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Houghton Mifflin Harcourt solidified as a ‘leader in learning technology in K-12’ amid the pandemic: CEO

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Jack Lynch, Houghton Mifflin Harcourt CEO, joins Yahoo Finance’s Alexis Christoforous to discuss the impact of the pandemic on education and the future of Edtech.

Video Transcript

ALEXIS CHRISTOFOROUS: The latest stimulus package making its way through Congress right now does include some badly needed funding for our country's schools, as more and more of them look to reopen as we come out the other side of the pandemic. Here to talk about that is Jack Lynch. He is CEO of Houghton Mifflin Harcourt.

And Jack, good to see you. I was going over your latest earnings results, which were released a couple of weeks ago. And for all of 2020, revenue topped a billion dollars. Talk to us about what drove that as schools had to quickly pivot and go digital during the pandemic.

JACK LYNCH: Yeah, thank you, Alexis. We had great momentum through the year as the pandemic was really a forcing mechanism to move to digital. You can understand that all the teachers about a year ago went home to teach from their kitchen tables, and the students went home to learn from their homes. And the way to do that was through the internet and through computing devices.

And so we saw great growth in our SaaS base billings of 142%. We saw great growth in our platform of about 300%. And it really solidified our position as a leader in learning technology in K-12 and I think will forever change the landscape of teaching and learning, even post-pandemic.

ALEXIS CHRISTOFOROUS: Talk to me more about that. I mean, I even see with my own kids, and I have them aged 10 all the way through college. But I don't see a lot of paper and pencils anymore. Everything seems to be digital even when they are going into school. Are the days of using materials like textbooks, physical textbooks quickly fading?

JACK LYNCH: Yeah, I think what you're seeing is tremendous demand for digital solutions. It was a necessity in a remote environment. And I think what you have are teachers that are far more fluent in the use of technology than they were a year ago. Many more kids have access to computers and the internet than they did a year ago. And so, the conditions are very favorable for continued growth and demand for digital solutions.

And I think if you were to compare the use of printed materials versus digital, the most significant apart from greater engagement and personalization is that a book is not going to give you data on student learning, whereas a digital platform is instrumented to provide insight to teachers on what students know and what they're ready to learn. And so you're going to see greater and greater demand for digital solutions.

Once we return to the classroom, it's really going to be kind of a merger between the social gathering where kids learn from full class instruction, group instruction, pairing and sharing, project-based learning, but a classroom that will be infused by technology to help extend the teacher to personalized learning for students.

ALEXIS CHRISTOFOROUS: While I was going through your latest results, I saw that you reported a loss of a little more than $83 million in the fourth quarter. What drove that loss? And when do you see things being able to turn around there?

JACK LYNCH: Yeah, it's really a paper loss. I mean, we are a-- we manage the business as a cash business. So it's cash billings, as well as free cash flow. And we had positive free cash flow. And we really set the business up for generating significant free cash flow this year and growth in billing. So it was really a gap reported paper loss, and really, the business showed positive free cash flow over the course of the year.

ALEXIS CHRISTOFOROUS: What are you hearing from schools across the country from your client base about next fall, as we all look forward to hopefully much more of the country then being vaccinated and that school can look a lot more normal for millions and millions of kids? Are the schools going to be ready, do you think? What are you hearing?

JACK LYNCH: Yeah, I think there is a big focus on back to school next year and being back in the classroom, beginning this year. So that's number one. But I think the biggest issue the educators are confronting right now is learning loss. Remote learning has had a consequence, and that is-- there was a report by McKinsey, a recent report, that showed between five to nine months of learning loss per student on average, and best case, half a year of learning loss, exiting this year.

So what we're going to need to do is, through summer school and remedial education and intervention programs, is really help kids catch up going into next year. And so, I think that's the biggest focus for educators. The good news for us is we have the number one rated research-proven intervention programs in the country. And we are in a position to help educators help those students catch up.

ALEXIS CHRISTOFOROUS: Can you give me an idea of how many new clients, new schools, you had join your digital platforms during this time? And is there indication that they're going to stick with you, even when they're back in the classroom? So basically, I'm talking about sort of client retention.

JACK LYNCH: Yeah, we have-- we are the largest learning technology company in the country. So we serve 90% of the schools and 90% of the students and 90% of the teachers. So when we measure growth, it's not so much an additional penetration. It's really growth in wallet share that we are cross-selling our core curriculum programs to our supplemental programs to our intervention programs. And as a result, we are capturing a greater percentage of the student spend per year for instructional materials. So that's kind of the way in which we measure growth. And we feel good about that growth.

ALEXIS CHRISTOFOROUS: All right, Jack Lynch of Houghton Mifflin Harcourt, thank you so much for being with us. Best of luck.