• Revenue: Up 1%, driven by 5% growth in research, offset by a 6% decline in learning.
• Operating Margin: Increased by 280 basis points to 14.2%.
• Adjusted EBITDA Margin: Improved by 50 basis points to 23.2%.
• Adjusted EPS: Increased by 39% due to higher adjusted operating income and a lower adjusted effective tax rate.
• Research Segment Revenue: Increased 5% in Q3 and 3% year-to-date.
• Learning Segment Revenue: Decreased 6% in Q3 but rose 4% year-to-date.
• Free Cash Flow: Expected to reach $125 million for fiscal 2025.
• AI Licensing Revenue: Generated $30 million year-to-date.
• Net Debt-to-EBITDA Ratio: 2.0 at the end of January.

• Warning! GuruFocus has detected 3 Warning Signs with MLR.

Release Date: March 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• John Wiley & Sons Inc (NYSE:WLY) reported a 5% growth in its Research segment, driven by AI licensing and Open Access programs.
• The company achieved a 280 basis point improvement in operating margin and a 50 basis point increase in adjusted EBITDA margin.
• Recurring revenue models, which account for nearly 75% of the Research segment, demonstrate strong health with solid pricing power.
• John Wiley & Sons Inc (NYSE:WLY) has a strong balance sheet with consistent cash generation, evidenced by 31 consecutive years of dividend increases.
• The company is an early beneficiary of AI development, with emerging long-term opportunities in the corporate sector, particularly in research and development.

Negative Points

• The Learning segment experienced a 6% decline in revenue due to challenging year-over-year comparisons and softness in academic books.
• There is economic uncertainty, including consumer confidence, inflation, tariffs, policy swings, and geopolitical unrest, which could impact future performance.
• The company faces potential impacts from US government actions on research funding, although it does not anticipate any near-term effects.
• Corporate unallocated expenses increased by 9%, reflecting investments in enterprise modernization and consulting fees related to strategic initiatives.
• The company anticipates restructuring charges from its ongoing cost optimization and efficiency initiatives.

Q & A Highlights

Q: What are the drivers behind the upward revision of the 2026 margin target? A: Matthew Kissner, President and CEO, explained that the revision is primarily driven by rationalizing the cost structure, particularly in corporate shared services. Christopher Caridi, Interim CFO, added that they expect a 100-plus basis point improvement from these actions, aiming for sustainable value and permanent margin improvement.

Q: How does Wiley's cost structure compare to competitors like Springer Nature, and what is the potential for sustained margin upside? A: Matthew Kissner noted that benchmarking against competitors revealed opportunities to streamline Wiley's cost structure. Despite differences in business mix, there is room for improvement, and the company is focused on responsible margin improvement without hindering revenue growth.

Q: Can you confirm the details of the $9 million incremental AI revenue and its impact on the segments? A: Matthew Kissner confirmed that the full $9 million fell in Q3 and was attributed to the Research segment, unlike prior agreements that impacted Learning.

Q: What is the outlook for the Learning segment, considering the tough comparisons and future growth prospects? A: Jay Flynn, EVP and GM of Research and Learning, acknowledged the tough comparison but highlighted improved margins and growth in digital licensing and AI. Christopher Caridi added that despite a tough Q4 comp, they expect positive growth in courseware and other licensing deals.

Q: How does Wiley plan to allocate capital given the significant free cash flow and leverage reduction? A: Matthew Kissner stated that Wiley has been buying back shares at a higher rate and will assess the pace of share repurchases as free cash flow increases. There is no commitment yet, but they will evaluate opportunities for buybacks versus debt reduction.

Q: What is Wiley's revenue exposure to US institutions, particularly US medical libraries, amid discussions on NIH funding? A: Matthew Kissner explained that US federal funding supports a small percentage of Wiley's research output, and the company is geographically diversified. Jay Flynn added that Wiley has strong relationships with US medical libraries and a global customer base, mitigating potential impacts.

Q: How is Wiley deploying AI internally to improve cost efficiency, and what is the expected impact on margins? A: Jay Flynn discussed AI's role in workflow automation, document review, and content workflows, emphasizing that humans remain central to AI processes. While specific financial impacts aren't detailed, AI contributes to overall margin improvement.

Q: Can Wiley's research business accelerate to match competitors' growth rates of 4-5% organically? A: Matthew Kissner indicated that Wiley's research growth rates will align more closely with industry levels by year-end, driven by back-ended revenue and favorable renewal trends.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.