Good morning and welcome to Wiley’s Second Quarter Fiscal Year 2021 Earnings Call. As a reminder, this conference is being recorded. At this time, I'd like to introduce Wiley's Vice President of Investor Relations, Brian Campbell. Please go ahead..

Thank you. Good morning, and welcome to Wiley's second quarter 2021 earnings update. With me today are Brian Napack, President and Chief Executive Officer; and John Kritzmacher, Chief Financial Officer. Brian and John will make some formal comments and then we'll open up for some questions. A few reminders to start.

The call is being recorded and may include forward-looking statements. You shouldn't rely on these statements as actual results may differ materially and are subject to factors discussed in our SEC filings. The company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances.

Also Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These measures do not have standardized meanings prescribed by U.S. GAAP, and therefore, may not be comparable to similar measures used by other companies, nor should they be viewed as alternatives to measures under GAAP.

Unless otherwise noted, we will refer to non-GAAP metrics on the call and variances are on a year-over-year basis and will exclude the impact of currency. After the call, a copy of this presentation and a playback of the webcast will be available on our Investor Relations webpage.

I'll now turn the call over to Wiley's President and CEO, Brian Napack..

Good morning, everyone. Thanks for joining today. Our performance this quarter underscores the value of Wiley’s role in the global economy. Through the year, we've seen an acceleration of the trends that have defined our markets for years. And this is driving a strong increase in the demand for scientific research and online education.

Our first half performance demonstrates that our longstanding strategy to lead an open research in digital career focused education is paying off, especially in these extraordinary and challenging times. Now, more than ever, the world is turning to research and education to help solve its unprecedented challenges.

Scientific research is firmly in the spotlight and is more and more integrated into both corporate strategy and public policy. As part of the United Nations’ sustainable development goals, countries have pledged to substantially increase their R&D spending and their number of researchers by 2030.

Today, as always, we see investment flowing into the most critical fields of study, including areas such as renewable energy, artificial intelligence, and of course, vaccine science. This demonstrates how peer reviewed research always remains essential to both problem-solving and innovation.

At research institutions worldwide, demand to publish high quality research keeps growing, and this is evidenced by a rapidly increasing publishing output. The demand to apply this research is also growing rapidly. And this shows in the record consumption of scientific content on our platforms.

COVID-19 has brought the future of education forward, accelerating the digital transformation of learning in universities and companies; and now of course, in our homes. Career enhancing education is increasingly delivered online and it is finally becoming more affordable and more broadly available, exactly what the world needs.

Once again, post-secondary education is proving to be countercyclical as people seek a leg up in a tough job market. Despite the practical challenges of delivering education in a pandemic, enrollment this fall in both four-year and graduate degree programs has been much better than initially anticipated.

And we've seen very strong demand for our online degree programs. We've seen similar growth in our digital content and courseware, as people have pivoted to these lower priced, higher impact products. Beyond the traditional degree, demand is also increasing for new forms of credentials that are more focused and more affordable.

And that demonstrate that workers have exactly the skills that employers need most. Across Wiley, we view our role is to connect education to career outcomes. The pandemic has only accelerated the global focus on closing the skill gap, especially in areas such as IT and digital skills. And this has validated our focus on these areas.

Our strategy and research has been consistent, publish more and publish better, accelerate profitable growth and education services and drive growth in online curriculum and courseware. Our investments in these areas are producing results.

Research Publishing & Platforms delivered robust growth again this quarter with increasing profitability driven by continued gains in open access. In Education Services, we continue to deliver strong online enrollment growth and win university partnerships.

Importantly, we exceeded our fiscal ‘22 EBITDA margin goal of 15% both in the second quarter and for the first half of fiscal ‘21. As a reminder, our Ed Services plan is for double-digit revenue growth with sustainable EBITDA margin of at least 15%.

In Academic & Professional Learning, Education Publishing continue to gain momentum as the digital transformation of university education accelerated with revenue growth in digital content and courseware now outpacing the decline of print book sales. We continue to gain share in this highly competitive market.

Professional Learning remains weighed down by COVID-19 lockdowns, particularly in the face-to-face corporate training, although we are seeing very good early results from our rapid transition to online delivery. We continue to drive cost savings throughout Wiley and the pandemic has allowed us to move even faster.

As a digital company with a mission-driven culture, we transitioned rather seamlessly to a virtual operating model. Based on this success, we will be enabling more of our Wiley colleagues to work remotely post-COVID, allowing us to reduce our real estate footprint and generate material run rate savings.

Finally, Wiley’s free cash flow through the first half was $32 million ahead of prior year, primarily due to improved earnings. Let's talk about our Q2 results in more detail.

Growth in our areas of strategic focus, such is research, online education and digital courseware offset COVID-driven declines in print books, test prep and in-person corporate training. Revenue rose 4% over prior year and was even on an organic basis.

Our earnings improvement this quarter was primarily driven by good top-line performance, cost improvement from business optimization and COVID-related savings. Adjusted EPS and EBITDA and adjusted EBITDA were up 7% and 12%. On a GAAP basis, we reported an additional $14 million discreet tax benefit related to the U.S. CARES Act.

For the half, revenue was up 3% over prior year to $922 million. Adjusted EPS was up 33% to $1.41 and adjusted EBITDA was up 19% to $202 million. Our strategies in research to grow open access to drive platform growth and optimize our publishing operations continue to bear fruit, with revenue and adjusted EBITDA up 5% and 14%.

Our adjusted EBITDA margin in the quarter was 37%, up from 35% in the prior year period. Underlying the business, we see very strong growth in article output, up 22% over prior year.

Some of the increase can be attributed to the unique environment we're in with the largest growth coming from pandemic-related subject areas like clinical medicine and epidemiology. That said, we believe strong demand to publish is here to stay.

It's important to note that demand was very robust prior to COVID-19 with article submissions up 9% in the nine months through January 2020. So we're seeing strong secular growth in the demand to publish, which of course directly benefits us, especially as we grow the volume-driven open access model.

Our strategic national agreements in Europe are succeeding and they are generating publishing volumes that are materially exceeding our expectations. As a reminder, these multi-year agreements are a combination of pay-to-read and pay-to-publish models. And they are typically done with large national consortia in places like Germany and the UK.

We're seeing great momentum coming from these agreements in the form of increased article output and new publishing opportunities. This quarter, we launched Natural Sciences, a major new flagship journal brand created in partnership with the influential Projekt DEAL consortium out of Germany.

We're very excited about this promising top quality journal that will publish only the best research around the world. On the consumption side, usage of our content continues to be very robust with continued double-digit growth in full text downloads on the Wiley online library.

Revenue from our Research Platforms rose 11% on new customer launches for Literatum, our industry-leading content distribution platform. Our customer retention rate on a trailing 12 month basis continues to be an exceptional 98%. Corporate solutions, which is another growth area for us in research, continues to gain momentum.

For example, we've been expanding our career center platform offerings, and this is starting to pay off in even deeper relationships with our leading network of societies, associations and corporations.

For example, we now manage the job board for the world's largest scientific society AAAS the American Association for the Advancement of Science, and we recently secured job board contracts with the global pharmaceutical companies, GlaxoSmithKline and Pfizer.

As a company, we're acutely focused on serving researchers and building a vibrant ecosystem that helps them to succeed and our results are showing it. In the second half, we have two key objectives.

First, successfully close calendar year ‘21 subscription renewals; and second, take full advantage of the continued strong demand to publish in our journals. Through October, we closed about 20% of our annual renewals compared to 16% at this time last year, and we've made great progress in renewing key accounts.

That said, we continue to anticipate modest pricing pressure in subscriptions due to COVID-related constraints and library budgets. But we expect to offset this with strong growth in open access, where revenue is a direct function of the quantity of articles published.

As a market leader with nearly 1,700 journal brands and an unmatched reputation, we're in a terrific position to publish more, including publishing more of the submissions we receive. In the nine months of calendar year ‘20, we received over 600,000 submissions, accepting around 25% of them.

Many rejected manuscripts are high quality, but just don't fit a particular journal. We continue to improve the efficiency and transferring these articles to other Wiley journals, where they do fit without sacrificing quality. We're now using artificial intelligence to seamlessly evaluate and route articles to appropriate journals.

Given the breadth of our journal portfolio, this cascading capability provides an important competitive advantage and source of growth. Overall, researchers want their work published in the best journals possible, and they want it published faster and they want it made more discoverable.

Thus, we continue to enhance our publishing portfolio and drive innovation throughout the publishing process. This allows us to consistently improve the impact of our journal brands and the value proposition for researchers.

As part of this, we continue to reduce publishing cycle times, which increases researcher satisfaction while also improving our margins. In Academic & Professional Learning, we continue to deliver on our strategies to grow digital content in courseware focused on career-oriented disciplines and pivot to online corporate training.

Education Publishing revenue was even with prior year as digital growth offset print decline, and the impact of COVID-19 on test print. Digital content revenue rose 32% in zyBooks, our STEM courseware platform rose 46%.

Overall, we continue to gain market share in higher ed publishing growing it from 4% in October ‘18 to 5% in October ‘20 on a 12 month trailing basis. Notably, fall enrollment numbers in higher education continue to be better than we had anticipated in the early days of COVID, although still down around 4% overall.

In the past two years, we've been saying that our strategy to drive digital adoption would allow us to return to growth by driving significantly higher digital units from increased sell-through as we use digital courseware to recapture units that were lost to the sale of print books through non-revenue generating channels.

As you can see in our strong digital growth, the strategy is working, and we'll continue to capitalize on this favorable momentum. As noted, Professional Learning continues to be adversely affected by COVID-19. Revenue was down 13% primarily due to severe limitations on in-person training.

Results improved in the second quarter, as we shifted to virtual learning, grew trade publishing output and benefited from some improvement in our bookstore business. Our Dummies franchise was a bright spot this quarter with solid year-over-year growth from the publishing of timely new titles on topics such as Succeeding in Virtual Work Environment.

Overall, Academic & Professional Learning revenue declined 5%, a significant improvement over the 12% and 16% declines we saw in the prior two quarters. Adjusted EBITDA was down 10% for second quarter margin of 29%.

Our strategy to help students achieve better outcomes while making education affordable and accessible is playing out in the success of our digital courseware platform, zyBooks and Knewton/Alta. We recently completed a breakthrough pilot for zyBooks at the University of Phoenix involving over 800 students.

The data clearly showed that zyBooks helps students to persevere with their studies and significantly improve their performance on mid-term and final exams. This, along with an affordable price, is helping zyBooks to win large course adoptions and grow by strong double-digits.

In other news, we recently announced a partnership with Southern New Hampshire University to redesign its online MBA program, which effectively removes two huge barriers for learners, cost and time to completion. Southern New Hampshire is the largest non-profit provider of online higher education in the country with over 135,000 students.

To build this program Wiley collaborated with the AICPA, the Association of Certified Public Accountants, to deliver business courses that allow learners to complete their MBA in one year and at a materially lower cost than traditional degree programs.

For the second half, we expect current trends to continue, namely, the digital content and courseware will grow strongly despite online enrollment headwind. Print books, test prep and corporate training will remain challenged by COVID-19, although corporate training will continue to recover as it transitions from in-class to virtual delivery.

I am pleased to report that 84% of our corporate training sessions are now being delivered virtually, up from 20% at the same time last year. We expect our trade book sales to improve in the second half as we continue to publish more titles on high interest topics, ranging from diversity, equity and inclusion to remote learning.

Finally, we anticipate profit improvement in the second half, as we realize additional business optimization savings. In Education Services, our strategies to grow online program enrollment, to sign university partnerships and to drive strong profitable growth are working.

For the quarter, revenue rose 27% or 6% organically driven by a 13% growth in student enrollment. New student enrollment in our existing degree programs grew 22%, a reliable leading indicator of future revenue growth.

Strong gains in our traditional tuition share programs were partially offset by lower sales of unbundled services as some clients were constrained by COVID-related budget issues. We signed full service partnerships this quarter with the University of Montana and La Trobe University in Australia.

We also signed one of our largest unbundled service partnerships to-date with the University of Wyoming. The signing of La Trobe, one of Australia's largest universities with a total of 39,000 students builds on our strong education publishing presence in the Australian market.

The partnership will start with five graduate programs in healthcare and business administration that will launch in March. An important accomplishment, as I mentioned earlier, is that we exceeded our fiscal ‘22 EBITDA margin target of 15%, for the second quarter margin of 21% and first half margin of 17%.

This milestone reflects our sharp focus on profitable growth and the optimization of the student journey from marketing to application and enrollment. We are building a balanced growth business for the long-term. Our focus on filling the IT and digital skill gap continues unabated through COVID.

While hiring has been temporarily limited, corporate demand for tech talent remains higher than we originally anticipated, and we continue to fill critical roles for our bluechip customers worldwide. As a reminder, M3 creates job-ready talent for the world's leading corporations, including Bank of America, Morgan Stanley and JP Morgan.

It does so by finding, training and placing the right candidates directly into jobs with specific hard and soft skills these clients require. For the second half of the year, we anticipate strong online enrollment growth to continue and interest in online programs to remain high.

We see a solid pipeline of potential new university partners and expansive opportunities inside our existing base. We feel good about the unique position we're in. No other competitor in the space has Wiley's university reach and globally respected brand.

IT talent placement volume is anticipated to be steady for the balance of the year, as our corporate partners continue to build out their tech talent capacity. While M3's near-term growth prospects remain a bit muted due to COVID, the intermediate and longer term growth opportunity remains strong.

We will continue to make materials strides in business optimization and education services. The student journey from lead to enrollment is a particular area of focus with the resulting lower student acquisition costs, greater lead conversions and much enhanced user experience for prospective students.

We continue to invest prudently in the business to drive growth by signing new partners, launching new programs, driving online enrollment and exploiting new opportunities brought on by the accelerated shift to virtual learning.

We're also continuing to expand our offerings to provide learners with a full range of outcomes-based pathways to achieve their goals. For instance, we're gaining momentum with Wiley Beyond, a strategic education platform for corporations that helps employees to earn degrees and certifications through Wiley unmatched network.

We've signed our first corporate partners and see great opportunity ahead. Wiley Beyond is another area where we are bridging education and career outcomes. I'll now pass the call over to John to take you through our financial profile, cost initiatives and full your outlook..

Thank you, Brian. Our cash flow from operations and free cash flow were favorable to prior year by $23 million and $32 million respectively, primarily due to improved earnings, partially offset by unfavorable timing of working capital items.

As a reminder, cash flow is normally a use of cash in the first half of our fiscal year due to the timing of collections for journal subscriptions, which are concentrated in the third and fourth quarters.

Our strong balance sheet, consistency of annual cash flows and ample liquidity, afford us the flexibility to continue investing, acquiring and returning cash to shareholders.

Capital expenditures, including technology, property and equipment and product development spending, were $47 million through the second quarter, roughly $9 million lower than prior year.

We expect full year capital expenditures to be approximately $100 million with investment focused on adding and enhancing tech-enabled products and services in our core focus areas along with continued investment in process optimization and workflow automation.

With respect to acquisitions, we will remain opportunistic as we look to add scale and capabilities in Research Publishing & Platforms as well as online education.

Our quarter end debt balance was up $43 million compared to the same time last year, primarily due to acquisitions, while our interest expense was down $2 million benefiting from the lower interest rate environment. Our net debt-to-EBITDA ratio at quarter end was 1.9 times as compared to 1.8 times in the year ago period.

In terms of liquidity, we reported $86 million of cash on hand and we ended the quarter with undrawn capacity of $655 million. Our current dividend yield is around 4% and we expect to resume share repurchases under our existing repurchase authorizations as global economic stability returns.

As Brian noted, we've been expanding and accelerating our efforts to increase operational effectiveness and efficiency in this unique period. In research, we continue to invest in our publishing operations to drive improvements in publishing cycle time and cost per article.

Brian has also noted the successful launch of our AI-enabled Transfer Desk Assistant, and its immediate benefit to our articles cascade strategy. In Education Publishing, we are investing in e-commerce and direct channel capabilities to take advantage of the accelerated shift to digital content and courseware.

Through the half, e-commerce sales were up over 8% and now represent roughly 18% of Education Publishing revenue. In Education Services, we are further optimizing student acquisition and marketing operations, which continue to fuel our EBITDA growth there.

As part of our overall business optimization program, we recorded a restructuring charge this quarter of $2 million related to severance costs. We anticipate $4 million in run rate savings from these actions starting in fiscal ‘22. We continue to generate significant COVID-related savings on travel, events and facilities expenses.

We are taking actions to sustain much of these savings in our post-pandemic operations. Among these actions, we will implement a hybrid working model for many of our colleagues and reduce our real estate footprint by approximately 12%.

As a result of these real estate actions, we anticipate a third quarter pre-tax charge of approximately $15 million to $20 million, yielding $7 million to $8 million in run rate savings starting in fiscal ‘22. Turning to our forecast, we are now initiating full year guidance for fiscal 2021.

Although our visibility remains somewhat limited given the recent surge of COVID cases and the potential return to widespread lockdowns, we have a better handle on the challenges and opportunities triggered by the pandemic. And we have confidence in projecting our full year performance.

For the full fiscal year, we expect revenue in a range of $1.865 billion to $1.885 billion, up from $1.83 billion in fiscal 2020. At the segment level, we are projecting low single-digit revenue growth in research.

Education Services will deliver double-digit revenue growth, including the inorganic contribution from our M3 acquisition and mid-single digit growth on an organic basis. Growth in Research & Education Services will more than offset a single digit decline -- a mid-single digit decline in Academic & Professional Learning.

Revenue growth, business optimization gains and COVID-related savings will all contribute to improved year-over-year profit performance. We anticipate adjusted EBITDA of $380 million to $395 million, up from $356 million in fiscal 2020, and adjusted EPS of $2.50 to $2.70, up from $2.40 in the prior year.

And finally, we expect free cash flow of $175 million to $200 million, up from $173 million in fiscal 2020. The anticipated cash flow improvement reflects improved earnings, partly offset by unfavorable timing of working capital items.

Our full year forecast includes second half organic investments in strategic areas to fuel long-term profitable growth. The second half investment will largely be offset by business optimization and COVID-related savings. I'll now pass the call back to Brian..

Thanks, John. So, let me recap the key takeaways from our second quarter and first half. Our business remained strong, as the pandemic has accelerated trends that support the core strategy that we've been consistently pursuing, open research, online education and digital content and courseware.

We're seeing significant results from our efforts to publish more in research and grow our volume-driven revenue to accelerate enrollment and profitable growth in Education Services to return Ed Publishing to profitable growth by driving sell-through with affordable digital units and to improve margins by optimizing our structure and our processes.

Pretty sure, we're experiencing some COVID-related disruptions to in-person training and to print book sales, but this represents an increasingly small part of Wiley. Remember that around 85% of our revenue today is generated from digital products and tech-enabled services.

The year has presented numerous unexpected challenges, but Wiley performed very well during the first half of 2020. We will continue working hard to deliver strong performance for the balance of the year while taking advantage of this unique moment to accelerate our strategies and improve how we operate.

Although the pandemic continues to weigh on the global economy and parts of our business, our core markets are resilient, essential and counter cyclical. Of course, strategies in open research and online education are succeeding and prevailing trends in the market are reinforcing our direction to travel.

As always, Wiley's performance is a team effort. So, I want to thank our wonderful colleagues around the world for their commitment to our mission and for their many accomplishments this quarter. And as 2020 comes to a close, I wish them all and all of you a joyful holiday season and the best of luck for a happy and healthy 2021.

I'll now open the floor to any comments and questions..

[Operator Instructions]. Our first question comes from Daniel Moore with CJS Securities. Your line is now open..

Brian, John, good morning. Congrats on a really solid results. Thanks for taking the questions. Let me start with the -- call the online program management. But segment already exceeded your goal of 15% margin.

Do we anticipate being able to sustain that level of profitability from here going forward? Just wondering if there's anything unusual in terms of seasonality or some of the investments in H2 might push that down before it comes back up?.

Yes. I'll let John answer that after an initial comment. Basically, we set a target of 15 plus percent. We're over that now. We're very pleased and proud of that. We believe that we can operate this business consistently as we should profitably, while growing it significantly.

And I think that the expectation we should have going forward is the 15 plus percent. There is definitely some seasonality and some ebbs and flows as the year goes through. So I would basically reinforce the expectation rather than setting the expectation at a significantly higher level that we've already achieved.

John, do you have anything add to that?.

Very little other than to say yes, I completely agree that the year-to-date trend is a better way to think about sustainable performance. They are in line with our expectations around driving growth. So there is some seasonality. The six months trend is a better indicator of the momentum of our business there..

Very helpful.

Switching gears, talk a little bit less about it typically, but corporate and Professional Learning, wondering if you anticipate the switch to digital delivery that you're -- have taken obviously in midst pandemic, do you expect that to remain somewhat permanent and what implications might be for growth in margins longer term?.

Yes, it’s a great question. In corporate, like everywhere else and we've certainly seen it in our higher ed businesses, the transition to digital teaching and learning digital training is one that comes at the expense of some very long and well-established trends and behaviors.

We were extremely positively surprised by how well we would have been recovering from the initial shutdown of in-person training. It's bounced back significantly better than we thought. For example, originally we were down 70% and you can imagine, right, no in-person training means very little activity for us there.

But already we're back to down 30% and that's terrific. And at this point, I believe it's 80% or 85% -- I think 85% we had in the comments, are already virtual and we're getting people who are partners and companies who had said they would never go to virtual, all of a sudden doing virtual.

So we do expect that this has allowed us, as it has across our business to lock in the digital transition in many of the places now where teaching and learning exists. So how that translates into growth and into profitability remains to be seen.

But certainly trends that you've seen elsewhere as we move through digital transition should be consistent here. So yes we're moving faster than we thought, and we think we're locking in the game, but I think that's what really matters here..

That's certainly helpful. Maybe one more, just in terms of cash generation.

The guide, John 175 million to 200 million, just remind us timing, magnitude of any benefit of tax deferrals from CARES Act or if I'm getting that right? How that impacts cash flow this year? And just wondering if the $100 million CapEx is sort of the new norm? Or is that, you're sort of pulling forward some investments?.

Sure. So with respect to the cash flow projection for the year, again, our expectations around free cash flow are being primarily driven by our earnings improvement year-over-year, and we're showing some good strength there, as indicated by the full year guides that were given.

There is some adverse impact that we're anticipating with respect to working capital that's mostly due to, in some cases, elongated payment terms with certain customers, particularly on journal subscriptions. By the way, I should note that we're very pleased with our progress overall around collections.

We're seeing minimal risk at this point in terms of bad debt or defaults. And so, we're making really good progress on collections. But there's some elongation that plays into our forecast for the year. The expectation with regard to the CARES Act refund is that we'll receive that refund before the end of the year.

So, that will play into our cash results. I would just note though that on a year-on-year basis, our cash taxes paid within that projection will be essentially flat with that refund. So, it’s a neutralizing effect on cash taxes on this year..

Very helpful, and I'm going to sneak one more in. Capital allocation, just given the strength of the balance sheet, results and stickiness of the business and free cash flow trends that we're seeing, clearly better-than-expected, I guess why wait for an economic recovery to be opportunistic from a share buyback perspective? Thanks again..

Dan, I would say, at this point in time, we are striking a balance between investment in the business and returning cash to shareholders, and at the same time also navigating what is somewhat of an uncertain period of time. I think we're getting closer to being on the other side of that uncertainty.

And so, we continue to closely evaluate the opportunity to begin again share repurchases. But we're going to proceed with some degree of caution there. Again, looking for more economic stability before we go back deeply into our repurchase program..

Our next question comes from Sami Kassab with Exane BNP Paribas. Your line is now open..

Thank you and good morning, gentlemen. I have a few questions please. First on the research division.

Could you please comment on the rate of revenue growth you are seeing in open access in H1? And also, can you discuss how significant might be the risk of seeing and bundling of the big deals in the remaining 80% of your contracts that are still up for renewal? That would be for research. Then secondly on higher ed publishing.

I understand you guided for mid-single-digit decline Academic & Professional Learning. But could you guide for any revenue growth you expect to see in Education Publishing. Is it fair to expect a return to sustainable growth going forward in that sub-segment? And lastly, on OPM.

Can you please elaborate on what is driving the decrease in student acquisition costs? Are you seeing overall deflation in digital advertising price points for instance, or has it more to do with some company-specific cost actions that you're undertaking? Thank you, Brian..

Terrific, Sami, thank you very much for those questions. Our rate of growth in open access is very, very strong I believe and I'll ask John's actually give me the number now, what the growth was in the first half.

I believe it was -- well John, can you quote?.

So setting aside if you -- if we normalize for the impact of the transitional agreements that we have underway and get to, if you will, an operational number, we're on the order of 40% growth in open access publishing..

Yes, which is great, right, I think that’s exceptional growth. We're seeing very strong growth in open access, great enthusiasm for our brands.

The model as you know that P times Q, price times quantity model is one that we like a lot because it allows us to lock into the endemic growth into marketplace which as you know the article count in the world tends to go up by mid-to-high single-digits every year. And so we were very pleased with the growth we're showing.

And it comes from a lot of different places. Certainly we're getting far more submissions than we had. We're up in the high 20s with regards to the volume of submissions. I think it's up 28%. Our article output based upon that is up 22%. And that allows us -- we get these articles, it allows us to cascade them through our system.

So yes, we are feeling very good about the strong growth in open access.

If that's answering the question on that? The -- with regard to this big deal -- excuse me?.

Yes, please, with regard to the big deal?.

Yes. I thought John was trying to break in. Never mind. Yes, with regards to the big deal -- I'm getting some feedback here, so I'm sorry if I'm a little hesitant, there's some noise on the line. But with regard to the big deal, we have seen very consistent high renewals in our base of library, subscription customers.

As we discussed, we have some price pressure this year. We're seeing no evidence of an unbundling though because the bundle that we provide to our institutional clients is exceptionally important and plays a very, very important role in the success of their institutions.

Research winds up very high on the top of the pile of things that they have to have in order to be successful library, successful institutions, so they have a successful research and discovery program in their universities. And so we're feeling strong and confident about that.

With regard to higher ed -- and you asked a specific question about the expectations going forward there, higher ed is a business where print declines have gone on for some time. As we said, the digital growth is now outpacing the print decline. We're very pleased to hear that, but we do expect the print decline to continue for some time.

We do expect to return that business to profitable growth, as we said. We're not providing a time horizon on it because of the uncertainties in the marketplace.

But the strong growth that we're seeing in the adoption of our digital programs and the sell-through of in terms of we get in adoption, there’s a portion of the adoption students that we can monetize is significantly higher when we go digital.

So the math basically says we'll do better in the long run with lower price, higher impact products with greater sell-through. So we're confident that we will return to sustainable growth and we’ll keep our eye on it. And you'll keep your eye on that in the months and years to come.

With regards to OPM, our cost -- customer acquisition cost is -- has gone down because of an express strategy we made to improve the efficiency and the targeting of our advertising. We're much more efficient in the targeting of our advertising and in the spend.

And then we are much more efficient in the conversion of the leads that we generate into students. Very important. It's been a bit of a wild ride this year, as you can imagine, because of all the disruption in the marketplace.

But what we know is, students continue to be interested in getting education in order to advance their career prospects and our ability to get the right message to the right student is a testament to the efficiency and effectiveness of our marketing colleagues, and then the student journey from once that lead is acquired to once they are -- have applied and are accepted, is increasing significantly.

So, we're very pleased about that. There is no evidence of costs -- the endemic market costs going down for a lead. But we're just getting better at finding the right students and converting into -- finding the right -- potential students and converting them into the actual students..

This is very helpful. Thank you very much, Brian. I just don't understand why you allocate for higher publishing.

A bit more constructive in the sense that if we now have digital growth offsetting print decline, why would it reverse, is print to accelerate, is digital to slow down? Or what is the uncertainty that kind of holds you back from a more affirmative outlook, now that the inflection point seems behind us?.

Well, what I would say is -- I wouldn't say the inflection point is behind us, what I would say is what I said earlier, which is that digital is now outpacing print decline.

So, the issue here is that, for a number of years, the industry and we are not alone, has been looking for the bottom and print sales continue to be challenged as it continues to become less and less preferred format for the delivery and consumption of content.

So, we're just being conservative in what we're saying about when we will see the benefit from it. But what we do know -- and I think it's very important.

I share your confidence, but it is for -- and it is important to know that the vast majority of courses around the world are taught with content that is published by Wiley or one of the other leading publishers.

And as we move from print to digital, it allows us to repatriate those sales, many of which were going through used channels or rental channels, or other sorts of non-paid channels. So we are feeling good about the business. But calling the exact moment of pivot is another story..

So, it’s not a view that OER might become more of a competitive pressure going forward.

So, your conservativeness has nothing to do with a scenario where open education resources were to gain more share?.

No. We don't. What we have found is that, as we have -- as prices for our courseware have become more in line with expectations in the marketplace, we're gaining share, not losing share. And there is certainly a very small portion of the market that is OER at this point in time. But we participate in that market with our platforms.

And so, no, we don't view that as a threat to the business and the stuff that is moving, an OER tends to be -- OER that comes at a price point. And so -- and by the way, most of the OER stuff is based again upon published content. So, no, we don't view this as a -- my comments have no reflection on the OER phenomenon..

Our next question comes from Greg Pendy with Sidoti. Your line is now open..

Just wanted to understand the free cash flow guidance a little bit more. You mentioned a 3Q charge.

Is that a cash charge or a pre-tax charge on that upwards of $15 million?.

The Q3 charge, it will be a cash charge in the sense that -- in the sense of there are expenses that it will be -- these are facility charges, right? So there'll be cash outlays over time to continue to pay those leases. So it's cash charge in that sense, but it doesn't change the momentum of cash in the short-term.

Does that help? Does that answer your question?.

I think so. Yes, that helps..

Your question is really specific to the restructuring charge, right? And more broadly, I commented earlier that we've got a few moving pieces there are working capital elements at play, given just the timing of collections and some of the impacts that we've seen around COVID on the extended payment terms with certain customers to help get through difficult time.

So there's a bit of working capital movement, but the cash flows will be primarily driven by stronger earnings performance for the year, offset a bit by working capital. The restructuring charge really doesn't have a material impact on the timing of cash flows for the year.

And as I said, the tax refund that we're anticipating is a neutralizing effect on cash taxes for the year as compared to prior year..

And then just, I guess on that topic, just trying to understand -- I know you mentioned the extended payments for the accounts receivable. Should we be thinking about that, though, as in you've gone through 20% of the renewals.

So does that stay elevated for a while as you still have to work through 80% more renewals?.

No, I would not describe this as being directly tied to the progress of renewals. We're talking about extended payment terms in very limited cases, many of which are related to the timing of government funding in various countries around the globe. But I wouldn't call the timing of our renewals an indicator per se for the broader population.

It's really a -- it's a relatively narrow part of the population that is on extended payment terms..

Okay, great.

And then just one final one, just on the inflection point, just trying to understand that -- in digital versus print declines, and just trying to understand that how much of that is potentially just being -- I know it's being accelerated given COVID, and you've mentioned that, but how many students are potentially getting courseware bundled with their courses as they are online and may pivot back to print, I guess, if classes sort of return in-person? Is that a potential, maybe step -- slight step back that we might see? Not that the trend doesn't continue towards digital, but just trying to understand given the inflection point..

Yes, it's always a good question. The human behavior changes typically slowly. In this case, we've seen a very rapid change. And what we see across our client base is that students and professors are adopting first because they had to because digital -- you just need the digital environment, if you're going to teach virtually.

But now, what they're realizing is that it's working, and that they can do so much more with it. We don't view -- but in terms of a bundle, they're not getting -- there are certainly bundles in this business, but the courses are typically -- the content is not typically bundled, with the course.

The student typically has to go out and purchase that bundle, purchase that product themselves for the course. So, there's not a bundling unbundling effect, to be clear, Greg. There may be some professors or some students that choose to return to print, but we typically haven't seen that.

The trends for satisfaction with digital products, particularly versus print products has been increasing consistently over the years and is well above 50% now. And so, because of that, what we see is that this will be locked in and move forward -- will move forward with the digital units. I can't say, there won't be some -- some come back.

But, no, we view the acceleration of trends as an acceleration of trends. It's not a one-time thing to adopt to a -- adapt to an unusual event in the marketplace..

Our next question comes from the Matilda Derezano with Barclays. Your line is now open..

Hi. Thank you for taking my questions. I’ve got a couple. So, first, I wanted to ask, whether your guidance for low-single-digits in research for the year [indiscernible] after growth of 5% in the first half means that we should expect the journal growth to decline in calendar 2021 versus calendar 2020.

And then, I wanted to ask if you could give a bit more color on the pricing pressure that you are seeing in renewals, is that limited to U.S. institutions or more global? And lastly, what changed in enrollment in 2021 versus 2020? Are you budgeting for travelling for the college textbook business? Thank you..

Okay, John, why don't you pick that up, if you can? I did not get the third question. So, we may need to ask that -- we may need to repeat that one..

Let me respond, Brian, to the first two, and then we can come back for clarification on the third question. So, thank you. So, your question with regard to research revenue performance on the second half of the year. We are anticipating, in the research segment, modest growth in the second half, as compared to the second half of the prior year.

So, you're correct. It's presumed that we will realize a slower rate of growth. Some of that in our forecast is anticipating some pricing pressure, as we've noted, around the subscription renewals for calendar year '21. Again, we continue to expect that pressure to be modest. And so far, the evidence that we've seen is consistent with that.

But, we have somewhat limited visibility. So, our presumption at the moment is that we'll see some pressure there that will be pretty much offset, slightly more than offset by our growth in open access. But again, somewhat limited visibly, but those are our expectations.

You have pressure on the subscription side, upside on the open access side and that those are going to, relatively speaking, balance them out. In terms of the geography around pricing pressure, I wouldn't say that it's distinguished in any particular part of the globe.

As we see it today, it's largely a function of the health of the university customers that are our subscribers as research universities have a strong need for research. So far, the pricing pressure has been again limited in terms of both its breadth and depth.

So, there's no particular geography that I would point to, or no particular customer base, other than the institutions that are going to struggle more here are clearly those that have weaker overall financial position than challenges around getting through a pretty difficult period.

Could you then repeat for us your question around 2021 enrollment?.

Yes.

I was just wondering, basically what your expectations are for 2021 enrollments and how you're planning for that for your college textbook business compared to 2020?.

We haven't -- it has been a bit of a moving target since the beginning of the COVID crisis. As we indicated in our comments, enrollment has been significantly better than we expected it to be with undergraduate being down a little bit, and graduate programs and master's programs being up a little bit.

Significantly community colleges were hit quite hard. But, we don't have too much exposure in this community college market. Although it is obviously an important part of the education -- the education ecosystem. And so, it's been a bit of a moving target. We haven't projected the following academic year yet.

And so, we'll come back to that as we start to do an outlook for fiscal ‘21, which as you know for -- excuse me, fiscal ‘22, which as you know, doesn't start for us until the middle of calendar year ‘21.

So, no real comment on forward-looking, although we will continue to underscore that enrollment tends to be countercyclical and we expect the economic effect of COVID to last for quite some time..

Our next question comes from Matthew Walker with Credit Suisse. Your line is now open..

I've got three questions if that’s okay. The first is on open access. You got very strong in open access revenues. My understanding is that deals that you've been done on open access that would be like an upper and lower band of revenues that the university partners would pay.

So, no sort of direct linkage or exponential linkage to the volume of articles published. The thing from what you're saying that actually there is a big opportunity to generate revenue from the number of articles published. So, I was wondering if you could explain that.

The second question is, you've answered some questions on renewal seasons for journals and books. Have you seen any impact from universities using the unsubed company to help them get rid of unnecessary journals? And then, the third question is, you mentioned your market share in higher education.

I think, you said, I could be wrong, but it went from four to five, which is a very strong performance. That sort of implies that the market is a bit worse than your performance. So, what would your growth look like, if you hadn't gained any share at all? Thanks..

Got it. Hopefully, we'll be able to cover all those questions, or I should say, I'll be able to remember all those questions. We'll start with the OA growth. So first of all, let's remember that our OA growth, which is certainly very strong is made up of two parts.

One part is the traditional gold OA article-by-article business, which represents roughly two-thirds of the growth that we -- a little less than two-thirds of the growth that we have talked about this year. The other is the volume that comes from our strategic deals that we've been talking about for quite some time.

And so, that proportionality is important, first of all. Second of all, every deal is different. Every deal has a different structure and different flavor to it. So, there's no real way to fully answer your question in a single way. But, what I will say is, the model itself is built on price times quantity.

And typically, there may be an upper bound, but then there are also ways for those articles to be published anyway, because the articles continue to be delivered. And in each one of our deals, there is a -- this price times quantity mechanism exists. The question is, what happens if you do come to a maximum if there is a maximum.

And the answer is, those articles get published anyway. We have to figure out -- and somebody has figured out how to fund those articles. So, yes, there is -- every deal is different. The relationship for price to quantity remains, and it plays out in different ways, depending on the specific deals, geographies, budgets, et cetera of the cases.

So, hopefully, that addresses that question..

Brian, if I could just jump in. I would just point out that our open access business is much larger than just the transitional deals, right? They represent a significant element of our open access business. But, the majority of our business in open access is actually outside of those transitional deals.

And so, there is lots of opportunity for us to drive growth out of our improvements in OA volume..

Yes, yes, absolutely. And as I was saying, it's sort of a one-third, two-thirds with one-third -- a little more than one-third being the deals that John and I are talking about. If that's what you're referring to, John, I think it was..

Yes. Sorry..

No. It's fine, fine. Great. The second question was on renewals and the ability or desire of the universities or the librarians to use different sorts of services and different sorts of approaches to more -- to figure out how to reduce their paid commitments.

And we have not seen this is -- it’s certainly in the marketplace, certainly any smart buyer is always looking for ways to make sure they're only paying for what they really need and really use.

And in fact, our relationships over the years have become increasingly focused on the performance, meaning the usage of the subscriptions that people are paying for, meaning the access to the content.

We've talked extensively about how significantly higher, how significantly elevated those have become over the last couple of years as our usage of our content increases, certainly accelerating in this past year. So, there is less belief than you might expect that it is not something that they ought to be paying for.

And we have not seen a material impact of any third-party services that seek to help libraries tailor their subscriptions. We haven't seen that effect in any material way on our business. Then the last question. Let me see if I can recall it now. Market share. So, yes, our market share has been increasing, and we are very pleased with that.

We're seeing it in increased adoptions, and increased sell-through as we succeed with our programs.

You will remember, if you've been following the story, which all of you have, that we took an approach of being very active and aggressive in our pricing in order to make sure that students and schools had access to reasonable pricing, which would drive, in theory, unit sales.

And happily, what we've learned is as we significantly reduced our price points and simplified our models and increased the models by which people could get access to content for cheaper, that our volume increases significantly offset our -- significantly offset our -- the effect of our price reduction. So, that's really good to hear.

Right? So, what we've been talking about for a long time is the normalization of pricing and value, where in the marketplace for higher ed content, there was perception that there wasn't enough volume delivered and the prices were too high. And everyone's familiar with that story. Right? The $250 textbook.

Well, now, we're seeing price point -- we’ve driven price points down to the -- in many cases $50, $60. And as we do that and in a very simple structure, and as we've done that, what we've seen is we repatriate more units than we're losing in that.

And therefore, we're giving these -- these digital products, which has significantly elevated value because of the homework system, that community, the ability to collaborate on these systems for teachers to work with students directly, so with elevated outcomes, elevated value at a significantly lower price.

And therefore, the marketplace is kind of happy with it and rewards it. And we've been particularly aggressive in that area. So, the market is sold that a lot of noise in the market as print declines and the digital grows.

But, what we are clear and confident on is that we are doing very well relative to the market because of the various actions we’ve taken to both increase quality, reduce price and ultimately service the market in a very, very tailored way.

The other thing to say is, we tend to focus -- we're much more focused than most of -- than most of the larger competitors. We are focused on areas where the content is absolutely necessary for the course -- for the student to be successful in a course in areas like accounting or IT and so forth.

And that's why we -- that’s one of the reasons why we can do better because the students can't do without our content. So, hopefully, that gives you some color on the market share facts. And we continue to be pleased with how we're performing there..

I think what I was trying to say is that all the people who post about being close to the tipping point, it just so happens that they individually have gained a lot of market share, but that suggests that the underlying market is not as healthy if you haven't gained any market share..

I would argue that you should study the industry statistics closely, and you'll see that there has materially been share shifts, and there has been consistent increase in the number of units sold in the industry. So, we won't go into discussion of relative performance to competitors.

But, what we can say is that we feel in the long run, we will have the units in the unit growth, and we will have -- we will continue to perform well relative to our competitors..

Okay. Thank you very much. Thanks for the help..

We have a follow-up question from the line of Daniel Moore with CJS Securities. Your line is now open..

Thank you. And I realize you've covered a lot already. Just ed services, just following up on the decline in marketing costs.

Can you just talk briefly about the profitability curve today for a new partner institution, compared to what maybe that was a couple of years ago? How quickly they get to breakeven and ramp to more mature levels of margins? Thank you..

Yes. So, every partner is different. Every partner requires a different upfront investment and every partner has a different profile to get to maturity.

What I can say is that the relationship between marketing costs and that is a significant relationship, and that our ability to be a much more efficient acquirer of student lead is helping us to make sure that not just we get there faster, but that all of our programs are profitable.

As you know we're very attentive to the profitability of our portfolio. So, I won't make specific comments on the times of profitability because it's so variable. But, I will say that our efforts to improve the efficiency of marketing and improve the efficiency of the student journey allows us to get there faster. I mean, that's the point.

As you know, Dan, as well as anybody, the upfront marketing investment is a big part of what we invest in when we stand up a new partner, and what we do. So, the more efficient we can be there, better the whole portfolio does, but certainly, the faster we are to profitability and in a new partner..

Understood. Okay. Thank you again..

We’re showing no further questions in queue at this time. I'd like to turn the call back to Mr. Napack for closing remarks..

All right. All I'll say is thanks for joining us today, and once again, happy holidays. We look forward to talking to you around the time of our third quarter results in March..

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect..