower our full year cost base by around $90 million or 10% compared to the prior year.

In addition, the exit cost run rate of our business at the end of the fiscal year will be around $20 million lower due to the annualized impact of these and other actions. This will underpin our ability to drive further margin improvements in fiscal '21.

As I mentioned in discussing the first half performance, channel purchase ordering and returns patterns and product and channel shifts act as a significant temporary drag on first half growth. Slide 6 speaks to those differences. As we have previously shared with you, revenue shifts between quarters are becoming more pronounced in higher education as the increasing penetration of Cengage Unlimited, stand-alone digital products, inclusive access and print rental shift sales between quarters. This reflects the purchase shifting to the student and the institution at course commencement rather than pre-stocking of physical product by bookstores and channel partners. This trend has continued in fiscal year '20 and is further pronounced due to significant shifts in channel partner ordering and returns between fiscal '19 and fiscal '20.

This slide shows that the net sales decline in fiscal '20 is driven by sharp reductions in gross sales before returns of both digital and print products. This reflects high channel ordering in fiscal '19 as partners hedged uncertainty around the impact of Unlimited on sell-through by stocking digital bundles and printed access cards. This approach boosted first half '19 net sales and resulted in higher returns over Q3 and Q4 of that same year.

In addition to the ordering effects, in fiscal year '20, we expanded digital integration with channel partners such that Unlimited is now sold as an instant access through APIs at both Barnes & Noble and Follett, reducing the sale of inventory of printed access cards. These channel partner ordering effects and channel shifts between quarter distorts the underlying trend in the digital business.

Slide 7 sets out key metrics which talk to the continued strong momentum in Cengage Unlimited and the broader digital business. We continue to see great momentum with Cengage Unlimited in the first half. 800,000 subscriptions were redeemed and sales of Cengage Unlimited grew 45%. This momentum we see with subscriptions, combined with the increased value students are extracting from the service, is continuing to significantly lower the cost of course materials for students. In fiscal year '19, we estimate that Unlimited saved students over $60 million on the cost of course materials. For fiscal year '20, the 800,000 subscriptions have delivered incremental savings to students of $60 million. For the full year, we expect those annual savings to increase to approach $100 million, which will take total savings to $160 million since the introduction of Cengage Unlimited.

The momentum with Cengage Unlimited and digital products is reflected in the continuing strong progression in courseware activations and the proportion of the Higher Ed business represented by recurring units. Recurring units, comprising rental, core digital, e-books and Unlimited, were up 2% to 80% of the total in the first half compared to 78% in the same period last year. Courseware activations were up 13%, which reflects the continued momentum of Cengage Unlimited.

To recap, as a result of the industry pressures in higher education and the weaker-than-expected performance through the fall season, we have revised our full year revenue guidance. We expect adjusted cash revenues to decline by mid-single digit. We are maintaining our guidance for strong adjusted cash EBITDA less prepub growth. This growth is underpinned by already fully actioned structural reductions in our cost base, a result of which we expect to reduce our costs, excluding CapEx, by around 10% year-over-year. These reductions reflect the elimination of onetime investment in fiscal '19, the benefits of our new operating model and additional operational efficiencies and restructuring actions taken in the current fiscal year.

In terms of liquidity, we expect positive levered free cash flow and leverage ratio of around 6x by March 31, 2020, both before taking account of our share of merger-related costs, which we expect to be $50 million for the full year. The restructuring actions we have taken this fiscal year underline our commitment to both delivering our financial targets and setting our Higher Ed business up for lower-cost delivery of affordable, high-quality product, largely on a recurring revenue basis.

Notwithstanding the merger, we felt strongly we needed to take decisive action now, knowing that the actions we have taken are tightly aligned with the strategic intent of the merger.

Let me conclude with an update on our progress with the merger, which is on Slide #9. The merger with McGraw-Hill remains on track with all work streams well advanced. The heightened affordability pressures we see in the industry and the feedback we receive from ongoing interactions with our students, faculty, institutions and other parties reinforce our resolve that the case for the merger is very strong. We firmly believe the merger and its core objectives to drive affordability, broaden choice and provide high-quality product and services aligns our interest strongly with customers, students and faculty and will bring significant benefits to these key stakeholders.

On the regulatory progress, we are continuing to work collaboratively with the Department of Justice through the second request phase of the U.S. process towards an anticipated close date towards the end of the first quarter of 2020.

Outside the United States, we are also continuing with processes in Australia, New Zealand, the United Kingdom and Mexico. All these processes are on track and aligned with our overall time line.

In parallel with the regulatory process and within the regulatory framework, we have continued to progress our post-merger integration planning. Day-0 implementation plans to ensure seamless continuity for faculty, students and employee experiences have been a key priority and are all very well advanced. These plans support our previous disclosed synergies of $285 million to $370 million and provide increasing confidence that the range will be achievable.

The financing amendment, as we previously discussed and based on the debt holder feedback, we will align the amend and extend process for the first-lien credit agreement closely with the transaction close date. We are, therefore, working towards a Q1 process and do not expect the financing amendment to affect the timing of the merger closing.

Let me now hand over to Bob to take you through the first half financial performance in some more detail.

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [4]

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Good morning, and thank you, Michael. If we turn to Slide 11, this sets out the adjusted cash revenue and adjusted cash EBITDA less prepub by business division for the second quarter. Adjusted cash revenues for the second quarter reached $534 million, $65 million lower or 11% behind the prior period.

Q2 operating costs, excluding CapEx, have been reduced by $23 million to $191 million through the elimination of fiscal '19 onetime costs, strong cost management and restructuring initiatives. The continued rebasing of costs meaningfully mitigates the impact of the adjusted cash revenue decline. As a result, the adjusted cash EBITDA less prepub for the second quarter was $228 million or $36 million behind the prior period. As Michael has highlighted, the Q2 performance is driven by Learning, with the higher education and school businesses posting headline double-digit declines in adjusted cash revenues in the quarter.

Gale and International adjusted cash revenues for the quarter reflect timing against the prior year. The decline in higher education reflects the combination of a higher-than-expected industry decline, timing shifts in channel purchasing patterns and returns in the nonprofit segment and affordability-driven pricing pressures.

Turning to Slide 12, which summarizes the first half results. Adjusted cash revenues for the first half was $771 million, $69 million lower or 8% behind the prior period. H1 operating costs, excluding CapEx, have been reduced by $30 million to $388 million with a quarterly savings run rate accelerating to $23 million from $7 million in the first quarter. This mitigates a significant portion of the impact of the revenue decline. The adjusted cash EBITDA less prepub for the first half was $203 million, $28 million behind the prior period. As Michael has addressed, the first half performance is adversely impacted by significant changes in revenue phasing and channel purchasing and return patterns in higher education. These effects will reverse in the second half and moderate the decline for the full year. I will come on to the Learning and higher education and school revenue performance and outlook on the next slides.

A few comments first on the performance and outlook for Gale and International. Gale adjusted cash revenue in the first half was $107 million, 2% behind the prior period. In the U.S. domestic market, which accounts for around 80% of revenues, adjusted cash revenues are marginally behind the prior period. This reflects strong subscription renewals to well above 90% and around 4% higher than the prior period. This is moderated by lower transactional sales of archives and eBooks. With U.S. library budgets under continuing pressure, we expect growth opportunities in the domestic market to be constrained.

In the smaller but growing International segment of Gale, the first half performance is held back by adverse phasing. It is expected to be reversed in the second half, supported by a strong sales pipeline. The International business is on track to deliver another year of good growth. The combination of growth in International and the performance of the U.S. subscription business is expected to offset weakness in U.S. transactional sales in the full year.

In International, adjusted cash revenues were $137 million in the first half, up $3 million or 2% on the prior period. The overall growth of International is driven by the Australia school business, which combined with modest year-to-date growth in English Language Teaching, offset a weaker performance in higher education. The Australia school business benefits from over $5 million of export follow-on orders in relation to the Texas English language reading adoption. The benefits of this reverse in the second half, as whilst further follow-on orders are expected, the cumulative orders are expected to be lower than the original order of $17 million received in Q4 of fiscal 2019. The English Language Teaching business is on track for another year of mid-single-digit revenue growth and will deliver over $100 million of revenue in the full year. This is driven by continued momentum in Asia and Latin America.

In higher education, the first half revenues trailed the prior period, reflecting continuing headwinds in certain markets in the EMEA region and adverse phasing in Australia, Latin America and Asia. The phasing effects are expected to reverse in the second half, offsetting the weakness in EMEA. Overall, the International business revenues are expected to be broadly flat in the full fiscal year.

Turning to the next slide, the adjusted cash revenue bridge. The adjusted cash revenue bridge shows that the overall reduction in Learning reflects the combination of a $9 million year-on-year decline in school and a $60 million reduction in the higher education and skills business.

In school, the K-8 business has delivered solid growth in the first half, driven by a strong performance in the California social studies adoption, which included winning the Los Angeles Unified School District. Overall, we estimate that the school business secured over 10% of the social studies adoption. The K-8 performance has been held back by delays with California science adoption, with activity in this first year of the adoption principally being pilots and with implementation largely shifting to next year. The good growth in K-8 has been outweighed by the weak performance of advanced placement and career technical products sold into high school, both of which posted double-digit declines year-over-year. We are continuing to upgrade products, commercial models and go-to-market capabilities to stabilize this segment.

Whilst the school business is expected to recover some ground in the second half, with around 80% of the adoption season behind it, the first half shortfall is expected to largely carry into the full year. The overall revenue performance in higher education and skills is driven by the higher education nonprofit business, with the smaller skills businesses, Ed2Go and Milady, delivering modest growth, and the for-profit segment continuing to stabilize and being broadly flat in the first half. The first half performance of the higher education nonprofit business is significantly impacted by timing of channel orders and returns by bookstores and channel partners. In addition, the performance is further impacted by channel shifts to direct-to-consumer, increased digital integration with bookstores and good momentum with institutional deals.

Adjusting for timing differences, we estimate that the higher education nonprofit business was down around 9% in the first half on a net sales basis. The decline is largely driven by pricing as customers and students continue to shift to more affordable options, namely Unlimited, rental and eBooks. As Michael mentioned, whilst Unlimited continued to successfully drive digital adoption share gains, the impact of these gains was offset to a large extent by declines in courseware in the installed base driven by faculty reducing their requirements for courseware.

With the reversal of timing effects in nonprofit in the second half and product mix benefits typical at the spring semester, the overall decline in the higher education and skills business is expected to moderate in the full year to around 10%. This full year decline reflects the drag from the large software license deal and other ordinary course content licensing deals in the fourth quarter last year, which are not expected to recur. The nonprofit business is expected to decline mid-single digits on an underlying net sales basis, which will represent another year of significant outperformance of the market, which is expected to be down 10% or more.

The impact of channel ordering and return patterns is particularly pronounced on the first half of fiscal '20. Fiscal '19 represented the first fall season with the Unlimited offering in market, and channel partners hedged the uncertainty, ordering both stand-alone digital and access cards and then held inventory through the spring season. This drove high returns in the second half.

Before we leave higher education revenue performance, building on Michael's earlier comments, I wanted to provide some further insight on phasing effects and key trends underpinning our expectations for the second half. So turning to the next slide. In fiscal '20, we have seen significantly lower ordering of gross sales, a favorable mix shift to lower returnable products and earlier returns from the channel. This slide sets out the gross product sales mix categorized between product types that have low rate or increasingly no rate of return and those with high rate. The product types with high rates are typically sold into bookstores and channel partners. In addition to the clear year-on-year decline in gross sales, which reflects the changes in ordering patterns and channel shift, the proportion of returnable products sold into market has significantly reduced, which underpins our expectations of significantly lower returns in the second half. This is borne out by actual returns through October and November to date, which are tracking firmly in line with our expectations. We also see very low inventory levels at our major channel partners, which are significantly down year-on-year.

In addition, from a sales standpoint, we have seen strong gross sales in October and November to date as the channel shift effects, mainly in institutional deals, we expected to see have come through. This drives an over $5 million increase in sales in the month of October, which flows through to supplement growth in adjusted cash revenues for the Learning segment for the month.

In summary, all key indicators, which we are closely tracking, continue to support our second half expectation, and we are now substantially through the return season with low inventory resting in channel.

Turning now to the adjusted cash EBITDA less prepub bridge on the next slide. This slide bridges the $28 million reduction in the first half adjusted cash EBITDA less prepub. The $69 million decline in adjusted cash revenues in the first half had a $59 million gross margin impact, which was meaningfully reduced by $30 million of year-over-year cost reduction. The cost reductions reflect the elimination of $14 million of onetime and initiative costs incurred in 2019, largely in relation to the launch of CU. In addition, the combination of the operating model restructuring in Higher Ed, efficiencies in prepub and strong ongoing cost management to mitigate inherent risks in our revenues drove a further $17 million of run rate savings in the first half. It's important to note that our continuous focus on costs have increased run rate savings progressively over the first half, such that the second half savings from these initiatives will be higher still.

Slide 17 sets out the quarterly trajectory of costs. This sets out the quarterly profile of the total selling, general and administrative expenses and prepublication costs. In presenting our first quarter results, we stated that through the elimination of onetime costs in fiscal '19 associated with the launch of Cengage Unlimited and other initiatives and the Cengage 2.0 operating model transformation, we expected to lower costs from $828 million in fiscal '19 to around $800 million this year. Through the first half, we've exceeded that target. We have continued to manage costs tightly and drive initiatives to structurally lower our cost base. In the second quarter, the business has been successful in significantly accelerating our year-over-year savings trajectory. In Q2, we reduced our cost base by $23 million compared to the prior period. Together with the $7 million realized in the first quarter, our first half costs are down around $30 million, a 6% improvement.

In light of the fall revenue performance and revised fiscal year and future expectations, in October and November, we implemented further actions. These actions were designed to structurally lower our cost to serve our customers and further reduce our run rate. These steps have been fully actioned and will generate additional savings of around $18 million in the current fiscal year, and that is on top of the ring-fenced first half savings and lower run rate going into the second half. The business will incur additional onetime restructuring charges of between $14 million to $18 million in the second half, in respect of which we will generate annualized savings of $38 million in fiscal '21.

As a result of these actions, we now expect our full year cost base to be around 10% lower than 2019. These savings, combined with our revised revenue outlook, underpin our unchanged earnings guidance that we will deliver strong growth in adjusted cash ELPP in the full fiscal year. It's worth reiterating that the exit cost run rate of our business at the end of the fiscal year will be around $20 million lower due to the annualization impact of the second half restructuring and other actions. This will underpin our ability to drive further margin improvement in fiscal '21.

Turning to the next slide, a summary of cash flows. From the normal seasonal low point in the annual cash cycle at the end of the first quarter, the business moved into cash generation in the second quarter, generating $73 million of levered free cash flow. As a result, the levered free cash outflow in the first half was $85 million, which translated into a total cash outflow of $98 million. This was after $13 million of debt repayments and dividends.

As you'll see on the next slide, the business remains in a position of strong liquidity, which will be further bolstered by the strong cash inflows we expect over the current quarter following on from the fall season. First half levered free cash outflow was $49 million lower than the same period last year. This reflects 3 factors. Firstly, the first half trading performance of the business with profit shortfalls largely moderated by favorable working capital movements. Secondly, higher capital expenditures, which were $14 million higher at $40 million. This is driven by the onetime fit-out costs of the new Boston office, which was completed in June. And the third factor, one-off costs, comprising restructuring, which drives the $10 million increase in other operating costs, and costs in relation to our merger, which amounted to $13 million in the first half.

Consistent with the pattern in previous years, we expect the business to generate positive levered free cash flow over the remaining 2 quarters of the year. For the full year, levered free cash flow will be broadly in line with fiscal '19 after the onetime Boston office spend but before merger-related costs. Our share of merger-related costs are expected to be up to $50 million for the year, assuming an end-of-quarter-1 close date. The onetime costs of the Boston office are expected to result in CapEx cash spend of a little over $60 million in this fiscal year. This compares to a normalized run rate of $45 million to $50 million, which we would expect to return to in fiscal '21.

To close the financial section, Slide 19 summarizes the liquidity and net debt position of Cengage at the quarter end. As I mentioned, the liquidity position is strong and is expected to remain so over the balance of the year. The total liquidity improved to $459 million at the end of September with net debt standing at approximately $2 billion. The liquidity position recovered strongly from $264 million at the previous quarter end, which typically represents the low point in the annual cycle. As a point of note, the business has not drawn on the revolving credit facility in fiscal '20 or prior years and does not anticipate requiring to do so.

Net leverage at September 30 increased to 7.8x from 6.7x at March 31 driven by current first half trading performance. The first half profit performance reduced the trailing 12 months adjusted EBITDA less prepub to $259 million, $28 million lower than at March 31. This increased the net leverage ratio on a debt balance that was $90 million or 4% higher. Michael mentioned in framing our guidance for 2020 that with our profit guidance unchanged, we also expect the net leverage at March 31, 2020, to be around 6x. This is before taking account of the merger-related costs. To reiterate, our share of merger costs is estimated to around $50 million in fiscal '20, and this would be expected to increase leverage by around 0.2 turns. The deleveraging from 6.7x at the end of fiscal '19 will be principally driven by strong growth in adjusted cash EBITDA less prepub over 2020. With adjusted revenues expected to decline year-on-year by mid-single digit, the strong growth in adjusted cash EBITDA is underpinned by the structural cost actions, which have been fully implemented. As stated earlier, these actions are expected to reduce our cost base year-on-year by around 10%.

As a final point, other than the mandatory annual amortization payments of $17 million on the term loan, we are not anticipating any repurchases or early redemptions of debt in fiscal '20. It is also worth noting that the merger agreement precludes us from buying back equity.

Let me hand back briefly to Michael for concluding remarks before we turn to questions.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [5]

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Thank you, Bob. Here are the key points that I would like to leave you with. Number one, while the Higher Ed market has declined more rapidly than anticipated, our strategy focused on affordability is driving strong share gains in a declining market. Two, Cengage Unlimited is a major success and, beyond driving share gains, has enabled us to simplify our cost structure. Three, as a result, we are delivering strong earnings growth this year and beyond. And finally, number 4, we are confident in the rationale for the merger and feel this rationale is further underpinned by the most recent market developments.

Let me now open the floor for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of David Farber with Crédit Suisse.

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David Scott Farber, Crédit Suisse AG, Research Division - Research Analyst [2]

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I had a couple of things I wanted to address. Let's just first talk about the quarter. I wanted to dive in a little bit on some of the commentary and the presentation. It seems like it's a combination of some underlying weakness, and then you obviously moved the revenue guidance a little bit lower. But at the same time, you're talking a little bit about the timing and the returns and maintaining, I guess, the 6x leverage, which gives you a chance to back into, I guess, the EBITDA. So I guess, is the right takeaway that the quarter was a little bit light, but there's some cost savings going on that's going to get you back to the 6x leverage target? And then I had some follow-ups.

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [3]

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David, it's Bob. So in a nutshell, yes. Revenues were behind. The timing and the phasing effects will reverse, and so the shortfall will moderate in the second half. But against that revised guidance, we've taken cost actions, which are fully baked, they're done. And those underpin our unchanged earnings guidance, and it's that which is driving us back to the around 6x leverage.

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David Scott Farber, Crédit Suisse AG, Research Division - Research Analyst [4]

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On the merger, you talked about it a bit. But maybe just specifically, what's giving you incremental confidence around the 1 quarter close? And then if you could just update us on what's left on a process perspective. And then to the extent -- I'll tag in another question. You talked a little bit about an amendment not necessary for the closing. I just wanted to understand that a bit. And then I had 1 follow-up.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [5]

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Yes. David, this is Michael. I'll let Bob talk about the amendments. In terms of the merger, we are engaged with the Department of Justice literally on a weekly, if not daily, basis to walk through, course-by-course, their concerns around -- antitrust concerns that they have. But it has been a very collaborative process, and we remain very confident in the rationale for the merger, and the rationale why it should be approved. So we are well on our way in the process there. With regard to the amend and extent, Bob, do you want to talk on that?

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [6]

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Yes. I think just to clarify that the amend and extend, the financing amendment is a condition for close, so -- and it always has been and it remains so. We basically aligned our process around the amend and extend with the anticipated close towards the end of the first quarter, so quarter ending March 31. So we expect we'll be bringing that back to the investors in the first quarter of next year. Does that answer the question, David?

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David Scott Farber, Crédit Suisse AG, Research Division - Research Analyst [7]

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Yes. Yes. It's a condition. Okay. And then, Michael, I'd love to get your thoughts on a very high-level question. Today, you're describing the business as declining and the industry perhaps is slowing a little bit more than what we thought. So I was just wondering if you think this perhaps gives the merger an even greater chance of approval in the sense that it's clearly a competitive industry, and you're also highlighting the amount of money you're saving students through Unlimited. So I guess, to the extent you can comment on that, that would be helpful. And then that's it for me.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [8]

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Yes. Thanks, David. Yes. Look, I do think it is a -- it is fair to say that it is a highly competitive industry, and that it's an industry that is highly competitive on price, and we're seeing the results of that, as the decline in the industry is mostly driven by a price compression there. So I do think that supports the argument for the merger. And our strategy has been consistent for the last few years. We believe that, that is, for us, an opportunity to aggressively compete on price, take share. And I think we have demonstrated that very clearly in the past 2 years that, particularly with Unlimited, we are able to do that.

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Operator [9]

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Our next question is from the line of Mary Gilbert with Imperial Capital.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [10]

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I wanted to get a better idea of how we should look at the digital trend challenges that you're experiencing that you, sort of, saw in this quarter. And when we look at Slide 15, which I think is helpful, we don't have the actual magnitude for each component, but it looks like the digital component was relatively flat but there were shifts, obviously, more to Unlimited. But in looking at this, it sounds like there really wasn't growth in digital on a full basis, even though there was a shift around, where you had growth in, for example, CU. And so what is going on that the teachers are deciding, okay, we're not going to go with digital because we want to save money? So I want to understand what we're seeing in terms of these industry trends, how we think about reaching a point of stabilization. And then also, if you could talk about the magnitude of content, meaning that is not owned by the major publishers, meaning the used and the rental market not owned by the publishers, and when we could get to a point of, sort of, regaining that ownership structure. And then also, with regard to the merger synergies with $285 million to $370 million, can you just kind of remind us where you think you could be within the first year of realizing those synergies? And then I have a follow-up.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [11]

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All right, Mary. This is Michael. Good to hear your voice. Let me take the 2 first ones and then -- and Bob will talk about the synergy range for the first year. So in terms of the digital trends, I think your headline conclusion is correct that we're seeing digital on a revenue basis, essentially, flat to slightly up for us. But if you unpack it between units and price, you can see that the compression comes from the price component. And this is very consistent with what we have seen play out in this market, that the primary consideration that faculty has is, what is my decision in terms of course materials doing to affordability for my students? Is it increasing the cost for my students? And I think it is fair to say that, that consideration extends to both when they choose a digital course material or when they choose a print course material. And we have also seen that for certain courses, they're willing to trade-off the digital benefits if the print option is considerably cheaper. Now I want to emphasize, for certain courses, there are certain course categories, like STEM, where digital penetration is very high, the use case is very compelling, students benefit greatly and faculty benefits greatly from using digital, whereas when you have -- take English as a course area, where that is less evident to the faculty and as a result, the faculty is willing to potentially experiment with digital but not necessarily sticking with digital throughout. And I think that's a phenomenon that we're seeing play out in the market.

With regard to your second question of the portion of the market that is essentially today used, rentals materials that we don't control, we believe that portion of the overall market in terms of units is almost 2/3 of the market. And as you know, we have taken very proactive steps. On the one hand, we are competing effectively, particularly with Unlimited, in terms of price point with this market. But we are also participating in this market in that we have struck agreements to actually participate in rental, in particular. We're not participating in used. But in rental, we are participating with our channel partners so that this revenue stream from rental, which is an option that students want, and we want to give them that option, but we're now participating in that revenue stream together with our channel partners. So we don't do the rental logistics, but we are participating in the revenue stream. And then to your last question, I'll let Bob answer the question around what of the synergies we can expect in the first year.

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [12]

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Yes. Mary, I think, previously, we've talked about first year realized synergies, i.e., flowing to the bottom line, of the order of around 40%. And I think that remains true. I think the low-hanging fruit, the easy wins, those will come out of the business very quickly. And we remain of the view, as I say, of the 40%. The other point to note is, by the end of the first year, the action value of savings would be somewhat higher, maybe another 5% to 10% as we go into that second year.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [13]

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Okay. So also, will there be other negative impacts, so that the actual number we see in the first year, instead of being the 40%? And do we use the 40% of the mid-range? Or how should we look at that? And then also, given your guidance of 6x after we exclude the $50 million of merger costs, that infers that your post-plate cash EBITDA is going to be north of $300 million, right?

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [14]

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Let me start there. That's the math, so -- and then coming back to the merger cost. I think, as Michael said, we still remain confident with that range. Clearly, we're going to continue to work through integration plans to optimize within that range. And we don't see any downside risks to that range that we've put out and we maintain.

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Operator [15]

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Our next question comes from the line of Nick Dempsey with Barclays.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [16]

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So first of all, you saw 28% year-on-year revenue growth in Q2 for Unlimited. A year ago, you talked about more than 500,000 subscribers in the first semester. Now you're talking about 800,000 in the first half, which I guess, most of them were sold in Q2. So I'm wondering if the volume growth for Unlimited, is that comfortably ahead of the 28%. In which case, is the average revenue per subscription down year-on-year? Second question.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [17]

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Nick, sorry to interrupt you, this is Michael. Where is the 28% coming from? Where is the 28% coming from?

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [18]

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That was the Q2 year-on-year number for Unlimited on Slide 23.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [19]

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Okay. Keep going.

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [20]

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Yes.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [21]

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Was I right? I said the right number.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [22]

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Just wanted to make sure that it's the gross sale page.

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [23]

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Yes. Go ahead.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [24]

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Okay. So when you're referring to the MPI data for the market being down 12% for the first 9 months of the calendar year, and then you show on the same slide that Higher Ed and skills was down 5% for yourselves in the same period, and somewhere else you talked about a share gain of the 134 basis points, that doesn't really make up the gap in my mind between 12% and 5%. So am I looking at this the wrong way? Or is there something else going on in how we should compare your number with MPI data for that 9 months?

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [25]

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Yes. I think, it's Bob here, Nick. So when we -- so the MPI data is one of the keys to the market or industry metrics that we track. And I think, as you know, it's sort of comprises the 6 largest publishers, which is around 80% of the market. And on that basis, on a trailing 12 months through October, we're up close to the 1.5%. When we look at our own very detailed tracking of adoption share, it actually gives us the same answer, around 1.5% to 2%. And we, as Michael said, have continued to gain adoption share since the launch of Cengage Unlimited, and we believe that's around 2%. Yes, I think it comes back to, there's a lot going on with the timing and the phasing differences as we work through this. And we -- with 9 months data, we think you're getting a pretty good view because we're 9 months through a complete academic cycle. But we are an academic cycle business, not a quarterly business. And those distortions that we saw very pronounced in the first half do impact that correlation.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [26]

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Yes. And in particular, Nick, what I would point you to in terms of MPI is these are the 6 larger publishers. But then, as Bob alluded to, there's 20% of the market which is not captured by MPI, and these tend to be the smaller, print-focused publisher. And these publishers, as I mentioned in my prepared remarks, are actually gaining share in the market because they have typically a lower-cost print offering, and they're gaining share in the market, frankly, as they have over the last few years. So that is something that will help you do that bridge, but we are very confident in terms of our market share gains based on those 2 data points, internal and external.

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [27]

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If we then -- if we come back to the Unlimited sales performance, we are, for the first half, combining the, sort of, Q2 sales with Q1, we're up 45% on a revenue basis. Yes. There is a bit of lag between unit volume and sales growth, again, because of phasing and particularly around institutional deals. But when we roll forward, the growth that we're -- we've seen in the first half is pretty much what's still what we're expecting to see for the full year. And whilst we're seeing a little bit of price pressure in terms of average price of Cengage Unlimited, that's really being driven by institutional deals, where we're clearly getting very significant volume of sell-through, but we are offering that at a lower price compared to a direct-to-student offering.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [28]

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Yes. Just to amplify that on an individual adoption basis, we are not discounting Cengage Unlimited, just to be very clear.

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Operator [29]

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Our next question is from the line of Todd Morgan with Jefferies.

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Todd Cranston Morgan, Jefferies LLC, Fixed Income Research - Analyst [30]

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Just to take a step back for a second. I remember a couple of quarters ago, you talked proudly about having actually served more students. I think you were, sort of, trying to combine the print and the digital student counts and it was up. Can you kind of roll that forward here? It sounds like with the, sort of, the bulk deals that you're doing, that you're actually continuing to serve, sort of, more students. But the revenue issues are really tied to, sort of, a much lower, sort of, an ARPU number or revenue-per-student number. Are the students kind of consuming less content or more content as to exacerbate that? And just trying to get a bigger picture on the, sort of, the dramatic moves in the Learning revenue trends around those factors.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [31]

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Yes, Todd. I -- first of all, what -- in terms of serving more students, you're absolutely correct. We continue to serve more students. And students are not consuming less content, relatively speaking, on a per student basis. But they are consistently looking for the cheapest way, the most affordable way to consume that content. And I think what's important to note, what we're seeing is in particular disciplines, and that is even completely irrelevant whether that content is served up digitally or whether that content is with additional features and functionality or whether that's print content. So you're absolutely right. We're serving more students. The students consume pretty much the same amount of content, but they're doing so at an increasingly lower price point.

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Todd Cranston Morgan, Jefferies LLC, Fixed Income Research - Analyst [32]

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Great. And then I don't know if -- just on Cengage Unlimited, if you could sort of talk a little bit about that now that you've lapped it. In terms of renewal rates, multicourse access, anything to be thought there, at least versus expectations? Or any comments about how embedded it's becoming?

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [33]

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Yes. And so let me talk about that and first make a comment. As you know, and all of you on the call know, essentially a student typically gets Cengage Unlimited, then goes through the course of their studies, first year, second year. So what we're not looking at is necessarily the renewal rate per student because the student gets out of the education cycle relatively quickly, but more the renewal rate on a per seat basis. So is that seat in accounting, is that staying? And we're seeing very high rates of renewal on a per seat basis as we would have expected. So we are seeing pretty much what we expected.

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Operator [34]

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Our next question is from the line of Sami Kassab with Exane.

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Sami Kassab, Exane BNP Paribas, Research Division - Media Research Director, Co-Head of the European Media Team & Analyst of Media [35]

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I have 3 of them, please. First, can you elaborate why the market would improve in your second half versus the minus 9%? You have put some points on the slide, but would you mind please going through that again? Secondly, can you comment on the impact that regulatory changes around development education is having on the business? And in particular, if you see an impact? Are we at the beginning or more towards the end of the headwinds from development courses [too]? And lastly, how many institutional deals do you have now? And how many would you think you could have 3 years from now? What's the kind of the trajectory with the institutional deals, please?

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [36]

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Yes. Thanks, Sami. Let me just clarify the second question you asked about the regulatory changes. Which ones are you referring to?

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Sami Kassab, Exane BNP Paribas, Research Division - Media Research Director, Co-Head of the European Media Team & Analyst of Media [37]

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The remedial courses, developmental education. It looks like Florida, California have passed legislation that suggest developmental classes are no longer compulsory and development education...

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [38]

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Oh, developmental. Yes. Got it. Yes. Yes. So I'll have Bob answer the first one around the revenue. You said sort of industry revenue. Just to be clear, we are projecting, based on what we're seeing in our own business, an improvement in the second half of the year, but we don't assume, I want to be very clear about that, that there is a turnaround in gross sales. So this is based on shifts, and Bob will explain that. And for the industry as a whole, just to be clear, we don't expect an improvement in terms of the overall trend lines on the revenue side. Bob, you want to comment on our own?

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [39]

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Yes. And let me sort of start with where we expect to get to. If I focus on the core higher education nonprofit business, we expect to end this year, once we're through the full academics of the cycle, with mid-single-digit declines against the market, which we expect to be down over 10%. And that will reflect the continued sort of adoption share gains which we previously referred to. If I sort of step back from that, we have -- the impact of the changing order patterns, the channel shift, as we've sort of said, is really pronounced. And when we look at how those expectations are unwinding, I mean -- and these are the really key points that give us confidence. We have seen, in October and November, the sales come through from inclusive access deals, from institutional deals, which I'll come back to in your other question, which flipped out of the first half. When we look at, sort of, returns and order patterns, they are tracking completely in line with our expectations, and again, which underpins our view that the assumptions and the expectations for that second half are going to flow through. And then we have these, sort of, further data points, and we think about -- I've spent a good bit of my time thinking about risk, what's going to undo me? And if I look as we do into the channel and look at inventory levels at our major, sort of, channel partners, Barnes & Noble, Follet, Amazon, the inventory levels are at their lowest level they've ever been, and we see very little risk left in inventory. So all of those factors point to, as this washes through, getting back to that minus, sort of -- or mid-single-digit decline.

Just, sort of, coming on to the institutional question. So we have, I think, somewhere between 400 to 500 institutional deals. That's across both inclusive access and Cengage Unlimited institutional. In the last quarter, we added, I think, around 50. It's an area of focus for us. I think we're going to continue, as we go through the key selling seasons, to drive that and look to add similar levels and potentially accelerate that growth.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [40]

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And let me add to that, Sami. I think nobody knows, I don't think anybody can give you a precise number. But if you look at the institutions, there are a number of institutions that are -- and an increasing number of institutions that are considering or implementing institutional deals. We don't believe that it's going to be the majority of the market in a steady state, but it's going to be a significant portion, 20%, 25% of the market that is going to embrace these institutional deals. And we are positioning ourselves as giving them the most choice. If they want an institutional deal, they can get an institutional deal. If they want to stay with individual adoptions, they can get the savings and the affordability through Cengage Unlimited. So we are well positioned to compete.

And then lastly, your second question around regulatory changes. We have not been a significant provider of developmental courses in the market. That fell to some of our competitors. And therefore, those regulatory changes, we actually -- we welcome those changes because I do think they make sense logically, not to force students into the developmental classes but rather make sure that they are college-ready when they get to college. But it doesn't have a significant negative effect on our performance.

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Operator [41]

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Our next question comes from the line of Mary Gilbert with Imperial Capital.

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Mary Ross Gilbert, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [42]

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Yes. I wanted to find out what the for-profit composition of revenues is? And also, when you talked about the decline in the first half and as we look at the decline for the year, so for the first half, what portion of the decline in Higher Ed is associated with for-profit? It sounded like it was a big piece or I misunderstood in the prepared remarks. So I just wanted to get a clarification on that.

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Bob Munro, Cengage Learning Holdings II, Inc. - CFO & Executive VP [43]

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Mary, it's Bob. No, it was -- there was a brief comment in my comments about this. So -- but actually, in the first half, our for-profit revenues were actually broadly flat. But for-profit is a very small component, sort of a bit over $50 million, and that's on an annualized basis. So what we have seen, and it's really a reflection of the areas of the market which we serve, we have seen a progressive stabilization of the for-profit sector over the past few years. It remains under pressure. Enrollment declines are sharpest in for-profit. But I think because of our relative exposure to that market, that's the principal driver why we're outperforming.

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Operator [44]

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Our next question is from the line of Ken Silver with KLS Diversified.

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Kenneth Silver, KLS Diversified Asset Management LP - Analyst [45]

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Just one quick question. You talked about winning -- increasing your share of adoption by 1.5% to 2%, which is not like that's helping you outperform the industry. But what about your Cengage -- your efforts with Cengage Unlimited and, to some extent, print rental winning share from the white space? Can you talk about that?

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [46]

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Yes. I think, Ken, both are true. We are winning competitive share from other providers, and we are recapturing white space, which is fairly easy. If you take the position of the student at the point where they go into the bookstore, and they will consider, do I need for this course -- what materials do I need? And they will consider all options that they have, including rental, including used, including new. But it is a very compelling proposition for them if they have the Unlimited subscription, essentially the incremental course is no additional cost to them. And therefore, we are getting back share in those courses also from the white space in those course areas.

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Kenneth Silver, KLS Diversified Asset Management LP - Analyst [47]

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And do you think you're winning back share from the white space at a faster rate than the other major publisher?

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [48]

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Look, I think everybody is -- I shouldn't say everybody, but most of the competitors are focused on winning share back from the white space. We believe that our proposition with Unlimited is extraordinarily compelling to do both, to win competitive share as well as white space share. I can't comment on how successful they are in winning white space, but we feel pretty confident that we are effectively competing with the white space. Now let me be clear. I don't think the white space is ever going to go away, meaning rental is going to be there, used books are going to be there. Students have choices, and you need to have a compelling offering, both from a quality but also from a price perspective, and we believe with Unlimited, in particular, we have that.

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Operator [49]

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The next question is from the line of Nick Dempsey from Barclays.

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Nicholas Michael Edward Dempsey, Barclays Bank PLC, Research Division - Research Analyst [50]

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I just squeeze one in more, please. You flagged increased cost savings clearly with your unchanged EBITDA less prepub outlook. Do you think that you're leaving room within your short-term plans to invest in new products for future growth?

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [51]

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Yes. Nick, thanks for the question. The short answer is yes. We are -- we believe that what we are doing is not really impeding our ability to invest, and we have -- our capital investment has been fairly consistent over the years. What we are doing is we are structurally taking the cost down, and I want to emphasize that, which is a logical consequence of the introduction of the subscription service. So let me give you an example. We used to approach the market from a go-to-market perspective with sales force that was specialized in certain disciplines. And therefore, in any given account, Bunker Hill Community College in Boston, we would have 2, maybe even 3 sales reps tackling that account. If you go in with a subscription service like Unlimited, you can essentially quicker shift to a single sales rep per account because your objective is to win more share in that account. So that is an example of how we're structurally lowering the cost while preserving our ability to invest in really the innovation in this business, to invest in new features and functionalities on the platforms, et cetera.

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Operator [52]

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The next question is from the line of Ben Briggs with INTL FCStone.

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Benjamin Briggs, INTL FCStone Markets, LLC - VP of Credit Analyst [53]

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The vast majority of mine already got answered. I would just say, if you can give any more color on the SG&A decreases that you have implemented and that you expect to continue, exactly where are those cost cuts coming from? And then that will be it for me.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [54]

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Okay. Ben, at the highest level, the SG&A cut, I want to emphasize again, are structural. So they are not significant temporary cost cuts that are coming back next year, such as bonus or commission programs for the sales force, et cetera. So they are structural. And as you can imagine, they are focused on our Higher Ed business in line with what I said about the simplification of the business model following the introduction of Cengage Unlimited. And in addition, we've also taken some costs out of the corporate center overhead, not customer-facing costs, as part of that restructuring. So we feel that this is very much in line with our thinking as we introduce the changes to our business model.

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Operator [55]

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We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

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Michael E. Hansen, Cengage Learning Holdings II, Inc. - CEO & Director [56]

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Yes. Thanks very much, and thanks, everybody, for participating, and we are looking forward to talking to you at the end of the next quarter and the end of the academic year. Thanks, everyone.

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Operator [57]

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Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.