John Wiley & Sons Inc (WLY) 2006 Q2 法說會逐字稿

Good day, everyone, and welcome to the John Wiley & Sons conference call. Today's conference is being recorded. Before introducing Will Pesce, President and Chief Executive Officer, I would like to remind you that this discussion will contain 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 obligation to update or revise forward-looking statements to reflect subsequent events or circumstances. At this time I will turn it over to Mr. Pesce. Mr. Pesce, please go ahead, sir.

Thank you. Good morning and welcome to Wiley's second quarter conference call. I'm with Ellis Cousens, Executive Vice President and Chief Financial and Operations Officer. I'll begin with an overview of Wiley's second quarter performance. Then Ellis and I will respond to your questions. As noted in the press release issued earlier today, second quarter revenue of $263 million increased 6%, EPS of $0.45 increased 7%, while net income increased 2%. The growth in net income was adversely affected by increased interest expense and a higher effective tax rate, while the share repurchase program had a positive effect on EPS growth. Gross profit as a percent of revenue improved in the quarter reflecting the positive effect of product mix. Operating expenses increased over last year's second quarter by 8%, excluding the unfavorable effect of currency. The increase was mainly due to technology related spending.

The quarter's results were driven by continued strength in our global STM business. US P/T revenue was up from last year's second quarter and our Higher Education business rebounded from a tough start to the year. Results in Europe were particularly strong. Year-to-date revenue of 499 million and EPS of $0.78 were both up 5%, excluding the income tax benefit which was explained in the press release. For the first half of the year operating income advanced 7%. Operating expenses increased by approximately 6%, excluding the unfavorable effect of currency. As expected, cash flow after normal investing activities, or free cash flow, was below prior year reflecting the combined effect of receivable collections being lower than last year's strong collections, increased inventory purchases, and an income tax refund that we received last year. During the first half of fiscal year 2006 the Company repurchased nearly 1.4 million Wiley shares at an average price of $39.58.

Wiley completed the refinancing of its bank loan facility in the second quarter, replacing it with a five-year $300 million revolving credit facility led by the Bank of America. Bank commitments were double the amount requested confirming Wiley's status as a sound credit risk. The margin on the new financing is below the former facility and its terms provide increased operating flexibility for the Company. I'd like to provide some information about Wiley's core businesses. Our US STM business is having a solid year. Second quarter revenue of $49 million was up 6% from prior year. Direct contribution to profit of $23 million increased 10%. Gross profit as a percent of revenue was better than prior year. Year-to date US STM revenue of $98 million was up 6% over prior year, while direct contribution to profit increased 10%.

Journal revenue, including digitized back files and advertising, as well as the sale of databases contributed to the year on year growth. New and renewed Enhanced Access Licenses were signed by customers around the world and full text accesses increased significantly over the comparable prior year period. The STM book program continues to perform well against a strong performance last year. Globally the STM book program was up approximately 11% over prior year for the quarter and the six months. On-line book licenses are growing, with strong interest in Asia and the U.S. During the second quarter, Wiley completed its acquisition of InfoPOEM, Inc., a provider of evidence-based medicine content and web-based search tools.

While this acquisition is relatively small, it's consistent with Wiley's strategic goal to leverage technology to provide more content, more services, and, therefore, more value to our customers. P/T revenue for the second quarter of $95 million increased 7% over prior year. Direct contribution to profit of $26 million was down 2%, mainly due to product mix, specifically increased sales of higher cost imported and consumer cooking titles. The timing of advertising costs also contributed to the year on year decrease in profits. P/T's year-to-date revenue of 173 million increased 5%, while direct contribution of profit of 44 million advanced 6%. Sales in August and September were terrific, but the last six weeks of the quarter were sluggish partly reflecting the impact of the hurricanes on retail sales. Nearly all publishing categories in P/T exhibited growth during the quarter, with the technology and business book programs performing especially well. Revenue from the recent acquisition of Sybex, a global publisher of computer and software information titles, contributed to the year on year top-line growth.

Cooking sales were driven by the successful release of the 10th edition of the Betty Crocker Cookbook, representing the largest single print run in Wiley's history. The travel category was adversely affected by the hurricanes, fuel costs, and the ongoing struggles of the airlines industry. Licensing of rights and on-line revenue had a positive effect on results. Fortunately, Higher Education rebounded in the second quarter after a slow start to the year. Second quarter revenue of $42 million was up 3%, bringing year to date revenue over prior year. Direct contribution to profit was down in the quarter but consistent with top-line growth for the six months. Solid sales of science, business, mathematics and engineering titles partially offset some softness in social science. Sales of Higher Education's top ten franchise products were up nicely over prior year.

WileyPLUS continues to gain momentum as more students and professors are introduced to this integrated suite of resources. WileyPLUS is now available with approximately 100 titles and more than 130,000 units have been sold this semester, representing a significant increase over the same period last year. It's noteworthy that sales of WileyPLUS are deferred, with the majority of the revenue being recognized over the course of the second half of the Company's fiscal year. Excluding the impact of the deferral, Higher Education revenue would have increased in the quarter and for the six months by 4% and 3%, respectively. Wiley Europe's second quarter revenue of $77 million increased 13% over prior year, or 14% excluding foreign currency effects. Year-to-date revenue was 10% including and excluding the effect of currency. Direct contribution of profit for the quarter and six months reflected the combined effects of the revenue growth and favorable product mix. In Europe our P/T and STM businesses performed well.

October was a record month in the U.K., reflecting the extraordinary results of SuDoku For Dummies. Sales of the three SuDoku titles exceed 500,000 copies worldwide. Our U.K. Company completed the acquisition of four journals during the quarter. While these journals will not have a significant effect on revenue, they fit nicely with existing Wiley content. Excluding foreign currency effects, revenue in Asia, Australia and Canada was up 7% in the quarter, 3% for the six months. In Asia all of Wiley's businesses contributed to the growth. Results in Australia were adversely affected by the timing of sales in the higher education and school markets. After a sluggish start to the year, second quarter results were encouraging in Canada. In conclusion, I'd like to summarize the key points. Wiley's second quarter was strong, with all our businesses around the world contributing to the year on year growth.

Based on year-to-date results, leading indicators and market conditions, we anticipate full year revenue growth in the mid to high single-digits and EPS growth in the high single-digits. Wiley's global STM business is having another solid year. Wiley InterScience continues to be embraced by our customers around the world as we provide more access to more content to more people than ever before. P/T had a very good quarter, it started strongly but the last few weeks were sluggish. As always, the forthcoming holiday season is important. Higher Education rebounded in the second quarter. WileyPLUS will have a positive effect on revenue growth during the balance of this year and beyond. Wiley's businesses outside the states are well positioned to contribute to the Company's growth in fiscal year 2006. Our balance sheet is healthy. As expected, our cash flow was below last year's record setting performance. That being stated, we remain confident that we will continue to generate healthy levels of cash flow while continuing to invest in Wiley's future. With that as background, we welcome your comments and questions.

Thank you, Mr. Pesce. Ladies and gentlemen, if would you like to ask a question you may do so by pressing the star key followed by the digit one on your touchtone telephone. If you are joining us on a speakerphone, please be sure your mute function is turned off to allow your signal to reach our equipment. Once again that is star, one if you would like to ask a question. And our first question will come from John Christiano with UBS.

Good morning.

Good morning, John.

I would Like to ask you a question just on CapEx and what your outlook is for the remainder of the year. It's been tracking a little bit below what I had thought, so if I can get your thoughts there. Then secondly, if you can just talk about the repurchase program. You've been pretty aggressive so far and I think you have about 4 million authorized, I guess you've purchased about 1.5 million. So what your plans are, is there a set number that you're expecting to get to by the end of the year? If you can address that? Thanks.

John, this is Ellis. In terms of capital spending I think we're essentially on track with our plans that we've set out at the beginning of the year in terms of capital spending. I'm including in that, even though I break them out separately, I'll talk about product development and capital spending both. So, it's a bit difficult to predict some in terms of timing on the capital spending side but I think we're pretty much on track with what we planned for the full year. So we're a little bit light versus last year, but I think that's roughly what the plan is anyway. In terms of the share repurchase, you're right, we bought about 1.4 million shares through this year thus far. We don't have a set amount certainly, but we do have, as you say, open authorization and can certainly purchase up to 4 million shares before we need to get reauthorization from the board. That being said, we've been in the marketplace from time to time and if conditions permit, we'll continue to be there. That is subject to, as you know, kind of the level of float in the marketplace and other circumstances and the like. But we have no expectation at this stage to change our plans right now.

Okay. Then just following up then on CapEx, and I know you do breakout both numbers, do you have like a goal then? Is it going to be comparable to last year or lower for either of those items?

Well, at the beginning of -- or at the end of last year, the beginning of this year, when we talked about the level of free cash flow performance last year, which hit a record, we talked about the fact that capital spending, excluding product development, was relatively flat over the past three years or so and we expected some increase there. I still expect that to be the case, but that is the smaller piece of the two pieces of what is let's call capital product development, capital spending.

Right.

So I do expect it to be roughly, it's a bit difficult to predict, but roughly in line with last year to maybe a little bit more. But it still is a bit hard to judge. The second half matters quite a bit, particularly on the capital spending side, meaning software development, that kind of thing.

Okay. All right, thank you.

You're welcome.

Ladies and gentlemen, as a reminder it is star, one if would you like to ask a question. And as a final reminder, please press star, one to ask a question or make a comment. We'll pause to give everyone a final opportunity. Mr. Pesce it appears we have no further questions, sir. I'll turn the conference back to you for any closing or additional comments.

In case you don't know, Ellis and I will be conducting a presentation at the UBS Annual Global Media conference tomorrow at 11 a.m. We hope to see some of you there. Thank you for your continued interest and support. We look forward to speaking with you again after the third quarter. Thank you very much.

Thank you Mr. Pesce. Ladies and gentlemen, that does conclude today's conference. On behalf of John Wiley & Sons I would like to thank you for your participation. Enjoy the rest of your day.