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Global learning company Houghton Mifflin Harcourt (“HMH” or the “Company”) (Nasdaq: HMHC) today announced its operating and financial results for the third quarter ended September 30, 2018.
•New programs on track for approval in upcoming 2019 adoptions
•Total Company billings growth of 1.5% in Q3 and flat year to date
•Education billings down only marginally in Q3 and year to date
•Extensions billings growth of 8% in Q3 and 10% year to date
“We had a solid third quarter, delivering billings growth of 1.5% driven by strength in Extensions and Trade, which demonstrates the merits of our strategy,” said Jack Lynch, President and Chief Executive Officer of HMH. “We remain focused on executing against our long-term strategy, and believe we are well positioned for the large adoption opportunities in 2019.”
Joe Abbott, Chief Financial Officer of HMH added, “We remain on track to deliver against the targets we set at the start of the year, adjusted for the Riverside divestiture, and have reaffirmed our fiscal year 2018 outlook. We are nearing completion of our restructuring program and remain focused on execution as we close out the year and look ahead to a larger market opportunity in 2019.”
Third Quarter 2018 Financial Results:
Net Sales: HMH reported net sales of $516 million for the third quarter of 2018, a slight increase compared to the same quarter of 2017. The net sales increase was driven by a $15 million increase in our Trade Publishing segment offset by a $15 million decrease in our Education segment. Within our Trade Publishing segment, the increase was primarily due to licensing income driven by a new agreement pertaining to our classic backlist titles 1984 and Animal Farm. Within our Education segment, the decrease was primarily due to lower net sales from Core Solutions, which declined by $34 million from $277 million in 2017 to $243 million. The decrease was primarily due to decreases in sales relating to disciplines reaching the end of their product lifecycle that are scheduled to be replaced next year with newer programs. Partially offsetting the decrease in our Core Solutions sales was an increase in sales from our Extensions businesses, which primarily consist of our Heinemann brand, intervention, and supplemental products as well as professional services. Extensions businesses net sales for the current period increased $19 million to $207 million in 2018 primarily driven by higher Heinemann net sales. The primary driver of the increase in our Heinemann net sales was sales of the Fountas & Pinnell Classroom product, which benefited from additional product launches during the quarter.
Billings: HMH reported billings of $571 million for the third quarter of 2018, up $8 million from the same quarter of 2017. Education and Trade Publishing segment billings for the third quarter of 2018 were $504 million and $67 million, respectively, compared with $512 million and $50 million, respectively, for the same periods in 2017. Our Trade Publishing segment billings increase of $17 million was due to licensing income driven by a new agreement pertaining to our classic backlist titles 1984 and Animal Farm. Within our Education segment, the $8 million decline in billings was attributed to a decrease in billings from Core Solutions, which declined by $25 million from $299 million in 2017 to $274 million. The primary driver of the decrease in Core Solutions billings were decreases in billings relating to disciplines reaching the end of their product lifecycle that are scheduled to be replaced next year with newer programs. Billings within our science discipline, which is a new program, increased year over year offsetting some of the older program declines along with a large order from Puerto Rico. Partially offsetting the Core Solutions billings decline was an increase in billings from our Extensions businesses of $16 million to $230 million in 2018, primarily driven by higher Heinemann billings. The primary driver of the increase in our Heinemann billings was billings of the Fountas & Pinnell Classroom product, which benefited from additional product launches during the quarter.
Operating Income: Operating income for the third quarter of 2018 was $92 million, a $3 million improvement from the same period of 2017 primarily due to aforementioned changes in cost of sales.
Net Income: Net income of $86 million in the third quarter of 2018 was $4 million, or 5%, lower compared to a net income of $91 million in the same quarter of 2017. Net income from continuing operations in the third quarter was $84 million, a $5 million decrease from the $89 million in the same quarter of 2017, due primarily to the same factors impacting operating income and an unfavorable change in our tax provision of $6 million, from a benefit of $10 million for the same period in 2017 to a benefit of $4 million in 2018. The reduction in benefit was primarily due to the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) resulting in a lower annual effective tax rate and our ability to utilize indefinite-lived deferred tax liabilities as a source of future taxable income in our assessment of realization of deferred tax assets. Income from discontinued operations, net of tax, increased by $1 million to $2 million from the same period in 2017.
more detail at: https://www.hmhco.com/about-us/press-releases/houghton-mifflin-harcourt-announces-third-quarter-2018-results