Houghton Mifflin Harcourt Announces Third Quarter 2020 Results, Intent to Explore Potential Sale of HMH Books & Media Consumer Publishing Business
BOSTON, Nov. 5, 2020 /PRNewswire/ -- Learning technology company Houghton Mifflin Harcourt ("HMH" or the "Company") (Nasdaq: HMHC) today announced financial results for the quarter ended September 30, 2020. The Company also announced its intent to explore the potential sale of HMH Books & Media, its Consumer Publishing business. The potential sale would reduce debt and build on the Company's October 1 restructuring to align its cost structure to its digital-first, connected strategy, and create a pure-play learning technology company. The Company has engaged Centerview Partners to explore the potential sale of HMH Books & Media.
Q3 2020 Headlines:
While the COVID-19 pandemic continued to impact third quarter net sales and billings performance, HMH's continued virtual learning support for customers and decisive cost and liquidity actions helped mitigate the impact of the COVID-19 pandemic on its profitability and cash flow, and resulted in strong cash generation in the seasonally important third quarter of 2020.
-- Net sales declined 32% to $387 million in the third quarter, and
declined 28% to $828 million on a year-to-date basis
-- Billings(1) declined 32% to $506 million in the third quarter, and
declined 33% to $934 million on a year-to-date basis
-- HMH concluded the Texas Literature adoption with a 34% share of the
opportunity
-- Significant growth in digital platform usage with a 388% increase in
student assignments over the last twelve months as schools continue to
adjust to remote learning environment
-- Continued acceleration of SaaS billings growth to 147% for the last
twelve months
-- Net cash provided by operating activities of $264 million in the third
quarter, and $75 million on a year-to-date basis
-- Strong free cash flow(2) of $237 million in the third quarter, and
nearing break-even at $(11) million on a year-to-date basis
Three Months Ended September 30, Nine Months Ended September 30,
(in millions of dollars) 2020 2019 Change 2020 2019 Change
Net sales $
387 $
566 (31.7) $
828 $
1,149 (28.0)
% %
Change in deferred revenue 119 181 (34.0) 106 241 (55.9)
% %
Billings (1) 506 747 (32.2) 934 1,390 (32.8)
% %
Impairment charge for goodwill
NM 262
NM
Net (loss) income (13) 69
NM (397) (89)
NM
Adjusted EBITDA (2) 97 149 (34.6) 116 169 (31.7)
% %
Pre-publication or content development costs (16) (26) 36.5 (51) (82) 37.1
% %
Net cash provided by operating activities 264 393 (32.8) 75 127 (41.0)
% %
Free cash flow (2) 237 358 (33.9)
% (11) 18
NM
An operating
measure
which we
derive from
net sales
taking into
account the
change in
deferred
1 revenue.
Non-GAAP
measure,
please refer
to Use of
Non-GAAP
measures for
an
explanation
and
2 reconciliation.
NM = not meaningful
"HMH remains focused on our digital-first, connected strategy which has proven to be more important than ever in this unique back-to-school season. We are supporting teaching and learning nationwide whether done in person, fully remote or hybrid. Even as the near-term pressures of the COVID-19 pandemic impacted our billings for the third quarter, we are seeing very strong growth across the key indicators of our digital transformation, positioning HMH's SaaS offerings amongst the largest and fastest growing in the edtech market," said Jack Lynch, President and Chief Executive Officer of Houghton Mifflin Harcourt.
"We also announced our intention to explore a potential sale of HMH Books & Media. As we further advance our learning technology strategy, we believe this is the right time to focus our portfolio, which we believe will help to maximize shareholder value," added Lynch. "At HMH we are very proud of our trade publishing heritage, and our Books & Media colleagues who have continued to innovate and evolve as the consumer publishing market has changed over time. Because of this heritage, we know the power a story has to inspire generations to make lives of meaning. We have grown and invested in this business over many years, and it has continually demonstrated strength and resilience - particularly this year through the challenges of the pandemic."
Joe Abbott, HMH's Chief Financial Officer said, "HMH remains in a position of financial strength, as we look to the end of 2020 and beyond. During the quarter, we continued to manage our expenses with discipline, and as a result, delivered adjusted EBITDA margins on par with the prior year despite net sales and billings declines. We generated strong cash during the third quarter, and we were near free cash flow break even for the year-to-date."
Outlook:
HMH expects billings in a range of $1.05 billion to $1.10 billion, and expects free cash flow to be between ($5) million to ($15) million for the full year 2020. Based on what management knows today, HMH expects positive free cash flow in 2021.
Third Quarter 2020 Financial Results:
Net Sales: HMH reported net sales of $387 million for the third quarter of 2020, down 32% or $179 million compared to $566 million in 2019. The net sales decrease was driven by a $187 million decrease in our Education segment, offset by a $8 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower net sales in Extensions, which decreased $120 million from $244 million in 2019 to $124 million, due to lower sales of the Heinemann's Fountas & Pinnell Classroom, LLI Leveled Literacy and Calkins products which was due to a difficult comparison to last year's Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020 along with reduced face-to-face delivery of professional services. Further, there were lower net sales from Core Solutions which decreased by $67 million from $273 million in 2019 to $206 million, which was primarily due to the smaller new adoption market opportunity in Texas ELA, along with impacts of the COVID-19 pandemic. Within our HMH Books & Media segment, the increase in net sales was primarily due to an increase in licensing revenue of $7 million, which includes $4 million from the Carmen Sandiego series on Netflix.
Billings(1): Billings for 2020 decreased $241 million, or 32%, from 2019. The billings decrease was driven by a $248 million decrease in our Education segment offset by a $7 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower Core Solutions billings which decreased $158 million due to the smaller new adoption market opportunity in Texas ELA along with the impact of the COVID-19 pandemic. Further, the Extensions billings decreased by $90 million due to lower billings of the Heinemann's LLI Leveled Literacy, Fountas & Pinnell Classroom and Calkins products due to both a difficult comparison to last year's Texas K-6 billings coupled with the impact of the COVID-19 pandemic in 2020 along with reduced face-to-face delivery of professional services. HMH Books & Media billings increase was primarily due to an increase in licensing revenue of $7 million, which includes $4 million from the Carmen Sandiego series on Netflix.
Cost of Sales: Overall cost of sales decreased by $73 million to $219 million in 2020 from $292 million in 2019, primarily due to lower billings.
Selling and Administrative Costs: Selling and administrative costs decreased by $62 million in 2020, primarily due to lower labor costs of $28 million, due to cost savings associated with our employee furlough initiative in response to the COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Further, there was a decrease in variable expenses of $23 million, including reduced transportation and commissions expenses due to lower billings and $12 million of lower discretionary costs related to travel, decreased marketing activities and other expense reduction measures.
Restructuring/severance: Our restructuring/severance and other charges for the three months ended September 30, 2020 increased due to $34 million of severance costs associated with the 2020 restructuring plan.
Operating Income: Operating income unfavorably changed $78 million in 2020 primarily due to the decrease in net sales and restructuring/severance charges partially offset by lower selling and administrative costs.
Net (Loss) Income: Net loss of $13 million for 2020 was a $82 million unfavorable change from the net income of $69 million in 2019, due primarily to the same factors impacting operating loss.
Adjusted EBITDA: Adjusted EBITDA for 2020 was $97 million, a $52 million unfavorable change from $149 million in 2019.
Nine Months Ended September 30, 2020 Financial Results:
Net Sales: HMH reported net sales of $828 million for the first nine months of 2020, down 28% or $321 million compared to $1,149 million in 2019. The net sales decrease was driven by a $322 million decrease in our Education segment, offset slightly by a $1 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower net sales in Extensions, which decreased by $221 million from $528 million in 2019 to $307 million, due to lower sales of the Heinemann's Fountas & Pinnell Classroom, Calkins and LLI Leveled Literacy products due to both a difficult comparison to last year's Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020. Further, there were lower net sales from Core Solutions which decreased by $102 million from $493 million in 2019 to $391 million primarily due to the smaller new adoption market opportunity in Texas ELA along with the impact of the COVID-19 pandemic. Within our HMH Books & Media segment, the increase in net sales was primarily due to $2 million of licensing revenue from production series. Books & Media net sales growth was partially offset by lower net sales of both Adult and Young Reader's categories due to the closure of bookstores during the COVID-19 pandemic and the corresponding delay in releases of new frontlist titles.
Billings(1): Billings for 2020 decreased $456 million, or 33%, from 2019. The billings decrease was driven by a $458 million decrease in our Education segment offset by a $2 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower Core Solutions billings which decreased by $277 million due to the smaller new adoption market opportunity in Texas ELA along with the impact of the COVID-19 pandemic. Further, the Extensions billings decreased by $182 million due to lower billings of the Fountas & Pinnell Classroom, Calkins and LLI Leveled Literacy products due to both a difficult comparison to last year's Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020. The HMH Books & Media billings increase was due to $2 million of licensing revenue from production series. Books & Media billings growth was partially offset by lower billings of both Adult and Young Reader's categories due to the closure of bookstores during the COVID-19 pandemic and the corresponding delay in releases of new frontlist titles.
Cost of Sales: Overall cost of sales decreased by $156 million to $506 million in 2020 from $662 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 $149 million in 2020, primarily due to lower labor costs of $62 million, due to cost savings 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 our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Further, there was a decrease in variable expenses of $50 million, including reduced commissions and transportation expenses due to lower billings and $28 million of lower discretionary costs related to travel, decreased marketing activities and expense reduction measures.
Restructuring/severance: Our restructuring/severance and other charges for the nine months ended September 30, 2020 increased by $28 million due to $34 million of severance costs associated with the 2020 restructuring plan.
Operating Loss: Operating loss for 2020 was $360 million, a $306 million unfavorable change from the $54 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. Additionally, lower net sales contributed to the operating loss. Partially offsetting the unfavorable operating loss was a decrease in selling and administrative expenses.
Net Loss: Net loss of $397 million for 2020 was a $308 million unfavorable change from the net loss of $89 million in 2019, due primarily to the same factors impacting operating loss along with an increase in interest expense of $15 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 $116 million, a $53 million unfavorable change from $169 million in 2019.
Cash Flows and Liquidity: Net cash provided by operating activities for 2020 was $75 million compared with $127 million in 2019. HMH's free cash flow, defined as net cash from operating activities minus capital expenditures, for 2020 was a usage of $11 million, a $29 million unfavorable change compared to positive free cash flow of $18 million in 2019. The primary drivers of the unfavorable change in net cash provided by operating activities and free cash flow were unfavorable working capital changes offset by reductions in capital expenditures in 2020.
As of November 5, 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 our industry will begin to recover with school districts continuing to be, or becoming, fully operational, either in-person, fully remote or hybrid, during the remainder 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 & Media segment billings represent an 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, November 5, 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: 9793732
Moderator: Brian Shipman, Senior Vice President, Investor Relations
Webcast Link: https://edge.media-server.com/mmc/p/jvuh5bbv
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 November 14, 2020 via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally using passcode 9793732.
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 debt restructurings, fluctuations in interest rates or effective tax rates, gain or losses on investments, non-cash charges, or levels of depreciation or amortization along with costs such as severance, separation and facility closure costs, acquisition/disposition-related activity costs, restructuring costs and integration costs. 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 technology 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 serves more than 50 million students and 3 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
Investor Relations
Brian S. Shipman, CFA
SVP, Investor Relations
(212) 592-1177
brian.shipman@hmhco.com
Media Relations
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, the impact of the actions described in this press release; our ability to consummate a sale of the HMH Books & Media business and the outcome of any such sale; our results of operations; financial condition; liquidity; prospects, growth and strategies; the expected impact of the COVID-19 pandemic; 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; the rate and state of technological change; state requirements related to digital instructional materials; our ability to execute on our long-term growth strategy; increases in our operating costs; management and personnel changes; timing, higher costs and unintended consequences of our operational efficiency and cost-reduction initiatives, including the actions described in this press release; our ability to sell the HMH Books & Media business and the terms of any such potential sale; 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 as updated by our subsequent Quarterly Reports on Form 10-Q. 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) September 30, December 31,
2020 2019
(Unaudited)
Assets
Current assets
Cash and cash equivalents $
271,543 $
296,353
Accounts receivable, net 282,179 184,425
Inventories 175,820 213,059
Prepaid expenses and other assets 23,214 19,257
Total current assets 752,756 713,094
Property, plant, and equipment, net 95,265 100,388
Pre-publication costs, net 222,186 268,197
Royalty advances to authors, net 41,661 44,743
Goodwill 454,977 716,977
Other intangible assets, net 440,111 474,225
Operating lease assets 129,154 132,247
Deferred income taxes 2,520 2,520
Deferred commissions 32,972 29,291
Other assets 34,726 31,490
Total assets $
2,206,328 $
2,513,172
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $
19,000 19,000
Accounts payable 71,512 52,128
Royalties payable 52,339 72,985
Salaries, wages, and commissions payable 37,009 54,938
Deferred revenue 356,823 305,285
Interest payable 3,981 3,826
Severance and other charges 34,901 12,407
Accrued postretirement benefits 1,571 1,571
Operating lease liabilities 9,339 8,685
Other liabilities 26,383 24,325
Total current liabilities 612,858 555,150
Long-term debt, net of discount and issuance costs 628,066 638,187
Operating lease liabilities 133,214 134,994
Long-term deferred revenue 596,630 542,821
Accrued pension benefits 19,316 23,648
Accrued postretirement benefits 13,911 15,113
Deferred income taxes 18,787 30,871
Other liabilities 3,502 6,028
Total liabilities 2,026,284 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; 1,504 1,489
150,427,148 and 148,928,328 shares issued at September 30, 2020 and
December 31, 2019, respectively; 125,850,114 and 124,351,294 shares
outstanding at September 30, 2020 and December 31, 2019, respectively
Treasury stock, 24,577,034 shares as of September 30, 2020 and December 31, (518,030) (518,030)
2019, respectively, at cost
Capital in excess of par value 4,915,806 4,906,165
Accumulated deficit (4,172,685) (3,775,992)
Accumulated other comprehensive loss (46,551) (47,272)
Total stockholders' equity 180,044 566,360
Total liabilities and stockholders' equity $
2,206,328 $
2,513,172
Houghton Mifflin Harcourt Company
Consolidated Statements of Operations
(Unaudited)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
(in thousands of dollars, except share and per share data) 2020 2019 2020 2019
Net sales $
386,590 $
565,668 $
827,731 $
1,149,199
Costs and expenses
Cost of sales, excluding publishing rights and 182,767 246,527 397,139 533,413
pre-publication amortization
Publishing rights amortization 4,761 6,341 15,295 20,217
Pre-publication amortization 31,647 39,319 94,043 108,140
Cost of sales 219,175 292,187 506,477 661,770
Selling and administrative 127,324 188,957 367,006 516,206
Other intangible asset amortization 6,274 6,383 18,819 19,519
Impairment charge for goodwill 262,000
Restructuring/severance and other charges 33,545 270 33,545 5,921
Operating income (loss) 272 77,871 (360,116) (54,217)
Other income (expense)
Retirement benefits non-service income 61 41 183 125
Interest expense (16,168) (11,597) (50,433) (35,142)
Interest income 32 509 873 1,698
Change in fair value of derivative instruments 432 (737) 172 (1,171)
Gain on investments 1,738 1,738
Income from transition services agreement 571 4,248
(Loss) income before taxes (13,633) 66,658 (407,583) (84,459)
Income tax (benefit) expense (1,081) (2,602) (10,890) 4,256
Net (loss) income $
(12,552) $
69,260 $
(396,693) $
(88,715)
Net (loss) income per share attributable to common
stockholders
Basic $
(0.10) $
0.56 $
(3.17) $
(0.71)
Diluted $
(0.10) $
0.55 $
(3.17) $
(0.71)
Weighted average shares outstanding
Basic 125,799,018 124,315,491 125,317,284 124,089,257
Diluted 125,799,018 124,807,488 125,317,284 124,089,257
Houghton Mifflin Harcourt Company
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
(in thousands of dollars) 2020 2019
Cash flows from operating activities
Net loss $
(396,693) $
(88,715)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization expense 171,027 201,593
Amortization and impairments of operating lease assets 9,565 12,898
Amortization of debt discount and deferred financing costs 4,504 3,136
Gain on investments (1,738)
Deferred income taxes (12,084) 2,580
Stock-based compensation expense 8,751 11,094
Impairment charge for goodwill 262,000
Change in fair value of derivative instruments (172) 1,171
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable (97,754) (231,296)
Inventories 37,239 (27,535)
Other assets (13,374) (23,649)
Accounts payable and accrued expenses 6,213 37,488
Royalties payable and author advances, net (17,564) 1,165
Deferred revenue 105,347 241,091
Interest payable 155 11
Severance and other charges 22,494 (464)
Accrued pension and postretirement benefits (5,532) (2,761)
Operating lease liabilities (7,598) (12,450)
Other liabilities 380 2,015
Net cash provided by operating activities 75,166 127,372
Cash flows from investing activities
Proceeds from sales and maturities of short-term investments 50,000
Additions to pre-publication costs (51,321) (81,532)
Additions to property, plant, and equipment (35,275) (27,350)
Acquisition of business, net of cash acquired (5,447)
Investment in preferred stock (750)
Net cash used in investing activities (86,596) (65,079)
Cash flows from financing activities
Borrowings under revolving credit facility 150,000 60,000
Payments of revolving credit facility (150,000) (60,000)
Payments of long-term debt (14,250) (6,000)
Payments of deferred financing fees (311)
Tax withholding payments related to net share settlements of restricted stock units (48) (1,963)
Issuance of common stock under employee stock purchase plan 918 1,027
Net collections under transition services agreement 265
Net cash used in financing activities (13,380) (6,982)
Net decrease in cash and cash equivalents (24,810) 55,311
Cash and cash equivalents at beginning of the period 296,353 253,365
Cash and cash equivalents at end of the period $
271,543 $
308,676
Houghton Mifflin Harcourt Company
Non-GAAP Reconciliations (Unaudited)
Adjusted EBITDA
Consolidated
(in thousands of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net (loss) income $
(12,552) $
69,260 $
(396,693) $
(88,715)
Interest expense 16,168 11,597 50,433 35,142
Interest income (32) (509) (873) (1,698)
Provision (benefit) for income taxes (1,081) (2,602) (10,890) 4,256
Depreciation expense 12,566 13,901 38,016 46,945
Amortization expense - film asset 4,698 4,854 6,772
Amortization expense 42,682 52,043 128,157 147,876
Non-cash charges - goodwill impairment 262,000
Non-cash charges - stock compensation 3,112 3,835 8,751 11,094
Non-cash charges - loss on derivative instruments (432) 737 (172) 1,171
Fees, expenses or charges for equity offerings, debt or 339 183 366 731
acquisitions/dispositions
Restructuring/severance and other charges 33,545 270 33,545 5,921
Gain on investments (1,738) (1,738)
Adjusted EBITDA $
97,275 $
148,715 $
115,756 $
169,495
Free Cash Flow
Consolidated
(in thousands of dollars)
Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
Cash flows from operating activities
Net cash provided by operating activities $
264,442 $
393,297 $
75,166 $
127,372
Cash flows from investing activities
Additions to pre-publication costs (16,471) (25,941) (51,321) (81,532)
Additions to property, plant, and equipment (10,917) (8,992) (35,275) (27,350)
Free Cash Flow $
237,054 $
358,364 $
(11,430) $
18,490
Houghton Mifflin Harcourt Company
Calculation of Billings (Unaudited)
Billings
(in thousands of dollars)
Consolidated
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net sales $
386,590 $
565,668 $
827,731 $
1,149,199
Change in deferred revenue 119,426 180,993 106,347 241,280
Billings $
506,016 $
746,661 $
934,078 $
1,390,479
Education
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net sales $
330,926 $
517,614 $
698,574 $
1,021,259
Change in deferred revenue 119,727 181,019 106,575 242,135
Education Billings $
450,653 $
698,633 $
805,149 $
1,263,394
HMH Books & Media
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Net sales $
55,664 $
48,054 $
129,157 $
127,940
Change in deferred revenue (301) (26) (228) (855)
HMH Books & Media Billings $
55,363 $
48,028 $
128,929 $
127,085
Billings is an operating measure utilized by the Company derived as shown above.
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SOURCE Houghton Mifflin Harcourt
