Houghton Mifflin Harcourt Announces Second Quarter 2020 Results

Learning company Houghton Mifflin Harcourt (“HMH” or the “Company”) (Nasdaq: HMHC) today announced financial results for the quarter ended June 30, 2020. Nationwide COVID-19-related school closings continued to impact second quarter net sales and billings performance as customers remained focused on transitioning to a remote learning environment. HMH continued to support customers with virtual learning resources which helped mitigate the impact of the COVID-19 pandemic on its profitability and cash flow. The decisive cost and liquidity actions taken by HMH resulted in dramatically reduced use of cash in the second quarter and first half of 2020 compared to prior years.

Q2 2020 Headlines:
•Net sales declined 35% to $251 million in the second quarter, and declined 24% to $441 million on a year-to-date basis
•Billings1 declined 39% to $297 million in the second quarter, and declined 34% to $428 million on a year-to-date basis
•HMH has further improved its leading win rate in the Texas Literature adoption with virtually all decisions made
•Significant growth in digital platform usage with 486% increase in student assignments over the last twelve months as schools adjust to remote learning environment
•Strong growth of 127% in SaaS billings as digital transformation accelerates
•Net cash used in operating activities improved by 64% in the second quarter, and 29% on a year-to-date basis
•Free cash flow2 usage improved by 52% to $(61) million in the second quarter, and 27% to $(248) million on a year-to-date basis. Additionally, HMH was free cash flow positive in the month of June
•HMH repaid $50 million of revolving credit facility borrowings in June, and an additional $100 million in July – revolving credit facility now fully repaid.

Second Quarter 2020 Financial Results:
Net Sales: HMH reported net sales of $251 million for the second quarter of 2020, down 35% or $138 million compared to $389 million in 2019. The net sales decrease was driven by a $134 million decrease in our Education segment, coupled with a $4 million decrease in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower net sales in Extensions, which decreased $85 million from $182 million in 2019 to $97 million, due to lower sales of the Heinemann’s LLI Leveled Literacy, Fountas & Pinnell Classroom and Calkins products along with reduced professional services due primarily to school closures resulting from the COVID-19 pandemic. Further, there were lower net sales from Core Solutions which decreased by $49 million from $168 million in 2019 to $119 million, which was primarily due to the smaller new adoption market opportunity in Texas ELA along with school closures resulting from the COVID-19 pandemic. Within our HMH Books & Media segment, the decrease in net sales was primarily due to lower net sales of both Adult and Young Reader’s categories due to the closure of bookstores during the COVID-19 crisis and the corresponding delay in releases of new frontlist titles.

Billings1: Billings for 2020 decreased $192 million, or 39%, from 2019. The billings decrease was driven by a $188 million decrease in our Education segment coupled with a $4 million decrease in our HMH Books & Media segment. Within our Education segment, the decrease was primarily due to lower Core Solutions billings which decreased $120 million due to the smaller new adoption market opportunity in Texas ELA along with school closures resulting from the COVID-19 pandemic. Further, the Extensions billings decreased by $68 million due to lower billings of the Heinemann’s LLI Leveled Literacy, Fountas & Pinnell Classroom and Calkins products along with reduced professional services due primarily to school closures resulting from the COVID-19 pandemic. HMH Books & Media billings decrease was primarily due to lower billings of both Adult and Young Reader’s categories due to the closure of bookstores during the COVID-19 crisis and the corresponding delay in releases of new frontlist titles.

Cost of Sales: Overall cost of sales decreased by $72 million to $161 million in 2020 from $233 million in 2019, primarily due to lower billings.

Selling and Administrative Costs: Selling and administrative costs decreased by $69 million in 2020, primarily due to decreases in labor costs associated with our employee furlough initiative in response to the COVID-19 pandemic and to a lesser extent the 2019 Restructuring Plan and a freeze on hiring. Further, there was a decrease in variable expenses, such as transportation and commissions due to lower billings and lower discretionary costs related to travel, and expense reduction measures.

Operating Loss: Operating loss for 2020 was $22 million, an $8 million favorable change from the $30 million operating loss recorded in 2019 primarily due to the decrease in selling and administrative and restructuring charges.

Net Loss: Net loss of $38 million for 2020 was a $3 million favorable change from the net loss of $41 million in 2019, due primarily to the same factors impacting operating loss along with an increase in interest expense of $6 million resulting from the debt refinancing during the fourth quarter of 2019 and a favorable change in income taxes of $2 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 $36 million, a $11 million unfavorable change from $47 million in 2019.
more detail at: https://www.hmhco.com/about-us/press-releases/houghton-mifflin-harcourt-announces-second-quarter-2020-results

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