John Wiley & Sons Inc (WLY) 2010 Q2 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 this presentation may include forward-looking statements.

You should not rely on such statements as actual results may differ materially and are subject to factors that are discussed in detail in the Company's 10-K and 10-Q filings with the SEC.

The Company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances.

Mr.

Pesce, please go ahead.

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, Steve Smith, Executive Vice President and Chief Operating Officer, and Brian Campbell, Director, Investor Relations.

I will provide an overview, then we will respond to your questions.

Wiley's underlying business performance was positive in the second quarter.

Revenue increased both including and excluding the effect of foreign exchange.

Although STMS experienced some softness due to the timing of journal publications and lower advertising revenue, we are pleased to report several license renewals and new licenses.

While it's still early in the process, we are cautiously optimistic that calendar year 2010 renewals will be as we expected.

Strong growth in professional trade reflects improved sell-through at major accounts and new business added to our collaboration with Meredith and a graduate management admissions council.

Higher education is performing very well on the strength of a strong front list and the success of Wiley plus.

Excluding an impairment charge related to GIT Verlag, which I will address during my remarks, adjusted EPS for the quarter increased 18% on a currency neutral basis or 37% including the favorable effect of foreign exchange.

In addition to the top-line growth and improved gross margin, lower shared services expenses, and lower interest costs, contributed to the growth in adjusted EPS.

Revenue for the first half of fiscal year 2010 increased, both including and excluding the effect of foreign exchange.

Adjusted EPS for the first half increased 16% or 9% excluding the favorable effect of foreign exchange.

Year-to-date results were driven primarily by higher education which recorded revenue growth of 15%, excluding the unfavorable effect of foreign exchange.

On a currency neutral basis, professional trade pulled ahead of prior year at the halfway point of the fiscal year.

STMS revenue was essentially flat with prior year, excluding the unfavorable effect of foreign exchange.

In addition to the top-line results and improved gross margin, lower shared service expenses and lower interest costs contribute to the growth in adjusted EPS.

As a reminder, last year's year-to-date results include the benefit of an insurance settlement of $0.08 per share.

Gross profit as a percent of revenue for the six months of 68.9% was up slightly from prior year.

The improvement was driven primarily by favorable product mix and higher education, specifically increased sales of higher margin digital products as well as the benefits of outsourcing certain journal production.

On a currency neutral basis, year to date direct operating expenses increased only 3% while shared services expenses were below prior year by 5%.

Free cash flow for first half was $67 million, better than prior year, reflecting the combined effect of increased cash earnings and journal receipts, partially offset by investments to support business growth and increase pension contributions.

Through October 31, calendar year 2010 journal receipts were approximately $20 million greater than in the prior year period.

Net debt decreased from $970 million a year ago to $792 million.

Our results indicate that Wiley is benefiting from investments in enabling technology.

In September, Wiley Plus reached a significant milestone as our one millionth user gained access to this innovative suite of teaching and learning resources.

In professional trade, ebook revenue increased with development of new partnerships.

In STMS, double-digit sales increases were recorded by on-line books, the Cochrane library, article select, current protocols and various databases.

Traffic at the top twelve Wiley-hosted websites increased sharply to nearly 1.3 million average daily visits, representing a 27% increase on a rolling 12-month basis.

The growth was attributed to Wiley Interscience and Wiley plus.

As many of you know, we conducted our annual investor day in September.

75 people representing 65 firms participated in person or via webcast.

Participants included prospects, new shareholders, and long-term shareholders.

Feedback from participants was very positive, particularly their reaction to Wiley's digital strategy.

Activity during the past year has resulted in a shift in Wiley's institutional shareholder base.

A year ago, our top five shareholders held 31% of Wiley A shares.

That number is down to 24%.

Five of our top twenty investors did not own any shares a year ago.

The top twenty investors now own approximately 57% of Wiley A shares.

I believe these are positive developments.

I would like to provide some information about Wiley's three global businesses.

After performing a strategic review of certain noncore businesses within STMS, we concluded that GIT Verlag, a German-language, B-to-B, controlled circulation magazine business, would not fully the realize the value that is included on Wiley's balance sheet.

As a result, the assets were partially written down to reflect the estimated fair value.

We are evaluating various options and expect to complete our review in the third quarter.

Each of the options being considered would result in the Company recording an additional pretax charge of approximately $2 million.

GIT Verlag was acquired in 2002.

A primary goal of the acquisition was to develop sources of revenue beyond library budgets while retaining our focus on communities that Wiley serves.

Unfortunately, the business has performed below our standards.

While there have been several attempts to implement sound business plans, we have not yet been able to sustain top-line growth and profitability.

Tough market conditions have certainly exacerbated the situation.

Fiscal year 2009 revenue was approximately $18 million, and we are forecasting a decline in the current fiscal year.

Global STMS revenue for the quarter declined 1% or 3% excluding the favorable effect of foreign exchange.

Journal revenue decreased $7 million on a currency neutral basis, mainly due to the timing of publication schedules, lower revenue from individual subscriptions, and softness in advertising revenue.

Back file and commercial journal reprint revenue partially offset the shortfall.

Adjusted direct contribution to profit for the second quarter increased 2% but fell 5% excluding the favorable effect of foreign exchange.

Adjusted direct contribution to profit excludes the charge related to GIT Verlag.

The decline reflects topline results and increased costs to support new business.

Partially mitigated by reduced accrued incentive compensation and expense savings.

For the six months, Global STMS revenue was down 1% on a currency neutral basis or 3% including the unfavorable effect of foreign exchange.

Growth in journal revenue was offset by lower advertising and back file revenue.

Adjusted direct contribution of profit for the first half declined 5% on a currency neutral basis but was flat including the favorable effect of foreign exchange, reflecting lower revenue, costs associated with new business and a prior year bankruptcy settlement, partially mitigated by expense savings and reduced accrued incentive compensation.

It may be helpful to you if I elaborate on the timing relayed factors that contributed to the STMS performance.

As reminder, journal subscription revenue is recognized when journal issues are shipped or available on line.

Therefore, publication schedules are a major factor.

As you may recall, we were engaged in catch-up efforts related to the processing of journal renewals in the fourth quarter of last fiscal year.

As part of that process, we were also keenly focused on publication schedules, publishing all issues that could be appropriately earned.

Those efforts were very successful as reflected in STMS revenue on a currency neutral basis being up 17% in the fourth quarter and 9% for the full year.

In fact, our efforts were so effective, that we not only caught up but actually went beyond the historical pattern of recent years.

Another contributing factor relates to what we refer to as our gracing policy.

While we are negotiating license renewals after the beginning of the calendar year, we typically allow customers to continue gaining access to our journals for a reasonable time.

Revenue, however, is not recognized until the license is renewed.

Some of those negotiations extend beyond the end of April.

However, as a result of our efforts to catch up in the fourth quarter of last fiscal year, we completed more of those negotiations earlier than in previous years.

When you take into account all of these timing related factors, we appropriately build revenue in April that would have typically fallen into the May through August period.

While there is no effect on calendar year performance, it does distort quarterly and fiscal year to date comparisons, specifically reducing the reported growth in fiscal year 2010.

In addition, STMS had a particularly strong second quarter in fiscal year 2009.

It is note worthy that on a calendar year basis, through October 31, journal subscription revenue is up 6% over prior year.

That's encouraging.

It's also encouraging that STMS completed calendar year 2010 journal license renewals with key library consortium in the US including the Committee on Institutional Cooperation, a consortium of the big ten universities and the University of Chicago, the Greater Western Library Alliance, Northeast Research Libraries, and the statewide California Electronic Libraries Consortium.

Leading indicators in Europe are positive, particularly in the UK, France, Austria, Russia, Germany, Spain, Italy, and most of eastern Europe.

Market conditions are difficult in Greece and Ireland.

In Saudi Arabia we signed a new license with King Abdullah University of Science and Technology for on-line products.

In the Asia Pacific region, alliances were completed with consortium in Australia, Japan, Korea, and Taiwan.

STMS signed ten new society journals in the second quarter, bringing the year to date total to 24.

Several of these agreements are for journals previously self-published.

STMS renewed or extended contracts for twelve society journals in the second quarter, bringing the year to date total to 34.

We did not lose any renewals to competitors in the quarter so the year to date contract losses remain at two.

Year to date book sales were down 5% on a currency neutral basis due to the transfer of certain books to higher education and a sales returns reserve that was released in the prior year.

Excluding these items, book sales were flat.

In the US, sales of print books were down, but on-line book revenue increased.

Academic libraries are increasingly opting for on-line and E book options.

Two of the three winners of the 2009 Nobel prize in chemistry are Wiley authors.

The Nobel prize for economics was awarded to Wiley authors.

Two of the three winners of the Nobel prize in physiology or medicine for 2009, previously received the Wiley prize in biomedical sciences.

Since the Wiley prize was launched in 2002, five recipients have won the Nobel prize and three have become Lasker prize winners.

Global professional trade revenue grew 9% in the second quarter or 10% excluding the unfavorable effect of foreign exchange.

Sales growth was strong in the US, UK, Germany, and Australia.

In Asia, double digit sales growth was recorded in China, Malaysia, the Philippines and Thailand, partially offset by softness in Hong Kong and India.

Categories experiencing the most growth include consumer, business, architecture, psychology and education.

Retail sell-through is improving at some major accounts.

Direct contribution of profit rose 13% for the second quarter or 14% excluding the unfavorable effect of foreign exchange.

Top-line results and expense savings contributed to the performance.

For the six months, global professional trade revenue was flat with prior year but up 2% excluding the unfavorable effect of foreign exchange.

Increased sell-through at some major account and revenue related to the Meredith and GMAC agreements contributed to these results.

All regions exhibited growth.

Direct contribution to profit was up 4% in the first half or 7% on a currency neutral basis.

In the US, sales for the first half were mixed.

We believe inventory levels have stabilized at Barnes & Noble, Borders was up significantly compared to a weak first half of last year.

Mass market accounts performed well in the first half, reflecting the strength of the fall cook-book list, and various Windows 7 books.

Amazon was trip prior year reflecting healthy sell-through.

E book agreements were signed with Barnes & Noble, Ebooks.com, Ingram Digital, and Scrollmotion.

We also have existing agreements with Amazon, Sony, and Mobypocket.

Global higher education revenue grew 14% in the second quarter, strong growth occurred in every region, and in every subject category.

Sales by region on a currency neutral basis were as follows.

The Americas up 13%, Asia up 18%, and Europe, the Middle East and Africa up 11%.

Contributing to these results were a strong front list, particularly in accounting and mathematics, increased enrollment, Wiley plus, custom publications and revenue associated with books transferred from STMS to higher education.

Direct contribution to profit grew 24% in the second quarter reflecting top-line results, increased sales of higher margin digital product and manufacturing efficiencies.

For the six months, global higher education revenue was up 13% from prior year or 15% excluding the unfavorable effect of foreign exchange.

Strong growth was reported in all regions and subject categories, excluding revenue associated with books transferred from STMS to higher education and unfavorable foreign exchange, revenue growth for the first half was 14%.

Direct contribution to profit was up 25% in the first half or 28% on a currency neutral basis, primarily due to top-line growth and gross margin improvement.

The following results by publishing program are on a currency neutral basis.

In business and accounting, revenue exceeded prior year by 18%, a strong accounting front list continued to drive growth, and engineering and computer science revenue exceeded prior year by 28% while the mathematics and statistics program exceeded prior year by 39%.

The sciences were up 8%, while the social sciences exceeded last year by 23%.

Global year to date billings of Wiley plus increased 43% over prior year.

Deferred Wiley plus revenue at quarter end was $9 million.

Digital only sales now represent one-third of Wiley plus sales.

Shared services expenses in the second quarter were 6% lower than prior year, or 4% excluding the favorable effect of foreign exchange, mainly due to timing.

Year to date expenses were 9% below prior year, or 5% excluding the favorable effect of foreign exchange.

While continuing to support technology investments, we are managing our expenses prudently.

In conclusion, we are encouraged by the company's performance through the first half of fiscal year 2010.

Higher education is well positioned to have a very strong year.

Professional trade is on track as we enter the important holiday season.

In STMS, the news regarding calendar year 2010 journal license renewals has been generally positive, although it's still early in the process.

Based on first half results, market conditions, and leading indicators, we reiterate our guidance of full year revenue growth for each of our businesses.

Excluding unusual charges related to GIT Verlag, we anticipate EPS growth in the mid to high teens from the $2.15 per share reported in fiscal year 2009.

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

(Operator Instructions) First we have Drew Crum.

Good morning, everyone.

Want to start with the STMS business.

Just a little more color on this timing related issue to the journals business.

Should we expect to see that hit calendar 2009, meaning December, or does it flow into later in the year, and Will, if you would expound upon your comments concerning the journal renewal cycle, I think you termed it as being where we expected it to be.

Does that imply growth, flattish or a decline for calendar 2010?

And then finally, can you just comment on what you are seeing in terms of pricing increases with the journal subscriptions?

Thanks.

Drew, I will take the first part of that with respect to the timing issues related to calendar 2009.

As Will noted, we're up 6% through October through the second fiscal quarter, which is ten months of the calendar year.

As you know, this is a calendar year business and renews on a calendar year cycle.

As noted, there were a couple of issues related to what we talked about at the end of last fiscal year involving processing of billings and invoices and so forth with customers, and that we focused on trying to wrap up as much of that business as we could by the end of the fiscal year.

So that resulted in that very strong fourth quarter which contributed to a very strong year.

A 9% year, I think, sort of a mid teens fourth quarter.

So for the most part, much of the growth that we would see in the calendar year occurred by the end of April.

So for the balance of the fiscal year, through October thus far, as noted, we're down a little bit, and for the rest of the year it should basically kind of have worked out.

So there are no more billing issues, so to speak, or publication timing issues for the last two months of the calendar year that contribute to the third quarter.

And then, of course, we're into the cycle related to calendar 2010 renewals.

And Will can speak more to that now.

As I mentioned, we feel pretty good about that process to date, and I want to keep saying that we obviously still have a ways to go.

But based on renewals through the second quarter, I can tell you that the overall value is up from a year ago, so we are experiencing growth, and the license renewals that we have closed through the second quarter, I can also communicate to you that in the United States, those renewals so far continue to go as we expected them to and when I say that, what I mean is they are taking a bit longer than they had in previous years due to some of the concerns that libraries have about their budgets.

But I can also say that we are experiencing growth in the major licenses that are being renewed.

Again, we still have a ways to go with that.

And as we said to you earlier, the market conditions outside the states was expected and has been generally better than the market conditions in the United States.

So we are a global business.

We get a significant amount of revenue outside the states, and that also is going well, and, in fact, probably a little bit better.

I want to keep emphasizing this timing matter, because I think it's hugely important to all of us to understand the underlying performance of the business and to the best of our ability, not confuse anyone about fiscal years and calendar years and all of that.

Aus know, our guidance is always on a fiscal year basis.

The guidance that we have given you and that we are reiterating, which means that the guidance we provided at the beginning of the year we're sticking to that as we've moved through the halfway point of the year.

I hope you interpret that to be encouraging news.

So we feel that based upon all the information that's available to us, we still think we're going to be able to deliver what we said we were going to deliver, with the one surprise being the GIT Verlag.

We obviously have addressed that with the impairment charge.

So anything I say about guidance does exclude that.

The other comment that I want to make, after lots of analysis, which, frankly, we needed to do for our own confidence about this, when we went through the process, as I said earlier, of catching up in the fourth quarter.

That was an internal matter that we needed to go through that's related to a whole host of things back to the blackwell integration and all of that.

In an ideal world, that wouldn't have happened in the first place, but did it happen, and we worked hard to get back on schedule and we did.

And in doing that, as I said, we became so efficient that when you look at the fourth quarter of last fiscal year, again, having nothing to do with the underlying parameters of the business or the underlying performance of the business which, if you look at it on a calendar year basis, when you look at those results, 17% growth, I believe, is the number for the quarter on a currency neutral basis for STMS, fourth quarter last year, and 9% for the full year, and a market that was growing for that time period probably at half that level.

It does indicate that as a result of some of those internal processing and our desire to catch up as quickly as we can that more of that business was appropriately recorded in last fiscal year that would have normally been in this fiscal year.

So I think what we're going to find ourselves doing by the end of this fiscal year is looking at the combination of both years, and I think feeling very good about the underlying performance of the business, fiscal year to fiscal year and also on a calendar year basis.

So there really is, and I want you to all know that we spent a considerable amount of time making sure that we understood this, knowing your own concern, because of the market conditions, and because the reality that this is our largest business.

And I repeat, we're sticking to our guidance, and we are encouraged by what we are experiencing in the marketplace, and we do believe the quality of our account managers, and I'm very proud of that, in terms of the way they are representing Wiley, and these very difficult and challenging market conditions so I think part of what we are seeing on a calendar year basis has to do with the professionalism of that team.

I also want to say that we have believed for a long time, and it was part of the strategic rationale for our acquisition of Blackwell that quality matters in this business.

And even in good times and in tough times, quality matters.

And I think at the end of the day, when you look at calendar year performance, or if you look at both fiscal years together, you are going to see that Wiley has, in fact, earned its fair share of this business, based upon the quality of our publications.

Okay, thanks for that color.

If I could shift gears quickly to the professional trade business, I think coming off the first quarter sales were up double digits.

September was termed a very good month for the business.

Can you talk about what you saw in October and what you're experiencing, I guess on a relative basis, heading into the holidays here?

Sorry, you cut out there for a second.

So you're asking about professional trade?

Correct.

I'm sorry, that's when you cut out a little bit.

Yes, as I mentioned, when I said "on track," obviously when we provided guidance, we were expecting growth in our professional trade business, and we knew we were coming off a tough prior year.

We expected that growth to start kicking in around the midpoint of the year.

That, in fact, has happened.

As I look at the results since then, and as we look into the holiday season, we're feeling good about that business.

We're feeling good about our guidance.

We see a number of indicators across major accounts, which are encouraging to us, as I believe we spoke about in the past.

This has been a very dynamic situation.

It started obviously with the tough economic conditions traffic at brick and mortar stores and even traffic for on-line account was down considerably.

You all know that.

In addition to that, there were significant adjustments by major accounts in inventory management.

And obviously those things are related.

But when you start coming out of that a bit, and the traffic increases and the demand increases, you have both things beginning to have a positive effect, in my view, on underlying performance.

So we are going into, and we are in it now, the holiday season with momentum.

It is as we had hoped it would be.

We're not changing our guidance for that business, so what we thought was going to happen, better second half than the first half, is beginning to happen.

And we do expect that to continue throughout the balance of this fiscal year.

It may be helpful to you, getting back to I keep saying reiterate guidance, and the reason I keep saying that is I think in this kind of economic environment, when a leadership team can communicate that, halfway through its fiscal year, it's very positive and encouraging news.

And particularly when that guidance reflects high double digit EPS growth and growth for each of our businesses, et cetera, et cetera.

If you look at that time three businesses you should anticipate the following as we go through the year.

You should anticipate that at the end of the day, at the end of the fiscal year, the growth in higher education will be the highest growth of Wiley's three global businesses.

That's not a surprise to us, it's what we expected going in, but frankly it's turning out to even be better than that.

But we knew it would be the highest growing or fastest growing business in fiscal year 2010 relative to 2009.

We expected going in that professional trade would have the second highest growth rate.

We expected that, based on a recovery in terms of market conditions, a very strong front list and the incremental effect of these new agreements which we did at the latter point of last fiscal year with Meredith and GMAC.

Then we expected the STMS growth year on year to be the lowest of the three reflecting the very strong fiscal year 2009 performance, and in particular what we stated before in the fourth quarter, and the market conditions, and when I talk about market conditions, I'm not only talking about library budgets.

We knew we were going to be dealing with a tough advertising market.

We are experiencing a tough advertising market.

GIT Verlag, by the way, is in global STMS results.

GIT Verlag's revenue is down year on year.

Now, those are factors that we anticipated going into the year would affect the year-on-year comparisons to STMS.

Versus prior year, you should expect that STMS growth will be mainly in the third quarter and keep in mind the tough comparables we now have for the fourth quarter of this fiscal year.

The tough comparable being, I repeat again, 17% currency adjusted revenue growth in the fourth quarter of last fiscal year.

So if you want to kind of get a sense of how this is all expected to play out, that's the way we're expecting it to the play out.

I hope that's helpful to you in terms of connecting some of the dots.

Absolutely.

Thanks, Will.

One quick question for you.

The accruals were expected to be up going forward after the first quarter.

Can you quantify the impact in the second quarter, and is there any update or change in the view for the balance of 2010?

Accruals of what, Drew?

The stock-based comp, the incentive comp.

Yes, sorry.

In the third quarter, there are some significant accrual differences that you will see in the bottom line results.

So we're pretty much reflecting that in the guidance that will has provided and we've reiterated.

I'll jump back into the queue.

Thanks, guys.

Okay.

Our next question is from Dave Lewis.

Go ahead, please.

Okay, guys, good morning.

First question, with the costs this quarter were again very strong, you guys keeping a tight lid there.

Ellis, can you just provide detail on there?

I think the synergy was mentioned in the press release.

I thought most of that, very high percentage of that is run through at this point, but what's driving that performance there?

That's consistent, clearly with what your comments were at the investor day but I just wanted to get an update on the sustainability there and what if any synergy costs were contributing to that?

Thanks.

You're right to note that in terms of comparisons to year on year, Blackwell contribution in terms of expense reductions from integration are diminishing year on year which is to say that baked into the results, we are beginning to lap significant savings in the prior year.

What I can say also about that, it's becoming more and more difficult to separate that out, because of the integrated nature of the business now nearly, not quite, but nearly three years on.

Sort of following the integration of the business.

In addition to what we've spoken to over the course of this fiscal year, which is in this difficult economic environment, we're managing costs pretty much across the board very tightly and very carefully, being cautious in this environment, so when you sort of weave those two things together with the time that's elapsed since the integration of Blackwell, it's hard to separate tout pieces just to say that there are some incremental cost savings coming from Blackwell.

I think we really begin when we get to the next quarter that it will be difficult to say that we're seeing incremental versus the third quarter of last year.

So I think at that point in time we're sort of through any incremental savings.

What I will say with respect to where we are in the second quarter, as Will noted, that some of that, with respect to shared services, had to do with timing.

There are projects that will be underway and kicking off in the third quarter, particularly in technology, that will have an impact with respect to timing.

Again, though, all of that is contemplated and included within the EPS guidance that we've provided.

Is that helpful?

Thanks, Ellis.

And Will, can you just give us an update of the potential divestiture of this advertising business?

What would be, then, the advertising contribution, revenue contribution of the company if you guys make the decision to pull out entirely?

I think historically it's been 3 to 4%.

That's all or primarily within the STMS segment, 5% of the revenues, but what are you looking to lower that advertising contribution to?

Or what would it be if you exit that business entirely?

Just a couple of points about that.

One is, that I want to draw the distinction between what we would call advertising in a business like GIT Verlag, vis-a-vis what we would call advertising in our scholarly journals.

It is all advertising but it is advertising of a different nature.

So the GIT Verlag business is a German language B2B control circulation business.

The revenue is approximately $18 million.

Last year.

Last year.

That was a full year.

We're projecting it's going to be lower this year, so that would come out of the number or be lower as a result of whatever we do the business in terms of restructuring, things of that nature.

The percentage of our business, if you were to have a reduction due to GIT Verlag --

It's about a third of our advertising business.

Slightly more than a third.

Okay, thanks.

And just two more quick ones.

What percentage of he renewals are complete at this point?

I know you set's been delayed, understandable given the environment.

But it's still early, but can you give us a sense for how much has been completed at this point?

For the journal?

Approximately 20 to 25% on a value basis.

So I'm not talking about number of contracts.

I'm talking about the value, the expected projected value, how much we have for the full calendar year versus what he we currently have in.

It's about 20 to 25%.

It's significant, but obviously we have a lot to go yet.

Terrific.

And last one from me, Will, can you just provide an update on professional and trade and the impact from electronic devices?

I know you guys have been aggressive with the partnership and have done well at this point, but we're seeing, I guess, increased chatter about price points and I'm just curious what the economics are for that business at a $10 price point.

I believe you guys are receiving a subsidy from Amazon now, but I would like to hear your latest thoughts on that business as these devices get rolled out and where you guys stand there.

Thanks.

This is not a material part of our business yet.

Our philosophy as it relates to these devices, as it has been, frankly, for the course of the last decade, is when there is an enabling technology that we believe will provide more access to our content than perhaps print on paper would, the culture of this place is to engage in the business, to engage and collaborate with partners, and frankly, to help define the parameters by which the business will develop over time.

So we've been involved in digitizing our content for a long time now with the belief that there are many different ways in which people will want to gain access to it, and they will be supported by different business models.

Now, that's one point, which I think is important to make.

Second is, I have a strongly held view that I think is supported by what has developed over time in the marketplace with enabling technology, is that all content is not the same.

There is a reason why STMS content was digitized it before we started digitizing other content, and that had to do with, frankly, the needs of our customers.

There's a reason why wail lee plus has been the primary solution, if will you, where we have capitalized on enabling technology to serve customers better.

In the case of professional trade, when I say all content is not alike, we, as you know, are not a fiction publisher.

Our content, where as we have significant consumer content, we also have significant professional content that we publish.

And I believe that it would be wrong for anyone to project at this point in time that price points that are currently in place will, one, remain in place, and two, that they will remain place for all content in the same way as they are now.

I think what's happened now is that some major players, who have created the devices and who are the inter immediate years in terms of selling the content with our cooperation, are trying to establish a behavior change, or create a behavior change, and they're very clever, sophisticated marketing people, and that's fine.

That's good.

And I think over time, what people will come to realize is that once the behavior change has been established, people will differentiate content and use over time, and that will be reflected in the value.

You are quite correct that the underlying economics for Wiley at this point in time are not different than the print version, because of what we are receiving from the partners we are working with because they have chosen to take a lower margin to establish either a device or to help change the behavior.

Over time we would imagine that that will change.

Now, the best thing that I think we can do, in situations like this, I cannot and will not attempt to predict the future of this with certainty.

I don't know how to do that.

But what I do know is that being at the table, and being forward looking and discussing with partners the way this may develop, being the kind of partner we are, having the kind of content we have, will position us well in terms of building sustainable business models.

But it takes some time to build those models.

And so now what we're going to do is be at the table, we're going to get some revenue out of it, we're going to make sure our work flows support this business, because if you don't have that in place, it becomes an administrative nightmare.

We're work on all those things, so we'll be ready for when the market really goes in the direction.

As you know this is going to be a way in which we're going to get that information.

I understand that that information from Wiley is a little bit different, and I know people like to use all sorts of other examples about music and this and that.

This is not that business.

We're not in the music business.

We're not in the fiction business.

We're in the business of making a difference in the personal and professional lives of people, and we do that by giving them information that will help them in their careers or will support them in their pursuit of their hobbies or other fields of interest.

We feel pretty good about the way this is developing, and we think it will develop over time.

That's great.

Thanks for the time, guys.

Our next question is from Sami Kassab.

Good morning.

I have several questions if I may.

The first one would be to build on your very helpful comments you just made on the professional/trade books, and maybe add some color on the STMS ebook market.

How are the economics developing when libraries buy e-books rather than print monographies?

Can you tell us a bit more specifically for the STMS market whether the margins or the profitability of digital reference works is the same as for print reference work?

And maybe elaborate a little bit on the electronic transition within the STMS book market in particular?

The second question, if I may, could you give us some color on the electronic-only contribution to your journal revenues?

You mentioned the third of WileyPLUS coming from digital only, if you look at the journal licensing business, would it be a third as well or would it be two-thirds possibly?

And the last question regards the higher education division.

McGraw Hill mentioned a 5% to 7% market growth next year as a possibility.

Would you share this view?

Do you think that the digital efforts you have recorded so far can be maintained in the second half of the year?

Could you comment maybe on higher education in the second half of the year and possibly into calendar 2010 please?

Thank you very much, gentlemen.

Sami, you accomplished something very special here.

I think your questions were longer than my answers, and that's not easy for anyone to do.

I try to keep a record of all of this, so I'll do my best.

On the STMS e-books, all I can do for you at this point, because it's still early days, in terms of the evolution of that kind of content to various forms of electronic delivery, and I think it is important for you to understand that there so far are two major approaches that he we're taking to this.

One is just like with P/T and potentially down the road with some things that may develop in higher education, we are able, and we do participate in the E-book reader market with our STMS content.

Not nearly to the degree that we do with professional trade in terms of the sheer number of titles and all of that.

So e-book readers and e-book revenue, that's certainly a part of this.

We are, again, engaged in that.

The underlying economics in terms of the revenue, selling a print book versus an e-book, there is no real difference to talk about there.

Meaning that we're talking about it being comparable in these early days.

Another model which, frankly, we're quite excited about, there are e-books, and there are what we refer to as o-books.

And o-books, of course, are on-line books.

As you know, we have a platform that is known as Wiley Interscience, and we tend to talk about that, mainly as it relates to journal content and the discoverability of journal content.

And what we have believed all along is that there has been a place for book content on that platform as well, and we have some very preliminary kind of o-book models that are in place through that platform that, frankly, we're looking at more carefully now as we're getting more information to see what adjustments, if any, we should make to help grow that business.

I think what has happened, and, by the way, this following comment relates to higher education as well, the market conditions have caused our customers, obviously, to look much more carefully on what they're spending and what they're spending it on.

And it was our belief, and we spoke about this in previous conference calls, in higher education, that this economic situation may accelerate the move to digital, where we can provide more content, frankly, for less at very attractive margins.

Win-win.

Well, I think what you are finding as well, early days, not nearly like higher education, but early days with academic librarians is that they are seeing some advantage to getting STMS book content this way.

Some of it over time they may be expecting some cost benefit in terms of price.

They may be expecting that.

But even beyond that, the discoverability that drove the journal business is relevant in STMS back content.

And also, just the sheer matter of the physical cost of having print on paper library collections in expensive buildings and this and that, just strategically, I think librarians are looking at all of the economics of that transaction.

So I really cannot, because I don't have it, give you very detailed statements about STMS e-book or o-book, in both cases it's not what we have already experienced in higher education with WileyPLUS or in professional trade with the various e-book readers because the mark is now just developing.

However, I can tell you that we're optimistic about this.

We do believe that there are sustainable business models that would be attractive to us.

We are working very hard to develop those with customers, and it would really be surprising to me if a year from now, when we're talking again about topics like this, that you didn't see more of a shift there from books just on paper versus books that would be available, and particularly I would like to emphasize on-line through our platform.

You also asked about the higher education market.

The industry information that I am going to speak about, calendar year, and I will loop back to Wiley higher education in a moment, but on a calendar year basis, and I'm sure most of you have this.

I don't actually the November year to date but through October, we were looking at about 11%, and that's a US number.

11% industry growth, ten months ended October 31, 2009 versus 2008.

I think with this, two months of data missing there, it's probably going to end up a bit lower than that, but not by much.

Maybe in the 10% range.

And that is much better than I expected, and I think much better than most people in the industry expected.

Wiley is getting the benefit of that on top of the fact that we have a particularly strong front list, into a good market.

So that has certainly helped us.

In terms of 2009, and again, I may be proven wrong, as I was wrong this year that it would be shocking to me if the business grew near that level, so I think calendar year 2010 that grew near the level of 10% or so.

So most of what I'm hearing and most of what I'm thinking now is in the mid single digit range, and that doesn't mean it's going to be a bad market.

It just means when you are looking at combined years of growth, off of a strong base, that that probably is a more realistic number, and I think, again, the trends will continue to move toward positive news about digital.

And in terms of the flow of Wiley's higher education business, because of the nature of that business, and the way it flows throughout a fiscal year, not a calendar year, we do, I repeat, expect higher education to have the highest growth rate, but the full year growth rate will be below the year-to-date growth rate.

And that's not because we're suddenly going to be performing badly.

It's just the nature of comparisons to prior year and the way the market flows.

So I think I touched on everything.

Thank you very much for.

That if I may just, the one question was still outstanding, the digital only contribution to the journal revenues, within (inaudible) to sign e-only?

Very small, Sami.

Most of the customers buy both digital subscription licenses and also take print copies as well.

Thank you very much.

Very helpful.

Thank you and congratulations, gentlemen.

Thank you.

I will now turn the call back over to Mr.

Pesce.

Thank you very much for your continued interest and support and best wishes to you, your colleagues and family for a healthy, happy, and peaceful holiday season.

Thank you.