John Wiley & Sons Inc (WLY) 2011 Q1 法說會逐字稿

Welcome to the John Wiley & Sons quarterly earnings call.

Before introducing Will Pesce, President and Chief Executive Officer, I would like to remind you this call is being recorded, and may include forward-looking statements.

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

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

Mr.

Pesce, please go ahead.

Welcome to Wiley's first quarter conference call.

I'm with Ellis Cousens, Steve Smith, and Brian Campbell.

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

The momentum we enjoyed in fiscal year 2010 carried forward into the first quarter of the new fiscal year.

Revenue of $408 million increased 9% on a currency neutral basis, or 5% including the negative effect of foreign exchange.

Operating income increased 26% on a currency neutral basis, or 13% including the negative effect of foreign exchange.

Adjusted EPS of $0.65 was 40% higher than prior year on a currency neutral basis, and 44% above last year, including the favorable effect of foreign exchange.

In addition to operating income, adjusted EPS benefited from lower interest expense.

Adjusted EPS excludes a $0.07 per share deferred tax benefit related to recently enacted legislation in the UK, which will reduce corporate income tax rates next year by 1%, to 27%.

Excluding the unfavorable effect of foreign exchange, we recorded healthy year-on-year top line growth in all three businesses, STMS up 7%, Professional/Trade up 12%, and Higher Education up 12%.

On a currency neutral basis, all regions contributed to the year-on-year growth.

Globally, on a currency neutral basis, journal revenue was up from prior year by 4%, while books increased 14%, primarily due to a major online book agreement in Saudi Arabia.

Gross profit as a percent of revenue of 69.3% was higher than prior year.

Digital revenue is having a positive effect on the Company's gross margin.

On a currency neutral basis, shared services expenses were 7% higher than prior year.

Technology spending related to Wiley online library, and other web initiatives, drove the year-on-year growth.

Free cash flow was $14 million better than prior year, reflecting the increase in cash earnings, and lower pension contributions, partially offset by unusually high cash collections from journals in last year's first quarter.

Despite the challenging economic, financial, and market conditions, net debt of $573 million was reduced from a year ago by $226 million.

The successful launch of Wiley Online Library in August is a major milestone.

It replaces Wiley InterScience, which was officially taken offline after 11 years, six months and 29 days of service.

Built on the latest technology, and designed with extensive input from scholars around the world, Wiley Online Library is one of the world's broadest and deepest multi-disciplinary collections of online resources, covering life, health and physical sciences, social science, and the humanities.

Wiley Online Library delivers seamless integrated access to over four million articles from 1,500 journals, 9,000 books, and hundreds of reference works, laboratory protocols and databases.

It will enhance discoverability, improve search, allow greater personalization, provide more services, and create new revenue streams.

Feedback has been positive, including this comment from a librarian on the no shelf required blog, I think they did an incredible job with the interface, looks great and offers a lot, the best looking interface I've seen in a long time.

A participant in one of our focus groups said, they addressed all of my concerns during prelaunch testing.

Another librarian commented, they reach out to us, and were very good about soliciting feedback.

I would like to provide some information regarding the performance of Wiley's global businesses.

STMS revenue of $229 million increased 7% on a currency neutral basis, but was flat with last year, including the unfavorable effect of foreign exchange.

Direct contribution to profit of $94 million was up 9% on a currency neutral basis, but flat with last year, including the unfavorable effect of foreign exchange.

Top line results and gross margin improvement related to eBook revenue were partially offset by increased editorial costs associated with society journals.

STMS signed 13 new society journals in the first quarter, including a five-year agreement for 11 journals with the British Psychological Society, which is the second largest psychological society in the world, with approximately 50,000 members.

The journals were self-published.

We signed an agreement with a federation of five national societies of obstetricians and gynecologists in Denmark, Norway, Finland, Iceland and Sweden.

We also signed an agreement with the European Economic Association, which is the third highest profile economic society in the world, thereby strengthening Wiley's position as the world's leading publisher of society journals in this field.

STMS renewed or extended 15 journals in the quarter.

Only one journal agreement was not renewed.

eBook sales nearly doubled over prior year, excluding a large one-time online license with a consortium in Saudi Arabia.

Online advertising revenue, which is a key enhancement in Wiley online library, is gaining traction, particularly in the US.

Science Net is the leading portal serving over 300,000 members of the Chinese science community.

We initiated Science Net campaigns to create awareness of Wiley's products.

These campaigns drove a significant increase in usage, contributing to over 10 million full text downloads in the past year.

China is now second, only behind the US, in online usage of products on Wiley Online Library.

In the first quarter, Wiley announced that two-thirds of its journals have an impact factor according to the recently released Thomson ISI 2009 journal citation reports.

Impact factor is the score reflecting the frequency that peer review journals are cited by researchers.

Wiley has a higher percentage of its journals with an impact factor than any other major publisher.

Wiley has 36 number one rankings.

Of the ranked journals, nearly a quarter are in the top 10 in one or more subject categories, while two-thirds are in the top half.

51 Wiley journals were added to the list for 2009.

Professional/Trade revenue of $100 million increased 12% on a currency neutral basis, or 11% including the unfavorable effect of foreign exchange.

Sales growth on a currency neutral basis was strong in all regions, Americas up 10%, EMEA up 35%, and Asia-Pacific up 14%.

Direct contribution to profit of $22 million increased 33% on a currency neutral basis, or 32% including the unfavorable effect of foreign exchange.

Results were driven by top line growth, favorable product mix and higher margin eBook sales, partially offset by increased employment costs.

On a currency neutral basis, business program revenue advanced 13%, with strength through all channels and in all regions.

Consumer declined 7% in the quarter against a strong prior year.

Cooking and other consumer categories are entering a key period, with a strong front list publishing in the Fall.

Technology was up 31% due to the success of books related to MS Office 2010, and the iPad, as well as global growth across the professional and certification lines.

Social media and virtualization books are driving back list sales.

Education grew 37%, fueled by the best seller, Teach Like a Champion.

Architecture was flat with prior year, while psychology grew 13% in the quarter.

eBook sales doubled this quarter from a year ago to nearly $4 million.

Wiley has agreements with several eBook channel partners, including Amazon, Apple, Barnes & Noble, Borders, CourseSmart, Google and others.

Approximately 2,000 eBooks are already available through the Apple iBookstore.

Over 9,000 Wiley books are available on Amazon's Kindle Store, which can also be read on the iPad.

LPI Online, a comprehensive suite of online leadership tools, including assessment instruments typically administered by HR professionals, launched 10 new feature enhancements, and implemented a new, more streamlined user registration process.

The number of registered users doubled quarter over quarter to 110,000.

Frommers Unlimited launched a private label travel section for AARP that included 100 destination guides from custom overviews.

An Alitalia destination guide service covering 45 of its key routes in English and Italian was launched in the quarter.

Frommers.com traffic increased for the seventh consecutive month, reflecting the positive effect of feature enhancements, and search engine optimization initiatives.

Higher Education revenue of $79 million increased 12% on a currency neutral basis, or 14% including the favorable effect of foreign exchange.

Strong growth occurred in every region on a currency neutral basis, Americas up 14%, EMEA up 12% and Asia-Pacific up 5%.

Contributing to the overall results were a strong front list, increased enrollment and revenue from eBooks, digital content sold directly to institutions, binder editions, and custom publishing.

Direct contribution to profit of $32 million increased 24% on a currency neutral basis, or 26% including the favorable effect of foreign exchange.

Top line growth, and an improved gross margin from higher digital revenue, drove the results.

Gross profit as a percent of revenue improved from prior year by 2.6 percentage points.

On a currency neutral basis, engineering and computer science revenue increased 31%, science revenue was up 20%, business and accounting revenue was flat compared to a strong quarter in the prior year, social science revenue increased 18%, mathematics revenue was up slightly, Microsoft online academic course revenue increased 28%.

Global billings of WileyPLUS grew 13% to $12 million.

Wiley is participating in a recently announced pilot program at five schools within the California state university system.

The pilot focuses on the digital delivery of instructional materials in three courses, international finance, precalculus, and MIS.

Shared services expenses of $85 million increased 7% on a currency neutral basis, or 5% including the favorable effect of foreign exchange.

The year-on-year increase was almost entirely technology related, including employment costs, consultant fees, and depreciation.

In conclusion, we are pleased with our first quarter performance.

The Company is performing very well in challenging markets around the world.

Our strategy of investing in must-have content, and enabling technology, continues to yield positive results.

During the past decade, technology investments and innovative business models have transformed our business by opening additional distribution channels, and creating new revenue streams.

Wiley is providing more access to more content by more people around the world than ever before in its 203-year history.

Based on first quarter results, market conditions and leading indicators, we reiterate our fiscal-year 2011 guidance of mid single digit revenue growth on a currency neutral basis.

Excluding the effect of foreign exchange, and the UK deferred tax benefit, we continue to project EPS growth of approximately 10% from fiscal year 2010 adjusted EPS of $2.58.

We welcome your comments and questions.

(Operator Instructions).

And our first question comes from Mr.

Drew Crum of Stifel Nicolaus.

Please go ahead.

Okay, thanks.

Good morning, everyone.

Want to start with Higher Education.

Can you talk about what you saw in terms of growth, how that trended during the quarter, and comment on what you saw in the month of August given the seasonal importance of that month in the calendar year?

And then related to Higher Ed, what percentage of the portfolio is business accounting and math?

Those are two categories that you highlighted that were flatish to up just modestly.

Drew, this is Will.

I'll start and we'll go from there.

In terms of the trends, as some of you know I've been -- in Higher Ed -- I've been at this Company now for over 20 years and I've been actively engaged in that business from the very first day of my career.

This period of time that started in the beginning of last fiscal year right through the current time, has been about as robust and as strong a performance by Wiley's Higher Education business as any other time in my career at the Company, and I really do believe that that is a blend of strategies that have been put in place and have been effectively executed at the Company, as well as robust market conditions.

It is not one or the other.

The market conditions have certainly been pretty strong over the last 12 to 15 months; however, that's not the only reason for this growth.

We're finding that the WileyPLUS strategy -- you've been hearing me talk about this for years now -- is working exceedingly well for us and has been not only embraced internally, but obviously by students and professors around the world.

Our publishing programs across the board have done quite well and I would just encourage you -- I know you asked a specific question about business accounting and math.

I would not read too much at all into one quarter's performance there, particularly in business and accounting, although it affects all of our publishing categories.

But the publication schedule has a huge effect on what may happen from one quarter to the other, or even, frankly, for some -- one year to another.

You may recall during last year we've talked about a "strong front list" where we published lots of new books, both first editions and revisions.

Business and accounting were certainly one of those areas and so all you're seeing here is some tough comparables that were not at all unanticipated by us.

So, you'll have that some times within individual publishing programs.

In terms of trends, there's really not too much for me to report through -- we have our July reported results.

I normally don't like commenting too much about the next quarter before we get the full story in.

I will say there's nothing at all unusual about what we've seen in August.

We remain quite encouraged by the performance of our Higher Ed business the last full year, the first quarter and some of the trends into the second quarter.

As you know from tracking this business as long as you have, it tends to fall into a couple of cycles.

July/August is an important period, then we deal with some early orders -- reorders usually in September, and then you have this returns period, which kind of closes out the first semester before you gear up for the second.

So by the time we have our second quarter discussion, we will have pretty good information about how the first quarter ended up and what we see for the balance of the year.

Did I miss anything in your question?

No, I think that's good color, Will, I appreciate it.

And maybe I can shift gears to the STMS business.

Given the subscription billings up 3% on a currency-neutral basis and the revenue growth you achieved in the first quarter, do you feel like that's sustainable given the billings growth you have?

Well, I'd say a couple of things about this.

We've been talking for, I guess, well over a year now about industry-wide and market-wide concerns about library budgets and we can indeed confirm all of that's been written that those markets are pretty tough.

We put some numbers on the board, which you're all well aware of, in terms of fiscal-year 2010 and our STMS business performed quite well.

You may recall some of the comments I made in the beginning of the year that we couldn't predict without -- this was the beginning of the last fiscal year that we couldn't predict with absolute certainty what the market growth rate would be -- the market growth rate for the period covering fiscal-year 2010, but we were optimistic that Wiley would take its fair share of the business.

And we said that based upon our belief that the quality of our content is really quite good and investments that we have been making in enabling technology.

And I think you will recall that I made some comments about the quality of our sales team and the relationships we've established with customers around the world.

This matters -- it's a huge factor in these kinds of market conditions.

And I just want to reiterate that that paid off for us in fiscal-year 2010 and it's paying off for us in the early days of fiscal-year 2011.

It's still too early for us to provide too much insight regarding calendar-year 2011, other than the number you already quoted, which is somewhere in the vicinity of 3% to 4% calendar year-to-date currency-neutral growth in that business.

The 7% currency-neutral growth in the first fiscal quarter is obviously partly driven by that, but also other sources of revenue.

We keep talking about investments in technology and how they have helped us open up additional sources of revenue.

Well, this is classic case of that.

You can't get from that 3%, for example, up to 7% currency neutral without having other things growing.

For the first time, for example, this online deal with Saudi Arabia, that didn't just happen.

We've had sales people working on that for awhile and it's technology enabled and it is content that people really value, even when there are tough market conditions.

So, we're pleased with how our colleagues in STMS are performing with tight library budgets to deal with.

We've already reported compelling evidence that we gained market share in fiscal-year 2010.

We obviously intend to do the same in fiscal-year 2011, but that story still remains to be told, but we're off to a good start.

And guys, is there is any revenue upside from Wiley Online Library built into your fiscal 2011 guidance you provided?

Our guidance does assume the successful launch of Wiley Online Library, which has happened, and I say that that way because none of us should ever take that for granted.

This was a -- this is a major milestone, not only in the current year, but I don't think it's overstating the case to say a major milestone in the history of this Company.

Wiley InterScience served us very well for a long time and that was one of the first major technology initiatives and those investments starting about 13 years ago even though Wiley InterScience took awhile to get launched.

So Wiley Online Library is not merely an enhancement.

It really was a rebuild and it was very comprehensive rebuild, and so I made reference to having capabilities there that did not exist with Wiley InterScience.

One of those is the world is definitely moving to online advertising revenue opportunities.

We were not from a systems point of view well equipped to deal with that.

I don't want to make a big deal about it because it's not a huge amount of revenue yet, but that capability exists and we're beginning to see some early indications that that revenue is beginning to grow.

We had that in our internal projections, we have that in our guidance.

The good news is we're executing, it's working, we launched and we're ready to go.

So I wouldn't add anything above our guidance for that but what I -- if I were you, we may -- just take a moment and have a collective sigh of relief that we launched it and it's working.

Okay, sounds good.

Two last housekeeping items for me.

Deferred revenue on the balance sheet was down about 5% year on year, can you just reconcile that or explain what happened there?

And then, with the change in the UK corporate tax rates, are there any updated guidance you can provide for your effective tax rate given your presence in the UK?

Yes, Drew, this is Ellis.

Deferred revenue the reduction is almost entire -- it's mostly related to foreign exchange, so that is a big component of it.

And then there is certainly growth in there that offsets some of that having to do with WileyPLUS and also growth in journal subscription revenue that we've alluded to before on a currency-neutral basis, about 3%.

So there is growth net of foreign exchange but the reduction on the balance sheet is that.

The question on tax rate, could you repeat it?

I want to make sure I answer it fully.

Sure.

So you mentioned that the UK corporate tax rate's going to increase next year by 1%, did that in any way impact your effective tax rate--?

Yes.

-- going forward?

And I want to make sure I got--?

Sorry I want to make sure I heard that correctly.

Actually it's decreasing by one point--.

Decreasing, right.

Decreasing, right, effective April of next year -- next calendar year.

But what we had to do now, given that that low is inactive -- is revalue our deferred tax positions and that resulted in the benefit, which is a noncash benefit -- or a cash tax benefit if that happened already.

So it'll affect our effective rate this year.

It has, so it's 22% or so in the first quarter versus 30% excluding it.

It'll have an effect on the balance of the year.

What it won't do, quite frankly, is have a long-term cash effect because at the end of the day that cash needs to wind up back in the US and US corporate income tax rates haven't changed.

Not that I'm lobbying anyone but something to think about.

So the rest of the world is seeing the light and anyway, don't want to get too much into that.

So the rate will be lower, so the effective rate will decline, but the cash tax rate will not be affected longer term.

Got it.

Okay, thanks guys.

Sure.

Okay, next up we have Dave Lewis of JPMorgan.

Please go ahead.

Hey, guys, good morning.

I just wanted to start out with -- can you just comment on full-year guidance, and after the strong Q1 is it fair to say that you're more optimistic than you were three months ago?

Dave, this is Will, and you probably don't have to see me to know that I have a pretty big smile on my face right now because you probably know how I'm going to respond to that question after having known us for awhile.

We -- I hope you heard in my voice and in my comments that I feel really good about our first quarter.

There's -- it would be -- those are quality results up and down the P&L and on the balance sheet.

And just for context and perspective, I know you all know how difficult it is out there for industries in general.

I keep looking at our ability to throw off free cash flow, pay down that debt that we incurred to make that huge strategic acquisition called Blackwell and to be at this point, having gone through this economic cycle, which is not completely over yet, and to pay down that debt that way to free up more cash flow so that we can continue to invest in our business, is a real statement I think, about Wiley's ability over a long period of time to gain market share, to execute effectively, no matter what the conditions.

This has not been an easy period but we feel really very good about it and to start the new fiscal year with this kind of momentum is really quite encouraging to us.

You also know that we're very prudent about these things and we prefer to make the headlines before we start talking about them.

And so, we have a lot to execute yet.

It is early in the fiscal year.

It is early in the renewal cycle.

We remain confident that the guidance we've provided to you is guidance we can achieve.

When we reach a point where we're even more confident or we have better news to tell you about that guidance we'll be sure to do that.

But right now we think the prudent thing to do is stay focused on what we're doing, hope that market conditions continue to be either as they are or get better, and to continue to execute our plan.

But so far, so good.

Okay, thanks, Will.

And I wanted to touch on distribution in the PNT business because it's -- the online platform there has -- within the overall industry has just taken longer to develop than we've seen STMS and higher rev where you guys have obviously made great strides there.

Well, I'm just -- I was just curious what -- how do you see distribution playing out or changing in PNT?

And I guess related to that, do you need to make -- or would you consider making a technology acquisition there to accommodate, I think, perhaps changing distribution platforms?

Yes.

Well, I'll give you some thoughts about that and I don't think there'll be -- fortunately I don't think there'll be many surprises.

So where we start with all of this is, we still believe that content matters in all of this.

You can have all these different ways of distributing something, but if people don't actually want to read it, it doesn't really matter how many different ways it can be distributed.

So it all starts at the front line of identifying the kind of people who have something that is worth distributing, and bringing our capabilities to that, and that capability relates to everywhere from what we signed in the first place, how we helped authors put it together and package it and then how it ultimately gets disseminated.

It has been a long time now, probably at least a decade, where Wiley immediately recognized that we should not lock into, particularly as it relates to technology, one platform, one distribution system, one channel partner.

In fact, for as long as I can remember and this goes well past a decade, we've always optimized and leveraged multiple channels of distribution.

So I think what you see playing out is we continue to emphasize you have to have really good stuff -- I use that term intentionally -- in the first place and then build really good relationships with as many channel partners as is reasonable, so that you get the maximum distribution.

And we have been as the leading stages in most of these cases with some channel partners and experimenting.

So when -- we now talk about eBooks, all of us, as though they've been around for a long time and there are so many different versions of and, clearly, in the last couple of years the amount of purchases of the number of devices, the acquisition of those devices by consumers, certainly in the states but also abroad, and the amount of content that's available has skyrocketed.

Well, Wiley was experimenting with that in the very early days before a whole lot of people were talking about it, which meant that we had to do some things internally to prepare ourselves to deliver that content that way.

And so we're taking advantage of that and that is core to our strategy.

We don't believe, particularly in that market, that we need to own a particular platform.

What we believe is we need to continue to work collaboratively with many channel partners to get as much of our stuff in as many different ways as possible to people around the world, as long as we're paid a fair price and our intellectual property is respected.

Those are provisos that we put on any channel, any partner, any customer.

What I think you're beginning to see is the natural evolution of that business.

Wiley didn't make STMS's business suddenly go online; customers determined that that's what they wanted when they wanted and we were prepared to deliver it.

Wiley doesn't decide, okay everybody, you need to use WileyPLUS all of a sudden.

We had the capabilities, we were assuming it was heading in that direction and customers are beginning to embrace it.

What we're now seeing is that consumers are beginning to embrace it and we're right there providing our content at higher price points that what a lot of people are talking about.

Most of Wiley's content is available above $9.99, okay, and there's a reason for that.

This is -- it's not the same as fiction, it's not the same as some other material that other people are producing.

It is the type of content that people want access to because it makes a difference in their personal or professional lives and they understand that there's added value to that.

So, we see that continuing to play out.

There will be, in our view, a proliferation of devices.

It is hard under any scenario of the future that I can imagine that there's going to be one way for people to read this stuff on mobile devices.

We easily can imagine multiple devices available to people.

So, to your question about acquisitions and acquisition strategy, we have made, as you know, some acquisitions that have brought other content, or capabilities, or processes to the Company that we thought would add value to all what we already have.

An example of that that maybe some of you have forgotten was a small acquisition of a company called Maris, I think it was Technologies, which we acquired about--?

2003.

In 2003, says Ellis.

It was a modest acquisition by Wiley's standards, but those folks in -- actually based outside of Moscow have been the driving force behind the evolution of WileyPLUS.

So we acquired not content, we acquired capabilities that helped move our higher education business further along its path in terms of the strategy that we believe would be robust in this market.

A few years ago we acquired a company called What's on When in the UK within our Professional/Trade business.

That was not a "content" acquisition.

They had capabilities in providing resources and services on the web to major customers and the strategy there was to take their capabilities on the web with some key customer contacts, our content through Frommers and other sources, put it together and have one plus one equal more than two.

So, we are interested in acquisitions like that and like the one that I referred to with Maris that could bring a capability to the business that could perhaps allow us to add a service to our content or make our content more valuable to a customer.

And we're interested in that across the board in any of our businesses depending upon all the things you could count on us to look at.

Is it a good strategic acquisition, is it the right price and can we create shareholder value as a result of acquiring it.

Terrific, thanks, Will.

I just want one more right now and I'll pop off -- hop off and hop on.

For-profit reforms to Higher Ed, I know -- I believe that it is a small component of the business for you, but I just wanted to hear your thoughts on the impact that could have on Wiley?

Sure, I'm going to ask my colleague Steve Smith to comment on that.

He's been a bit closer to that situation than I have.

Yes.

Dave.

So as you say, for profit is a relatively small component of overall revenue.

It's somewhere around about 10% of our Higher Education revenue.

It's been a very rapidly growing channel for us and an area where we've been able to make good headway with WileyPLUS and other enabling technology investments to fuel some of that growth.

We're watching closely what's happening in that sector.

Right now we don't see any major pulling back.

We don't feel particularly exposed to anything that's happening at this point, in the for-profit sector.

I would observe that the demand for Higher Education globally continues to expand, maybe not exponentially but very rapidly, and someone's going to need to step in to fill that demand.

Public sector investments don't seem to be keeping pace with that at the moment and so our bet is that the for-profit sector remains robust in the long term and is also growing internationally.

You may have noticed Apollo Group acquiring an institutional BBP in the UK, establishing for-profit universities there.

There's a proliferation of for-profit universities in the Middle East, all of which we believe represent opportunities for Wiley.

Thanks, Steve.

Okay.

(Operator Instructions).

And next up we have [Michael Corley] with Morningstar.

Please go ahead.

Hi, good morning.

Thanks for taking the question.

Will, as you mentioned Wiley has a strong track record in successfully adopting technology across all of its businesses.

While recognizing it's still early in the game, how do you see the electronic textbook market taking shape in your Higher Ed business, perhaps over the next five years, specifically in the US market?

Michael, I want to forewarn you that a little bit of this is a very strong opinion that I have, I am actively engaged in my volunteer work in public higher education and I do feel strongly about this and I will try to temper a little bit of that with as reasonable an assessment as I can about how I see this going.

I really do feel very strongly that the application of technology in higher education in the United States and frankly abroad is a robust strategy for all involved.

I think it is really one of those moments in time when collectively we can bring more value to the educational process.

One, meaning that we can actually enhance teaching and learning, improve the productivity of teaching and learning, and document that it's actually happening.

These have all been great challenges within many levels of education around the world, but certainly in higher education.

And the reason I'm so excited about this is that as I look at evolving models, both -- and when I say models I'm talking about the content, I'm talking about the technology, I'm talking about the price points, I'm talking about the return on investment.

When you look at all of that I see the situation where publishers like Wiley will be selling at lower price points.

However, we will have much more efficient use of capital, lower working capital requirements because we don't have as much inventory sitting in warehouses.

We have lower returns in -- I always hesitate to say none.

I can't imagine a world where somebody will do a digital return, but let's assume returns aren't going to be the factor they are today by a wide margin.

You have a situation where you could really combat the used book market because in the digital world there's certainly less to deal with there.

All of which enables us to deliver at lower price points but have a cash ROI that is at least as attractive, if not more so, than the current business model.

Students get the benefit of paying less per course, and students and professors get the benefit of an enhanced teaching and learning experience that can be documented with results.

I can't imagine -- again, we're big advocates of the world of scenario planning is that you can't predict the future with certainty so you look for robust strategies.

I can't imagine any scenario in which this is not robust.

So then what it comes down to is time.

How long will it take human beings to embrace it, integrate it, leverage it in the States and abroad.

I think what we're seeing is an acceleration of that, certainly in the US market, but I want to be clear that many of us, when we look outside the States -- and when I say that particularly I mean emerging markets in Asia -- we had hard time figuring out how that would become a huge growth opportunity for us, if it was just print on paper.

And the reason is, we had difficulty imagining what sustainable price points would be given the investments that had to be made to deliver print on paper into those markets.

When you now talk about digital delivery you open up a whole new opportunity to reach more people in far away places in economics -- with economics that make sense for customers and for us.

So I think we can say now that it's not a matter of if it's going to happen, it remains a matter of when it's going to happen and where it's going to happen in terms of geographic opportunities sooner rather than later.

There's definitely momentum in the United States.

I see that accelerating, and I think frankly one of the few good things about this economic cycle is if it causes people to step back and ask themselves what am I doing that I could be doing better?

How can I improve my return on time investment or my return on financial investment.

If anything that good -- good that comes out of this, perhaps some educational institutions will ask themselves, can we be doing this better?

Can we step back, and are we really maximizing our use of these tools that publishers have been investing in for years?

If they ask themselves that question and they become more willing to try, then I think what you'll see is an acceleration driven by these funding constraints and some of the economic issues that entities have been dealing with.

We are certainly seeing some evidence of that in the United States and abroad.

So I'm very optimistic about the future here with digital delivery of quality content and our ability to measure the outcomes for the benefit of students and professors.

Great.

Thanks, I appreciate the insight, Will.

(Operator Instructions).

Next question from Dave Lewis with JPMorgan.

Please go ahead.

Hey, guys, just a couple more from me, I'll be quick.

Will, after the recent renewal season, STMS, I'm just curious, are you seeing -- because you've taken market share and the bigger publishers have been able to, I think, provide better access to societies, are -- do you think that societies will gravitate towards the larger publishers that can provide better access going forward?

I think when we saw -- the 13 societies that were assigned this most recent quarter, obviously that was just primarily one entity there but I'm just curious what your thoughts are there since there's obviously a benefit to being -- we've seen clear benefits the past couple years of having scale, and quality content.

Yes.

Well, I think there are a few comments I would make about this.

Again, I'm so pleased and I think it's important to remind us of why we do some of the things we do.

So a few years ago we make this substantial -- largest in our history acquisition called Blackwell and I obviously do recall very much communicating with you the strategic rationale for this.

And we always lead with what really matters here, quality content, and in that particular case we also led with these society relationships.

And the reason we did is that when we made this acquisition we were trying to project forward about how the market could evolve and how those relationships could evolve, and wanting to get the benefit, frankly, of the capabilities, which we had at Wiley but where Blackwell had to a much greater degree across many more subject areas and through more communities.

So the capability, the skill, the commitment to building enduring relationships with societies should not be taken for granted.

And that's not just done with the fanciest technology or the most money.

By the way, the money helps and the technology helps.

However, that people relationship, that ability to deliver, that reputation that you're going to be there for the long haul really matters.

So you have put out there a hypothetical.

The hypothetical is that size matters in this business, including with societies, and that larger entities may be "better positioned." I can tell you some smaller publishers, smaller than Wiley, have some successful society relationships and I do believe some smaller publishers will continue to have their niche there.

However, I think the combination of being able to invest in technology, deliver technology like Wiley Online Library, when it is needed, be committed to the long term, these societies like long-term commitments.

They don't want to have to worry what their publisher's going to be doing next week, next month or next year.

I think all of that really combines for, again, a good opportunity for Wiley to continue to build that business.

And I think something you should look forward to is how over time, these relationships with societies, which start with a content relationship, that is, you have a great journal, we have the capabilities to help you publish that journal and disseminate, that's an important relationship, we'll keep working on it that way, what else can we do together?

What else can we do together to provide services to your membership or to others?

What else can we do with enabling technology to enhance the process?

We're in the early days of, I think, moving in a pattern of enriching those relationships and if you do that what I think happens is you solidify those relationships even more.

One other point I would make is, you notice I made a comment that some of the journals, which we recently just signed, were previously self published.

So just to remind you, commercial publishers like Wiley publish these journals for societies.

Historically a whole bunch of them publish their own journals.

I do think there has been a -- I know there has been a trend in recent times where societies that had previously self published have felt in order to get the resources they need, they need to associate with a viable publisher like Wiley.

So, I think you're seeing less and less self publishing and companies like ours have been well positioned to build those relationships.

Thanks, guys.

And last one from me is just a follow up to the earlier question about international dissemination and we touched upon how the investments in distribution platforms is providing opportunities in both Higher Ed and PNT, which is really a 70%, or roughly 70% businesses based in North America.

I'm just wondering if you could also touch on the price points there, and the profitability and how, if you add that into the question, even though distribution becomes -- certainly it can be faster and there's going to be greater penetration in those markets, how is profitability -- how -- does that weigh on the growth opportunity there?

Because clearly the price points in many of these -- in some of these regions -- not all of them, of course but -- are going to be lower and so it's going to limit the profitability somewhat -- the growth somewhat, I would think.

Yes, I'll start and then I'll ask Steve Smith -- just to remind all of you, Steve has actually spent most of his career, not only at Wiley but before he joined us outside the States, and I've always appreciated his perspective about markets outside of the more mature markets that we have, for example, in the States.

But just a broad opening comment and then Steve will add to that.

So when we talk about technology and we talk about Wiley we're talking about three different businesses and so there's more than a little nuance in how this will affect each of the businesses.

So right out of the box I'll tell you that several years ago we had very little revenue in our STMS business coming out of China.

Now, that didn't mean that people weren't reading our journals.

What it means is we weren't getting revenue out of that transaction.

Fast forward to the electronic dissemination of content initially through Wiley InterScience, now through Wiley Online Library, we have had rapid growth in revenue coming out of China enabled by that technology and that platform.

The set of economic conditions, business models, licenses, whatever word you want to use that are attractive to us and to the Chinese research community.

Parenthetically I will also mention to you that we're getting tremendous growth in the number of articles submitted by the Chinese research community, so there is a double benefit to that.

So that's an example of a market where we weren't getting very much and for a whole bunch of reasons, not just technology, we have found business models through these licenses that we have that are actually making sense for the Chinese research community and for us.

I think Steve can add some things about experiences with WileyPLUS, for example, and price points relative to print on paper textbooks which would be another good example.

Yes.

In fact, just as Will says, there's -- there is considerable variation in the extent to which our price points differ across our three businesses globally and you won't be surprised to know that there's also a huge variation between regions and even between countries in regions, so it's a little difficult to capture all the nuances of that in a brief answer.

But what I will say is that in some of the rapid growth markets, particularly in Asia and in the Middle East -- and I think you referenced Higher Education and Professional/Trade in your question -- there we are seeing the individual price points to students are substantially lower than the prices that are charged in North America and in Europe and in Australia.

However, we see that as very much an incremental opportunity.

It's true to say that looking at India we've had a presence in India for the longest time, going back over 20 years, and have a very significant installed base of student adoption of textbooks in India.

It has always been pretty tough to make reasonable profits in that market in a print world.

The distribution channel is extremely long.

The price points for the students have been historically low.

There are -- students have a lot of options, including, neglect of copyright, which has always been a fret to us in some emerging markets.

However, the investment that we're making in technology begin to open up new opportunities to add more value to those students to begin to move price points a little higher.

Most and more importantly to take a lot of cost out of the distribution channel.

It's a lot easier to distribute and to control distribution of our content when it's delivered online.

And as Will referenced, we're seeing some success now with WileyPLUS in various markets around the world, including India, but also in the Middle East and Australia and Canada where we're able to license to entire classes, sometimes across a faculty, in order to get an installed base of adoptions there that enable us to not only price to a -- at a point that is attractive to students, but also earns a good return on investment for Wiley.

That's great, thanks, Steve.

And if I could just ask one more.

If -- there's been a lot of successful partnerships in the PNT segment; Bloomberg, Meredith, Microsoft in the past few years.

I was just curious if the combination of being able to provide print and online distribution is -- provides a continued opportunity or a bigger opportunity going forward?

Thanks.

Did you mean that in the context of forming those partnerships?

That's correct.

Yes.

I've always admired the capabilities of our colleagues and professional trade to identify these partnerships in the first place, figure out a way to bring companies together for mutual benefit, and then to continue them and renew them and build them over time.

It actually has been a very impressive core capability that they've had that all of our businesses benefit and learn from.

So what I would say about that is not dissimilar to my remarks about society publishing, which is a form of partnership and alliances and that is it usually does start with a people relationship.

It starts with the reputation of the Company, meaning our Company, that they want to associate their brand with us.

And then when you go beyond that, usually what happens here is people -- potential partners become very impressed with our multiple channels of distribution is a theme that I talked about earlier and that matters both in the print and electronic world.

So the very fact that we were one of the first publishers many, many, many years ago -- when it wasn't fashionable to do it, I might point out -- we became an early partner in this new company called Amazon and we saw it as an opportunity to reach more readers in markets that were not well served at the time by brick and mortar book stores.

So we got into that fray early on and we formed a really good relationship over an extended period.

Partners notice those things -- or potential partners notice those things.

And wait a second, Wiley seems to have these abilities or capabilities to distribute through multiple channels.

When we started dealing with opportunities in the eBook market we said right out to start we're not going to pick one device.

We're not going to try to get ourselves locked into that.

Once again partners like the fact that we're taking a flexible approach.

The goal is maximum dissemination to as many readers as possible.

Authors like that, partners like that.

So what I would say to you is, it will continue to depend upon the people relationships, in forming the partnerships in the first place, and then all of the capabilities that publishers like ours bring to this.

Some of which is still print on paper, a lot of which has to do with technology.

And, by the way, in the future I know we'll talk a little more -- we've been talking a lot about technology in terms of dissemination of content.

We'll talk more and more in the future about how the technology we have is helping us become much more informed about the needs and usage, if you will, by our customers.

We're learning so much more about that.

We're going to talk more in the future about how we're using social media and other tools to build relationships with customers over the long term and to promote everything that we're doing.

We're just at the early days of those opportunities but they are opportunities, and I know our colleagues in Professional/Trade will benefit from that, as well as colleagues in STMS and Higher Ed.

Thanks guys.

Thanks for all the questions.

Well, I'm supposed to thank you for the questions, you're supposed to thank me for the answers, but I know spirit of your comment.

Thank you.

Okay and next up we have Drew Crum with Stifel Nicolaus.

Please go ahead.

Thanks, just one last one from me.

Will, can you comment on inventory levels at retail through your Professional/Trade business, and are you seeing any changes in behavior from your retail partners?

And in turn, are you guys doing anything different in how you manage those accounts?

Yes, Drew, this is Ellis.

We've seen inventory levels pretty much hold steady at relatively low levels still, but meeting market demand over the last several quarters.

That hasn't been a significant shift.

I'll refer back to, as you remember a couple years, ago where there was -- is it now a couple years ago -- where they worked down inventories at very, very low levels and found shortages in terms of supply of product and weren't able, actually, to meet even low levels of demand, so that was rectified.

We're at pretty much a steady state, so to speak, in terms of inventory supply to our supply to customer that sells through the store.

Okay, thanks.

Okay, that was our last question.

Well, thank you all very much for your interest and support, I would like to say how much on behalf of my colleagues I appreciate your thoughtful questions.

It provided an opportunity for us to share with you the strategies that we really believe in, some of the execution obviously that has been going on, and, hopefully we've conveyed to you how strongly we feel about the performance to date and the prospects for the future.

Thank you very much.

Thank you, ladies and gentlemen, this call is now concluded.