hmhc-8k_20201105.htm
false 0001580156 0001580156 2020-11-05 2020-11-05

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 5, 2020

 

HOUGHTON MIFFLIN HARCOURT COMPANY

(Exact name of registrant as specified in its charter)

 

 

Delaware

001-36166

27-1566372

(State or other jurisdiction

of incorporation)

(Commission

File No.)

(IRS Employer

Identification No.)

 

 

 

125 High Street

Boston, MA

 

02110

(Address of principal executive offices)

 

(Zip Code)

 

(617) 351-5000

(Registrant’s telephone number, including area code)

NOT APPLICABLE

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

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

HMHC

 

The Nasdaq Stock Market LLC

 

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

 

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

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

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

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

 

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

Emerging growth company  

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

 

 

 

 


 

Item 2.02 Results of Operations and Financial Condition

On November 5, 2020, Houghton Mifflin Harcourt Company (the “Company”) issued a press release reporting its financial results for the third quarter ended September 30, 2020 and other information. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

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

Item 9.01 Financial Statements and Exhibits

 

(d)

Exhibits

 

Exhibit No.

 

Description

 

 

99.1

 

Press release issued by Houghton Mifflin Harcourt Company on November 5, 2020

104

 

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

2


 

 SIGNATURES

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

 

 

HOUGHTON MIFFLIN HARCOURT COMPANY

 

 

 

 

By:

 

/s/ Michael Dolan

 

Name:

 

Michael Dolan

 

Title:

 

Senior Vice President and Corporate Controller

 

Dated: November 5, 2020

3

hmhc-ex991_6.htm

Exhibit 99.1

 

 

Houghton Mifflin Harcourt Announces Third Quarter 2020 Results,
Intent to Explore Potential Sale of HMH Books & Media Consumer Publishing Business

 

Continued momentum with K-12 SaaS billings growth of 147% and digital platform usage growth of 388% as HMH focuses on
transformation to pure-play learning technology company

BOSTON — November 5, 2020 — Learning technology company Houghton Mifflin Harcourt (“HMH” or the “Company”) (Nasdaq: HMHC) today announced financial results for the quarter ended September 30, 2020. The Company also announced its intent to explore the potential sale of HMH Books & Media, its Consumer Publishing business. The potential sale would reduce debt and build on the Company’s October 1 restructuring to align its cost structure to its digital-first, connected strategy, and create a pure-play learning technology company. The Company has engaged Centerview Partners to explore the potential sale of HMH Books & Media.

Q3 2020 Headlines:

While the COVID-19 pandemic continued to impact third quarter net sales and billings performance, HMH’s continued virtual learning support for customers and decisive cost and liquidity actions helped mitigate the impact of the COVID-19 pandemic on its profitability and cash flow, and resulted in strong cash generation in the seasonally important third quarter of 2020.

 

Net sales declined 32% to $387 million in the third quarter, and declined 28% to $828 million on a year-to-date basis

 

Billings1 declined 32% to $506 million in the third quarter, and declined 33% to $934 million on a year-to-date basis

 

HMH concluded the Texas Literature adoption with a 34% share of the opportunity

 

Significant growth in digital platform usage with a 388% increase in student assignments over the last twelve months as schools continue to adjust to remote learning environment

 

Continued acceleration of SaaS billings growth to 147% for the last twelve months

 

Net cash provided by operating activities of $264 million in the third quarter, and $75 million on a year-to-date basis

 

Strong free cash flow2 of $237 million in the third quarter, and nearing break-even at $(11) million on a year-to-date basis

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

(in millions of dollars)

 

2020

 

 

2019

 

 

Change

 

 

2020

 

 

2019

 

 

Change

 

Net sales

 

$

387

 

 

$

566

 

 

 

(31.7

)%

 

$

828

 

 

$

1,149

 

 

 

(28.0

)%

Change in deferred revenue

 

 

119

 

 

 

181

 

 

 

(34.0

)%

 

 

106

 

 

 

241

 

 

 

(55.9

)%

Billings 1

 

 

506

 

 

 

747

 

 

 

(32.2

)%

 

 

934

 

 

 

1,390

 

 

 

(32.8

)%

Impairment charge for goodwill

 

 

 

 

 

 

 

NM

 

 

 

262

 

 

 

 

 

NM

 

Net (loss) income

 

 

(13

)

 

 

69

 

 

NM

 

 

 

(397

)

 

 

(89

)

 

NM

 

Adjusted EBITDA 2

 

 

97

 

 

 

149

 

 

 

(34.6

)%

 

 

116

 

 

 

169

 

 

 

(31.7

)%

Pre-publication or content development costs

 

 

(16

)

 

 

(26

)

 

 

36.5

%

 

 

(51

)

 

 

(82

)

 

 

37.1

%

Net cash provided by operating activities

 

 

264

 

 

 

393

 

 

 

(32.8

)%

 

 

75

 

 

 

127

 

 

 

(41.0

)%

Free cash flow 2

 

 

237

 

 

 

358

 

 

 

(33.9

)%

 

 

(11

)

 

 

18

 

 

NM

 

 

1

An operating measure which we derive from net sales taking into account the change in deferred revenue.

2

Non-GAAP measure, please refer to Use of Non-GAAP measures for an explanation and reconciliation.

NM = not meaningful

 

“HMH remains focused on our digital-first, connected strategy which has proven to be more important than ever in this unique back-to-school season. We are supporting teaching and learning nationwide whether done in person, fully remote or hybrid. Even as the near-term pressures of the COVID-19 pandemic impacted our billings for the third quarter, we are seeing very strong growth across the key indicators of our digital transformation, positioning HMH’s SaaS offerings amongst the largest and fastest growing in the edtech market,” said Jack Lynch, President and Chief Executive Officer of Houghton Mifflin Harcourt.

 


 

 

“We also announced our intention to explore a potential sale of HMH Books & Media. As we further advance our learning technology strategy, we believe this is the right time to focus our portfolio, which we believe will help to maximize shareholder value,” added Lynch. “At HMH we are very proud of our trade publishing heritage, and our Books & Media colleagues who have continued to innovate and evolve as the consumer publishing market has changed over time. Because of this heritage, we know the power a story has to inspire generations to make lives of meaning. We have grown and invested in this business over many years, and it has continually demonstrated strength and resilience – particularly this year through the challenges of the pandemic.”

 

Joe Abbott, HMH’s Chief Financial Officer said, “HMH remains in a position of financial strength, as we look to the end of 2020 and beyond. During the quarter, we continued to manage our expenses with discipline, and as a result, delivered adjusted EBITDA margins on par with the prior year despite net sales and billings declines. We generated strong cash during the third quarter, and we were near free cash flow break even for the year-to-date."

 

Outlook:

 

HMH expects billings in a range of $1.05 billion to $1.10 billion, and expects free cash flow to be between ($5) million to ($15) million for the full year 2020. Based on what management knows today, HMH expects positive free cash flow in 2021.

Third Quarter 2020 Financial Results:

Net Sales: HMH reported net sales of $387 million for the third quarter of 2020, down 32% or $179 million compared to $566 million in 2019. The net sales decrease was driven by a $187 million decrease in our Education segment, offset by a $8 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower net sales in Extensions, which decreased $120 million from $244 million in 2019 to $124 million, due to lower sales of the Heinemann’s Fountas & Pinnell Classroom, LLI Leveled Literacy and Calkins products which was due to a difficult comparison to last year’s Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020 along with reduced face-to-face delivery of professional services. Further, there were lower net sales from Core Solutions which decreased by $67 million from $273 million in 2019 to $206 million, which was primarily due to the smaller new adoption market opportunity in Texas ELA, along with impacts of the COVID-19 pandemic. Within our HMH Books & Media segment, the increase in net sales was primarily due to an increase in licensing revenue of $7 million, which includes $4 million from the Carmen Sandiego series on Netflix.

 

Billings1: Billings for 2020 decreased $241 million, or 32%, from 2019. The billings decrease was driven by a $248 million decrease in our Education segment offset by a $7 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower Core Solutions billings which decreased $158 million due to the smaller new adoption market opportunity in Texas ELA along with the impact of the COVID-19 pandemic. Further, the Extensions billings decreased by $90 million due to lower billings of the Heinemann’s LLI Leveled Literacy, Fountas & Pinnell Classroom and Calkins products due to both a difficult comparison to last year’s Texas K-6 billings coupled with the impact of the COVID-19 pandemic in 2020 along with reduced face-to-face delivery of professional services. HMH Books & Media billings increase was primarily due to an increase in licensing revenue of $7 million, which includes $4 million from the Carmen Sandiego series on Netflix.

Cost of Sales: Overall cost of sales decreased by $73 million to $219 million in 2020 from $292 million in 2019, primarily due to lower billings.

Selling and Administrative Costs: Selling and administrative costs decreased by $62 million in 2020, primarily due to lower labor costs of $28 million, due to cost savings associated with our employee furlough initiative in response to the COVID-19 pandemic, and to a lesser extent, our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Further, there was a decrease in variable expenses of $23 million, including reduced transportation and commissions expenses due to lower billings and $12 million of lower discretionary costs related to travel, decreased marketing activities and other expense reduction measures.

Restructuring/severance: Our restructuring/severance and other charges for the three months ended September 30, 2020 increased due to $34 million of severance costs associated with the 2020 restructuring plan.

Operating Income: Operating income unfavorably changed $78 million in 2020 primarily due to the decrease in net sales and restructuring/severance charges partially offset by lower selling and administrative costs.

Net (Loss) Income: Net loss of $13 million for 2020 was a $82 million unfavorable change from the net income of $69 million in 2019, due primarily to the same factors impacting operating loss.

Adjusted EBITDA: Adjusted EBITDA for 2020 was $97 million, a $52 million unfavorable change from $149 million in 2019.

 


 

Nine Months Ended September 30, 2020 Financial Results:

Net Sales: HMH reported net sales of $828 million for the first nine months of 2020, down 28% or $321 million compared to $1,149 million in 2019. The net sales decrease was driven by a $322 million decrease in our Education segment, offset slightly by a $1 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower net sales in Extensions, which decreased by $221 million from $528 million in 2019 to $307 million, due to lower sales of the Heinemann’s Fountas & Pinnell Classroom, Calkins and LLI Leveled Literacy products due to both a difficult comparison to last year’s Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020. Further, there were lower net sales from Core Solutions which decreased by $102 million from $493 million in 2019 to $391 million primarily due to the smaller new adoption market opportunity in Texas ELA along with the impact of the COVID-19 pandemic. Within our HMH Books & Media segment, the increase in net sales was primarily due to $2 million of licensing revenue from production series. Books & Media net sales growth was partially offset by lower net sales of both Adult and Young Reader’s categories due to the closure of bookstores during the COVID-19 pandemic and the corresponding delay in releases of new frontlist titles.

Billings1: Billings for 2020 decreased $456 million, or 33%, from 2019. The billings decrease was driven by a $458 million decrease in our Education segment offset by a $2 million increase in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower Core Solutions billings which decreased by $277 million due to the smaller new adoption market opportunity in Texas ELA along with the impact of the COVID-19 pandemic. Further, the Extensions billings decreased by $182 million due to lower billings of the Fountas & Pinnell Classroom, Calkins and LLI Leveled Literacy products due to both a difficult comparison to last year’s Texas K-6 sales coupled with the impact of the COVID-19 pandemic in 2020. The HMH Books & Media billings increase was due to $2 million of licensing revenue from production series. Books & Media billings growth was partially offset by lower billings of both Adult and Young Reader’s categories due to the closure of bookstores during the COVID-19 pandemic and the corresponding delay in releases of new frontlist titles.

Cost of Sales: Overall cost of sales decreased by $156 million to $506 million in 2020 from $662 million in 2019, primarily due to lower billings and to a lesser extent, lower amortization expense.

Selling and Administrative Costs: Selling and administrative costs decreased by $149 million in 2020, primarily due to lower labor costs of $62 million, due to cost savings associated with our employee furlough initiative, which began in April and ceased at the end of July, in response to the COVID-19 pandemic and to a lesser extent our early retirement incentive program, the 2019 Restructuring Plan and a freeze on hiring. Further, there was a decrease in variable expenses of $50 million, including reduced commissions and transportation expenses due to lower billings and $28 million of lower discretionary costs related to travel, decreased marketing activities and expense reduction measures.

Restructuring/severance: Our restructuring/severance and other charges for the nine months ended September 30, 2020 increased by $28 million due to $34 million of severance costs associated with the 2020 restructuring plan.

Operating Loss: Operating loss for 2020 was $360 million, a $306 million unfavorable change from the $54 million operating loss recorded in 2019 primarily due to an impairment charge for goodwill in the first quarter of 2020 of $262 million. This non-cash impairment was a direct result of the adverse impact that the COVID-19 pandemic has had on the market price of our Company’s stock and the stock price of comparable companies in the marketplace. Additionally, lower net sales contributed to the operating loss. Partially offsetting the unfavorable operating loss was a decrease in selling and administrative expenses.

Net Loss: Net loss of $397 million for 2020 was a $308 million unfavorable change from the net loss of $89 million in 2019, due primarily to the same factors impacting operating loss along with an increase in interest expense of $15 million resulting from the debt refinancing during the fourth quarter of 2019 and a favorable change in income taxes of $15 million due primarily to the book impairment on goodwill, which reduced the related deferred tax liabilities during 2020.

Adjusted EBITDA: Adjusted EBITDA for 2020 was $116 million, a $53 million unfavorable change from $169 million in 2019.  

Cash Flows and Liquidity: Net cash provided by operating activities for 2020 was $75 million compared with $127 million in 2019. HMH’s free cash flow, defined as net cash from operating activities minus capital expenditures, for 2020 was a usage of $11 million, a $29 million unfavorable change compared to positive free cash flow of $18 million in 2019. The primary drivers of the unfavorable change in net cash provided by operating activities and free cash flow were unfavorable working capital changes offset by reductions in capital expenditures in 2020.

As of November 5, 2020, 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.

 


 

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 begin to recover with school districts continuing to be, or becoming, fully operational, either in-person, fully remote or hybrid, during the remainder of 2020. We have performed a sensitivity analysis on these assumptions to forecast the impact of a slower-than-anticipated recovery and believe we can take additional financial and operational actions to mitigate the impact of lower billings than our current plans assume.

1 Education and HMH Books & Media segment billings represent 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.

 


 

Conference Call:

At 9:30 a.m. ET on Thursday, November 5, 2020, HMH will host a conference call to discuss the results and management’s outlook 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: 9793732 

Moderator: Brian Shipman, Senior Vice President, Investor Relations

Webcast Link: https://edge.media-server.com/mmc/p/jvuh5bbv

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, 2020 via the following telephone numbers: (855) 859-2056 in the United States and (404) 537-3406 internationally using passcode 9793732.

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 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, gain or losses on investments, non-cash charges, or levels of depreciation or amortization along with costs such as severance, separation and facility closure costs, acquisition/disposition-related activity 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.

About Houghton Mifflin Harcourt

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

Brian S. Shipman, CFA

SVP, Investor Relations

 


 

(212) 592-1177

brian.shipman@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. 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 ability to consummate a sale of the HMH Books & Media business and the outcome of any such sale; 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; the rate and state of technological change; state requirements related to digital instructional materials; our ability to execute on our long-term growth strategy; increases in our operating costs; management and personnel changes; timing, higher costs and unintended consequences of our operational efficiency and cost-reduction initiatives, including the actions described in this press release; our ability to sell the HMH Books & Media business and the terms of any such potential sale; and other factors discussed in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as updated by our subsequent Quarterly Reports on 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

 

(in thousands of dollars, except share information)

 

September 30,

2020

(Unaudited)

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

271,543

 

 

$

296,353

 

Accounts receivable, net

 

 

282,179

 

 

 

184,425

 

Inventories

 

 

175,820

 

 

 

213,059

 

Prepaid expenses and other assets

 

 

23,214

 

 

 

19,257

 

Total current assets

 

 

752,756

 

 

 

713,094

 

Property, plant, and equipment, net

 

 

95,265

 

 

 

100,388

 

Pre-publication costs, net

 

 

222,186

 

 

 

268,197

 

Royalty advances to authors, net

 

 

41,661

 

 

 

44,743

 

Goodwill

 

 

454,977

 

 

 

716,977

 

Other intangible assets, net

 

 

440,111

 

 

 

474,225

 

Operating lease assets

 

 

129,154

 

 

 

132,247

 

Deferred income taxes

 

 

2,520

 

 

 

2,520

 

Deferred commissions

 

 

32,972

 

 

 

29,291

 

Other assets

 

 

34,726

 

 

 

31,490

 

Total assets

 

$

2,206,328

 

 

$

2,513,172

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

19,000

 

 

 

19,000

 

Accounts payable

 

 

71,512

 

 

 

52,128

 

Royalties payable

 

 

52,339

 

 

 

72,985

 

Salaries, wages, and commissions payable

 

 

37,009

 

 

 

54,938

 

Deferred revenue

 

 

356,823

 

 

 

305,285

 

Interest payable

 

 

3,981

 

 

 

3,826

 

Severance and other charges

 

 

34,901

 

 

 

12,407

 

Accrued postretirement benefits

 

 

1,571

 

 

 

1,571

 

Operating lease liabilities

 

 

9,339

 

 

 

8,685

 

Other liabilities

 

 

26,383

 

 

 

24,325

 

Total current liabilities

 

 

612,858

 

 

 

555,150

 

Long-term debt, net of discount and issuance costs

 

 

628,066

 

 

 

638,187

 

Operating lease liabilities

 

 

133,214

 

 

 

134,994

 

Long-term deferred revenue

 

 

596,630

 

 

 

542,821

 

Accrued pension benefits

 

 

19,316

 

 

 

23,648

 

Accrued postretirement benefits

 

 

13,911

 

 

 

15,113

 

Deferred income taxes

 

 

18,787

 

 

 

30,871

 

Other liabilities

 

 

3,502

 

 

 

6,028

 

Total liabilities

 

 

2,026,284

 

 

 

1,946,812

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

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

   issued and outstanding at June 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.01 par value: 380,000,000 shares authorized;

   150,427,148 and 148,928,328 shares issued at September 30, 2020 and

   December 31, 2019, respectively; 125,850,114 and 124,351,294 shares

   outstanding at September 30, 2020 and December 31, 2019, respectively

 

 

1,504

 

 

 

1,489

 

Treasury stock, 24,577,034 shares as of September 30, 2020 and December 31,

   2019, respectively, at cost

 

 

(518,030

)

 

 

(518,030

)

Capital in excess of par value

 

 

4,915,806

 

 

 

4,906,165

 

Accumulated deficit

 

 

(4,172,685

)

 

 

(3,775,992

)

Accumulated other comprehensive loss

 

 

(46,551

)

 

 

(47,272

)

Total stockholders’ equity

 

 

180,044

 

 

 

566,360

 

Total liabilities and stockholders’ equity

 

$

2,206,328

 

 

$

2,513,172

 

 


 

Houghton Mifflin Harcourt Company

Consolidated Statements of Operations

 

 

 

(Unaudited)

Three Months Ended

September 30,

 

 

(Unaudited)

Nine Months Ended

September 30,

 

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

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

386,590

 

 

$

565,668

 

 

$

827,731

 

 

$

1,149,199

 

Costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding publishing rights and

pre-publication amortization

 

 

182,767

 

 

 

246,527

 

 

 

397,139

 

 

 

533,413

 

Publishing rights amortization

 

 

4,761

 

 

 

6,341

 

 

 

15,295

 

 

 

20,217

 

Pre-publication amortization

 

 

31,647

 

 

 

39,319

 

 

 

94,043

 

 

 

108,140

 

Cost of sales

 

 

219,175

 

 

 

292,187

 

 

 

506,477

 

 

 

661,770

 

Selling and administrative

 

 

127,324

 

 

 

188,957

 

 

 

367,006

 

 

 

516,206

 

Other intangible asset amortization

 

 

6,274

 

 

 

6,383

 

 

 

18,819

 

 

 

19,519

 

Impairment charge for goodwill

 

 

 

 

 

 

 

 

262,000

 

 

 

 

Restructuring/severance and other charges

 

 

33,545

 

 

 

270

 

 

 

33,545

 

 

 

5,921

 

Operating income (loss)

 

 

272

 

 

 

77,871

 

 

 

(360,116

)

 

 

(54,217

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retirement benefits non-service income

 

 

61

 

 

 

41

 

 

 

183

 

 

 

125

 

Interest expense

 

 

(16,168

)

 

 

(11,597

)

 

 

(50,433

)

 

 

(35,142

)

Interest income

 

 

32

 

 

 

509

 

 

 

873

 

 

 

1,698

 

Change in fair value of derivative instruments

 

 

432

 

 

 

(737

)

 

 

172

 

 

 

(1,171

)

Gain on investments

 

 

1,738

 

 

 

 

 

 

1,738

 

 

 

 

Income from transition services agreement

 

 

 

 

 

571

 

 

 

 

 

 

4,248

 

(Loss) income before taxes

 

 

(13,633

)

 

 

66,658

 

 

 

(407,583

)

 

 

(84,459

)

Income tax (benefit) expense

 

 

(1,081

)

 

 

(2,602

)

 

 

(10,890

)

 

 

4,256

 

Net (loss) income

 

$

(12,552

)

 

$

69,260

 

 

$

(396,693

)

 

$

(88,715

)

Net (loss) income per share attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

$

0.56

 

 

$

(3.17

)

 

$

(0.71

)

Diluted

 

$

(0.10

)

 

$

0.55

 

 

$

(3.17

)

 

$

(0.71

)

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

125,799,018

 

 

 

124,315,491

 

 

 

125,317,284

 

 

 

124,089,257

 

Diluted

 

 

125,799,018

 

 

 

124,807,488

 

 

 

125,317,284

 

 

 

124,089,257

 

 


 

Houghton Mifflin Harcourt Company

Consolidated Statements of Cash Flows

 

 

 

(Unaudited)

Nine Months Ended September 30,

 

(in thousands of dollars)

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(396,693

)

 

$

(88,715

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

171,027

 

 

 

201,593

 

Amortization and impairments of operating lease assets

 

 

9,565

 

 

 

12,898

 

Amortization of debt discount and deferred financing costs

 

 

4,504

 

 

 

3,136

 

Gain on investments

 

 

(1,738

)

 

 

 

Deferred income taxes

 

 

(12,084

)

 

 

2,580

 

Stock-based compensation expense

 

 

8,751

 

 

 

11,094

 

Impairment charge for goodwill

 

 

262,000

 

 

 

 

Change in fair value of derivative instruments

 

 

(172

)

 

 

1,171

 

Changes in operating assets and liabilities, net of acquisitions

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(97,754

)

 

 

(231,296

)

Inventories

 

 

37,239

 

 

 

(27,535

)

Other assets

 

 

(13,374

)

 

 

(23,649

)

Accounts payable and accrued expenses

 

 

6,213

 

 

 

37,488

 

Royalties payable and author advances, net

 

 

(17,564

)

 

 

1,165

 

Deferred revenue

 

 

105,347

 

 

 

241,091

 

Interest payable

 

 

155

 

 

 

11

 

Severance and other charges

 

 

22,494

 

 

 

(464

)

Accrued pension and postretirement benefits

 

 

(5,532

)

 

 

(2,761

)

Operating lease liabilities

 

 

(7,598

)

 

 

(12,450

)

Other liabilities

 

 

380

 

 

 

2,015

 

Net cash provided by operating activities

 

 

75,166

 

 

 

127,372

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Proceeds from sales and maturities of short-term investments

 

 

 

 

 

50,000

 

Additions to pre-publication costs

 

 

(51,321

)

 

 

(81,532

)

Additions to property, plant, and equipment

 

 

(35,275

)

 

 

(27,350

)

Acquisition of business, net of cash acquired

 

 

 

 

 

(5,447

)

Investment in preferred stock

 

 

 

 

 

(750

)

Net cash used in investing activities

 

 

(86,596

)

 

 

(65,079

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

150,000

 

 

 

60,000

 

Payments of revolving credit facility

 

 

(150,000

)

 

 

(60,000

)

Payments of long-term debt

 

 

(14,250

)

 

 

(6,000

)

Payments of deferred financing fees

 

 

 

 

 

(311

)

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

 

 

(48

)

 

 

(1,963

)

Issuance of common stock under employee stock purchase plan

 

 

918

 

 

 

1,027

 

Net collections under transition services agreement

 

 

 

 

 

265

 

Net cash used in financing activities

 

 

(13,380

)

 

 

(6,982

)

Net decrease in cash and cash equivalents

 

 

(24,810

)

 

 

55,311

 

Cash and cash equivalents at beginning of the period

 

 

296,353

 

 

 

253,365

 

Cash and cash equivalents at end of the period

 

$

271,543

 

 

$

308,676

 

 

 


 

Houghton Mifflin Harcourt Company

Non-GAAP Reconciliations (Unaudited)

Adjusted EBITDA  

Consolidated

(in thousands of dollars)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net (loss) income

 

$

(12,552

)

 

$

69,260

 

 

$

(396,693

)

 

$

(88,715

)

Interest expense

 

 

16,168

 

 

 

11,597

 

 

 

50,433

 

 

 

35,142

 

Interest income

 

 

(32

)

 

 

(509

)

 

 

(873

)

 

 

(1,698

)

Provision (benefit) for income taxes

 

 

(1,081

)

 

 

(2,602

)

 

 

(10,890

)

 

 

4,256

 

Depreciation expense

 

 

12,566

 

 

 

13,901

 

 

 

38,016

 

 

 

46,945

 

Amortization expense – film asset

 

 

4,698

 

 

 

 

 

 

4,854

 

 

 

6,772

 

Amortization expense

 

 

42,682

 

 

 

52,043

 

 

 

128,157

 

 

 

147,876

 

Non-cash charges – goodwill impairment

 

 

 

 

 

 

 

 

262,000

 

 

 

 

Non-cash charges – stock compensation

 

 

3,112

 

 

 

3,835

 

 

 

8,751

 

 

 

11,094

 

Non-cash charges – loss on derivative instruments

 

 

(432

)

 

 

737

 

 

 

(172

)

 

 

1,171

 

Fees, expenses or charges for equity offerings, debt or

   acquisitions/dispositions

 

 

339

 

 

 

183

 

 

 

366

 

 

 

731

 

Restructuring/severance and other charges

 

 

33,545

 

 

 

270

 

 

 

33,545

 

 

 

5,921

 

Gain on investments

 

 

(1,738

)

 

 

 

 

 

(1,738

)

 

 

 

Adjusted EBITDA

 

$

97,275

 

 

$

148,715

 

 

$

115,756

 

 

$

169,495

 

 

Free Cash Flow

Consolidated

(in thousands of dollars)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

264,442

 

 

$

393,297

 

 

$

75,166

 

 

$

127,372

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions to pre-publication costs

 

 

(16,471

)

 

 

(25,941

)

 

 

(51,321

)

 

 

(81,532

)

Additions to property, plant, and equipment

 

 

(10,917

)

 

 

(8,992

)

 

 

(35,275

)

 

 

(27,350

)

Free Cash Flow

 

$

237,054

 

 

$

358,364

 

 

$

(11,430

)

 

$

18,490

 

 

 

 


 

Houghton Mifflin Harcourt Company

Calculation of Billings (Unaudited)

Billings (in thousands of dollars)

Consolidated

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

386,590

 

 

$

565,668

 

 

$

827,731

 

 

$

1,149,199

 

Change in deferred revenue

 

 

119,426

 

 

 

180,993

 

 

 

106,347

 

 

 

241,280

 

Billings

 

$

506,016

 

 

$

746,661

 

 

$

934,078

 

 

$

1,390,479

 

 

Education

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

330,926

 

 

$

517,614

 

 

$

698,574

 

 

$

1,021,259

 

Change in deferred revenue

 

 

119,727

 

 

 

181,019

 

 

 

106,575

 

 

 

242,135

 

Education Billings

 

$

450,653

 

 

$

698,633

 

 

$

805,149

 

 

$

1,263,394

 

 

HMH Books & Media

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net sales

 

$

55,664

 

 

$

48,054

 

 

$

129,157

 

 

$

127,940

 

Change in deferred revenue

 

 

(301

)

 

 

(26

)

 

 

(228

)

 

 

(855

)

HMH Books & Media Billings

 

$

55,363

 

 

$

48,028

 

 

$

128,929

 

 

$

127,085

 

 

Billings is an operating measure utilized by the Company derived as shown above.

 

 

v3.20.2
Document And Entity Information
Nov. 05, 2020
Cover [Abstract]  
Entity Registrant Name HOUGHTON MIFFLIN HARCOURT CO
Document Type 8-K
Amendment Flag false
Entity Central Index Key 0001580156
Document Period End Date Nov. 05, 2020
Entity Emerging Growth Company false
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, State or Province MA
Entity Address, Postal Zip Code 02110
City Area Code 617
Local Phone Number 351-5000
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of each class Common Stock, $0.01 par value
Trading Symbol HMHC
Name of each exchange on which registered NASDAQ