John Wiley & Sons Inc (WLY) 2010 Q1 法說會逐字稿

Welcome to the John Wiley & Sons conference call.

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 any 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 any forward -looking statements to reflect subsequent events or circumstances.

Mr.

Pesce, please go ahead.

Good morning, and welcome to Wiley's first quarter conference call.

I'm with Ellis Cousens, Executive Vice President and Chief Financial and Operations Officer and Brian Campbell Director Investor Relations.

I'll provide an overview and then we'll respond to your questions.

Fiscal year 2010 began reasonably well.

Higher Education had a very strong first quarter in all regions, benefiting from enrollment growth, a strong front lift and the success of WileyPLUS.

STMS results were mixed, Journal Subscription revenue was healthy while sales from books, advertising and back files were soft, while there is continued uncertainty regarding library budgets STMS is well positioned to navigate through this environment and gain market share.

Unlike last year, the calendar year 2010 journal renewal process is ahead of schedule.

P/T performed as expected and has begun the second quarter impressively as reflected in double-digit revenue growth in August.

Retail markets appear to be stabilizing and inventory is being replenished by major accounts.

P/T pas a strong front list and will benefit from incremental revenue related to two new publishing agreements.

Based on first quarter results, leading indicators and market conditions, we continue to anticipate full year revenue growth for each of our businesses a on currency neutral basis.

While our expectations have not changed regarding the underlying performance of our businesses, the local functional currency effect in fiscal year 2010 related to STMS journals will account for more of the projected year on year increase in revenue and EPS than was originally anticipated.

As a result, we are currently projecting that EPS growth on a currency neutral basis will be less than the 10% we previously anticipated.

If exchange rates are relatively stable over the remainder of the fiscal year, we anticipate on a reported basis, full-year revenue growth for all three businesses and EPS growth in the mid to high teens, from the $2.15 reported in fiscal year 2009.

Wiley's revenue of 388 million increased 2% on a currency neutral basis, but decreased 3% including the negative effect of foreign exchange which was $21 million.

Operating income growth was healthy, 16% on a currency neutral basis, and 25% including the positive effect of foreign exchange.

EPS of $0.45 increased 2% on a currency neutral basis but fell short of prior year by $0.05 including the negative effect of foreign exchange.

Excluding an after-tax insurance receipt in the prior year of $5 million, or $0.08 per share, and the negative effect of currency, EPS increased 21%.

On a currency neutral basis, STMS and Higher Education revenue exceeded prior year by 2% and 17% respectively.

On the same base, P/T revenue was 7% lower than prior year.

Including the effect of currency, revenue in the Americas was down from prior year by 2 million, EMEA was up by 8 million, while Asia Australia was up by 2 million.

Gross profit as a percentage of revenue of 68.7% was slightly up from prior year, on a currency neutral basis shared services and administrative costs were 5% lower than prior year.

Free cash flow was $14 million higher than last year, reflecting the effect of increased cash earnings, partially offset by the timing of income tax refunds and higher pension contribution, some of which were discretionary.

Net debt decrease by $92 million from a year ago.

I would like to provide some highlights for each of Wiley's core businesses, Global STMS revenue for the first quarter advanced 2% to 229 million on a currency neutral basis, but declined 5% including unfavorable foreign exchange of $15 million.

Increased revenue from journal subscriptions, new journal business and global rights was partially offset by softness in books, advertising, and back files.

Books and Reference revenue declined $5 million on a currency neutral basis major attributable to market weakness in the US and the timing of restocking orders.

Sell-through in the US improved in August.

We completed a major back file sale in the first quarter of last year, which also affected the year-on-year comparison.

Several on-line products are performing well, including Article Select, Blackwell Reference on-line, Cochran, Current Protocols on-line, Evidence-Based Medical Guidelines and Database.

Direct contribution of profit for STMS decreased 4% to $94 million on a currency neutral basis, or 3% including favorable foreign exchange.

The decline reflects the effect of a bankruptcy recovery of $2 million recorded if the prior year, as well as increased journal royalties and the timing of editorial and selling expenses to support new business.

STMS recently announced changes to its content management organization.

The primarily goals of this initiative are to reduce costs by shifting resources to a lower cost environment and increasing the volume of work that is outsourced, improving productivity by decreasing the number of locations involved in content management and expanding our operations in Asia, as it accounts for more revenue and content.

We signed 14 new journals in the first quarter versus 17 a year ago, and renewed or extended 22 journals versus 9 a year ago.

We did not renew contracts for two journals, which is simple already to last year's first quarter.

In July, Wiley announced that 338 of its journals received top 10 rankings in the Thomson ISI 2008 Journal Citation Report, based on a metric known as "Impact Factor," which reflects the frequency that peer-reviewed journals are cited by researchers, 949 of 1,450 Wiley journals were ranked, which is up from the previous report.

Wiley publications achieved 30 number one rankings, the Company's journals received the highest total Impact Factors of any publisher in 37 categories, 8 of the 30 newly listed Wiley journals from the Asia Pacific region, 63 Asia Pacific journals are included in the report, providing tangible evidence of our expansion in that part of the world.

In chemistry and the physical sciences, Angewandte Chemie journal of the German Chemical Society strengthened it's position as the leading chemistry journal that features primary research and review articles.

In technology and engineering, 42 of our 49 engineering journals increased their Impact Factors.

In medical sciences CA-A, a cancer journal for clinicians published on behalf of the American Cancer Society, was awarded the highest Impact Factor among all medical journals.

In dentistry, Periodontology 2000 is ranked number one for the second year, Addiction Impact Factor increased again, and remains number one in substance abuse in the Social Science Index.

Addiction Biology has taken the number one spot in substance abuse in the Science Index.

In nursing, birth continues to rank first.

In life sciences, Aging Cell increased it's Impact Factor and is ranked number one.

For the 5th consecutive year, Ecology Letters increased it's Impact Factor and remains the highest ranking primary research journal in ecology.

Developmental Dynamics remain this number one journal in anatomy and morphology.

In social sciences and humanities, Wiley published number one ranked journals in 9 categories, so quality and breadth of Wiley's journals collection as reflected in these rankings is a source of competitive advantage.

Global P/T revenue declined 7% on a currency neutral basis to 90 million in the first quarter, or 10% including unfavorable foreign exchange.

On a currency Neutral basis, North America sales are were down 8%, EMEA was on par with prior year, while Asia declined, particularly the India.

Retail market conditions appear to be stabilizes and major accounts are replenishing inventory.

The second quarter began positively as reflected in strong August sales.

P/T's direct contribution to profit fell 4% to $16 million or 10% including unfavorable foreign exchange.

The declined was due to the revenue shortfall mitigated by prudent expense management.

We experienced growth with borders in the US , returns were lower and reorders are improving.

It appears that inventory levels are stabilizing at Barnes and Noble.

We anticipate a strong second quarter with Amazon, the wholesale library at mass market channels in the states grew modestly in the quarter and the UK, the retail channel was soft, while on-line, wholesale and corporate accounts performed well.

The Meredith blacklist contributed to first quarter cookbook sales, the GMAT study guide, which published in March is providing well.

The Official Guide 12th edition made best sellers lists across India with demand also in China.

In the US, it remains in the top 10 on the Bookscan Study Aids list.

P/T's business publishing program continues to be in the top 3 in the industry, Wiley's technology program is the market leader in the US.

In the consumer area , industry cookbook sales improved in the first quarter, while Wiley outpaced the market significantly.

The travel guide category has stabilized.

P/T launched a CliffsNotes literature application for the iPhone and iPod Touch branded Cliff'sNotes-to-Go, which was produced on a fast-track schedule to coincide with a major Apple promotion.

Five popular classics, the Adventures of Huckleberry Finn, Macbeth, The Scarlet Letter, To Kill a Mockingbird, and Romeo and Juliet are available in the iTunes APP Store.

First quarter Higher Educations revenue grew 17% to $69 million on a currency neutral basis, or 12% including unfavorable foreign exchange.

Strong growth occurred in every region and every subject category.

Contributing to the results were a strong front list, higher institutional sales, WileyPLUS, and increased enrollments.

On a currency neutral base, revenue was up 15% in North America, 22% in Asia and Australia, and 25% in EMEA.

On a currency neutral basis, business and accounting revenue exceeded prior year by 27%, engineering and computer science was up 25%, mathematics and statistics was up 49%.

The sciences up by 9%, and the social sciences increased by 21%.

Global first quarter billings for WileyPLUS increased significantly as did digital-only sales.

Sales outside the US account for 14% of WileyPLUS billings.

On a currency neutral basis, Higher Education's direct contribution to profit grew 34% in the quarter to $26 million, or 28% including unfavorable foreign exchange.

The increase reflects top line results and gross margin improvement, which was driven by lower inventory professions, favorable product mix, and and increased digital sales.

Industry sales are robust in the US, enrollment growth is strongest at Community Colleges, for-profit institutions and on-line distance learning programs.

Conversely the situation in California, is very difficult, as evidenced by furlough, layoffs, and enrollment cut backs and course cancellations.

Sales are strong in the Middle East, particularly Egypt.

We experienced a solid start to the year in Germany, Austria, and Switzerland.

Then UK reported a significant increase in applicants, particularly among students over the age of 25.

The latest release of Custom Select was completed in August.

Key new features include Enhanced Discovery of Content for Special Collections such as Wiley Pathways, Lab Manuals, Introduction to Engineering, Business Hot Topics, and National Geographic material.

The Business Solutions Group, which focuses on for profit institutions is generating significant growth.

This team has been at the forefront of Higher Educations evolving institutional sales model.

For example, Wiley sales to the Apollo Group, which includes the University of Phoenix an (inaudible) college increased significant apply in the first quarter.

All sales to Apollo are digital-only.

Shared services in administrative costs of $80 million were $5 million lower than prior year on a currency neutral basis.

The reduction from last year reflects the combined effect of lower technology expenses due to the completion of the Blackwell integration, lower stock incentive compensation costs, and one-time occupancy costs in the prior year.

In conclusion, we are off to a good start in fiscal year 2010.

Most of the signs are encouraging.

Higher Education started the year impressively, and that continued through August.

P/T had a terrific August after performing as expected in the first quarter.

STMS journals performed well the quarter, but revenue from advertising, back files, and books, has been sluggish.

We will carefully monitor the calendar year 2010 license renewals, and we will have more to report during the next conference call in December.

Beyond the financial results, we remain keenly focused on our mission of promoting knowledge and under and round the world.

We are providing more access to more content by more people than ever before in Wiley's history.

Customers are gaining access to that content in print, on-line, and on mobile devices.

They are purchasing entire books and journals, as well as individual chapters and articles.

They're combining content from various Wiley publishing programs and geographic location into customized packages and visiting Wiley's branded websites in record numbers.

Wiley began investing and enables technology more than a decade ago, because we viewed it as an opportunity, not a threat.

We have introduced more new business models in the past five years are than we had in the previous 197 years of Wiley's history.

Wiley is becoming more customer eccentric each and every day as our content and services are imbedded in the work flows of the constituency we serve.

Our Company generates strong free cash flow which we are used to invest in our future, reduce debt and pay dividends.

Last, but certainly not least, Wiley is a Company with a rich heritage that spans two century, a Company with a strong culture that is built on a rock solid foundation of ethics and integrity.

With that as a background, we welcome your comments

At this time, we would like to open up the call for Q&A.

(Operator Instructions).

We have a question from Drew Crum.

Go ahead, please.

Thanks.

Good morning everyone.

Will, I think you touched on this in your remarks, but just want to get some additional color on that, and it relates to the Higher Ed business, up very strong in the quarter, (inaudible) can comment specific on what you saw in August and the sustainability of 15% growth in North America, and sticking with Higher Ed, the contribution to profit up 34%, how much of that can you attribute to the uptick in Wiley plus?

Thank you, Drew.

In terms of the Higher Education business, and most of my comments will apply to the world, not only the United States, but it is obviously performing -- our business is performing, and frankly the industry revenue is better than I think anyone who follows this industry expected.

In our particular case, as I noted in my comments, it is driven by a combination of things.

Some of which relate to the market, most of which, frankly, relate to internal Wiley strategies and programs that we've been implements.

The market conditions are such that enrollments have been stronger than I think most people anticipated.

That is certainly happening in the United States.

It's happening quite strongly in the Community College market, but also in four year public and privates, and, additionally, in the for profit sector.

Outside the United States, we're also experiencing significant enrollment growth in many markets around the world.

Of course that applies to the industry generally.

Specific to Wiley, we knew going into the year that we had a very strong front list with many of our franchise products, and that front list is performing very well.

We are very pleased with the penetration and traction we're getting from Wiley plus.

We've been reporting on that quarter after quarter after quarter, and this is yet another quarter where the billings have gone up significantly, the usage rates by students are going up significantly.

We're getting more penetration outside the United States.

When you take all of that combined, you get the kind of results which are in excess of what we anticipated for the first quarter.

To be frank, the reason why I mentioned the August results, which I normally don't do at the end of the first quarter, we would normally wait until the second quarter is over, is that July and -- July, specifically, is consistently one of the big quarters for the Higher Ed business, big months of the Higher Ed business, and sometimes, depending on book store activity, if a major order or two flops into into July, you would have a negative effect on August.

So I tend to like to look at the combined period of July and August, particularly since we had such a strong July.

And I was pleased to see that the August results were solid, as well.

So the growth rate in August was not as high as the growth rate in July, and we do not anticipate that our full-year growth will be near the rates that we recorded in the first year.

But if you -- this is a great way to come out of the box.

If you make your numbers in July and August, that usually bodes well for this business for the full year.

So we're feeling very good about what we've accomplished so far.

We believe a lot of it is driven by market, bust we also think we're gaining market share as a result of our front list, and WileyPLUS.

In terms of contribution to profit, I would like to make a couple of comments about that.

One that's kind of longer-term and strategic where we're seeing some of the pieces of it now, but you'll see more later, and some of it is more direct to the first quarter.

One of the great accomplishments, I feel, of our Higher Education team over the years has been their ability to generate significant cost savings and productivity improvements in these so-called print business, the print textbook business, and then to take those savings, some of which drop down to profit, and some of which they've reinvested in enabling technologies and new products like WileyPLUS.

So the fact they've been able to drive that efficiency and invest it in WileyPLUS, they have been able to do that while growing or sustaining their margins, and I think that's a positive statement about them and the way we like to approach these incremental investments.

The longer-term strategic implications of that, and some of which, I believe you are seeing this quarter, and will continue to see, as we move toward more digital delivery, we're excited about that for a whole bunch of reasons.

One is, we believe we're going to be able to show a more tangible outcome.

We often talk about facilitating teaching and learning, with the enabling technology, there will be more metrics, more information, more usage data available to professors and students to actual document that learning is happening and happening more efficiently.

We're obviously excited about that, because we think we'll be delivering more value, if you will, to professors and students.

In addition to that, the, as I've often mentioned, the return on investment on digital-only, the margins on digital-only, vis-a-vis print to textbooks is more attractive for Wiley, so we're able to deliver it at lower price points, we're able to generate attractive margins and a higher cash return on investment because we don't have the working capital requirements of inventory going through book stores.

So -- and to the extent that WileyPLUS continues to grow, and particularly digital-only sales, faster than the print textbook business, you'll see the benefit of that on our margin.

Okay.

Very good.

And shifting gears to the STMS business, I think the budget situation in the US is well documented, heading into calendar 10.

What's -- can you give us a status report on what's happening in the European market, and what the outlook looks like there?

I'll respond to that relative to the US.

Just a couple of things.

I know you did ask me specifically, but I think others may be interested in, as well.

We don't really have much more to report on the US situation, but that doesn't mean that we're not in a marketplace.

We're obviously already interacting with our customers about general market conditions, but also about the renewal process.

And the fact that I don't have anything significant to say about that should indicate to you that there are no surprises one way or the other for us in terms of our expectations about that, it's still early.

We'll have a lot more to talk about in December, but two to encouraging aspects for me is where we are with the renewal cycle, vis-a-vis last year, and that's hugely important having both the Wiley and Blackwell collection available, getting ahead of schedule where we were behind schedule last year, that's certainly critically important to this process, and the reason I took extra time on all of these Impact Factors is, it is an accepted measure in our business for the quality, dealt, and breadth of a journal collection, and when you take this, the Wiley collection, combined with the former Blackwell collection, you can see some of the numbers reported, that this is a high-quality collection of journal content, and it's obviously one of the deepest and broadest collections now through the combination of those two businesses.

In any kind of economic environment where library budgets are growing, or particularly when they're tight, I feel that having the depth and quality of this content will serve us well in terms of getting our fair share of the market, and so those are the statements about the United States.

We assumed going into the year that most markets outside the states would be tighter than they were a year ago, but not quite as difficult as we would experience in the US, so we were thinking that outside the states, generally.

speaking, the library budgets would not be quite as tight year-to-year as we were experiences year-to-year in the U.S.

There's there's no reason for us at this stage to change our view about that, so so far, pretty much on track as well expected.

I would also say, just to remind people, that the majority of our revenue, on the journal licensing side of things, is actually outside the states.

We have a very balanced portfolio, but the majority of it is actually generated outside the states.

So the fact that we have that mix should be helpful to us in this challenging US market.

Got it.

Okay.

And can you quantify what the reduced expenses from the Blackwell integration amounted to in the quarter, maybe said differently, when do you guys anniversary those integration costs, because obviously had a positive benefit on the first quarter results.

Yes.

This is Ellis.

Hi, Ellis.

Somewhere between 3.5 to $4 million or so related to shared service experience, also some expense imbedded with STMS, is related to completing the integration.

Some of that relates to savings, meaning things we're no longer doing that we used to pay money for, and some relates to spending to undertake integration in the prior year that we're not spending to do this year.

Right.

Should -- Ellis, should we expect a similar run rate through the balance of fiscal 2010, or is this kind of a one-time --

Yes, it's one time to carry that forward.

There maybe some pieces of it that -- some additional components.

As you recall, we completed at the end of last year, but the tail of it is a bit smaller.

So there will be additional incremental savings over prior year, but think they'll be significantly less per quarter than the $4 million.

So, yes, there will be some residual, but shouldn't take 4 million a quarter and roll it forward.

Okay.

And one last question, can you guys just revisit or prioritize uses of cash, and speak specifically to the pension contributions in the quarter of, I think, $14 million.

Should we expect that going forward?

In terms of prioritization of uses of cash, we pretty much remain where we have been, which is reduction of debt is the principal focus.

Of course we're paying a dividend, we did increase the dividend a bit into this year.

So paying dividends at the current rate and reducing debt are the principal focus.

After that, certainly to the extent that it's somewhat opportunistic that there are acquisitions that make sense the context of business strategy and opportunity, we'll consider those, begin the extent to to which they have merit.

In terms of pension contributions, this -- in the first quarter, we actually made $19.6 million in contributions, which is a $17.2 or 3 million difference, last year we contributed bout 2.4 million in the first quarter, so on the cash flow statements, the delta is the 14.5 versus the 2.6 in the other direction.

In that is also pension expense, which wasn't about flat versus prior year.

Will had mentioned in the earnings release, mentioned as well, a significant portion of that, in fact, 15 million of the 19.6 was discretionary, that's not to say say it's discretionary forever, but it is discretionary in the time to trade that made it.

There is a change in pension law a couple of years ago in the United States, which kind of have companies fully fund pensions over a period of about seven -- maybe I guess it's five years remaining, or at least the goal is to get to fully funded in five years, now seven years I think from when the legislation of the regulation was changed or enacted, so over time, we could theoretically wait until the eleventh hour and make those contributions at which time they would become statutory, but our decession is that the cash is available now and there are pension contributions we need to make, so this was the time to do it during the first quarter.

One last question related to this.

Is there a leverage multiple you guys are targeting, and at which point do you guys look to perhaps do another large acquisition?

Where are you comfortable in terms of your leverage, where you can go out and do another deal?

Yes.

That's -- that's kind of of a relative question based upon a number of things, which are sort of moving at points in time, that sounds and is a very vague answer.

There is no absolute leverage level that we are comfortable with.

We're more comfortable with less leverage.

We're less comfortable with higher leverage.

We're comfortable where we are.

We're obviously comfortable at the level of leverage that we took on to acquire Blackwell.

So, there's not discomfort, but being in a lower lever state than we are at present is desirable, both to just clearly be in a position of lower risk, have less interest expense, but also to your point, to be in a position to take advantage of an opportunity that could arise, not to say that there is one sitting there on the horizon right here at the moment, but to the extent that there is an opportunity, one would prefer to be in a lesser leveraged state at a point the time to be able to take it on.

So that's what we endeavorer to do.

As you know, we have a history of making value-added acquisitions over points in time, both big and small, and we want to be in a position to be able to continue to do that as is greater than what we might have been able to do two years ago at the time of Blackwell, now we're able to do that now, even more able in the future to the extent we can reduce debt further.

Can you comment on the current M&A pipeline?

There are a significant number of small opportunities that have surfaced in the past five, six quarters or so.

You can tell by the disclosure we've made.

We've made a number of very small acquisitions, and by virtue of that, you can imagine that we've passed on a number.

I not to say that we have not participated, we have, to some degree.

I would comment for color that many of those acquisitions went uncompleted, so nobody bought them, so to speak, so there still is a perspective maybe on the basis of -- or in the mines of some sellers that market dynamics have not yet changed, and they are not maybe facing current reality, or past reality, maybe the current reality is adjusting.

But there are -- there's a pipeline of some small things.

There's nothing of real significance out there at the moment

All right.

Thank, guys.

You're welcome.

Our next question is from Andrew Dushyant Desai.

Go ahead, please.

Yes, hello, good morning, everybody.

Thanks for taking my questions.

Actually most of them have been answered already.

I I would have one of them related to this talking.

Can you give us some color on how you anticipate the inventory levels to evolve during the next quarter and maybe into the next fiscal year?

Essentially as we have noted in the earnings release, and in Will's comments, that we've seen -- sorry, there's --

Hello, can you hear me?

Yes, there's talk in the background.

Wasn't sure if it was a follow-up question or something like that.

But effectively what we've southeastern as somewhat of ordering patterns, and we're talking about particularly in the US here, so I think pretty much as described in the earnings release, about as much as we can comment at this point in time, as Will alluded to and the earnings release alluded to, that August, certainly, is an improvement over prior year in a significant way, and we'll look forward to coming months in the second quarter to to have that sort of bears out over the remainder of the carer and remainder of the year.

Okay.

Thank you very much.

Again, to ask a question, please press zero1 on your telephone keypad.

Our next question is from Dave Lewis.

Go ahead, please.

Hey, guys.

Good morning.

First question I have is, Will, can you touch on pricing and STMS?

is it too early to give a forecast or an expectation for what it will be up in calendar year 2010?

Dave, it's -- yes, I would say it's certainly early to be giving you that information, but I I would also make another comment, is that I think the days of quoting a particular price increase, an individual number, are becoming, really numbered in terms of it being meaningful.

And the reason I'm saying that is that most of this business now is covered by these comprehensive licenses.

Some of which are negotiated with an individual institution, some of which is negotiated with a large group of institutions that are operating as a consortium.

And the reason I say that, so you know you quote there's an increase on this particular journal of X.

That may change depending upon what the total collection becomes, and what we negotiate in terms of a one-year teal, a two-year deal, three-year deal.

What kinds of a price cap increases we put in there as a result of the size of the collection that an individual institution requests.

So increasingly, the old days of saying, essentially a print on paper journal business on average we have an extra cent increase for our journal collection, it's becoming far less meaningful.

What we tend to look at is we'll take a look at what a customer has ordered under the current license, we'll take a look at what the customer is looking forward to ordering in the next license.

We'll take a look at the total value based upon all of the assumptions, which would include, urn on a journal by journal basis, certainly price assumptions, but then we put the whole thing together, and we then then negotiate terms with that particular institution, where they certainly get the value of a -- of a collection that they're looking for, we get the value of incremental revenue, some of which will come from pricing, much of which will come from increased usage and additions to the collection.

So there are price increase assumptions a on journal by journal basis.

They do vary significantly.

But the real key here is when we're sitting down face to face with these marriage customers, and talking about their collection, and their collection in the context of their current budget.

So I -- I don't really see, you know, much value in throwing out a particular -- an individual number.

What we'll be able to talk with you more about, in December, is, how are those discussions going, you know, how are those licenses renewing.

On average are we getting, you know, more revenue on this license than we got the last time.

That's the kind of thing that I think will give you an indication of how the 2010 renewal process is playing out.

Okay.

Next question is, can you give a little bit of color on the two new publishing agreements, and what -- I think there is -- I think you're restricted on disclosing too much on them per the -- families, but can you give us on sense for how that is going to help the segment in the coming quarters?

Yes.

Billion, a couple of things about that, although they are -- they're very different in terms of the type of publishing, Meredith on the one hand, and the GMAT agreement on the other, what we're very pleased about is -- and frankly over the years, our professional trade business and the people there have been really very good at building an and attracting these alliances.

We have spoken in the past about the alliance we have with General Mills, for example, which started with the Betty Crocker cookbook and then expanded to the pills bury cookbook because of the success of that relationship.

That's one example, of course.

These are two others.

And what we bring to that, in both cases, we're bringing to bear our publishing expertise, for sure, but, also, our sales, marketing, global distribution.

And the reason we have highlighted that, as being significant in particular strategically it's significant in fiscal year 2010 and beyond, because we're able to attract two really well highly-regarded entities and some really terrific brands.

In terms of -- in financial terms, since the agreements were consummated towards the end of fiscal year '09, the revenue that we're generating there is largely mental, fiscal year 2010 to fiscal year '09, so yes the market is stabilizing and improving, we have this incremental revenue that we're getting out of those agreements.

We're pleased first the way those prices are working with both of those partners.

Our revenue expectations and we're meeting them through the first quarter, we met them through August, all of that is moving along as we expected, and we feel very good about it as an opportunity to grow the business in segments, where we already have a presence, and to bring to our partner not only some of our expertise on the front end of the business, but our global sales marketing and distribution.

So it was -- it's timely in many ways, in this particular marketplace, where, there was obviously concern about how much growth we could reasonably expect, particularly in the US, we are, through these agreements, grabbing more shelf space, and we're grabbing more mark share as a result of having this agreement.

That's helpful to us in a tough market, and I think it will be even more helpful to us as those markets begin to rebound.

Okay.

Great.

Thanks.

The last, I guess I have two more.

One is related to the technology, and I guess it's a few related question Tuesday that.

Can you -- Will, can you give us a sense, I know it's real early days with this, but of the number of books of your -- within your PNC feel that are on the Kindle?

it's ramping up.

I think the last quote that was in the filings of 9,000.

Is the inspection that you're going to move all of your books to transition through Kindle, Sony, or some other device, how see there any forecast of how quickly that's going to move?

Well, a few things about this.

I made the comment earlier about, you know, 10 years or so ago, Wiley began investing in technology, and the reason I say that, and I think those of you who have known me for a while probably know why I did that, is that all too often people have looked at these developments as kind of breadth to a particular business or not, and one of the things -- one of the many things I'm proud of at this place is I can, you know, tell you quite candidly, and I remember this vividly, because I had just become, 11 years ago, CEO of the Company.

When we started -- not because I became CEO, it was already happening, but do I remember vividly ramping up those investments.

And maybe of our colleagues across our business saw these as opportunities, and the -- I think the problem is when people lump different segments of publishing, you know, into one pot and call it publishing, where our company is hugely different in terms of our business modeling and our content, for example, than the newspaper business.

Our content and the way we go about our business is hugely different for so many reasons in fiction publishing.

Not so say there is anything wrong with those differences, it's just different.

People say look what happened to the recorded music business.

Well, yes, look what happened to it, and then look at what companies like Wiley are doing.

Like I said, 11 years ago, we started digitize content.

Why did we do that is?

We weren't just looking for ways to make money, we real Indianapolis that one would not fit all.

Would not give this flexibility to provide the information that people wanted when they wanted it at price points they felt made sense for them.

And so we started building as much flexibility into the different ways in which we could deliver this content.

And so long-winded preamble to Kindle.

I don't want to that in any way.

We have a terrific relationship with Amazon, and by the way, from the very early days when Amazon opened for business, Wiley was right there saying, okay, you know what, you can help us sell more books, and that's a row burst strategy for us.

We started doing business together.

And what has become of that is that frequently Amazon and Wiley get together to experiment with new business models, new approaches, and the Kindle is yet at one of those.

Another way of delivering content people want published by John Wiley & Sons.

And we are platform agnostic in that respect.

The more different ways we can get what we produce in the hands of our customers, we're serving our authors better, our customers better, and our shareholders better.

So we continue to provide more and more titles through Kindle.

The 9,000 that you quote is an accurate number.

That has increased to about 11,000 or so one as it's probably real-time, so those numbers will continue to increase over time, and by the way, we will be making this content available on other devices as well.

We're not looked into one way of delivering this.

And it will be entirely driven by a couple of things.

One is what do our customers want?

Do they want to read more and more of our material on a Kindle?

if so, we will negotiate business terms with our partners to be able to deliver that.

The other thing is that we will work with partners who respect our intellectual property, where we can actually work out agreements and safe guards for our intellectual property not to prevent customers from getting it, but for customer to get it on terms that are acceptable to us and our authors, and certainly amazon is one of those participator who respects our copyrights and works in a very positive way with us.

You did mention Higher Ed, because probably early days with that, but we're one of the publishers who agreed to work with amazon on their Kindle DX, which is a large format that they rolled out.

The additional point I would like to make about that is that Higher Education material is different in look and feel and format than our -- for example, our professional and trade content.

The reason why it probably would have not made a whole lot of sense to try to put our textbooks on the initial to version or two of Kindle, is the output would not have been attractive or very useful for students because of the page layouts and the illustrations and this and that, but even the Kindle DX, with all due respect to that device and with the improvements, is not in color, and there's a lot of color used to are the benefit of teaching and learning and all of that.

And so as these devices continue to improve, we see more and more benefits to our customers will continue to participate.

You should anticipate that we'll -- you'll hear more and more from us about these kinds of partnerships and providing more of our content.

It is totally consistent with the Company's strategy of providing more access to more content by more people than ever before.

Well, that's great.

Thanks, Will.

If I can just ad one more about TNT and the shift on-line.

Can you touch on -- I mean clearly the success you guys have in transitioning to Higher Ed, you see it in the results today more than any other quarter, and then you guys have done a great job in transitioning STMS on-line as well and so I think that the track record is thereby, I was just cure yourself about P/T, could you compare -- could you make -- do you have any comments any the transition on-line there, or the economics of P/T on-line again, I know it's very early.

Versus what we're seeing -- beginning to see a little bit in Higher Ed, which is further along?

Yes.

Yes, I think the key statement is the one you ended with, is -- and by the way, you're right, we've made, I believe, as well, we've made tremendous progress with STMS and with Higher Ed, and yet I would also say to you that they're very different.

Basically, in STMS, the challenge there was to the content, to have a platform by which we could make that content more , easily accessible to our customers around the world, and then to build a sales organization and licensing model so that we can negotiate acceptable terms and get that content out to our customers.

That is primarily a situation where we're content and making it more .

And that's a noble endeavor when you're trying to improve the productivity of research, which is a lot of what we're trying to do with that on-line platform.

In the Higher Ed business, WileyPLUS is a whole new way of helping to educate students.

It is truly a in that sense, and it is a recognition that you can do certain things with a service like Wiley plus that you just cannot accomplish, you can't possibly accomplish with print on paper textbook.

The visualization, the interactivity, the customization, the ability of a student real-time to try to test his or her ability about a concept, get immediate feedback about whether or not they truly understood that if they do move on, if they tonight go into remedial strand, the ability of a professor at any point in time to check any the progress of a student, whether they're getting the concepts or not.

Et cetera, et cetera.

I mean, that is huge in terms of, I believe, of progress in the delivery of education around the world, and the early days of realizing the long unfulfilled dream of recognizing different learning styles of students.

We have talked about this for decades.

Students learn differently.

But frankly, Higher Education has been very much, delivery.

Professor in front of a classroom, we're using this textbook, you'll be having X number of , have two paper whereabouts wharf, with WileyPLUS ask services live that, you really are able too certainly keep your focus about the community of students in that class, but to allow the student and the professor to customize to that particular learning and to take advantage of the suite of educational materials one student may use more of a section than another.

So I just want to make that point that the good news is we have been able to progress very nicely in both of those businesses, STMS and Higher Ed.

They're very different flexes of technology driven by the market, and P/T will be yet another example.

Some of which we will benefit from, the work that's already been done in higher Ed and in STMS, and some of it will be truly unique.

The reason P/T is kind of a -- third in this, it's not because our people there haven't put time and effort into it, it's frankly what the market has been requesting from us.

There are still many people, if fact most people, who still are interested in reading lots of text on paper, because the print on paper technology works very well in that respect.

So if that's what our customers want, our whole emphasis was on making sure we had multiple channels of distribution around the world to people could gain easy access to us, or the relationship with Amazon started with that, help us sell more books.

Then as people started looking at, what, more portability is of interesting interest to us.

Could be a business person who likes carry on luggage, so don't want to put two books in my briefcase, so maybe having a Kindle, or some device where I could read on a kindle at the plane, airport, or whatever.

Okay, fine, now we have business models that enable amortize do that.

What I'm really excited a bout is in our professional trade business, where we're taking these established brands, global brands, like four dummies, is one example, and saying, you know what, it's not either or.

So let me give you a very tangible example.

I'm going on this trip, I'm a few weeks away from taking that trip.

I'm going to go to amazon or a book store, whatever, I'm going to bro the guide, because I want to start preparing mice for.

What I'm going to say see, but I'm out doing my sight seeing, be don't want to carry the book along with me, I want to leave it in the hotel , so now I want to have access to that material in another way, so I'll pull out my mobile device, and you'll gain access to certain of that material, which will then kind of give you what you need in terms of mobility, and at point of contact information.

I frequently use the example, happens to me so many times, you go to a museum, forget to take some information about restaurants that are nearby.

what a great technology go to my mobile device and will tell me what restaurants are nearby, and I go and do that.

So my point is I really see in this business print component being an essential point of it for as far as I can see into the future, because that's what our customers are telling us, but we're trying to enhance the whole experience, put some content where day can guest at the point they need it wherever they are, and also support it with branded websites which opens oven revenue streams with companies that are looking to are associated with our brands.

So there's some advertising there as well as information.

So you're going to see as P/T evolved different models from Higher Ed and STMS, still using enabling technology, but still appropriate though the customers they serve.

It's still early days there, but once again, much more of an opportunity than a threat, and having these brands that are recognized around the world, is really making a difference.

Having strong brands in that environment does still matter, and we'll building those

Okay.

Great, thanks, Will.

I'll signed off.

I've been on a while, and follow up.

Thank you.

Our next question is from Allen Zwickler, go a head please.

Hi, good day.

How are you guys?

Thank you.

A couple of questions, in no particular order.

Using, Will, your favorite example about and [fromers] in the museum, if I'm in the [louver], and I download some information on my kindle, is that considered an international or a domestic sale?

I don't -- don't have the answer.

I would assume it was at the point of purchase.

So if I downloaded that information in the United States, I would assume it would be a US sale wherever I -- wherever I used it, but I can't honestly answer that question.

Okay.

The reason I ask it is my second question, is that is that it looks to me and you quoted a number about international sales, but just based on the constant currency discusses, which I know confuse you as well as me, what are your expectations internationally, it looks like you did a little better than you expected, and I'm just trying to maybe get a macro view, because it sounds very impressive, Will, sounds like you're really getting traction internationally, and you usually give a pretty good rundown of the world, what's going on, and how you see that evolving over time.

Maybe it's a bigger question, than need be, but if you just if you could do that.

Well, just a few things about this.

And let me go back to the first question that you asked.

This whole business of where the revenue is earned, is a significant and will become increasingly significant over time for a whole bunch of reasons.

One is, you could imagine that there are governments and jurisdictions around to the word that are generally interested about where revenue gets taxed and this and that, and I'm sure there will be all sorts of information about that coming out over time, and all I can about it is it's still early days, and there's no a certain kind of protocol that's accepted if the business and the industry in term of where the reference is recorded, and all of that, but what will happen over time remains to be scene, and I suspect some governments will have opinions about that.

We, as publishers, are doing everything we can to look through geographic boundaries, and not have them separate us, just look how we can develop content for audiences, and the hope is over time that governments will not prevent that, that they'll enable it, but, you know, those rules 0 ever the game will be determined over time.

Your emphasis on the states, if you will, sales and global revenue and all of this, is very important in the Wiley context.

We're about fifty-fifty right now, if you look at total revenue for our company.

Wire about 50% generated in the states, and about 50% generated outside the states.

And that varies, of course, by business, the STMS business, if I can use the term broadly, is more global in the sense that the revenue distribution is more widely distributed around the world than in our professional trade and Higher Ed business.

However, in all three businesses, the rate of growth outside the states, the current economic environment, is greater, and there are, opportunities for continued growth in that respect around the world for each of these businesses.

One of the that I'm quite excited about, with our Higher Education business, is that I really do believe that WileyPLUS will help us act the the states.

The physical distribution, and underlying economics, of print on paper textbooks, in some of these markets, is a very difficult, business proposition.

We've done our best to make that work, frankly, and it has worked for us.

We see much better prospects if we can get greater market pen trace of WileyPLUS because we won't have to deal with the physical distribution challenges around print on paper textbook.

It's well documented in terms of where the con tenth is created and where the customers lie with our STMS business, we have no reason to believe that you will not hear even, you know, better stories about that, or even more encouraging stories.

To they were very pleased at how much of our context is now being created at our STMS business in Asia.

We think that's a very good thing.

So there's market share usually defined by how much revenue you have, but wire growing it in terms of the equal prat we're creating there, and we're helping to put some researchers on the global stage, and that's critical to their development, but it's also critical to the quality and depth of our journal.

And our professional trade business, when we acquired from hungry mind, it was basically a north America brand, and we were pleased with that, but we're now expanding that to marketing.

For dummies is absolutely a brand.

We're finding interest in that brand around the world.

The issue you for us, as revenue the United States, is when you have what we have experienced in the last year, of volatile markets and exchange rates, I commented last year, last year was unprecedented in terms of the foreign exchange effect on our business.

I believe the number was about $120 million, or thereabouts, in revenue, meaning that our reported revenue was reduced by $120 million to get to the -- if you had to get to the -- if you want to get the underlying performance.

Unprecedented inspect fact, I actually added up all of the combined years of Wiley history would probably not get to the 120 million we experienced in one year.

Now, I personally think that was an unusual year in terms of volatility and exchange rates, Burt it does add that dimension to it, and it's one of the reasons why we do our best to try to explain to you how much of our operating performance is coming from foreign exchange, however is coming from on a currency neutral or base, and we'll continue to do our best to explain that to you, but it is very difficult to quantify that.

I think last year was more of an aberration to be frank, I'm not suggesting everything is going to get stable all of a sudden, but I would not expect the degree of volatility that we encountered last year.

So our attitude about this is we're particularly well placed to take advantage of growth opportunities outside the United States, because of the nature of our content.

Our content travels well across geographic boundaries.

One of the reasons why strategically we never got into the L high business, one of the reasons is it's largely a US business.

If we were to acquire it, very difficult to take what you do there and drive it outside the United States.

One of the reasons why we love the STMS business is it's a location global business, both for content ask sales.

One of the reasons why we publish in engineers, mathematic, the sciences, it's content that travels well.

We're not a big humanity publisher, for example, one of the reasons why we love these global brands that are recognized outside the United States.

They're not local to the United States.

So, yes, we deal with some exchange stuff, but we get the benefit of growth markets that maybe some other companies not get the benefit of because they don't have content that travels well.

Okay.

That was a great explanation.

Just one other quick thing, just an explanation.

The -- the number that I use if my model is 215, as you started out the conversation.

The reported number.

So when you made the statement that you're not -- and I'm sorry if I'm confused -- that you're not going to grow 10%, that's the currency adjusted number, or that's the number off the base of $2.15?

The -- Allen, this is Ellis.

The 10% was based off of 230, which is currency neutral, so 215 was as reported.

We had some foreign exchange net losses last year below the line.

Enthusiast was worth 15 cents, neutralized last year so to speak, you need to add the 15 centers to what we reported to get to $2.30.

So the growth of 10%, approximately 10% was the guidance, is of of the 2.30.

You can do the math, 10% time 2.30 is $0.23, roughly that we thought would be all performance, is -- in fact a portion of it is functional currency, a benefit from functional currency, to the $0.23 of performance growth will actually be a bit less.

Doesn't mean that the reported number will be different related to that.

You mean the 2.15, the growth from the 2.15, correct?

That's right.

Okay.

So, therefore, we provided some additional guidance to provide you with a feel for begin what we know now, meaning first quarter actual performance, where current exchange rates are, where rates were over the course of last year, and our sense of the business going forward over the next three quarters, that we see kind of mid to high teen EPS growth awful of that 2.15 base, and as we've done in the past, each quarter that we go through, Arizona we did in this first quarter and over other quarter since I've been here, at least, and probably before then, is we explain our reported results in two components.

One of which is foreign exchange related, and the residual off of reported foreign exchange is -- we did that in the first quarter, we'll do that in the second, third, and first quarter, by the time we get to the end of the year, we'll be able to take a read on versus that original 10%, where did we come out?

we are just saying now that at least where P/T we sit today at the end of the first quarter, our understanding of the effective functional currency, moving to local function of currency, was that there was a slightly larger benefit to what we anticipated as the reported results, so therefore what's left over after you subtract currency, is slightly lower.

Okay.

So -- so really, as I look at it, on an operating basis, which I'm sure you guys do when the door is closed, it would you say you're pretty much performs as expected?

I again, purely from an operating profit standpoint?

Yes.

Okay.

Great.

Thank you very much.

You're welcome.

Our next question is from Adrian Desyant Desai.

Go ahead, please.

Yes.

Hi, actually I have a follow-up question.

(Inaudible) said in the financial times that consolidation was required among publishers if they wanted to develop.

Is that a view that you're sharing as well?

I -- you know, I don't actually make such blanket statements.

Everybody has different approaches to this.

We acquired Blackwell, people can interpret that as a consolidation in the industry.

Our strategic objective was not to try to consolidate the industry.

Our strategic was these guys have really good comment, good colleagues, wonderful relationships with societies.

They can bring value to Wiley, Wiley can bring some value to them.

We think and societies and researchers will benefit from it.

It is an outcome of the benefit of putting two companies together, and delivering more value.

I think consolidation -- we could probably do a masters, thesis, or Ph.D., dissertation on the number of companies that thought that consolidation and in and of itself was the answer, they up a bin.

of companies, and then you look back 10 years after, they destroyed shareholder value, didn't serve customers bet we are ask they're divesting.

And frankly there's evidence of that in our industry.

There are certain companies in our industry who have gone off and acquired things, and three years later, didn't work out, for whatever reason, they're back in the market.

There are a bunch of companies who have been in the market I don't know how many times in the last 10 years.

So I think, you know, from my point of view, we don't get up in the morning and say there needs to be more consolidation in this industry or that industry.

Frankly, we don't believe that you have to be the big toast be the best.

What we do believe is you look at these opportunities, you really kind of go back and forth about the strategic value over the long term, and we measure it against what can we do for authors, what can we to for the customers we're serving, and can we generate the free cash flow to help us create shareholder value, enhance shareholder value down the road.

And to pass that test and it ruts in one less competitor, fine, but the goal isn't consolidation.

The goal is just making sure that you're delivering all of the value can to the people you serve.

I will now turn the call back over to Mr.

Pesce.

Go ahead, please.

Well, thank you very much for your interest and support.

We look forward to speaking with you again in December.

Thank you.

This concludes today's call.

Have a wonderful day.