Net Sales for the full year increased $35 million, or 2.5%, year over year. The net sales increase was driven by a $19 million increase in our Trade Publishing segment and a $16 million increase in our Education segment during the current period. Operating loss for the full year 2017 was $114 million, $197 million lower than the $311 million operating loss recorded in 2016. Net loss of $103 million for the full year 2017 was $182 million lower than the net loss of $285 million in 2016, due primarily to the same factors impacting operating loss offset by a $15 million unfavorable change in our income tax benefit in 2017, from an income tax benefit of $65 million for the same period in 2016 to an income tax benefit of $50 million in 2017. Click Read More below for additional information.
Houghton Mifflin Harcourt (“HMH” or the “Company”) (Nasdaq: HMHC) today announced a strategic restructuring to accelerate its digital transformation and align its cost structure with its digital first, connected strategy. These steps will further streamline operations and better enable HMH to support teachers and students with digital first, connected solutions that drive successful outcomes in remote, face-to-face and hybrid learning environments.
This strategic restructuring is the result of HMH’s ongoing value innovation analysis. The Company first introduced this framework at its October 2019 Investor Update to drive its strategic priorities and has continued to operationalize it through the course of 2020 as the COVID-19 pandemic has accelerated the shift in education to digital learning technologies.
“The COVID-19 pandemic has cemented the central role of technology within the K–12 space. As districts embrace new remote learning formats and rely more heavily on digital solutions than ever before, HMH is well-positioned to be a holistic partner in delivering successful outcomes and supporting educators and the students they serve,” said Jack Lynch, President and Chief Executive Officer of Houghton Mifflin Harcourt. “The actions we announced today will help us to realize our digital first vision by creating a more focused company with increased recurring digital subscription revenue that produces higher margins and free cash flow. We recognize the personal impact these actions will have on our HMH team members. We thank our departing colleagues for their contributions and are committed to treating them in a respectful and compassionate way.”
Joe Abbott, HMH’s Chief Financial Officer added, “The actions we’re taking are intended to drive billings growth, position us to build our recurring subscription revenue base, simplify and strengthen our business model, reduce costs, and generate sustained and positive free cash flow. By realigning our organization, we will be better positioned to support our customers in today’s learning environment while creating value for our shareholders. We are taking decisive steps to further improve our free cash flow potential and dramatically lower our break-even billings levels in the future.”
The Company’s restructuring includes both labor-related and non-labor expense reductions. The labor-related reductions involve organizational changes resulting in a 22% reduction of HMH’s workforce, including positions eliminated as part of the previously announced Voluntary Retirement Incentive Program and net of newly created positions to support HMH’s digital first operations. Non-labor reductions include a reduction of manufacturing costs as the business shifts from print to digital offerings, a reduction in service delivery costs as a greater proportion of services are offered virtually, and a streamlining of back office costs as legacy systems and print-centric processes are retired. These steps are intended to further simplify HMH’s business model while delivering increased value to customers, teachers, students, and shareholders.
HMH anticipates reducing total expenditures by approximately $95 to $100 million per year relative to its estimated expenditures for the trailing twelve months ended Sept. 30, 2020. Total one-time charges associated with the transformation, including charges resulting from the Voluntary Retirement Incentive Program, are estimated to be in the range of $34 to $36 million. Giving effect to the expenditure reduction and one-time charges, the Company estimates its 2021 free cash flow break even billings level to be in a range of $1.02 and $1.07 billion, well below the Company’s estimated 2020 break even billings range of $1.23 to $1.28 billion.
The Company continues to have a strong liquidity position and estimates that its cash balance was approximately $265 million as of Sept. 30, 2020. Further, HMH’s Asset Backed Revolving Credit Facility remained undrawn, and had available liquidity of approximately $160 million as of Sept. 30, 2020, subject to the terms and conditions of that facility.
Lynch concluded, “HMH’s transformation has been accelerated — we are a Learning Technology Company focused on successful outcomes, with a digital first, connected vision. Our scale combined with the breadth of our portfolio makes us uniquely positioned within the EdTech space to lead the market shift and support today’s educators and students.”