10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 001-36166

Houghton Mifflin Harcourt Company

(Exact name of registrant as specified in its charter)

Delaware	27-1566372
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

125 High Street

Boston, MA 02110

(617) 351-5000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		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.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of common stock, par value $0.01 per share, outstanding as of November 1, 2021 was 127,680,750.

Table of Contents

		Page (s)
Special Note Regarding Forward-Looking Statements			3
PART I.	FINANCIAL INFORMATION		4
Item 1.	Consolidated Financial Statements (Unaudited):		4
	Consolidated Balance Sheets		4
	Consolidated Statements of Operations		5
	Consolidated Statements of Comprehensive Income (Loss)		6
	Consolidated Statements of Cash Flows		7
	Consolidated Statements of Stockholders’ Equity		8
	Notes to Consolidated Financial Statements		9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		37
Item 4.	Controls and Procedures		38
PART II.	OTHER INFORMATION		39
Item 1.	Legal Proceedings		39
Item 1A.	Risk Factors		39
Item 6.	Exhibits		40
SIGNATURES			41

2

SPECIAL NOTE REGARDING 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. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations; financial condition; liquidity; prospects, growth and strategies; the expected impact of the COVID-19 pandemic; our competitive strengths; the industry in which we operate; the impact of new accounting guidance and tax laws; expenses; effective tax rates; future liabilities; the outcome and impact of pending or threatened litigation; decisions of our customers; education expenditures; population growth; state curriculum adoptions and purchasing cycles; the impact of dispositions, acquisitions and other investments; 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 that adversely affects our business 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 the “Risk Factors” section of the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (and our subsequent filings pursuant to the Securities Exchange Act of 1934, as amended). 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.

3

PART 1 – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

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 of allowances for bad debts and book returns of    $10.9 million and $8.4 million, respectively		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 (Note 14)
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

The accompanying notes are an integral part of these consolidated financial statements.

4

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

The accompanying notes are an integral part of these consolidated financial statements.

5

Houghton Mifflin Harcourt Company

Consolidated Statements of Comprehensive Income (Loss) (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 income (loss)	$	95,359		$	(12,552	)	$	262,004		$	(396,693	)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of tax		(280	)		(86	)		(833	)		(266	)
Net change in pension and benefit plan liabilities, net of tax		706			—			9,153			—
Net change in unrealized loss on derivative    financial instruments, net of tax		—			258			—			987
Other comprehensive income, net of taxes		426			172			8,320			721
Comprehensive income (loss)	$	95,785		$	(12,380	)	$	270,324		$	(395,972	)

The accompanying notes are an integral part of these consolidated financial statements.

6

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
Supplemental disclosure of cash flow information
Interest paid - continuing operations	$	29,557		$	26,366
Interest paid - discontinued operations		10,108			19,547
Income taxes paid		1,021			1,848
Operating lease assets obtained in exchange for operating lease liabilities		7,911			6,472
Non-cash investing activities
Pre-publication costs included in accounts payable and accruals	$	2,732		$	2,192
Property, plant, and equipment included in accounts payable and accruals		1,366			1,648

The accompanying notes are an integral part of these consolidated financial statements.

7

Houghton Mifflin Harcourt Company

Consolidated Statements of Stockholders’ Equity (Unaudited)

	Common Stock
(in thousands of dollars, except share information)	Shares Issued		Par Value		Treasury Stock			Capital in excess of Par Value			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2019		148,928,328	$	1,489	$	(518,030	)	$	4,906,165		$	(3,775,992	)	$	(47,272	)	$	566,360
Net loss		—		—		—			—			(345,973	)		—			(345,973	)
Other comprehensive loss, net of tax		—		—		—			—			—			(444	)		(444	)
Issuance of common stock for employee purchase plan		104,331		1		—			678			—			—			679
Issuance of common stock for vesting of restricted stock units		950,496		10		—			(10	)		—			—			—
Stock withheld to cover tax withholdings    requirements upon vesting of restricted stock units		—		—		—			(48	)		—			—			(48	)
Stock-based compensation expense		—		—		—			3,386			—			—			3,386
Balance at March 31, 2020		149,983,155	$	1,500	$	(518,030	)	$	4,910,171		$	(4,121,965	)	$	(47,716	)	$	223,960
Net loss		—		—		—			—			(38,168	)		—			(38,168	)
Other comprehensive income, net of tax		—		—		—			—			—			993			993
Issuance of common stock for employee purchase plan		—		—		—			(1	)		—			—			(1	)
Issuance of common stock for vesting of restricted stock units		149,495		1		—			(1	)		—			—			—
Stock-based compensation expense		—		—		—			2,101			—			—			2,101
Balance at June 30, 2020		150,132,650	$	1,501	$	(518,030	)	$	4,912,270		$	(4,160,133	)	$	(46,723	)	$	188,885
Net loss		—		—		—			—			(12,552	)		—			(12,552	)
Other comprehensive income, net of tax		—		—		—			—			—			172			172
Issuance of common stock for employee purchase plan		274,588		3		—			567			—			—			570
Issuance of common stock for vesting of restricted stock units		19,910		—		—			—			—			—			—
Stock-based compensation expense		—		—		—			2,969			—			—			2,969
Balance at September 30, 2020		150,427,148	$	1,504	$	(518,030	)	$	4,915,806		$	(4,172,685	)	$	(46,551	)	$	180,044
Balance at December 31, 2020		150,459,034	$	1,505	$	(518,030	)	$	4,918,542		$	(4,255,830	)	$	(55,724	)	$	90,463
Net loss		—		—		—			—			(51,983	)		—			(51,983	)
Other comprehensive income, net of tax		—		—		—			—			—			6,590			6,590
Issuance of common stock for employee purchase plan		239,144		2		—			634			—			—			636
Issuance of common stock for vesting of restricted stock units		1,289,209		13		—			(13	)		—			—			—
Stock-based compensation expense		—		—		—			2,682			—			—			2,682
Balance at March 31, 2021		151,987,387	$	1,520	$	(518,030	)	$	4,921,845		$	(4,307,813	)	$	(49,134	)	$	48,388
Net income		—		—		—			—			218,628			—			218,628
Other comprehensive income, net of tax		—		—		—			—			—			1,304			1,304
Issuance of common stock for employee purchase plan		—		—		—			12			—			—			12
Issuance of common stock for vesting of restricted stock units		256,817		2		—			(2	)		—			—			—
Stock-based compensation expense		—		—		—			2,972			—			—			2,972
Balance at June 30, 2021		152,244,204	$	1,522	$	(518,030	)	$	4,924,827		$	(4,089,185	)	$	(47,830	)	$	271,304
Net income		—		—		—			—			95,359			—			95,359
Other comprehensive income, net of tax		—		—		—			—			—			426			426
Issuance of common stock for vesting of restricted stock units		13,580		1		—			(1	)		—			—			—
Stock-based compensation expense		—		—		—			3,108			—			—			3,108
Balance at September 30, 2021		152,257,784	$	1,523	$	(518,030	)	$	4,927,934		$	(3,993,826	)	$	(47,404	)	$	370,197

The accompanying notes are an integral part of these consolidated financial statements.

8

 Houghton Mifflin Harcourt Company

Notes to Consolidated Financial Statements (Unaudited)

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

1. Basis of Presentation

Houghton Mifflin Harcourt Company (“HMH,” “Houghton Mifflin Harcourt,” “we,” “us,” “our,” or the “Company”) is a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. As a leading provider of Kindergarten through 12^th grade (“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 estimates that it serves more than 50 million students and three million educators in 150 countries.

 We focus on the K-12 market and, in the United States, we are a market leader. We specialize in comprehensive core curriculum, supplemental and intervention solutions, and we provide ongoing support in professional learning and coaching for educators and administrators. Our offerings are rooted in learning science, and we work with research partners, universities and third-party organizations as we design, build, implement and iterate our offerings to maximize their effectiveness. We are purposeful about innovation, leveraging technology to create engaging and immersive experiences designed to deepen learning experiences for students and to extend teachers’ capabilities so that they can focus on making meaningful connections with their students.

Our diverse portfolio enables us to help ensure that every student and teacher has the tools needed for success. We are able to build deep partnerships with school districts and leverage the scope of our offerings to provide holistic solutions at scale with the support of our far-reaching sales force and talented field-based specialists and consultants. We provide print, digital, and blended print/digital solutions that are tailored to a district’s needs, goals and technological readiness.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. In the opinion of management, our unaudited consolidated financial statements and accompanying notes include all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state the results of operations, financial position and cash flows for the interim periods presented. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These financial statements should be read in conjunction with the annual financial statements and the notes thereto also included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Our accompanying consolidated financial statements include the results of operations of the Company and our wholly-owned subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

On May 10, 2021, we completed the sale of our HMH Books & Media segment, our consumer publishing business. We determined that the HMH Books & Media business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Financial Accounting Standard Boards (“FASB”) Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements, (“FASB ASC 205”) as of March 31, 2021 due to its relative size and strategic rationale. The Consolidated Balance Sheets and Consolidated Statements of Operations, and the notes to the Consolidated Financial Statements were restated for all periods presented to reflect the discontinuation of the HMH Books & Media business, in accordance with FASB ASC 205. The discussion in the notes to these Consolidated Financial Statements, unless otherwise noted, relate solely to our continuing operations. As a result of the disposal of the former segment, our revenues and financial results from continuing operations are reported under one reportable segment.  

We expect our net cash provided by 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.

Seasonality and Comparability

Our net sales, operating profit or loss and net cash provided by or used in operations are impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. Consequently, the performance of our business may not be comparable quarter to consecutive quarter and should be considered on the basis of results for the whole year or by comparing results in a quarter with results in the same quarter for the previous year.

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 Schools typically conduct the majority of their purchases in the second and third quarters of the calendar year in preparation for the beginning of the school year. Thus, for the years ended December 31, 2020, 2019 and 2018, approximately 69% of our consolidated net sales were realized in the second and third quarters. Sales of K-12 instructional materials and customized testing products are also cyclical with some years offering more sales opportunities than others in light of the state adoption calendar. The amount of funding available at the state level for educational materials also has a significant effect on year-to-year net sales. Although the loss of a single customer would not have a material adverse effect on our business, schedules of school adoptions and market acceptance of our products can materially affect year-to-year net sales performance.

2. Impact of the COVID-19 Pandemic

The unprecedented and rapid spread of COVID-19 and the resulting social distancing measures, including business and school closures implemented by federal, state and local authorities, significantly reduced customer demand for our solutions and services, disrupted portions of our supply chain and warehousing operations and also disrupted our ability to deliver our educational solutions and services in 2020. In response to these developments, we implemented a number of measures intended to help protect our shareholders, employees, and customers amid the COVID-19 pandemic and to help mitigate its impact on our financial position, profitability and cash flow. These measures included, but were not limited to furloughs, salary reductions, spending freezes, and proactive outreach to schools to support them through this period of disruption with virtual learning resources. We continue to monitor indicators of demand, including our sales pipeline, customer orders and product shipments, monitor our supply chain, as well as observe the impact to state revenues and related educational budgets.

2020 Restructuring Plan

On September 4, 2020, we completed a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year. Each of the employees received separation payments in accordance with our severance policy.  

On September 30, 2020, we undertook a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force resulted in the departure of approximately 525 employees and was completed in October 2020. Each of the employees received separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program (collectively the “2020 Restructuring Plan”), all of which represents cash expenditures, was approximately $33.6 million.

Forward-looking

The ability of the Company to fund planned operations is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. After reviewing our ability to meet future financial obligations over the next twelve months, including consideration of our actions described above in addition to the divestiture of the HMH Books & Media business, we have concluded our net cash from operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility provides sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. Our primary credit facilities do not require us to comply with financial maintenance covenants.

Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

Subsequent to the sale of the HMH Books & Media segment during the second quarter of 2021, we operate as one operating segment with one reportable segment and have only one reporting unit. No impairment triggering events were identified during the third quarter of 2021. We perform an impairment test to assess the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. 

During the three months ended March 31, 2020, our stock price declined to historical lows since our 2013 initial public offering. We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event. We concluded that quantitative analyses were required to be performed due to the triggering event occurring during the first quarter of 2020.

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Goodwill is allocated entirely to our Education reporting unit. We utilized an implied market value method under the market approach to calculate the fair value of the Education reporting unit as of March 31, 2020, which we determined was the best approximation of fair value of the Education reporting unit in the current social and economic environment. This method included the determination of the Company's overall enterprise value, from which the fair value of the HMH Books & Media reporting unit was deducted to derive the fair value of the Education reporting unit. The relevant inputs and assumptions used in the valuation of the Education reporting unit include our market capitalization, selection of a control premium, and the determination of an appropriate market multiple to value the HMH Books & Media reporting unit, as well as the fair value of individual assets and liabilities. Based on our interim impairment assessment, we concluded that our goodwill was impaired and, accordingly, recorded a goodwill impairment charge in the first quarter of 2020 of $262.0 million. During the fourth quarter of 2020, we recorded an adjustment of $17.0 million and $1.0 million to increase both the goodwill impairment charge and income tax benefit recorded, respectively, to correct an error of the previously recorded goodwill impairment and related income tax benefit.

Additionally, as a result of the triggering event identified in the first quarter of 2020, we performed quantitative impairment analyses over our indefinite-lived intangible assets and long-lived assets. With regards to indefinite-lived intangible assets, which includes the Houghton Mifflin Harcourt tradename, the recoverability was evaluated using a one-step process whereby we determined the fair value by asset and then compared it to its carrying value to determine if the asset was impaired. We estimated the fair value by preparing a relief-from-royalty discounted cash flow analysis using forward looking revenue projections. The significant assumptions used in discounted cash flow analysis included: future net sales, a long-term growth rate, a royalty rate and a discount rate used to present value future cash flows. The discount rate was based on the weighted-average cost of capital method at the date of the evaluation. The fair value of the indefinite-lived intangible assets was in excess of its carrying value by approximately 12% as of March 31, 2020. We also performed an impairment test on our long-lived assets using an undiscounted cash flow model in determining the fair value, which was then compared to book value of the asset groups evaluated. The long-lived asset impairment analysis was performed over the Education reporting unit and the HMH Books & Media reporting unit. Estimates and significant assumptions included in the long-lived asset impairment analysis included identification of the primary asset in each asset group and undiscounted cash flow projections. We concluded that our indefinite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed.

Due to the HMH Books & Media segment being classified as held for sale as of March 31, 2021, we performed an impairment analysis over the HMH Books & Media long-lived asset group during the first quarter of 2021. As the sale price was in excess of the carrying value of the asset group, no impairment was identified. Additionally, we considered the impacts of the HMH Books & Media sale and related segment change on our Education reporting unit, to which goodwill and indefinite-lived intangibles are entirely allocated.

3. Significant Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. There were no material changes during the three and nine months ended September 30, 2021 to the application of significant accounting policies and estimates as described in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

We evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of the COVID-19 pandemic within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

4. Recent Accounting Standards

Recent accounting pronouncements, not included below, are not expected to have a material impact on our consolidated financial position or results of operations.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles, including simplification of areas such as franchise taxes, step-up in tax basis of goodwill, intraperiod allocations, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. We adopted the guidance on January 1, 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements.

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In August 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement to develop or obtain internal use software. Accordingly, the guidance requires a customer to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The guidance also requires the customer to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued updated guidance to simplify the test for goodwill impairment by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual assessments are still required to be completed. We adopted the guidance on January 1, 2020.  

In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses, as well as additional disclosures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

We are exposed to credit losses primarily through our accounts receivable. We develop estimates to reflect the risk of credit loss which are based on an evaluation of accounts receivable aging, prior collection experience, current conditions and reasonable and supportable forecasts of the economic conditions that will exist through the contractual life of the financial asset. We write off the asset when it is no longer deemed collectible. We monitor our ongoing credit exposure through an active review of collection trends. Our activities include monitoring the timeliness of payment collection and performing timely account reconciliations. As of September 30, 2021, we reported allowances for doubtful accounts of $3.4 million, compared to $3.8 million at December 31, 2020, reflecting a decrease of $0.4 million for the nine months ended September 30, 2021.

We are also exposed to losses on our royalty advances. Royalty advances to authors are capitalized and represent amounts paid in advance of the sale of an author’s product and are recovered as earned. As advances are recorded, a partial reserve may be recorded immediately based primarily upon historical sales experience. Additionally, advances are evaluated periodically to determine if they are expected to be recovered on a title-by-title basis. Any portion of a royalty advance that is not expected to be recovered is fully reserved. As of September 30, 2021, we reported a reserve for royalty advances of $7.6 million, compared to $7.4 million at December 31, 2020, reflecting an increase of $0.2 million for the nine months ended September 30, 2021.

5. Discontinued Operations

On May 10, 2021, we completed the sale of the HMH Books & Media segment, our consumer publishing business, for cash consideration of $349.0 million, subject to a customary working capital adjustment expected to approximate a payment to the purchaser of $7.8 million, and the purchaser’s assumption of all liabilities relating to the HMH Books & Media business, subject to specified exceptions. Upon closing of the transaction, all HMH Books & Media employees became employees of the purchaser. Net proceeds from the sale after the payment of transaction costs and exclusive of working capital adjustment, were approximately $337.0 million, all of which we used to pay down debt. In connection with the sale of HMH Books & Media, we entered into a Transition Services Agreement (“TSA”) with the purchaser whereby we will perform certain support functions for a period of up to 12 months. Upon the signing of the asset purchase agreement on March 26, 2021, the HMH Books & Media business qualified as a discontinued operation and accordingly, all results of the HMH Books & Media business have been removed from continuing operations for all periods presented. The results of the HMH Books & Media business were previously reported in its own reportable segment. We currently report our revenues and financial results from continuing operations under one reportable segment.

Selected financial information of the HMH Books & Media business included in discontinued operations is below. Included within the loss from discontinued operations is interest expense which was allocated to the HMH Books & Media business as we used the proceeds from the sale to pay down debt, which was required by our debt facilities, and we did not reinvest such amounts in the business.

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	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2020			2021			2020
Net sales	$	55,385		$	63,047		$	128,444
Costs		47,430			53,205			115,748
Amortization		1,786			1,395			5,466
Interest expense		6,857			9,362			21,255
Loss from discontinued operations before taxes	$	(688	)	$	(915	)	$	(14,025	)
Income tax (benefit) expense		(21	)		90			320
Loss from discontinued operations, net of tax	$	(667	)	$	(1,005	)	$	(14,345	)

As of December 31, 2020, the assets and liabilities of the HMH Books & Media business have been classified as assets of discontinued operations and liabilities of discontinued operations on our consolidated balance sheets. The major categories of assets and liabilities of the HMH Books & Media business included in assets of discontinued operations and liabilities of discontinued operations are as follows:

	December 31,
	2020
Accounts receivable, net	$	64,002
Inventories		21,410
Prepaid expenses and other assets		655
Property, plant, and equipment, net		4,401
Pre-publication costs, net		329
Royalty advances to authors, net		40,060
Other intangible assets, net		26,100
Other assets		3,096
Total assets of discontinued operations	$	160,053
Accounts payable		10,353
Royalties payable		17,628
Salaries and wages payable		221
Other liabilities		2,460
Total liabilities of discontinued operations	$	30,662

6. Inventories

Inventories consisted of the following:

	September 30, 2021		December 31, 2020
Finished goods	$	91,449	$	134,349
Raw materials		5,022		11,204
Inventories	$	96,471	$	145,553

7. Contract Assets and Liabilities, Contract Costs and Net Sales

Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets are included in prepaid expenses and other assets on our consolidated balance sheets. Contract liabilities consist of deferred revenue (current and long-term). The following table presents changes in contract assets and contract liabilities during the nine months ended September 30, 2021:

	September 30, 2021		December 31, 2020		$ Change		% Change
Contract assets	$	693	$	580	$	113		19.5	%
Contract liabilities (deferred revenue)	$	1,011,384	$	905,284	$	106,100		11.7	%

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The $106.1 million increase in our contract liabilities from December 31, 2020 to September 30, 2021 was primarily due to higher billings in the period attributed to the growth during the recovery of the COVID-19 pandemic, which materially impacted 2020 along with seasonal and cyclical nature of our business, which exceeded the satisfaction of performance obligations related to physical and digital products, and services during the period.

We capitalize incremental commissions paid to sales representatives for obtaining product sales as well as service contracts unless the capitalization and amortization of such costs are not expected to have a material impact on the financial statements. Applying the practical expedient within the accounting guidance, we recognize sales commission expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. We had deferred commissions in the amount of $37.3 million and $30.7 million at September 30, 2021 and December 31, 2020, respectively, and amortized $13.0 million and $11.0 million during the nine months ended September 30, 2021 and 2020, respectively. The amortization is included in selling and administrative expenses.

Costs to fulfill a contract are directly related to a contract that will be used to satisfy a performance obligation in the future and are expected to be recovered. These costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Our assets associated with incremental costs to fulfill a contract were $22.6 million and $14.7 million at September 30, 2021 and December 31, 2020, respectively, and are included within prepaid expenses and other assets (current) and other assets (long term) on our consolidated balance sheet. The increase in costs to fulfill contracts in the period was primarily due to the mix of product being sold. We recorded amortization of $4.4 million and $2.6 million during the nine months ended September 30, 2021 and 2020, respectively. The amortization is included in cost of sales, excluding publishing rights and pre-publication amortization.

During the three and nine months ended September 30, 2021 and 2020, we recognized the following net sales as a result of changes in the contract assets and contract liabilities balances:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning    of the period	$	102,240	$	81,768	$	278,505	$	254,695

As of September 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations, which includes deferred revenue and open orders (received purchase orders from customers for which we have not yet fulfilled), was $1,062.8 million, and we will recognize approximately 75% to net sales over the next 1 to 3 years.

The following table disaggregates our net sales by major source:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020
Core solutions (1)	$	234,993	$	206,659	$	469,192	$	391,101
Extensions (2)		182,137		124,546		402,805		308,186
Net sales	$	417,130	$	331,205	$	871,997	$	699,287

(1)  Comprehensive solutions primarily for reading, math, science and social studies programs.

(2)  Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

8. Goodwill and Other Intangible Assets

There were no changes in the carrying amount of goodwill of $438.0 million for the three and nine months ended September 30, 2021. Accumulated impairment losses on goodwill as of September 30, 2021 was $279.0 million. Refer to Note 2 for a discussion of the valuation of goodwill, indefinite-lived intangible assets and long-lived assets.

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Other intangible assets consisted of the following:

	September 30, 2021							December 31, 2020
	Cost		Accumulated Amortization			Total		Cost		Accumulated Amortization			Total
Trademarks and tradenames: indefinite-lived	$	161,000	$	—		$	161,000	$	161,000	$	—		$	161,000
Trademarks and tradenames: definite-lived		130,430		(59,068	)		71,362		133,330		(46,810	)		86,520
Publishing rights		1,050,000		(1,038,608	)		11,392		1,050,000		(1,030,437	)		19,563
Customer related and other		445,140		(318,847	)		126,293		448,140		(312,739	)		135,401
Other intangible assets, net	$	1,786,570	$	(1,416,523	)	$	370,047	$	1,792,470	$	(1,389,986	)	$	402,484

Amortization expense for definite-lived trademarks and tradenames, publishing rights and customer related and other intangibles were $31.2 million and $28.9 million for the nine months ended September 30, 2021 and 2020, respectively. During the normal course of business, we periodically review the useful lives of our definite-lived assets and adjust the amortization periods if evidence shows a shorter life duration. During the first quarter of 2021, several definite-lived intangible assets were adjusted to shorter amortization periods due to anticipated end of life periods as we streamline our offerings.

On July 8, 2021, we sold the intellectual property, including the copyrights and trademarks, of certain product titles for total cash proceeds of $5.0 million. We had approximately $1.3 million of other intangible assets at the time of sale and we recorded a gain on sale of $3.7 million, net of tax, during the three months ended September 30, 2021.          

9. Debt

Our debt consisted of the following:

	September 30, 2021		December 31, 2020
$380,000 term loan due November 22, 2024, interest payable    quarterly (net of discount and issuance costs)	$	20,939	$	346,091
$306,000 senior secured notes due February 15, 2025, interest    payable semi-annually (net of discount and issuance costs)	$	296,156	$	297,601
		317,095		643,692
Less: Current portion of long-term debt		—		(19,000	)
Total long-term debt, net of discount and issuance costs	$	317,095	$	624,692
Revolving credit facility	$	—	$	—

Senior Secured Notes

On November 22, 2019, we completed the sale of $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (the “notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act.  The notes mature on February 15, 2025 and bear interest at a rate of 9.0% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.

The notes were issued at a discount equal to 2.0% of the outstanding borrowing commitment.  We may redeem all or a portion of the notes at redemption prices as described in the notes.  We redeemed $2.7 million of the notes during the second quarter of 2021 utilizing proceeds from the sale of the HMH Books & Media business.  

The notes do not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our notes. The notes are subject to restrictions on our ability to incur additional indebtedness, issue certain preferred stock, redeem, purchase or retire subordinated debt, make certain investments, pay dividends or other amounts, enter into certain transactions with affiliates, merge or consolidate with another person, sell or otherwise dispose of all or substantially all of our assets, sell certain assets, including capital stock, designate our subsidiaries as unrestricted subsidiaries, redeem or repurchase capital stock or make other restricted payments, and incur certain liens. The notes are subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the notes.

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Term Loan Facility

On November 22, 2019, we entered into a second amended and restated term loan credit agreement for an aggregate principal amount of $380.0 million (the “term loan facility”). The term loan facility matures on November 22, 2024 and the interest rate per annum is equal to, at the option of the Company, either (a) LIBOR plus a margin of 6.25% or (b) an alternate base rate plus a margin of 5.25%. As of September 30, 2021, the interest rate on the term loan facility was 7.25%. We repaid $334.6 million of the term loan facility during the second quarter of 2021 utilizing proceeds from the sale of the HMH Books & Media business. We were required to repay debt under the term loan facility as we did not intend to reinvest the proceeds from the sale in the business. There are no future quarterly repayment installments required and the balance is payable on the maturity date. In connection with the repayment, we recorded a loss on extinguishment of debt totaling $12.5 million relating to the pro rata write-off of a portion of the unamortized deferred financing costs and discount.    

On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”) announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021. Our term loan facility provides that the administrative agent may determine that (i) adequate and reasonable means do not exist for ascertaining the LIBOR rate or (ii) the FCA or the government authority having jurisdiction over the administrative agent has made a public statement identifying a specific date after which the LIBOR rate shall no longer be used for determining interest rates for loans. If the administrative agent determines that (i) or (ii) above is unlikely to be temporary then the administrative agent and the Company will agree to transition to an alternate base rate or amend the term loan facility to establish an alternate rate of interest to LIBOR that gives due consideration to the then-prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time.

The term loan facility was issued at a discount equal to 4.0% of the outstanding borrowing commitment.

The term loan facility contains customary mandatory prepayment requirements, including with respect to excess cash flow, proceeds from certain asset sales or dispositions of property, and proceeds from certain incurrences of indebtedness.  The term loan facility permits the Company to voluntarily prepay outstanding amounts at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans. 

The term loan facility does not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our term loan facility. The term loan facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The term loan facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the term loan facility.

We are subject to an excess cash flow provision under our term loan facility which is predicated upon our leverage ratio and cash flow.

Interest Rate Hedging

On August 17, 2015, we entered into interest rate derivative contracts with various financial institutions having an aggregate notional amount of $400.0 million to convert floating rate debt into fixed rate debt. We assessed at inception, and re-assess on an ongoing basis, whether the interest rate derivative contracts are highly effective in offsetting changes in the fair value of the hedged variable rate debt. The interest rate derivative contracts matured on July 22, 2020.  

These interest rate swaps were designated as cash flow hedges and qualified for hedge accounting under the accounting guidance related to derivatives and hedging. Accordingly, we recorded an unrealized gain of $1.0 million in our statements of comprehensive loss to account for the changes in fair value of these derivatives during the nine months ended September 30, 2020. We reclassified $1.9 million from other comprehensive loss to earnings during the nine months ended September 30, 2020.

We had no interest rate derivative contracts outstanding as of September 30, 2021.

Revolving Credit Facility

On November 22, 2019, we entered into a second amended and restated revolving credit agreement that provides borrowing availability in an amount equal to the lesser of either $250.0 million or a borrowing base that is computed monthly or weekly and comprised of the Borrowers’ and the Guarantors’ (as such terms are defined below) eligible inventory and receivables (the “revolving credit facility”). The revolving credit facility includes a letter of credit subfacility of $50.0 million, a swingline subfacility of $20.0 million and the option to expand the facility by up to $100.0 million in the aggregate under certain specified conditions. The revolving credit facility may be prepaid, in whole or in part, at any time, without premium.  

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The revolving credit facility requires the Company to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 on a trailing four-quarter basis only during certain periods commencing when excess availability under the revolving credit facility is less than certain limits prescribed by the terms of the revolving credit facility. The revolving credit facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The revolving credit facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the revolving credit facility. As of September 30, 2021, no amounts were outstanding under the revolving credit facility.  

As of September 30, 2021, the minimum fixed charge coverage ratio covenant under our revolving credit facility was not applicable, due to our level of borrowing availability. The minimum fixed charge coverage ratio, which is only tested in limited situations, is 1.0 to 1.0 through the end of the facility.

Guarantees

Under each of the notes, the term loan facility and the revolving credit facility, Houghton Mifflin Harcourt Publishers Inc., Houghton Mifflin Harcourt Publishing Company and HMH Publishers LLC are the borrowers (collectively, the “Borrowers”), and Citibank, N.A. acts as both the administrative agent and the collateral agent.

The obligations under the notes, the term loan facility and the revolving credit facility are guaranteed by the Company and each of its direct and indirect for-profit domestic subsidiaries (other than the Borrowers) (collectively, the “Guarantors”) and are secured by all capital stock and other equity interests of the Borrowers and the Guarantors and substantially all of the other tangible and intangible assets of the Borrowers and the Guarantors, including, without limitation, receivables, inventory, equipment, contract rights, securities, patents, trademarks, other intellectual property, cash, bank accounts and securities accounts and owned real estate. The revolving credit facility is secured by first priority liens on receivables, inventory, deposit accounts, securities accounts, instruments, chattel paper and other assets related to the foregoing (the “Revolving First Lien Collateral”), and second priority liens on the collateral which secures the term loan facility on a first priority basis. The term loan facility is secured by first priority liens on the capital stock and other equity interests of the Borrowers and the Guarantors, equipment, owned real estate, trademarks and other intellectual property, general intangibles that are not Revolving First Lien Collateral and other assets related to the foregoing, and second priority liens on the Revolving First Lien Collateral.

10. Restructuring, Severance and Other Charges

2021

During the nine months ended September 30, 2021, we recorded an impairment in the amount of $10.9 million for real estate consolidation costs relating to vacated office space for certain floors in connection with the sale of our HMH Books & Media business, of which $9.3 million is reflected as a reduction in operating lease assets and $1.6 million as a reduction in property, plant, and equipment in our consolidated balance sheet as of September 30, 2021.

2020 Restructuring Plan

On September 4, 2020, we finalized a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year. Each of the employees received separation payments in accordance with our severance policy.  

On September 30, 2020, we undertook a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic and in line with our strategic transformation plan. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force resulted in the departure of approximately 525 employees and was completed in October 2020.  Each of the employees received separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program, (collectively the “2020 Restructuring Plan”) all of which represented cash expenditures, was approximately $33.6 million.

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There was a favorable adjustment to severance costs associated with the 2020 Restructuring Plan in our consolidated statements of operations for the nine months ended September 30, 2021. There were no costs associated with the 2020 Restructuring Plan in our consolidated statements of operations for the three and nine months ended September 30, 2020. Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2020 Restructuring Plan:

	2021
	Restructuring						Restructuring
	accruals at						accruals at
	December 31,				Cash		September 30,
	2020		Charges		payments		2021
Severance and termination benefits	$	19,311	$	(1,020)	$	(17,008)	$	1,283
	$	19,311	$	(1,020)	$	(17,008)	$	1,283

2019 Restructuring Plan

There were no costs associated with the 2019 Restructuring Plan in our consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020. Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2019 Restructuring Plan:

	2021
	Restructuring accruals at December 31, 2020		Charges		Cash payments			Restructuring accruals at September 30, 2021
Severance and termination benefits	$	279	$	—	$	(279	)	$	—
	$	279	$	—	$	(279	)	$	—

11. Income Taxes

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment, including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or as the tax environment changes.

At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The amount of interim tax benefit recorded for the year-to-date ordinary loss is limited to the amount that is expected to be realized during the year or recognizable as a deferred tax asset at year end. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, are individually computed, and are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.

For the three months ended September 30, 2021 and 2020, we recorded an income tax benefit for continuing operations of approximately $6.2 million and $1.1 million, respectively, and for the nine months ended September 30, 2021 and 2020, we recorded an income tax benefit for continuing operations of approximately $3.9 million and $11.2 million, respectively. For all periods, income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items, including the accrual of potential interest and penalties on uncertain tax positions. Including the tax effects of these discrete tax items, the effective rate was (6.9)% and 8.2% for the three months ended September 30, 2021 and 2020, respectively, and (8.7)% and 2.8% for the nine months ended September 30, 2021 and 2020, respectively.

Reserves for unrecognized tax benefits, excluding accrued interest and penalties, were $15.7 million at both September 30, 2021 and December 31, 2020.

12. Retirement and Postretirement Benefit Plans

We have a noncontributory, qualified defined benefit pension plan (the “Retirement Plan”), which covers certain employees. The Retirement Plan is a cash balance plan, which accrues benefits based on pay, length of service, and interest. The funding policy is to contribute amounts subject to minimum funding standards set forth by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Retirement Plan’s assets consist principally of common stocks, fixed income securities, investments in registered investment companies, and cash and cash equivalents. We also have a nonqualified defined benefit plan, or nonqualified

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plan, that previously covered employees who earned over the qualified pay limit as determined by the Internal Revenue Service. The nonqualified plan accrues benefits for the participants based on the cash balance plan calculation. The nonqualified plan is not funded. We use a December 31 date to measure the pension and postretirement liabilities. In 2007, both the qualified and nonqualified pension plans eliminated participation in the plans for new employees hired after October 31, 2007.

We recognize the funded status of defined benefit pension and other postretirement plans as an asset or liability in the balance sheet and recognize actuarial gains and losses and prior service costs and credits in other comprehensive income (loss) and subsequently amortize those items in the statement of operations. Due to lump-sum disbursements by participants during the nine months ended September 30, 2021, we incurred a settlement charge of $1.0 million. In connection with this settlement charge, we remeasured our pension liability and recorded a $9.2 million benefit through other comprehensive income primarily due to changes in discount rates, disbursements and increases in market value of pension assets.

Net periodic benefit cost (credit) for our pension and other postretirement benefit plans consisted of the following:

	Pension Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Interest cost	$	743		$	1,097		$	2,239		$	3,291
Expected return on plan assets		(1,863	)		(1,855	)		(5,617	)		(5,565	)
Amortization of net loss		662			581			2,107			1,743
Settlement loss recognized		165			—			1,046			—
Net periodic benefit credit	$	(293	)	$	(177	)	$	(225	)	$	(531	)

	Other Post Retirement Plans
	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Service cost	$	19	$	17		$	57	$	51
Interest cost		68		107			204		321
Amortization of prior service cost		11		11			33		33
Amortization of net loss		—		(2	)		—		(6	)
Net periodic benefit cost	$	98	$	133		$	294	$	399

  There were $1.1 million and $3.7 million in contributions to the Retirement Plan during the nine months ended September 30, 2021 and 2020, respectively.

13. Fair Value Measurements

The accounting standard for fair value measurements, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The accounting standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 Observable input such as quoted prices in active markets for identical assets or liabilities;

Level 2 Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. Where more than one technique is noted, individual assets or liabilities were valued using one or more of the noted techniques. The valuation techniques are as follows:

^(a)  Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

^(b)  Cost approach: Amount that would be currently required to replace the service capacity of an asset (current replacement cost); and

^(c)  Income approach: Valuation techniques to convert future amounts to a single present amount based on market expectations (including present value techniques).

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On a recurring basis, we measure certain financial assets and liabilities at fair value, including our money market funds and foreign exchange forward contracts. The accounting standard for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty and its credit risk in its assessment of fair value.

Financial Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis:

	September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	397,938	$	397,938	$	—	(a)
	$	397,938	$	397,938	$	—
Financial liabilities
Foreign exchange derivatives	$	537	$	—	$	537	(a)
	$	537	$	—	$	537

	December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	262,135	$	262,135	$	—	(a)
Foreign exchange derivatives		466		—		466	(a)
	$	262,601	$	262,135	$	466

Our money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets for identical instruments. In addition to $397.9 million and $262.1 million invested in money market funds as of September 30, 2021 and December 31, 2020, respectively, we had $22.4 million and $19.1 million of cash invested in bank accounts as of September 30, 2021 and December 31, 2020, respectively.

Our foreign exchange derivatives consist of forward contracts and are classified within Level 2 of the fair value hierarchy because they are valued based on observable inputs and are available for substantially the full term of our derivative instruments. We use foreign exchange forward contracts to fix the functional currency value of forecasted commitments, payments and receipts. The aggregate notional amount of the outstanding foreign exchange forward contracts was $14.7 million and $14.9 million at September 30, 2021 and December 31, 2020, respectively. Our foreign exchange forward contracts contain netting provisions to mitigate credit risk in the event of counterparty default, including payment default and cross default. At September 30, 2021 and December 31, 2020, the fair value of our counterparty default exposure was less than $1.0 million and spread across several highly rated counterparties.

Non-Financial Assets and Liabilities

Our non-financial assets, which include goodwill, other intangible assets, property, plant, and equipment, pre-publication costs and operating lease assets, are not required to be measured at fair value on a recurring basis. However, if certain trigger events occur, or if an annual impairment test is required, we evaluate the non-financial assets for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. An impairment analysis was performed for the preparation of the 2020 first quarter report, as there was a triggering event for the three months ended March 31, 2020 related to the decline in our stock price attributed to the market environment, which resulted in a goodwill impairment. There were no non-financial liabilities that were required to be measured at fair value on a nonrecurring basis during the nine months ended September 30, 2021 and 2020.

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The following table presents our non-financial assets measured at fair value on a nonrecurring basis during 2020:

	September 30,  2020		Significant Unobservable Inputs (Level 3)		Total Impairment		Valuation Technique
Non-financial assets
Goodwill	$	454,977	$	454,977	$	262,000		(a)
	$	454,977	$	454,977	$	262,000

In evaluating goodwill for impairment, we first compare our reporting unit's fair value to its carrying value. We estimate the fair values of our reporting unit by considering our market capitalization and other judgments. There was no goodwill impairment recorded for the nine months ended September 30, 2021. Impairment recorded for goodwill for the nine months ended September 30, 2020 was $262.0 million. During the fourth quarter of 2020, we recorded an adjustment of $17.0 million to increase the goodwill impairment charge to correct an error of the previously recorded amount. 

We perform an impairment test for our other intangible assets by comparing the assets fair value to its carrying value. Fair value is estimated based on recent market transactions, where available, and projected discounted cash flows, if reasonably estimable. There was no impairment of other intangible assets for the nine months ended September 30, 2021 and 2020.

We test our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable or that it may exceed its fair value. During the nine months ended September 30, 2021, we recorded an impairment of our operating lease assets in the amount of $9.3 million for real estate consolidation costs relating to vacated office space formerly utilized by employees of the HMH Books & Media business. The fair value of the operating lease assets was determined based on the income approach, with level 3 inputs utilizing certain market participant assumptions. These inputs included forecasted cash inflows from estimated subleases and a discount rate. The remaining carrying value was $2.0 million. In connection with the real estate consolidation costs, we also recorded an impairment of property, plant, and equipment, of $1.6 million during the nine months ended September 30, 2021 using the income approach with level 3 inputs. This was primarily related to leasehold improvements on the vacated office space, which had a remaining carrying value of $0.3 million.

Non-Marketable Investments

At September 30, 2021 and December 31, 2020, the carrying value of our non-marketable investments, which were comprised of equity interests in educational technology private partnerships, was $5.8 million and $4.4 million, respectively. The amounts are included in other assets in our consolidated balance sheets. Our non-marketable investments are accounted for using the cost method and are adjusted for observable transactions as appropriate. Gains from non-marketable investments were $0.6 million and $1.4 million during the three and nine months ended September 30, 2021, respectively. Gains from non-marketable investments were $1.7 million during both the three and nine months ended September 30, 2020.

Fair Value of Debt

The following table presents the carrying amounts and estimated fair market values of our debt at September 30, 2021 and December 31, 2020. The fair value of debt is deemed to be the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date.

	September 30, 2021				December 31, 2020
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt
$380,000 Term loan	$	20,939	$	20,913	$	346,091	$	331,382
$306,000 Senior secured notes	$	296,156	$	316,147	$	297,601	$	304,297

The fair market values of our debt were estimated based on quoted market prices on a private exchange for those instruments that are traded and are classified as Level 2 within the fair value hierarchy at September 30, 2021 and December 31, 2020. The fair market values require varying degrees of management judgment. The factors used to estimate these values may not be valid on any subsequent date. Accordingly, the fair market values of the debt presented may not be indicative of their future values.

14. Commitments and Contingencies

There were no material changes in our commitments under contractual obligations, as disclosed in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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We are involved in ordinary and routine litigation and matters incidental to our business, including claims alleging breach of contract and seeking royalty payments. Litigation alleging infringement of copyrights and other intellectual property rights is also common in the educational publishing industry. There have been various settled, pending and threatened litigation that allege we exceeded the print run limitation or other restrictions in licenses granted to us to reproduce photographs in our textbooks.

While we may incur a loss associated with certain pending or threatened litigation, we are not able to estimate such amount, if any, but we do not expect any of these matters to have a material adverse effect on our results of operations, financial position or cash flows. We have insurance over such amounts and with coverage and deductibles as management believes is reasonable. There can be no assurance that our liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities.

In April 2019, we were notified of an unasserted claim by the Commonwealth of Puerto Rico with regards to payments that we received in the normal course of business during the four year period prior to the May 3, 2017 bankruptcy petition of the Commonwealth public instrumentalities. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such an unasserted claim. The Company will vigorously defend this matter if such claim is asserted.

In September 2019, we were notified of an unasserted claim by Riverside Assessments LLC (“Riverside”) with regard to purported breaches of the Asset Purchase Agreement between the Company and Riverside dated September 12, 2018 (“APA”) and the Transition Services Agreement between the Company and Riverside dated October 1, 2018. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such unasserted claim. With regard to the alleged breaches of the APA, the APA provides that the Company may be liable only for that portion of Riverside’s damages that exceeds $1.4 million, and in an amount that shall not exceed $1.4 million, which we believe would be the maximum exposure. For damages above $2.8 million, Riverside obtained a representation and warranty insurance policy as required by the APA. The Company will vigorously defend this matter if such claim is asserted.

We were contingently liable for $0.9 million and $1.4 million of performance-related surety bonds for our operating activities as of September 30, 2021 and December 31, 2020, respectively. An aggregate of $16.1 million and $18.8 million of letters of credit existed at September 30, 2021 and December 31, 2020, respectively, of which $1.1 million backed the aforementioned performance-related surety bonds as of September 30, 2021 and December 31, 2020. We routinely enter into standard indemnification provisions as part of license agreements involving use of our intellectual property. These provisions typically require us to indemnify and hold harmless licensees in connection with any infringement claim by a third-party relating to the intellectual property covered by the license agreement. Although the term of these provisions and the maximum potential amounts of future payments we could be required to make is not limited, we have never incurred any costs to defend or settle claims related to these types of indemnification provisions. We therefore believe the estimated fair value of these provisions is inconsequential and have no liabilities recorded for them as of September 30, 2021 and December 31, 2020

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15. Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Numerator
Income (loss) from continuing operations	$	95,359	$	(11,885	)	$	48,489	$	(382,348	)
(Loss) income from discontinued operations, net of tax		—		(667	)		213,515		(14,345	)
Net income (loss) attributable to common stockholders	$	95,359	$	(12,552	)	$	262,004	$	(396,693	)
Denominator
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
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	)

As we incurred a net loss in the three and nine months ended September 30, 2020 periods presented above, all outstanding stock options and restricted stock units for those periods have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding. Accordingly, basic and diluted weighted average shares outstanding are equal for such periods.

The following table summarizes our weighted average outstanding common stock equivalents that were anti-dilutive attributable to common stockholders during the periods, and therefore excluded from the computation of diluted EPS:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Stock options		1,096,060		1,947,212		1,719,849		1,947,212
Restricted stock units		2,492		5,060,063		840		4,013,767

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are 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, we partner with educators and school districts to uncover solutions that unlock students’ potential and extend teachers’ capabilities. We estimate that we serve more than 50 million students and three million educators in 150 countries.

Recent Developments

HMH Books & Media Consumer Publishing Business and Discontinued Operations

On May 10, 2021, we completed the sale of our HMH Books & Media segment, our consumer publishing business, for cash consideration of $349.0 million, subject to a customary working capital adjustment expected to approximate a payment to the purchaser of $7.8 million, and the purchaser’s assumption of all liabilities relating to the HMH Books & Media business subject to specified exceptions (collectively, the “Transaction”). Total net cash proceeds after the payment of transaction costs and exclusive of future working capital adjustment, were approximately $337.0 million, which we used to pay down debt. The divestiture enables HMH to focus singularly on K–12 education and accelerate growth momentum in digital sales, annual recurring revenue and free cash flow while paying down a significant portion of our debt. As part of the agreement, all HMH Books & Media business employees joined the acquiring company.

Upon entering into the asset purchase agreement on March 26, 2021, the HMH Books & Media business was classified as a Discontinued Operation due to its relative size and strategic rationale, and accordingly, all results of the HMH Books & Media business have been removed from continuing operations for all periods presented, including from discussions of total net sales and other results of operations. Included within the nine months ended September 30, 2021 discontinued operations financial results is allocated interest expense of $9.4 million, and included within the three and nine months ended September 30, 2020 discontinued operations financials results is allocated interest expense of $6.9 million and $21.4 million, respectively, based on our required repayment of the Company’s debt with the net proceeds from the sale. On the balance sheet, all assets and liabilities that transferred to the acquirer have been classified as Assets of discontinued operations or Liabilities of discontinued operations. The results of the HMH Books & Media business were previously reported in its own reportable segment. We currently report our revenues and financial results from continuing operations under one reportable segment.  

Unless otherwise indicated, all financial information refers to continuing operations.

COVID-19

Prior to the spread of COVID-19 in the United States, we experienced net sales results consistent with our historical first quarters. As we proceeded through the first quarter of 2020 and the impact of the COVID-19 pandemic progressed, schools began to close in response to federal, state and local social distancing directives resulting in a decline in net sales and sales orders in the second half of March 2020. We implemented a number of measures intended to help protect our shareholders, employees, and customers amid the COVID-19 pandemic. We also took actions to help mitigate some of the adverse impact of COVID-19 to our profitability and cash flow including, but not limited to, furloughs, salary reductions, spending freezes, and proactive outreach to schools to support them through this period of disruption with virtual learning resources.

Given the ongoing COVID-19 situation, our business continues to be impacted during 2021.

2020 Restructuring Plan

We revised our cost structure amid the COVID-19 pandemic to further align our cost structure to our net sales and long-term strategy. As part of this effort, on September 4, 2020, we finalized a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year. Each of the employees received separation payments in accordance with our severance policy. 

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On September 30, 2020, our Board of Directors committed to a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force resulted in the departure of approximately 525 employees and was completed in October 2020. Each of the employees received separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the 2020 restructuring program, inclusive of the voluntary retirement incentive program (collectively the “2020 Restructuring Plan”), all of which represented cash expenditures, was approximately $33.6 million. These actions are to streamline the cost structure of the Company.

Key Aspects and Trends of Our Operations

Net Sales

We derive revenue primarily from the sale of print and digital content and instructional materials, multimedia instructional programs, software and services, consulting and training. We primarily sell to customers in the United States. Our net sales are driven primarily as a function of volume and, to a certain extent, changes in price. Our net sales consist of our invoices for products and services, less revenue that will be deferred until future recognition, along with the transaction price allocation adjusted to reflect the estimated returns for the arrangement. Deferred revenues primarily derive from online interactive digital content, digital and online learning components along with undelivered work-texts, workbooks and services. The work-texts, workbooks and services are deferred until control is transferred to the customer, which often extends over the life of the contract, and our hosted online and digital content is typically recognized ratably over the life of the contract. The digitalization of education content and delivery is driving a shift in the education market. As the K-12 educational market transitions to purchasing more digital, personalized education solutions, we believe our ability now or in the future to offer embedded assessments, adaptive learning, real-time interaction and student specific personalization of educational content in a platform- and device-agnostic manner will provide new opportunities for growth. An increasing number of schools are utilizing digital content in their classrooms and implementing online or blended learning environments, which is altering the historical mix of print and digital educational materials in the classroom. As a result, our business model includes integrated solutions comprised of both print and digital offerings/products to address the needs of the education marketplace. The level of revenues being deferred can fluctuate depending upon the mix of product offering between digital and non-digital products, the length of programs and the mix of product delivered immediately or over time.

Core curriculum programs, which historically represent the most significant portion of our net sales, cover curriculum standards in a particular K-12 academic subject and include a comprehensive offering of teacher and student materials required to conduct the class throughout the school year. Products and services in these programs include print and digital offerings for students and a variety of supporting materials such as teacher’s editions, formative assessments, supplemental materials, whole group instruction materials, practice aids, educational games and professional services. The process through which materials and curricula are selected and procured for classroom use varies throughout the United States. Currently, 19 states, known as adoption states, review and approve new programs usually every six to eight years on a state-wide basis. School districts in those states typically select and purchase materials from the state-approved list. The remaining states are known as open states or open territory states. In those states, materials are not reviewed at the state level, and each individual school or school district is free to procure materials at any time, although most follow a five-to-ten year replacement cycle. The student population in adoption states represents approximately 50% of the U.S. elementary and secondary school-age population. Some adoption states provide “categorical funding” for instructional materials, which means that those state funds cannot be used for any other purpose. Our core curriculum programs typically have higher deferred sales than other parts of the business. The higher deferred sales are primarily due to the length of time that our programs are being delivered, along with greater component and digital product offerings. A significant portion of our net sales is dependent upon our ability to maintain residual sales, which are subsequent sales after the year of the original adoption, and our ability to continue to generate new business by developing new programs that meet our customers’ evolving needs. In addition, our market is affected by changes in state curriculum standards, which drive instruction, assessment and accountability in each state. Changes in state curriculum standards require that instructional materials be revised or replaced to align to the new standards, which historically has driven demand for core curriculum programs.

We also derive net sales from supplemental and intervention products that target struggling learners through comprehensive intervention solutions aimed at raising student achievement by providing solutions that combine technology, content and other educational products, as well as consulting and professional development services. We also offer products targeted at assisting English language learners.

Further, we also derive net sales from the delivery of services to K-12 educators and administrators to build instructional excellence, cultivate leadership and provide school districts with the comprehensive support they need to raise student achievement. These offerings include ongoing curriculum support and expertise in professional development, coaching, and strategic consulting.

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In international markets, we predominantly export and sell K-12 books to premium private schools that utilize the U.S. curriculum, which are located primarily in Asia, the Pacific, the Middle East, Latin America, the Caribbean and Africa. Our international sales team utilizes a global network of distributors in local markets around the world.

Factors affecting our net sales include:

• general economic conditions at the federal and state level;

• state and school district per student funding levels;

• federal funding levels;

• the cyclicality of the purchasing schedule for adoption states;

• student enrollments;

• adoption of new academic standards;

• state acceptance of submitted programs and participation rates for accepted programs;

• technological advancement and the introduction of new content and products that meet the needs of students, teachers and consumers, including through strategic agreements pertaining to content development and distribution; and

• the amount of net sales subject to deferrals which is impacted by the mix of product offering between digital and non-digital products, the length of programs and the mix of product delivered immediately or over time.

State and district per-student funding levels, which closely correlate with state and local receipts from income, sales and property taxes, impact our sales as institutional customers are affected by funding cycles. Most public school districts, the primary customers for K-12 products and services, are largely dependent on state and local funding to purchase materials.

We monitor the purchasing cycles for specific disciplines in the adoption states in order to manage our product development and to plan sales campaigns. Our sales may be materially impacted during the years that major adoption states, such as Florida, California and Texas, are or are not scheduled to make significant purchases. For example, Texas adopted Reading/English Language Arts materials in 2018 for purchase in 2019 and 2020. California adopted history and social science materials in 2017 for purchase in 2018 and 2020 and adopted Science materials in 2018 for purchase in 2019 and continuing through 2021. Florida called for K-12 English Language Arts materials in 2020 for purchase beginning in 2021 and has called for K-12 Mathematics for review in 2021 and purchase beginning in 2022. Both Florida and Texas, along with several other adoption states, provide dedicated state funding for instructional materials and classroom technology, with funding typically appropriated by the legislature in the first half of the year in which materials are to be purchased. Texas has a two-year budget cycle, and in the 2021 legislative session appropriated funds for purchases in 2021 and 2022. California funds instructional materials in part with a dedicated portion of state lottery proceeds and in part out of general formula funds, with the minimum overall level of school funding determined according to the Proposition 98 funding guarantee. There is no guarantee that our programs will be approved for purchase in future instructional materials adoptions in these states.

Long-term growth in the U.S. K-12 market is positively correlated with student enrollments, which is a driver of growth in the educational publishing industry. Although economic cycles may affect short-term buying patterns, school enrollments are highly predictable and are expected to trend upward over the longer term. From 2018 to 2028, total public school enrollment, a major long-term driver of growth in the K-12 Education market, is projected to increase by 1.4% to 57.4 million students, according to the National Center for Education Statistics.

As the K-12 educational market purchases more digital solutions, we believe our ability to offer embedded assessments, adaptive learning, real-time interaction and student specific personalized learning and educational content in a platform- and device-agnostic manner will provide new opportunities for growth.

We employ different pricing models to serve various customer segments, including institutions, government agencies, consumers and other third parties. In addition to traditional pricing models where a customer receives a product in return for a payment at the time of product receipt, we currently use the following pricing models:

• Pay-up-front: Customer makes a fixed payment at time of purchase and we provide a specific product/service in return; and

• Pre-pay Subscription: Customer makes a one-time payment at time of purchase, but receives a stream of goods/services over a defined time horizon; for example, we currently provide customers the option to purchase a multi-year subscription to textbooks where for a one-time charge, a new copy of the work text is delivered to the customer each year for a defined time period. Pre-pay subscriptions to online textbooks are another example where the customer receives access to an online book for a specific period of time.

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Cost of sales, excluding publishing rights and pre-publication amortization

Cost of sales, excluding publishing rights and pre-publication amortization, include expenses directly attributable to the production of our products and services, including the non-capitalizable costs associated with our content and platform development group. The expenses within cost of sales include variable costs such as paper, printing and binding costs of our print materials, royalty expenses paid to our authors, gratis costs or products provided at no charge as part of the sales transaction, and inventory obsolescence. Also included in cost of sales are labor costs related to professional services and the non-capitalized costs associated with our content and platform development group. We also include amortization expense associated with our customer-facing software platforms. Certain products carry higher royalty costs; conversely, digital offerings usually have a lower cost of sales due to lower costs associated with their production. Also, sales to adoption states usually contain higher cost of sales. A change in the sales mix of our products or services can impact consolidated profitability.

Publishing rights and Pre-publication amortization

A publishing right is an acquired right that allows us to publish and republish existing and future works as well as create new works based on previously published materials. As part of our March 9, 2010 restructuring, we recorded an intangible asset for publishing rights and amortize such asset on an accelerated basis over the useful lives of the various copyrights involved. This amortization will continue to decrease approximately 25% annually through March of 2023.

We capitalize the art, prepress, manuscript and other costs incurred in the creation of the master copy of our content, known as the pre-publication costs. Pre-publication costs are primarily amortized from the year of sale over five years using the sum-of-the-years-digits method, which is an accelerated method for calculating an asset’s amortization. Under this method, the amortization expense recorded for a pre-publication cost asset is approximately 33% (year 1), 27% (year 2), 20% (year 3), 13% (year 4) and 7% (year 5). We utilize this policy for all pre-publication costs, except the content of certain intervention products acquired in 2015, which we amortize over 7 years using an accelerated amortization method. The amortization methods and periods chosen best reflect the pattern of expected sales generated from individual titles or programs. We periodically evaluate the remaining lives and recoverability of capitalized pre-publication costs, which are often dependent upon program acceptance by state adoption authorities.

Selling and administrative expenses

Our selling and administrative expenses include the salaries, benefits and related costs of employees engaged in sales and marketing, fulfillment and administrative functions. Also included within selling and administrative expenses are variable costs such as commission expense, outbound transportation costs (approximately $22.8 million for the nine months ended September 30, 2021) and depository fees, which are fees paid to state-mandated depositories that fulfill centralized ordering and warehousing functions for specific states. Additionally, significant fixed and discretionary costs include facilities, telecommunications, professional fees, promotions, sampling and advertising, along with depreciation.

Other intangible assets amortization

Our other intangible assets amortization expense primarily includes the amortization of acquired intangible assets consisting of tradenames, customer relationships, content rights and licenses. The tradenames, customer relationships, content rights and licenses are amortized over varying periods of 5 to 25 years. The expense for the nine months ended September 30, 2021 was $23.0 million.

Interest expense

Our interest expense includes interest accrued on the outstanding balances of our $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (“notes”), our $380.0 million term loan credit facility (“term loan facility”) and, to a lesser extent, our revolving credit facility, finance leases, the amortization of any deferred financing fees and loan discounts, and payments in connection with interest rate hedging agreements. Our interest expense for the nine months ended September 30, 2021 was $26.8 million.

27

Results of Operations

Consolidated Operating Results for the Three Months Ended September 30, 2021 and 2020

	Three Months Ended September 30,
(dollars in thousands)	2021			2020			Dollar Change			Percent Change
Net sales	$	417,130		$	331,205		$	85,925			25.9	%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		152,893			146,155			6,738			4.6	%
Publishing rights amortization		2,516			3,469			(953	)		(27.5	)%
Pre-publication amortization		27,620			31,570			(3,950	)		(12.5	)%
Cost of sales		183,029			181,194			1,835			1.0	%
Selling and administrative		134,951			118,275			16,676			14.1	%
Other intangible assets amortization		7,241			5,857			1,384			23.6	%
Restructuring/severance and other charges		33			31,776			(31,743	)	NM
Gain on sale of assets		(3,661	)		—			(3,661	)	NM
Operating income (loss)		95,537			(5,897	)		101,434		NM
Other income (expense):
Retirement benefits non-service income		214			61			153		NM
Interest expense		(8,239	)		(9,311	)		1,072			11.5	%
Interest income		18			32			(14	)		(43.8	)%
Change in fair value of derivative instruments		(368	)		432			(800	)	NM
Gain on investments		606			1,738			(1,132	)		(65.1	)%
Income from transition services agreement		1,399			—			1,399		NM
Income (loss) from continuing operations before taxes		89,167			(12,945	)		102,112		NM
Income tax benefit for continuing operations		(6,192	)		(1,060	)		(5,132	)	NM
Income (loss) from continuing operations		95,359			(11,885	)		107,244		NM
Loss from discontinued operations, net of tax		—			(667	)		667		NM
Net income (loss)	$	95,359		$	(12,552	)	$	107,911		NM

NM = not meaningful

Net sales for the three months ended September 30, 2021 increased $85.9 million, or 25.9%, from $331.2 million in 2020 to $417.1 million. 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 $58.0 million from $124.0 million in 2020 to $182.0 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 $28.0 million from $207.0 million in 2020 to $235.0 million, driven by strong open territory net sales as a result of the market recovery.

Operating income (loss) for the three months ended September 30, 2021 favorably changed from a loss of $5.9 million in 2020 to income of $95.5 million, due primarily to the following:

• An increase in net sales of $85.9 million;

• A $31.7 million decrease in restructuring/severance and other charges due to the 2020 Restructuring Plan;

• A $3.7 million gain on sale of assets in 2021 from the sale of intellectual property, including the copyrights and trademarks, of certain product titles;

• A $3.5 million decrease in net amortization expense related to publishing rights, pre-publication and other intangible assets, primarily due to a decrease in pre-publication amortization attributed to a streamlining of capital spend;

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Partially offset by:

• A $6.7 million increase in our cost of sales, excluding publishing rights and pre-publication amortization, from $146.2 million in 2020 to $152.9 million, primarily due to increased sales volume, substantially offset by lower print costs, product mix, increased virtual delivery of products and services along with favorable inventory obsolescence due to strong net sales. Our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of sales, decreased to 36.7% from 44.1%;

• A $16.7 million increase in selling and administrative expenses, primarily due to an increase of $12.8 million of variable expenses such as sales 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.

Interest expense for the three months ended September 30, 2021 decreased $1.1 million from $9.3 million in 2020 to $8.2 million, due to lower outstanding debt balances and net settlement payments on our interest rate derivative instruments during 2020, which did not repeat in 2021.

Change in fair value of derivative instruments for the three months ended September 30, 2021 unfavorably changed by $0.8 million due to foreign exchange forward contracts executed on the Euro that were unfavorably impacted by the strengthening of the U.S. dollar against the Euro.

Gain on investments for the three months ended September 30, 2021 decreased $1.1 million from $1.7 million in 2020 to $0.6 million and was related to the fair value change in our equity interests in educational technology private partnerships.

Income from transition services agreement for the three months ended September 30, 2021 was $1.4 million and was related to transition service fees under the transition services agreement with the purchaser of our HMH Books & Media business. We had no transition services agreement during 2020.  

Income tax benefit for continuing operations for the three months ended September 30, 2021 increased $5.1 million from a benefit of $1.1 million in 2020 to a benefit of $6.2 million in 2021. For 2021, our annual effective tax rate, exclusive of discrete items used to calculate the tax provision, is expected to be approximately (8.5)%. For 2020, our effective annual tax rate exclusive of discrete items was (1.3)%. For both periods income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions.  

Loss from discontinued operations, net of tax for the three months ended September 30, 2020 was a loss of $0.7 million. The sale of our HMH Books & Media business during the second quarter of 2021 has been accounted for as a discontinued operation, whereby the direct results of its operations were removed from the results from continuing operations for the periods presented. Included within the loss is allocated interest expense of $6.9 million for 2020, based on the repayment of debt with the net proceeds from the sale, which was required by our debt facilities, as we did not reinvest such amounts in the business.  

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Consolidated Operating Results for the Nine Months Ended September 30, 2021 and 2020

	For the Nine Months Ended September 30,
(dollars in thousands)	2021			2020			Dollar Change			Percent Change
Net sales	$	871,997		$	699,287		$	172,710			24.7	%
Costs and expenses:
Cost of sales, excluding publishing rights and    pre-publication amortization		335,390			310,351			25,039			8.1	%
Publishing rights amortization		8,171			11,332			(3,161	)		(27.9	)%
Pre-publication amortization		79,177			93,791			(14,614	)		(15.6	)%
Cost of sales		422,738			415,474			7,264			1.7	%
Selling and administrative		338,953			339,815			(862	)		(0.3	)%
Other intangible assets amortization		23,016			17,568			5,448			31.0	%
Impairment charge for goodwill		—			262,000			(262,000	)	NM
Restructuring/severance and other charges		9,880			31,776			(21,896	)		(68.9	)%
Gain on sale of assets		(3,661	)		—			(3,661	)	NM
Operating income (loss)		81,071			(367,346	)		448,417		NM
Other income (expense):
Retirement benefits non-service (expense) income		(12	)		183			(195	)	NM
Interest expense		(26,788	)		(29,178	)		2,390			8.2	%
Interest income		52			873			(821	)		(94.0	)%
Change in fair value of derivative instruments		(915	)		172			(1,087	)	NM
Gain on investments		1,442			1,738			(296	)		(17.0	)%
Income from transition services agreement		2,253			—			2,253		NM
Loss on extinguishment of debt		(12,505	)		—			(12,505	)	NM
Income (loss) from continuing operations before taxes		44,598			(393,558	)		438,156		NM
Income tax benefit for continuing operations		(3,891	)		(11,210	)		7,319		NM
Income (loss) from continuing operations		48,489			(382,348	)		430,837		NM
Loss from discontinued operations, net of tax		(1,005	)		(14,345	)		13,340			93.0	%
Gain on sale of discontinued operations, net of tax		214,520			—			214,520		NM
Income (loss) from discontinued operations, net of tax		213,515			(14,345	)		227,860		NM
Net income (loss)	$	262,004		$	(396,693	)	$	658,697		NM

NM = not meaningful

Net sales for the nine months ended September 30, 2021 increased $172.7 million, or 24.7%, from $699.3 million in 2020 to $872.0 million. 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 $95.0 million from $308.0 million in 2020 to $403.0 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 $78.0 million from $391.0 million in 2020 to $469.0 million, driven by strong open territory net sales as a result of market recovery in 2021.

Operating income (loss) for the nine months ended September 30, 2021 favorably changed from a loss of $367.3 million in 2020 to income of $81.1 million, due primarily to the following:

• An impairment charge for goodwill in 2020 of $262.0 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;

• A $172.7 million increase in net sales;

• A $21.9 million decrease in restructuring/severance and other charges. In 2021, there were $9.8 million of non-cash restructuring/severance and other charges related to vacated office space formerly utilized by employees of the HMH Books & Media business, of which $9.3 million is reflected as a reduction in operating lease assets and $1.6 million as a reduction in property, plant, and equipment. In 2020, there were $31.8 million of severance costs associated with the 2020 Restructuring Plan;

30

• A $12.3 million decrease in net amortization expense related to publishing rights, pre-publication and other intangible assets, primarily due to a decrease in pre-publication amortization attributed to a streamlining of capital spend and, to a lesser extent, our use of accelerated amortization methods for publishing rights amortization, partially offset by the accelerated amortization of certain other intangible assets due to product life cycle reductions;

• A $3.7 million gain on sale of assets in 2021 from the sale of intellectual property, including the copyrights and trademarks, of certain product titles;

• A slight decrease in selling and administrative expenses, 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 sales commissions and transportation due to higher billings along with an increase in incentive compensation;

Partially offset by:

• A $25.0 million increase in our cost of sales, excluding publishing rights and pre-publication amortization, from $310.4 million in 2020 to $335.4 million, primarily due to an increase in sales volume, partially offset by lower print costs, product mix, increased virtual delivery of products and services along with favorable inventory obsolescence due to strong net sales. Our cost of sales, excluding publishing rights and pre-publication amortization, as a percentage of sales, decreased to 38.5% from 44.4%;

Interest expense for the nine months ended September 30, 2021 decreased $2.4 million from $29.2 million in 2020 to $26.8 million, primarily due to net settlement payments on our interest rate derivative instruments during 2020, which did not repeat in 2021, and to a lesser extent lower term loan facility interest expense driven by lower LIBOR rates.

Interest income for the nine months ended September 30, 2021 decreased $0.8 million due to lower interest rates on our money market funds in 2021.

Change in fair value of derivative instruments for the nine months ended September 30, 2021 unfavorably changed by $1.1 million due to foreign exchange forward contracts executed on the Euro that were unfavorably impacted by the strengthening of the U.S. dollar against the Euro.

Gain on investments for the nine months ended September 30, 2021 decreased $0.3 million from $1.7 million in 2020 to $1.4 million and was related to the fair value change in our equity interests in educational technology private partnerships.

Income from transition services agreement for the nine months ended September 30, 2021 was $2.3 million and was related to transition service fees under the transition services agreement with the purchaser of our HMH Books & Media business. We had no transition services agreement during 2020.  

Loss on extinguishment of debt for the nine months ended September 30, 2021 consisted of a $10.0 million write-off of the remaining balance of the debt discount associated with the term loan facility and a $2.5 million write-off related to unamortized deferred financing fees associated with the term loan facility. The total write-off of $12.5 million was proportional to the pay down in term loan debt.

Income tax benefit for continuing operations for the nine months ended September 30, 2021 decreased $7.3 million, from a benefit of $11.2 million in 2020 to a benefit of $3.9 million in 2021. For 2021, our annual effective tax rate, exclusive of discrete items used to calculate the tax provision, is expected to be approximately (8.5)%. For 2020, our effective annual tax rate exclusive of discrete items was (1.3)%. For both periods income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items including the accrual of potential interest and penalties on uncertain tax positions.  

Income (loss) from discontinued operations, net of tax for the nine months ended September 30, 2021 favorably changed by $227.9 million from a loss of $14.3 million in 2020, to income of $213.5 million primarily due to the gain on sale of our HMH Books & Media business, which has been accounted for as a discontinued operation whereby the direct results of its operations were removed from the results from continuing operations for the periods presented. Included within the loss is allocated interest expense of $9.4 million and $21.4 million, for 2021 and 2020, respectively, based on the repayment of debt with the net proceeds from the sale, which was required by our debt facilities, as we did not reinvest such amounts in the business.

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Adjusted EBITDA from Continuing Operations

To supplement our financial statements presented in accordance with GAAP, we have presented Adjusted EBITDA from continuing operations, which is 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 Adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted EBITDA provides an indicator of general economic 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, restructuring costs and integration costs. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. In addition, targets in Adjusted EBITDA (further adjusted to include changes in deferred revenue) are used as performance measures to determine certain compensation of management, and Adjusted EBITDA is used as the base for calculations relating to incurrence covenants in our debt agreements. Other companies may define Adjusted EBITDA differently and, as a result, our measure of Adjusted EBITDA may not be directly comparable to Adjusted EBITDA of other companies. Although we use Adjusted EBITDA as a financial measure to assess the performance of our business, the use of Adjusted EBITDA is limited because it does not include certain material costs, such as interest and taxes, necessary to operate our business. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net loss/income in accordance with GAAP as a measure of performance. Adjusted EBITDA is not intended to be a measure of liquidity or free cash flow for discretionary use. You are cautioned not to place undue reliance on Adjusted EBITDA.

Below is a reconciliation of our net income (loss) from continuing operations to Adjusted EBITDA from continuing operations for the three and nine months ended September 30, 2021 and 2020:

	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

Seasonality and Comparability

Our net sales, operating profit or loss and net cash provided by or used in operations are impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. Consequently, the performance of our business may not be comparable quarter to consecutive quarter and should be considered on the basis of results for the whole year or by comparing results in a quarter with results in the same quarter for the previous year.

Schools conduct the majority of their purchases in the second and third quarters of the calendar year in preparation for the beginning of the school year. Thus, over the past three completed fiscal years, approximately 69% of our consolidated net sales were realized in the second and third quarters. Sales of K-12 instructional materials are also cyclical, with some years offering more sales opportunities than others based on the state adoption calendar. The amount of funding available at the state level for educational materials also has a significant effect on year-to-year net sales. Although the loss of a single customer would not have a material adverse effect on our business, schedules of school adoptions and market acceptance of our products can materially affect year-to-year net sales performance.

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Liquidity and Capital Resources

(in thousands)	September 30, 2021		December 31, 2020
Cash and cash equivalents	$	420,318	$	281,200
Current portion of long-term debt		—		19,000
Long-term debt, net of discount and issuance costs		317,095		624,692
Revolving credit facility		—		—
Borrowing availability under revolving credit facility		163,635		104,806

	Nine Months Ended September 30,
	2021			2020
Net cash provided by operating activities	$	196,577		$	75,166
Net cash provided by (used in) investing activities		282,577			(86,596	)
Net cash used in financing activities		(340,036	)		(13,380	)

Operating activities

Net cash provided by operating activities was $196.6 million for the nine months ended September 30, 2021, a $121.4 million favorable change from the $75.2 million of net cash provided by operating activities for the nine months ended September 30, 2020. Net cash provided by operating activities included $3.9 million and $9.1 million of net cash provided by discontinued operations in 2021 and 2020, respectively, and net cash provided by operating activities from continuing operations of $192.7 million and $66.0 million in 2021 and 2020, respectively. The $126.7 million improvement in cash provided by operating activities from continuing operations was primarily due to an increase in operating profit, net of non-cash items, of $173.3 million. The improvement was partially offset by unfavorable changes in net operating assets and liabilities of $46.6 million primarily due to unfavorable changes in accounts receivable of $93.8 million related to higher billings and the timing of collections, unfavorable changes in severance and other charges of $40.8 million mainly attributable to the 2020 Restructuring Plan, unfavorable changes in interest payable of $6.9 million due to the timing of payments and unfavorable changes in other operating assets and liabilities of $9.2 million, offset by favorable changes in accounts payable of $49.1 million due to timing of disbursements, favorable changes in royalties and author advances of $33.6 million, favorable changes in inventory of $10.5 million, operating lease liabilities of $8.0 million and pension and postretirement benefits of $2.9 million.

Investing activities

Net cash provided by investing activities was $282.6 million for the nine months ended September 30, 2021, an increase of $369.2 million from the $86.6 million of net cash used in investing activities for the nine months ended September 30, 2020. Net cash from investing activities included $0.6 million and $0.4 million of cash usage from discontinued operations in 2021 and 2020, respectively, and net cash provided by (used in) investing activities from continuing operations of $283.2 million and $(86.2) million in 2021 and 2020, respectively. The increase in cash provided by investing activities was primarily due to proceeds from the sale of our HMH Books & Media business of $349.0 million and from the sale of assets of $5.0 million during 2021 and to a lesser extent, lower capital investing expenditures related to pre-publication costs and property, plant, and equipment of $15.4 million in connection with planned reductions in content development.

Financing activities

Net cash used in financing activities, which is all continuing operations, was $340.0 million for the nine months ended September 30, 2021, an increase of $326.6 million from the $13.4 million used in financing activities for the nine months ended September 30, 2020. The increase in cash used in financing activities was primarily due to a net increase in our debt repayments of $327.8 million primarily from the proceeds of the sale of our HMH Books & Media business. Partially offsetting the increase was net collections under the transition services agreement of $1.6 million in 2021.

Debt

Under each of the notes, the term loan facility and the revolving credit facility, Houghton Mifflin Harcourt Publishers Inc., Houghton Mifflin Harcourt Publishing Company and HMH Publishers LLC are the borrowers (collectively, the “Borrowers”), and Citibank, N.A. acts as both the administrative agent and the collateral agent.

The obligations under the senior secured notes, the term loan facility and the revolving credit facility are guaranteed by the Company and each of its direct and indirect for-profit domestic subsidiaries (other than the Borrowers) (collectively, the

33

“Guarantors”) and are secured by all capital stock and other equity interests of the Borrowers and the Guarantors and substantially all of the other tangible and intangible assets of the Borrowers and the Guarantors, including, without limitation, receivables, inventory, equipment, contract rights, securities, patents, trademarks, other intellectual property, cash, bank accounts and securities accounts and owned real estate. The revolving credit facility is secured by first priority liens on receivables, inventory, deposit accounts, securities accounts, instruments, chattel paper and other assets related to the foregoing (the “Revolving First Lien Collateral”), and second priority liens on the collateral which secures the term loan facility on a first priority basis. The term loan facility is secured by first priority liens on the capital stock and other equity interests of the Borrowers and the Guarantors, equipment, owned real estate, trademarks and other intellectual property, general intangibles that are not Revolving First Lien Collateral and other assets related to the foregoing, and second priority liens on the Revolving First Lien Collateral.

Senior Secured Notes

On November 22, 2019, we completed the sale of $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (the “notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act. The notes mature on February 15, 2025 and bear interest at a rate of 9.0% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020. As of September 30, 2021, we had $303.3 million ($296.2 million, net of discount and issuance costs) outstanding under the notes.

We may redeem all or a portion of the notes at redemption prices as described in the notes. We redeemed $2.7 million of the notes during the second quarter of 2021 utilizing proceeds from the sale of the HMH Books & Media business.

The notes do not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under the notes.

The notes are subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the notes.

Term Loan Facility

On November 22, 2019, we entered into a second amended and restated term loan credit agreement for an aggregate principal amount of $380.0 million (the “term loan facility”). As of September 30, 2021, we had $21.7 million ($20.9 million, net of discount and issuance costs) outstanding under the term loan facility.

The term loan facility matures on November 22, 2024 and the interest rate per annum is equal to, at the option of the Company, either (a) LIBOR plus a margin of 6.25% or (b) an alternate base rate plus a margin of 5.25%.  As of September 30, 2021, the interest rate on the term loan facility was 7.25%.

The term loan facility was required to be repaid in quarterly installments of approximately $4.8 million with the balance being payable on the maturity date. We repaid $334.6 million of the term loan facility during the second quarter of 2021 utilizing proceeds from the sale of the HMH Books & Media business. There are no future quarterly repayment installments required and the balance is payable on the maturity date; however, we are not prohibited from continuing to make debt payments and may elect to do so.

The term loan facility does not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our term loan facility.

The term loan facility contains customary mandatory prepayment requirements, including with respect to excess cash flow, proceeds from certain asset sales or dispositions of property, and proceeds from certain incurrences of indebtedness. To the extent that we are successful in closing the divestiture of our HMH Books & Media business, we intend to use the proceeds to reduce our outstanding indebtedness, which will increase recurring free cash flow resulting from reduced interest expense. We do not intend to reinvest such proceeds in the business. The term loan facility permits the Company to voluntarily prepay outstanding amounts at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans.

The term loan facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The term loan facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the term loan facility.

34

We are subject to an excess cash flow provision under our term loan facility which is predicated upon our leverage ratio and cash flow.

Revolving Credit Facility

On November 22, 2019, we entered into a second amended and restated revolving credit agreement that provides borrowing availability in an amount equal to the lesser of either $250.0 million or a borrowing base that is computed monthly or weekly and comprised of the Borrowers’ and the Guarantors’ eligible inventory and receivables (the “revolving credit facility”).

The revolving credit facility includes a letter of credit subfacility of $50.0 million, a swingline subfacility of $20.0 million and the option to expand the facility by up to $100.0 million in the aggregate under certain specified conditions. The amount of any outstanding letters of credit reduces borrowing availability under the revolving credit facility on a dollar-for-dollar basis. As of September 30, 2021, there were no amounts outstanding on the revolving credit facility. As of September 30, 2021, we had approximately $16.1 million of outstanding letters of credit and approximately $163.6 million of borrowing availability under the revolving credit facility. As of November 4, 2021, there were no amounts outstanding under the revolving credit facility.

The revolving credit facility has a five-year term and matures on November 22, 2024. The interest rate applicable to borrowings under the facility is based, at our election, on LIBOR plus a margin between 1.50% and 2.00% or an alternative base rate plus a margin between 0.50% and 1.00%, which margins are based on average daily availability. The revolving credit facility may be prepaid, in whole or in part, at any time, without premium.

The revolving credit facility requires us to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 on a trailing four-quarter basis for periods in which excess availability under the revolving credit facility is less than the greater of $25.0 million and 12.5% of the lesser of the total commitment and the borrowing base then in effect, or less than $20.0 million if certain conditions are met. The minimum fixed charge coverage ratio was not applicable under the facility as of September 30, 2021, due to our level of borrowing availability.

The revolving credit facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The revolving credit facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the revolving credit facility.

General

We had $420.3 million of cash and cash equivalents and no short-term investments at September 30, 2021 and $281.2 million of cash and cash equivalents and no short-term investments at December 31, 2020.

Our business is impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. We expect our net cash provided by 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. Our primary credit facilities do not require us to comply with financial maintenance covenants.

The ability of the Company to fund planned operations is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. Our current assumptions are that our industry will continue to recover and we have performed a sensitivity analysis on various recovery assumptions. We have concluded we have sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.

Critical Accounting Policies and Estimates

Our financial results are affected by the selection and application of critical accounting policies and methods. There were no material changes in the nine months ended September 30, 2021 to the application of critical accounting policies and estimates as described in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

The critical accounting estimates used in the preparation of the Company’s consolidated financial statements may change as new events occur, as more experience is acquired, as additional information is obtained and the Company’s operating environment changes.  Actual results may differ from these estimates due to the uncertainty around the magnitude and duration of the COVID-19 pandemic, as well as other factors.

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Impact of Inflation and Changing Prices

We believe that inflation has not had a material impact on our results of operations during the year ended December 31, 2020 or the first nine months of 2021. We cannot be sure that future inflation will not have an adverse impact on our operating results and financial condition in future periods. Our ability to adjust selling prices has always been limited by competitive factors and long-term contractual arrangements which either prohibit price increases or limit the amount by which prices may be increased. Further, a weak domestic economy at a time of low inflation could cause lower tax receipts at the state and local level, and the funding and buying patterns for textbooks and other educational materials could be adversely affected.

Covenant Compliance

As of September 30, 2021, we were in compliance with all of our debt covenants and we expect to be in compliance over the next twelve months.

We are currently required to meet certain incurrence-based financial covenants as defined under our term loan facility, notes and revolving credit facility. We have incurrence based financial covenants primarily pertaining to a maximum leverage ratio and fixed charge coverage ratio. A breach of any of these covenants, ratios, tests or restrictions, as applicable, for which a waiver is not obtained could result in an event of default, in which case our lenders could elect to declare all amounts outstanding to be immediately due and payable and result in a cross-default under other arrangements containing such provisions. A default would permit lenders to accelerate the maturity for the debt under these agreements and to foreclose upon any collateral securing the debt owed to these lenders and to terminate any commitments of these lenders to lend to us. If the lenders accelerate the payment of the indebtedness, our assets may not be sufficient to repay in full the indebtedness and any other indebtedness that would become due as a result of any acceleration. Further, in such an event, the lenders would not be required to make further loans to us, and assuming similar facilities were not established and we are unable to obtain replacement financing, it would materially affect our liquidity and results of operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

See Note 4 to the consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of recently issued accounting pronouncements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risk from foreign currency exchange rates and interest rates, which could affect operating results, financial position and cash flows. We manage exposure to these market risks through our regular operating and financing activities and, when appropriate, through the use of derivative financial instruments. These derivative financial instruments are utilized to hedge economic exposures as well as reduce our earnings and cash flow volatility resulting from shifts in market rates. As permitted, we may designate certain of these derivative contracts for hedge accounting treatment in accordance with authoritative guidance regarding accounting for derivative instruments and hedging activities. However, certain of these instruments may not qualify for, or we may choose not to elect, hedge accounting treatment and, accordingly, the results of our operations may be exposed to some level of volatility. Volatility in our results of operations will vary with the type and amount of derivative hedges outstanding, as well as fluctuations in the currency and interest rate market during the period. Periodically, we may enter into derivative contracts, including interest rate swap agreements and interest rate caps and collars to manage interest rate exposures, and foreign currency spot, forward, swap and option contracts to manage foreign currency exposures. The fair market values of all of these derivative contracts change with fluctuations in interest rates and/or currency rates and are designed so that any changes in their values are offset by changes in the values of the underlying exposures. Derivative financial instruments are held solely as risk management tools and not for trading or speculative purposes.

By their nature, all derivative instruments involve, to varying degrees, elements of market and credit risk not recognized in our financial statements. The market risk associated with these instruments resulting from currency exchange and interest rate movements is expected to offset the market risk of the underlying transactions, assets and liabilities being hedged. Our policy is to deal with counterparties having a single A or better credit rating at the time of the execution. We manage our exposure to counterparty risk of derivative instruments by entering into contracts with a diversified group of major financial institutions and by actively monitoring outstanding positions.

We continue to review liquidity sufficiency by performing various stress test scenarios, such as cash flow forecasting, which considers hypothetical interest rate movements. Furthermore, we continue to closely monitor current events and the financial institutions that support our credit facility, including monitoring their credit ratings and outlooks, credit default swap levels, capital raising and merger activity.

As of September 30, 2021, we had $21.7 million ($20.9 million, net of discount and issuance costs) of aggregate principal amount indebtedness outstanding under our term loan facility that bears interest at a variable rate. An increase or decrease of 1% in the interest rate will change our interest expense by approximately $0.2 million on an annual basis. We also have up to $250.0 million of borrowing availability, subject to borrowing base availability, under our revolving credit facility, and borrowings under the revolving credit facility bear interest at a variable rate. As of September 30, 2021, there were no amounts outstanding on the revolving credit facility. Assuming that the revolving credit facility is fully drawn, an increase or decrease of 1% in the interest rate will change our interest expense associated with the revolving credit facility by $2.5 million on an annual basis.

Our interest rate risk relates primarily to U.S. dollar borrowings partially offset by U.S. dollar cash investments. We have historically used interest rate derivative instruments to manage our earnings and cash flow exposure to changes in interest rates. On August 17, 2015, we entered into interest rate derivative contracts with various financial institutions having an aggregate notional amount of $400.0 million to convert floating rate debt into fixed rate debt, which we designated as cash flow hedges. These contracts were effective beginning September 30, 2016 and matured on July 22, 2020. We have no outstanding interest rate derivative contracts as of September 30, 2021.

We conduct various digital development activities in Ireland, and as such, our cash flows and costs are subject to fluctuations from changes in foreign currency exchange rates. We manage our exposures to this market risk through the use of short-term foreign exchange forward and option contracts, when deemed appropriate, which were not significant as of September 30, 2021 and December 31, 2020. We do not enter into derivative transactions or use other financial instruments for trading or speculative purposes.

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Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”), and our Executive Vice President and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2021 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, our CEO and CFO concluded that, as of September 30, 2021 our disclosure controls and procedures were effective.

During the quarter ended September 30, 2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

38

Part II. Other Information

Item 1. Legal Proceedings

We are involved in legal actions, claims, litigation and other matters incidental to our business. Litigation alleging infringement of copyrights and other intellectual property rights, particularly with respect to proprietary photographs and images, is common in the educational publishing industry.

While management believes there is a reasonable possibility we may incur a loss associated with the existing legal actions, claims and litigation, we are not able to estimate such amount, but we do not expect any of these matters to have a material adverse effect on our results of operations, financial position or cash flows. We have insurance in such amounts and with such coverage and deductibles as management believes is reasonable. However, there can be no assurance that our liability insurance will cover all events or that the limits of such coverage will be sufficient to fully cover all potential liabilities thereunder. Refer to Note 14 of the Consolidated Financial Statements included in Part I, Item 1. for a discussion of such matters.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which could materially affect our business, financial condition or future results.

39

Item 6. Exhibits

Exhibit No.	Description
3.1	Amended and Restated By-Laws of the Registrant, effective September 30, 2020 (incorporated by reference to Exhibit No. 3.1 to the Company’s Current Report on Form 8-K, filed October 6, 2020 (File No. 001-36166)).
31.1*	Certification of CEO Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of CFO Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	The instance document does not appear in the interactive file because its XBRL tags are embedded within the inline XBRL document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document.
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

** This certification 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, this certification shall not be deemed to be incorporated by reference into the filings of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934, regardless of any general incorporation language in such filing.

40

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 thereunto duly authorized.

	Houghton Mifflin Harcourt Company (Registrant)
November 4, 2021	By:	/s/ John J. Lynch, Jr.
		John J. Lynch, Jr.
		Chief Executive Officer (Principal Executive Officer)
	Houghton Mifflin Harcourt Company (Registrant)
November 4, 2021	By:	/s/ Joseph P. Abbott, Jr.
		Joseph P. Abbott, Jr.
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

41

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, John J. Lynch, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Houghton Mifflin Harcourt Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2021

By:	/s/ John J. Lynch, Jr.
	John J. Lynch, Jr. President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Joseph P. Abbott, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Houghton Mifflin Harcourt Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2021

By:	/s/ Joseph P. Abbott, Jr.
	Joseph P. Abbott, Jr. Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Houghton Mifflin Harcourt Company’s (the “Company”) Quarterly Report on Form 10-Q for the three months ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John J. Lynch, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 4, 2021

By:	/s/ John J. Lynch, Jr.
	John J. Lynch, Jr. President and Chief Executive Officer

EX-32.2

 Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with Houghton Mifflin Harcourt Company’s (the “Company”) Quarterly Report on Form 10-Q for the three months ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph P. Abbott, Jr., Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 4, 2021

By:	/s/ Joseph P. Abbott, Jr.
	Joseph P. Abbott, Jr. Executive Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2021	Nov. 01, 2021
Cover [Abstract]
Amendment Flag	false
Document Type	10-Q
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q3
Document Period End Date	Sep. 30, 2021
Entity Central Index Key	0001580156
Current Fiscal Year End Date	--12-31
Entity Registrant Name	Houghton Mifflin Harcourt Co
Entity Filer Category	Accelerated Filer
Trading Symbol	HMHC
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		127,680,750
Document Transition Report	false
Document Quarterly Report	true
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity File Number	001-36166
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	27-1566372
Entity Address, Address Line One	125 High Street
Entity Address, City or Town	Boston
Entity Address, Postal Zip Code	02110
City Area Code	617
Entity Address, State or Province	MA
Local Phone Number	351-5000
Title of 12(b) Security	Common Stock, $0.01 par value
Security Exchange Name	NASDAQ

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Current assets
Cash and cash equivalents	$ 420,318	$ 281,200
Accounts receivable, net of allowances for bad debts and book returns of $10.9 million and $8.4 million, respectively	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
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 (Note 14)
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

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Sep. 30, 2021	Dec. 31, 2020
Statement Of Financial Position [Abstract]
Accounts receivable, allowances for bad debts and book returns	$ 10.9	$ 8.4
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	380,000,000	380,000,000
Common stock, shares issued	152,257,784	150,459,034
Common stock, shares outstanding	127,680,750	125,882,000
Treasury stock, shares	24,577,034	24,577,034

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Consolidated Statements of Operations - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Income Statement [Abstract]
Net sales	$ 417,130,000	$ 331,205,000	$ 871,997,000	$ 699,287,000
Costs and expenses
Cost of sales, excluding publishing rights and pre-publication amortization	152,893,000	146,155,000	335,390,000	310,351,000
Publishing rights amortization	2,516,000	3,469,000	8,171,000	11,332,000
Pre-publication amortization	27,620,000	31,570,000	79,177,000	93,791,000
Cost of sales	183,029,000	181,194,000	422,738,000	415,474,000
Selling and administrative	134,951,000	118,275,000	338,953,000	339,815,000
Other intangible assets amortization	7,241,000	5,857,000	23,016,000	17,568,000
Impairment charge for goodwill			0	262,000,000
Restructuring/severance and other charges	33,000	31,776,000	9,880,000	31,776,000
Gain on sale of assets	(3,661,000)		(3,661,000)
Operating income (loss)	95,537,000	(5,897,000)	81,071,000	(367,346,000)
Other income (expense)
Retirement benefits non-service income (expense)	214,000	61,000	(12,000)	183,000
Interest expense	(8,239,000)	(9,311,000)	(26,788,000)	(29,178,000)
Interest income	18,000	32,000	52,000	873,000
Change in fair value of derivative instruments	(368,000)	432,000	(915,000)	172,000
Gain on investments	606,000	1,738,000	1,442,000	1,738,000
Income from transition services agreement	1,399,000		2,253,000
Loss on extinguishment of debt			(12,505,000)
Income (loss) from continuing operations before taxes	89,167,000	(12,945,000)	44,598,000	(393,558,000)
Income tax benefit for continuing operations	(6,192,000)	(1,060,000)	(3,891,000)	(11,210,000)
Income (loss) from continuing operations	95,359,000	(11,885,000)	48,489,000	(382,348,000)
Loss from discontinued operations, net of tax		(667,000)	(1,005,000)	(14,345,000)
Gain on sale of discontinued operations, net of tax			214,520,000
(Loss) income from discontinued operations, net of tax		(667,000)	213,515,000	(14,345,000)
Net income (loss)	$ 95,359,000	$ (12,552,000)	$ 262,004,000	$ (396,693,000)
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

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Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Statement Of Income And Comprehensive Income [Abstract]
Net income (loss)	$ 95,359	$ (12,552)	$ 262,004	$ (396,693)
Other comprehensive income (loss), net of taxes:
Foreign currency translation adjustments, net of tax	(280)	(86)	(833)	(266)
Net change in pension and benefit plan liabilities, net of tax	706		9,153
Net change in unrealized loss on derivative financial instruments, net of tax		258		987
Other comprehensive income, net of taxes	426	172	8,320	721
Comprehensive income (loss)	$ 95,785	$ (12,380)	$ 270,324	$ (395,972)

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Consolidated Statements of Cash Flows - USD ($)	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities
Net income (loss)	$ 262,004,000	$ (396,693,000)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Loss from discontinued operations, net of tax	1,005,000	14,345,000
Gain on sale of discontinued operations, net of tax	(214,520,000)
Gain on sale of assets	(3,661,000)
Depreciation and amortization expense	144,698,000	160,073,000
Operating lease assets, amortization and impairments	9,411,000	9,565,000
Amortization of debt discount and deferred financing costs	2,096,000	1,979,000
Gain on investments	(1,442,000)	(1,738,000)
Deferred income taxes	(4,526,000)	(12,084,000)
Stock-based compensation expense	8,727,000	8,295,000
Write-off of property, plant, and equipment	1,606,000
Loss on extinguishment of debt	12,505,000
Impairment charge for goodwill	0	262,000,000
Change in fair value of derivative instruments	915,000	(172,000)
Changes in operating assets and liabilities
Accounts receivable	(200,632,000)	(106,852,000)
Inventories	49,081,000	38,566,000
Other assets	(13,767,000)	(10,663,000)
Accounts payable and accrued expenses	53,878,000	4,764,000
Royalties payable and author advances, net	12,467,000	(21,169,000)
Deferred revenue	106,100,000	105,347,000
Interest payable	(6,757,000)	155,000
Severance and other charges	(18,307,000)	22,494,000
Accrued pension and postretirement benefits	(2,656,000)	(5,532,000)
Operating lease liabilities	436,000	(7,598,000)
Other liabilities	(5,964,000)	935,000
Net cash provided by operating activities - continuing operations	192,697,000	66,017,000
Net cash provided by operating activities - discontinued operations	3,880,000	9,149,000
Net cash provided by operating activities	196,577,000	75,166,000
Cash flows from investing activities
Additions to pre-publication costs	(42,104,000)	(50,919,000)
Additions to property, plant, and equipment	(28,672,000)	(35,275,000)
Proceeds from sale of business	349,000,000
Proceeds from sale of assets	5,000,000
Net cash provided by (used in) investing activities - continuing operations	283,224,000	(86,194,000)
Net cash used in investing activities - discontinued operations	(647,000)	(402,000)
Net cash provided by (used in) investing activities	282,577,000	(86,596,000)
Cash flows from financing activities
Borrowings under revolving credit facility		150,000,000
Payments of revolving credit facility		(150,000,000)
Payments of long-term debt	(342,031,000)	(14,250,000)
Tax withholding payments related to net share settlements of restricted stock units		(48,000)
Issuance of common stock under employee stock purchase plan	410,000	918,000
Net collections under transition services agreement	1,585,000
Net cash used in financing activities - continuing operations	(340,036,000)	(13,380,000)
Net increase (decrease) in cash and cash equivalents	139,118,000	(24,810,000)
Cash and cash equivalents at beginning of the period	281,200,000	296,353,000
Cash and cash equivalents at end of the period	420,318,000	271,543,000
Supplemental disclosure of cash flow information
Interest paid - continuing operations	29,557,000	26,366,000
Interest paid - discontinued operations	10,108,000	19,547,000
Income taxes paid	1,021,000	1,848,000
Operating lease assets obtained in exchange for operating lease liabilities	7,911,000	6,472,000
Pre-publication Costs [Member]
Non-cash investing activities
Costs included in accounts payable and accruals	2,732,000	2,192,000
Property, Plant, and Equipment [Member]
Non-cash investing activities
Costs included in accounts payable and accruals	$ 1,366,000	$ 1,648,000

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Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Treasury Stock [Member]	Capital in Excess of Par Value [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Beginning balance at Dec. 31, 2019	$ 566,360	$ 1,489	$ (518,030)	$ 4,906,165	$ (3,775,992)	$ (47,272)
Beginning balance, shares at Dec. 31, 2019		148,928,328
Net income (loss)	(345,973)				(345,973)
Other comprehensive income (loss), net of tax	(444)					(444)
Issuance of common stock for employee purchase plan	679	$ 1		678
Issuance of common stock for employee purchase plan, shares		104,331
Issuance of common stock for vesting of restricted stock units		$ 10		(10)
Issuance of common stock for vesting of restricted stock units, shares		950,496
Stock withheld to cover tax withholdings requirements upon vesting of restricted stock units	(48)			(48)
Stock-based compensation expense	3,386			3,386
Ending balance at Mar. 31, 2020	223,960	$ 1,500	(518,030)	4,910,171	(4,121,965)	(47,716)
Ending balance, shares at Mar. 31, 2020		149,983,155
Beginning balance at Dec. 31, 2019	566,360	$ 1,489	(518,030)	4,906,165	(3,775,992)	(47,272)
Beginning balance, shares at Dec. 31, 2019		148,928,328
Net income (loss)	(396,693)
Ending balance at Sep. 30, 2020	180,044	$ 1,504	(518,030)	4,915,806	(4,172,685)	(46,551)
Ending balance, shares at Sep. 30, 2020		150,427,148
Beginning balance at Mar. 31, 2020	223,960	$ 1,500	(518,030)	4,910,171	(4,121,965)	(47,716)
Beginning balance, shares at Mar. 31, 2020		149,983,155
Net income (loss)	(38,168)				(38,168)
Other comprehensive income (loss), net of tax	993					993
Issuance of common stock for employee purchase plan	(1)			(1)
Issuance of common stock for vesting of restricted stock units		$ 1		(1)
Issuance of common stock for vesting of restricted stock units, shares		149,495
Stock-based compensation expense	2,101			2,101
Ending balance at Jun. 30, 2020	188,885	$ 1,501	(518,030)	4,912,270	(4,160,133)	(46,723)
Ending balance, shares at Jun. 30, 2020		150,132,650
Net income (loss)	(12,552)				(12,552)
Other comprehensive income (loss), net of tax	172					172
Issuance of common stock for employee purchase plan	570	$ 3		567
Issuance of common stock for employee purchase plan, shares		274,588
Issuance of common stock for vesting of restricted stock units, shares		19,910
Stock-based compensation expense	2,969			2,969
Ending balance at Sep. 30, 2020	180,044	$ 1,504	(518,030)	4,915,806	(4,172,685)	(46,551)
Ending balance, shares at Sep. 30, 2020		150,427,148
Beginning balance at Dec. 31, 2020	90,463	$ 1,505	(518,030)	4,918,542	(4,255,830)	(55,724)
Beginning balance, shares at Dec. 31, 2020		150,459,034
Net income (loss)	(51,983)				(51,983)
Other comprehensive income (loss), net of tax	6,590					6,590
Issuance of common stock for employee purchase plan	636	$ 2		634
Issuance of common stock for employee purchase plan, shares		239,144
Issuance of common stock for vesting of restricted stock units		$ 13		(13)
Issuance of common stock for vesting of restricted stock units, shares		1,289,209
Stock-based compensation expense	2,682			2,682
Ending balance at Mar. 31, 2021	48,388	$ 1,520	(518,030)	4,921,845	(4,307,813)	(49,134)
Ending balance, shares at Mar. 31, 2021		151,987,387
Beginning balance at Dec. 31, 2020	90,463	$ 1,505	(518,030)	4,918,542	(4,255,830)	(55,724)
Beginning balance, shares at Dec. 31, 2020		150,459,034
Net income (loss)	262,004
Ending balance at Sep. 30, 2021	370,197	$ 1,523	(518,030)	4,927,934	(3,993,826)	(47,404)
Ending balance, shares at Sep. 30, 2021		152,257,784
Beginning balance at Mar. 31, 2021	48,388	$ 1,520	(518,030)	4,921,845	(4,307,813)	(49,134)
Beginning balance, shares at Mar. 31, 2021		151,987,387
Net income (loss)	218,628				218,628
Other comprehensive income (loss), net of tax	1,304					1,304
Issuance of common stock for employee purchase plan	12			12
Issuance of common stock for vesting of restricted stock units		$ 2		(2)
Issuance of common stock for vesting of restricted stock units, shares		256,817
Stock-based compensation expense	2,972			2,972
Ending balance at Jun. 30, 2021	271,304	$ 1,522	(518,030)	4,924,827	(4,089,185)	(47,830)
Ending balance, shares at Jun. 30, 2021		152,244,204
Net income (loss)	95,359				95,359
Other comprehensive income (loss), net of tax	426					426
Issuance of common stock for vesting of restricted stock units		$ 1		(1)
Issuance of common stock for vesting of restricted stock units, shares		13,580
Stock-based compensation expense	3,108			3,108
Ending balance at Sep. 30, 2021	$ 370,197	$ 1,523	$ (518,030)	$ 4,927,934	$ (3,993,826)	$ (47,404)
Ending balance, shares at Sep. 30, 2021		152,257,784

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Basis of Presentation

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Basis of Presentation

1. Basis of Presentation

Houghton Mifflin Harcourt Company (“HMH,” “Houghton Mifflin Harcourt,” “we,” “us,” “our,” or the “Company”) is a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. As a leading provider of Kindergarten through 12^th grade (“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 estimates that it serves more than 50 million students and three million educators in 150 countries.

 We focus on the K-12 market and, in the United States, we are a market leader. We specialize in comprehensive core curriculum, supplemental and intervention solutions, and we provide ongoing support in professional learning and coaching for educators and administrators. Our offerings are rooted in learning science, and we work with research partners, universities and third-party organizations as we design, build, implement and iterate our offerings to maximize their effectiveness. We are purposeful about innovation, leveraging technology to create engaging and immersive experiences designed to deepen learning experiences for students and to extend teachers’ capabilities so that they can focus on making meaningful connections with their students.

Our diverse portfolio enables us to help ensure that every student and teacher has the tools needed for success. We are able to build deep partnerships with school districts and leverage the scope of our offerings to provide holistic solutions at scale with the support of our far-reaching sales force and talented field-based specialists and consultants. We provide print, digital, and blended print/digital solutions that are tailored to a district’s needs, goals and technological readiness.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Certain information and footnote disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. In the opinion of management, our unaudited consolidated financial statements and accompanying notes include all adjustments (consisting of normal recurring adjustments) considered necessary by management to fairly state the results of operations, financial position and cash flows for the interim periods presented. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These financial statements should be read in conjunction with the annual financial statements and the notes thereto also included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Our accompanying consolidated financial statements include the results of operations of the Company and our wholly-owned subsidiaries. All material intercompany accounts and transactions are eliminated in consolidation.

On May 10, 2021, we completed the sale of our HMH Books & Media segment, our consumer publishing business. We determined that the HMH Books & Media business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Financial Accounting Standard Boards (“FASB”) Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements, (“FASB ASC 205”) as of March 31, 2021 due to its relative size and strategic rationale. The Consolidated Balance Sheets and Consolidated Statements of Operations, and the notes to the Consolidated Financial Statements were restated for all periods presented to reflect the discontinuation of the HMH Books & Media business, in accordance with FASB ASC 205. The discussion in the notes to these Consolidated Financial Statements, unless otherwise noted, relate solely to our continuing operations. As a result of the disposal of the former segment, our revenues and financial results from continuing operations are reported under one reportable segment.  

We expect our net cash provided by 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.

Seasonality and Comparability

Our net sales, operating profit or loss and net cash provided by or used in operations are impacted by the inherent seasonality of the academic calendar, which typically results in a cash flow usage in the first half of the year and a cash flow generation in the second half of the year. Consequently, the performance of our business may not be comparable quarter to consecutive quarter and should be considered on the basis of results for the whole year or by comparing results in a quarter with results in the same quarter for the previous year.

 Schools typically conduct the majority of their purchases in the second and third quarters of the calendar year in preparation for the beginning of the school year. Thus, for the years ended December 31, 2020, 2019 and 2018, approximately 69% of our consolidated net sales were realized in the second and third quarters. Sales of K-12 instructional materials and customized testing products are also cyclical with some years offering more sales opportunities than others in light of the state adoption calendar. The amount of funding available at the state level for educational materials also has a significant effect on year-to-year net sales. Although the loss of a single customer would not have a material adverse effect on our business, schedules of school adoptions and market acceptance of our products can materially affect year-to-year net sales performance.

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Impact of the COVID-19 Pandemic

9 Months Ended

Sep. 30, 2021

Extraordinary And Unusual Items [Abstract]

Impact of the Covid-19 Pandemic

2. Impact of the COVID-19 Pandemic

The unprecedented and rapid spread of COVID-19 and the resulting social distancing measures, including business and school closures implemented by federal, state and local authorities, significantly reduced customer demand for our solutions and services, disrupted portions of our supply chain and warehousing operations and also disrupted our ability to deliver our educational solutions and services in 2020. In response to these developments, we implemented a number of measures intended to help protect our shareholders, employees, and customers amid the COVID-19 pandemic and to help mitigate its impact on our financial position, profitability and cash flow. These measures included, but were not limited to furloughs, salary reductions, spending freezes, and proactive outreach to schools to support them through this period of disruption with virtual learning resources. We continue to monitor indicators of demand, including our sales pipeline, customer orders and product shipments, monitor our supply chain, as well as observe the impact to state revenues and related educational budgets.

2020 Restructuring Plan

On September 4, 2020, we completed a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year. Each of the employees received separation payments in accordance with our severance policy.  

On September 30, 2020, we undertook a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force resulted in the departure of approximately 525 employees and was completed in October 2020. Each of the employees received separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program (collectively the “2020 Restructuring Plan”), all of which represents cash expenditures, was approximately $33.6 million.

Forward-looking

The ability of the Company to fund planned operations is based on assumptions which involve significant judgment and estimates of future revenues, capital spend and other operating costs. After reviewing our ability to meet future financial obligations over the next twelve months, including consideration of our actions described above in addition to the divestiture of the HMH Books & Media business, we have concluded our net cash from operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility provides sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months. Our primary credit facilities do not require us to comply with financial maintenance covenants.

Valuation of Goodwill, Indefinite-Lived Intangible Assets and Long-Lived Assets

Subsequent to the sale of the HMH Books & Media segment during the second quarter of 2021, we operate as one operating segment with one reportable segment and have only one reporting unit. No impairment triggering events were identified during the third quarter of 2021. We perform an impairment test to assess the carrying value of goodwill and indefinite-lived intangible assets on an annual basis (as of October 1) and, if certain events or circumstances indicate that an impairment loss may have been incurred, on an interim basis. 

During the three months ended March 31, 2020, our stock price declined to historical lows since our 2013 initial public offering. We determined that the significant decline in our market capitalization and broader economic downturn arising from the COVID-19 pandemic was a triggering event. We concluded that quantitative analyses were required to be performed due to the triggering event occurring during the first quarter of 2020.

Goodwill is allocated entirely to our Education reporting unit. We utilized an implied market value method under the market approach to calculate the fair value of the Education reporting unit as of March 31, 2020, which we determined was the best approximation of fair value of the Education reporting unit in the current social and economic environment. This method included the determination of the Company's overall enterprise value, from which the fair value of the HMH Books & Media reporting unit was deducted to derive the fair value of the Education reporting unit. The relevant inputs and assumptions used in the valuation of the Education reporting unit include our market capitalization, selection of a control premium, and the determination of an appropriate market multiple to value the HMH Books & Media reporting unit, as well as the fair value of individual assets and liabilities. Based on our interim impairment assessment, we concluded that our goodwill was impaired and, accordingly, recorded a goodwill impairment charge in the first quarter of 2020 of $262.0 million. During the fourth quarter of 2020, we recorded an adjustment of $17.0 million and $1.0 million to increase both the goodwill impairment charge and income tax benefit recorded, respectively, to correct an error of the previously recorded goodwill impairment and related income tax benefit.

Additionally, as a result of the triggering event identified in the first quarter of 2020, we performed quantitative impairment analyses over our indefinite-lived intangible assets and long-lived assets. With regards to indefinite-lived intangible assets, which includes the Houghton Mifflin Harcourt tradename, the recoverability was evaluated using a one-step process whereby we determined the fair value by asset and then compared it to its carrying value to determine if the asset was impaired. We estimated the fair value by preparing a relief-from-royalty discounted cash flow analysis using forward looking revenue projections. The significant assumptions used in discounted cash flow analysis included: future net sales, a long-term growth rate, a royalty rate and a discount rate used to present value future cash flows. The discount rate was based on the weighted-average cost of capital method at the date of the evaluation. The fair value of the indefinite-lived intangible assets was in excess of its carrying value by approximately 12% as of March 31, 2020. We also performed an impairment test on our long-lived assets using an undiscounted cash flow model in determining the fair value, which was then compared to book value of the asset groups evaluated. The long-lived asset impairment analysis was performed over the Education reporting unit and the HMH Books & Media reporting unit. Estimates and significant assumptions included in the long-lived asset impairment analysis included identification of the primary asset in each asset group and undiscounted cash flow projections. We concluded that our indefinite-lived intangible assets and long-lived assets were not impaired based on the results of the quantitative analyses performed.

Due to the HMH Books & Media segment being classified as held for sale as of March 31, 2021, we performed an impairment analysis over the HMH Books & Media long-lived asset group during the first quarter of 2021. As the sale price was in excess of the carrying value of the asset group, no impairment was identified. Additionally, we considered the impacts of the HMH Books & Media sale and related segment change on our Education reporting unit, to which goodwill and indefinite-lived intangibles are entirely allocated.

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Significant Accounting Policies and Estimates

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Significant Accounting Policies and Estimates

3. Significant Accounting Policies and Estimates

Our financial results are affected by the selection and application of accounting policies and methods. There were no material changes during the three and nine months ended September 30, 2021 to the application of significant accounting policies and estimates as described in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

We evaluate our estimates, judgments and methodologies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenues and expenses. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat it, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of the COVID-19 pandemic within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

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Recent Accounting Standards

9 Months Ended

Sep. 30, 2021

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Standards

4. Recent Accounting Standards

Recent accounting pronouncements, not included below, are not expected to have a material impact on our consolidated financial position or results of operations.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles, including simplification of areas such as franchise taxes, step-up in tax basis of goodwill, intraperiod allocations, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. We adopted the guidance on January 1, 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement to develop or obtain internal use software. Accordingly, the guidance requires a customer to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The guidance also requires the customer to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued updated guidance to simplify the test for goodwill impairment by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual assessments are still required to be completed. We adopted the guidance on January 1, 2020.  

In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses, as well as additional disclosures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

We are exposed to credit losses primarily through our accounts receivable. We develop estimates to reflect the risk of credit loss which are based on an evaluation of accounts receivable aging, prior collection experience, current conditions and reasonable and supportable forecasts of the economic conditions that will exist through the contractual life of the financial asset. We write off the asset when it is no longer deemed collectible. We monitor our ongoing credit exposure through an active review of collection trends. Our activities include monitoring the timeliness of payment collection and performing timely account reconciliations. As of September 30, 2021, we reported allowances for doubtful accounts of $3.4 million, compared to $3.8 million at December 31, 2020, reflecting a decrease of $0.4 million for the nine months ended September 30, 2021.

We are also exposed to losses on our royalty advances. Royalty advances to authors are capitalized and represent amounts paid in advance of the sale of an author’s product and are recovered as earned. As advances are recorded, a partial reserve may be recorded immediately based primarily upon historical sales experience. Additionally, advances are evaluated periodically to determine if they are expected to be recovered on a title-by-title basis. Any portion of a royalty advance that is not expected to be recovered is fully reserved. As of September 30, 2021, we reported a reserve for royalty advances of $7.6 million, compared to $7.4 million at December 31, 2020, reflecting an increase of $0.2 million for the nine months ended September 30, 2021.

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Discontinued Operations

9 Months Ended

Sep. 30, 2021

Discontinued Operations And Disposal Groups [Abstract]

Discontinued Operations

5. Discontinued Operations

On May 10, 2021, we completed the sale of the HMH Books & Media segment, our consumer publishing business, for cash consideration of $349.0 million, subject to a customary working capital adjustment expected to approximate a payment to the purchaser of $7.8 million, and the purchaser’s assumption of all liabilities relating to the HMH Books & Media business, subject to specified exceptions. Upon closing of the transaction, all HMH Books & Media employees became employees of the purchaser. Net proceeds from the sale after the payment of transaction costs and exclusive of working capital adjustment, were approximately $337.0 million, all of which we used to pay down debt. In connection with the sale of HMH Books & Media, we entered into a Transition Services Agreement (“TSA”) with the purchaser whereby we will perform certain support functions for a period of up to 12 months. Upon the signing of the asset purchase agreement on March 26, 2021, the HMH Books & Media business qualified as a discontinued operation and accordingly, all results of the HMH Books & Media business have been removed from continuing operations for all periods presented. The results of the HMH Books & Media business were previously reported in its own reportable segment. We currently report our revenues and financial results from continuing operations under one reportable segment.

Selected financial information of the HMH Books & Media business included in discontinued operations is below. Included within the loss from discontinued operations is interest expense which was allocated to the HMH Books & Media business as we used the proceeds from the sale to pay down debt, which was required by our debt facilities, and we did not reinvest such amounts in the business.

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2020			2021			2020
Net sales	$	55,385		$	63,047		$	128,444
Costs		47,430			53,205			115,748
Amortization		1,786			1,395			5,466
Interest expense		6,857			9,362			21,255
Loss from discontinued operations before taxes	$	(688	)	$	(915	)	$	(14,025	)
Income tax (benefit) expense		(21	)		90			320
Loss from discontinued operations, net of tax	$	(667	)	$	(1,005	)	$	(14,345	)

As of December 31, 2020, the assets and liabilities of the HMH Books & Media business have been classified as assets of discontinued operations and liabilities of discontinued operations on our consolidated balance sheets. The major categories of assets and liabilities of the HMH Books & Media business included in assets of discontinued operations and liabilities of discontinued operations are as follows:

	December 31,
	2020
Accounts receivable, net	$	64,002
Inventories		21,410
Prepaid expenses and other assets		655
Property, plant, and equipment, net		4,401
Pre-publication costs, net		329
Royalty advances to authors, net		40,060
Other intangible assets, net		26,100
Other assets		3,096
Total assets of discontinued operations	$	160,053
Accounts payable		10,353
Royalties payable		17,628
Salaries and wages payable		221
Other liabilities		2,460
Total liabilities of discontinued operations	$	30,662

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Inventories

9 Months Ended

Sep. 30, 2021

Inventory Disclosure [Abstract]

Inventories

6. Inventories

Inventories consisted of the following:

	September 30, 2021		December 31, 2020
Finished goods	$	91,449	$	134,349
Raw materials		5,022		11,204
Inventories	$	96,471	$	145,553

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Contract Assets, Contract Liabilities and Contract Costs and Net Sales

9 Months Ended

Sep. 30, 2021

Revenue From Contract With Customer [Abstract]

Contract Assets, Contract Liabilities and Contract Costs and Net Sales

7. Contract Assets and Liabilities, Contract Costs and Net Sales

Contract assets consist of unbilled amounts at the reporting date and are transferred to accounts receivable when the rights become unconditional. Contract assets are included in prepaid expenses and other assets on our consolidated balance sheets. Contract liabilities consist of deferred revenue (current and long-term). The following table presents changes in contract assets and contract liabilities during the nine months ended September 30, 2021:

	September 30, 2021		December 31, 2020		$ Change		% Change
Contract assets	$	693	$	580	$	113		19.5	%
Contract liabilities (deferred revenue)	$	1,011,384	$	905,284	$	106,100		11.7	%

The $106.1 million increase in our contract liabilities from December 31, 2020 to September 30, 2021 was primarily due to higher billings in the period attributed to the growth during the recovery of the COVID-19 pandemic, which materially impacted 2020 along with seasonal and cyclical nature of our business, which exceeded the satisfaction of performance obligations related to physical and digital products, and services during the period.

We capitalize incremental commissions paid to sales representatives for obtaining product sales as well as service contracts unless the capitalization and amortization of such costs are not expected to have a material impact on the financial statements. Applying the practical expedient within the accounting guidance, we recognize sales commission expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less. We had deferred commissions in the amount of $37.3 million and $30.7 million at September 30, 2021 and December 31, 2020, respectively, and amortized $13.0 million and $11.0 million during the nine months ended September 30, 2021 and 2020, respectively. The amortization is included in selling and administrative expenses.

Costs to fulfill a contract are directly related to a contract that will be used to satisfy a performance obligation in the future and are expected to be recovered. These costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates. Our assets associated with incremental costs to fulfill a contract were $22.6 million and $14.7 million at September 30, 2021 and December 31, 2020, respectively, and are included within prepaid expenses and other assets (current) and other assets (long term) on our consolidated balance sheet. The increase in costs to fulfill contracts in the period was primarily due to the mix of product being sold. We recorded amortization of $4.4 million and $2.6 million during the nine months ended September 30, 2021 and 2020, respectively. The amortization is included in cost of sales, excluding publishing rights and pre-publication amortization.

During the three and nine months ended September 30, 2021 and 2020, we recognized the following net sales as a result of changes in the contract assets and contract liabilities balances:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning    of the period	$	102,240	$	81,768	$	278,505	$	254,695

As of September 30, 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations, which includes deferred revenue and open orders (received purchase orders from customers for which we have not yet fulfilled), was $1,062.8 million, and we will recognize approximately 75% to net sales over the next 1 to 3 years.

The following table disaggregates our net sales by major source:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020
Core solutions (1)	$	234,993	$	206,659	$	469,192	$	391,101
Extensions (2)		182,137		124,546		402,805		308,186
Net sales	$	417,130	$	331,205	$	871,997	$	699,287

(1)  Comprehensive solutions primarily for reading, math, science and social studies programs.

(2)  Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2021

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

8. Goodwill and Other Intangible Assets

There were no changes in the carrying amount of goodwill of $438.0 million for the three and nine months ended September 30, 2021. Accumulated impairment losses on goodwill as of September 30, 2021 was $279.0 million. Refer to Note 2 for a discussion of the valuation of goodwill, indefinite-lived intangible assets and long-lived assets.

Other intangible assets consisted of the following:

	September 30, 2021							December 31, 2020
	Cost		Accumulated Amortization			Total		Cost		Accumulated Amortization			Total
Trademarks and tradenames: indefinite-lived	$	161,000	$	—		$	161,000	$	161,000	$	—		$	161,000
Trademarks and tradenames: definite-lived		130,430		(59,068	)		71,362		133,330		(46,810	)		86,520
Publishing rights		1,050,000		(1,038,608	)		11,392		1,050,000		(1,030,437	)		19,563
Customer related and other		445,140		(318,847	)		126,293		448,140		(312,739	)		135,401
Other intangible assets, net	$	1,786,570	$	(1,416,523	)	$	370,047	$	1,792,470	$	(1,389,986	)	$	402,484

Amortization expense for definite-lived trademarks and tradenames, publishing rights and customer related and other intangibles were $31.2 million and $28.9 million for the nine months ended September 30, 2021 and 2020, respectively. During the normal course of business, we periodically review the useful lives of our definite-lived assets and adjust the amortization periods if evidence shows a shorter life duration. During the first quarter of 2021, several definite-lived intangible assets were adjusted to shorter amortization periods due to anticipated end of life periods as we streamline our offerings.

On July 8, 2021, we sold the intellectual property, including the copyrights and trademarks, of certain product titles for total cash proceeds of $5.0 million. We had approximately $1.3 million of other intangible assets at the time of sale and we recorded a gain on sale of $3.7 million, net of tax, during the three months ended September 30, 2021.          

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Debt

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Debt

9. Debt

Our debt consisted of the following:

	September 30, 2021		December 31, 2020
$380,000 term loan due November 22, 2024, interest payable    quarterly (net of discount and issuance costs)	$	20,939	$	346,091
$306,000 senior secured notes due February 15, 2025, interest    payable semi-annually (net of discount and issuance costs)	$	296,156	$	297,601
		317,095		643,692
Less: Current portion of long-term debt		—		(19,000	)
Total long-term debt, net of discount and issuance costs	$	317,095	$	624,692
Revolving credit facility	$	—	$	—

Senior Secured Notes

On November 22, 2019, we completed the sale of $306.0 million in aggregate principal amount of 9.0% Senior Secured Notes due 2025 (the “notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the United States pursuant to Regulation S under the Securities Act.  The notes mature on February 15, 2025 and bear interest at a rate of 9.0% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.

The notes were issued at a discount equal to 2.0% of the outstanding borrowing commitment.  We may redeem all or a portion of the notes at redemption prices as described in the notes.  We redeemed $2.7 million of the notes during the second quarter of 2021 utilizing proceeds from the sale of the HMH Books & Media business.  

The notes do not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our notes. The notes are subject to restrictions on our ability to incur additional indebtedness, issue certain preferred stock, redeem, purchase or retire subordinated debt, make certain investments, pay dividends or other amounts, enter into certain transactions with affiliates, merge or consolidate with another person, sell or otherwise dispose of all or substantially all of our assets, sell certain assets, including capital stock, designate our subsidiaries as unrestricted subsidiaries, redeem or repurchase capital stock or make other restricted payments, and incur certain liens. The notes are subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the notes.

Term Loan Facility

On November 22, 2019, we entered into a second amended and restated term loan credit agreement for an aggregate principal amount of $380.0 million (the “term loan facility”). The term loan facility matures on November 22, 2024 and the interest rate per annum is equal to, at the option of the Company, either (a) LIBOR plus a margin of 6.25% or (b) an alternate base rate plus a margin of 5.25%. As of September 30, 2021, the interest rate on the term loan facility was 7.25%. We repaid $334.6 million of the term loan facility during the second quarter of 2021 utilizing proceeds from the sale of the HMH Books & Media business. We were required to repay debt under the term loan facility as we did not intend to reinvest the proceeds from the sale in the business. There are no future quarterly repayment installments required and the balance is payable on the maturity date. In connection with the repayment, we recorded a loss on extinguishment of debt totaling $12.5 million relating to the pro rata write-off of a portion of the unamortized deferred financing costs and discount.    

On July 27, 2017, the U.K. Financial Conduct Authority (the “FCA”) announced that it will no longer require banks to submit rates for the calculation of LIBOR after 2021. Our term loan facility provides that the administrative agent may determine that (i) adequate and reasonable means do not exist for ascertaining the LIBOR rate or (ii) the FCA or the government authority having jurisdiction over the administrative agent has made a public statement identifying a specific date after which the LIBOR rate shall no longer be used for determining interest rates for loans. If the administrative agent determines that (i) or (ii) above is unlikely to be temporary then the administrative agent and the Company will agree to transition to an alternate base rate or amend the term loan facility to establish an alternate rate of interest to LIBOR that gives due consideration to the then-prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time.

The term loan facility was issued at a discount equal to 4.0% of the outstanding borrowing commitment.

The term loan facility contains customary mandatory prepayment requirements, including with respect to excess cash flow, proceeds from certain asset sales or dispositions of property, and proceeds from certain incurrences of indebtedness.  The term loan facility permits the Company to voluntarily prepay outstanding amounts at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans. 

The term loan facility does not require us to comply with financial maintenance covenants. We are currently required to meet certain incurrence based financial covenants as defined under our term loan facility. The term loan facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The term loan facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the term loan facility.

We are subject to an excess cash flow provision under our term loan facility which is predicated upon our leverage ratio and cash flow.

Interest Rate Hedging

On August 17, 2015, we entered into interest rate derivative contracts with various financial institutions having an aggregate notional amount of $400.0 million to convert floating rate debt into fixed rate debt. We assessed at inception, and re-assess on an ongoing basis, whether the interest rate derivative contracts are highly effective in offsetting changes in the fair value of the hedged variable rate debt. The interest rate derivative contracts matured on July 22, 2020.  

These interest rate swaps were designated as cash flow hedges and qualified for hedge accounting under the accounting guidance related to derivatives and hedging. Accordingly, we recorded an unrealized gain of $1.0 million in our statements of comprehensive loss to account for the changes in fair value of these derivatives during the nine months ended September 30, 2020. We reclassified $1.9 million from other comprehensive loss to earnings during the nine months ended September 30, 2020.

We had no interest rate derivative contracts outstanding as of September 30, 2021.

Revolving Credit Facility

On November 22, 2019, we entered into a second amended and restated revolving credit agreement that provides borrowing availability in an amount equal to the lesser of either $250.0 million or a borrowing base that is computed monthly or weekly and comprised of the Borrowers’ and the Guarantors’ (as such terms are defined below) eligible inventory and receivables (the “revolving credit facility”). The revolving credit facility includes a letter of credit subfacility of $50.0 million, a swingline subfacility of $20.0 million and the option to expand the facility by up to $100.0 million in the aggregate under certain specified conditions. The revolving credit facility may be prepaid, in whole or in part, at any time, without premium.  

The revolving credit facility requires the Company to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 on a trailing four-quarter basis only during certain periods commencing when excess availability under the revolving credit facility is less than certain limits prescribed by the terms of the revolving credit facility. The revolving credit facility is subject to usual and customary conditions, representations, warranties and covenants, including restrictions on additional indebtedness, liens, investments, mergers, acquisitions, asset dispositions, dividends to stockholders, repurchase or redemption of our stock, transactions with affiliates and other matters. The revolving credit facility is subject to customary events of default. If an event of default occurs and is continuing, the administrative agent may, or at the request of certain required lenders shall, accelerate the obligations outstanding under the revolving credit facility. As of September 30, 2021, no amounts were outstanding under the revolving credit facility.  

As of September 30, 2021, the minimum fixed charge coverage ratio covenant under our revolving credit facility was not applicable, due to our level of borrowing availability. The minimum fixed charge coverage ratio, which is only tested in limited situations, is 1.0 to 1.0 through the end of the facility.

Guarantees

Under each of the notes, the term loan facility and the revolving credit facility, Houghton Mifflin Harcourt Publishers Inc., Houghton Mifflin Harcourt Publishing Company and HMH Publishers LLC are the borrowers (collectively, the “Borrowers”), and Citibank, N.A. acts as both the administrative agent and the collateral agent.

The obligations under the notes, the term loan facility and the revolving credit facility are guaranteed by the Company and each of its direct and indirect for-profit domestic subsidiaries (other than the Borrowers) (collectively, the “Guarantors”) and are secured by all capital stock and other equity interests of the Borrowers and the Guarantors and substantially all of the other tangible and intangible assets of the Borrowers and the Guarantors, including, without limitation, receivables, inventory, equipment, contract rights, securities, patents, trademarks, other intellectual property, cash, bank accounts and securities accounts and owned real estate. The revolving credit facility is secured by first priority liens on receivables, inventory, deposit accounts, securities accounts, instruments, chattel paper and other assets related to the foregoing (the “Revolving First Lien Collateral”), and second priority liens on the collateral which secures the term loan facility on a first priority basis. The term loan facility is secured by first priority liens on the capital stock and other equity interests of the Borrowers and the Guarantors, equipment, owned real estate, trademarks and other intellectual property, general intangibles that are not Revolving First Lien Collateral and other assets related to the foregoing, and second priority liens on the Revolving First Lien Collateral.

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Restructuring, Severance and Other Charges

9 Months Ended

Sep. 30, 2021

Restructuring And Related Activities [Abstract]

Restructuring, Severance and Other Charges

10. Restructuring, Severance and Other Charges

2021

During the nine months ended September 30, 2021, we recorded an impairment in the amount of $10.9 million for real estate consolidation costs relating to vacated office space for certain floors in connection with the sale of our HMH Books & Media business, of which $9.3 million is reflected as a reduction in operating lease assets and $1.6 million as a reduction in property, plant, and equipment in our consolidated balance sheet as of September 30, 2021.

2020 Restructuring Plan

On September 4, 2020, we finalized a voluntary retirement incentive program, which was offered to all U.S. based employees at least 55 years of age with at least five years of service. Of the eligible employees, 165 elected to participate representing approximately 5% of our workforce. The majority of the employees voluntarily retired as of September 4, 2020 with select employees leaving later in the year. Each of the employees received separation payments in accordance with our severance policy.  

On September 30, 2020, we undertook a restructuring program, including a reduction in force, as part of the ongoing assessment of our cost structure amid the COVID-19 pandemic and in line with our strategic transformation plan. The reduction in force resulted in a 22% reduction in our workforce, including positions eliminated as part of the voluntary retirement incentive program mentioned above, and net of newly created positions to support our digital first operations. The reduction in force resulted in the departure of approximately 525 employees and was completed in October 2020.  Each of the employees received separation payments in accordance with our severance policy. The total one-time, non-recurring cost incurred in connection with the restructuring program, inclusive of the voluntary retirement incentive program, (collectively the “2020 Restructuring Plan”) all of which represented cash expenditures, was approximately $33.6 million.

There was a favorable adjustment to severance costs associated with the 2020 Restructuring Plan in our consolidated statements of operations for the nine months ended September 30, 2021. There were no costs associated with the 2020 Restructuring Plan in our consolidated statements of operations for the three and nine months ended September 30, 2020. Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2020 Restructuring Plan:

	2021
	Restructuring						Restructuring
	accruals at						accruals at
	December 31,				Cash		September 30,
	2020		Charges		payments		2021
Severance and termination benefits	$	19,311	$	(1,020)	$	(17,008)	$	1,283
	$	19,311	$	(1,020)	$	(17,008)	$	1,283

2019 Restructuring Plan

There were no costs associated with the 2019 Restructuring Plan in our consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020. Our restructuring liabilities are comprised of accruals for severance and termination benefits. The following is a rollforward of our liabilities associated with the 2019 Restructuring Plan:

	2021
	Restructuring accruals at December 31, 2020		Charges		Cash payments			Restructuring accruals at September 30, 2021
Severance and termination benefits	$	279	$	—	$	(279	)	$	—
	$	279	$	—	$	(279	)	$	—

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Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment, including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, additional information is obtained or as the tax environment changes.

At the end of each interim period, we estimate the annual effective tax rate and apply that rate to our ordinary quarterly earnings. The amount of interim tax benefit recorded for the year-to-date ordinary loss is limited to the amount that is expected to be realized during the year or recognizable as a deferred tax asset at year end. The tax expense or benefit related to significant, unusual or extraordinary items that will be separately reported or reported net of their related tax effect, are individually computed, and are recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs.

For the three months ended September 30, 2021 and 2020, we recorded an income tax benefit for continuing operations of approximately $6.2 million and $1.1 million, respectively, and for the nine months ended September 30, 2021 and 2020, we recorded an income tax benefit for continuing operations of approximately $3.9 million and $11.2 million, respectively. For all periods, income tax expense was primarily attributed to movement in the deferred tax liability associated with tax amortization on indefinite-lived intangibles, state and foreign taxes, as well as the impact of certain discrete tax items, including the accrual of potential interest and penalties on uncertain tax positions. Including the tax effects of these discrete tax items, the effective rate was (6.9)% and 8.2% for the three months ended September 30, 2021 and 2020, respectively, and (8.7)% and 2.8% for the nine months ended September 30, 2021 and 2020, respectively.

Reserves for unrecognized tax benefits, excluding accrued interest and penalties, were $15.7 million at both September 30, 2021 and December 31, 2020.

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Retirement and Postretirement Benefit Plans

9 Months Ended

Sep. 30, 2021

Compensation And Retirement Disclosure [Abstract]

Retirement and Postretirement Benefit Plans

12. Retirement and Postretirement Benefit Plans

We have a noncontributory, qualified defined benefit pension plan (the “Retirement Plan”), which covers certain employees. The Retirement Plan is a cash balance plan, which accrues benefits based on pay, length of service, and interest. The funding policy is to contribute amounts subject to minimum funding standards set forth by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The Retirement Plan’s assets consist principally of common stocks, fixed income securities, investments in registered investment companies, and cash and cash equivalents. We also have a nonqualified defined benefit plan, or nonqualified

plan, that previously covered employees who earned over the qualified pay limit as determined by the Internal Revenue Service. The nonqualified plan accrues benefits for the participants based on the cash balance plan calculation. The nonqualified plan is not funded. We use a December 31 date to measure the pension and postretirement liabilities. In 2007, both the qualified and nonqualified pension plans eliminated participation in the plans for new employees hired after October 31, 2007.

We recognize the funded status of defined benefit pension and other postretirement plans as an asset or liability in the balance sheet and recognize actuarial gains and losses and prior service costs and credits in other comprehensive income (loss) and subsequently amortize those items in the statement of operations. Due to lump-sum disbursements by participants during the nine months ended September 30, 2021, we incurred a settlement charge of $1.0 million. In connection with this settlement charge, we remeasured our pension liability and recorded a $9.2 million benefit through other comprehensive income primarily due to changes in discount rates, disbursements and increases in market value of pension assets.

Net periodic benefit cost (credit) for our pension and other postretirement benefit plans consisted of the following:

	Pension Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Interest cost	$	743		$	1,097		$	2,239		$	3,291
Expected return on plan assets		(1,863	)		(1,855	)		(5,617	)		(5,565	)
Amortization of net loss		662			581			2,107			1,743
Settlement loss recognized		165			—			1,046			—
Net periodic benefit credit	$	(293	)	$	(177	)	$	(225	)	$	(531	)

	Other Post Retirement Plans
	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Service cost	$	19	$	17		$	57	$	51
Interest cost		68		107			204		321
Amortization of prior service cost		11		11			33		33
Amortization of net loss		—		(2	)		—		(6	)
Net periodic benefit cost	$	98	$	133		$	294	$	399

  There were $1.1 million and $3.7 million in contributions to the Retirement Plan during the nine months ended September 30, 2021 and 2020, respectively.

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Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

13. Fair Value Measurements

The accounting standard for fair value measurements, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. The accounting standard establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 Observable input such as quoted prices in active markets for identical assets or liabilities;

Level 2 Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3 Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Assets and liabilities measured at fair value are based on one or more of three valuation techniques identified in the tables below. Where more than one technique is noted, individual assets or liabilities were valued using one or more of the noted techniques. The valuation techniques are as follows:

^(a)  Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

^(b)  Cost approach: Amount that would be currently required to replace the service capacity of an asset (current replacement cost); and

^(c)  Income approach: Valuation techniques to convert future amounts to a single present amount based on market expectations (including present value techniques).

On a recurring basis, we measure certain financial assets and liabilities at fair value, including our money market funds and foreign exchange forward contracts. The accounting standard for fair value measurements defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider counterparty and its credit risk in its assessment of fair value.

Financial Assets and Liabilities

The following tables present our financial assets and liabilities measured at fair value on a recurring basis:

	September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	397,938	$	397,938	$	—	(a)
	$	397,938	$	397,938	$	—
Financial liabilities
Foreign exchange derivatives	$	537	$	—	$	537	(a)
	$	537	$	—	$	537

	December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	262,135	$	262,135	$	—	(a)
Foreign exchange derivatives		466		—		466	(a)
	$	262,601	$	262,135	$	466

Our money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted prices in active markets for identical instruments. In addition to $397.9 million and $262.1 million invested in money market funds as of September 30, 2021 and December 31, 2020, respectively, we had $22.4 million and $19.1 million of cash invested in bank accounts as of September 30, 2021 and December 31, 2020, respectively.

Our foreign exchange derivatives consist of forward contracts and are classified within Level 2 of the fair value hierarchy because they are valued based on observable inputs and are available for substantially the full term of our derivative instruments. We use foreign exchange forward contracts to fix the functional currency value of forecasted commitments, payments and receipts. The aggregate notional amount of the outstanding foreign exchange forward contracts was $14.7 million and $14.9 million at September 30, 2021 and December 31, 2020, respectively. Our foreign exchange forward contracts contain netting provisions to mitigate credit risk in the event of counterparty default, including payment default and cross default. At September 30, 2021 and December 31, 2020, the fair value of our counterparty default exposure was less than $1.0 million and spread across several highly rated counterparties.

Non-Financial Assets and Liabilities

Our non-financial assets, which include goodwill, other intangible assets, property, plant, and equipment, pre-publication costs and operating lease assets, are not required to be measured at fair value on a recurring basis. However, if certain trigger events occur, or if an annual impairment test is required, we evaluate the non-financial assets for impairment. If an impairment did occur, the asset is required to be recorded at the estimated fair value. An impairment analysis was performed for the preparation of the 2020 first quarter report, as there was a triggering event for the three months ended March 31, 2020 related to the decline in our stock price attributed to the market environment, which resulted in a goodwill impairment. There were no non-financial liabilities that were required to be measured at fair value on a nonrecurring basis during the nine months ended September 30, 2021 and 2020.

The following table presents our non-financial assets measured at fair value on a nonrecurring basis during 2020:

	September 30,  2020		Significant Unobservable Inputs (Level 3)		Total Impairment		Valuation Technique
Non-financial assets
Goodwill	$	454,977	$	454,977	$	262,000		(a)
	$	454,977	$	454,977	$	262,000

In evaluating goodwill for impairment, we first compare our reporting unit's fair value to its carrying value. We estimate the fair values of our reporting unit by considering our market capitalization and other judgments. There was no goodwill impairment recorded for the nine months ended September 30, 2021. Impairment recorded for goodwill for the nine months ended September 30, 2020 was $262.0 million. During the fourth quarter of 2020, we recorded an adjustment of $17.0 million to increase the goodwill impairment charge to correct an error of the previously recorded amount. 

We perform an impairment test for our other intangible assets by comparing the assets fair value to its carrying value. Fair value is estimated based on recent market transactions, where available, and projected discounted cash flows, if reasonably estimable. There was no impairment of other intangible assets for the nine months ended September 30, 2021 and 2020.

We test our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable or that it may exceed its fair value. During the nine months ended September 30, 2021, we recorded an impairment of our operating lease assets in the amount of $9.3 million for real estate consolidation costs relating to vacated office space formerly utilized by employees of the HMH Books & Media business. The fair value of the operating lease assets was determined based on the income approach, with level 3 inputs utilizing certain market participant assumptions. These inputs included forecasted cash inflows from estimated subleases and a discount rate. The remaining carrying value was $2.0 million. In connection with the real estate consolidation costs, we also recorded an impairment of property, plant, and equipment, of $1.6 million during the nine months ended September 30, 2021 using the income approach with level 3 inputs. This was primarily related to leasehold improvements on the vacated office space, which had a remaining carrying value of $0.3 million.

Non-Marketable Investments

At September 30, 2021 and December 31, 2020, the carrying value of our non-marketable investments, which were comprised of equity interests in educational technology private partnerships, was $5.8 million and $4.4 million, respectively. The amounts are included in other assets in our consolidated balance sheets. Our non-marketable investments are accounted for using the cost method and are adjusted for observable transactions as appropriate. Gains from non-marketable investments were $0.6 million and $1.4 million during the three and nine months ended September 30, 2021, respectively. Gains from non-marketable investments were $1.7 million during both the three and nine months ended September 30, 2020.

Fair Value of Debt

The following table presents the carrying amounts and estimated fair market values of our debt at September 30, 2021 and December 31, 2020. The fair value of debt is deemed to be the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date.

	September 30, 2021				December 31, 2020
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt
$380,000 Term loan	$	20,939	$	20,913	$	346,091	$	331,382
$306,000 Senior secured notes	$	296,156	$	316,147	$	297,601	$	304,297

The fair market values of our debt were estimated based on quoted market prices on a private exchange for those instruments that are traded and are classified as Level 2 within the fair value hierarchy at September 30, 2021 and December 31, 2020. The fair market values require varying degrees of management judgment. The factors used to estimate these values may not be valid on any subsequent date. Accordingly, the fair market values of the debt presented may not be indicative of their future values.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2021

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

14. Commitments and Contingencies

There were no material changes in our commitments under contractual obligations, as disclosed in our audited consolidated financial statements, which were included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

We are involved in ordinary and routine litigation and matters incidental to our business, including claims alleging breach of contract and seeking royalty payments. Litigation alleging infringement of copyrights and other intellectual property rights is also common in the educational publishing industry. There have been various settled, pending and threatened litigation that allege we exceeded the print run limitation or other restrictions in licenses granted to us to reproduce photographs in our textbooks.

While we may incur a loss associated with certain pending or threatened litigation, we are not able to estimate such amount, if any, but we do not expect any of these matters to have a material adverse effect on our results of operations, financial position or cash flows. We have insurance over such amounts and with coverage and deductibles as management believes is reasonable. There can be no assurance that our liability insurance will cover all events or that the limits of coverage will be sufficient to fully cover all liabilities.

In April 2019, we were notified of an unasserted claim by the Commonwealth of Puerto Rico with regards to payments that we received in the normal course of business during the four year period prior to the May 3, 2017 bankruptcy petition of the Commonwealth public instrumentalities. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such an unasserted claim. The Company will vigorously defend this matter if such claim is asserted.

In September 2019, we were notified of an unasserted claim by Riverside Assessments LLC (“Riverside”) with regard to purported breaches of the Asset Purchase Agreement between the Company and Riverside dated September 12, 2018 (“APA”) and the Transition Services Agreement between the Company and Riverside dated October 1, 2018. Management believes, based on discussions with its legal counsel, that we have meritorious defenses against such unasserted claim. With regard to the alleged breaches of the APA, the APA provides that the Company may be liable only for that portion of Riverside’s damages that exceeds $1.4 million, and in an amount that shall not exceed $1.4 million, which we believe would be the maximum exposure. For damages above $2.8 million, Riverside obtained a representation and warranty insurance policy as required by the APA. The Company will vigorously defend this matter if such claim is asserted.

We were contingently liable for $0.9 million and $1.4 million of performance-related surety bonds for our operating activities as of September 30, 2021 and December 31, 2020, respectively. An aggregate of $16.1 million and $18.8 million of letters of credit existed at September 30, 2021 and December 31, 2020, respectively, of which $1.1 million backed the aforementioned performance-related surety bonds as of September 30, 2021 and December 31, 2020. We routinely enter into standard indemnification provisions as part of license agreements involving use of our intellectual property. These provisions typically require us to indemnify and hold harmless licensees in connection with any infringement claim by a third-party relating to the intellectual property covered by the license agreement. Although the term of these provisions and the maximum potential amounts of future payments we could be required to make is not limited, we have never incurred any costs to defend or settle claims related to these types of indemnification provisions. We therefore believe the estimated fair value of these provisions is inconsequential and have no liabilities recorded for them as of September 30, 2021 and December 31, 2020

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Net Income (Loss) Per Share

9 Months Ended

Sep. 30, 2021

Earnings Per Share [Abstract]

Net Loss Per Share

15. Net Income (Loss) Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Numerator
Income (loss) from continuing operations	$	95,359	$	(11,885	)	$	48,489	$	(382,348	)
(Loss) income from discontinued operations, net of tax		—		(667	)		213,515		(14,345	)
Net income (loss) attributable to common stockholders	$	95,359	$	(12,552	)	$	262,004	$	(396,693	)
Denominator
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
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	)

As we incurred a net loss in the three and nine months ended September 30, 2020 periods presented above, all outstanding stock options and restricted stock units for those periods have an anti-dilutive effect and therefore are excluded from the computation of diluted weighted average shares outstanding. Accordingly, basic and diluted weighted average shares outstanding are equal for such periods.

The following table summarizes our weighted average outstanding common stock equivalents that were anti-dilutive attributable to common stockholders during the periods, and therefore excluded from the computation of diluted EPS:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Stock options		1,096,060		1,947,212		1,719,849		1,947,212
Restricted stock units		2,492		5,060,063		840		4,013,767

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Recent Accounting Standards

4. Recent Accounting Standards

Recent accounting pronouncements, not included below, are not expected to have a material impact on our consolidated financial position or results of operations.

Recently Adopted Accounting Standards

In December 2019, the Financial Accounting Standards Board (“FASB”) issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles, including simplification of areas such as franchise taxes, step-up in tax basis of goodwill, intraperiod allocations, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. We adopted the guidance on January 1, 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In August 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up, and other upfront costs incurred in a cloud computing arrangement that is hosted by the vendor (i.e., a service contract). Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement to develop or obtain internal use software. Accordingly, the guidance requires a customer to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The guidance also requires the customer to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued updated guidance to simplify the test for goodwill impairment by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual assessments are still required to be completed. We adopted the guidance on January 1, 2020.  

In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented at the net amount expected to be collected, not based on incurred losses, as well as additional disclosures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. We adopted the guidance on January 1, 2020. The adoption of this guidance did not have a material impact on our consolidated financial statements.

We are exposed to credit losses primarily through our accounts receivable. We develop estimates to reflect the risk of credit loss which are based on an evaluation of accounts receivable aging, prior collection experience, current conditions and reasonable and supportable forecasts of the economic conditions that will exist through the contractual life of the financial asset. We write off the asset when it is no longer deemed collectible. We monitor our ongoing credit exposure through an active review of collection trends. Our activities include monitoring the timeliness of payment collection and performing timely account reconciliations. As of September 30, 2021, we reported allowances for doubtful accounts of $3.4 million, compared to $3.8 million at December 31, 2020, reflecting a decrease of $0.4 million for the nine months ended September 30, 2021.

We are also exposed to losses on our royalty advances. Royalty advances to authors are capitalized and represent amounts paid in advance of the sale of an author’s product and are recovered as earned. As advances are recorded, a partial reserve may be recorded immediately based primarily upon historical sales experience. Additionally, advances are evaluated periodically to determine if they are expected to be recovered on a title-by-title basis. Any portion of a royalty advance that is not expected to be recovered is fully reserved. As of September 30, 2021, we reported a reserve for royalty advances of $7.6 million, compared to $7.4 million at December 31, 2020, reflecting an increase of $0.2 million for the nine months ended September 30, 2021.

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Discontinued Operations (Tables)

9 Months Ended

Sep. 30, 2021

Discontinued Operations And Disposal Groups [Abstract]

Summary of Amounts Included in Discontinued Operations

Selected financial information of the HMH Books & Media business included in discontinued operations is below. Included within the loss from discontinued operations is interest expense which was allocated to the HMH Books & Media business as we used the proceeds from the sale to pay down debt, which was required by our debt facilities, and we did not reinvest such amounts in the business.

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2020			2021			2020
Net sales	$	55,385		$	63,047		$	128,444
Costs		47,430			53,205			115,748
Amortization		1,786			1,395			5,466
Interest expense		6,857			9,362			21,255
Loss from discontinued operations before taxes	$	(688	)	$	(915	)	$	(14,025	)
Income tax (benefit) expense		(21	)		90			320
Loss from discontinued operations, net of tax	$	(667	)	$	(1,005	)	$	(14,345	)

As of December 31, 2020, the assets and liabilities of the HMH Books & Media business have been classified as assets of discontinued operations and liabilities of discontinued operations on our consolidated balance sheets. The major categories of assets and liabilities of the HMH Books & Media business included in assets of discontinued operations and liabilities of discontinued operations are as follows:

	December 31,
	2020
Accounts receivable, net	$	64,002
Inventories		21,410
Prepaid expenses and other assets		655
Property, plant, and equipment, net		4,401
Pre-publication costs, net		329
Royalty advances to authors, net		40,060
Other intangible assets, net		26,100
Other assets		3,096
Total assets of discontinued operations	$	160,053
Accounts payable		10,353
Royalties payable		17,628
Salaries and wages payable		221
Other liabilities		2,460
Total liabilities of discontinued operations	$	30,662

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Inventories (Tables)

9 Months Ended

Sep. 30, 2021

Inventory Disclosure [Abstract]

Schedule of Inventories

Inventories consisted of the following:

	September 30, 2021		December 31, 2020
Finished goods	$	91,449	$	134,349
Raw materials		5,022		11,204
Inventories	$	96,471	$	145,553

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Contract Assets, Contract Liabilities and Contract Costs and Net Sales (Tables)

9 Months Ended

Sep. 30, 2021

Revenue From Contract With Customer [Abstract]

Summary of Changes in Contract Assets and Contract Liabilities

The following table presents changes in contract assets and contract liabilities during the nine months ended September 30, 2021:

	September 30, 2021		December 31, 2020		$ Change		% Change
Contract assets	$	693	$	580	$	113		19.5	%
Contract liabilities (deferred revenue)	$	1,011,384	$	905,284	$	106,100		11.7	%

Summary of Net Sales Recognized from Changes in Contract Assets and Contract Liabilities

During the three and nine months ended September 30, 2021 and 2020, we recognized the following net sales as a result of changes in the contract assets and contract liabilities balances:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning    of the period	$	102,240	$	81,768	$	278,505	$	254,695

Summary of Net Sales

The following table disaggregates our net sales by major source:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands)	2021		2020		2021		2020
Core solutions (1)	$	234,993	$	206,659	$	469,192	$	391,101
Extensions (2)		182,137		124,546		402,805		308,186
Net sales	$	417,130	$	331,205	$	871,997	$	699,287

(1)  Comprehensive solutions primarily for reading, math, science and social studies programs.

(2)  Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2021

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Other Intangible Assets

Other intangible assets consisted of the following:

	September 30, 2021							December 31, 2020
	Cost		Accumulated Amortization			Total		Cost		Accumulated Amortization			Total
Trademarks and tradenames: indefinite-lived	$	161,000	$	—		$	161,000	$	161,000	$	—		$	161,000
Trademarks and tradenames: definite-lived		130,430		(59,068	)		71,362		133,330		(46,810	)		86,520
Publishing rights		1,050,000		(1,038,608	)		11,392		1,050,000		(1,030,437	)		19,563
Customer related and other		445,140		(318,847	)		126,293		448,140		(312,739	)		135,401
Other intangible assets, net	$	1,786,570	$	(1,416,523	)	$	370,047	$	1,792,470	$	(1,389,986	)	$	402,484

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Debt (Tables)

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Long-Term Debt

Our debt consisted of the following:

	September 30, 2021		December 31, 2020
$380,000 term loan due November 22, 2024, interest payable    quarterly (net of discount and issuance costs)	$	20,939	$	346,091
$306,000 senior secured notes due February 15, 2025, interest    payable semi-annually (net of discount and issuance costs)	$	296,156	$	297,601
		317,095		643,692
Less: Current portion of long-term debt		—		(19,000	)
Total long-term debt, net of discount and issuance costs	$	317,095	$	624,692
Revolving credit facility	$	—	$	—

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Restructuring, Severance and Other Charges (Tables)

9 Months Ended

Sep. 30, 2021

2020 Restructuring Plan [Member]

Summary of Restructuring Liabilities Comprised of Accruals for Severance and Termination Benefits

The following is a rollforward of our liabilities associated with the 2020 Restructuring Plan:

	2021
	Restructuring						Restructuring
	accruals at						accruals at
	December 31,				Cash		September 30,
	2020		Charges		payments		2021
Severance and termination benefits	$	19,311	$	(1,020)	$	(17,008)	$	1,283
	$	19,311	$	(1,020)	$	(17,008)	$	1,283

2019 Restructuring Plan [Member]

Summary of Restructuring Liabilities Comprised of Accruals for Severance and Termination Benefits

The following is a rollforward of our liabilities associated with the 2019 Restructuring Plan:

	2021
	Restructuring accruals at December 31, 2020		Charges		Cash payments			Restructuring accruals at September 30, 2021
Severance and termination benefits	$	279	$	—	$	(279	)	$	—
	$	279	$	—	$	(279	)	$	—

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Retirement and Postretirement Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2021

Compensation And Retirement Disclosure [Abstract]

Net Periodic Benefit Cost Components

Net periodic benefit cost (credit) for our pension and other postretirement benefit plans consisted of the following:

	Pension Plans
	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Interest cost	$	743		$	1,097		$	2,239		$	3,291
Expected return on plan assets		(1,863	)		(1,855	)		(5,617	)		(5,565	)
Amortization of net loss		662			581			2,107			1,743
Settlement loss recognized		165			—			1,046			—
Net periodic benefit credit	$	(293	)	$	(177	)	$	(225	)	$	(531	)

	Other Post Retirement Plans
	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Service cost	$	19	$	17		$	57	$	51
Interest cost		68		107			204		321
Amortization of prior service cost		11		11			33		33
Amortization of net loss		—		(2	)		—		(6	)
Net periodic benefit cost	$	98	$	133		$	294	$	399

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2021

Fair Value Disclosures [Abstract]

Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables present our financial assets and liabilities measured at fair value on a recurring basis:

	September 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	397,938	$	397,938	$	—	(a)
	$	397,938	$	397,938	$	—
Financial liabilities
Foreign exchange derivatives	$	537	$	—	$	537	(a)
	$	537	$	—	$	537

	December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Valuation Technique
Financial assets
Money market funds	$	262,135	$	262,135	$	—	(a)
Foreign exchange derivatives		466		—		466	(a)
	$	262,601	$	262,135	$	466

Summary of Non-financial Assets Measured at Fair Value on Nonrecurring Basis

The following table presents our non-financial assets measured at fair value on a nonrecurring basis during 2020:

	September 30,  2020		Significant Unobservable Inputs (Level 3)		Total Impairment		Valuation Technique
Non-financial assets
Goodwill	$	454,977	$	454,977	$	262,000		(a)
	$	454,977	$	454,977	$	262,000

Summary of Carrying Amounts and Estimated Fair Market Values of Debt

The following table presents the carrying amounts and estimated fair market values of our debt at September 30, 2021 and December 31, 2020. The fair value of debt is deemed to be the amount at which the instrument could be exchanged in an orderly transaction between market participants at the measurement date.

	September 30, 2021				December 31, 2020
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Debt
$380,000 Term loan	$	20,939	$	20,913	$	346,091	$	331,382
$306,000 Senior secured notes	$	296,156	$	316,147	$	297,601	$	304,297

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Net Income (Loss) Per Share (Tables)

9 Months Ended

Sep. 30, 2021

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Numerator
Income (loss) from continuing operations	$	95,359	$	(11,885	)	$	48,489	$	(382,348	)
(Loss) income from discontinued operations, net of tax		—		(667	)		213,515		(14,345	)
Net income (loss) attributable to common stockholders	$	95,359	$	(12,552	)	$	262,004	$	(396,693	)
Denominator
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
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	)

Summary of Anti-Dilutive Securities Excluded from Computation of Diluted EPS

The following table summarizes our weighted average outstanding common stock equivalents that were anti-dilutive attributable to common stockholders during the periods, and therefore excluded from the computation of diluted EPS:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Stock options		1,096,060		1,947,212		1,719,849		1,947,212
Restricted stock units		2,492		5,060,063		840		4,013,767

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Basis of Presentation - Additional Information (Detail) Student in Millions, Educator in Millions	3 Months Ended	9 Months Ended	12 Months Ended
	Jun. 30, 2021 Segment	Sep. 30, 2021 Student Country Educator Segment	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Services provided, number of students | Student		50
Services provided, number of countries | Country		150
Services provided, number of educators | Educator		3
Number of business segments | Segment	1	1
Seasonal Concentration Risk [Member] | Significant Customer [Member] | Consolidated Net Sales [Member]
Collaborative Arrangements and Non-collaborative Arrangement Transactions [Line Items]
Consolidated net sales, realized percentage			69.00%	69.00%	69.00%

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Impact of the COVID-19 Pandemic - Additional Information (Detail)			3 Months Ended						9 Months Ended
	Sep. 30, 2020 USD ($) Employee	Sep. 04, 2020 Employee	Sep. 30, 2021 USD ($)	Jun. 30, 2021 Segment	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)	Sep. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Sep. 30, 2021 USD ($) Segment	Sep. 30, 2020 USD ($)
Unusual Or Infrequent Item [Line Items]
Number of operating segments | Segment				1
Number of reportable segments | Segment				1					1
Number of reporting unit | Segment				1
Impairment charge for goodwill								$ 262,000,000.0	$ 0	$ 262,000,000
Increase in income tax benefit			$ 6,192,000				$ 1,060,000		$ 3,891,000	$ 11,210,000
Percentage of fair value in excess of carrying value								12.00%
Impairment of long-lived assets					$ 0
Revision of Prior Period Error Correction Adjustment [Member]
Unusual Or Infrequent Item [Line Items]
Impairment charge for goodwill						$ 17,000,000.0
Increase in income tax benefit						$ 1,000,000.0
2020 Restructuring Plan [Member]
Unusual Or Infrequent Item [Line Items]
Restructuring program, positions eliminated percentage	22.00%
Restructuring program, number of positions eliminated | Employee	525
Restructuring program, cash expenditure	$ 33,600,000
Restructuring program, completion month and year	2020-10
2020 Restructuring Plan [Member] | Retirement Incentive Program [Member]
Unusual Or Infrequent Item [Line Items]
Minimum eligible age of employees to offer voluntary retirement program		55 years
Minimum years of employee service to offer voluntary retirement program		5 years
Number of employees eligible to participate in voluntary retirement program | Employee		165
Percentage of employee base, eligible to participate in voluntary retirement program		5.00%

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Recent Accounting Standards - Additional Information (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Allowance for doubtful accounts	$ 3.4	$ 3.8
Decrease in allowance for doubtful accounts	0.4
Reserve for Royalty Advances [Member]
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Reserve balance	7.6	$ 7.4
Increase in advance royalties reserve	$ 0.2

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Discontinued Operations - Additional Information (Detail) $ in Thousands		3 Months Ended	9 Months Ended
	May 10, 2021 USD ($)	Jun. 30, 2021 Segment	Sep. 30, 2021 USD ($) Segment
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Proceeds from sale of business			$ 349,000
Number of reportable segments | Segment		1	1
HMH Books & Media segment [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Cash consideration	$ 349,000
Subject to customary working capital adjustment expected payment	7,800
Proceeds from sale of business	$ 337,000

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Discontinued Operations - Summary of Amounts Included in Discontinued Operations (Detail) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
(Loss) income from discontinued operations, net of tax	$ (667)	$ 213,515	$ (14,345)
HMH Books & Media segment [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Net sales	55,385	63,047	128,444
Costs	47,430	53,205	115,748
Amortization	1,786	1,395	5,466
Interest expense	6,857	9,362	21,255
Loss from discontinued operations before taxes	(688)	(915)	(14,025)
Income tax (benefit) expense	(21)	90	320
(Loss) income from discontinued operations, net of tax	$ (667)	$ (1,005)	$ (14,345)

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Discontinued Operations - Summary of Assets of Discontinued Operations and Liabilities of Discontinued Operations on Consolidated Balance Sheets (Detail) $ in Thousands	Dec. 31, 2020 USD ($)
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Total assets of discontinued operations	$ 160,053
Total liabilities of discontinued operations	30,662
HMH Books & Media segment [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Accounts receivable, net	64,002
Inventories	21,410
Prepaid expenses and other assets	655
Property, plant, and equipment, net	4,401
Pre-publication costs, net	329
Royalty advances to authors, net	40,060
Other intangible assets, net	26,100
Other assets	3,096
Total assets of discontinued operations	160,053
Accounts payable	10,353
Royalties payable	17,628
Salaries and wages payable	221
Other liabilities	2,460
Total liabilities of discontinued operations	$ 30,662

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Inventories - Schedule of Inventories (Detail) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Inventory Disclosure [Abstract]
Finished goods	$ 91,449	$ 134,349
Raw materials	5,022	11,204
Inventories	$ 96,471	$ 145,553

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Contract Assets, Contract Liabilities and Contract Costs and Net Sales - Summary of Changes in Contract Assets and Contract Liabilities (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Change In Contract With Customer Asset And Liability [Abstract]
Contract with customer assets	$ 693	$ 580
Contract with customer assets change	$ 113
Contract with customer assets percentage change	19.50%
Contract with customer liabilities	$ 1,011,384	$ 905,284
Contract with customer liabilities change	$ 106,100
Contract with customer liabilities percentage change	11.70%

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Contract Assets, Contract Liabilities and Contract Costs and Net Sales - Additional Information (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Capitalized Contract Cost [Line Items]
Increase in contract assets and liabilities	$ 106,100
Deferred commissions	37,309		$ 30,659
Amortization of deferred commissions	13,000	$ 11,000
Contract cost	22,600		$ 14,700
Amortization contract cost	4,400	$ 2,600
Aggregate amount of transaction price allocated to remaining performance obligations	$ 1,062,800
Percentage of transaction recognized	75.00%
Minimum [Member]
Capitalized Contract Cost [Line Items]
Period of duration for recognition of transaction	1 year
Maximum [Member]
Capitalized Contract Cost [Line Items]
Period of duration for recognition of transaction	3 years

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Contract Assets, Contract Liabilities and Contract Costs and Net Sales - Summary of Net Sales Recognised from Changes in Contract Asset and Contract Liabilities (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Net sales recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$ 102,240	$ 81,768	$ 278,505	$ 254,695

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Contract Assets, Contract Liabilities and Contract Costs and Net Sales - Summary of Net Sales (Detail) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Capitalized Contract Cost [Line Items]
Net sales		$ 417,130	$ 331,205	$ 871,997	$ 699,287
Operating Segments [Member]
Capitalized Contract Cost [Line Items]
Net sales		417,130	331,205	871,997	699,287
Core Solutions [Member] | Operating Segments [Member]
Capitalized Contract Cost [Line Items]
Net sales	[1]	234,993	206,659	469,192	391,101
Extensions [Member] | Operating Segments [Member]
Capitalized Contract Cost [Line Items]
Net sales	[2]	$ 182,137	$ 124,546	$ 402,805	$ 308,186

[1] Comprehensive solutions primarily for reading, math, science and social studies programs.

[2] Primarily consists of our Heinemann brand, intervention, supplemental, and formative assessment products as well as professional services.

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Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
	Jul. 08, 2021	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Goodwill and Other Intangible Assets [Line Items]
Goodwill		$ 437,977		$ 437,977		$ 437,977
Accumulated impairment losses on goodwill		279,000		279,000
Amortization expense		2,516	$ 3,469	8,171	$ 11,332
Definite-lived Trademarks and Tradenames, Publishing Rights and Customer Related and Other Intangibles [Member]
Goodwill and Other Intangible Assets [Line Items]
Amortization expense				$ 31,200	$ 28,900
Intellectual Property [Member]
Goodwill and Other Intangible Assets [Line Items]
Total cash proceeds from sale of intangible assets	$ 5,000
Other Intangible Assets [Member]
Goodwill and Other Intangible Assets [Line Items]
Other intangible assets at the time of sale	$ 1,300
Gain on sale of intangible assets, net of tax		$ 3,700

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Goodwill and Other Intangible Assets - Schedule of Other Intangible Assets (Detail) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Goodwill and Other Intangible Assets [Line Items]
Cost	$ 1,786,570	$ 1,792,470
Accumulated Amortization	(1,416,523)	(1,389,986)
Total	370,047	402,484
Trademarks and Trade Names [Member]
Goodwill and Other Intangible Assets [Line Items]
Trademarks and tradenames indefinite-lived	161,000	161,000
Cost	130,430	133,330
Accumulated Amortization	(59,068)	(46,810)
Total	71,362	86,520
Publishing Rights [Member]
Goodwill and Other Intangible Assets [Line Items]
Cost	1,050,000	1,050,000
Accumulated Amortization	(1,038,608)	(1,030,437)
Total	11,392	19,563
Customer Related and Other [Member]
Goodwill and Other Intangible Assets [Line Items]
Cost	445,140	448,140
Accumulated Amortization	(318,847)	(312,739)
Total	$ 126,293	$ 135,401

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Debt - Long-Term Debt (Detail) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Long term debt	$ 317,095,000	$ 643,692,000
Less: Current portion of long-term debt		(19,000,000)
Total long-term debt, net of discount and issuance costs	317,095,000	624,692,000
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Revolving credit facility	0
Term Loan Due November 22, 2024 [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Long term debt	20,939,000	346,091,000
Senior Secured Notes Due February 15, 2025 [Member] | Senior Secured Notes [Member]
Debt Instrument [Line Items]
Long term debt	$ 296,156,000	$ 297,601,000

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Debt - Long-Term Debt (Parenthetical) (Detail) - USD ($) $ in Thousands		9 Months Ended	12 Months Ended
	Nov. 22, 2019	Sep. 30, 2021	Dec. 31, 2020
Term Loan Due November 22, 2024 [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 380,000	$ 380,000	$ 380,000
Term loan, due date	Nov. 22, 2024	Nov. 22, 2024	Nov. 22, 2024
Senior Secured Notes Due February 15, 2025 [Member] | Senior Secured Notes [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 306,000	$ 306,000	$ 306,000
Term loan, due date	Feb. 15, 2025	Feb. 15, 2025	Feb. 15, 2025

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Debt - Additional Information (Detail)			3 Months Ended		9 Months Ended		12 Months Ended
	Nov. 22, 2019 USD ($)	Jul. 22, 2015	Jun. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)	Aug. 17, 2015 USD ($)
Debt Instrument [Line Items]
Loss on extinguishment of debt					$ (12,505,000)
Net change in unrealized gain (loss) on derivative financial instruments				$ 258,000		$ 987,000
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, maximum borrowing capacity	$ 250,000,000.0
Revolving Credit Facility, outstanding					$ 0
Financial covenants, description					As of September 30, 2021, the minimum fixed charge coverage ratio covenant under our revolving credit facility was not applicable, due to our level of borrowing availability. The minimum fixed charge coverage ratio, which is only tested in limited situations, is 1.0 to 1.0 through the end of the facility.
Revolving Credit Facility [Member] | Minimum [Member]
Debt Instrument [Line Items]
Fixed charge coverage ratio		1.0			1.0
Revolving Credit Facility [Member] | Letter Of Credit Subfacility [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, current capacity	50,000,000.0
Revolving Credit Facility [Member] | Swingline [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, current capacity	20,000,000.0
Revolving Credit Facility [Member] | Subfacility [Member]
Debt Instrument [Line Items]
Revolving Credit Facility, maximum borrowing capacity	100,000,000.0
Interest Rate Hedging [Member]
Debt Instrument [Line Items]
Aggregate notional amount of derivative instruments								$ 400,000,000.0
Derivative contracts maturity date					Jul. 22, 2020
Net change in unrealized gain (loss) on derivative financial instruments						1,000,000.0
Reclassified from other comprehensive loss to earnings						$ 1,900,000
Interest rate derivative contracts outstanding					$ 0
Senior Secured Notes [Member] | Senior Secured Notes Due February 15, 2025 [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 306,000,000.0				$ 306,000,000		$ 306,000,000
Debt instrument, interest rate, stated percentage	9.00%
Term loan, due date	Feb. 15, 2025				Feb. 15, 2025		Feb. 15, 2025
Debt instrument basis spread	9.00%
Repayment frequency					Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2020.
Percentage of outstanding borrowing commitment issued as discount	2.00%
Notes redeemed			$ 2,700,000
Term Loan Facility [Member] | Term Loan Due November 22, 2024 [Member]
Debt Instrument [Line Items]
Term loan, face amount	$ 380,000,000.0				$ 380,000,000		$ 380,000,000
Term loan, due date	Nov. 22, 2024				Nov. 22, 2024		Nov. 22, 2024
Debt instrument basis spread					7.25%
Percentage of outstanding borrowing commitment issued as discount	4.00%
Amount to be repaid quarterly					$ 0
Debt instrument repaid			$ 334,600,000
Loss on extinguishment of debt					$ (12,500,000)
Term Loan Facility [Member] | Term Loan Due November 22, 2024 [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument [Line Items]
Debt instrument basis spread	6.25%
Term Loan Facility [Member] | Term Loan Due November 22, 2024 [Member] | Alternate Base Rate [Member]
Debt Instrument [Line Items]
Debt instrument basis spread	5.25%

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Restructuring, Severance and Other Charges - Additional Information (Detail)			3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($) Employee	Sep. 04, 2020 Employee	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2020 USD ($)
Restructuring Cost and Reserve [Line Items]
Restructuring/severance and other charges			$ 33,000	$ 31,776,000	$ 9,880,000	$ 31,776,000
2021 Restructuring Plan [Member]
Restructuring Cost and Reserve [Line Items]
Impairment of real estate					10,900,000
Reduction in operating lease assets					9,300,000
Reduction in property, plant and equipment					1,600,000
2020 Restructuring Plan [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring program, positions eliminated percentage	22.00%
Restructuring program, number of positions eliminated | Employee	525
Payments for severance cost	$ 33,600,000
Restructuring program, completion month and year	2020-10
Restructuring/severance and other charges				0		0
2020 Restructuring Plan [Member] | Retirement Incentive Program [Member]
Restructuring Cost and Reserve [Line Items]
Minimum eligible age of employees to offer voluntary retirement program		55 years
Minimum years of employee service to offer voluntary retirement program		5 years
Number of employees eligible to participate in voluntary retirement program | Employee		165
Percentage of employee base, eligible to participate in voluntary retirement program		5.00%
2019 Restructuring Plan [Member]
Restructuring Cost and Reserve [Line Items]
Restructuring/severance and other charges			$ 0	$ 0	$ 0	$ 0

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Restructuring, Severance and Other Charges - Summary of Restructuring Liabilities Comprised of Accruals for Severance and Termination Benefits (Detail) - USD ($)		3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Condensed Comprehensive Income [Line Items]
Charges		$ 33,000	$ 31,776,000	$ 9,880,000	$ 31,776,000
2020 Restructuring Plan [Member]
Condensed Comprehensive Income [Line Items]
Charges			0		0
Cash payments	$ (33,600,000)
2020 Restructuring Plan [Member] | Severance and Termination Benefits [Member]
Condensed Comprehensive Income [Line Items]
Severance/restructuring and other accruals, Beginning balance				19,311,000
Charges				(1,020,000)
Cash payments				(17,008,000)
Severance/restructuring and other accruals, Ending balance		1,283,000		1,283,000
2019 Restructuring Plan [Member]
Condensed Comprehensive Income [Line Items]
Charges		$ 0	$ 0	0	$ 0
2019 Restructuring Plan [Member] | Severance and Termination Benefits [Member]
Condensed Comprehensive Income [Line Items]
Severance/restructuring and other accruals, Beginning balance				279,000
Cash payments				$ (279,000)

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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Income tax benefit for continuing operations	$ (6,192)	$ (1,060)	$ (3,891)	$ (11,210)
Effective tax rate	(6.90%)	8.20%	(8.70%)	2.80%
Unrecognized tax benefits (excluding interest and penalties)	$ 15,700		$ 15,700		$ 15,700

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Retirement and Postretirement Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Compensation And Retirement Disclosure [Abstract]
Settlement charge	$ 1.0
Other comprehensive income, defined benefit plan, settlement gain	9.2
Contributions to retirement plan	$ 1.1	$ 3.7

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Retirement and Postretirement Benefit Plans - Net Periodic Benefit Cost Components (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Settlement loss recognized			$ 1,000
Pension Plans [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Interest cost	$ 743	$ 1,097	2,239	$ 3,291
Expected return on plan assets	(1,863)	(1,855)	(5,617)	(5,565)
Amortization of net loss	662	581	2,107	1,743
Settlement loss recognized	165		1,046
Net periodic benefit cost (credit)	(293)	(177)	(225)	(531)
Other Post Retirement Plans [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service cost	19	17	57	51
Interest cost	68	107	204	321
Amortization of prior service cost	11	11	33	33
Amortization of net loss		(2)		(6)
Net periodic benefit cost (credit)	$ 98	$ 133	$ 294	$ 399

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Fair Value Measurements - Summary of Financial Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Financial assets
Financial assets	$ 397,938	$ 262,601
Financial liabilities
Financial liabilities	537
Money Market Funds [Member]
Financial assets
Financial assets	397,938	262,135
Foreign Exchange Derivatives [Member]
Financial assets
Financial assets		466
Foreign Exchange Derivatives [Member]
Financial liabilities
Financial liabilities	537
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Financial assets
Financial assets	397,938	262,135
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Money Market Funds [Member]
Financial assets
Financial assets	397,938	262,135
Significant Other Observable Inputs (Level 2) [Member]
Financial assets
Financial assets		466
Financial liabilities
Financial liabilities	537
Significant Other Observable Inputs (Level 2) [Member] | Foreign Exchange Derivatives [Member]
Financial assets
Financial assets		$ 466
Significant Other Observable Inputs (Level 2) [Member] | Foreign Exchange Derivatives [Member]
Financial liabilities
Financial liabilities	$ 537

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Fair Value Measurements - Additional Information (Detail) - USD ($)	3 Months Ended				9 Months Ended
	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020	Mar. 31, 2020	Sep. 30, 2021	Sep. 30, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	$ 397,938,000	$ 262,601,000			$ 397,938,000
Non-financial liabilities fair value	0		$ 0		0	$ 0
Impairment charge for goodwill				$ 262,000,000.0	0	262,000,000
Impairment of operating lease assets					9,300,000
Remaining carrying value	2,000,000.0				2,000,000.0
Impairment of property, plant and equipment					1,600,000
Non-marketable investments	5,800,000	4,400,000			5,800,000
Gains from non-marketable investments	606,000		$ 1,738,000		1,442,000	1,738,000
Leasehold Improvements [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Remaining carrying value	300,000				300,000
Other Intangible Assets [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impairment of intangible assets					0	$ 0
Revision of Prior Period Error Correction Adjustment [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impairment charge for goodwill		17,000,000.0
Foreign Exchange Forward Contracts [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Aggregate notional amount of derivative instruments	14,700,000	14,900,000			14,700,000
Maximum [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of counterparty default exposure	1,000,000.0	1,000,000.0			1,000,000.0
Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	397,938,000	262,135,000			397,938,000
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	397,938,000	262,135,000			397,938,000
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Money Market Funds [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	397,938,000	262,135,000			397,938,000
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Bank Time Deposits [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Financial assets	$ 22,400,000	$ 19,100,000			$ 22,400,000

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Fair Value Measurements - Summary of Non-financial Assets Measured at Fair Value on Nonrecurring Basis (Detail) $ in Thousands	9 Months Ended
	Sep. 30, 2020 USD ($)
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	$ 454,977
Total Impairment	262,000
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	454,977
Goodwill [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	454,977
Total Impairment	262,000
Goodwill [Member] | Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Non-financial assets	$ 454,977

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Fair Value Measurements - Summary of Carrying Amounts and Estimated Fair Market Values of Debt (Detail) - USD ($) $ in Thousands	Sep. 30, 2021	Dec. 31, 2020
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Debt, carrying value	$ 317,095	$ 643,692
Term Loan [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Debt, carrying value	20,939	346,091
Debt, estimated fair value	20,913	331,382
$306,000 Senior Secured Notes [Member]
Schedule Of Carrying Values And Estimated Fair Values Of Debt Instruments [Line Items]
Debt, carrying value	296,156	297,601
Debt, estimated fair value	$ 316,147	$ 304,297

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Commitments and Contingencies - Additional Information (Detail) - USD ($)	1 Months Ended
	Sep. 30, 2019	Sep. 30, 2021	Dec. 31, 2020
Loss Contingencies [Line Items]
Performance related surety bonds for which the Company is contingently liable		$ 900,000	$ 1,400,000
Aggregate letter of credit		16,100,000	18,800,000
Letter of credit backed by performance related surety bonds		1,100,000	1,100,000
Indemnification liabilities		$ 0	$ 0
Minimum [Member]
Loss Contingencies [Line Items]
Liable for portion of damages	$ 1,400,000
Requirement of warranty insurance for damages limit amount	2,800,000
Maximum [Member] | Unasserted Claim [Member]
Loss Contingencies [Line Items]
Unasserted claim, payments in the amount	$ 1,400,000

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Net Income (Loss) Per Share - Computation of Basic and Diluted Earnings per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2021	Sep. 30, 2020
Numerator
Income (loss) from continuing operations	$ 95,359			$ (11,885)			$ 48,489	$ (382,348)
(Loss) income from discontinued operations, net of tax				(667)			213,515	(14,345)
Net income (loss)	$ 95,359	$ 218,628	$ (51,983)	$ (12,552)	$ (38,168)	$ (345,973)	$ 262,004	$ (396,693)
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
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)

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Net Income (Loss) Per Share - Summary of Anti-Dilutive Securities Excluded from Computation of Diluted EPS (Detail) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Stock Options [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of diluted EPS	1,096,060	1,947,212	1,719,849	1,947,212
Restricted Stock Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of diluted EPS	2,492	5,060,063	840	4,013,767