Brian Campbell - Director, Investor Relations Steve Smith - President and Chief Executive Officer John Kritzmacher - Chief Financial Officer.

Daniel Moore - CJS Securities Ian Whittaker - Liberum David Pang - Stifel Mark Braley - Deutsche Bank.

Good day, ladies and gentlemen and welcome to the John Wiley & Sons’ Third Quarter Earnings Conference Call. Just a reminder, today’s conference is being recorded. For opening remarks and introductions, I will turn the call over to Wiley’s Director of Investor Relations, Mr. Brian Campbell. Please go ahead, sir..

Thank you. Good morning, everyone and thank you for participating in our call today. Before introducing Steve Smith, President and Chief Executive Officer, I would like to remind you that this call is being recorded and may include forward-looking statements.

You should not rely on such statements, as actual results may differ materially and are subject to factors that are discussed in detail in the company’s 10-K and 10-Q filings with the SEC. The company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances.

For those who prefer to listen to the call over the phone but would like to still view the slides, we recommend clicking on the gears icon located on the lower portion of the left-hand side window and selecting Live Phone.

This will eliminate any delays you may experience in viewing the slide transitions, as well as remove any potential background noise should you ask a question on the call. A copy of this presentation will be available on our Investor Relations page at the conclusion of this call. Thank you. I would now like to turn the call over to Steve..

Good morning. In addition to Brian, I am joined by John Kritzmacher, Wiley’s Chief Financial Officer. Our results for the quarter were in line with expectations. Modest revenue growth was driven by steady improvement in journals and strong growth in professional educational solutions, while the transition from print books to alternatives continued.

Adjusted earnings per share was roughly even with prior year with adjusted revenue and margin growth, restructuring and other savings at lower income taxes offset by higher incentive compensation accruals, a 4% increase in technology expense and a lower property tax incentive.

The property tax incentive is related to our corporate headquarters in Hoboken, New Jersey. Our restructuring program continued to progress as expected. Through the nine months of the year, we have developed and approved plans to achieve $75 million of the $80 million in expected run-rate savings starting in May.

To-date, we have recorded $52 million in restructuring charges. From this point forward, unless otherwise noted I would exclude the impact of foreign exchange and the divested consumer business when commenting on all revenue variances in order to give a clear measure of operational performance.

Also note that adjusted contribution to profit, adjusted operating income and adjusted EPS metrics exclude all restructuring charges, asset impairment charges, gains on the sale of and operating results from the divested consumer publishing program and deferred tax benefits arising from the significant rate changes in the UK.

Third quarter adjusted revenue of $458 million was up 1%. Research journals, including both subscription business and author-funded open access continued to show steady growth.

Other contributors to growth included online books in research, digital books and online training and assessment in Professional Development and WileyPLUS, an online program management in education. The first nine months, Wiley adjusted revenue was up 4%. Adjusted operating income fell 3% in the quarter to $78 million.

Contributions from revenue growth and restructuring and other cost savings were offset by higher incentive accruals and the increase in technology expense and a lower property tax incentive. Adjusted operating income through the first nine months of the year was roughly even with prior year.

Adjusted EPS for the quarter was even with prior year at $0.93, but up 4% for the nine months. Research revenue was up 3% in the quarter to $249 million and also up 3% year-to-date. Journal subscription revenue grew 7% in the quarter and 4% for the nine months.

Note that, some of the third quarter performance was due to favorable production timing, growth in journal subscriptions of the company by record complementary growth in author-funded open access, which tripled over prior year to $4 million for the quarter.

We are encouraged by 2014 calendar year journal subscription billings, which are 4% as of January 31 with 81 of targeted full year business closed. Subscription growth rates for the full calendar year are expected to be in the low single-digits similar to the growth rates reported over the last two years.

In our Research books business, the transition from print books to alternatives continued with a 16% decline in print and a 12% increase in digital. For the year, print books were down 11%, while digital books were up 25%. We signed two new society partners in the quarter, with combined annual revenue of $2 million.

We also renewed 50 society agreements which are expected to generate $19 million per year. Eight society agreements were lost worth $5 million annually. Nearly all of that was from one – from the expiration of one large society partnership.

For the year however, our society business experienced a net revenue gain with new business signed worth $11 million annually and expired partnerships worth $7 million. In January, Wiley announced a partnership with technology company Knode to provide customized portals to learning societies and other academic organizations worldwide.

Wiley’s cloud based portal is populated with more than 20 million documents and millions of expert profiles. The alliance will allow researchers to find experts, identify and connect with collaborators, and promote their expertise to the world.

Adjusted contribution to profit after shared services allocations improved 2% to $69 million with revenue growth and restructuring savings partially offset by higher society journal costs and accrued incentives. Year-to-date contribution to profit was up 5%.

Adjusted professional development revenue fell 5% to $94 million and is down 1% for the nine months. Print books were down 9% due to softness in the technology category, the result of market weakness related to a decline in commercial software launches and the discontinuation of low margin non-divested consumer titles.

Also contributing to performance was a $2 million favorable impact in the prior year related to Hurricane Sandy shipment delays. Online training and assessment continued to show strong growth driven by test preparation workforce assessment. In January Wiley acquired the assets of Elan Guides, a certified financial analyst test preparation company.

The acquisition will allow us to extend our test preparation platform currently marketed to CPA candidates, the certified financial analyst community, driving significant future growth opportunities. Finally, the recent portfolio changes and new product developments are resulting in improvements in profitability.

Adjusted contribution to profit for the quarter after shared service expense allocations grew 21% to $12 million and is up 48% year-to-date. Performance was driven by restructuring savings and higher margin digital revenue. Education revenue was roughly flat with prior year at $115 million, but is up by 12% year-to-date.

Print textbook decline reflects continuing transition to alternatives which was further compounded by timing impacts including prior year Sandy related shipment delays which shifted $2 million of second quarter revenue in 2013 into the third quarter.

As well as earlier ordering patterns from Australia that advanced revenue from this quarter into our second quarter. Strong revenue growth in key areas including the WileyPLUS course management platform and online program management from Deltak offset a decline in both print and digital textbooks.

The WileyPLUS integrated learning solution with revenue growth of 20% is showing terrific momentum and now represents around 16% total education revenue. Deltak added two partners in the quarter for a total of 36 partners. Total programs are now growing to 165, 120 of which are revenue generating and 45 are in development.

Deltak’s revenue growth this quarter was impacted by an unfavorable comparison to prior year. Third quarter 2013 results for Deltak included an extra week due to the closing of the acquisition just prior to the end of the second quarter in 2013. Excluding this extra week, Deltak grew 20% over the prior year for the quarter.

The decline in digital textbooks for education can be attributed to weakened enrollment at for-profit institutions. Note that less than 6% of our total education revenue comes from for-profit institutions down from over 10% in fiscal year 2012.

Year-to-date, print textbook alternatives including WileyPLUS digital books and Binder and Custom Products are offsetting the print textbook decline on a revenue performance basis.

Global education adjusted contribution to profit after shared services allocations fell 9% in the quarter to $31 million, reflecting changes in revenue mix including the investment in online program management and hiring accrued incentive costs, which offset restructuring savings. Year-to-date adjusted contribution to profit was up 2%.

Technology expense increased 4% over prior year as we continued to invest in new technology enabled services and systems. Investment in technology is expected to be up slightly more than 10% for the full year.

Distribution expense declined again in the quarter as a result of lower print volumes and restructuring savings, while finance and other administration costs were up due to higher accrued incentives and the reduction of a property tax incentive related to our New Jersey headquarters.

Turning now to our balance sheet, net debt fell by $131 million compared to the prior year period. Our balance sheet continues to be strong and offers significant flexibility to invest in our transformation. Our trailing 12 months net debt to EBITDA ratio was 0.8 at the end of the third quarter.

Free cash flow in the nine months was essentially even with prior year at $85 million. Lower cash collections and higher payments related to restructuring program offset lower German tax appeal deposits versus prior year. As a reminder, Wiley is appealing a German tax decision, but was required to make deposits before filing the appeal.

We made $30 million in deposits in fiscal year 2013 compared to $10 million this current year. We have made all required deposits to-date. Ultimately, we believe the outcome will be a positive one. Total capital expenditures are down $8 million year-to-date.

CapEx includes composition costs related to the development of manuscripts and PP&E, which includes technology development. Finally for the quarter Wiley bought back 375,000 shares in the quarter at an average price of $53.30 per share. At quarter end, there were approximately 3.7 million authorized shares remaining in the program.

Our broad based cost restructuring is nearing its completion. As a reminder, we expect to achieve $80 million of run-rate savings starting in fiscal year 2015. More than 50% of the $80 million will fall to the bottom line. The rest will be invested back into the business to fund high growth opportunities.

As of January 31, we had developed, approved and initiated plans to achieve approximately $75 million of the $80 million. We have taken early $52 million in charges since the program began in January and expect another $10 million in the fourth quarter. The charges cover severance, consulting fees, and facility relocation.

For the first nine months, we realized restructuring savings of approximately $23 million and other initiatives, including improvements in our procurement prices contributed an additional $8 million in savings. Our favorable speed in executing the restructuring program will contribute to a solid finish to the fiscal year.

In summary, we continue to be pleased with the performance for the nine months of the year, particularly with the steady growth in journals, the solutions business in Professional Development and Education, and digital books across all three segments. Both revenue and EPS are tracking well against our guidance.

Given our nine months results and what we see in the fourth quarter, we are reaffirming our fiscal 2014 revenue guidance of low single-digit adjusted revenue growth. In addition, based upon the favorable pace of our restructuring initiatives we are confident that our EPS performance will track to the high end of our $2.85 to $2.95 EPS guidance range.

With that as background, we welcome your comments and questions..

Thank you. (Operator Instructions) We will take our first call today from Daniel Moore from CJS Securities..

Good morning..

Hi, Dan..

Notebook sales fell sharply in the quarter, but still obviously in line with expectations, but it’s a very solid quarter.

Have we now reached the point where swings in text sales are much more manageable and you can grow through them grow through those declines given strength in other segments of the business?.

Dan, I missed – I may have missed the word, did you say tax or text?.

Text?.

Text, so in the education sector in particular.

We believe that we are seeing a very strong pickup particularly of the alternative formats in digital and for the quarter we reported that decline in digital books we think that’s an anomaly for the quarter and we should look at the full year results – at the full year results in order to look at the performance of digital books overall.

But with the strength of WileyPLUS and the strength of custom publishing, we are seeing those alternative models reaching a point where they can certainly compensate for the rate of decline in traditional print textbook sales..

It’s helpful.

The Deltak you have said would be diluted by about $0.10 this year, what are your expectations as we start to look out at fiscal ‘15 for earnings contribution?.

I will let John to tackle that, (just because) we are going to fight with each other to answer the question..

Hi Dan. So we will leave expectations for ‘15, so we get to the end of the year and start talking about our guidance overall, then we can give you a bit more about our expectations specific to Deltak at that time. I would say that we have had anticipated that Deltak would be dilutive on the order of $0.10 per share.

In our fiscal ‘14 we are tracking slightly favorable to that. So I would flag that and will provide more about our expectations for ‘15 when we get to the end of the year..

Okay. I am going to try one more in that front and we will see how we do, but you have said over half of the $80 million cost savings is expected to improve earnings in fiscal ‘15 this is a point where it clarifies because I think there is a lot of confusion out there.

If we conservatively assume $40 million is earmarked for earnings enhancement, how much of that $40 million is already in the numbers in ‘14.

In other words if we call that all else equal, should we assume $40 million uplift in pretax income next year or is it much more conservative than that?.

Well, I think the uplift for next year is a factor of how we end up concluding this year, but wait again until we get to the end of the year.

But I would note to be specific around our progress on restructuring we have said that the speed at which we are executing our restructuring plans is somewhat favorable and so whereas we had previously said that we would realize savings of approximately one-third of the $80 million run-rate.

Inside of our fiscal ‘14 we have already gotten to about $23 million cumulatively and the third of $80 million would have been about $27 million. So we are clearly tracking a bit ahead of that and therefore delivering more savings inside of the year.

But again I want to point out while we are on a faster track to realize savings our destination for ’15 continues to be the same $80 million run rate savings was at least half of that falling to the bottom line..

That’s helpful I will jump back in queue. Thank you..

We will take our next question from Ian Whittaker with Liberum..

Thanks very much. Two here I guess broad questions.

One just in journals I think you have had a good quarter and a good nine months, I mean would it be fair to say that there is not been any change in the overall market, the structural concerns that people had about open access haven’t really come through that you have still got moderate price inflation in the U.S.

and a focused growth in the faster growing markets. And the second of all, just on education it’s quite interesting to hear your comments just that you know it pretty much suspect the worst is over. In addition, the services can decline.

It certainly seems perhaps more reassuring message to them, what we have heard from the unfavorable comparison, a few weeks back that was just 2014 is going to be very difficult year.

Is there anything in mix of your businesses that insulates you perhaps from some of the issues that they are facing?.

Okay, thanks Ian. I would say your first question on journals I think it’s certainly true to say that our journal business remains stable and robust.

And although we saw some challenges particularly in Europe related mostly to budgetary concerns rather than structural issues relating to open access particularly after the last economic downturn, the demand remains really strong for the content, the demand for the publishing service remained really strong.

We continued to invest to add value to that content to make it more valuable to researchers as well as to authors. And so that business is holding up very well. And we believe we will continue to hold up well for as long as library budgets continue to grow even at modest levels.

And there are further opportunities we invest in the relationships and the content around our research journals to generate new revenue streams such as author-funded open access, which today is actually contributing to the overall growth of our journals business.

So it feels to us notwithstanding the continuing debate around access and the best way to avoid an access that the world recognizes the value of what research journal publishers bring to the table. On education, I don’t know, I am not going to comment on person’s own projections around this.

We have invested heavily in digitalizing that content in the education business. In particular, we put a lot of effort behind developing really high value integrated learning solutions around WileyPLUS and that’s something which I think is now beginning to pay dividends as those products and that format really resonates with the marketplace.

There is still I think some confusion in the market for print books around blurring of channels, particularly with the development of rental, but I do feel that we have seen much of the disruption that we are going to get from rental. It’s still a challenging marketplace in 2014.

We certainly know from looking at market data that Wiley continues to win market share in the U.S. Our aim is to continue to do that by offering products and services that delight our customers and help teachers teach and students learn..

Okay, that’s very clear.

Actually just one follow-up just on the rentals, (indiscernible) was saying in their conference call that they expect price deflation in the textbook market to accelerate in 2014, I just wondered if you have got any thoughts on that?.

Well, we have talked about the rapid decline in traditional textbook, traditional print and textbook sales being offset by growth in sales of other formats, including WileyPLUS digital books, custom etcetera.

There is no doubt that, that the first purchase by students for those alternative formats is at a much lower price point than the traditional textbook, because we are able to offer students more value for their purchase, because those books or those formats are not going to find their way back into the used book market.

So the high price of the traditional print textbook was really a phenomenon in the industry designed to offset the fact that you get to sell those once they turn two or three times more through the used book market or through the rental market in following years.

So there is price deflation in terms of what the student pays, but our thesis is that by offering more value to students we can sell something to every student every semester and not see that the heavy attrition that comes off of the first year for a traditional print textbook model..

Okay, that’s right. Thank you very much..

Thank you..

We will take our next question from David Pang with Stifel..

Implied guidance, is that the fourth quarter was going to be down slightly? Can you discuss the puts and takes for the fourth quarter? And secondly, when you look at your portfolio of assets, is there are anything that you feel you need to add? Thanks..

David, your line is not altogether clear. I think the first question you are asking about the fourth quarter with a question whether our guidance implied the fourth quarter will be a down quarter and I didn’t catch this….

Yes.

Can you hear me a little better?.

Yes, that’s better..

So David, it’s John. With regard to your question about our guidance for the quarter ago and whether that implies the fourth quarter is down, the trends in year-over-year that we see for the fourth quarter are very similar to what we have described during the course of this year and including the third quarter results.

So, in particular, we will continue to see building restructuring savings that are offset by – are largely offset by increased comp accrual and investment in the business.

And you recall in the year ago period, we had a very low comp accrual, so similar to this quarter, we will expect the comp accrual versus the prior year to be up $8 million or so on a year-over-year basis.

And then the improvements that we will see through low single-digit revenue growth maybe offset by some other costs, including I would note that in the year ago period, we had a lower effective tax rate due to some true-ups in terms of sources of our income over the course of the year.

So there is mitigating factors, but it’s similar story around savings from restructuring being offset by the comp accrual and reinvestment in the business and then some other puts and takes around margin growth and other changes in this case you should anticipate there is a different effective tax rate for the quarter..

Okay.

And on the acquisition pipeline, when you review your portfolio of assets, is there anything that you guys feel you need?.

Well, in our investor conference back in September, if you recall, David, we made an operational statement that we’d like to drive the company towards 25% of total revenues coming from solutions and services businesses by fiscal year 2017.

In recognition that those businesses in areas like talent management, career services, educational solutions, certification and test preparation, those businesses have, in their very nature, a higher potential revenue growth than some of the still very attractive and profitable businesses that form our base business.

So we have made some I think strong acquisitions and investments in those spaces over the last couple of years that give a good signal of where we think this company needs to head.

And if we can find additional opportunities and we expect and as that you will that have sound economics that fit with our strategy of growing our solutions based businesses in areas that appeal to our existing customer base in research, education and professional practice, then we will certainly use the power of our balance sheet to go ahead and make further acquisitions..

Okay, thank you..

We will go next to Mark Braley with Deutsche Bank..

Good afternoon. Just a couple of questions both on Deltak.

Can you give us a feel for what are the pricing trends in that business in terms of your share of the tuition fees, I think you have previously talked about 40% to 60% (indiscernible) and when I talk about a 50% figure, I am kind of wondering whether do you expect that to maybe lower over time as the university has got a bit kind of smarter about this.

And as if you use the underlying business comes up for renewal, are they going to effectively try and take some of the value back in? And then the other question, which you said that you were tracking slightly favorably against the $0.10 dilution guidance with Deltak, do you just want to give us a feel for why that is? Is it your kind of original $0.10 guidance was really that conservative or have you actually grown in that business a bit slower than you anticipated when you outlined the $0.10 or is it something else?.

So, I am sorry is it Mark or Mike?.

Mark, Mark..

Mark. So Mark, we don’t disclose our pricing strategy. So, I don’t think it would be perfect we do comment other than decide at the 40% to 60% that we talked about previously still remains largely true. This is a complex business.

There are different relationships with different partners, have different criteria and we look at each relationship in the rounds to look at the power of the brand of the institution.

The level and value of services that each member of the partnership offers, because we don’t – they are not always exactly the same in terms of what’s offered and come up with a competitive offer that drives an attractive return for Wiley and Deltak but then also it serves the partners needs in terms of really helping them expand their reach and create new revenue generating programs.

The $0.10 dilution guidance, I will let John talk briefly to that and....

Yes, I would say just we are probably somewhat conservative around our expectation in terms of profit impact for the years.

We have made our way through the years I would say that our progress in terms of investing and growing the business has been in line with our expectation as Steve commented earlier we are now up to 36 partners, so we have done an excellent job adding partners to the business and we are up to 165 programs.

I think when we acquired Deltak, well over a year ago we are at 107 programs. So 107 now up to 165. So our progress around attracting partners and programs has done quite well. So it’s a – we are tracking in line with what we expected to do at this point..

Just one follow-up in the quarter you did have quite a big step up in the numbers, Deltak programs base generating revenue and (indiscernible) total numbers you have maintained your backlog there, is there a single university that you – or partner that you can call out there that was relevant in that good move during the quarter?.

I am sorry there isn’t anything that we can disclose on the quarter on an individual partner basis..

Okay, I understand. Thank you..

Thank you..

(Operator Instructions) We will take our next call from Daniel Moore with CJS Securities..

Thank you again.

Just curious looking at the individual sectors, what’s happening in engineering and computer science, is there any increased competition or is print text simply falling off a little bit more significantly or quickly in that segment?.

So Dan, I may not be able to put my finger on an immediate answer to that question. The performance of individual categories can sometimes be driven from year-to-year by the new title output and particularly when we have big franchise products they can swing the overall category performance.

So that’s certainly true in our accounting program year-on-year. Engineering and computer science for Wiley is an area where we publish mostly at the upper end of the undergraduate curriculum.

It’s also the area where we have had the highest penetration of our sales into markets in Asia and in the developing world, so some of that category performance could be driven by changes in the performances based programs in Asia related to the (indiscernible) judgment last year.

But I wouldn’t want to – I am speculating a little bit about that although I suspect that’s probably got something to do with it. I wouldn’t really want to go any further than that at this point, but if you would like us to find you the answer we can certainly, Brian can provide you that within the next few days..

It’s okay. Thank you.

And just one more balance sheet obviously continues to get better, leverage is declining, can you talk about may be just the landscape for acquisitions in the pipeline, you have been very successful over the last few years, are sellers for the types of opportunities you are looking for a rationale just a little bit of sense of the pipeline of opportunities over the next year or so?.

Some of them are rationale and so we are focusing our attention on those who – with whom we believe we can come to a deal. The pipeline remains strong, things move in and out of the pipeline.

We are still very focused on securing assets and capabilities that can really help while you achieve this longer term strategic goals and that’s a fine business is that can raise the performance of Wiley in total by tapping into customer segments, content areas where we already have the penetration and having additional value to the content and the relationships we have today.

So there is nothing specific to say about that today. But it’s an area where we still believe there are opportunities and we expect to be able to report on some progress there at some point in the coming quarter..

Very good, thank you..

With no other questions in queue, Mr. Smith I will turn it back to you for closing remarks..

Well, we thank you for joining us on the call today. And we look forward to updating you on our fourth quarter and full year results in June. Thank you..

Ladies and gentlemen, this does conclude today’s conference. We thank you for your participation..