0001564590-21-054214.txt : 20211104 0001564590-21-054214.hdr.sgml : 20211104 20211104064557 ACCESSION NUMBER: 0001564590-21-054214 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 20211104 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20211104 DATE AS OF CHANGE: 20211104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Houghton Mifflin Harcourt Co CENTRAL INDEX KEY: 0001580156 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 271566372 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-36166 FILM NUMBER: 211377879 BUSINESS ADDRESS: STREET 1: 125 HIGH STREET CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 617-351-5000 MAIL ADDRESS: STREET 1: 125 HIGH STREET CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: HMH Holdings (Delaware), Inc. DATE OF NAME CHANGE: 20130626 8-K 1 hmhc-8k_20211104.htm 8-K hmhc-8k_20211104.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 4, 2021

 

HOUGHTON MIFFLIN HARCOURT COMPANY

(Exact name of registrant as specified in its charter)

 

 

Delaware

001-36166

27-1566372

(State or other jurisdiction

of incorporation)

(Commission

File No.)

(IRS Employer

Identification No.)

 

 

 

125 High Street

Boston, MA

 

02110

(Address of principal executive offices)

 

(Zip Code)

 

(617) 351-5000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

HMHC

 

The Nasdaq Stock Market LLC

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

 

 

 


 

 

Item 2.02 Results of Operations and Financial Condition

On November 4, 2021, Houghton Mifflin Harcourt Company (the “Company”) issued a press release reporting its financial results for the three months ended September 30, 2021 and other information. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information in this Item 2.02 of this Current Report on Form 8-K, including the accompanying Exhibit 99.1, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities under that section. Furthermore, the information in this Item 2.02 of this Current Report on Form 8-K, including the accompanying Exhibit 99.1, shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933.

Item 9.01 Financial Statements and Exhibits

 

(d)

Exhibits

 

Exhibit No.

 

Description

 

 

99.1

 

Press release issued by Houghton Mifflin Harcourt Company on November 4, 2021

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

2


 

 

 SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

HOUGHTON MIFFLIN HARCOURT COMPANY

 

 

 

 

By:

 

/s/ Michael Dolan

 

Name:

 

Michael Dolan

 

Title:

 

Senior Vice President and Corporate Controller

 

Dated: November 4, 2021

3

EX-99.1 2 hmhc-ex991_6.htm EX-99.1 hmhc-ex991_6.htm

Exhibit 99.1

 

 

HMH Announces Strong Third Quarter 2021 Results;
Delivers Billings Growth of 22%; Raises Full Year Guidance Again

 

Continued Execution of Digital First, Connected Strategy Drives Growth of 123% in Annualized Recurring Revenue and Net Retention Rate of 153%

 

BOSTON, November 4, 2021 – HMH (Nasdaq: HMHC), a learning technology company, announced strong financial results for the third quarter which ended September 30, 2021.

 

“Propelled by strong demand for our comprehensive portfolio of learning solutions, HMH delivered an impressive 22% year-over-year increase in third quarter billings. As a result of the continued momentum across our business, we are raising our full year guidance for the second time this year,” said Jack Lynch, President and Chief Executive Officer of HMH. “In just the last two years, we dramatically transformed our business, strengthened our balance sheet and significantly lowered our cost structure to drive incredibly strong free cash flow while successfully executing our digital first, connected strategy – we plan to build on this success.”

 

“HMH is now among the largest and fastest growing companies in the edtech market. Through execution of our digital first, connected strategy we have grown our connected billings substantially with ARR growing 123% to $120 million or 11% of trailing twelve-month billings,” added Mr. Lynch.

Q3 2021 Financial Results and Headlines:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in millions of dollars)

 

2021 1

 

 

2020 1

 

 

Change

 

 

2021 1

 

 

2020 1

 

 

Change

 

Net sales

 

$

417

 

 

$

331

 

 

 

25.9

%

 

$

872

 

 

$

699

 

 

 

24.7

%

Change in deferred revenue

 

 

130

 

 

 

119

 

 

 

9.2

%

 

 

106

 

 

 

106

 

 

 

(0.2

)%

Billings 2

 

 

548

 

 

 

451

 

 

 

21.5

%

 

 

978

 

 

 

806

 

 

 

21.4

%

Impairment charge for goodwill

 

 

 

 

 

 

 

NM

 

 

 

 

 

 

262

 

 

NM

 

Income (loss) from continuing operations

 

 

95

 

 

 

(12

)

 

NM

 

 

 

48

 

 

 

(382

)

 

NM

 

Adjusted EBITDA 3

 

 

146

 

 

 

83

 

 

 

76.7

%

 

 

246

 

 

 

95

 

 

NM

 

Pre-publication or content development costs

 

 

(13

)

 

 

(16

)

 

 

23.5

%

 

 

(42

)

 

 

(51

)

 

 

17.3

%

Net cash provided by operating activities

 

 

288

 

 

 

257

 

 

 

11.9

%

 

 

193

 

 

 

66

 

 

NM

 

Free cash flow 3

 

 

265

 

 

 

230

 

 

 

15.5

%

 

 

122

 

 

 

(20

)

 

NM

 

 

1     All amounts have been adjusted to eliminate the impact of the HMH Books & Media business which has been removed from   continuing operations and classified as discontinued operations since the first quarter of 2021.    

2     An operating measure. Please refer to “Operating Metrics” for an explanation.

3

A non-GAAP measure. Please refer to Use of Non-GAAP Financial Measures for an explanation and reconciliation. We are unable to reconcile forward looking unlevered free cash flow without unreasonable efforts.

NM = not meaningful

 

Highlights from the quarter include:

 

 

Raising FY 2021 billings2 guidance to $1,075-$1,095 million, unlevered free cash flow guidance to 17-19% of billings and Annualized Recurring Revenue (ARR) 2 guidance to 12-15% of billings

 

Strong billings growth across the Company of 22% in Q3 and 21% YTD as demand for teaching and learning solutions continued as students returned to classrooms this fall and teachers further assessed instructional needs for the remainder of the school year

 

ARR2 growth accelerated to 123% bringing ARR to $120 million, or 11% of trailing twelve-month billings. Net Retention Rate (NRR)2 was 153%

 

Trailing twelve-month free cash flow3 of $137 million, an improvement of $36 million compared to the second quarter of 2021, reflecting strong operating leverage and the benefits of 2020 actions to align HMH’s cost structure with its digital first, connected strategy

 

Gross leverage ratio of 1.4x, below HMH’s target leverage ratio of 2.0x adjusted EBITDA

 

Joe Abbott, HMH's Chief Financial Officer said, “Our digital first, connected business exhibits high operating leverage, strong free cash flow and rapidly growing annual recurring revenue which fueled strong third quarter results.  We expect that our transition to


digital will continue, leading to a lower variable cost rate and additional opportunities to reduce fixed costs which in turn will lead to increased free cash flow.”

 

2021 Outlook:

 

In light of strong year to date financial results in 2021, the Company is raising its billings, unlevered free cash flow and annualized recurring revenue guidance. Our updated guidance is as follows:

 

Estimate

 

Outlook for Year ending December 31, 2021 (Updated on August 5, 2021)

 

Outlook for Year ending December 31, 2021 (Updated on November 4, 2021)

Total Billings

 

$980 to $1,020 million

 

$1,075 to $1,095 million

Unlevered Free Cash Flow

 

12-14% of billings

 

17-19% of billings

Annualized Recurring Revenue

 

10-15% of billings

 

12-15% of billings

Third Quarter 2021 Financial Results:

Net Sales: HMH reported net sales of $417 million for the third quarter of 2021, up 26% compared to $331 million in 2020. The increase was primarily due to strong net sales in Extensions, consisting of our Heinemann brand, intervention and supplemental products as well as professional services, which increased by $58 million from $124 million in 2020 to $182 million. Within Extensions, net sales of our Heinemann products increased due to the return of in-person learning for most of our customers, as well as in supplemental and professional services due to strong customer demand. Further, net sales in Core Solutions increased by $28 million from $207 million in 2020 to $235 million, driven by strong open territory net sales as a result of the market recovery.

 

Billings2: Billings for 2021 increased $97 million, or 22%, from 2020. The billings increase was driven by an increase in Extensions, which increased by $82 million as billings of our Heinemann products increased due to the return of in-person learning for most of our customers, as well as in supplemental and professional services due to strong customer demand. Further, Core Solutions increased $15 million, driven by strong open territory billings as a result of the market recovery.

Cost of Sales: Overall cost of sales increased by $2 million to $183 million in 2021, primarily due to increased sales volume offset partially by lower print costs, increased virtual delivery of products and services along with a favorable inventory obsolescence.

Selling and Administrative Costs: Selling and administrative costs increased by $17 million in 2021, primarily due to higher variable expenses such as commissions and transportation due to higher billings. Further, there was an increase in incentive compensation compared to the prior year due to higher achievement of performance measures in 2021 compared to 2020.

Operating Income: Operating income for 2021 was $96 million, a $101 million favorable change from the $6 million operating loss in 2020, primarily due to an increase in net sales of $86 million, along with a $32 million decrease in restructuring/severance and other charges due to the timing of the 2020 restructuring plan.

Net Income: Net income of $95 million for 2021 was $108 million higher compared to a net loss of $13 million in the same period of 2020. Income from continuing operations for 2021 was $95 million, a $107 million improvement from the $12 million loss from continuing operations in the same period of 2020 due primarily to the same factors impacting operating income. Also, loss from discontinued operations, net of tax, was $1 million in 2020.

Adjusted EBITDA from continuing operations: Adjusted EBITDA from continuing operations for 2021 was $146 million, a $63 million favorable change from 2020.

Nine Months Ended September 30, 2021 Financial Results:

Net Sales: HMH reported net sales of $872 million for the first nine months of 2021, up 25% compared to $699 million in 2020. The increase was due to strong net sales in Extensions consisting of our Heinemann brand, intervention and supplemental products as well as professional services, which increased by $95 million from $308 million in 2020 to $403 million. Within Extensions, nets sales of our Heinemann products increased due to strong demand across most product portfolios. Further, net sales in Core Solutions increased by $78 million to $469 million, driven by strong open territory net sales as a result of market recovery in 2021.

 

Billings2: Billings for 2021 increased $172 million, or 21%, from 2020. The billings increase was driven by an increase in Extensions which increased by $132 million due to strong demand across all product portfolios. Billings of professional services increased due to the recovery of the in-person learning environment. Further, Core Solutions increased $40 million, driven by strong open territory billings as a result of market recovery.


Cost of Sales: Overall cost of sales increased by $7 million to $423 million in 2021, primarily due to increased sales volume offset partially by lower print costs, increased virtual delivery of products and services and lower amortization expense.

Selling and Administrative Costs: Selling and administrative costs slightly decreased, primarily due to the 2020 restructuring plan with reduced labor, professional fees and travel and marketing costs. Partially offsetting the aforementioned was an increase in variable expenses such as commissions and transportation due to higher billings along with an increase in incentive compensation.

Operating Income: Operating income for 2021 was $81 million, a $448 million favorable change from the $367 million operating loss in 2020 primarily due an impairment charge for goodwill in 2020 of $262 million that did not reoccur in 2021. This non-cash impairment was a direct result of the adverse impact that the COVID-19 pandemic had on the Company in 2020. The increase was further driven by an increase in net sales of $173 million and a $22 million favorable change in restructuring/severance and other charges.

Net Income: Net income of $262 million for 2021 was $659 million higher compared to a net loss of $397 million in the same period of 2020. Income from continuing operations for 2021 was $48 million, a $431 million improvement from the $382 million loss from continuing operations in the same period of 2020 due primarily to the same factors impacting operating income, along with a $13 million non-cash charge for the write off of unamortized deferred financing charges associated with our debt repayment in the second quarter of 2021. Income from discontinued operations, net of tax, also increased $228 million to $214 million from a loss of $14 million in 2020, due to the recognition of the gain on the sale of the HMH Books & Media business of $215 million during 2021.

Adjusted EBITDA from continuing operations: Adjusted EBITDA from continuing operations for 2021 was $246 million, a $151 million favorable change from $95 million in 2020.  

Cash Flows and Liquidity: Net cash provided by operating activities for 2021 was $197 million compared to $75 million in 2020. Net cash provided by operating activities from continuing operations was $193 million in 2021, a $127 million increase compared to 2020. The improvement in net cash provided by operating activities from continuing operations resulted from an increase in operating profit, net of non-cash items, of $173 million. The improvement was partially offset by unfavorable changes in net operating assets and liabilities of $46 million. Net cash provided by operating activities included $4 million and $9 million of cash flow from discontinued operations in 2021 and 2020, respectively. HMH’s free cash flow from continuing operations, defined as net cash from operating activities minus capital expenditures, favorably changed $142 million from a usage of $20 million in 2020 to cash flow of $122 million in 2021.

As of November 4, 2021, there were no amounts outstanding under our revolving credit facility. We expect our net cash from operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.

Conference Call:

At 9:30 a.m. ET on Thursday, November 4, 2021, HMH will host a conference call to discuss the results with its investors. The call will be webcast live at ir.hmhco.com. The following information is provided for investors who would like to participate:

Toll Free: (844) 835-6565

International: (484) 653-6719

Passcode: 4666615 

Moderator: Chris Symanoskie, Vice President, Investor Relations

Webcast Link: https://edge.media-server.com/mmc/p/ybhqjui4

An archived webcast with the accompanying slides will be available at ir.hmhco.com for one year for those unable to participate in the live event. An audio replay of this conference call will also be available until November 14, 2021 via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally using passcode 4666615.

Use of Non-GAAP Financial Measures:

To supplement our financial statements presented in accordance with Generally Accepted Accounting Principles (GAAP) and to provide additional insights into our performance (for a completed period and/or on a forward-looking basis), we have presented adjusted EBITDA from continuing operations and free cash flow. These measures are not prepared in accordance with GAAP. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Management believes that the presentation of these non-GAAP measures provides useful information to investors regarding our results of operations and/or our expected results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.


Management believes that the presentation of adjusted EBITDA provides useful information to our investors and management as an indicator of our performance that is not affected by debt restructurings, fluctuations in interest rates or effective tax rates, gains or losses on investments, non-cash charges and impairment charges, levels of depreciation or amortization, and acquisition/disposition-related activity costs, legal settlement costs, restructuring costs and integration costs. Accordingly, management believes that this measure is useful for comparing our performance from period to period and makes decisions based on it. In addition, targets in adjusted EBITDA (further adjusted to include the change in deferred revenue) are used as performance measures to determine certain incentive compensation of management. Management also believes that the presentation of free cash flow provides useful information to our investors because management regularly reviews these metrics as an important indicator of how much cash is generated by general business operations, excluding capital expenditures, and makes decisions based on it.

Other companies may define these non-GAAP measures differently and, as a result, our use of these non-GAAP measures may not be directly comparable to adjusted EBITDA and free cash flow used by other companies. Although we use these non-GAAP measures as financial measures to assess our business, the use of non-GAAP measures is limited as they include and/or do not include certain items not included and/or included in the most directly comparable GAAP measure. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income or loss prepared in accordance with GAAP as a measure of performance; and free cash flow should be considered in addition to, and not as a substitute for, net cash from operating activities prepared in accordance with GAAP. Adjusted EBITDA is not intended to be a measure of liquidity nor is free cash flow intended to be a measure of residual cash flow available for discretionary use. You are cautioned not to place undue reliance on these non-GAAP measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures (to the extent available without unreasonable efforts in the case of forward-looking measures) and related disclosure is provided in the appendix to this news release.

Operating Metrics:

Annualized Recurring Revenue (ARR) for a given period is the annualized revenues derived from termed subscription contracts existing at the end of the period. ARR excludes contracts that are one-time in nature. ARR is currently one of the key performance metrics being used by management to assess the health and trajectory of our business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of U.S. GAAP revenue, deferred revenue and unbilled revenue and is not intended to be combined with or to replace those items. ARR does not represent revenue for any particular period or remaining revenue that will be recognized in future periods. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers. 

Billings is an operating measure which we derive from net sales taking into account the change in deferred revenue. Billings for Core Solutions and Extensions is an operating measure based on invoiced sales adjusted for returns, other publishing income and change in deferred revenue.

Connected Sales are billings from the sale of core, intervention, supplemental, assessment and service offerings hosted on or transitioning to be hosted on our Ed: Your Friend in Learning® teaching and learning platform.

Gross Leverage Ratio is the total amount of outstanding gross financial debt on a consolidated basis divided by the trailing twelve months Adjusted EBITDA from continuing operations. 

Net Retention Rate (NRR) is the rate at which existing customers are renewing and expanding. The dollar-based net retention rate is calculated as of a period end by starting with the ARR from all customers as of the 12 months prior to such period end. The ARR is then calculated from these same customers as of the current period end, which includes customer renewals, upsells and expansion and is net of contraction or churn over the trailing 12 months, but excludes revenue from new customers in the current period. The dollar-based net retention rate is calculated by dividing the ARR from these customers as of the current period end by the ARR from these customers as of 12 months prior to such period end.

About Houghton Mifflin Harcourt

Houghton Mifflin Harcourt (Nasdaq: HMHC) is a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. As a leading provider of K–12 core curriculum, supplemental and intervention solutions, and professional learning services, HMH partners with educators and school districts to uncover solutions that unlock students’ potential and extend teachers’ capabilities. HMH serves more than 50 million students and 3 million educators in 150 countries. For more information, visit www.hmhco.com

Follow HMH on Twitter, Facebook and YouTube.

 

Contact

Investor Relations

Chris Symanoskie, IRC

VP, Investor Relations

(410) 215-1405

chris.symanoskie@hmhco.com


Media Relations

Bianca Olson

SVP, Corporate Affairs

(617) 351-3841

bianca.olson@hmhco.com

Forward-Looking Statements

The statements contained herein include forward-looking statements, which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “projects,” “anticipates,” “expects,” “could,” “intends,” “may,” “will,” “should,” “forecast,” “intend,” “plan,” “potential,” “project,” “target” or, in each case, their negative, or other variations or comparable terminology. Forward-looking statements include all statements that are not statements of historical facts, including statements regarding our 2021 outlook, efforts to execute on our digital first, connected strategy, opportunities to reduce costs and our expected cash runway and free cash flow generation. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, the impact of the actions described in this press release; our results of operations; financial condition; liquidity; prospects, growth and strategies; the expected impact of the COVID-19 pandemic; the timing, structure and expected impact of our operational efficiency and cost-reduction initiatives and the estimated savings and amounts expected to be incurred in connection therewith; and potential business decisions. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. We caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this report.

 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that actual results may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if actual results are consistent with the forward-looking statements contained herein, those results or developments may not be indicative of results or developments in subsequent periods.

 

Important factors that could cause actual results to vary from expectations include, but are not limited to: the duration and severity of the COVID-19 pandemic and its impact on the federal, state and local economies and on K–12 schools; any disruption resulting from the completed sale of our HMH Books & Media business that adversely affects our businesses and business relationships, including with employees and suppliers; the rate and state of technological change; state requirements related to digital instructional materials; our ability to execute on our digital first, connected strategy; increases in our operating costs; management and personnel changes; timing, higher costs and unintended consequences of our operational efficiency and cost-reduction initiatives; and other factors discussed in our news releases, public statements and/or filings with the U.S. Securities and Exchange Commission, including our most recent Annual and Quarterly Reports on Form 10-K and Form 10-Q. In light of these risks, uncertainties and assumptions, the forward-looking events described herein may not occur.

 

We undertake no obligation, and do not expect, to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein.

 


 

Houghton Mifflin Harcourt Company

Consolidated Balance Sheets (Unaudited)

 

 

 

September 30,

 

 

December 31,

 

(in thousands of dollars, except share information)

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

420,318

 

 

$

281,200

 

Accounts receivable, net

 

 

299,413

 

 

 

88,830

 

Inventories

 

 

96,471

 

 

 

145,553

 

Prepaid expenses and other assets

 

 

26,193

 

 

 

19,276

 

Assets of discontinued operations

 

 

 

 

 

160,053

 

Total current assets

 

 

842,395

 

 

 

694,912

 

 

 

 

 

 

 

 

 

 

Property, plant, and equipment, net

 

 

80,978

 

 

 

88,801

 

Pre-publication costs, net

 

 

163,255

 

 

 

202,820

 

Royalty advances to authors, net

 

 

1,581

 

 

 

2,425

 

Goodwill

 

 

437,977

 

 

 

437,977

 

Other intangible assets, net

 

 

370,047

 

 

 

402,484

 

Operating lease assets

 

 

117,410

 

 

 

126,850

 

Deferred income taxes

 

 

2,415

 

 

 

2,415

 

Deferred commissions

 

 

37,309

 

 

 

30,659

 

Other assets

 

 

32,980

 

 

 

31,783

 

Total assets

 

$

2,086,347

 

 

$

2,021,126

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

 

 

$

19,000

 

Accounts payable

 

 

49,736

 

 

 

38,751

 

Royalties payable

 

 

44,766

 

 

 

34,765

 

Salaries, wages, and commissions payable

 

 

61,133

 

 

 

21,723

 

Deferred revenue

 

 

386,431

 

 

 

342,605

 

Interest payable

 

 

4,260

 

 

 

11,017

 

Severance and other charges

 

 

1,283

 

 

 

19,590

 

Accrued pension benefits

 

 

118

 

 

 

1,593

 

Accrued postretirement benefits

 

 

1,555

 

 

 

1,555

 

Operating lease liabilities

 

 

10,506

 

 

 

9,669

 

Other liabilities

 

 

40,273

 

 

 

22,912

 

Liabilities of discontinued operations

 

 

 

 

 

30,662

 

Total current liabilities

 

 

600,061

 

 

 

553,842

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of discount and issuance costs

 

 

317,095

 

 

 

624,692

 

Operating lease liabilities

 

 

131,582

 

 

 

132,014

 

Long-term deferred revenue

 

 

624,953

 

 

 

562,679

 

Accrued pension benefits

 

 

15,021

 

 

 

24,061

 

Accrued postretirement benefits

 

 

15,338

 

 

 

16,566

 

Deferred income taxes

 

 

11,885

 

 

 

16,411

 

Other liabilities

 

 

215

 

 

 

398

 

Total liabilities

 

 

1,716,150

 

 

 

1,930,663

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: 20,000,000 shares authorized; no shares issued

    and outstanding at September 30, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.01 par value: 380,000,000 shares authorized; 152,257,784 and

   150,459,034 shares issued at September 30, 2021 and December 31, 2020, respectively; 127,680,750 and 125,882,000 shares outstanding at September 30, 2021 and December 31, 2020, respectively

 

 

1,523

 

 

 

1,505

 

Treasury stock, 24,577,034 shares as of September 30, 2021 and December 31, 2020, respectively, at cost

 

 

(518,030

)

 

 

(518,030

)

Capital in excess of par value

 

 

4,927,934

 

 

 

4,918,542

 

Accumulated deficit

 

 

(3,993,826

)

 

 

(4,255,830

)

Accumulated other comprehensive loss

 

 

(47,404

)

 

 

(55,724

)

Total stockholders’ equity

 

 

370,197

 

 

 

90,463

 

Total liabilities and stockholders’ equity

 

$

2,086,347

 

 

$

2,021,126

 


 

Houghton Mifflin Harcourt Company

Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

(in thousands of dollars, except share and per share information)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

417,130

 

 

$

331,205

 

 

$

871,997

 

 

$

699,287

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding publishing rights and pre-publication

   amortization

 

 

152,893

 

 

 

146,155

 

 

 

335,390

 

 

 

310,351

 

Publishing rights amortization

 

 

2,516

 

 

 

3,469

 

 

 

8,171

 

 

 

11,332

 

Pre-publication amortization

 

 

27,620

 

 

 

31,570

 

 

 

79,177

 

 

 

93,791

 

Cost of sales

 

 

183,029

 

 

 

181,194

 

 

 

422,738

 

 

 

415,474

 

Selling and administrative

 

 

134,951

 

 

 

118,275

 

 

 

338,953

 

 

 

339,815

 

Other intangible assets amortization

 

 

7,241

 

 

 

5,857

 

 

 

23,016

 

 

 

17,568

 

Impairment charge for goodwill

 

 

 

 

 

 

 

 

 

 

 

262,000

 

Restructuring/severance and other charges

 

 

33

 

 

 

31,776

 

 

 

9,880

 

 

 

31,776

 

Gain on sale of assets

 

 

(3,661

)

 

 

 

 

 

(3,661

)

 

 

 

Operating income (loss)

 

 

95,537

 

 

 

(5,897

)

 

 

81,071

 

 

 

(367,346

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefits non-service income (expense)

 

 

214

 

 

 

61

 

 

 

(12

)

 

 

183

 

Interest expense

 

 

(8,239

)

 

 

(9,311

)

 

 

(26,788

)

 

 

(29,178

)

Interest income

 

 

18

 

 

 

32

 

 

 

52

 

 

 

873

 

Change in fair value of derivative instruments

 

 

(368

)

 

 

432

 

 

 

(915

)

 

 

172

 

Gain on investments

 

 

606

 

 

 

1,738

 

 

 

1,442

 

 

 

1,738

 

Income from transition services agreement

 

 

1,399

 

 

 

 

 

 

2,253

 

 

 

 

Loss on extinguishment of debt

 

 

 

 

 

 

 

 

(12,505

)

 

 

 

Income (loss) from continuing operations before taxes

 

 

89,167

 

 

 

(12,945

)

 

 

44,598

 

 

 

(393,558

)

Income tax benefit for continuing operations

 

 

(6,192

)

 

 

(1,060

)

 

 

(3,891

)

 

 

(11,210

)

Income (loss) from continuing operations

 

 

95,359

 

 

 

(11,885

)

 

 

48,489

 

 

 

(382,348

)

Loss from discontinued operations, net of tax

 

 

 

 

 

(667

)

 

 

(1,005

)

 

 

(14,345

)

Gain on sale of discontinued operations, net of tax

 

 

 

 

 

 

 

 

214,520

 

 

 

 

(Loss) income from discontinued operations, net of tax

 

 

 

 

 

(667

)

 

 

213,515

 

 

 

(14,345

)

Net income (loss)

 

$

95,359

 

 

$

(12,552

)

 

$

262,004

 

 

$

(396,693

)

Net income (loss) per share attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Continuing operations

 

$

0.75

 

 

$

(0.09

)

 

$

0.38

 

 

$

(3.05

)

       Discontinued operations

 

 

 

 

 

(0.01

)

 

 

1.68

 

 

 

(0.12

)

       Net income (loss)

 

$

0.75

 

 

$

(0.10

)

 

$

2.06

 

 

$

(3.17

)

Diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

       Continuing operations

 

$

0.72

 

 

$

(0.09

)

 

$

0.37

 

 

$

(3.05

)

       Discontinued operations

 

 

 

 

 

(0.01

)

 

 

1.64

 

 

 

(0.12

)

       Net income (loss)

 

$

0.72

 

 

$

(0.10

)

 

$

2.01

 

 

$

(3.17

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

127,674,513

 

 

 

125,799,018

 

 

 

127,220,429

 

 

 

125,317,284

 

Diluted

 

 

131,652,417

 

 

 

125,799,018

 

 

 

130,667,785

 

 

 

125,317,284

 


 

Houghton Mifflin Harcourt Company

Consolidated Statements of Cash Flows (Unaudited)

 

 

 

Nine Months Ended

September 30,

 

(in thousands of dollars)

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

262,004

 

 

$

(396,693

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of tax

 

 

1,005

 

 

 

14,345

 

Gain on sale of discontinued operations, net of tax

 

 

(214,520

)

 

 

 

Gain on sale of assets

 

 

(3,661

)

 

 

 

Depreciation and amortization expense

 

 

144,698

 

 

 

160,073

 

Operating lease assets, amortization and impairments

 

 

9,411

 

 

 

9,565

 

Amortization of debt discount and deferred financing costs

 

 

2,096

 

 

 

1,979

 

Gain on investments

 

 

(1,442

)

 

 

(1,738

)

Deferred income taxes

 

 

(4,526

)

 

 

(12,084

)

Stock-based compensation expense

 

 

8,727

 

 

 

8,295

 

Write-off of property, plant, and equipment

 

 

1,606

 

 

 

 

Loss on extinguishment of debt

 

 

12,505

 

 

 

 

Impairment charge for goodwill

 

 

 

 

 

262,000

 

Change in fair value of derivative instruments

 

 

915

 

 

 

(172

)

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(200,632

)

 

 

(106,852

)

Inventories

 

 

49,081

 

 

 

38,566

 

Other assets

 

 

(13,767

)

 

 

(10,663

)

Accounts payable and accrued expenses

 

 

53,878

 

 

 

4,764

 

Royalties payable and author advances, net

 

 

12,467

 

 

 

(21,169

)

Deferred revenue

 

 

106,100

 

 

 

105,347

 

Interest payable

 

 

(6,757

)

 

 

155

 

Severance and other charges

 

 

(18,307

)

 

 

22,494

 

Accrued pension and postretirement benefits

 

 

(2,656

)

 

 

(5,532

)

Operating lease liabilities

 

 

436

 

 

 

(7,598

)

Other liabilities

 

 

(5,964

)

 

 

935

 

Net cash provided by operating activities - continuing operations

 

 

192,697

 

 

 

66,017

 

Net cash provided by operating activities - discontinued operations

 

 

3,880

 

 

 

9,149

 

Net cash provided by operating activities

 

 

196,577

 

 

 

75,166

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Additions to pre-publication costs

 

 

(42,104

)

 

 

(50,919

)

Additions to property, plant, and equipment

 

 

(28,672

)

 

 

(35,275

)

Proceeds from sale of business

 

 

349,000

 

 

 

 

Proceeds from sale of assets

 

 

5,000

 

 

 

 

Net cash provided by (used in) investing activities - continuing operations

 

 

283,224

 

 

 

(86,194

)

Net cash used in investing activities - discontinued operations

 

 

(647

)

 

 

(402

)

Net cash provided by (used in) investing activities

 

 

282,577

 

 

 

(86,596

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

 

 

 

150,000

 

Payments of revolving credit facility

 

 

 

 

 

(150,000

)

Payments of long-term debt

 

 

(342,031

)

 

 

(14,250

)

Tax withholding payments related to net share settlements of restricted stock units

 

 

 

 

 

(48

)

Issuance of common stock under employee stock purchase plan

 

 

410

 

 

 

918

 

Net collections under transition services agreement

 

 

1,585

 

 

 

 

Net cash used in financing activities - continuing operations

 

 

(340,036

)

 

 

(13,380

)

Net increase (decrease) in cash and cash equivalents

 

 

139,118

 

 

 

(24,810

)

Cash and cash equivalents at beginning of the period

 

 

281,200

 

 

 

296,353

 

Cash and cash equivalents at end of the period

 

$

420,318

 

 

$

271,543

 

 


 

Houghton Mifflin Harcourt Company

Non-GAAP Reconciliations (Unaudited)

Adjusted EBITDA 1

 

(in thousands of dollars)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss) from continuing operations

 

$

95,359

 

 

$

(11,885

)

 

$

48,489

 

 

$

(382,348

)

Interest expense

 

 

8,239

 

 

 

9,311

 

 

 

26,788

 

 

 

29,178

 

Interest income

 

 

(18

)

 

 

(32

)

 

 

(52

)

 

 

(873

)

Provision (benefit) for income taxes

 

 

(6,192

)

 

 

(1,060

)

 

 

(3,891

)

 

 

(11,210

)

Depreciation expense

 

 

11,063

 

 

 

12,358

 

 

 

34,334

 

 

 

37,382

 

Amortization expense

 

 

37,377

 

 

 

40,896

 

 

 

110,364

 

 

 

122,691

 

Non-cash charges – goodwill impairment

 

 

 

 

 

 

 

 

 

 

 

262,000

 

Non-cash charges – stock compensation

 

 

3,177

 

 

 

2,971

 

 

 

8,727

 

 

 

8,295

 

Non-cash charges – (gain) loss on derivative instruments

 

 

368

 

 

 

(432

)

 

 

915

 

 

 

(172

)

Fees, expenses or charges for equity offerings, debt or

   acquisitions/dispositions

 

 

676

 

 

 

339

 

 

 

866

 

 

 

366

 

Gain on investments

 

 

(606

)

 

 

(1,738

)

 

 

(1,442

)

 

 

(1,738

)

Gain on sale of assets

 

 

(3,661

)

 

 

 

 

 

(3,661

)

 

 

 

Loss on debt extinguishment

 

 

 

 

 

 

 

 

12,505

 

 

 

 

Legal settlement

 

 

 

 

 

 

 

 

2,470

 

 

 

 

Restructuring/severance and other charges

 

 

33

 

 

 

31,776

 

 

 

9,880

 

 

 

31,776

 

Adjusted EBITDA from continuing operations

 

$

145,815

 

 

$

82,504

 

 

$

246,292

 

 

$

95,347

 

 

Free Cash Flow 1

 

(in thousands of dollars)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

287,630

 

 

$

257,084

 

 

$

192,697

 

 

$

66,017

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to pre-publication costs

 

 

(12,563

)

 

 

(16,423

)

 

 

(42,104

)

 

 

(50,919

)

Additions to property, plant, and equipment

 

 

(9,614

)

 

 

(10,917

)

 

 

(28,672

)

 

 

(35,275

)

Free Cash Flow

 

$

265,453

 

 

$

229,744

 

 

$

121,921

 

 

$

(20,177

)

 

 

 

 

 

Trailing Twelve Months Ended September 30, 2021

 

Cash flows from operating activities

 

 

 

 

 

Net cash provided by operating activities

 

 

$

233,165

 

Cash flows from investing activities

 

 

 

 

 

Additions to pre-publication costs

 

 

 

(52,057)

 

Additions to property, plant, and equipment

 

 

 

(44,337)

 

Free Cash Flow

 

 

$

136,771

 

 

 

 

1

All amounts have been adjusted to eliminate the impact of the HMH Books & Media business which has been removed from continuing operations and classified as discontinued operations.

 

We are unable to reconcile forward looking free cash flow (both before and after interest payments) and related margin without unreasonable efforts. Unlevered free cash flow margin is the ratio of free cash flow before interest payments to billings.


Houghton Mifflin Harcourt Company

Calculation of Billings and Gross Leverage Ratio (Unaudited)

Billings 1

(in thousands of dollars)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net sales

 

$

417,130

 

 

$

331,205

 

 

$

871,997

 

 

$

699,287

 

Change in deferred revenue

 

 

130,419

 

 

 

119,426