HMH Announces Strong Third Quarter 2021 Results; Delivers Billings Growth of 22%; Raises Full Year Guidance Again
BOSTON, Nov. 4, 2021 /PRNewswire/ -- HMH (Nasdaq: HMHC), a learning technology company, announced strong financial results for the third quarter which ended Sept. 30, 2021.
"Propelled by strong demand for our comprehensive portfolio of learning solutions, HMH delivered an impressive
"HMH is now among the largest and fastest growing companies in the edtech market. Through execution of our digital first, connected strategy we have grown our connected billings substantially with ARR growing
Q3 2021 Financial Results and Headlines:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
(in millions of dollars) | 2021 1 | 2020 1 | Change | 2021 1 | 2020 1 | Change | ||||||||||||||||||
Net sales | $ | 417 | $ | 331 | 25.9 | % | $ | 872 | $ | 699 | 24.7 | % | ||||||||||||
Change in deferred revenue | 130 | 119 | 9.2 | % | 106 | 106 | (0.2) | % | ||||||||||||||||
Billings 2 | 548 | 451 | 21.5 | % | 978 | 806 | 21.4 | % | ||||||||||||||||
Impairment charge for goodwill | — | — | NM | — | 262 | NM | ||||||||||||||||||
Income (loss) from continuing operations | 95 | (12) | NM | 48 | (382) | NM | ||||||||||||||||||
Adjusted EBITDA 3 | 146 | 83 | 76.7 | % | 246 | 95 | NM | |||||||||||||||||
Pre-publication or content development costs | (13) | (16) | 23.5 | % | (42) | (51) | 17.3 | % | ||||||||||||||||
Net cash provided by operating activities | 288 | 257 | 11.9 | % | 193 | 66 | NM | |||||||||||||||||
Free cash flow 3 | 265 | 230 | 15.5 | % | 122 | (20) | NM | |||||||||||||||||
_______________ | |||||||||||||||||||||||||
1 | All amounts have been adjusted to eliminate the impact of the HMH Books & Media business which has been removed from continuing operations and classified as discontinued operations since the first quarter of 2021. | ||||||||||||||||||||||||
2 | An operating measure. Please refer to "Operating Metrics" for an explanation. | ||||||||||||||||||||||||
3 | A non-GAAP measure. Please refer to Use of Non-GAAP Financial Measures for an explanation and reconciliation. We are unable to reconcile forward looking unlevered free cash flow without unreasonable efforts. | ||||||||||||||||||||||||
NM = not meaningful | |||||||||||||||||||||||||
Highlights from the quarter include:
- Raising FY 2021 billings2 guidance to
$1,075 -$1,095 million , unlevered free cash flow guidance to 17-19% of billings and Annualized Recurring Revenue (ARR) 2 guidance to 12-15% of billings - Strong billings growth across the Company of
22% in Q3 and21% YTD as demand for teaching and learning solutions continued as students returned to classrooms this fall and teachers further assessed instructional needs for the remainder of the school year - ARR2 growth accelerated to
123% bringing ARR to$120 million , or11% of trailing twelve-month billings. Net Retention Rate (NRR)2 was153% - Trailing twelve-month free cash flow3 of
$137 million , an improvement of$36 million compared to the second quarter of 2021, reflecting strong operating leverage and the benefits of 2020 actions to align HMH's cost structure with its digital first, connected strategy - Gross leverage ratio of 1.4x, below HMH's target leverage ratio of 2.0x adjusted EBITDA
Joe Abbott, HMH's Chief Financial Officer said, "Our digital first, connected business exhibits high operating leverage, strong free cash flow and rapidly growing annual recurring revenue which fueled strong third quarter results. We expect that our transition to digital will continue, leading to a lower variable cost rate and additional opportunities to reduce fixed costs which in turn will lead to increased free cash flow."
2021 Outlook:
In light of strong year to date financial results in 2021, the Company is raising its billings, unlevered free cash flow and annualized recurring revenue guidance. Our updated guidance is as follows:
Estimate | Outlook for Year ending December | Outlook for Year ending December 31, | ||
Total Billings | ||||
Unlevered Free Cash Flow | 12 | 17 | ||
Annualized Recurring Revenue | 10 | 12 |
Third Quarter 2021 Financial Results:
Net Sales: HMH reported net sales of
Billings2: Billings for 2021 increased
Cost of Sales: Overall cost of sales increased by
Selling and Administrative Costs: Selling and administrative costs increased by
Operating Income: Operating income for 2021 was
Net Income: Net income of
Adjusted EBITDA from continuing operations: Adjusted EBITDA from continuing operations for 2021 was
Nine Months Ended September 30, 2021 Financial Results:
Net Sales: HMH reported net sales of
Billings2: Billings for 2021 increased
Cost of Sales: Overall cost of sales increased by
Selling and Administrative Costs: Selling and administrative costs slightly decreased, primarily due to the 2020 restructuring plan with reduced labor, professional fees and travel and marketing costs. Partially offsetting the aforementioned was an increase in variable expenses such as commissions and transportation due to higher billings along with an increase in incentive compensation.
Operating Income: Operating income for 2021 was
Net Income: Net income of
Adjusted EBITDA from continuing operations: Adjusted EBITDA from continuing operations for 2021 was
Cash Flows and Liquidity: Net cash provided by operating activities for 2021 was
As of Nov. 4, 2021, there were no amounts outstanding under our revolving credit facility. We expect our net cash from operations combined with our cash and cash equivalents and borrowing availability under our revolving credit facility to provide sufficient liquidity to fund our current obligations, capital spending, debt service requirements and working capital requirements over at least the next twelve months.
Conference Call:
At 9:30 a.m. ET on Thursday, Nov. 4, 2021, HMH will host a conference call to discuss the results with its investors. The call will be webcast live at ir.hmhco.com. The following information is provided for investors who would like to participate:
Toll Free: (844) 835-6565
International: (484) 653-6719
Passcode: 4666615
Moderator: Chris Symanoskie, Vice President, Investor Relations
Webcast Link: https://edge.media-server.com/mmc/p/ybhqjui4
An archived webcast with the accompanying slides will be available at ir.hmhco.com for one year for those unable to participate in the live event. An audio replay of this conference call will also be available until November 14, 2021 via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally using passcode 4666615.
Use of Non-GAAP Financial Measures:
To supplement our financial statements presented in accordance with Generally Accepted Accounting Principles (GAAP) and to provide additional insights into our performance (for a completed period and/or on a forward-looking basis), we have presented adjusted EBITDA from continuing operations and free cash flow. These measures are not prepared in accordance with GAAP. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. Management believes that the presentation of these non-GAAP measures provides useful information to investors regarding our results of operations and/or our expected results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.
Management believes that the presentation of adjusted EBITDA provides useful information to our investors and management as an indicator of our performance that is not affected by debt restructurings, fluctuations in interest rates or effective tax rates, gains or losses on investments, non-cash charges and impairment charges, levels of depreciation or amortization, and acquisition/disposition-related activity costs, legal settlement costs, restructuring costs and integration costs. Accordingly, management believes that this measure is useful for comparing our performance from period to period and makes decisions based on it. In addition, targets in adjusted EBITDA (further adjusted to include the change in deferred revenue) are used as performance measures to determine certain incentive compensation of management. Management also believes that the presentation of free cash flow provides useful information to our investors because management regularly reviews these metrics as an important indicator of how much cash is generated by general business operations, excluding capital expenditures, and makes decisions based on it.
Other companies may define these non-GAAP measures differently and, as a result, our use of these non-GAAP measures may not be directly comparable to adjusted EBITDA and free cash flow used by other companies. Although we use these non-GAAP measures as financial measures to assess our business, the use of non-GAAP measures is limited as they include and/or do not include certain items not included and/or included in the most directly comparable GAAP measure. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income or loss prepared in accordance with GAAP as a measure of performance; and free cash flow should be considered in addition to, and not as a substitute for, net cash from operating activities prepared in accordance with GAAP. Adjusted EBITDA is not intended to be a measure of liquidity nor is free cash flow intended to be a measure of residual cash flow available for discretionary use. You are cautioned not to place undue reliance on these non-GAAP measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures (to the extent available without unreasonable efforts in the case of forward-looking measures) and related disclosure is provided in the appendix to this news release.
Operating Metrics:
Annualized Recurring Revenue (ARR) for a given period is the annualized revenues derived from termed subscription contracts existing at the end of the period. ARR excludes contracts that are one-time in nature. ARR is currently one of the key performance metrics being used by management to assess the health and trajectory of our business. ARR does not have a standardized definition and is therefore unlikely to be comparable to similarly titled measures presented by other companies. ARR should be viewed independently of U.S. GAAP revenue, deferred revenue and unbilled revenue and is not intended to be combined with or to replace those items. ARR does not represent revenue for any particular period or remaining revenue that will be recognized in future periods. ARR is not a forecast and the active contracts at the end of a reporting period used in calculating ARR may or may not be extended or renewed by our customers.
Billings is an operating measure which we derive from net sales taking into account the change in deferred revenue. Billings for Core Solutions and Extensions is an operating measure based on invoiced sales adjusted for returns, other publishing income and change in deferred revenue.
Connected Sales are billings from the sale of core, intervention, supplemental, assessment and service offerings hosted on or transitioning to be hosted on our Ed: Your Friend in Learning® teaching and learning platform.
Gross Leverage Ratio is the total amount of outstanding gross financial debt on a consolidated basis divided by the trailing twelve months Adjusted EBITDA from continuing operations.
Net Retention Rate (NRR) is the rate at which existing customers are renewing and expanding. The dollar-based net retention rate is calculated as of a period end by starting with the ARR from all customers as of the 12 months prior to such period end. The ARR is then calculated from these same customers as of the current period end, which includes customer renewals, upsells and expansion and is net of contraction or churn over the trailing 12 months, but excludes revenue from new customers in the current period. The dollar-based net retention rate is calculated by dividing the ARR from these customers as of the current period end by the ARR from these customers as of 12 months prior to such period end.
About HMH
Houghton Mifflin Harcourt (Nasdaq: HMHC) is a learning technology company committed to delivering connected solutions that engage learners, empower educators and improve student outcomes. As a leading provider of K–12 core curriculum, supplemental and intervention solutions, and professional learning services, HMH partners with educators and school districts to uncover solutions that unlock students' potential and extend teachers' capabilities. HMH serves more than 50 million students and 3 million educators in 150 countries. For more information, visit www.hmhco.com
Follow HMH on Twitter, Facebook, Instagram and YouTube.
Contact
Investor Relations
Chris Symanoskie, IRC
VP, Investor Relations
410-215-1405
Chris.Symanoskie@hmhco.com
Media Relations
Bianca Olson
SVP, Corporate Affairs
617-351-3841
Bianca.Olson@hmhco.com
Forward-Looking Statements
The statements contained herein include forward-looking statements, which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "projects," "anticipates," "expects," "could," "intends," "may," "will," "should," "forecast," "intend," "plan," "potential," "project," "target" or, in each case, their negative, or other variations or comparable terminology. Forward-looking statements include all statements that are not statements of historical facts, including statements regarding our 2021 outlook, efforts to execute on our digital first, connected strategy, opportunities to reduce costs and our expected cash runway and free cash flow generation. They include statements regarding our intentions, beliefs or current expectations concerning, among other things, the impact of the actions described in this press release; our results of operations; financial condition; liquidity; prospects, growth and strategies; the expected impact of the COVID-19 pandemic; the timing, structure and expected impact of our operational efficiency and cost-reduction initiatives and the estimated savings and amounts expected to be incurred in connection therewith; and potential business decisions. We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. We caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are based upon information available to us on the date of this report.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that actual results may differ materially from those made in or suggested by the forward-looking statements contained herein. In addition, even if actual results are consistent with the forward-looking statements contained herein, those results or developments may not be indicative of results or developments in subsequent periods.
Important factors that could cause actual results to vary from expectations include, but are not limited to: the duration and severity of the COVID-19 pandemic and its impact on the federal, state and local economies and on K–12 schools; any disruption resulting from the completed sale of our HMH Books & Media business that adversely affects our businesses and business relationships, including with employees and suppliers; the rate and state of technological change; state requirements related to digital instructional materials; our ability to execute on our digital first, connected strategy; increases in our operating costs; management and personnel changes; timing, higher costs and unintended consequences of our operational efficiency and cost-reduction initiatives; and other factors discussed in our news releases, public statements and/or filings with the U.S. Securities and Exchange Commission, including our most recent Annual and Quarterly Reports on Form 10-K and Form 10-Q. In light of these risks, uncertainties and assumptions, the forward-looking events described herein may not occur.
We undertake no obligation, and do not expect, to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained herein.
Houghton Mifflin Harcourt Company Consolidated Balance Sheets (Unaudited) | ||||||||
September 30, | December 31, | |||||||
(in thousands of dollars, except share information) | 2021 | 2020 | ||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 420,318 | $ | 281,200 | ||||
Accounts receivable, net | 299,413 | 88,830 | ||||||
Inventories | 96,471 | 145,553 | ||||||
Prepaid expenses and other assets | 26,193 | 19,276 | ||||||
Assets of discontinued operations | — | 160,053 | ||||||
Total current assets | 842,395 | 694,912 | ||||||
Property, plant, and equipment, net | 80,978 | 88,801 | ||||||
Pre-publication costs, net | 163,255 | 202,820 | ||||||
Royalty advances to authors, net | 1,581 | 2,425 | ||||||
Goodwill | 437,977 | 437,977 | ||||||
Other intangible assets, net | 370,047 | 402,484 | ||||||
Operating lease assets | 117,410 | 126,850 | ||||||
Deferred income taxes | 2,415 | 2,415 | ||||||
Deferred commissions | 37,309 | 30,659 | ||||||
Other assets | 32,980 | 31,783 | ||||||
Total assets | $ | 2,086,347 | $ | 2,021,126 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities | ||||||||
Current portion of long-term debt | $ | — | $ | 19,000 | ||||
Accounts payable | 49,736 | 38,751 | ||||||
Royalties payable | 44,766 | 34,765 | ||||||
Salaries, wages, and commissions payable | 61,133 | 21,723 | ||||||
Deferred revenue | 386,431 | 342,605 | ||||||
Interest payable | 4,260 | 11,017 | ||||||
Severance and other charges | 1,283 | 19,590 | ||||||
Accrued pension benefits | 118 | 1,593 | ||||||
Accrued postretirement benefits | 1,555 | 1,555 | ||||||
Operating lease liabilities | 10,506 | 9,669 | ||||||
Other liabilities | 40,273 | 22,912 | ||||||
Liabilities of discontinued operations | — | 30,662 | ||||||
Total current liabilities | 600,061 | 553,842 | ||||||
Long-term debt, net of discount and issuance costs | 317,095 | 624,692 | ||||||
Operating lease liabilities | 131,582 | 132,014 | ||||||
Long-term deferred revenue | 624,953 | 562,679 | ||||||
Accrued pension benefits | 15,021 | 24,061 | ||||||
Accrued postretirement benefits | 15,338 | 16,566 | ||||||
Deferred income taxes | 11,885 | 16,411 | ||||||
Other liabilities | 215 | 398 | ||||||
Total liabilities | 1,716,150 | 1,930,663 | ||||||
Commitments and contingencies | ||||||||
Stockholders' equity | ||||||||
Preferred stock, | — | — | ||||||
Common stock, | 1,523 | 1,505 | ||||||
Treasury stock, 24,577,034 shares as of September 30, 2021 and December 31, 2020, respectively, at cost | (518,030) | (518,030) | ||||||
Capital in excess of par value | 4,927,934 | 4,918,542 | ||||||
Accumulated deficit | (3,993,826) | (4,255,830) | ||||||
Accumulated other comprehensive loss | (47,404) | (55,724) | ||||||
Total stockholders' equity | 370,197 | 90,463 | ||||||
Total liabilities and stockholders' equity | $ | 2,086,347 | $ | 2,021,126 | ||||
Houghton Mifflin Harcourt Company Consolidated Statements of Operations (Unaudited) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
(in thousands of dollars, except share and per share information) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
Net sales | $ | 417,130 | $ | 331,205 | $ | 871,997 | $ | 699,287 | ||||||||
Costs and expenses | ||||||||||||||||
Cost of sales, excluding publishing rights and pre-publication amortization | 152,893 | 146,155 | 335,390 | 310,351 | ||||||||||||
Publishing rights amortization | 2,516 | 3,469 | 8,171 | 11,332 | ||||||||||||
Pre-publication amortization | 27,620 | 31,570 | 79,177 | 93,791 | ||||||||||||
Cost of sales | 183,029 | 181,194 | 422,738 | 415,474 | ||||||||||||
Selling and administrative | 134,951 | 118,275 | 338,953 | 339,815 | ||||||||||||
Other intangible assets amortization | 7,241 | 5,857 | 23,016 | 17,568 | ||||||||||||
Impairment charge for goodwill | — | — | — | 262,000 | ||||||||||||
Restructuring/severance and other charges | 33 | 31,776 | 9,880 | 31,776 | ||||||||||||
Gain on sale of assets | (3,661) | — | (3,661) | — | ||||||||||||
Operating income (loss) | 95,537 | (5,897) | 81,071 | (367,346) | ||||||||||||
Other income (expense) | ||||||||||||||||
Retirement benefits non-service income (expense) | 214 | 61 | (12) | 183 | ||||||||||||
Interest expense | (8,239) | (9,311) | (26,788) | (29,178) | ||||||||||||
Interest income | 18 | 32 | 52 | 873 | ||||||||||||
Change in fair value of derivative instruments | (368) | 432 | (915) | 172 | ||||||||||||
Gain on investments | 606 | 1,738 | 1,442 | 1,738 | ||||||||||||
Income from transition services agreement | 1,399 | — | 2,253 | — | ||||||||||||
Loss on extinguishment of debt | — | — | (12,505) | — | ||||||||||||
Income (loss) from continuing operations before taxes | 89,167 | (12,945) | 44,598 | (393,558) | ||||||||||||
Income tax benefit for continuing operations | (6,192) | (1,060) | (3,891) | (11,210) | ||||||||||||
Income (loss) from continuing operations | 95,359 | (11,885) | 48,489 | (382,348) | ||||||||||||
Loss from discontinued operations, net of tax | — | (667) | (1,005) | (14,345) | ||||||||||||
Gain on sale of discontinued operations, net of tax | — | — | 214,520 | — | ||||||||||||
(Loss) income from discontinued operations, net of tax | — | (667) | 213,515 | (14,345) | ||||||||||||
Net income (loss) | $ | 95,359 | $ | (12,552) | $ | 262,004 | $ | (396,693) | ||||||||
Net income (loss) per share attributable to common stockholders | ||||||||||||||||
Basic: | ||||||||||||||||
Continuing operations | $ | 0.75 | $ | (0.09) | $ | 0.38 | $ | (3.05) | ||||||||
Discontinued operations | — | (0.01) | 1.68 | (0.12) | ||||||||||||
Net income (loss) | $ | 0.75 | $ | (0.10) | $ | 2.06 | $ | (3.17) | ||||||||
Diluted: | ||||||||||||||||
Continuing operations | $ | 0.72 | $ | (0.09) | $ | 0.37 | $ | (3.05) | ||||||||
Discontinued operations | — | (0.01) | 1.64 | (0.12) | ||||||||||||
Net income (loss) | $ | 0.72 | $ | (0.10) | $ | 2.01 | $ | (3.17) | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 127,674,513 | 125,799,018 | 127,220,429 | 125,317,284 | ||||||||||||
Diluted | 131,652,417 | 125,799,018 | 130,667,785 | 125,317,284 | ||||||||||||
Houghton Mifflin Harcourt Company Consolidated Statements of Cash Flows (Unaudited) | ||||||||
Nine Months Ended September 30, | ||||||||
(in thousands of dollars) | 2021 | 2020 | ||||||
Cash flows from operating activities | ||||||||
Net income (loss) | $ | 262,004 | $ | (396,693) | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | ||||||||
Loss from discontinued operations, net of tax | 1,005 | 14,345 | ||||||
Gain on sale of discontinued operations, net of tax | (214,520) | — | ||||||
Gain on sale of assets | (3,661) | — | ||||||
Depreciation and amortization expense | 144,698 | 160,073 | ||||||
Operating lease assets, amortization and impairments | 9,411 | 9,565 | ||||||
Amortization of debt discount and deferred financing costs | 2,096 | 1,979 | ||||||
Gain on investments | (1,442) | (1,738) | ||||||
Deferred income taxes | (4,526) | (12,084) | ||||||
Stock-based compensation expense | 8,727 | 8,295 | ||||||
Write-off of property, plant, and equipment | 1,606 | — | ||||||
Loss on extinguishment of debt | 12,505 | — | ||||||
Impairment charge for goodwill | — | 262,000 | ||||||
Change in fair value of derivative instruments | 915 | (172) | ||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | (200,632) | (106,852) | ||||||
Inventories | 49,081 | 38,566 | ||||||
Other assets | (13,767) | (10,663) | ||||||
Accounts payable and accrued expenses | 53,878 | 4,764 | ||||||
Royalties payable and author advances, net | 12,467 | (21,169) | ||||||
Deferred revenue | 106,100 | 105,347 | ||||||
Interest payable | (6,757) | 155 | ||||||
Severance and other charges | (18,307) | 22,494 | ||||||
Accrued pension and postretirement benefits | (2,656) | (5,532) | ||||||
Operating lease liabilities | 436 | (7,598) | ||||||
Other liabilities | (5,964) | 935 | ||||||
Net cash provided by operating activities - continuing operations | 192,697 | 66,017 | ||||||
Net cash provided by operating activities - discontinued operations | 3,880 | 9,149 | ||||||
Net cash provided by operating activities | 196,577 | 75,166 | ||||||
Cash flows from investing activities | ||||||||
Additions to pre-publication costs | (42,104) | (50,919) | ||||||
Additions to property, plant, and equipment | (28,672) | (35,275) | ||||||
Proceeds from sale of business | 349,000 | — | ||||||
Proceeds from sale of assets | 5,000 | — | ||||||
Net cash provided by (used in) investing activities - continuing operations | 283,224 | (86,194) | ||||||
Net cash used in investing activities - discontinued operations | (647) | (402) | ||||||
Net cash provided by (used in) investing activities | 282,577 | (86,596) | ||||||
Cash flows from financing activities | ||||||||
Borrowings under revolving credit facility | — | 150,000 | ||||||
Payments of revolving credit facility | — | (150,000) | ||||||
Payments of long-term debt | (342,031) | (14,250) | ||||||
Tax withholding payments related to net share settlements of restricted stock units | — | (48) | ||||||
Issuance of common stock under employee stock purchase plan | 410 | 918 | ||||||
Net collections under transition services agreement | 1,585 | — | ||||||
Net cash used in financing activities - continuing operations | (340,036) | (13,380) | ||||||
Net increase (decrease) in cash and cash equivalents | 139,118 | (24,810) | ||||||
Cash and cash equivalents at beginning of the period | 281,200 | 296,353 | ||||||
Cash and cash equivalents at end of the period | $ | 420,318 | $ | 271,543 | ||||
Houghton Mifflin Harcourt Company Non-GAAP Reconciliations (Unaudited) | ||||||||||||||||
Adjusted EBITDA 1 | ||||||||||||||||
(in thousands of dollars) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net income (loss) from continuing operations | $ | 95,359 | $ | (11,885) | $ | 48,489 | $ | (382,348) | ||||||||
Interest expense | 8,239 | 9,311 | 26,788 | 29,178 | ||||||||||||
Interest income | (18) | (32) | (52) | (873) | ||||||||||||
Provision (benefit) for income taxes | (6,192) | (1,060) | (3,891) | (11,210) | ||||||||||||
Depreciation expense | 11,063 | 12,358 | 34,334 | 37,382 | ||||||||||||
Amortization expense | 37,377 | 40,896 | 110,364 | 122,691 | ||||||||||||
Non-cash charges – goodwill impairment | — | — | — | 262,000 | ||||||||||||
Non-cash charges – stock compensation | 3,177 | 2,971 | 8,727 | 8,295 | ||||||||||||
Non-cash charges – (gain) loss on derivative instruments | 368 | (432) | 915 | (172) | ||||||||||||
Fees, expenses or charges for equity offerings, debt or acquisitions/dispositions | 676 | 339 | 866 | 366 | ||||||||||||
Gain on investments | (606) | (1,738) | (1,442) | (1,738) | ||||||||||||
Gain on sale of assets | (3,661) | — | (3,661) | — | ||||||||||||
Loss on debt extinguishment | — | — | 12,505 | — | ||||||||||||
Legal settlement | — | — | 2,470 | — | ||||||||||||
Restructuring/severance and other charges | 33 | 31,776 | 9,880 | 31,776 | ||||||||||||
Adjusted EBITDA from continuing operations | $ | 145,815 | $ | 82,504 | $ | 246,292 | $ | 95,347 | ||||||||
Free Cash Flow 1 | ||||||||||||||||
(in thousands of dollars) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Cash flows from operating activities | ||||||||||||||||
Net cash provided by operating activities | $ | 287,630 | $ | 257,084 | $ | 192,697 | $ | 66,017 | ||||||||
Cash flows from investing activities | ||||||||||||||||
Additions to pre-publication costs | (12,563) | (16,423) | (42,104) | (50,919) | ||||||||||||
Additions to property, plant, and equipment | (9,614) | (10,917) | (28,672) | (35,275) | ||||||||||||
Free Cash Flow | $ | 265,453 | $ | 229,744 | $ | 121,921 | $ | (20,177) | ||||||||
Trailing Twelve Months Ended | |||||||
Cash flows from operating activities | |||||||
Net cash provided by operating activities | $ | 233,165 | |||||
Cash flows from investing activities | |||||||
Additions to pre-publication costs | (52,057) | ||||||
Additions to property, plant, and equipment | (44,337) | ||||||
Free Cash Flow | $ | 136,771 | |||||
1 | All amounts have been adjusted to eliminate the impact of the HMH Books & Media business which has been removed from continuing operations and classified as discontinued operations. | ||||||
We are unable to reconcile forward looking free cash flow (both before and after interest payments) and related margin without unreasonable efforts. Unlevered free cash flow margin is the ratio of free cash flow before interest payments to billings.
Houghton Mifflin Harcourt Company Calculation of Billings and Gross Leverage Ratio (Unaudited) | ||||||||||||||||
Billings 1 | ||||||||||||||||
(in thousands of dollars) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Net sales | $ | 417,130 | $ | 331,205 | $ | 871,997 | $ | 699,287 | ||||||||
Change in deferred revenue | 130,419 | 119,426 | 106,100 | 106,347 | ||||||||||||
Billings | $ | 547,549 | $ | 450,631 | $ | 978,097 | $ | 805,634 | ||||||||
Trailing Twelve Months Ended | |||||||
Net sales | $ | 1,013,164 | |||||
Change in deferred revenue | 57,931 | ||||||
Billings | $ | 1,071,095 | |||||
Billings is an operating measure utilized by the Company derived as shown above. | |||||||
Gross Leverage Ratio 1 | ||||||
(in thousands of dollars) | ||||||
September 30, | ||||||
Gross debt | $ | 324,969 | ||||
Trailing twelve months Adjusted EBITDA | $ | 239,610 | ||||
Gross leverage ratio | 1.4 | |||||
Trailing Twelve Months Ended | ||||
Net loss from continuing operations | $ | (39,853) | ||
Interest expense | 35,541 | |||
Interest income | (78) | |||
Provision (benefit) for income taxes | (5,138) | |||
Depreciation expense | 46,826 | |||
Amortization expense | 152,228 | |||
Non-cash charges – goodwill impairment | 17,000 | |||
Non-cash charges – stock compensation | 11,592 | |||
Non-cash charges – (gain) loss on derivative instruments | 415 | |||
Fees, expenses or charges for equity offerings, debt or | 1,580 | |||
Gain on investments | (1,795) | |||
Gain on sale of assets | (3,661) | |||
Loss on debt extinguishment | 12,505 | |||
Legal settlement | 2,470 | |||
Restructuring/severance and other charges | 9,978 | |||
Adjusted EBITDA from continuing operations | $ | 239,610 | ||
Gross leverage ratio is an operating measure utilized by the Company derived as shown above. | |||||
1 | All amounts have been adjusted to eliminate the impact of the HMH Books & Media business which has been removed from continuing operations and classified as discontinued operations. | ||||
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SOURCE Houghton Mifflin Harcourt
