John Wiley & Sons Inc (WLY) 2012 Q1 法說會逐字稿

Welcome to the John Wiley & Sons quarterly earnings call.

Before introducing Steve Smith, 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.

Smith, please, go ahead.

Good morning and thank you for participating in Wiley's fiscal year 2012 first-quarter investor conference call.

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

I'll take a few moments to provide an overview of Wiley's performance in the first quarter and then we will then respond to your comments and questions.

Before I do so, however, I'd like to draw your attention to an 8-K statement filed on Tuesday concerning my health, in which we announced that I am being treated for urological cancer.

I've been treated surgically to remove all detectible tumor cells, I am now undergoing chemotherapy treatments to ensure that no cancer cells remain in my system.

My doctor advised that the prognosis is good for a full recovery and I expect to continue working through my treatment.

I am grateful for the unwavering support of Wiley's Executive leadership team and the Wiley Board of Directors and I'm as passionate as I've ever been to be leading this great Company through a period of exciting change and opportunity.

I'd now like to now focus our attention on the Company's 's first-quarter results.

In a difficult global economy, Wiley showed positive revenue growth for the quarter both as reported on a performance basis.

Including the positive effect of foreign exchange, revenue advanced 5%.

Wiley's currency adjusted revenue growth of 0.4% versus prior year reflects the ongoing momentum in our STMS business offset by anticipated decline in P/T and a decline in global education resulting from weak market conditions.

On the US GAAP basis, earnings per share increased $0.10 including FX to $0.82, or by $0.05 excluding FX.

US GAAP and EPS includes deferred tax benefits of $0.14 and $0.07 per share for fiscal years 2012 and 2011 respectively.

The tax benefit was derived from 2 consecutive legislative reductions in the United Kingdom corporate income tax rates.

The benefits had no current cash tax impact.

Adjusted EPS of $0.68 increased $0.03 including the effects of foreign exchange but declined by $0.02 on a currency neutral basis.

Higher operating administrative costs were partially offset by lower interest expense, a lower effective tax rate and gross margin growth.

Adjusted EPS excludes the deferred tax benefits.

Operating and administrative costs of $231 million were up 10%, or 5% excluding the adverse effects of foreign exchange, driven mostly by technology spending to support investments in digital products and infrastructure and increased facility and other direct costs to support business growth.

Free cash flow for the quarter was a use of $59 million, $22 million greater than prior year.

Lower cash earnings as a result of the acceleration of calendar 2011 journal cash collections into fiscal year 2011 and higher capital spending on technology was a major driver of the higher cash usage.

Net debt was $353 million at the end of the quarter, down from $573 million a year earlier.

During the quarter, Wiley repurchased 184,700 shares at a cost of $9.4 million.

In June, Wiley increased it's quarterly dividend by 25% to $0.20, it was the 18th consecutive annual increase.

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

STMS revenue of $253 million for the quarter increased 10%, or 3% excluding the favorable expect-- effects of foreign exchange.

Journal's revenue grew by 6.4% over prior year aided by solid underlying subscription growth of 3.4% for the calendar year 2011 received to date.

Strong publication flow, impressive backfile sales growth and an excellent start to the year for corporate sales.

Institutional licensing business continues to grow accounting for 77% of total calendar year 2011 subscriptions versus the prior year of 72%.

The STMS book business was down by 10.5% against prior, largely as a result of 1 time $5 million digital book sale to Saudi Arabia in the corresponding quarter of the prior year as discussed previously.

Direct contribution to profit for the quarter of $106 million was 13% ahead of prior year, or 6% on a currency neutral basis.

In the quarter, STMS signed new contracts to societies to publish 14 new journals, combined annual revenue of $4 million and renewed or extended contracts to publish 36 journals with combined annual revenues of $5 million.

No journal contracts were lost.

For the 12 months ended in July 2011, (inaudible) accesses on Wiley Online Library increased by 62% across all product types compared with the same period a year ago.

During this period, usage of journals was up 64% and of books 86%.

Wiley Online Library was launched in August 2010, so this 12 month supporting period represents the true cumulative impact of the Wiley Online Library launch.

This growth in usage can be attributed to the increase to discoverability of Wiley Online Library, content by Google and other referring websites, improvements to the Wiley Online Library user experience and functionality and organic growth in the number of users achieved through better market penetration.

Impact factors are an important measure of journal quality based on the frequency with which the article was published in a particular journal as cited elsewhere in the peer reviewed literature.

The high quality of the Wiley-Blackwell journal portfolio as measured by impact factors and rankings is an important element in the purchasing, decision making process for customers.

The Thomson ISI 2010 Journal citation reports showed that Wiley-Blackwell has continued to increase both the number and proportion of it's journal tiles with an impact factor with 1,087 titles with 73% of our total now included.

This is an increase of 7% from the 2009 Journal citation reports and includes 58 titles which have received their first impact factor.

First-quarter professional trade revenue of $100 million grew 0.4%, or fell 2% excluding the favorable effect of foreign currency.

The decline is largely attributable to reductions in the consumer and technology categories, consumer fell by 8% to $24 million due to the timing of the Borders bankruptcy last year and the short-term impact of store clearance sales of Borders locations on other resellers this year.

Decline in the technology category of 8% to $19 million reflects strong stocking orders in the first quarter of the prior year associated with significant software releases.

Operational improvement has enabled us to increase the frequency and speed of shipment to major accounts.

As a result, wholesale and retail accounts have reduced their inventory on hand and their returns.

Revenues in the business finance categories continue to grow powered by the rapid growth in sales of eBooks and other digital products.

eBook sales increased by $7 million to $11 million in the quarter and now account for 11% of global P/T revenue.

Strong global sales growth Amazon and Apple contributed to the increase along with sales growth with a number of new eBook vendors.

The growth in eBook sales as a total of P/T revenue is having a positive impact on gross margins.

Variable gross profit at 63.5% of revenue reflects a 2% improvement compared to the same quarter in the prior year.

Direct contribution to profit grew 5% to $23 million, or 2% excluding foreign exchange, reflecting the top line results and the higher gross margin from digital products.

First-quarter global education revenue fell 2% to $77 million, or 5% excluding favorable foreign exchange.

The decline in revenue is due to a combination of delayed ordering patterns, lower orders for rental stock, declines in for profit enrollments and a slowdown in several international markets.

According to published industry data, the US higher education market has declined by 8.4% since January and by 2.6% over the 12 months ending July.

Despite strong student demand, decreased public spending has reduced the number of available seats at 2 and the 4- year institutions.

While the decline in for profit enrollments is the result of the federal investigation into recruitment practices.

Nontraditional and digital revenue, which includes WileyPLUS, eBooks, digital content sold directly to institutions, binder editions and custom publishing was up 13% to $18 million.

WileyPLUS billings were down12% mainly due to lower college enrollments in the US.

We are delaying the launch of WileyPLUS 5, which will not be made available to customers for the fourth semester as planned.

We determined that the new version was not ready and decided it was in the best interest of our customers and our Company to delay the launch.

The delay affects 35 WileyPLUS courses which account for around 16% of the total number of WileyPLUS courses available.

We are assisting effected customers and are implementing contingency plans that vary from course to course, of which in many cases involve remaining on a current edition of WileyPLUS.

We are working hard to improve the performance of WileyPLUS 5 in order to bring a high-quality product to market as soon as possible.

We signed a partnership agreement in the course with Blackboard.

Blackboard is estimated to have approximately 80% of the North American market for campus learning management systems.

They are the leading present commercial LSMS systems globally with a growing presence in the Middle East and Asia.

Instructors with any Blackboard campus will have direct access to WileyPLUS courses in their discipline.

When WileyPLUS is adopted, the instructors will be able to assign WileyPLUS directly through Blackboard and students will have a seamless experience between Wiley course materials and their campus environment.

The agreement with Blackboard will enable us to increase WileyPLUS 5-- WileyPLUS penetration in low validation markets, increased digital direct-- an increased direct digital e-commerce sales and enable sales of distance online education programs.

Global education direct contribution to profit for the quarter declined 17% to $26.9 million, or 20% excluding favorable foreign exchange.

The decrease reflected top line results and higher direct operating costs.

In conclusion, we remain confident that Wiley will weather the ups and downs of these challenging market conditions through the balance of fiscal year 2012.

We continue to gain market share in the markets we serve, we are focused on accelerating the transition to digital business models which remain critical to our ability to serve the needs of our customers.

We will take necessary steps to reinforce our ability to sustain our track record of excellence in delivering major technology projects.

Based on our first-quarter results, market conditions, a leading indicator, we reiterate our fiscal year 2012 guidance of currency neutral mid single-digit revenue growth and EPS in the range of $3.15 to $3.20 with an upside of up to $0.10 per share if the US dollar remains at current levels.

This excludes the $0.14 deferred tax benefit related to the reduction in UK tax rates.

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

(Operator Instructions) Drew Crum from Stifel Nicolaus.

Okay thanks and good morning, everyone, and Steve, best of luck to you.

Thanks, Drew.

Just wanted additional clarification on the guidance.

The additional $0.10 you're assuming with no changes to 4X, is that expected or would it be expected over quarters 2 through 4 of fiscal 2012 or is that in addition to what you picked up in the first quarter which I believe was $0.05?

Hi, Drew, this is Ellis.

Hi, Ellis.

Good morning.

The $0.10 is what we would expect over the entire year.

Based upon what we see in the first quarter which was $0.05 versus prior year rates, but our guidance when we begin the fiscal year is based upon a full year weighted average rate, so that $0.05 isn't contributory to the $0.10 in full, not to get too technical about that, but it's actually about $0.02 per share that comes out of the first quarter towards the $0.10.

So if we say at roughly where the dollar is relative to let's say sterling and the euro, I mean obviously we're exposed to some other currencies as well, but those are the 2 principal ones, we would expect that we get about $0.10 in total.

So $0.02 plus or an additional $0.08 over the remaining 3 quarters.

Is that clear?

It is, thank you, Ellis.

And just sticking on the guidance, the organic growth that you're forecasting for fiscal 2012, how do you see that progressing through the balance of the year.

You were up less than 1% in the first quarter, what are your expectations or thoughts for the businesses or the Company as a whole as you progress through the year?

Yes, so you're talking about revenue now, right?

Correct.

Yes, well certainly we would expect a stronger second half typically fourth quarter something in that neighborhood for professional trader.

As you know, we had the benefit of Borders so to speak in the first quarter last year, so that accounts for the lightness in first quarter this year.

And as Steve noted and I think as we noted in the earnings release as well, there's a little bit of timing with respect to what we saw in the first quarter with respect to Higher Ed with respect-- meaning about the ordering patterns and so forth, so we expect a little bit of course the first quarter and second quarter are the big quarters with respect to Higher Ed.

So we'd expect certainly better performance in the 3 quarters of the remainder of the year in Higher Education.

In STMS, as we indicated, renewals for 11 as we spoke about earlier in the year, play out throughout the balance of this calendar year, we don't know yet what the renewals will look like for the coming calendar year, calendar year 2012.

It's a bit too early to tell on that.

However, kind of reiterating our guidance for mathematically, you would get to sort of a stronger 3 quarters on average than you would for the first quarter.

Albeit again with a good solid strong performance out of STMS, the difference being made up principally out of professional trade and Higher Ed over the remainder of the year.

Okay, very helpful, Ellis.

And then you mentioned the calendar 2012 journal subscription renewals, and while it's still early, are you guys doing anything different this year than you did last year with respect to-- go ahead.

Yes, well last year, I would say we're in great shape and did a terrific job in terms of renewing and also as noted in the numbers sort of moving a number of customers and moving towards a license model, so we're now at 77% of the journal business under license for 72% the year before.

So we continue to drive the business into the license model, customers find that very attractive.

And so we're encouraged where we start the year, sorry, where we start the renewal cycle, we're in great shape as we were last year.

So there's nothing new so to speak.

Just maintaining the level of effort that we had last year which was a terrific year in terms of execution, in terms of signing up customers, getting out there early and closing business early.

And shifting gears to Higher Education, any explanation behind the weakness in WileyPLUS and given the delay, the 5.0, is the expectation for that trend to continue?

Drew, this is Steve.

So the weakness in WileyPLUS for fiscal 2012 is really the result of falling enrollments.

So we wouldn't have expected a major boost from WileyPLUS 5 to actually impact revenues this year.

It would have been more sort of customers migrating from release 4 to release 5.

So what we're seeing there has really impacted the market conditions, falling enrollments particularly in the for profit sector.

That said, we of course, are very concerned to make sure that we rectify the challenges that we face with WileyPLUS 5.

It really relates to complexity in the application and we of course wanted to make sure that we could be under the same confidence in the performance of WileyPLUS 5 before it went live with our customers.

And it was really the recognition that we didn't have that confidence that's caused us to hold it back and we are not going to give a date today as to exactly when we believe WileyPLUS 5 will be released.

But we're very focused on getting that done and we'll have that announced to the market as soon as we can.

Okay, thanks.

And my last question, I'll jump back into the queue.

The other admin line and shared services was up considerably, can you talk about what the nature of that was and what you're anticipating through the balance of fiscal 2012?

Yes, Drew, so certainly foreign exchange factored into that quite a bit.

So in terms of other-- sorry, operating and admin expense, there was about $10 million worth of adverse foreign exchange.

I think Steve noted that the 9.5%, 10% growth that was noted on a-- including currency it's just under 5%, 4.7%.

That principally driven by shared services, that principally driven by technology spend.

The technology spend increase was about $5 million in the quarter excluding foreign exchange.

So an increase coming from certainly Online Library, increased maintenance, some spending against new initiatives and continuing initiatives certainly to get [5%] kind of where we need to have it and also to support growth in the activity with respect to Online Library in terms of hardware and licensing and maintenance and things like that.

So it's kind of along the trend again, we've talked about sort of team level sort of growth of technology spend.

Some quarters it'll be sort of low end of the teens and some quarters it'll be sort of higher end of the teens.

So we don't sort of manage with specific number, we're managing against specific initiatives.

I'll also note that we had some, this is a little bit of a one-time thing, but we had some duplicative rent, or duplicate rent I guess is the right English word, for past.

In 3 facilities we are moving into a smaller more condensed space in our distribution facility in the UK, called Bognor.

Putting in some automation to get us into that much smaller space.

So there's a little bit of investment related to hardware associated with that which you will see coming and it's part of where our projected spend is for this year, so it's in our capital spending numbers.

There's a little bit of duplicate rent that ran through the first quarter but will be out by the -- well in the second and on quarters related to Bognor, that was about $0.5 million or so excluding foreign exchange, maybe $100,000 or so of foreign exchange there.

We also consolidated into a single facility in Singapore.

We had formally had-- were in our legacy systems, our legacy facility in pre-Blackwell in Singapore and we had the Blackwell facility in Singapore.

We've consolidated into 1 facility.

So there's a little bit of duplicate rent there, again about $0.5 million or so a little bit more.

And then also we're, as the lease expires in San Francisco, we're moving into lower cost, better accommodation for our Jossey-Bass folks and others working in San Francisco.

So there's a bit of duplicate rent there, that'll be out by the end of the third quarter.

So kind of a little bit of overlap in rent there, $1.5 million to $2 million or so, that's unusual sort of one-time-ish that contributed to a higher level of growth in shared services expense than you typically would have expected from us.

Okay.

Thanks, guys.

You're welcome.

Dave Lewis of JPMorgan.

Hello, guys, good morning.

The first one is can you guys discuss how the economics are different between WileyPLUS or a sale through CourseSmart and eBook rental through Amazon?

So we haven't discussed the margins specifically and they are-- the products are not exactly identical.

So WileyPLUS sold as WileyPLUS.

There are discounts associated with different intermediaries who manage or handle that product.

We haven't discussed those specifically and won't.

And we sell a range of products through CourseSmart including digital textbooks and the like.

So it's kind of a mix of products through-- and as Amazon as well, different products.

So sorry, the long answer to the short question is no, we don't discuss the specific economics and discounts associated with those different products or different markets through different intermediaries.

But Dave just to add some color to that, this is Steve.

The principal it here is to offer students choice where ever possible.

So there are students who want to rent the book through Amazon are able to do that and the terms of our agreement, there we believe are well for the Company and give the students that choice.

But of course we're really seeking to exploit every channel to reach students and give them that flexibility.

Thanks, guys.

And just one quick follow up for the quarter with Higher Ed, where you guys able to quantify the timing impact in the quarter in terms of revenues or percentage?

Not specifically, we'll know more of that as we progress through the second quarter in fact.

So we might be able to get some color on that at the end of the second quarter in December.

That's great.

Thanks, Ellis.

You're welcome.

And then just a couple of questions on Professional and Trade.

I mean you mentioned market share gains in the quarter.

Do you expect there to be consolidation in Professional and Trade as some authors and smaller publishers move to larger publishers with more established digital strategies, is that an opportunity?

And then the second half of that is, are you seeing-- I know you don't have full transparency in terms of book sales on the backend, but are you seeing more units being purchased as accessibility increase?

I wouldn't frame it as an impulse buy, but is that realistic?

Are you seeing some trends like that?

Dave, yes.

I'll take the second part of your question first, if I may.

So we do have quite a bit of visibility into sell through, through a service called Nielsen BookScan that aggregates point-of-sale data from retail channels.

And of course with eBooks, we know that we're fulfilling for the end user so we have very clear visibility into end user behavior.

And the good news is, and I think this is also reflected in some industry data, book sales are holding up extremely well, there's been growth over all over the last 2 years.

And so the trends there are quite favorable.

And again I think it's accessibility as you say, it's discoverability and it's the ease with which people can now find relevant material and acquire it and read it on the platform of their choice.

Could you just remind me of your first question again, it was about market share?

Sure, yes the first question was just with professional trade, you'd cited market share or some out performance in the quarter, I guess is how I'll frame it.

And is there opportunity to take market share in that business as I think publishers might have to gravitate, or smaller publishers might have to gravitate, or authors might have to gravitate to more established publishers like yourself that have firmer digital strategies?

Right, I mean I think--

Stronger digital strategies.

Sure.

And the specific segment that I was referring to there was business and finance where we've made some very good gains over many years now.

I think it would be-- it would be stretching the point to say that authors are going to go look for larger publishers because of their digital strategy.

But clearly authors look for a platform and in addition to obviously wanting to maximize their returns in terms of royalties, they're driven by the desire to build a platform for their thinking and for their work.

And the innovations that publishers like Wiley have made in digitizing content, not just as eBooks but then also going beyond that to making it more interactive and to enriching that content, our way is in which we can make the user experience more valuable and therefore drive greater use of our office products.

It's a competitive gain.

It's not just scale in size, but it's also the intelligence with which you intervene to make content more valuable.

We're very focused on that and we have large teams of people who are working with their office to try and give the best possible user experience we can.

Thanks, Steve.

I'll hop off and may come back on.

Thank you.

Torin Eastburn with CJS Securities.

Good morning, my first question is on the STMS business.

I think it was up 3% excluding FX, can you characterize roughly what the split was between volume and price?

Torin, this is Ellis.

It is a very complex question to answer.

Certainly there is a pricing element associated with the journals of renewal cycle year on year.

So we increased license values by 2 means, 1 of which is market penetration is expansion-- or 3 I mean, second is gross in portfolio and third is price.

So price is a factor associated with that.

I couldn't characterize again, it's fairly complicated because pricing is a mix of a number of things in terms of issue flow and sort of size of issue and so forth.

So it's a complicated question to answer in a very precise and charismatic way.

Only to say that pricing does factor into growth as a component.

All right.

In the Higher Ed business, the profitability declined much more steeply than the revenue.

If you continue to have a quarter or 2 that were a bit slow, would you see similar profitability or was there something this quarter that this one-time in nature?

The quarter itself was unusual with respect to -- well so that the variability in quarters with respect to Higher Ed are fairly significant nonetheless, it's a business that is principally driven by the fall semester.

The underlying costs are both fixed and variable, as you can imagine the fixed piece is there throughout the year, the variable cost in part is driven by volume.

Much of that though is represented in distribution and other areas outside of the business in [CTP] as well-- itself.

There's nothing unusual, unusual other than the fact that the quarter was light relative to what the first quarter was in the prior year.

So the profitability, I would expect that the profitability will swing with revenue based upon the strength of the performance of the quarter.

But it is a fairly seasonal business, shall we say, so the variability and profitability is quite significant between let's say the first and second quarter in the second half of the year, particularly the fourth quarter.

Pretty hard, again a difficult question to answer with a degree of precision at this stage.

Okay.

And my last question, can you talk a little bit more about the Blackboard alliance and specifically is it exclusive, how does it work if there is a competing product in a field for a given class?

Torin, it's not exclusive, so a number of publishers have similar licenses.

For us, what's I think attractive here is that it enables students to get access to WileyPLUS content through their university LMS and then management system, which really helps facilitate greater usage, makes it more accessible to them.

There are some courses where although overall validation rates for WileyPLUS tend to be quite high, there are some courses where students have access to the WileyPLUS content but don't actually use it because it's not been embedded in their LMS.

This is while driving up usage, reinforcing the values of WileyPLUS to instructors and to students as a way of sustaining further growth of that business.

Great.

Thank you, Steve, and have a speedy recovery.

Thank you.

Michael Corty with Morningstar.

Hi, good morning.

I had a question about the STMS business, I'll try to ask it in a different way to get away from the pricing question.

If you could just maybe comment on the relative areas of strength or weakness among like your customer buckets, maybe first the US business versus international and then secondly, academic institutions, public or private, versus your corporate customers, kind of any directional guidance in terms of how those buckets of customers are doing relative to your expectations?

Sure, let me tell you, this is a Steve.

So the overall trend has been one for a couple of years now where growing the licensing business has been tougher in the more mature western markets than it has been in developing markets and particularly in Asia.

And that's continued to a degree this year although we are seeing growth across all markets.

It's tougher I would say in some areas of North America and Western Europe where as we're still continuing to see good growth in Asia and that's sort of re-balancing, and the growth in Asia has been a pretty constant underlying trend.

As I mentioned in my remarks, one of the things that's particularly encouraging about the first quarter is we've seen a rebound in corporate sales.

And that sells mostly, but certainly not exclusively, to the pharmaceutical industry where we're selling commercial reprints, we're selling advertising space, we're selling sponsorship, and it's very good to see that rebounding and again geographically, we're seeing that across the world.

So we've seen a pick up in corporate sales in the US which was actually a pretty difficult market for us 1 year ago.

So the balance is changing every year a little bit more in favor of Asia and emerging markets.

But the number of customers who have come to us to participate in the license business now as Ellis reminded you 77% of the total means that we're still getting very good traction in North America and Europe.

Okay.

And then I had a few questions on the Higher Education business.

In your comments you mentioned that the industry was down like 7% this year.

And what I'm trying to get at is how should investors look at like a long-term growth rate for that business excluding foreign exchange?

Your sales have been up 6%, 15% and 7% in the past 3 here, so that's very strong.

So some weakness shouldn't-- I'm trying to just reconcile the weakness you talked about in terms of enrollments versus just like a tough comparison, so if you could just comment on that.

And I think there are a lot of variables that apply in that market that make it hard to get a real read on what the impact of this year and the inferences that you draw from a longer term sort of trend.

The first thing you have to be said is the demand for student places has not dropped off at all.

So the demand for 2-year and 4-year places from the population continues, it continues at a very high level.

And what's really-- what needs to happen is for funding to be in place in order for those students who are looking for places into employee programs to be able to take those places up.

The challenge is within the for profit sector, I think they're fairly well known.

But the review of recruitment practices for profit has led to significant declines in enrollment at the major proprietary universities.

And we see them beginning to climb back now, but it may be a year or 2 before they get back to their 2009 levels.

So our best guess of this would be that there's going to be a recovery in student numbers.

Some of the things that are affecting sales in fiscal 2012 for us relate not just to enrollment but also to channel blurring with the growth in rental market.

It's different ways-- it's students finding different ways to acquire these materials and for us to fully understand those trends to understand what the underlying growth rates are going to be is really important.

Great.

Okay your answer kind of-- you answered my second question already with that answer, so thank you.

Okay, good.

Ian Whittaker from Liberum Capital.

Yes, thanks very much, and you've answered part of my question already but just to follow up on that point regard to the market.

If one of the major factors of the decline in Higher Education sort of revenues is because of falling enrollments and at the state funded education establishments and that's being driven by cuts in places.

Surely we're talking here about a 2- to 3-year impact just given that state budgets don't look as though they're recovering anytime soon.

If you look of what states are doing in their current budget rounds, again they seem to be focusing on Higher Education enrollment as a place where they can save costs, would that be a fair assumption?

It's certainly an assumption, and we look at it on a global basis.

So what's-- we've been-- where we're seeing enrollments decline in the US, we see enrollments picking up elsewhere.

I do not know that we're predicting a 2- to 3-year hiatus or recovery period, but it may be a little too early to say exactly what will happen in the coming year.

Also I mean as you noted the demand is out there by students that is looking for places.

There is an episode, or has been an episode, with respect to proprietary institutions where the government sort of looked carefully at enrollment practices to the extent of those students look for economic ways of accessing the Higher Education.

It may be speculative just like any other whether it take 2 to 3 years to recover in the public sector in terms of institutions.

They could migrate proprietary institutions which are lower cost than private institution, that could be the case, who knows.

So it's a mix of different sort of flows and forces kind of driving the market.

And just one follow up question as well.

Just on sort of another factor which is the pricing of books.

Obviously that's been in the news a lot, student bodies are, or 1 student activist body is obviously been making a lot of noise in there.

Are you starting to see significant pressure on book pricing yet, or is that still something which hasn't really occurred?

Well as we've reported in previous quarterly earnings calls, the advent of technology and our investment in WileyPLUS and in other formats the so-called binder ready version or eBooks, has enabled us to offer a lot more flexibility.

So overall, there are more deals if you like available to students to acquire that content, print book price it does not change dramatically.

But students who want to adopt WileyPLUS or who will buy a binder ready version are able to get the same content at a much lower prices.

So it's that emphasis on flexibility I think that's been really critical.

Overall, the game plan there is that by making the content available at prices that are attractive to students but in formats that maybe are less resilient in terms of used book sales is a way for us to continue to drive that business forward, so by increasing volume and at the same time getting some opportunities on price.

Okay, thanks so much.

(Operator Instructions) Dave Lewis of JPMorgan.

Hello, guys.

One last one for me, could you just update us on capital allocation and what the cash [priority is], the digital acquisition strategy?

You provided a good update last investor day and the balance sheet is coming down, obviously there's quarterly fluctuations driven by the nature of the business.

But-- and in the context also I guess of potential tax repatriation holiday, if there's announcement on that tonight, I'm not sure how much that could impact decision making or not, but-- thank you.

Dave, in answer to your question, our allocation of free cash flow or available cash to amongst the options that we've discussed in the past over the last couple of quarters or so has really not shifted.

So our focus is principally on investments surrounding growth.

So those would be organic investments which are obviously in-- they're before free cash flow but focusing also on potential acquisitions and alliances to accelerate some of our growth strategies.

Those again are somewhat opportunistic.

We can't make acquisitions happen, but certainly we have an appetite to do those.

And in the absence of acquisitions, we're continuing to execute on a share repurchase program and reduce debt rather than have the cash that earning something like 1% or something like that.

Of course you're paying down debt that's not much more expensive than that 1% we're earning, but at least it's the flip side of it so there's a benefit associated with that.

And of course as Steve noted and you know, we've increased the dividend by 25% this past June to $0.20 a share.

So another way of getting cash back to investors that we cannot invest directly into our growth strategy.

Thanks, Ellis.

You're welcome.

Okay I would now like to turn the call back over to Mr.

Smith.

So we thank you for your interest and we look forward to sharing results of our second quarter with you in December.

Thank you very much.

Ladies and gentlemen, this concludes today's call.