Houghton Mifflin Harcourt Announces Third Quarter 2017 Results

11/02/2017

Reports net sales of $532 million and billings of $584 million
Reaffirms full-year 2017 net sales and billings outlook

BOSTON, Nov. 2, 2017 /PRNewswire/ -- Global learning company Houghton Mifflin Harcourt ("HMH" or the "Company") (NASDAQ: HMHC) today announced its financial results for the third quarter ended September 30, 2017.

Houghton Mifflin Harcourt Logo (PRNewsFoto/Houghton Mifflin Harcourt)

 


Financial Highlights:



Three Months Ended September 30,


Nine Months Ended September 30,

(in millions of dollars)

2017


2016


Change


2017


2016


Change

Net sales

$     532


$     533


(0.2)%


$ 1,147


$ 1,131


1.4 %

Billings

584


620


(5.9)%


1,163


1,201


(3.1)%

Net income (loss)

91


90


0.5 %


(77)


(104)


25.6 %

Adjusted EBITDA

165


168


(1.8)%


214


203


5.7 %

Pre-publication or content development costs

(31)


(29)


6.7 %


(89)


(95)


(6.3)%

Net cash provided by operating activities

178


178


0.1 %


38


9


304.6 %

Free cash flow

132


115


15.7 %


(92)


(176)


47.9 %

 

"We had a productive third quarter as we continued to prepare for the large adoption opportunities beginning in 2018 and beyond," said Jack Lynch, Chief Executive Officer of HMH. "We are focused on executing against our long-term strategy, and we remain confident this strategy will drive continued market leadership and create value for our customers and our shareholders."

Joe Abbott, Chief Financial Officer of HMH added, "We remain on track to deliver net sales and billings consistent with the guidance for full-year 2017 we issued at the start of the year despite contraction in the open territory market in the third quarter. We also continue to make progress on our operating efficiency initiatives, positioning HMH as a leaner, more efficient company going forward."

Third Quarter 2017 Financial Results:

Net Sales: Net Sales for the third quarter were $532 million, down 0.2% or $1 million, year over year. The net sales decrease was driven by a $6 million decrease in our Education segment, partially offset by a $5 million increase in our Trade Publishing segment. Within our Education segment, which includes our Basal business and our Extension businesses, the decline in year over year net sales was attributable to our Basal business, inclusive of international sales, which declined by $6 million from $301 million in 2016 to $295 million. The primary drivers of the decrease in our Basal business were lower net sales of Basal math and English Language Arts programs across adoption and open territory states. Our Extension businesses, which primarily consist of Heinemann, intervention, supplemental and assessment products as well as professional services, had net sales for the quarter of $186 million which were flat compared to 2016. There were higher Heinemann and supplemental net sales during the third quarter of 2017 primarily related to our Classroom Libraries offering along with the introduction of our Fountas & Pinnell Classroom product and sales of custom book bundles. Within our Extension businesses, lower net sales of intervention offset a portion of the above increases. Largely offsetting the net sales decrease in our Education segment was a $5 million increase in our Trade Publishing segment. Within our Trade Publishing segment, which includes our Trade business, the increase was primarily due to sales of frontlist and backlist print titles such as The Polar Express, Little Blue Truck series, and It Takes Two and strong eBook sales, such as The Handmaid's Tale.

Billings: Billings for the third quarter of 2017 were $584 million, down 6% or $36 million compared with $620 million for the same period in 2016. The decrease was driven by a $41 million decrease in our Education segment billings, slightly offset by a $5 million increase in our Trade Publishing segment billings. Within our Education segment, the decline in year over year billings was attributable to our Basal business, inclusive of international sales, which declined by $27 million from $338 million in 2016 to $311 million. The primary drivers of the decrease in our Basal business billings were lower Basal math and English Language Arts program billings across open territory states. Additionally, billings in our Extension businesses decreased $14 million from $236 million in 2016 to $222 million primarily driven by lower billings of intervention and professional services. The decline in our Extension businesses billings was partially offset by higher Heinemann billings primarily related to our Classroom Libraries offering along with the introduction of our Fountas & Pinnell Classroom product, and supplemental billings related to custom book bundles. Further, slightly offsetting the billings decrease in our Education segment was a $5 million increase in our Trade Publishing segment billings. Within our Trade Publishing segment the increase was primarily due the same factors impacting net sales for this segment

Cost of Sales: Overall cost of sales decreased slightly to $254 million in the third quarter of 2017 from $255 million in the same period of 2016, primarily due to a $4 million reduction in amortization expense related to publishing rights and pre-publication assets. Our cost of sales, excluding publishing rights and pre-publication amortization, increased $4 million, as our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of net sales increased to 39.4% from 38.7% due to a product mix carrying higher costs.

Selling and Administrative Costs: Selling and administrative costs decreased by $7 million, primarily due to a reduction in internal and outside labor related costs of $5 million and a decrease in discretionary expenses, such as promotions, advertising, travel and entertainment, of $4 million, all due to actions taken under the 2017 Restructuring Plan. Additionally, variable expense such as samples, transportation and depository fees were $4 million lower in the current period. The decrease was partially offset by $8 million of higher commission expense and incentive compensation due to greater achievement to targeted levels than in the prior year period.

Operating Income: Operating income for the third quarter of 2017 was $90 million, $7 million higher than the $83 million operating income recorded in the same period of 2016 primarily due to the aforementioned changes in selling and administrative costs.

Net Income: Net income of $91 million in the third quarter of 2017 was slightly higher compared to a net income of $90 million in the same quarter of 2016, due primarily to the same factors impacting operating income offset by an unfavorable change in our income tax benefit of $5 million, from an income tax benefit of $16 million for the same period in 2016 to an income tax benefit of $11 million in 2017, primarily related to a change to our estimated annual effective tax rate during the prior year period. Further, interest expense increased by $1 million primarily due to net settlement payments on our interest rate derivatives during the current period and a slight increase in the interest rate of the term loan facility.

Adjusted EBITDA: Adjusted EBITDA for the third quarter of 2017 was $165 million, a decrease of $3 million from $168 million in the same quarter of 2016, primarily due to higher cost of sales, excluding publishing rights and pre-publication amortization, and lower net sales partially offset by lower selling and administrative costs.

Nine Months Ended September 30, 2017 Financial Results:

Net Sales: Net sales for the nine months ended September 30, 2017 increased $16 million, or 1%, from $1,131 million for the same period in 2016 to $1,147 million. The net sales increase was driven by a $14 million increase in our Trade Publishing segment and a $2 million increase in our Education segment during the current period. Within our Trade business, the increase was primarily due to sales of the Whole30 series and Tools of Titans, stronger eBook sales, such as The Handmaid's Tale and 1984, and backlist print title sales, such as The Giver and The Things They Carried, along with favorable product return experience. Within our Education Segment, the increase was primarily due to greater sales of our Extension businesses, which primarily consists of Heinemann, intervention, supplemental and assessment products as well as professional services. Extension businesses net sales for the nine-month period increased $29 million from $438 million in the 2016 period to $467 million primarily driven by higher Heinemann and supplemental net sales. The primary drivers of the increase in our Heinemann net sales were sales of our Classroom Libraries offering along with the introduction of our Fountas & Pinnell Classroom product. The primary drivers of the increase in our supplemental net sales were sales of custom book bundles. Also within our Extension businesses, our assessment and intervention net sales declined year over year, offsetting a portion of the above increases. Partially offsetting the increase in our Extension businesses net sales were lower Basal sales, inclusive of international sales, which declined by $27 million from $577 million in the 2016 period to $550 million. The primary drivers behind the decrease in our Basal business were lower net sales of Basal math and English Language Arts programs across adoption states and lower sales from our international business, primarily due to a large Department of Defense order in the prior year not repeating in 2017. Partially offsetting the decrease in Basal net sales was a $5 million one-time fee recognized in association with the expiration of a distribution agreement.

Billings: Billings for the nine months ended September 30, 2017 were $1,163 million, down 3% or $37 million compared with $1,201 million for the same period in 2016. The billings decrease was driven by a $50 million decrease in our Education segment billings partially offset by a $13 million increase in our Trade Publishing segment billings during the current period. Within our Education Segment, the decrease was primarily due to lower Basal billings, inclusive of international sales, which declined by $60 million from $616 million in the 2016 period to $556 million. The primary drivers behind the decrease in our Basal business billings were lower Basal math and English Language Arts program billings across adoption states and lower billings from our international business, primarily due to a large Department of Defense order in the prior year not repeating in 2017. Partially offsetting the Basal business decline were higher billings in our Extension businesses for the nine-month period which increased $10 million from $468 million in the 2016 period to $478 million primarily driven by higher Heinemann and supplemental billings. The primary drivers of the increase in our Heinemann billings were sales of our Classroom Libraries offering along with the introduction of our Fountas & Pinnell Classroom product. The primary drivers of the increase in our supplemental billings were sales of custom book bundles. Partially offsetting these increases within our Extension businesses were lower billings in intervention and professional services. Within our Trade business, the $13 million billings increase was primarily due the same factors impacting net sales for this segment.

Cost of Sales: Overall cost of sales decreased $6 million to $619 million in the first nine months of 2017 from $625 million in the same period of 2016, primarily due to a $14 million reduction in amortization expense related to publishing rights and pre-publication assets. Our cost of sales, excluding publishing rights and pre-publication amortization, increased $8 million of which $7 million is attributed to higher sales volume coupled with $1 million of lower profitability as our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of net sales increased to 43.0% from 42.9% primarily due to product mix.

Selling and Administrative Costs:

Selling and administrative costs decreased $38 million primarily due to a lower professional fees of $21 million (of which $10 million relates to legal settlement costs for permissions litigation during the prior year period coupled with a $5 million insurance reimbursement during the 2017 period), a reduction of internal and outside labor related costs of $13 million, and lower discretionary expense such as promotion and travel and entertainment expenses of $15 million, all largely due to actions taken under the 2017 Restructuring Plan. Additionally, variable expenses such as samples, transportation and depository fees were $8 million lower in the period. The decrease was partially offset by $20 million of higher commission expense and incentive compensation due to greater achievement of targeted levels than in the prior year period, and $4 million of higher office lease cost due to the expiration of favorable office leases.

Operating Loss: Operating loss for the nine months ended September 30, 2017 were $37 million, $23 million lower than the $60 million for the same period in 2016 primarily due to the aforementioned changes in net sales, cost of sales, and selling and administrative costs partially offset by the 2017 Restructuring Plan.

Net Loss: Net loss of $77 million in the first nine months of 2017 was $26 million, or 26%, better compared to a net loss of $104 million for the same period of 2016, due primarily to the same factors impacting operating loss and by a favorable change in our income tax expense of $6 million, from an income tax expense of $16 million for the same period in 2016 to an income tax expense of $10 million in 2017, primarily related to a lower estimated annual effective tax rate during the current year period. Offsetting the aforementioned, interest expense increased by $3 million primarily due to net settlement payments on our interest rate derivatives during the current period, offset slightly by the lower outstanding balance on our term loan facility.

Adjusted EBITDA: Adjusted EBITDA for the first nine months of 2017 was $214 million, an increase of $12 million from $203 million in the same period of 2016, primarily due to the aforementioned changes in net sales, cost of sales, and selling and administrative costs.

Cash Flow: Net cash provided by operating activities for the nine months ended September 30, 2017 was $38 million compared with $9 million for the same period in 2016. The $29 million increase in cash provided by operating activities from 2016 to 2017 was primarily driven by more profitable operations, net of non-cash items, of $20 million, and by favorable net changes in operating assets and liabilities of $9 million. As of September 30, 2017, HMH had $210 million of cash and cash equivalents and short-term investments compared to $307 million at December 31, 2016. Operating cash flow is impacted by the inherent seasonality of the academic calendar. Consequently, the performance of the business is difficult to compare quarter to consecutive quarter and should be considered on the basis of results for the whole year. HMH's free cash flow, defined as net cash from operating activities minus capital expenditures, for the nine months ended September 30, 2017 was a usage of $92 million compared with a usage of $176 million for the same period in 2016. The primary drivers of the improved free cash flow were reduced property, plant and equipment expenditures of $49 million, as 2016 included expenditures to upgrade technology infrastructure and to relocate to new office locations, increased profit from operations of $20 million, and favorable changes in operating assets and liabilities of $9 million, due to improvements in collections.

Corporate Initiatives: HMH continues to implement its ongoing initiatives to improve the Company's operational efficiency and right-size its cost structure. Organizational design changes, aimed at reducing complexity in the organization, were largely completed by May 2017, and HMH expects to substantially complete the remaining planned actions by the end of 2018. The identified initiatives are expected to result in approximately $70 million to $80 million in annualized cost savings by the end of 2018, and we now expect that they will result in total charges of $45 million to $49 million, of which $35 million to $39 million are estimated to be cash charges.

Full Year 2017 Outlook:

HMH continues to expect 2017 net sales to be in a range of $1.325 to $1.405 billion and billings to be in the range of $1.375 to $1.455 billion. Directionally, net sales are expected to be in the higher end and billings are expected to be in the lower end of these ranges. HMH expects content development spending for 2017 to be at the low end, or possibly below the low end of the range of $140 to $160 million set in February. As a result, total capital expenditures including non-plate capital expenditures are also expected to be at the low end of, or possibly below the low end of the range of $190 to $220 million set in February.

Conference Call:

At 8:30 a.m. EDT on Thursday, November 2, 2017, HMH will also host a conference call to discuss the results 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: 53427462 
Moderator: Brian Shipman
Webcast Link: https://edge.media-server.com/m6/p/a4qgftrz   

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 will also be available until November 10, 2017 via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally using passcode 53427462.

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, as well as 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 and in certain instances to exclude pre-publication costs) 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 free cash flow 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 provided by 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) and related disclosure is provided in the appendix to this news release.

About Houghton Mifflin Harcourt

Houghton Mifflin Harcourt (NASDAQ: HMHC) is a global learning company dedicated to changing people's lives by fostering passionate, curious learners. As a leading provider of pre-K–12 education content, services, and cutting-edge technology solutions across a variety of media, HMH enables learning in a changing landscape. HMH is uniquely positioned to create engaging and effective educational content and experiences from early childhood to beyond the classroom. HMH serves more than 50 million students in over 150 countries worldwide, 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 TwitterFacebook and YouTube.

Contact 

Brian S. Shipman, CFA
Senior Vice President, Investor Relations 
(212) 592-1177
brian.shipman@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, including billings and net sales; financial performance, financial condition; liquidity; products and services, including for new adoptions; outlook for full year 2017; prospects; growth; markets; strategies, including with respect to investing in our core Basal business and the extension businesses thereof; efficiency and cost savings initiatives, including actions thereunder and expected impact; the industry in which we operate; 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. While we believe that our assumptions are reasonable, 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 our actual results may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if our 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 our results to vary from expectations include, but are not limited to: changes in state and local education funding and/or related programs, legislation and procurement processes; state acceptance of submitted programs and participation rates therefor; industry cycles and trends; the rate and state of technological change; changes in product distribution channels and concentration of retailer power; changes in our competitive environment; periods of operating and net losses; our ability to enforce our intellectual property and proprietary rights; risks based on information technology systems; dependence on a small number of print and paper vendors; third-party software and technology development; our ability to identify, complete, or achieve the expected benefits of, acquisitions; increases in our operating costs; exposure to litigation; major disasters or other external threats; 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 interpretations; management and other personnel changes; the commitments and decisions of our new CEO; timing, higher costs and unintended consequences of our operational efficiency and cost-reduction initiatives; and other factors discussed in the "Risk Factors" section of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other news releases we issue and filings we make with the SEC. 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 (Unaudited) 


(in thousands of dollars, except share information)

September 30,
2017


December 31,
2016

Assets




Current assets




Cash and cash equivalents

$        133,980


$        226,102

Short-term investments

76,022


80,841

Accounts receivable, net

382,726


216,006

Inventories

156,567


162,415

Prepaid expenses and other assets

21,031


20,356





Total current assets

770,326


705,720

Property, plant, and equipment, net

153,001


175,202

Pre-publication costs, net

314,339


314,784

Royalty advances to authors, net

50,119


43,977

Goodwill

783,073


783,073

Other intangible assets, net

626,945


685,649

Deferred income taxes

3,458


3,458

Other assets

18,371


19,608





Total assets

$     2,719,632


$     2,731,471





Liabilities and Stockholders' Equity




Current liabilities




Current portion of long-term debt

$             8,000


$             8,000

Accounts payable

95,737


76,181

Royalties payable

68,439


72,233

Salaries, wages, and commissions payable

56,702


41,289

Deferred revenue

285,145


272,828

Interest payable

205


193

Severance and other charges

9,475


8,863

Accrued postretirement benefits

1,928


1,928

Other liabilities

31,703


23,635





Total current liabilities

557,334


505,150

Long-term debt, net of discount and issuance costs

761,330


764,738

Long-term deferred revenue

440,482


436,627

Accrued pension benefits

26,696


28,956

Accrued postretirement benefits

20,253


22,084

Deferred income taxes

80,244


71,381

Other liabilities

19,664


22,495





Total liabilities

1,906,003


1,851,431





Commitments and contingencies




Stockholders' equity




Preferred stock, $0.01 par value: 20,000,000 shares authorized; no shares issued and
   outstanding at September 30, 2017 and December 31, 2016


Common stock, $0.01 par value: 380,000,000 shares authorized; 147,910,059 and
   147,556,804 shares issued at September 30, 2017 and December 31, 2016, respectively;
   123,333,025 and 122,979,770 shares outstanding at September 30, 2017 and
   December 31, 2016, respectively

1,479


1,475

Treasury stock, 24,577,034 shares as of September 30, 2017 and December 31, 2016,
   respectively, at cost (related parties of $193,493 at 2017 and 2016)

(518,030)


(518,030)

Capital in excess of par value

4,877,045


4,868,230

Accumulated deficit

(3,495,359)


(3,418,340)

Accumulated other comprehensive loss

(51,506)


(53,295)





Total stockholders' equity

813,629


880,040





Total liabilities and stockholders' equity

$     2,719,632


$     2,731,471

 

 

Houghton Mifflin Harcourt Company

Consolidated Statements of Operations (Unaudited)



Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands of dollars, except share and per share information)

2017


2016


2017


2016

Net sales

$        532,040


$        533,021


$     1,147,008


$    1,130,879

Costs and expenses








Cost of sales, excluding publishing rights and pre-publication
   amortization

209,694


206,177


492,923


485,161

Publishing rights amortization

10,987


14,573


35,252


46,779

Pre-publication amortization

33,757


33,903


91,092


93,499









Cost of sales

254,438


254,653


619,267


625,439

Selling and administrative

178,104


185,252


500,621


538,406

Other intangible asset amortization

7,248


5,980


23,452


18,124

Restructuring

1,768



39,036


Severance and other charges

272


3,765


1,691


8,895









Operating income (loss)

90,210


83,371


(37,059)


(59,985)









Other income (expense)








Interest expense

(10,699)


(9,493)


(31,339)


(28,228)

Change in fair value of derivative instruments

377


257


1,273


422









Income (loss) before taxes

79,888


74,135


(67,125)


(87,791)

Income tax (benefit) expense

(10,618)


(15,887)


9,894


15,726









Net income (loss)

$          90,506


$          90,022


$         (77,019)


$      (103,517)









Net loss per share attributable to common stockholders








Basic

$               0.74


$               0.74


$              (0.63)


$             (0.85)









Diluted

$               0.73


$               0.73


$              (0.63)


$             (0.85)









Weighted average shares outstanding








Basic

123,038,780


122,011,716


122,913,039


122,349,857









Diluted

123,243,351


123,017,854


122,913,039


122,349,857

 

 

Houghton Mifflin Harcourt Company

Consolidated Statements of Cash Flows (Unaudited)



Nine Months Ended
September 30,

(in thousands of dollars)

2017


2016

Cash flows from operating activities




Net loss

$      (77,019)


$    (103,517)

Adjustments to reconcile net loss to net cash provided by operating activities




Depreciation and amortization expense

206,729


217,361

Amortization of debt discount and deferred financing costs

3,136


3,134

Deferred income taxes

8,863


13,288

Stock-based compensation expense

8,021


8,754

Restructuring charges related to property, plant, and equipment

10,167


Change in fair value of derivative instruments

(1,273)


(422)

Changes in operating assets and liabilities




Accounts receivable

(166,720)


(182,496)

Inventories

5,848


1,784

Other assets

397


1,490

Accounts payable and accrued expenses

29,111


(9,774)

Royalties payable and author advances, net

(9,936)


(3,918)

Deferred revenue

16,172


69,753

Interest payable

12


Severance and other charges

3,480


1,480

Accrued pension and postretirement benefits

(4,091)


(4,351)

Other liabilities

5,354


(3,111)





Net cash provided by operating activities

38,251


9,455





Cash flows from investing activities




Proceeds from sales and maturities of short-term investments

80,690


197,724

Purchases of short-term investments

(75,932)


(66,437)

Additions to pre-publication costs

(88,689)


(94,659)

Additions to property, plant, and equipment

(41,112)


(90,496)

Investment in preferred stock


(1,000)





Net cash used in investing activities

(125,043)


(54,868)





Cash flows from financing activities




Payments of long-term debt

(6,000)


(6,000)

Repurchases of common stock


(55,017)

Tax withholding payments related to net share settlements of restricted stock units and awards

(1,450)


(1,410)

Proceeds from stock option exercises

512


21,484

Issuance of common stock under employee stock purchase plan

1,608


2,197





Net cash used in financing activities

(5,330)


(38,746)





Net decrease in cash and cash equivalents

(92,122)


(84,159)

Cash and cash equivalent at the beginning of the period

226,102


234,257





Cash and cash equivalent at the end of the period

$     133,980


$     150,098

 

 

Houghton Mifflin Harcourt Company

Non-GAAP Reconciliations (Unaudited)


Adjusted EBITDA


Consolidated

(in thousands of dollars)



Three Months Ended September 30,


Nine Months Ended September 30,


2017


2016


2017


2016

Net income (loss)

$      90,506


$      90,022


$     (77,019)


$    (103,517)

Interest expense

10,699


9,493


31,339


28,228

Provision (benefit) for income taxes

(10,618)


(15,887)


9,894


15,726

Depreciation expense

18,548


21,225


56,933


58,959

Amortization expense

51,992


54,456


149,796


158,402

Non-cash charges—stock compensation

2,546


2,081


8,021


8,754

Non-cash charges— loss on derivative instrument

(377)


(257)


(1,273)


(422)

Purchase accounting adjustments


1,197



4,285

Fees, expenses or charges for equity offerings, debt or
acquisitions


92


277


1,071

2017 Restructuring Plan

1,768



39,036


Restructuring/Integration


2,184



12,198

Severance, separation costs and facility closures

272


3,765


1,691


8,895

Legal settlement (reimbursement)



(4,500)


10,000









Adjusted EBITDA

$    165,336


$    168,371


$    214,195


$     202,579

 

 

Free Cash Flow


Consolidated

(in thousands of dollars)



Nine Months Ended September 30,


2017


2016

Cash flows from operating activities




Net cash provided by operating activities

$     38,251


$          9,455

Cash flows from investing activities




Additions to pre-publication costs

(88,689)


(94,659)

Additions to property, plant, and equipment

(41,112)


(90,496





Free Cash Flow

$    (91,550)


$    (175,700)

 

 

 

Houghton Mifflin Harcourt Company

Calculation of Billings (Unaudited)


Billings (in thousands of dollars)

Consolidated



Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands of dollars)

2017


2016


2017


2016

Net sales

$    532,040


$    533,021


$    1,147,008


$    1,130,879

Change in deferred revenue

51,683


87,118


16,172


69,753









Billings

$    583,723


$    620,139


$    1,163,180


$    1,200,632

















Education

















Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands of dollars)

2017


2016


2017


2016

Basal net sales

$    294,447


$    300,468


$       550,322


$       576,968

Change in deferred revenue

16,432


37,305


5,338


39,173









Basal Billings

$    310,879


$    337,773


$       555,660


$       616,141









Extensions net sales

$    186,404


$    186,741


$       466,520


$       437,930

Change in deferred revenue

35,952


49,660


11,746


30,205









Extensions Billings

$    222,356


$    236,401


$       478,266


$       468,135









Education Billings

$    533,235


$    574,174


$    1,033,926


$    1,084,276

















Trade

















Three Months Ended
September 30,


Nine Months Ended
September 30,

(in thousands of dollars)

2017


2016


2017


2016

Net sales

$      51,189


$      45,812


$       130,166


$       115,981

Change in deferred revenue

(701)


153


(912)


375









Billings

$      50,488


$      45,965


$       129,254


$       116,356









 

Billings is an operating measure utilized by the company derived as shown above.

 

 

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SOURCE Houghton Mifflin Harcourt