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Edited Transcript of JW.A earnings conference call or presentation 4-Mar-20 3:00pm GMT

Q3 2020 John Wiley & Sons Inc Earnings Call

HOBOKEN Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of John Wiley & Sons Inc earnings conference call or presentation Wednesday, March 4, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Campbell

John Wiley & Sons, Inc. - VP, IR

* Brian A. Napack

John Wiley & Sons, Inc. - President, CEO & Director

* John A. Kritzmacher

John Wiley & Sons, Inc. - Executive VP of Operations & CFO

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Conference Call Participants

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* Andrew Edward Crum

Stifel, Nicolaus & Company, Incorporated, Research Division - VP

* Daniel Joseph Moore

CJS Securities, Inc. - Director of Research

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Presentation

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Operator [1]

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Good morning, and welcome to the Wiley's Third Quarter Fiscal Year 2020 Earnings Call. As a reminder, this conference is being recorded.

At this time, I'd like to introduce Wiley's Vice President of Investor Relations, Brian Campbell. Please go ahead.

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Brian Campbell, John Wiley & Sons, Inc. - VP, IR [2]

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Good morning, and welcome to Wiley's Third Quarter Fiscal 2020 Earnings Update. A few reminders to start. First, the call is being recorded and may include forward-looking statements. You shouldn't rely on these statements as actual results may differ materially and are subject to factors discussed in our SEC filings. The company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances.

Second, Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. Non-GAAP measures, which generally exclude items that impact comparability, comprise the following: adjusted EPS, free cash flow less product development spending, adjusted operating income and margin, adjusted contribution to profit, adjusted EBITDA, results on a constant currency basis and results excluding the impact of acquisitions. These performance measures do not have standardized meanings prescribed by U.S. GAAP and therefore may not be comparable to the calculation of similar measures used by other companies. These should not be viewed as alternatives to measures under GAAP. Also note, we abbreviate constant currency as CC. Please see the reconciliation and explanations of all non-GAAP financial measures presented in the supplementary information included in our press release.

Important to note, all variances in this presentation exclude the impact of currency, unless otherwise noted. After the call, a copy of this presentation and a playback of the webcast will be available on our Investor Relations web page.

I'll now turn the call over to Brian Napack, Wiley's President and CEO.

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [3]

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Thanks, Brian. Good morning, everyone, and thanks for joining. Let me start off by underscoring the valuable role that our business plays in the global knowledge economy. At its core, Wiley powers 2 essential drivers of the economy: scientific research and career-focused education. Our research business is a critical enabler of scientific, technological and medical discoveries, and these drive innovation, growth and human advancement. Our education business helps people gain the specific skills and knowledge they need to succeed in their careers. It's an exciting time for the global research industry. R&D spending continues to rise as institutions, companies and even nations compete to achieve breakthroughs that will lead to improvements in the human condition and economic gain. This competition drives steady growth of the research output that we publish. It also drives the need to continually improve and accelerate the research process itself. New fields of study are forming and existing research methods are being improved. Wiley plays a critical role in this ecosystem as a leading publisher of validated research and as a provider of the platforms on which the research output is created, endorsed, shared and consumed.

In many ways, Wiley directly helps researchers succeed in their careers, while also helping universities to improve their standing and corporations to accelerate innovation.

In education, the world is focused on greatly increasing access while improving relevance, affordability and impact. The overarching goal worldwide is to solve critical skill gaps, such as the massive one between supply and demand for technology talent. Wiley is addressing these gaps by focusing on the highest demand disciplines and careers and by delivering courseware and training that helps students to gain the skills, the degrees and the career credentials that the world is demanding.

We have a long history of empowering education in university settings. And today, we are increasingly the education partner of choice for corporations seeking to onboard and upskill their talent. So just like with researchers, Wiley helps students and professionals and their employers to achieve and to succeed. Our Wiley colleagues worldwide are very proud of what we do, of the businesses we are building and of the role we play in advancing the knowledge economy.

Now I will talk about the quarter's results. First, please note that we'll be excluding the impact of currency when discussing our financial performance. Revenue and adjusted EBITDA for the quarter rose 4% and 7%, respectively. We continue to see favorable revenue and profit performance in Research and in Education Services. Downward revenue pressure in the Academic & Professional Learning segment eased this quarter, particularly in higher ed publishing, which realized marginal organic growth after sharp declines in the first 2 quarters.

Wiley continues to gain momentum in key areas of strategic focus. In Research, we are attracting more article submissions, growing publishing volume and driving the innovative publishing models that the world wants, including recent open science agreements with the U.K., Sweden and Finland.

In Academic & Professional, the shift of our publishing program toward high-demand disciplines and high-impact lower-cost digital courseware continued with our zyBooks and Alta offerings posting strong double-digit gains.

In Education Services, we are signing new university partnerships and growing our à la carte services revenue by nearly 80% year-to-date.

Our focused strategy is accelerated by the acquisition of mthree, which is addressing one of the biggest education opportunities in today's economy, namely the creation of job-ready tech talent. I'll go into more detail on mthree later.

Finally, we continue to improve operating efficiency across Wiley with steady progress against our stated business optimization goals.

Adjusted EPS grew 10%, driven through a mix of revenue growth and savings from business optimization. Free cash flow was favorable by $22 million year-to-date.

Before I talk about our segment results, I want to make a few comments regarding the coronavirus. As you would expect, we are closely monitoring this fast-moving situation. Our first priority, of course, is the health and well-being of our colleagues. Wiley maintains specific strategic response plans for challenges like this, and we have a dedicated global team actively managing this situation to ensure the health and safety of our colleagues around the world.

In addition, as a key player in the science ecosystem, we are also doing what we can to make sure scientists, health care professionals and policymakers have easy access to the research and data that they need to fight this fast-moving virus. In January, we launched multiple coronavirus-related websites on both the Wiley online library and Atypon's Literatum platform, including freely available journal articles and studies, book chapters and other important resources. Atypon is uniquely positioned to support this global effort, considering that it hosts over half the world's English language journals and generates billions of user sessions every year. The global scientific community is working together to solve this epidemic, and Wiley is doing its part.

From a business perspective, we don't currently expect this situation to have a material impact on our Q4 results nor on the full year outlook. It's too early to talk about any impact beyond that. While the economic slowdown, travel restrictions and the like could have an impact, Wiley is a digital company with 75% of our revenue generated by digital products built on digital workflows. We've only limited reliance on physical supply chains. Further, the Research and Education sectors tend to be countercyclical. Nonetheless, we will remain vigilant and currently expect minimal disruption to our business.

Now I'll talk about our business segments. Our Research business continued to perform well, with revenue up 3% and adjusted EBITDA up 8%. We saw strong double-digit growth, again, in Open Access publishing and subscriptions remain steady. Our Atypon platforms business grew 12% with strong renewal rates.

In the quarter, we signed 2 comprehensive read and publish agreements in Europe. Wiley and Jisc, a major U.K. consortium, announced a multiyear comprehensive agreement just this week, combining subscription with Open Access publishing. The size of the deal is on par with our Germany agreement last year or around $30 million, which is on par with the value we received under the previous subscription model. Wiley and Jisc have been collaborating on Open Access model since 2015, resulting in 25% of our U.K. content being published openly. I'll talk about our different publishing models in a bit.

Demand metrics continue to be robust with article submissions up 10% and online usage up 17%. For context, Wiley Online Library is averaging around 130 million full text downloads a quarter, showcasing the tremendous content consumption our journals generate.

Researchers around the world aim to publish with Wiley and access our millions of articles, and data shows we're gaining share. We are fully focused on publishing more and with greater efficiency. Academic societies continue to choose Wiley as their publishing partner. Net society wins for the calendar year 2020 are worth over $8 million annually, and our renewal rate is 92%.

In the quarter, we added the Journal of Clinical and Translational Medicine, which helps bridge laboratory discoveries with the diagnosis and treatment of human disease.

Revenue and adjusted EBITDA through the 9 months grew 3% and 6%, respectively. Year-to-date, Research made over -- made up over 51% of total Wiley revenue and generated a 34% EBITDA margin.

As noted, we've signed 3 new comprehensive publishing agreements with the consortia in the U.K., Sweden and Finland. This is very important for Wiley and for the future of this sector. To ensure clarity, let me provide a refresher on our 3 publishing models. They are subscription, open access and comprehensive. Subscription is our traditional pay-to-read model where research library subscribe to a bundle of Wiley journals for a flat fee. Subscription remains the dominant business model around the world and generates most of our research revenue. Performance remains steady.

Beyond the subscription model, there are 2 newer models that are growing in the marketplace. Open Access is the pay-to-publish model through which researchers submit an article for review and after acceptance, pay Wiley a fee to publish it. That article is then freely available to the public. Funding for this usually comes from either the researcher or from the group that funded the research.

Open Access continues to grow by strong double digits for Wiley, totaling 7% of our Research segment's revenue through 9 months.

Comprehensive is the innovative new model that blends subscription and Open Access. You'll recall that we first pioneered this model with Germany last year to great acclaim. Essentially, for a single fee, a nation or consortia can pay for full access to our journal portfolio and enable its researchers to publish their work under an Open Access arrangement. Like the subscription model, comprehensive deals are recurring revenue agreements with multiyear terms. These deals also allow for upside revenue growth based on how many articles we publish. Our business goal, of course, is to enhance our volume by being a great publisher and by meeting the needs of our customers. Today, this means supporting several complementary business models.

The comprehensive model is particularly popular in Europe. While quite varied in nature, all of these agreements position us for higher researcher satisfaction, higher market share and sustainable long-term economics. Wiley is a leader in this drive to open science and our reputation and growing share attest to this. Overall comprehensive models account for around 5% of our Research segment's revenue. As we always say, no one-size-fits-all, and we expect to see a mix of business models around the world for the foreseeable future.

Our Academic & Professional Learning segment saw improvement this quarter as book publishings -- as book publishing declines moderated. Revenue was up 2% to $178 million, but down 2% excluding zyBooks and Knewton acquisitions. Education Publishing rose 6% and Professional Learning declined 4%. Adjusted EBITDA for the quarter was down 9% to $48 million due to book publishing, revenue declines overall and investments in growth initiatives, including acquisitions.

Segment highlights include our higher ed business, achieving modest organic growth for this quarter, driven by higher digital book sales and stable print revenue, although some of that is due to timing. Our acquired courseware products, zyBooks and Alta, are up a combined 44% on a normalized basis, albeit off of a relatively small base.

Our new leadership team in Education Publishing continues to make great progress in executing its focused strategy to publish more great digital courseware in high-demand disciplines such as STEM and business, to deliver the digital products and pricing models that customers are calling for and importantly, to optimize its organizational effectiveness.

On the corporate side, we signed 30 corporate partners in the quarter for cross knowledge, adding to our base of over 400 partners. New clients include the Paris 2024 Olympic Committee, HSBC South Africa, International Flavors and Fragrances, Brazil Foods and Heineken Holdings. CrossKnowledge was awarded the #1 global ranking for corporate learning systems by prominent industry analyst, Craig Weiss. As shown in our core -- strong corporate signings this quarter, customers are responding.

Through 9 months, revenue and adjusted EBITDA are down 3% and 20%, reflecting the market-driven decline of the book business this year. Excluding the Knewton and zyBooks acquisitions, revenue was down 6%. For context, Academic & Professional Learning made up 37% of year-to-date Wiley revenue and generated a 25% adjusted EBITDA margin.

Higher education, which includes both content and courseware, makes up 13% of total Wiley revenue, but generates considerable investor inquiry. So I want to spend a few minutes on the current dynamics of this market in transition.

It's no secret that this side of the education market has experienced multiyear declines. Nonetheless, it is critical to know that high-quality content from top publishers like Wiley is predominantly not being replaced in universities around the world. Teachers are still assigning and students are still consuming our content. But instead of buying high-priced new printed books, students have been choosing less expensive digital formats and buying books rented or resold by others at lower price points. This substitution has resulted in reduced publisher revenue on units sold and the migration of revenue to resellers and renters.

Over the past couple of years, we've aggressively shifted our approach to gain more value from the great content that we publish. As noted, we are focused on growing disciplines like STEM and business, which require digital content for student success. We've acquired powerful digital courseware platforms to support these chosen disciplines. We've added pricing expertise, introduced new business models and ramped up piracy enforcement.

As we have consistently said, we don't know when growth will return to this market, but we do have strong evidence that when we provide high-impact digital courseware at a fair price, this market rewards you with sales and share. Our continued strong growth in zyBooks and Alta are a testament to that. ZyBooks, our computer science and STEM courseware, has received overwhelmingly positive feedback in recent student and professional surveys. We signed over 50 new zyBooks university accounts this semester, and we continued to generate strong double-digit growth in student uptake.

Wiley is actively meeting the needs of this evolving market. A market transition like this takes time and it takes focus, but the market clearly values our products, our approach, and it's beginning to work.

Education Services delivered another solid quarter, with revenue up 19% to $55 million or 10% organically. Note, this is the first full quarter with Learning House in the year-over-year comparison. Additionally, mthree contributes $5 million of revenue in its first month under Wiley. I'll talk more about mthree shortly.

Adjusted EBITDA rose again this quarter from $2 million loss in the year-ago period to a $1 million gain. We added 3 new university partners in the quarter. Greenville and Calvin for online program management and Southern New Hampshire University for teacher certification courses. We also discontinued one partnership as we continue to manage our portfolio for profitable growth. At quarter close, we had 66 OPM partners in total, with a solid pipeline of new opportunities in place. Student enrollments are up 9% year-over-year, driven by the implementation of new programs and partnerships. Note, spring enrollments have been trending lower than expected. We're following that closely.

We continue to see strong demand in à la carte service offerings that fill specific university needs. Revenue here was up over 120% to $7 million in the quarter. These services, which include student recruitment, academic design, marketing, student support more, represent 14% of OPM revenue year-to-date, up from 10% in the prior year.

While growth in full tuition share OPM has slowed, à la carte service revenue is growing at strong double-digit rates. Revenue through 9 months was up 51%. Excluding the impact of the Learning House and mthree acquisitions, organic revenue growth was 10%. Year-to-date, adjusted EBITDA was $9 million or 6% of revenue compared to a loss of $1 million in the prior year. We will continue to manage this business prudently to achieve and sustain profitable growth.

Through 9 months, Education Services made up 12% of Wiley revenue and generated a 6% adjusted EBITDA margin. In January, we acquired mthree. mthree is an innovator in the delivery of job-ready IT talent to the world's leading corporations. We'll start with the basics around -- about mthree and then discuss where it fits in our tech education growth strategy.

mthree specializes in the sourcing, training and placement of tech talent for leading corporations. We are calling this demand-side education, the preparation of talent directly for corporations, the demand side of the labor market.

Today, mthree has focused on the financial services sector with blue-chip clients that include Morgan Stanley, JPMorgan and Bank of America.

Essentially, mthree fills large-scale orders for tech talent. Let's say, a global banking client requires 50 cybersecurity specialists per year in Toronto or Bangalore. Under contract, mthree will recruit top students from good universities for these roles. They will put these trainees through a months-long training program that is customized for the specific client's needs. Once trained, these trainees are placed into a real job at a client location and then supported to ensure they succeed. The trainees start out as consultants employed by mthree before converting into full-time employees of the client typically after 2 years. mthree's recruitment is selective, with only 5% to 10% of their applicants accepted into the program. And its rigorous training and on-the-job support ensure very high success rates. Nearly 80% of trainees convert to full-time employment after 2 years with the client, and 80% of all mthree-trained employees are still with the end client today with stats going back to 2015.

As you can see, this model creates real value on all sides. The client gets top talent, specifically trained for their needs and their culture with no upfront investment and significantly reduced hiring risk. Essentially, the client has 2 years to assess the candidate for full-time employment. The trainee gets a top-notch job with a brand name employer, along with training in a high-demand digital skill area, all at no cost and no long-term obligation.

And Wiley gets a rapidly growing company with an attractive business model and material synergies with Wiley's other businesses in IT education.

Revenue for their fiscal year 2019 ending December 31 was over $50 million. The pipeline is robust for the next calendar year and very strong revenue growth is expected. Today, mthree is modestly EBITDA positive. As we ramp, we should see EBITDA margins in the mid-teens or better. The business with primary offices in London and New York is part of our Education Services segment, given the compatibility of what they do and the significant synergies with our existing education service businesses.

One of Wiley's core strategies is to leverage all that we do to close the IT skill gap. As we know, demand far exceeds supply for IT talent, especially in the U.S. and Europe. Without a doubt, this is a major hindrance to economic growth and a contributor to systemic underemployment. In the U.S. and U.K. combined, there are well over 1 million unfilled technology positions with annual computer science graduates making up just a fraction of that number. There's no sign of this problem abating.

Wiley is directly targeting this tech skill gap by aligning our education businesses to solve this big problem. Across Wiley, we are creating content and courseware, such as zyBooks and developing degree and credentialing programs that are targeting the critical tech skills that the economy is demanding. And we are doing so across both school and corporate settings, while exploiting the many synergies that exist across our units. Wiley has long been unique in our service of both university education, the supply side and corporate training, the demand side of education.

Now with mthree, we are literally bridging talent from school to employment. We are doing so by finding students, giving them the needed technology skill sets and placing them into real jobs with great employers where we are ensuring that they succeed. As we say at Wiley, in tech education, we're having an impact.

I'll now pass the call over to John to take you through our consolidated financials.

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John A. Kritzmacher, John Wiley & Sons, Inc. - Executive VP of Operations & CFO [4]

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Thank you, Brian. Third quarter revenue of $467 million was up 4% over prior year, driven by organic growth of 2% and combined revenue contributions of $11 million from our Knewton, zyBooks and mthree acquisitions. Solid revenue growth and profit improvement continued in Research and Education Services.

In Academic & Professional Learning, revenue performance improved over a challenging first half, largely due to an easing of downward pressure on Education Publishing revenue. In fact, as Brian noted earlier, our Higher Education business delivered modest organic revenue growth in the quarter.

GAAP EPS of $0.63 rose 3%, including a restructuring charge of $0.04, which reflected a combination of costs related to severance and facility closures. A lower effective tax rate of 21% and lower foreign exchange transaction losses offset higher interest expense. Adjusted EPS was up 10% to $0.68, driven by organic revenue growth and savings from business optimization, partly offset by investment in growth initiatives, including acquisitions.

Adjusted EBITDA rose 7% to $96 million, and our adjusted EBITDA margin for the quarter was 20%.

Revenue through 9 months was $1.36 billion, up 5% as reported and 1% organically, driven by growth in Research and Education Services. Academic & Professional Learning revenue to date was down 4% as reported and 8% organically due to declines in book publishing.

GAAP EPS for the 9 months declined by $0.33, driven by an unfavorable restructuring charge variance of $0.19, investment in growth and optimization initiatives and $7 million of higher interest expense related to increased outstanding debt.

Our effective tax rate was 20% through 9 months, down about 1.5% from the prior year. Adjusted EPS declined 9% to $1.74, while adjusted EBITDA was down 1% to $263 million. Adjusted EBITDA growth of 6% in Research and an improvement in Education Services of $10 million was offset by a 20% decline in Academic & Professional Learning, reflecting the market-driven decline in book publishing revenue and our investments in acquisitions and other growth initiatives.

Corporate expenses on an adjusted basis were lower by $8 million, mostly due to a decrease in employment and technology costs as well as an insurance recovery. Our consolidated adjusted EBITDA margin year-to-date was 19%. Note, Wiley's consolidated earnings performance through 3 quarters was in line with our expectations, and we are tracking well to our full year guidance.

Our cash flow from operations and free cash flow results were favorable to prior year by $37 million and $22 million, respectively. As a reminder, Wiley's cash flow is typically light through the first 9 months of the year, primarily due to the timing of cash collections for annual research journal subscriptions, which is heavily skewed toward December to April. We expect free cash flow for the year to be in line with expectations, up $60 million to $80 million over prior year to between $210 million and $230 million. CapEx for the 9 months was up $15 million to $84 million due to investment in tech-enabled products and services.

Our balance sheet continues to give us the flexibility and capacity to invest, acquire and return cash to shareholders. Our leverage ratio is currently at 1.8. Through 9 months, we spent a total of $201 million on acquisitions, including Knewton, zyBooks and mthree.

Our strong record of returning cash to shareholders continues with year-to-date share repurchases and dividends totaling $93 million, slightly above prior year. Our current dividend yield is over 3% and 1.1 million shares remain in the current authorization for repurchases.

And finally, a brief update on our outlook for the full year with just 1 quarter remaining. Based on our performance through 9 months as well as leading indicators for the remainder of the year, we are modestly raising EPS guidance, while reaffirming our outlook for revenue, EBITDA and free cash flow. Our updated outlook is based upon actual foreign exchange rates through 3 quarters and assumes that current foreign exchange rates carry through the fourth quarter. It also includes all acquisitions to date, including mthree, which itself will add about $20 million of revenue, while diluting adjusted EBITDA by $2 million and adjusted EPS by $0.07.

Note that foreign exchange rate movements adversely impacted our year-to-date revenue by $13 million and had only a modest impact on earnings. For the full year, we expect FX to be unfavorable to revenue by $17 million, EPS by $0.06, EBITDA by $5 million and free cash flow by $5 million.

Our current outlook now reflects the following: revenue reaffirmed at a range of $1.855 billion to $1.885 billion, adjusted EBITDA reaffirmed at $357 million to $372 million, adjusted EPS raised to a range of $2.45 to $2.55. The improvement is mainly due to a slower pace of investment than originally anticipated.

Free cash flow is reaffirmed at $210 million to $230 million. As a reminder, the [earnings dip] this year is primarily related to investments for growth, including acquisitions. Those investments include growing our research article volume, improving our journal publishing operations and launching new research or workflow tools in our Research business. They also include growing our high-impact courseware businesses and growing partnerships, programs and service offerings in Education Services.

I'll now pass the call back to Brian.

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [5]

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Thanks, John. As a reminder, we are focused on 5 strategic pillars across Wiley: one, we focus squarely on the disciplined skills and careers that the world demands; two, we deliver the content platforms and services that our customers need to achieve their goals; three, we enable our offerings with powerful technology that drives real outcomes; four, we ensure that everything we do has a compelling price value proposition; and five, we continually optimize for efficiency and effectiveness.

To recap, we saw good momentum again this quarter and our comprehensive client agreements driving open science and research, to our mthree acquisition closing the skill gap for tech talent, to our digital courseware momentum in higher education, to our ongoing success in signing new corporate university and society partnerships. Hence, Wiley is meeting the ever-increasing demands of the knowledge economy.

As always, I want to thank our Wiley colleagues for their great contributions to our ongoing success this quarter and throughout the year, and thank you all for joining us today.

With that as background, we welcome your comments and 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 Drew Crum of Stifel.

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Andrew Edward Crum, Stifel, Nicolaus & Company, Incorporated, Research Division - VP [2]

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Maybe a question on the guidance to start, John. The implied guidance for 4Q would imply a decline. You grew in the third quarter. Are there 1 or 2 factors that you're anticipating or baking into the guidance that's driving that year-on-year decline versus growth in fiscal 3Q? And I have a couple of other questions, but I'll wait for your response on that one.

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John A. Kritzmacher, John Wiley & Sons, Inc. - Executive VP of Operations & CFO [3]

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Drew, I would say that the difference is principally related to the timing of investment in the period, including the effects of the acquisition. So we've added in -- in this period, we've added mthree to our results for 1 quarter ago. So I would say that's principal influence, but it's more just a timing thing of expanding across the year.

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Andrew Edward Crum, Stifel, Nicolaus & Company, Incorporated, Research Division - VP [4]

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Got it. Okay. Okay. And then shifting gears to the Education Services business. Brian, I think you made a comment that you're seeing slowing enrollment trends for the spring semester. Could you expound upon that? And I know there is some attention given to the OPM model by some prominent politicians earlier in the year. Is that in any way changing the behavior of your university partners and what you're seeing in the market?

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [5]

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Yes, I'll answer the second question first. With regard to the environment, there continues to be a lot of discussion in the market about the future of the traditional OPM model. And the -- there were -- there was a letter that you're referring to from a couple of senators directed at the industry asking for information, which we've responded to, and we continue to be in dialogue with them. But no, there's no major impact that's happening at the client level. Everything that you would see in our performance is related to client-specific situations in the market that we participate and degrees where -- that we are servicing and providing.

So I think that from the perspective of the enrollment, such an important -- it's such an important indicator for this business. We follow it very closely. Obviously, it's something that we want to monitor, we want to manage. Our -- this business is basically -- the growth in the core OPM business basically comes from the development of new partnerships, the implementation of new programs and the enrollment of students. We've got a great lineup of new partnerships. We are building new programs, have a great pipeline of them, and we're trying to optimize our enrollment pipeline at all times. There was -- and so that's really what we're doing, and we're watching it very closely. There's no systemic or broad-based reason for the slight slowing, but we're just keeping our eye on it and driving it forward. It's our way of keeping focus on what really matters in this business.

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Andrew Edward Crum, Stifel, Nicolaus & Company, Incorporated, Research Division - VP [6]

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Okay, got it. And then just one more question, and I'll jump back into the queue. John, can you remind us what the puts and takes are on free cash flow for fiscal '20? And I guess, specifically, the fiscal 4Q, the guidance would imply, what looks to be one of the best performances for the business from a cash flow perspective over the last 10 years. Is that working capital related?

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John A. Kritzmacher, John Wiley & Sons, Inc. - Executive VP of Operations & CFO [7]

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So Drew, a couple of things. One is, I would say, it won't be our best cash flow performance over that long a period of time, but it will certainly be a stronger free cash flow performance. And a key contributor to that is actually the timing of working capital. You'll recall that we were delayed on journal subscription collections the last year at the end of the fiscal year, which has a big impact on our cash for the year overall. The fourth quarter is very strong around cash collections on journals as is the third to a degree. And so with that delay, we pushed about $35 million of research journal cash collections into this fiscal year, and then we expect to be back at our prior pace again at the end of the year. So that's the biggest driver in the year-over-year swing to that $210 million to $230 million range that we've been guiding to all year.

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Operator [8]

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(Operator Instructions)

Our next question comes from Daniel Moore of CJS Securities.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [9]

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I wanted to start with mthree. And Brian, I appreciate that overview in detail. I think I heard you say they're modestly EBITDA positive today, is that correct, first? Second, maybe just elaborate on the revenue model? And what does the margin profile of a student look like over that sort of 2 year, I'm calling it internship program, but the period where they're employed by mthree? And a quick follow-up or 2 there.

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [10]

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Yes. So I'll be a little bit more clear about the revenue model, and John can comment on the margin profile. So the way this business works is the students are recruited out of school, they become mthree employees through the training period and then convert to full-time employees of the client. During that period of time, we are charging for basically every day of that period a full -- the full equivalent of what that client would be paying to a new employee anyway. We are -- mthree will compensate the students, now called trainees, for every day, right? They're employees, so they're making money, but there's a delta between the amount that mthree is charging these people out to the client and the amount that the trainee is being paid. So that's how the business model works. And that's throughout the entire period, even when they are being trained. So effectively, we're paying for their education. And we are earning money on the -- and their support, and we're earning money on the difference between what the employer is paying and what we are paying the trainee.

And from a margin perspective, the answer is yes, it is EBITDA -- It is slightly EBITDA positive now. It's a very attractive economic model. And as we said earlier, we expect it to migrate into the very attractive margins. John, do you want to comment further on it?

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John A. Kritzmacher, John Wiley & Sons, Inc. - Executive VP of Operations & CFO [11]

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Yes, let me just elaborate a bit more. So as commented earlier, we expect really strong revenue growth out of mthree. We're anticipating very strong double-digit revenue growth in the business, looking into fiscal year '21. The business is currently modestly EBITDA positive as Brian noted, and we're expecting that mthree will be EBITDA positive in mid-single-digit rates in fiscal year '21. And from an EPS perspective, I noted that mthree will be dilutive to our earnings this year by about $0.07 for 4 months in the business. Next year, the dilution should be on the order of $0.10 from the business. So EBITDA positive and making its way to be accretive to earnings in the following fiscal year.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [12]

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Read my mind and the follow-up is perfect. So I will switch gears and maybe just talk a little bit about -- forgive me if I'm butchering the pronunciation. But the agreement in the U.K. with Jisc. And I know you said, Brian, that it would be essentially comparable from a value perspective at $30 million. Maybe just talk about any margin impact and similarities or dissimilarities relative to the agreement in Germany as far as kind of upside and leverage to volume publication over time?

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [13]

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Yes. So each of these deals is a little bit different because the funding sources are different, the nature of the tastes of the consortia are different and so forth. But they all have certain things in common, such as the blend between what we would have called subscription revenues and what we would have called Open Access revenues.

From a comparative perspective, the deal will be public in 30 days. So we're not going to comment on the very specific nature of it. But this one, just like the German deal and just like all of our deals, are fundamentally volume based, meaning that the PxQ equation holds. The more we publish, the more we make. And so we -- those are the dynamics of these that we like. And so we expect that over time to inure to our benefit as our share continues to increase in the marketplace.

From a margin perspective, we view these deals, as in the long run, roughly equivalent to the business that we have. And we are continuing to evolve in that direction, and we believe that there are sustainable -- that these businesses -- that the business becomes sustainable, but now has the overall enhanced characteristic of being able to grow based upon the share that we're gaining. So that's the way we're thinking about them.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [14]

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Very helpful.

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [15]

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And the way we think about this deal.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [16]

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And in the short run, no material change for fiscal '21 from a financial perspective?

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [17]

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No. The market is evolving according to our expectations. There's nothing unusual about this. It's a slow transition. As you can see, as you know, the Open Access (inaudible) our businesses are significantly less than 10% still of business. We will continue to see it evolve. And it's all in line with our expectations. We're very calm and comfortable with it.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [18]

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Very good. Well, I'll sneak one more in. Just switching gears to the print text. The decline is moderate...

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [19]

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I just will say that -- I will say that it is notable that our -- not to pat ourselves on the back, but our leadership in this area has resulted in healthy and positive discussions all around the world. And I think it is being -- it is coming through in our article submissions, which are significantly above market at this point in time. People are choosing to work with Wiley, and that's a very positive effect. And that, we believe, in the long-term sustainable economics of this with growth on top of it leads us to have a lot of confidence in the future of the Research business and gives us confidence in the investments we're making there for growth.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [20]

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Perfect. Fair and noteworthy point. Last question, on the print text declines moderating this quarter, it seems like we've seen this in the last couple of years, kind of a big drop at the beginning of the academic year, followed by some moderation. Is that -- is it sort of the new norm of how universities are purchasing being more conservative upfront? Or is it just more of an anomaly than a pattern?

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [21]

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Well, what I would say is it is first and foremost in this discussion, we're not saying that we completely understand where this market is going to go in the long run from a volume -- revenue volume perspective. As from my comments, we believe in the unit -- there is the unit consumption as indicated, and we are repatriating those units on a regular basis, sometimes at a lower price. But as you heard in my comments over time, we sort of like that transition because we get significantly more sell-through. And even at lower unit costs, the sell-through, which for zyBooks might be 90-plus percent, lines up with us in a better revenue and a better profit perspective, but we're not calling bottom, right? That's just not -- we don't know. The print revenues are -- continue to be a bit unpredictable. There have certainly been a number of things from an amount of inventory and market perspective and movements there. I think we are -- and there have been changes in the cycles, which universities -- it's not universities, but which bookstores and the channels buy inventory and how they're thinking about returning them. All of those are -- that we've identified are anomalous trends. Certain large distributors seeking to reduce their working capital in one period or seeking to stock up in a different period or better match supply and demand, they're all trying to figure out this market as well. So no, nothing that I would consider predictable or endemic to the marketplace, with the exception of when we move to digital revenue, the purchase tends to be a little bit later, but there are no returns. And we like that. So what we've seen, over time, a little bit of slippage from, say, August to September or from December to January because, of course, digital revenues don't require a sell-in (inaudible) when they happen. So I think that's the best I can say on that at this point in time.

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Operator [22]

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There are no further questions. I'd like to turn the call back over to Brian Napack for any closing remarks.

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Brian A. Napack, John Wiley & Sons, Inc. - President, CEO & Director [23]

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All right. Thanks, everyone, for joining us on the call today. We look forward to giving you our fourth quarter results and full year results in June. Thanks, again.

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John A. Kritzmacher, John Wiley & Sons, Inc. - Executive VP of Operations & CFO [24]

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Thank you.

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Operator [25]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.