BOSTON, Aug. 6, 2020 /PRNewswire/ -- Learning company
Houghton Mifflin Harcourt ("HMH" or the "Company") (Nasdaq: HMHC)
today announced financial results for the quarter ended
June 30, 2020. Nationwide
COVID-19-related school closings continued to impact second quarter
net sales and billings performance as customers remained focused on
transitioning to a remote learning environment. HMH continued to
support customers with virtual learning resources which helped
mitigate the impact of the COVID-19 pandemic on its profitability
and cash flow. The decisive cost and liquidity actions taken by HMH
resulted in dramatically reduced use of cash in the second quarter
and first half of 2020 compared to prior years.
Q2 2020 Headlines:
- Net sales declined 35% to $251
million in the second quarter, and declined 24% to
$441 million on a year-to-date
basis
- Billings1 declined 39% to $297 million in the second quarter, and declined
34% to $428 million on a year-to-date
basis
- HMH has further improved its leading win rate in the Texas
Literature adoption with virtually all decisions made
- Significant growth in digital platform usage with 486% increase
in student assignments over the last twelve months as schools
adjust to remote learning environment
- Strong growth of 127% in SaaS billings as digital
transformation accelerates
- Net cash used in operating activities improved by 64% in the
second quarter, and 29% on a year-to-date basis
- Free cash flow2 usage improved by 52% to
$(61) million in the second quarter,
and 27% to $(248) million on a
year-to-date basis. Additionally, HMH was free cash flow positive
in the month of June
- HMH repaid $50 million of
revolving credit facility borrowings in June, and an additional
$100 million in July – revolving
credit facility now fully repaid
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
(in millions of
dollars)
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
|
2020
|
|
|
2019
|
|
|
Change
|
|
Net sales
|
|
$
|
251
|
|
|
$
|
389
|
|
|
|
(35.4)
|
%
|
|
$
|
441
|
|
|
$
|
584
|
|
|
|
(24.4)
|
%
|
Change in deferred
revenue
|
|
|
45
|
|
|
|
100
|
|
|
|
(54.5)
|
%
|
|
|
(13)
|
|
|
|
60
|
|
|
NM
|
|
Billings
1
|
|
|
297
|
|
|
|
489
|
|
|
|
(39.3)
|
%
|
|
|
428
|
|
|
|
644
|
|
|
|
(33.5)
|
%
|
Impairment charge for
goodwill
|
|
|
—
|
|
|
|
—
|
|
|
NM
|
|
|
|
262
|
|
|
|
—
|
|
|
NM
|
|
Net loss
|
|
|
(38)
|
|
|
|
(41)
|
|
|
|
6.0
|
%
|
|
|
(384)
|
|
|
|
(158)
|
|
|
NM
|
|
Adjusted EBITDA
2
|
|
|
36
|
|
|
|
47
|
|
|
|
(24.1)
|
%
|
|
|
18
|
|
|
|
21
|
|
|
|
(11.1)
|
%
|
Pre-publication or
content development costs
|
|
|
(16)
|
|
|
|
(30)
|
|
|
|
45.8
|
%
|
|
|
(35)
|
|
|
|
(56)
|
|
|
|
37.3
|
%
|
Net cash used in
operating activities
|
|
|
(33)
|
|
|
|
(90)
|
|
|
|
63.8
|
%
|
|
|
(189)
|
|
|
|
(266)
|
|
|
|
28.8
|
%
|
Free cash flow
2
|
|
|
(61)
|
|
|
|
(128)
|
|
|
|
52.1
|
%
|
|
|
(248)
|
|
|
|
(340)
|
|
|
|
26.9
|
%
|
|
|
|
|
|
|
|
|
|
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 second quarter continued to see the
impact of the COVID-19 pandemic in April and early May, customer
demand increased through the latter half of the quarter, and we
experienced a more normal environment in the month of June," said
Jack Lynch, Chief Executive Officer
of HMH. "As we focus on the acceleration of our digital first,
connected strategy, we are partnering with and supporting customers
nationwide in this unique back to school season, whether in person,
fully remote or hybrid."
Joe Abbott, Chief Financial
Officer of HMH added, "We managed our expenses with discipline, and
as a result, were able to deliver adjusted EBITDA margins on par
with the prior year despite net sales and billings declines. Our
year to date performance and current liquidity position gave us the
confidence to fully repay our revolving credit facility in
July."
Jack Lynch concluded, "Districts
are investing in remote learning solutions, and our growth in SaaS
billings reflects the strength of our digital learning solutions.
HMH remains positioned to continue to lead this market shift with a
digital first offering for connected teaching and learning."
Second Quarter 2020 Financial Results:
Net Sales: HMH reported net sales of
$251 million for the second quarter of 2020, down 35% or
$138 million compared to $389 million in 2019. The net
sales decrease was driven by a $134 million decrease in our
Education segment, coupled with a $4 million decrease in our
HMH Books & Media segment. Within our Education segment,
the decrease was primarily due to lower net sales in Extensions,
which decreased $85 million from
$182 million in 2019 to $97 million, due to lower sales of the
Heinemann's LLI Leveled Literacy, Fountas & Pinnell
Classroom and Calkins products along with reduced
professional services due primarily to school closures resulting
from the COVID-19 pandemic. Further, there were lower net sales
from Core Solutions which decreased by $49 million from
$168 million in 2019 to $119 million, which was primarily
due to the smaller new adoption market opportunity in Texas ELA
along with school closures resulting from the COVID-19 pandemic.
Within our HMH Books & Media segment, the decrease in net
sales was primarily due to lower net sales of both Adult and
Young Reader's categories due to the
closure of bookstores during the COVID-19 crisis and the
corresponding delay in releases of new frontlist titles.
Billings1: Billings for 2020
decreased $192 million, or 39%, from 2019. The billings
decrease was driven by a $188 million decrease in our
Education segment coupled with a $4 million decrease in our
HMH Books & Media segment. Within our Education
segment, the decrease was primarily due to lower Core Solutions
billings which decreased $120 million
due to the smaller new adoption market opportunity in Texas ELA
along with school closures resulting from the COVID-19 pandemic.
Further, the Extensions billings decreased by $68 million due
to lower billings of the Heinemann's LLI Leveled Literacy,
Fountas & Pinnell Classroom and Calkins
products along with reduced professional services due primarily to
school closures resulting from the COVID-19 pandemic. HMH
Books & Media billings decrease was primarily due to lower
billings of both Adult and Young
Reader's categories due to the closure of bookstores during
the COVID-19 crisis and the corresponding delay in releases of new
frontlist titles.
Cost of Sales: Overall cost of sales
decreased by $72 million to $161 million in 2020 from
$233 million in 2019, primarily due to lower billings.
Selling and Administrative Costs: Selling and
administrative costs decreased by $69 million in 2020,
primarily due to decreases in labor costs associated with our
employee furlough initiative in response to the COVID-19 pandemic
and to a lesser extent the 2019 Restructuring Plan and a freeze on
hiring. Further, there was a decrease in variable expenses, such as
transportation and commissions due to lower billings and lower
discretionary costs related to travel, and expense reduction
measures.
Operating Loss: Operating loss for 2020 was
$22 million, an $8 million favorable change from the
$30 million operating loss recorded in 2019 primarily due to
the decrease in selling and administrative and restructuring
charges.
Net Loss: Net loss of $38 million for
2020 was a $3 million favorable
change from the net loss of $41
million in 2019, due primarily to the same factors impacting
operating loss along with an increase in interest expense of
$6 million resulting from the debt
refinancing during the fourth quarter of 2019 and a favorable
change in income taxes of $2 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
$36 million, a $11 million unfavorable change from
$47 million in 2019.
Six Months Ended June 30,
2020 Financial Results:
Net Sales: HMH reported net sales of
$441 million for the first six months of 2020, down 24% or
$143 million compared to $584 million in 2019. The net
sales decrease was driven by a $136 million decrease in our
Education segment, coupled with a $6
million decrease in our HMH Books & Media segment.
Within our Education segment, the decrease was primarily due to
lower net sales in Extensions, which decreased by $100 million
from $284 million in 2019 to $184 million, due to lower
sales of the Heinemann's LLI Leveled Literacy, Fountas &
Pinnell Classroom and Calkins products along with
reduced professional services due primarily to school closures
resulting from the COVID-19 pandemic. Further, there were lower net
sales from Core Solutions which decreased by $36 million from
$220 million in 2019 to $184 million primarily due to the
smaller new adoption market opportunity in Texas ELA along with
school closures resulting from the COVID-19 pandemic. 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 half 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.
Billings1: Billings for 2020
decreased $216 million, or 34%, from 2019. The billings
decrease was driven by a $211 million decrease in our
Education segment coupled with a $5 million decrease in our
HMH Books & Media segment. Within our Education
segment, the decrease was primarily due to lower Core Solutions
billings which decreased by $119
million due to the smaller new adoption market opportunity
in Texas ELA along with school closures resulting from the COVID-19
pandemic. Further, the Extensions billings decreased by
$92 million due to lower billings of the Heinemann's LLI
Leveled Literacy, Fountas & Pinnell Classroom and
Calkins products along with reduced professional services
due primarily to school closures resulting from the COVID-19
pandemic. The HMH Books & Media billings decrease was due
to 2019 licensing revenue attributed to the Carmen Sandiego
series on Netflix, which did not repeat in the first half of 2020
and lower billings of both Adult and Young
Reader's categories due to the closure of bookstores during
the COVID-19 crisis and the corresponding delay in releases of new
frontlist titles.
Cost of Sales: Overall cost of sales
decreased by $82 million to $287 million in 2020 from
$369 million in 2019, primarily due to lower billings and to a
lesser extent, lower amortization expense.
Selling and Administrative Costs: Selling and
administrative costs decreased by $88 million in 2020,
primarily due to decreases in labor costs associated with our
employee furlough initiative, which began in April and ceased at
the end of July, in response to the COVID-19 pandemic and to a
lesser extent the 2019 Restructuring Plan and a freeze on hiring.
Further, there was a decrease in variable expenses, such as
transportation and commissions due to lower billings and lower
discretionary costs related to travel, and expense reduction
measures.
Operating Loss: Operating loss for 2020 was
$360 million, a $228 million unfavorable change from the
$132 million operating loss recorded in 2019 primarily due to
an impairment charge for goodwill in the first quarter of 2020 of
$262 million. This non-cash
impairment was a direct result of the adverse impact that the
COVID-19 pandemic has had on the market price of our Company's
stock and the stock price of comparable companies in the
marketplace. Partially offsetting the unfavorable operating loss
was a decrease in selling and administrative expenses.
Net Loss: Net loss of $384 million for
2020 was a $226 million unfavorable change from the net loss
of $158 million in 2019, due primarily to the same factors
impacting operating loss along with an increase in interest expense
of $11 million resulting from the
debt refinancing during the fourth quarter of 2019 and a favorable
change in income taxes of $17 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
$18 million, a $3 million unfavorable change from
$21 million in 2019.
Cash Flows and Liquidity: Net cash used in
operating activities for 2020 was $189 million compared with
$266 million in 2019. HMH's free cash flow, defined as net
cash from operating activities minus capital expenditures, for 2020
was a usage of $248 million, a $92
million improvement compared to a usage of $340 million
in 2019. The primary drivers of the favorable change in net cash
used in operating activities and free cash flow were positive
working capital changes along with reductions in capital
expenditures in 2020.
As of June 30, 2020, $100 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 repaid the outstanding balance in July. As of
August 6, 2020, there were no amounts
outstanding under our revolving credit facility. We expect our net
cash from 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 continue to resume purchasing and most or all
will become operational, either in-person, fully remote or hybrid,
during 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.
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.
Conference Call:
At 9:30 a.m. ET on Thursday, August 6,
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: 2996723
Moderator: Brian Shipman, Senior Vice President,
Investor Relations
Webcast Link:
https://edge.media-server.com/mmc/p/vavbrppb
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 August 15,
2020 via the following telephone numbers:
(855) 859-2056 in the United
States and (404) 537-3406 internationally using
passcode 2996723.
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: the duration and
severity of the COVID-19 pandemic and its impact on the federal,
state and local economies and on K-12 schools, including
uncertainties regarding the format (in person, fully remote or
hybrid) and other safety procedures schools plan to follow when
they reopen in the fall; 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)
|
|
June
30, 2020 (Unaudited)
|
|
|
December 31, 2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
$
|
138,824
|
|
|
$
|
296,353
|
|
Accounts receivable,
net
|
|
|
273,168
|
|
|
|
184,425
|
|
Inventories
|
|
|
237,226
|
|
|
|
213,059
|
|
Prepaid expenses and
other assets
|
|
|
23,519
|
|
|
|
19,257
|
|
Total current
assets
|
|
|
672,737
|
|
|
|
713,094
|
|
Property, plant, and
equipment, net
|
|
|
100,925
|
|
|
|
100,388
|
|
Pre-publication
costs, net
|
|
|
239,208
|
|
|
|
268,197
|
|
Royalty advances to
authors, net
|
|
|
43,038
|
|
|
|
44,743
|
|
Goodwill
|
|
|
454,977
|
|
|
|
716,977
|
|
Other intangible
assets, net
|
|
|
451,146
|
|
|
|
474,225
|
|
Operating lease
assets
|
|
|
132,065
|
|
|
|
132,247
|
|
Deferred income
taxes
|
|
|
2,520
|
|
|
|
2,520
|
|
Deferred
commissions
|
|
|
31,027
|
|
|
|
29,291
|
|
Other
assets
|
|
|
38,727
|
|
|
|
31,490
|
|
Total
assets
|
|
$
|
2,166,370
|
|
|
$
|
2,513,172
|
|
Liabilities and
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
Revolving credit
facility
|
|
$
|
100,000
|
|
|
$
|
—
|
|
Current portion of
long-term debt
|
|
|
19,000
|
|
|
|
19,000
|
|
Accounts
payable
|
|
|
65,647
|
|
|
|
52,128
|
|
Royalties
payable
|
|
|
49,154
|
|
|
|
72,985
|
|
Salaries, wages, and
commissions payable
|
|
|
28,225
|
|
|
|
54,938
|
|
Deferred
revenue
|
|
|
277,827
|
|
|
|
305,285
|
|
Interest
payable
|
|
|
10,750
|
|
|
|
3,826
|
|
Severance and other
charges
|
|
|
4,090
|
|
|
|
12,407
|
|
Accrued postretirement
benefits
|
|
|
1,571
|
|
|
|
1,571
|
|
Operating lease
liabilities
|
|
|
9,231
|
|
|
|
8,685
|
|
Other
liabilities
|
|
|
27,876
|
|
|
|
24,325
|
|
Total current
liabilities
|
|
|
593,371
|
|
|
|
555,150
|
|
Long-term debt, net
of discount and issuance costs
|
|
|
631,427
|
|
|
|
638,187
|
|
Operating lease
liabilities
|
|
|
135,420
|
|
|
|
134,994
|
|
Long-term deferred
revenue
|
|
|
556,200
|
|
|
|
542,821
|
|
Accrued pension
benefits
|
|
|
23,229
|
|
|
|
23,648
|
|
Accrued
postretirement benefits
|
|
|
13,969
|
|
|
|
15,113
|
|
Deferred income
taxes
|
|
|
20,376
|
|
|
|
30,871
|
|
Other
liabilities
|
|
|
3,493
|
|
|
|
6,028
|
|
Total
liabilities
|
|
|
1,977,485
|
|
|
|
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 June 30, 2020 and December 31, 2019
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.01
par value: 380,000,000 shares authorized; 150,132,650 and 148,928,328 shares issued at
June 30, 2020 and December
31, 2019, respectively; 125,555,616 and 124,351,294
shares outstanding at June
30, 2020 and December 31, 2019, respectively
|
|
|
1,501
|
|
|
|
1,489
|
|
Treasury stock,
24,577,034 shares as of June 30, 2020 and December 31,
2019, respectively, at cost
|
|
|
(518,030)
|
|
|
|
(518,030)
|
|
Capital in excess of
par value
|
|
|
4,912,270
|
|
|
|
4,906,165
|
|
Accumulated
deficit
|
|
|
(4,160,133)
|
|
|
|
(3,775,992)
|
|
Accumulated other
comprehensive loss
|
|
|
(46,723)
|
|
|
|
(47,272)
|
|
Total stockholders'
equity
|
|
|
188,885
|
|
|
|
566,360
|
|
Total liabilities and
stockholders' equity
|
|
$
|
2,166,370
|
|
|
$
|
2,513,172
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Operations
|
|
|
|
(Unaudited) Three Months Ended June 30,
|
|
|
(Unaudited) Six Months Ended June 30,
|
|
(in thousands of
dollars, except share and per share data)
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net
sales
|
|
$
|
251,216
|
|
|
$
|
388,896
|
|
|
$
|
441,141
|
|
|
$
|
583,531
|
|
Costs and
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales,
excluding publishing rights and
pre-publication
amortization
|
|
|
124,360
|
|
|
|
190,831
|
|
|
|
214,372
|
|
|
|
286,886
|
|
Publishing rights
amortization
|
|
|
4,709
|
|
|
|
6,271
|
|
|
|
10,534
|
|
|
|
13,876
|
|
Pre-publication
amortization
|
|
|
31,758
|
|
|
|
35,739
|
|
|
|
62,396
|
|
|
|
68,821
|
|
Cost of
sales
|
|
|
160,827
|
|
|
|
232,841
|
|
|
|
287,302
|
|
|
|
369,583
|
|
Selling and
administrative
|
|
|
106,329
|
|
|
|
175,266
|
|
|
|
239,682
|
|
|
|
327,249
|
|
Other intangible
asset amortization
|
|
|
6,272
|
|
|
|
6,612
|
|
|
|
12,545
|
|
|
|
13,136
|
|
Impairment charge for
goodwill
|
|
|
—
|
|
|
|
—
|
|
|
|
262,000
|
|
|
|
—
|
|
Restructuring/severance and other charges
|
|
|
—
|
|
|
|
4,430
|
|
|
|
—
|
|
|
|
5,651
|
|
Operating
loss
|
|
|
(22,212)
|
|
|
|
(30,253)
|
|
|
|
(360,388)
|
|
|
|
(132,088)
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement benefits
non-service income
|
|
|
61
|
|
|
|
42
|
|
|
|
122
|
|
|
|
84
|
|
Interest
expense
|
|
|
(17,482)
|
|
|
|
(11,963)
|
|
|
|
(34,265)
|
|
|
|
(23,545)
|
|
Interest
income
|
|
|
75
|
|
|
|
97
|
|
|
|
841
|
|
|
|
1,189
|
|
Change in fair value
of derivative instruments
|
|
|
120
|
|
|
|
16
|
|
|
|
(260)
|
|
|
|
(434)
|
|
Income from
transition services agreement
|
|
|
—
|
|
|
|
1,851
|
|
|
|
—
|
|
|
|
3,677
|
|
Loss before
taxes
|
|
|
(39,438)
|
|
|
|
(40,210)
|
|
|
|
(393,950)
|
|
|
|
(151,117)
|
|
Income tax (benefit)
expense
|
|
|
(1,270)
|
|
|
|
403
|
|
|
|
(9,809)
|
|
|
|
6,858
|
|
Net loss
|
|
$
|
(38,168)
|
|
|
$
|
(40,613)
|
|
|
$
|
(384,141)
|
|
|
$
|
(157,975)
|
|
Net loss per share
attributable to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(0.30)
|
|
|
$
|
(0.33)
|
|
|
$
|
(3.07)
|
|
|
$
|
(1.27)
|
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted
|
|
|
125,458,566
|
|
|
|
124,147,961
|
|
|
|
125,073,770
|
|
|
|
123,974,266
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Cash Flows
|
|
|
|
(Unaudited) Six Months Ended June 30,
|
|
(in thousands of
dollars)
|
|
2020
|
|
|
2019
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(384,141)
|
|
|
$
|
(157,975)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
|
Depreciation and
amortization expense
|
|
|
111,081
|
|
|
|
135,649
|
|
Amortization and
impairments of operating lease assets
|
|
|
6,654
|
|
|
|
9,441
|
|
Amortization of debt
discount and deferred financing costs
|
|
|
2,990
|
|
|
|
2,090
|
|
Deferred income
taxes
|
|
|
(10,495)
|
|
|
|
5,741
|
|
Stock-based
compensation expense
|
|
|
5,639
|
|
|
|
7,259
|
|
Impairment charge for
goodwill
|
|
|
262,000
|
|
|
|
—
|
|
Change in fair value
of derivative instruments
|
|
|
260
|
|
|
|
434
|
|
Changes in operating
assets and liabilities, net of acquisitions
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(88,743)
|
|
|
|
(228,475)
|
|
Inventories
|
|
|
(24,167)
|
|
|
|
(83,561)
|
|
Other
assets
|
|
|
(16,019)
|
|
|
|
(15,568)
|
|
Accounts payable and
accrued expenses
|
|
|
(10,986)
|
|
|
|
22,495
|
|
Royalties payable and
author advances, net
|
|
|
(22,126)
|
|
|
|
(9,178)
|
|
Deferred
revenue
|
|
|
(14,079)
|
|
|
|
60,098
|
|
Interest
payable
|
|
|
6,924
|
|
|
|
348
|
|
Severance and other
charges
|
|
|
(8,317)
|
|
|
|
252
|
|
Accrued pension and
postretirement benefits
|
|
|
(1,561)
|
|
|
|
(1,325)
|
|
Operating lease
liabilities
|
|
|
(5,500)
|
|
|
|
(8,419)
|
|
Other
liabilities
|
|
|
1,310
|
|
|
|
(5,231)
|
|
Net cash used in
operating activities
|
|
|
(189,276)
|
|
|
|
(265,925)
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
Proceeds from sales
and maturities of short-term investments
|
|
|
—
|
|
|
|
50,000
|
|
Additions to
pre-publication costs
|
|
|
(34,850)
|
|
|
|
(55,591)
|
|
Additions to
property, plant, and equipment
|
|
|
(24,358)
|
|
|
|
(18,358)
|
|
Acquisition of
business, net of cash acquired
|
|
|
—
|
|
|
|
(5,447)
|
|
Net cash used in
investing activities
|
|
|
(59,208)
|
|
|
|
(29,396)
|
|
Cash flows from
financing activities
|
|
|
|
|
|
|
|
|
Borrowings under
revolving credit facility
|
|
|
150,000
|
|
|
|
60,000
|
|
Payments of revolving
credit facility
|
|
|
(50,000)
|
|
|
|
—
|
|
Payments of long-term
debt
|
|
|
(9,500)
|
|
|
|
(4,000)
|
|
Tax withholding
payments related to net share settlements of restricted stock
units
|
|
|
(48)
|
|
|
|
(1,929)
|
|
Issuance of common
stock under employee stock purchase plan
|
|
|
503
|
|
|
|
506
|
|
Net collections under
transition services agreement
|
|
|
—
|
|
|
|
2,493
|
|
Net cash provided by
financing activities
|
|
|
90,955
|
|
|
|
57,070
|
|
Net decrease in cash
and cash equivalents
|
|
|
(157,529)
|
|
|
|
(238,251)
|
|
Cash and cash
equivalents at beginning of the period
|
|
|
296,353
|
|
|
|
253,365
|
|
Cash and cash
equivalents at end of the period
|
|
$
|
138,824
|
|
|
$
|
15,114
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations (Unaudited)
|
Adjusted
EBITDA
|
|
Consolidated
|
(in thousands of
dollars)
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net loss
|
|
$
|
(38,168)
|
|
|
$
|
(40,613)
|
|
|
$
|
(384,141)
|
|
|
$
|
(157,975)
|
|
Interest
expense
|
|
|
17,482
|
|
|
|
11,963
|
|
|
|
34,265
|
|
|
|
23,545
|
|
Interest
income
|
|
|
(75)
|
|
|
|
(97)
|
|
|
|
(841)
|
|
|
|
(1,189)
|
|
Provision (benefit)
for income taxes
|
|
|
(1,270)
|
|
|
|
403
|
|
|
|
(9,809)
|
|
|
|
6,858
|
|
Depreciation
expense
|
|
|
12,961
|
|
|
|
16,865
|
|
|
|
25,450
|
|
|
|
33,044
|
|
Amortization expense
– film asset
|
|
|
156
|
|
|
|
1,760
|
|
|
|
156
|
|
|
|
6,772
|
|
Amortization
expense
|
|
|
42,739
|
|
|
|
48,622
|
|
|
|
85,475
|
|
|
|
95,833
|
|
Non-cash charges –
goodwill impairment
|
|
|
—
|
|
|
|
—
|
|
|
|
262,000
|
|
|
|
—
|
|
Non-cash charges –
stock compensation
|
|
|
2,163
|
|
|
|
3,708
|
|
|
|
5,639
|
|
|
|
7,259
|
|
Non-cash charges –
loss on derivative instruments
|
|
|
(120)
|
|
|
|
(16)
|
|
|
|
260
|
|
|
|
434
|
|
Fees, expenses or
charges for equity offerings, debt or acquisitions/dispositions
|
|
|
—
|
|
|
|
261
|
|
|
|
27
|
|
|
|
548
|
|
Restructuring/severance and other charges
|
|
|
—
|
|
|
|
4,430
|
|
|
|
—
|
|
|
|
5,651
|
|
Adjusted
EBITDA
|
|
$
|
35,868
|
|
|
$
|
47,286
|
|
|
$
|
18,481
|
|
|
$
|
20,780
|
|
|
Free Cash
Flow
|
|
Consolidated
|
(in thousands of
dollars)
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cash flows from
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in
operating activities
|
|
$
|
(32,509)
|
|
|
$
|
(89,862)
|
|
|
$
|
(189,276)
|
|
|
$
|
(265,925)
|
|
Cash flows from
investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to
pre-publication costs
|
|
|
(16,099)
|
|
|
|
(29,693)
|
|
|
|
(34,850)
|
|
|
|
(55,591)
|
|
Additions to
property, plant, and equipment
|
|
|
(12,483)
|
|
|
|
(7,983)
|
|
|
|
(24,358)
|
|
|
|
(18,358)
|
|
Free Cash
Flow
|
|
$
|
(61,091)
|
|
|
$
|
(127,538)
|
|
|
$
|
(248,484)
|
|
|
$
|
(339,874)
|
|
Houghton Mifflin
Harcourt Company
|
Calculation of
Billings (Unaudited)
|
|
Billings
(in thousands of dollars)
|
|
Consolidated
|
|
|
|
Three Months
Ended June
30,
|
|
|
Six Months
Ended June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
251,216
|
|
|
$
|
388,896
|
|
|
$
|
441,141
|
|
|
$
|
583,531
|
|
Change in deferred
revenue
|
|
|
45,450
|
|
|
|
99,968
|
|
|
|
(13,079)
|
|
|
|
60,287
|
|
Billings
|
|
$
|
296,666
|
|
|
$
|
488,864
|
|
|
$
|
428,062
|
|
|
$
|
643,818
|
|
|
Education
|
|
|
|
Three Months
Ended June
30,
|
|
|
Six Months
Ended June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
216,063
|
|
|
$
|
349,801
|
|
|
$
|
367,648
|
|
|
$
|
503,645
|
|
Change in deferred
revenue
|
|
|
45,966
|
|
|
|
99,976
|
|
|
|
(13,152)
|
|
|
|
61,116
|
|
Education
Billings
|
|
$
|
262,029
|
|
|
$
|
449,777
|
|
|
$
|
354,496
|
|
|
$
|
564,761
|
|
|
HMH
Books & Media
|
|
|
|
Three Months
Ended
June
30,
|
|
|
Six Months
Ended
June
30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
35,153
|
|
|
$
|
39,095
|
|
|
$
|
73,493
|
|
|
$
|
79,886
|
|
Change in deferred
revenue
|
|
|
(516)
|
|
|
|
(8)
|
|
|
|
73
|
|
|
|
(829)
|
|
HMH Books & Media
Billings
|
|
$
|
34,637
|
|
|
$
|
39,087
|
|
|
$
|
73,566
|
|
|
$
|
79,057
|
|
Billings is an operating measure utilized by the Company derived
as shown above.
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multimedia:http://www.prnewswire.com/news-releases/houghton-mifflin-harcourt-announces-second-quarter-2020-results-301107266.html
SOURCE Houghton Mifflin Harcourt