BOSTON, Feb. 25, 2016 /PRNewswire/ -- Global
learning company Houghton Mifflin Harcourt Company ("HMH" or the
"Company") (NASDAQ: HMHC) today announced its financial results for
the fourth quarter and full year ended December 31, 2015.
Full Year 2015 Financial Highlights:
- Net sales increased 3% to $1,416
million compared with $1,372
million in 2014. The Educational Technology and Services
(EdTech) business contributed net sales, excluding purchase
accounting, of $148 million for the
period May 29, 2015 to December 31, 2015.
- 2015 billings decreased 4% to $1,541
million compared with $1,602
million in 2014. The EdTech business contributed billings of
$166 million for the period
May 29, 2015 to December 31, 2015.
- Adjusted cash EBITDA, which accounts for the change in deferred
revenue, decreased $136 million or
27%, to $359 million in 2015 compared
with $495 million in 2014. Adjusted
EBITDA was $235 million for the full
year 2015, $30 million or 11% lower,
compared with $265 million in the
prior year.
- Net loss increased to $134
million or 20% for the full year 2015, from $111 million in 2014.
- For the year ended December 31,
2015, free cash flow was $162
million, a decrease of $147
million from $308 million for
the same period in 2014. Net cash provided by operating activities
for the year ended December 31, 2015
was $348 million as compared with
$491 million for the same period in
2014.
- As of December 31, 2015, the
Company repurchased 22 million shares for $463 million under its share repurchase program
returning 286% percent of free cash flow to its shareholders.
- HMH captured approximately 40% market share in its core
domestic education market for K-12 instructional materials,
including 43% of the new adoption market for the full year 2015,
despite the 2015 core market for our key disciplines being
significantly lower than 2014.
Linda K. Zecher, HMH's President
and Chief Executive Officer, commented, "2015 was an exciting year
for HMH in our transformation to one of the world's leading
educational media companies. We made progress executing towards our
strategic plan of expanding our footprint in the education space,
and progressing in key growth markets. We undertook a
successful strategic acquisition, strengthened our product
portfolio and broadened our digital capabilities to further extend
the depth, breadth and value of the HMH learning portfolio. In
2016, we plan to extend our K-12 leadership by deepening our
business in areas like intervention and professional services, and
continuing to expand into important growth markets like consumer
and early childhood. With a diverse portfolio that stretches beyond
the classroom, we remain uniquely positioned to forge a meaningful
connection between school and home."
Eric Shuman, Chief Financial
Officer of HMH, stated, "We delivered solid results, maintained a
leading market share, returned capital to our shareholders and
generated solid free cash flow. We believe that our expanded
content portfolio and continued investment in strategic growth
areas positions us for a strong 2016."
2015 Business Highlights:
Education Segment: Within its core
domestic education market, HMH captured over 43% share of new
adoptions, bringing its total market share to approximately 40%.
HMH had major wins in the California and Tennessee math and West Virginia reading and language arts
adoptions. Digital content represented approximately 48% of
billings within large education basal programs and approximately
34% overall.
In the upcoming year, the Company will continue to focus on
high-quality content, expanding its suite of offerings designed to
meet the Next Generation Science Standards and enhancing its core
content like English Language Arts programs Collections and
Journeys.
The EdTech acquisition accelerated the Company's expansion into
areas outside the K-12 core curriculum, including intervention,
early childhood and professional services. With this acquisition,
HMH believes, it has one of the deepest and broadest Pre K -12
content and services portfolio and capabilities within the
industry. Additionally, HMH combined its legacy professional
services business with the acquired professional services business
to create HMH Professional Services and increase its capabilities
in this important area.
To further extend the value HMH provides to educators and
students, also in 2015, the Company announced the beta launch of
HMH Marketplace, an online destination for educators to discover,
share and sell resources that enhance the teaching and learning
experience. The HMH Marketplace will be available in the second
quarter of 2016.
Consumer and Early Learning: Reflecting HMH's
commitment to providing high-quality content for early learners and
their parents, HMH launched Curious World, an interactive content
service that offers an expanding collection of games, videos and
eBooks mapped to key early learning areas. In its first few months,
Curious World has already gained rapid success, being named one of
the top kids apps by Apple®, and reaching over 500,000 freemium
installs.
Additionally, in the consumer space, the Company re-launched
Cliffsnotes.com, acquired eBook and technology assets from
MeeGenius, and expanded its technology partnership with gaming
platform Osmo.
Trade Publishing Segment:
In 2015, HMH's Trade Publishing segment experienced strong sales
driven by the success of frontlist culinary titles, including
New York Times best-seller
The Whole30, The Real Paleo Diet Cookbook, Jacques Pépin
Heart & Soul in the Kitchen and Cake My Day. Additionally, the Company released
critically acclaimed Girl Waits With Gun; Rosemary, the Hidden
Kennedy Daughter; and The Thing Explainer, by
Randall Munroe, the best-selling
author of What If?.
HMH also continues to build its offering and pipeline of new
books, signing a four book deal with Newbery medalist, author and
poet Kwame Alexander, and obtaining
the publishing rights to HGTV reality stars The Property Brothers'
debut title Dream Home: The Property Brothers' Ultimate Guide to
Finding & Fixing Your Perfect House, as well as the memoir
of U.S. women's national soccer team captain, Carli Lloyd, both of which are slated to be
released in 2016.
Full Year 2015 Financial Results
Net Sales and Billings: HMH reported net
sales of $1,416 million for the full
year 2015, up 3% or $44 million
compared with $1,372 million in 2014.
Full year billings were $1,541
million, down 4% or $62
million lower compared with $1,602
million in 2014.
Education segment net sales for the year ended December 31, 2015 increased $42 million to $1,251
million and Trade Publishing net sales increased
$2 million from 2014 to $165 million.
The $42 million or 3.5% increase
in the Education segment net sales was driven by the $148 million contribution, excluding purchase
accounting, from the acquired EdTech business. This increase was
substantially offset by lower net sales of the domestic education
business, which decreased by $98
million, due to the comparable prior year large Texas math and science adoptions.
Offsetting a portion of the lower domestic education
sales in 2015 was a strong performance in the California math and West Virginia reading adoptions.
The $2 million or 1% increase in
Trade Publishing net sales was driven by higher net sales of
front-list culinary titles such as The Whole 30, The Real
Paleo Diet Cookbook, Jacques Pépin Heart & Soul in the
Kitchen and Cake My Day
partially offset by prior year strong net sales of titles such
as the bestselling What If? and The Giver.
Cost of Sales: Overall cost of sales were
flat at $824 million in 2015 compared
with 2014. Cost of sales, excluding publishing rights and
pre-publication amortization, increased $34
million in 2015 to $623
million from $589 million in
2014 primarily due to the $44 million
increase in net sales along with higher costs related to changes in
product and services mix, shorter print runs and higher technology
costs to support digital products. This resulted in an increase in
cost of sales as a percent of net sales, excluding publishing
rights and pre-publication amortization, from 43% to
44%.
Selling and Administrative Costs: Selling and
administrative costs increased 11% or $69
million from $613 million in
2014 to $681 million in 2015,
primarily due to $63 million of
expenses attributed to the EdTech business, $21 million of professional and legal fees
associated with a secondary equity offering and acquisition costs,
along with higher salary and promotion costs. These were
partially offset by a $28 million
decrease in sales commissions. Excluding the EdTech business and
the equity offering, selling and administrative expenses would have
been lower by 2.5%, primarily due to lower sales
commissions.
Operating Loss: Operating loss for the full year
2015 increased $31 million, or 36%,
to a loss of $116 million from
$85 million in 2014 due to the
aforementioned factors related to net sales, cost of sales and
selling and administrative costs. Partially offsetting the loss was
a $24 million net reduction in
amortization expenses related to publishing rights, pre-publication
costs and other intangible asset amortization as well as a
$3 million reduction in severance and
other charges from 2014.
Net Loss: Net loss for the full year was
$134 million, up 20% or $22 million from a net loss of $111 million in 2014, primarily due to the same
drivers impacting operating loss. Additionally, interest expense
for the full year increased $14
million, or 76%, to $32
million from $18 million for
the same period in 2014, substantially due to the increase to our
term loan from $243 million to
$800 million. These factors were
partially offset by $26 million
favorable change in our tax provision attributed to a release of an
accrual for uncertain tax positions as the statutory period
expired.
Adjusted EBITDA and Adjusted Cash
EBITDA: Adjusted EBITDA for the full year 2015 was
$235 million, down $30 million or 11% from $265 million in 2014, primarily due to lower net
sales from HMH's legacy business, higher cost of sales and
increased expenses associated with the Company's growth
initiatives. This decrease was partially offset by the contribution
from the EdTech business. Within HMH's Education segment, adjusted
EBITDA was $269 million, compared
with $298 million last year, and
adjusted EBITDA for the Trade Publishing segment was $8 million compared with $13 million in 2014. The adjusted EBITDA for
Corporate and other costs, which represent certain general overhead
costs not fully allocated to the business segments, such as legal,
accounting, treasury, human resources, technology and executive
functions, was a loss of $42 million
for the full year compared with a loss of $46 million in 2014.
Adjusted cash EBITDA, defined as adjusted EBITDA plus the change
in deferred revenue, was $359 million
for 2015, down $136 million or 27%
from $495 million in
2014. Deferred revenue of $124
million in 2015 was $106
million lower as compared with $230
million in 2014 primarily due to the comparable prior year
large Texas math and science and
the Florida language arts
adoptions which contributed to higher digital billings.
Cash Flow: Net cash provided by operating
activities for the year ended December 31,
2015 was $348 million as
compared with $491 million for the
same period in 2014. The $143 million
decrease was primarily a result of lower billings stemming from a
smaller domestic education market, higher interest from the
increase in the Company's term loan and other working capital
changes. Free cash flow, defined as net cash from operating
activities minus capital expenditures, for the year ended
December 31, 2015, was $162 million compared with $308 million for the same period in 2014. As of
December 31, 2015, HMH had
$432 million of cash and cash
equivalents and short-term investments compared with $743 million at December
31, 2014. The $311 million
decrease in cash was primarily due to the Company's share
repurchase program.
Fourth Quarter 2015 Financial Results
Net Sales and Billings: HMH reported net
sales of $298 million for the fourth
quarter of 2015, up 12% or $33
million compared to $265
million in the same quarter of 2014. The increase was
primarily due to net sales from the EdTech business partially
offset by lower net sales in international due to the timing of
orders. Education and Trade Publishing segment net sales for
the fourth quarter of 2015 were $248
million and $50 million,
respectively, compared with $218
million and $48 million,
respectively, in the fourth quarter of 2014. Billings for the
fourth quarter of 2015 were $275
million, up 10% or $24 million
compared with $251 million for the
same period in 2014.
Cost of Sales: Overall cost of sales
increased 4% or $7 million to
$191 million in the fourth quarter of
2015 from $184 million in the same
period of 2014, while cost of sales, excluding publishing rights
and pre-publication amortization increased $14 million from $124
million in 2014 to $138
million in 2015. As a percent of net sales, cost of sales,
excluding pre-publication and publishing rights amortization
decreased from 47% in the fourth quarter of 2014 to 46% from the
fourth quarter of 2015.
Selling and Administrative Costs: Selling and
administrative costs increased $20
million from $156 million in
the fourth quarter of 2014 to $176
million for the same period in 2015, primarily due to the
EdTech business, partially offset by lower commissions and
incentive compensation.
Operating Loss: Operating loss for the fourth
quarter of 2015 was $77 million,
$3 million or 4% lower than the
$80 million operating loss recorded
in the same period of 2014 due to the aforementioned changes in net
sales, cost of sales, and selling and administrative costs.
Net Loss: Net loss of $97 million in the fourth quarter of 2015 was
$13 million or 16% higher compared to
a net loss of $84 million in the same
quarter of 2014, primarily due to the same factors impacting
operating loss along with increased interest expense as a result of
the $800 million term loan and an
increased income tax expense provision.
Adjusted EBITDA and Adjusted Cash
EBITDA: Adjusted EBITDA for the fourth quarter of 2015
was $16 million, an increase of
$7 million from $9 million in the same quarter of 2014. For the
fourth quarter 2015, adjusted EBITDA for the Education segment was
$22 million, compared with
$13 million in the same quarter of
2014. Adjusted EBITDA for the Trade Publishing segment was
$5 million for the fourth quarter of
2015 and 2014. The adjusted EBITDA for Corporate and Other costs,
which represent certain general overhead costs not fully allocated
to the business segments, such as legal, accounting, treasury,
human resources, technology, and executive functions, was a loss of
$11 million for the quarter compared
with a loss of $9 million in same
quarter of 2014. Adjusted cash EBITDA, defined as adjusted EBITDA
plus the change in deferred revenue, was a loss of $8 million in the fourth quarter, down
$2 million from $6 million in the fourth quarter of 2014.
2016 Outlook
The Company is providing annual guidance on billings, net sales
and pre-publication or content development costs.
HMH's 2016 billings are expected to be in the range of
$1,625 million to $1,700 million,
reflecting a comparable core domestic education market, a full year
of EdTech billings and growth in key target markets. The Company
expects annual net sales in 2016 to be in the range of $1,500 million to $1,575 million. Additionally,
pre-publication or content development costs for 2016 are expected
to be approximately $120 to $140
million.
Capital Allocation
On November 3, 2015, the HMH Board
of Directors authorized an increase in the size of its existing
share repurchase program by an additional $500 million for an aggregate total of
$1 billion. The aggregate
$1 billion share repurchase program
may be executed through the end of 2018. Repurchases under the
program may be made from time to time in open market, including
under trading plans, or privately negotiated transactions.
The extent and timing of any such repurchases would be at the
Company's discretion and subject to market conditions, applicable
legal requirements and other considerations.
During the fourth quarter, HMH repurchased 11.4 million shares
for approximately $224 million in the
open market and through privately negotiated transactions bringing
year to date total to approximately $463
million of shares. As of the end of the fourth quarter,
approximately $537 million was
available for share repurchases under the aggregate $1 billion share repurchase program.
The share repurchases align with HMH's broader capital
allocation strategy, which focuses on driving organic growth,
pursuing strategic acquisition opportunities and returning capital
to stockholders, when appropriate.
Additionally, as previously announced, subject to market and
other conditions, the Company plans to increase its debt by
$250 million and use some or all of
the net proceeds from the financing to fund a portion of its share
repurchases under the share repurchase program among other general
corporate purposes.
Conference Call
At 8:30 a.m. EST on Thursday, February 25, 2016, HMH will also host a
conference call to discuss the results with its investors. The call
will be webcast live at ir.hmhco.com. The following information is
provided for investors who would like to participate:
Toll Free: (844) 835-6565
International: (484) 653-6719
Passcode: 38583489
Moderator: Rima Hyder, Vice
President, Investor Relations
Webcast Link: http://edge.media-server.com/m/p/ja26sx7h
An archived webcast with the accompanying slides will be
available at ir.hmhco.com for one year for those unable to
participate in the live event. An audio replay of this conference
will also be available until March 3,
2016 via the following telephone numbers: (855) 859-2056 in
the United States and (404)
537-3406 internationally using passcode 38583489.
Use of Non-GAAP Financial Measures
To supplement our financial statements presented in accordance
with Generally Accepted Accounting Principles (GAAP), we have
presented adjusted EBITDA, adjusted cash EBITDA, billings and free
cash flow as non-GAAP measures in addition to our GAAP results.
This information should be considered as supplemental in nature and
should not be considered in isolation or as a substitute for the
related financial information prepared in accordance with GAAP.
Management believes that the presentation of these non-GAAP
measures provides useful information to investors regarding our
results of operations because it assists both investors and
management in analyzing and benchmarking the performance and value
of our business.
Management believes that the presentation of adjusted EBITDA
provides an indicator of our performance that is not affected by
debt restructurings, fluctuations in interest rates or effective
tax rates, non-cash charges, or levels of depreciation or
amortization along with cost such as severance, facility closure
cost, and acquisition cost. Accordingly, our management believes
that this measurement is useful for comparing our performance from
period to period. In addition, targets and positive trends in
adjusted cash EBITDA and billings are used as performance measures
and to determine certain compensation of management. Management
believes that the presentation of adjusted cash EBITDA and billings
also provide useful information to our investors and management as
an indicator of our cash performance as it takes into account our
deferred revenue and, with respect to adjusted cash EBITDA, is not
affected by the aforementioned items excluded from adjusted EBITDA.
Management also believes that the presentation of free cash flow
provides useful information to our investors because management
regularly reviews free cash flow as an important indicator of how
much cash is generated by normal business operations, excluding
capital expenditures, and makes decisions based on it.
Other companies may define these non-GAAP measures differently
and, as a result, our measure of these non-GAAP measures may not be
directly comparable to adjusted EBITDA, adjusted cash EBITDA,
billings and free cash flow of other companies. Although we use
non-GAAP measures as financial measures to assess the performance
of our business, the use of non-GAAP measures are limited as they
include and/ or do not include certain items not included and/or
included in the most directly comparable GAAP measure. Billings,
adjusted EBITDA and adjusted cash EBITDA should be considered in
addition to, and not as a substitute for, net income or loss
prepared in accordance with GAAP as a measure of performance; and
free cash flow should be considered in addition to, and not as a
substitute for, net cash provided by operating activities prepared
in accordance with GAAP as a measure of performance. Adjusted
EBITDA and adjusted cash EBITDA are not intended to be a measure of
liquidity nor is free cash flow intended to be a measure for
discretionary use. You are cautioned not to place undue reliance on
these non-GAAP measures. A reconciliation of non-GAAP financial
measures to the most directly comparable GAAP financial measures is
provided in the appendix to this news release.
About Houghton Mifflin Harcourt
Houghton Mifflin Harcourt
(NASDAQ:HMHC) is a global learning company dedicated to changing
people's lives by fostering passionate, curious learners. As a
leading provider of pre-K–12 education content, services, and
cutting-edge technology solutions across a variety of media, HMH
enables learning in a changing landscape. HMH is uniquely
positioned to create engaging and effective educational content and
experiences from early childhood to beyond the classroom. HMH
serves more than 50 million students in over 150 countries
worldwide, while its award-winning children's books, novels,
non-fiction, and reference titles are enjoyed by readers throughout
the world. For more information, visit www.hmhco.com.
Follow HMH on Twitter, Facebook and YouTube
Contact:
Investor Relations
Rima Hyder
Vice President, Investor Relations
(617) 351-3309
rima.hyder@hmhco.com
Media Relations
Bianca Olson
Senior Vice President, Corporate Affairs
(617) 351-3841
| (646) 932-1241
bianca.olson@hmhco.com
Forward-Looking Statements
The statements contained herein include forward-looking
statements, which involve risks and uncertainties. These
forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes,"
"estimates," "projects," "anticipates," "expects," "could,"
"intends," "may," "will" or "should," "forecast," "intend," "plan,"
"potential," "project," "target" or, in each case, their negative,
or other variations or comparable terminology. These
forward-looking statements include all matters that are not
historical facts. They include statements regarding our intentions,
beliefs or current expectations concerning, among other things, our
results of operations, including billings, net sales, deferred
revenue; financial condition; pre-publication or content
development costs; liquidity; financing activities and use of
proceeds; products, including product mix and format; prospects;
growth; markets and market share; strategies, including with
respect to capital allocation; the industry in which we operate 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. While we believe that our
assumptions are reasonable, 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 our actual results may differ materially from
those made in or suggested by the forward-looking statements
contained herein. In addition, even if our 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 our results to vary from
expectations include, but are not limited to: changes in state and
local education funding and/or related programs, legislation and
procurement processes; adverse or worsening economic trends or the
continuation of current economic conditions; changes in consumer
demand for, and acceptance of, our products; changes in product
mix, format and timing of delivery; changes in competitive factors;
offerings by technology companies that compete with our products;
industry cycles and trends; conditions and/or changes in the
publishing industry; changes or the loss of our key third-party
print vendors; restrictions under agreements governing our
outstanding indebtedness; changes in laws or regulations governing
our business and operations; changes or failures in the information
technology systems we use; demographic trends; uncertainty
surrounding our ability to enforce our intellectual property
rights; inability to retain management or hire employees; impact of
potential impairment of goodwill and other intangibles in a
challenging economy; decline or volatility of our stock price
regardless of our operating performance; and other factors
discussed in the "Risk Factors" section of our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q and other news releases
we issue and filings we make with the SEC. In light of these risks,
uncertainties and assumptions, the forward-looking events described
herein may not occur.
We undertake no obligation, and do not expect, to publicly
update or publicly revise any forward-looking statement, whether as
a result of new information, future events or otherwise, except as
required by law. All subsequent written and oral forward-looking
statements attributable to us or to persons acting on our behalf
are expressly qualified in their entirety by the cautionary
statements contained herein.
Houghton Mifflin
Harcourt Company
|
Consolidated
Balance Sheets
|
|
|
December 31,
|
|
(in thousands of
dollars, except share information)
|
2015
|
2014
|
Assets
|
|
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$
234,257
|
$
456,581
|
Short-term
investments
|
198,146
|
286,764
|
Accounts receivable,
net
|
256,099
|
255,669
|
Inventories
|
171,446
|
183,961
|
Prepaid expenses and
other assets
|
22,877
|
18,665
|
Total current
assets
|
882,825
|
1,201,640
|
|
|
|
Property, plant, and
equipment, net
|
149,680
|
138,362
|
Pre-publication
costs, net
|
321,931
|
236,995
|
Royalty advances to
authors, net
|
44,736
|
46,777
|
Goodwill
|
783,073
|
532,921
|
Other intangible
assets, net
|
912,955
|
801,969
|
Deferred income
taxes
|
3,540
|
3,705
|
Other
assets
|
38,316
|
28,279
|
Total
assets
|
$ 3,137,056
|
$ 2,990,648
|
|
|
|
Liabilities and
Stockholders' Equity
|
|
|
Current
liabilities
|
|
|
Current portion of
long-term debt
|
$
8,000
|
$
67,500
|
Accounts
payable
|
94,483
|
51,266
|
Royalties
payable
|
85,766
|
80,089
|
Salaries, wages, and
commissions payable
|
45,340
|
59,733
|
Deferred
revenue
|
231,172
|
157,016
|
Interest
payable
|
106
|
47
|
Severance and other
charges
|
4,894
|
5,928
|
Accrued postretirement
benefits
|
1,910
|
2,037
|
Other
liabilities
|
34,937
|
27,015
|
Total current
liabilities
|
506,608
|
450,631
|
|
|
|
Long-term debt, net
of discount
|
784,389
|
175,625
|
Long-term deferred
revenue
|
440,625
|
370,103
|
Accrued pension
benefits
|
23,726
|
18,525
|
Accrued
postretirement benefits
|
23,657
|
26,500
|
Deferred income
taxes
|
139,810
|
91,761
|
Other
liabilities
|
19,920
|
97,823
|
Total
liabilities
|
1,938,735
|
1,230,968
|
Commitments and
contingencies
|
|
|
Stockholders'
equity
|
|
|
Preferred stock, $0.01
par value: 20,000,000 shares authorized; no shares issued and
outstanding at December 31, 2015 and 2014
|
—
|
—
|
Common stock, $0.01
par value: 380,000,000 shares authorized; 145,613,978 and
142,000,019 shares issued at December 31, 2015 and 2014,
respectively; 123,940,510 and
141,917,997 shares outstanding at December 31, 2015 and 2014,
respectively
|
1,456
|
1,420
|
Treasury stock,
21,673,468 and 82,022 shares as of December 31, 2015 and
2014,
respectively, at cost (related parties of $(193,493) in
2015)
|
(463,013)
|
—
|
Capital in excess of
par value
|
4,833,388
|
4,784,962
|
Accumulated
deficit
|
(3,133,782 )
|
(2,999,913 )
|
Accumulated other
comprehensive loss
|
(39,728 )
|
(26,789 )
|
Total stockholders'
equity
|
1,198,321
|
1,759,680
|
Total liabilities and
stockholders' equity
|
$ 3,137,056
|
$ 2,990,648
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Operations
|
|
|
Unaudited
Three Months
Ended
December 31,
|
Years
Ended
December 31,
|
(in thousands of
dollars, except share and per share information)
|
2015
|
2014
|
2015
|
2014
|
|
|
|
|
|
Net
sales
|
$
298,000
|
$
265,485
|
$
1,416,059
|
$
1,372,316
|
Costs and
expenses
|
|
|
|
|
Cost of sales,
excluding publishing rights and pre-
publication amortization
|
137,531
|
123,887
|
622,668
|
588,726
|
Publishing rights
amortization
|
19,358
|
25,049
|
81,007
|
105,624
|
Pre-publication
amortization
|
33,697
|
35,193
|
120,506
|
129,693
|
Cost of
sales
|
190,586
|
184,129
|
824,181
|
824,043
|
Selling and
administrative (related parties of $10,489
for the year ended December 31, 2015)
|
175,585
|
155,501
|
681,124
|
612,535
|
Other intangible
assets amortization
|
7,304
|
3,189
|
22,038
|
12,170
|
Impairment charge for
investment in preferred stock
and intangible assets
|
—
|
400
|
—
|
1,679
|
Severance and other
charges
|
1,162
|
2,000
|
4,767
|
7,300
|
Operating
loss
|
(76,637)
|
(79,734)
|
(116,051 )
|
(85,411 )
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
|
Interest expense,
net
|
(9,735 )
|
(4,891 )
|
(32,045 )
|
(18,245 )
|
Change in fair value
of derivative instruments
|
(469 )
|
(33 )
|
(2,362 )
|
(1,593 )
|
Loss on
extinguishment of debt
|
—
|
—
|
(3,051 )
|
—
|
Loss before
taxes
|
(86,841)
|
(84,658)
|
(153,509 )
|
(105,249 )
|
Income tax expense
(benefit)
|
10,426
|
(924)
|
(19,640)
|
6,242
|
Net loss
|
$
(97,267)
|
$
(83,734)
|
$ (133,869
)
|
$ (111,491
)
|
Net loss per share
attributable to common stockholders
|
|
|
|
|
Basic
|
$
(0.75)
|
$
(0.59)
|
$
(0.98)
|
$
(0.79 )
|
Diluted
|
$
(0.75)
|
$
(0.59)
|
$
(0.98 )
|
$
(0.79 )
|
Weighted average
shares outstanding
|
|
|
|
|
Basic
|
130,176,536
|
141,560,001
|
136,760,107
|
140,594,689
|
Diluted
|
130,176,536
|
141,560,001
|
136,760,107
|
140,594,689
|
|
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Consolidated
Statements of Cash Flows
|
|
|
|
(in thousands of
dollars)
|
2015
|
2014
|
|
|
|
Cash flows from
operating activities
|
|
|
Net loss
|
$ (133,869 )
|
$ (111,491 )
|
Adjustments to
reconcile net loss to net cash provided by operating
activities
|
|
|
Depreciation and
amortization expense
|
296,609
|
319,777
|
Amortization of debt
discount and deferred financing costs
|
7,216
|
4,750
|
Deferred income
taxes
|
48,214
|
899
|
Stock-based
compensation expense
|
12,452
|
11,376
|
Loss on extinguishment
of debt
|
3,051
|
—
|
Impairment charge for
investment in preferred stock and intangible assets
|
—
|
1,679
|
Change in fair value
of derivative instruments
|
2,362
|
1,593
|
Changes in operating
assets and liabilities, net of acquisitions
|
|
|
Accounts
receivable
|
30,808
|
65,519
|
Inventories
|
26,228
|
(1,763 )
|
Other
assets
|
(2,562)
|
(4,263)
|
Accounts payable and
accrued expenses
|
13,145
|
(3,432 )
|
Royalties,
net
|
6,238
|
13,286
|
Deferred
revenue
|
124,489
|
229,105
|
Interest
payable
|
59
|
(8 )
|
Severance and other
charges
|
(3,615 )
|
(5,210 )
|
Accrued pension and
postretirement benefits
|
(4,869 )
|
(16,724 )
|
Other,
liabilities
|
(77,597 )
|
(14,050 )
|
Net cash provided by
operating activities
|
348,359
|
491,043
|
|
|
|
Cash flows from
investing activities
|
|
|
Proceeds from sales
and maturities of short-term investments
|
286,732
|
134,275
|
Purchases of
short-term investments
|
(198,633 )
|
(310,149 )
|
Additions to
pre-publication costs
|
(103,709 )
|
(115,509 )
|
Additions to
property, plant, and equipment
|
(82,987 )
|
(67,145 )
|
Acquisition of
business, net of cash acquired
|
(578,190 )
|
(9,091 )
|
Net cash used in
investing activities
|
(676,787 )
|
(367,619 )
|
|
|
|
Cash flows from
financing activities
|
|
|
Proceeds from term
loan, net of discount
|
796,000
|
—
|
Payments of long-term
debt
|
(247,125 )
|
(2,500 )
|
Payments of deferred
financing fees
|
(15,255 )
|
—
|
Repurchases of common
stock, (related parties of $(193,493) in 2015)
|
(463,013 )
|
—
|
Tax withholding
payments related to net share settlements of restricted stock
units
|
(658 )
|
(723 )
|
Proceeds from stock
option exercises
|
36,155
|
22,752
|
Net cash provided by
financing activities
|
106,104
|
19,529
|
Net (decrease)
increase in cash and cash equivalents
|
(222,324)
|
142,953
|
Cash and cash
equivalent at the beginning of period
|
456,581
|
313,628
|
Cash and cash
equivalent at the end of period
|
$ 234,257
|
$ 456,581
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations
|
|
Consolidated
|
(in thousands of
dollars)
|
|
|
Unaudited
Three
Months
Ended December 31,
|
|
2015
|
2014
|
|
|
|
Net loss
|
$ (97,267)
|
$ (83,734)
|
Interest
expense
|
9,735
|
4,891
|
Provision (benefit)
for income taxes
|
10,426
|
(924)
|
Depreciation
expense
|
19,289
|
19,405
|
Amortization
expense
|
60,359
|
63,431
|
Non-cash
charges—stock-based compensation expense
|
2,524
|
2,571
|
Non-cash charges—loss
on derivative instrument
|
469
|
33
|
Asset impairment
charges
|
—
|
400
|
Purchase accounting
adjustments (1)
|
2,367
|
636
|
Fees, expenses or
charges for equity offerings, debt or acquisitions
|
6,538
|
273
|
Restructuring
|
—
|
70
|
Severance separation
costs and facility closures
|
1,162
|
2,000
|
Adjusted
EBITDA
|
$ 15,602
|
$ 9,052
|
Change in deferred
revenue
|
(23,128)
|
(14,938)
|
Adjusted Cash
EBITDA
|
$ (7,526)
|
$(5,886)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2015
|
2014
|
|
|
|
Net loss
|
$ (133,869 )
|
$ (111,491)
|
Interest
expense
|
32,045
|
18,245
|
Provision (benefit)
for income taxes
|
(19,640)
|
6,242
|
Depreciation
expense
|
72,639
|
72,290
|
Amortization
expense
|
223,551
|
247,487
|
Non-cash
charges—stock-based compensation expense
|
12,452
|
11,376
|
Non-cash charges—loss
on derivative instrument
|
2,362
|
1,593
|
Asset impairment
charges
|
—
|
1,679
|
Purchase accounting
adjustments (1)
|
7,487
|
3,661
|
Fees, expenses or
charges for equity offerings, debt or
acquisitions
|
25,562
|
4,424
|
Restructuring
|
4,572
|
2,577
|
Severance separation
costs and facility closures
|
4,767
|
7,300
|
Loss on
extinguishment of debt
|
3,051
|
—
|
Adjusted
EBITDA
|
$ 234,979
|
$265,383
|
Change in deferred
revenue
|
124,455
|
229,956
|
Adjusted Cash
EBITDA
|
$ 359,434
|
$495,339
|
|
|
|
(1) Represents
certain non-cash accounting adjustments, most significantly
relating to deferred revenue and inventory costs.
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations
|
|
Education
|
(in thousands of
dollars)
|
|
|
|
Unaudited
Three
Months
Ended December 31,
|
|
|
|
2015
|
2014
|
|
|
|
Net loss
|
$
(50,738)
|
$
(63,638)
|
Depreciation
expense
|
13,434
|
16,453
|
Amortization
expense
|
56,934
|
59,686
|
Purchase accounting
adjustments
|
2,367
|
636
|
Adjusted
EBITDA
|
$
21,997
|
$
13,137
|
Change in deferred
revenue
|
(23,128)
|
(14,938)
|
Adjusted Cash
EBITDA
|
$
(1,131)
|
$
(1,801)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
2015
|
2014
|
Net loss
|
$
(4,904)
|
$
(3,206)
|
Depreciation
expense
|
56,960
|
63,865
|
Amortization
expense
|
209,843
|
232,884
|
Non-cash charges –
asset impairment charges
|
—
|
1,279
|
Purchase accounting
adjustments
|
7,487
|
3,661
|
Adjusted
EBITDA
|
$
269,386
|
$
298,483
|
Change in deferred
revenue
|
124,455
|
229,956
|
Adjusted Cash
EBITDA
|
$
393,841
|
$
528,439
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations
|
|
Trade
Publishing
|
(in thousands of
dollars)
|
|
|
|
|
Unaudited
Three
Months
Ended December 31,
|
|
|
|
2015
|
2014
|
|
|
|
Net income
|
$
822
|
$
535
|
Depreciation
expense
|
389
|
151
|
Amortization
expense
|
3,425
|
3,745
|
Non-cash charges –
asset impairment charges
|
—
|
400
|
Adjusted
EBITDA
|
$ 4,636
|
$ 4,831
|
Change in deferred
revenue
|
—
|
—
|
Adjusted Cash
EBITDA
|
$ 4,636
|
$ 4,831
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31,
|
|
|
|
2015
|
2014
|
|
|
|
Net loss
|
$ (7,096)
|
$ (2,919)
|
Depreciation
expense
|
1,091
|
591
|
Amortization
expense
|
13,708
|
14,603
|
Non-cash charges –
asset impairment charges
|
—
|
400
|
Adjusted
EBITDA
|
$ 7,703
|
$ 12,675
|
Change in deferred
revenue
|
—
|
—
|
Adjusted Cash
EBITDA
|
$ 7,703
|
$ 12,675
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations
|
|
|
Corporate and
Other
|
|
(in thousands of
dollars)
|
|
|
|
|
Unaudited
Three Months
Ended
December
31,
|
|
2015
|
2014
|
|
|
|
Net loss
|
$ (47,351
)
|
$ (20,631
)
|
Interest
expense
|
9,735
|
4,891
|
Provision (benefit)
for income taxes
|
10,426
|
(924)
|
Depreciation
expense
|
5,466
|
2,801
|
Non-cash charges—gain
(loss) on derivative instruments
|
469
|
33
|
Non-cash
charges—stock-based compensation expense
|
2,524
|
2,571
|
Fees, expenses or
charges for equity offerings, debt or acquisitions
|
6,538
|
273
|
Restructuring
|
—
|
70
|
Severance separation
costs and facility closures
|
1,162
|
2,000
|
Adjusted
EBITDA
|
$ (11,031)
|
$
(8,916)
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended
December
31,
|
|
|
|
2015
|
2014
|
|
|
|
Net loss
|
$ (121,869)
|
$ (105,366 )
|
Interest
expense
|
32,045
|
18,245
|
Provision (benefit)
for income taxes
|
(19,640)
|
6,242
|
Depreciation
expense
|
14,588
|
7,834
|
Non-cash charges—gain
on derivative instruments
|
2,362
|
1,593
|
Non-cash
charges—stock-based compensation expense
|
12,452
|
11,376
|
Fees, expenses or
charges for equity offerings, debt or acquisitions
|
25,562
|
4,424
|
Restructuring
|
4,572
|
2,577
|
Severance separation
costs and facility closures
|
4,767
|
7,300
|
Loss on
extinguishment of debt
|
3,051
|
—
|
Adjusted
EBITDA
|
$ (42,110
)
|
$ (45,775
)
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations
|
|
Billings
|
(in thousands of
dollars)
|
|
|
Unaudited
Three
Months
Ended December
31,
|
|
|
|
2015
|
2014
|
|
|
|
Net sales
|
$
298,000
|
$
265,485
|
Change in deferred
revenue
|
(23,128)
|
(14,938)
|
Billings
|
$
274,872
|
$
250,547
|
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
2015
|
2014
|
|
|
|
Net sales
|
$ 1,416,059
|
$ 1,372,316
|
Change in deferred
revenue
|
124,455
|
229,956
|
Billings
|
$ 1,540,514
|
$ 1,602,272
|
|
|
|
|
|
|
Houghton Mifflin
Harcourt Company
|
Non-GAAP
Reconciliations
|
|
Free Cash
Flow
|
|
Years
Ended December 31,
|
|
|
|
2015
|
2014
|
(in thousands of
dollars)
|
|
|
Cash flows from
operating activities
|
|
|
Net cash provided by
operating activities
|
$ 348,359
|
$ 491,043
|
|
|
|
Cash flows from
investing activities
|
|
|
Additions to
pre-publication costs
|
(103,709 )
|
(115,509 )
|
Additions to
property, plant, and equipment
|
(82,987)
|
(67,145 )
|
Free Cash
Flow
|
$ 161,663
|
$ 308,389
|
|
|
|
|
|
|
|
|
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