BOSTON, May 7, 2020 /PRNewswire/ -- Learning company
Houghton Mifflin Harcourt ("HMH" or the "Company") (Nasdaq: HMHC)
today announced financial results for the three months ended
March 31, 2020. Nationwide
COVID-19-related school closings impacted first quarter net sales
and billings performance beginning in March as customers delayed
purchase decisions and were unable to receive shipments during the
initial phases of their pandemic response. HMH took several
proactive steps to support customers with virtual learning
resources and to help mitigate the adverse impact of COVID-19 on
its profitability and cash flow in 2020. These actions were
announced on March 26 and
March 27, respectively.
Q1 2020 Headlines:
- Net sales declined 2% to $190
million in the first quarter from the same period in the
prior year
- Billings1 declined 15% to $131 million in the first quarter from the same
period in the prior year
- Supplemented restructuring actions taken in late 2019 with
further measures designed to enhance profitability and
liquidity
- HMH has captured a leading win rate with adoption decisions
covering approximately 75% of the addressable Texas Literature
opportunity
- California Science adoption progressing, HMH has had a strong
sales performance in grades 6-12 Los Angeles Unified School
District Science opportunity
- Significant growth in digital platform usage with 314% increase
in student assignments over the last twelve months as schools
adjust to distance/remote learning environment
- Net cash used in operating activities improved by 11% in the
first quarter from the same period in the prior year
- Free cash flow2 usage improved by 12% in the first
quarter compared to the same period in the prior year
|
|
Three Months Ended
March 31,
|
|
(in millions of
dollars)
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Net sales
|
|
$
|
190
|
|
|
$
|
195
|
|
|
|
(2.4)
|
%
|
Change in deferred
revenue
|
|
|
(59)
|
|
|
|
(40)
|
|
|
|
(47.5)
|
%
|
Billings
1
|
|
|
131
|
|
|
|
155
|
|
|
|
(15.2)
|
%
|
Impairment charge for
goodwill
|
|
|
262
|
|
|
|
—
|
|
|
NM
|
|
Net loss
|
|
|
(346)
|
|
|
|
(117)
|
|
|
NM
|
|
Adjusted EBITDA
2
|
|
|
(17)
|
|
|
|
(27)
|
|
|
|
34.4
|
%
|
Pre-publication or
content development costs
|
|
|
(19)
|
|
|
|
(26)
|
|
|
|
27.6
|
%
|
Net cash used in
operating activities
|
|
|
(157)
|
|
|
|
(176)
|
|
|
|
11.0
|
%
|
Free cash flow
2
|
|
|
(187)
|
|
|
|
(212)
|
|
|
|
11.7
|
%
|
________________
1
|
An operating measure
which we derive from net sales taking into account the change in
deferred revenue.
|
2
|
Non-GAAP measure,
please refer to Use of Non-GAAP measures for an explanation and
reconciliation.
|
|
|
NM = not
meaningful
|
"While our billings for the first quarter began to see the
impact of the COVID-19 pandemic in mid-March as school closings
mounted, the work we have done in recent years has put us in a
solid position from a capital, liquidity and balance sheet
perspective," said Jack Lynch, Chief
Executive Officer of HMH. "Our performance to date in this year's
new adoptions has demonstrated that demand remains strong for
connected learning solutions that are effective, engaging and
equitable. We are leveraging our strong sales presence in
Texas, where our next-generation
grades 9-12 Literature solution is again leading the market."
Joe Abbott, Chief Financial
Officer of HMH added, "We managed our expenses with discipline and
had good bookings performance even as the economic shocks caused by
the pandemic began to be felt late in the quarter. As we stated in
March, the Company has instituted strong cost control measures to
help ensure HMH is in a position to generate positive free cash
flow at billings levels well below prior trough billings
levels."
Jack Lynch concluded, "As we move
into our busy selling season, we expect back-to-school to drive
meaningful demand. We believe that this pandemic will accelerate
the market move to a 1:1 student to device ratio, and drive deeper
investment in remote learning solutions. HMH is positioned to lead
this shift with a digital-first offering for connected teaching and
learning, affording a new opportunity to empower teachers and bring
together all members of the learning community."
First Quarter 2020 Financial Results:
Net Sales: HMH reported net sales of
$190 million for the first quarter of 2020, down 2% or
$5 million compared to $195 million in 2019. The net
sales decrease was driven by a $3 million decrease in our HMH
Books & Media segment, coupled with a $2 million
decrease in our Education segment. Within our HMH Books &
Media segment, the decrease in net sales was primarily due to 2019
licensing revenue attributed to the Carmen Sandiego series
on Netflix, which did not repeat in the first quarter of
2020 but is expected later in the year. Partially offsetting the
aforementioned were an increase in net sales of the Little Blue
Truck series and strong net sales of the frontlist titles
Chosen Ones and Maybe You Should Talk to Someone.
Within our Education segment, the decrease was due to lower net
sales in Extensions, which decreased by $16 million from
$102 million in 2019 to $86 million, due to lower sales
of the LLI Leveled Literacy and Calkins products due
to the economic slowdown, partially offset by stronger net sales
from Core Solutions which increased by $13 million from
$52 million in 2019 to $65 million. The primary driver of
the increase in Core Solutions net sales was the recognition of
revenue previously deferred.
Billings1: Billings for 2020
decreased $24 million, or 15%, from 2019. The billings
decrease was driven by a $23 million decrease in our Education
segment coupled with a $1 million decrease in our HMH
Books & Media segment. Within our Education segment,
the decrease was due to lower Extensions billings, which primarily
consist of our Heinemann brand, intervention and supplemental
products as well as professional services, which decreased by
$23 million. Core Solutions billings slightly increased due to
the Texas and national versions of
the Into Reading and Into Literature programs. The
HMH Books & Media billings decrease was primarily due to
2019 licensing revenue attributed to the Carmen Sandiego
series on Netflix.
Cost of Sales: Overall cost of sales
decreased by $10 million to $126 million in 2020 from
$136 million in 2019, primarily due to lower billings and a
decrease in pre-publication amortization expense related to the
timing of 2019 major product releases.
Selling and Administrative Costs: Selling and
administrative costs decreased by $19 million in 2020,
primarily due to decreases in labor costs savings associated with
the 2019 Restructuring Plan and lower variable costs due to lower
billings. Further, there were lower discretionary costs associated
with the travel and expense reduction measures.
Operating Loss: Operating loss for 2020 was
$338 million, a $236 million unfavorable change from the
$102 million operating loss recorded in 2019 primarily due to
an impairment charge for goodwill for the three months ended
March 31, 2020 of $262 million. This non-cash impairment is a
direct result of the adverse impact that the COVID-19 pandemic has
had on the market price of our Company's stock price and the stock
price of comparable companies in the marketplace. Partially
offsetting the unfavorable operating loss was a decrease in selling
and administrative expenses coupled with the lower cost of
sales.
Net Loss: Net loss of $346 million for
2020 was a $229 million unfavorable change from the net loss
of $117 million in 2019, due primarily to the same factors
impacting operating loss along with an increase in interest expense
of $5 million resulting from the debt
refinancing during the fourth quarter of 2019 and a favorable
change in income taxes of $15 million
due primarily to the book impairment on goodwill, which reduced the
related deferred tax liabilities during 2020.
Adjusted EBITDA: Adjusted EBITDA for 2020 was
a loss of $17 million, a $10 million favorable change
from $27 million in 2019, due primarily to the same factors
impacting operating loss, excluding the impairment charge for
goodwill.
Cash Flows and Liquidity: Net cash used in
operating activities for 2020 was $157 million compared with
$176 million in 2019. HMH's free cash flow, defined as net
cash from operating activities minus capital expenditures, for 2020
was a usage of $187 million, a $25
million improvement compared to a usage of $212 million
in 2019. The primary drivers of the favorable change in free cash
flow were an increase in net working capital driven by higher cash
collections and lower inventory purchases, along with reductions in
capital expenditures in 2020.
As of March 31, 2020, $150 million was drawn on the revolving credit
facility as a precautionary measure in order to increase the
Company's cash position and help maintain financial flexibility in
light of the current uncertainty resulting from the COVID-19
pandemic. We expect our net cash provided by operations
combined with our cash and cash equivalents and borrowing
availability under our revolving credit facility to provide
sufficient liquidity to fund our current obligations, capital
spending, debt service requirements and working capital
requirements over at least the next twelve months.
The ability of the Company to fund planned operations is based
on assumptions which involve significant judgment and estimates of
future revenues, capital spend and other operating costs. Our
current assumptions are that businesses will reopen for selling and
school districts will gradually resume purchasing during the second
quarter of 2020 and most or all will become fully operational,
either in-person or virtually, by the third quarter of 2020. We
have performed a sensitivity analysis on these assumptions to
forecast the impact of a slower-than-anticipated recovery and
believe we can take additional financial and operational actions to
mitigate the impact of lower billings than our current plans
assume.
Outlook: As disclosed in our March 27, 2020 press release, HMH withdrew its
2020 full-year financial guidance and 3-year outlook, issued in
conjunction with its fourth quarter 2019 earnings on February 27, 2020. This was due to
COVID-19-related school closings mandated by states and districts
nationwide and its impact on the Education business and
marketplace.
Conference Call:
At 8:30 a.m. ET on Thursday, May
7, 2020, HMH will host a conference call to discuss the results and
management's outlook with its investors. The call will be webcast
live at ir.hmhco.com. The following information is provided for
investors who would like to participate:
Toll Free: (844) 835-6565
International: (484) 653-6719
Passcode: 5578764
Moderator: Brian Shipman, Senior Vice President,
Investor Relations
Webcast Link:
https://edge.media-server.com/mmc/p/4apin6c5
An archived webcast with the accompanying slides will be
available at ir.hmhco.com for one year for those unable to
participate in the live event. An audio replay of this conference
call will also be available until May 16,
2020 via the following telephone numbers:
(855) 859-2056 in the United
States and (404) 537-3406 internationally using
passcode 5578764.
1 Education and HMH Books and Media segment billings
represent operating measure which we derive from net sales taking
into account the change in deferred revenue. Billings for Core
Solutions and Extensions is an operating measure based on invoiced
sales adjusted for returns, other publishing income and change in
deferred revenue.
Use of Non-GAAP Financial Measures:
To supplement our financial statements presented in accordance
with Generally Accepted Accounting Principles (GAAP) and to provide
additional insights into our performance (for a completed period
and/or on a forward-looking basis), we have presented adjusted
EBITDA and free cash flow. These measures are not prepared in
accordance with GAAP. This information should be considered as
supplemental in nature and should not be considered in isolation or
as a substitute for the related financial information prepared in
accordance with GAAP. Management believes that the presentation of
these non-GAAP measures provides useful information to investors
regarding our results of operations and/or our expected results of
operations because it assists both investors and management in
analyzing and benchmarking the performance and value of our
business.
Management believes that the presentation of adjusted EBITDA
provides useful information to our investors and management as an
indicator of our performance that is not affected by: fluctuations
in interest rates or effective tax rates; levels of depreciation or
amortization; non-cash charges; fees, expenses or charges relating
to acquisition-related activities, including purchase accounting
adjustments, integration costs and transaction costs, expenses
related to securities offering- and debt refinancing-activities;
charges associated with restructuring and cost saving initiatives,
including severance, separation and facility closure costs; certain
legal settlements and awards; and non-routine costs and gains.
Accordingly, management believes that this measure is useful for
comparing our performance from period to period and makes decisions
based on it. In addition, targets in adjusted EBITDA (further
adjusted to include the change in deferred revenue) are used as
performance measures to determine certain incentive compensation of
management. Management also believes that the presentation of free
cash flow provides useful information to our investors because
management regularly reviews these metrics as an important
indicator of how much cash is generated by general business
operations, excluding capital expenditures, and makes decisions
based on it.
Other companies may define these non-GAAP measures differently
and, as a result, our use of these non-GAAP measures may not be
directly comparable to adjusted EBITDA and free cash flow used by
other companies. Although we use these non-GAAP measures as
financial measures to assess our business, the use of non-GAAP
measures is limited as they include and/or do not include certain
items not included and/or included in the most directly comparable
GAAP measure. Adjusted EBITDA should be considered in addition to,
and not as a substitute for, net income or loss prepared in
accordance with GAAP as a measure of performance; and free cash
flow should be considered in addition to, and not as a substitute
for, net cash from operating activities prepared in accordance with
GAAP. Adjusted EBITDA is not intended to be a measure of liquidity
nor is free cash flow intended to be a measure of residual cash
flow available for discretionary use. You are cautioned not to
place undue reliance on these non-GAAP measures. A reconciliation
of these non-GAAP financial measures to the most directly
comparable GAAP financial measures (to the extent available without
unreasonable efforts in the case of forward-looking measures) and
related disclosure is provided in the appendix to this news
release.
About Houghton Mifflin Harcourt
Houghton Mifflin Harcourt
(Nasdaq: HMHC) is a learning company committed to delivering
connected solutions that engage learners, empower educators and
improve student outcomes. As a leading provider of K–12 core
curriculum, supplemental and intervention solutions, and
professional learning services, HMH partners with educators and
school districts to uncover solutions that unlock students'
potential and extend teachers' capabilities. HMH estimates that it
serves more than 50 million students and three million
educators in 150 countries, while its award-winning children's
books, novels, non-fiction, and reference titles are enjoyed by
readers throughout the world. For more information, visit
www.hmhco.com
Follow HMH on Twitter, Facebook and YouTube.
Contact
Investors
Brian S.
Shipman, CFA
SVP, Investor Relations
(212) 592-1177
brian.shipman@hmhco.com
Media
Bianca Olson
SVP, Corporate Affairs
(617) 351-3841
bianca.olson@hmhco.com
Forward-Looking Statements
The statements contained herein include forward-looking
statements, which involve risks and uncertainties. These
forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes,"
"estimates," "projects," "anticipates," "expects," "could,"
"intends," "may," "will," "should," "forecast," "intend," "plan,"
"potential," "project," "target" or, in each case, their negative,
or other variations or comparable terminology. Forward-looking
statements include all statements that are not statements of
historical facts. They include statements regarding our intentions,
beliefs or current expectations concerning, among other things, our
results of operations; financial condition; liquidity; prospects,
growth and strategies; the expected impact of the COVID-19
pandemic; our competitive strengths; the industry in which we
operate; the impact of new accounting guidance and tax laws;
expenses; effective tax rates; future liabilities; the outcome and
impact of pending or threatened litigation; decisions of our
customers; education expenditures; population growth; state
curriculum adoptions and purchasing cycles; the impact of
dispositions, acquisitions and other investments; the timing,
structure and expected impact of our operational efficiency and
cost-reduction initiatives and the estimated savings and amounts
expected to be incurred in connection therewith; and potential
business decisions. We derive many of our forward-looking
statements from our operating budgets and forecasts, which are
based upon many detailed assumptions. We caution that it is very
difficult to predict the impact of known factors, and, of course,
it is impossible for us to anticipate all factors that could affect
our actual results. All forward-looking statements are based upon
information available to us on the date of this report.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. We caution
you that forward-looking statements are not guarantees of future
performance and that actual results may differ materially from
those made in or suggested by the forward-looking statements
contained herein. In addition, even if actual results are
consistent with the forward-looking statements contained herein,
those results or developments may not be indicative of results or
developments in subsequent periods.
Important factors that could cause actual results to vary from
expectations include, but are not limited to: major disasters or
other external threats, such as COVID-19; the duration and severity
of the COVID-19 pandemic and its impact on the federal, state and
local economies and K-12 schools; changes in state and local
education funding and/or related programs, legislation and
procurement processes; changes in state academic standards;
industry cycles and trends; the rate and state of technological
change; state requirements related to digital instructional
materials; changes in product distribution channels and
concentration of retailer power; changes in our competitive
environment, including free and low cost open educational
resources; periods of operating and net losses; our ability to
enforce our intellectual property and proprietary rights; risks
based on information technology systems and potential breaches of
those systems; dependence on a small number of print and paper
vendors; third-party software and technology development; possible
defects in digital products; our ability to identify, complete, or
achieve the expected benefits of, acquisitions; our ability to
execute on our long-term growth strategy; increases in our
operating costs; exposure to litigation; contingent liabilities;
risks related to our indebtedness; future impairment charges;
changes in school district payment practices; a potential increase
in the portion of our sales coming from digital sales; risks
related to doing business abroad; changes in tax law or
interpretation; management and personnel changes; timing, higher
costs and unintended consequences of our operational efficiency and
cost-reduction initiatives, including our recently announced
workforce reduction; and other factors discussed in the "Risk
Factors" section of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2019 (and our subsequent filings
pursuant to the Securities Exchange Act of 1934, as amended). In
light of these risks, uncertainties and assumptions, the
forward-looking events described herein may not occur.
We undertake no obligation, and do not expect, to publicly
update or publicly revise any forward-looking statement, whether as
a result of new information, future events or otherwise, except as
required by law. All subsequent written and oral forward-looking
statements attributable to us or to persons acting on our behalf
are expressly qualified in their entirety by the cautionary
statements contained herein.
Houghton Mifflin
Harcourt Company
|
Consolidated
Balance Sheets
|
|
(in
thousands of dollars, except share information)
|
|
March
31,
2020
(Unaudited)
|
|
|
December 31,
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
254,665
|
|
|
$
|
296,353
|
|
Accounts receivable,
net
|
|
|
139,981
|
|
|
|
184,425
|
|
Inventories
|
|
|
265,364
|
|
|
|
213,059
|
|
Prepaid expenses and
other assets
|
|
|
22,032
|
|
|
|
19,257
|
|
Total current
assets
|
|
|
682,042
|
|
|
|
713,094
|
|
Property, plant, and
equipment, net
|
|
|
101,692
|
|
|
|
100,388
|
|
Pre-publication
costs, net
|
|
|
256,808
|
|
|
|
268,197
|
|
Royalty advances to
authors, net
|
|
|
41,761
|
|
|
|
44,743
|
|
Goodwill
|
|
|
454,977
|
|
|
|
716,977
|
|
Other intangible
assets, net
|
|
|
462,127
|
|
|
|
474,225
|
|
Operating lease
assets
|
|
|
135,087
|
|
|
|
132,247
|
|
Deferred income
taxes
|
|
|
2,520
|
|
|
|
2,520
|
|
Deferred
commissions
|
|
|
28,431
|
|
|
|
29,291
|
|
Other
assets
|
|
|
29,961
|
|
|
|
31,490
|
|
Total
assets
|
|
$
|
2,195,406
|
|
|
$
|
2,513,172
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Revolving credit
facility
|
|
$
|
150,000
|
|
|
$
|
—
|
|
Current portion of
long-term debt
|
|
|
19,000
|
|
|
|
19,000
|
|
Accounts
payable
|
|
|
73,217
|
|
|
|
52,128
|
|
Royalties
payable
|
|
|
40,796
|
|
|
|
72,985
|
|
Salaries, wages, and
commissions payable
|
|
|
14,250
|
|
|
|
54,938
|
|
Deferred
revenue
|
|
|
274,187
|
|
|
|
305,285
|
|
Interest
payable
|
|
|
3,814
|
|
|
|
3,826
|
|
Severance and other
charges
|
|
|
7,087
|
|
|
|
12,407
|
|
Accrued postretirement
benefits
|
|
|
1,571
|
|
|
|
1,571
|
|
Operating lease
liabilities
|
|
|
9,171
|
|
|
|
8,685
|
|
Other
liabilities
|
|
|
27,044
|
|
|
|
24,325
|
|
Total current
liabilities
|
|
|
620,137
|
|
|
|
555,150
|
|
Long-term debt, net
of discount and issuance costs
|
|
|
634,800
|
|
|
|
638,187
|
|
Operating lease
liabilities
|
|
|
137,676
|
|
|
|
134,994
|
|
Long-term deferred
revenue
|
|
|
514,390
|
|
|
|
542,821
|
|
Accrued pension
benefits
|
|
|
23,423
|
|
|
|
23,648
|
|
Accrued
postretirement benefits
|
|
|
14,228
|
|
|
|
15,113
|
|
Deferred income
taxes
|
|
|
21,743
|
|
|
|
30,871
|
|
Other
liabilities
|
|
|
5,049
|
|
|
|
6,028
|
|
Total
liabilities
|
|
|
1,971,446
|
|
|
|
1,946,812
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01
par value: 20,000,000 shares authorized; no
shares
issued and outstanding at March 31, 2020 and December 31,
2019
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01
par value: 380,000,000 shares authorized;
149,983,155 and 148,928,328
shares issued at March 31, 2020 and
December 31, 2019,
respectively; 125,406,121 and 124,351,294 shares
outstanding at March 31,
2020 and December 31, 2019, respectively
|
|
|
1,500
|
|
|
|
1,489
|
|
Treasury stock,
24,577,034 shares as of March 31, 2020 and December 31,
2019, respectively, at
cost
|
|
|
(518,030)
|
|
|
|
(518,030)
|
|
Capital in excess of
par value
|
|
|
4,910,171
|
|
|
|
4,906,165
|
|
Accumulated
deficit
|
|
|
(4,121,965)
|
|
|
|
(3,775,992)
|
|
Accumulated other
comprehensive loss
|
|
|
(47,716)
|
|
|
|
(47,272)
|
|
Total stockholders'
equity
|
|
|
223,960
|
|
|
|
566,360
|
|
Total liabilities and
stockholders' equity
|
|
$
|
2,195,406
|
|
|
$
|
2,513,172
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Operations
|
|
|
|
(Unaudited)
Three Months Ended
March 31,
|
|
(in thousands of
dollars, except share and per share data)
|
|
2020
|
|
|
2019
|
|
Net
sales
|
|
$
|
189,925
|
|
|
$
|
194,635
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
Cost of sales,
excluding publishing rights and pre-publication
Amortization
|
|
|
90,012
|
|
|
|
96,055
|
|
Publishing rights
amortization
|
|
|
5,825
|
|
|
|
7,605
|
|
Pre-publication
amortization
|
|
|
30,638
|
|
|
|
33,082
|
|
Cost of
sales
|
|
|
126,475
|
|
|
|
136,742
|
|
Selling and
administrative
|
|
|
133,353
|
|
|
|
151,983
|
|
Other intangible
asset amortization
|
|
|
6,273
|
|
|
|
6,524
|
|
Impairment charge for
goodwill
|
|
|
262,000
|
|
|
|
—
|
|
Restructuring/severance and other charges
|
|
|
—
|
|
|
|
1,221
|
|
Operating
loss
|
|
|
(338,176)
|
|
|
|
(101,835)
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
|
Retirement benefits
non-service income
|
|
|
61
|
|
|
|
42
|
|
Interest
expense
|
|
|
(16,783)
|
|
|
|
(11,582)
|
|
Interest
income
|
|
|
766
|
|
|
|
1,092
|
|
Change in fair value
of derivative instruments
|
|
|
(380)
|
|
|
|
(450)
|
|
Income from
transition services agreement
|
|
|
—
|
|
|
|
1,826
|
|
Loss before
taxes
|
|
|
(354,512)
|
|
|
|
(110,907)
|
|
Income tax (benefit)
expense
|
|
|
(8,539)
|
|
|
|
6,455
|
|
Net loss
|
|
$
|
(345,973)
|
|
|
$
|
(117,362)
|
|
Net loss per share
attributable to common stockholders
|
|
|
|
|
|
|
|
|
Basic and
diluted:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2.77)
|
|
|
$
|
(0.95)
|
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
124,688,974
|
|
|
|
123,798,641
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Cash Flows
|
|
|
|
(Unaudited)
Three Months Ended
March 31,
|
|
(in thousands of
dollars)
|
|
2020
|
|
|
2019
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(345,973)
|
|
|
$
|
(117,362)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation and
amortization expense
|
|
|
55,225
|
|
|
|
68,402
|
|
Amortization of
operating lease assets
|
|
|
3,632
|
|
|
|
3,501
|
|
Amortization of debt
discount and deferred financing costs
|
|
|
1,488
|
|
|
|
1,046
|
|
Deferred income
taxes
|
|
|
(9,128)
|
|
|
|
5,897
|
|
Stock-based
compensation expense
|
|
|
3,476
|
|
|
|
3,551
|
|
Impairment charge for
goodwill
|
|
|
262,000
|
|
|
|
—
|
|
Change in fair value
of derivative instruments
|
|
|
380
|
|
|
|
450
|
|
Changes in operating
assets and liabilities, net of acquisitions
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
44,444
|
|
|
|
20,482
|
|
Inventories
|
|
|
(52,305)
|
|
|
|
(77,715)
|
|
Other
assets
|
|
|
(1,680)
|
|
|
|
(6,272)
|
|
Accounts payable and
accrued expenses
|
|
|
(20,732)
|
|
|
|
787
|
|
Royalties payable and
author advances, net
|
|
|
(29,207)
|
|
|
|
(24,359)
|
|
Deferred
revenue
|
|
|
(59,529)
|
|
|
|
(39,870)
|
|
Interest
payable
|
|
|
(12)
|
|
|
|
241
|
|
Severance and other
charges
|
|
|
(5,320)
|
|
|
|
(59)
|
|
Accrued pension and
postretirement benefits
|
|
|
(1,108)
|
|
|
|
(1,212)
|
|
Operating lease
liabilities
|
|
|
(3,304)
|
|
|
|
(4,194)
|
|
Other
liabilities
|
|
|
886
|
|
|
|
(9,377)
|
|
Net cash used in
operating activities
|
|
|
(156,767)
|
|
|
|
(176,063)
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales
and maturities of short-term investments
|
|
|
—
|
|
|
|
40,000
|
|
Additions to
pre-publication costs
|
|
|
(18,751)
|
|
|
|
(25,898)
|
|
Additions to
property, plant, and equipment
|
|
|
(11,875)
|
|
|
|
(10,375)
|
|
Acquisition of
business, net of cash acquired
|
|
|
—
|
|
|
|
(5,447)
|
|
Net cash used in
investing activities
|
|
|
(30,626)
|
|
|
|
(1,720)
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
Proceeds under
revolving credit facility
|
|
|
150,000
|
|
|
|
—
|
|
Payments of long-term
debt
|
|
|
(4,750)
|
|
|
|
(2,000)
|
|
Tax withholding
payments related to net share settlements of restricted stock
units
|
|
|
(48)
|
|
|
|
(1,756)
|
|
Issuance of common
stock under employee stock purchase plan
|
|
|
503
|
|
|
|
505
|
|
Net collections under
transition services agreement
|
|
|
—
|
|
|
|
1,854
|
|
Net cash provided by
(used in) financing activities
|
|
|
145,705
|
|
|
|
(1,397)
|
|
Net decrease in cash
and cash equivalents
|
|
|
(41,688)
|
|
|
|
(179,180)
|
|
Cash and cash
equivalents at the beginning of the period
|
|
|
296,353
|
|
|
|
253,365
|
|
Cash and cash
equivalents at the end of the period
|
|
$
|
254,665
|
|
|
$
|
74,185
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations (Unaudited)
|
|
Adjusted
EBITDA
|
|
Consolidated
|
(in thousands of
dollars)
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(345,973)
|
|
|
$
|
(117,362)
|
|
Interest
expense
|
|
|
16,783
|
|
|
|
11,582
|
|
Interest
income
|
|
|
(766)
|
|
|
|
(1,092)
|
|
Provision (benefit)
for income taxes
|
|
|
(8,539)
|
|
|
|
6,455
|
|
Depreciation
expense
|
|
|
12,489
|
|
|
|
16,179
|
|
Amortization expense
– film asset
|
|
|
—
|
|
|
|
5,012
|
|
Amortization
expense
|
|
|
42,736
|
|
|
|
47,211
|
|
Non-cash charges –
goodwill impairment
|
|
|
262,000
|
|
|
|
—
|
|
Non-cash charges –
stock compensation
|
|
|
3,476
|
|
|
|
3,551
|
|
Non-cash charges –
loss on derivative instruments
|
|
|
380
|
|
|
|
450
|
|
Fees, expenses or
charges for equity offerings, debt or
acquisitions/dispositions
|
|
|
27
|
|
|
|
287
|
|
Restructuring/severance and other charges
|
|
|
—
|
|
|
|
1,221
|
|
Adjusted
EBITDA
|
|
$
|
(17,387)
|
|
|
$
|
(26,506)
|
|
|
|
|
Free Cash
Flow
|
|
Consolidated
|
(in thousands of
dollars)
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
Net cash used in
operating activities
|
|
$
|
(156,767)
|
|
|
$
|
(176,063)
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
(18,751)
|
|
|
|
(25,898)
|
|
Additions to
property, plant, and equipment
|
|
|
(11,875)
|
|
|
|
(10,375)
|
|
Free Cash
Flow
|
|
$
|
(187,393)
|
|
|
$
|
(212,336)
|
|
Houghton Mifflin
Harcourt Company
|
Calculation of
Billings (Unaudited)
|
|
Billings
(in thousands of dollars)
|
|
Consolidated
|
|
|
|
Three Months
Ended
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
189,925
|
|
|
$
|
194,635
|
|
Change in deferred
revenue
|
|
|
(58,529)
|
|
|
|
(39,681)
|
|
Billings
|
|
$
|
131,396
|
|
|
$
|
154,954
|
|
|
|
|
Education
|
|
|
|
|
Three Months
Ended
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
151,585
|
|
|
$
|
153,844
|
|
Change in deferred
revenue
|
|
|
(59,118)
|
|
|
|
(38,860)
|
|
Education
Billings
|
|
$
|
92,467
|
|
|
$
|
114,984
|
|
|
|
|
HMH
Books & Media
|
|
|
|
|
Three Months
Ended
March
31,
|
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
38,340
|
|
|
$
|
40,791
|
|
Change in deferred
revenue
|
|
|
589
|
|
|
|
(821)
|
|
HMH Books & Media
Billings
|
|
$
|
38,929
|
|
|
$
|
39,970
|
|
|
Billings is an
operating measure utilized by the Company derived as shown
above.
|
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SOURCE Houghton Mifflin Harcourt