HMH Announces Fourth Quarter and Full Year 2021 Results
BOSTON, February 24, 2022 – HMH (Nasdaq: HMHC), a learning technology company, announced financial results for the fourth quarter and full year ended December 31, 2021.
Q4 and Full Year 2021 Financial Results:
| Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
| (in millions of dollars) | 2021 1 | 2020 1 | Change | 2021 1 | 2020 1 | Change | ||||||||||||||||||
| Net sales |
$ | 179 | $ | 141 | 26.7 | % | $ | 1,051 | $ | 840 | 25.0 | % | ||||||||||||
| Change in deferred revenue |
(47 | ) | (48 | ) | (3.0 | )% | 59 | 58 | 2.1 | % | ||||||||||||||
| Billings 2 |
132 | 93 | 42.0 | % | 1,110 | 899 | 23.5 | % | ||||||||||||||||
| Impairment charge for goodwill |
— | 17 | NM | — | 279 | NM | ||||||||||||||||||
| (Loss) income from continuing operations |
(46 | ) | (88 | ) | 47.4 | % | 2 | (471 | ) | NM | ||||||||||||||
| Adjusted EBITDA 3 |
24 | (7 | ) | NM | 270 | 89 | NM | |||||||||||||||||
| Pre-publication or content development costs |
(14 | ) | (10 | ) | 41.7 | % | (56 | ) | (61 | ) | (7.7 | )% | ||||||||||||
| Net cash provided by operating activities |
71 | 40 | 75.7 | % | 264 | 106 | NM | |||||||||||||||||
| Free cash flow 3 |
47 | 15 | NM | 168 | (5 | ) | NM | |||||||||||||||||
| 1 | All amounts exclude the impact of the HMH Books & Media business which has been removed from continuing operations and classified as discontinued operations since the first quarter of 2021. |
| 2 | An operating measure. Please refer to “Operating Metrics” for an explanation. |
| 3 | A non-GAAP measure. Please refer to Use of Non-GAAP Financial Measures for an explanation and reconciliation. We are unable to reconcile forward looking unlevered free cash flow without unreasonable efforts. |
NM = not meaningful
Additional information regarding Q4 and full year 2021 financial results will be included in the Company’s Annual Report on Form 10-K.
Conference Call:
Given the recently announced agreement for HMH to be acquired by entities affiliated with The Veritas Capital Fund VII, L.P., the Company will not be hosting a conference call to discuss its financial results.
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, we have presented adjusted EBITDA from continuing operations 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, gains or losses on investments, non-cash charges and impairment charges, levels of depreciation or amortization, and acquisition/disposition-related activity costs, legal settlement 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 and related disclosure is provided in the appendix to this news release.
Operating Metrics:
Billings is 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.
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. For more information, visit www.hmhco.com
Follow HMH on Twitter, Facebook and YouTube.
Contact
Investor Relations
Chris Symanoskie, IRC
VP, Investor Relations
(410) 215-1405
chris.symanoskie@hmhco.com
Media Relations
Bianca Olson
SVP, Corporate Affairs
(617) 351-3841
bianca.olson@hmhco.com
Important Information
On February 22, 2022, HMH announced that it has entered into a definitive merger agreement with certain affiliates of Veritas Capital, a leading private equity investment firm, for the acquisition of the Company via a tender offer. The tender offer for the outstanding shares of HMH common stock has not yet commenced. This communication is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell shares of HMH common stock. The solicitation and offer to buy shares of HMH common stock will only be made pursuant to the tender offer materials that Veritas intends to file with the U.S. Securities and Exchange Commission (the “SEC”). At the time the tender offer is commenced, Veritas will file a tender offer statement on Schedule TO with the SEC, and HMH will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the tender offer. HMH’s STOCKHOLDERS ARE ADVISED TO READ THE SCHEDULE TO (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND OTHER OFFER DOCUMENTS) AND THE SCHEDULE 14D-9, AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BEFORE THEY MAKE ANY DECISION WITH RESPECT TO THE TENDER OFFER BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE PARTIES THERETO. Both the tender offer statement and the solicitation/recommendation statement will be mailed to HMH’s stockholders free of charge. Investors and stockholders may obtain free copies of the Schedule TO and Schedule 14D-9, as each may be amended or supplemented from time to time, and other documents filed by the parties (when available) at the SEC’s web site at www.sec.gov, by contacting HMH’s Investor Relations either by telephone at 410-215-1405 or e-mail at Chris.Symanoskie@hmhco.com or on HMH’s website at www.hmhco.com.
Houghton Mifflin Harcourt Company
Consolidated Balance Sheets
| December 31, | ||||||||
| (in thousands of dollars, except share information) | 2021 | 2020 | ||||||
| Assets |
||||||||
| Current assets |
||||||||
| Cash and cash equivalents |
$ | 463,131 | $ | 281,200 | ||||
| Accounts receivable, net of allowances |
135,495 | 88,830 | ||||||
| Inventories |
117,469 | 145,553 | ||||||
| Prepaid expenses and other assets |
43,339 | 19,276 | ||||||
| Assets of discontinued operations |
— | 160,053 | ||||||
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|
|
|
|
|||||
| Total current assets |
759,434 | 694,912 | ||||||
| Property, plant, and equipment, net |
80,445 | 88,801 | ||||||
| Pre-publication costs, net |
150,652 | 202,820 | ||||||
| Goodwill |
437,977 | 437,977 | ||||||
| Other intangible assets, net |
360,290 | 402,484 | ||||||
| Operating lease assets |
110,572 | 126,850 | ||||||
| Deferred income taxes |
4,997 | 2,415 | ||||||
| Deferred commissions |
35,083 | 30,659 | ||||||
| Other assets |
34,830 | 34,208 | ||||||
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|
|
|
|
|||||
| Total assets |
$ | 1,974,280 | $ | 2,021,126 | ||||
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|
|||||
| Liabilities and Stockholders’ Equity |
||||||||
| Current liabilities |
||||||||
| Current portion of long-term debt |
$ | — | $ | 19,000 | ||||
| Accounts payable |
37,449 | 38,751 | ||||||
| Royalties payable |
45,166 | 34,765 | ||||||
| Salaries, wages, and commissions payable |
41,253 | 21,723 | ||||||
| Deferred revenue |
357,864 | 342,605 | ||||||
| Interest payable |
11,235 | 11,017 | ||||||
| Severance and other charges |
405 | 19,590 | ||||||
| Accrued pension benefits |
185 | 1,593 | ||||||
| Accrued postretirement benefits |
1,618 | 1,555 | ||||||
| Operating lease liabilities |
7,539 | 9,669 | ||||||
| Other liabilities |
43,297 | 22,912 | ||||||
| Liabilities of discontinued operations |
— | 30,662 | ||||||
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|
|
|
|||||
| Total current liabilities |
546,011 | 553,842 | ||||||
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|
|
|
|||||
| Long-term debt, net of discount and issuance costs |
317,579 | 624,692 | ||||||
| Operating lease liabilities |
127,426 | 132,014 | ||||||
| Long-term deferred revenue |
606,811 | 562,679 | ||||||
| Accrued pension benefits |
8,484 | 24,061 | ||||||
| Accrued postretirement benefits |
15,940 | 16,566 | ||||||
| Deferred income taxes |
21,393 | 16,411 | ||||||
| Other liabilities |
212 | 398 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
1,643,856 | 1,930,663 | ||||||
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|
|||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity |
||||||||
| Preferred stock, $0.01 par value: 20,000,000 shares authorized; no shares issued and outstanding at December 31, 2021 and 2020 |
— | — | ||||||
| Common stock, $0.01 par value: 380,000,000 shares authorized; 152,267,951 and 150,459,034 shares issued at December 31, 2021 and 2020, respectively; 127,690,917 and 125,882,000 shares outstanding at December 31, 2021 and 2020, respectively |
1,523 | 1,505 | ||||||
| Treasury stock, 24,577,034 shares as of December 31, 2021 and 2020, respectively, at cost |
(518,030 | ) | (518,030 | ) | ||||
| Capital in excess of par value |
4,931,357 | 4,918,542 | ||||||
| Accumulated deficit |
(4,042,252 | ) | (4,255,830 | ) | ||||
| Accumulated other comprehensive loss |
(42,174 | ) | (55,724 | ) | ||||
|
|
|
|
|
|||||
| Total stockholders’ equity |
330,424 | 90,463 | ||||||
|
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|
|||||
| Total liabilities and stockholders’ equity |
$ | 1,974,280 | $ | 2,021,126 | ||||
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Houghton Mifflin Harcourt Company
Consolidated Statements of Operations
| (Unaudited) Three Months Ended December 31, |
Years Ended December 31, | |||||||||||||||
| (in thousands of dollars, except share and per share information) | 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Net sales |
$ | 178,805 | $ | 141,167 | $ | 1,050,802 | $ | 840,454 | ||||||||
| Costs and expenses |
||||||||||||||||
| Cost of sales, excluding publishing rights and pre-publication amortization |
63,316 | 60,235 | 398,706 | 370,586 | ||||||||||||
| Publishing rights amortization |
2,517 | 3,468 | 10,688 | 14,800 | ||||||||||||
| Pre-publication amortization |
29,444 | 32,047 | 108,621 | 125,838 | ||||||||||||
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|
|
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|
|
|
|||||||||
| Cost of sales |
95,277 | 95,750 | 518,015 | 511,224 | ||||||||||||
| Selling and administrative |
106,707 | 102,540 | 445,660 | 442,355 | ||||||||||||
| Other intangible assets amortization |
7,241 | 6,349 | 30,257 | 23,917 | ||||||||||||
| Impairment charge for goodwill |
— | 17,000 | — | 279,000 | ||||||||||||
| Restructuring/severance and other charges |
2,469 | 98 | 12,349 | 31,874 | ||||||||||||
| Gain on sale of assets |
— | — | (3,661 | ) | — | |||||||||||
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|
|||||||||
| Operating (loss) income |
(32,889 | ) | (80,570 | ) | 48,182 | (447,916 | ) | |||||||||
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|
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| Other income (expense) |
||||||||||||||||
| Retirement benefits non-service income (expense) |
117 | (1,039 | ) | 105 | (856 | ) | ||||||||||
| Interest expense |
(8,210 | ) | (8,753 | ) | (34,998 | ) | (37,931 | ) | ||||||||
| Interest income |
25 | 26 | 77 | 899 | ||||||||||||
| Change in fair value of derivative instruments |
(306 | ) | 500 | (1,221 | ) | 672 | ||||||||||
| Gain on investments |
— | 353 | 1,442 | 2,091 | ||||||||||||
| Income from transition services agreement |
1,411 | — | 3,664 | — | ||||||||||||
| Loss on extinguishment of debt |
— | — | (12,505 | ) | — | |||||||||||
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|
|||||||||
| (Loss) income from continuing operations before taxes |
(39,852 | ) | (89,483 | ) | 4,746 | (483,041 | ) | |||||||||
| Income tax expense (benefit) for continuing operations |
6,577 | (1,141 | ) | 2,686 | (12,351 | ) | ||||||||||
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|
|
|
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|
|
|||||||||
| (Loss) income from continuing operations |
(46,429 | ) | (88,342 | ) | 2,060 | (470,690 | ) | |||||||||
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|
|||||||||
| Income (loss) from discontinued operations, net of tax |
— | 5,197 | (1,005 | ) | (9,148 | ) | ||||||||||
| (Loss) gain on sale of discontinued operations, net of tax |
(1,997 | ) | — | 212,523 | — | |||||||||||
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|
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|
|||||||||
| (Loss) income from discontinued operations, net of tax |
(1,997 | ) | 5,197 | 211,518 | (9,148 | ) | ||||||||||
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|
|||||||||
| Net (loss) income |
$ | (48,426 | ) | $ | (83,145 | ) | $ | 213,578 | $ | (479,838 | ) | |||||
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| Net (loss) income per share attributable to common stockholders |
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| Basic: |
||||||||||||||||
| Continuing operations |
$ | (0.36 | ) | $ | (0.70 | ) | $ | 0.02 | $ | (3.75 | ) | |||||
| Discontinued operations |
(0.02 | ) | 0.04 | 1.66 | (0.07 | ) | ||||||||||
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|
|||||||||
| Net (loss) income |
$ | (0.38 | ) | $ | (0.66 | ) | $ | 1.68 | $ | (3.82 | ) | |||||
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|||||||||
| Diluted: |
||||||||||||||||
| Continuing operations |
$ | (0.36 | ) | $ | (0.70 | ) | $ | 0.02 | $ | (3.75 | ) | |||||
| Discontinued operations |
(0.02 | ) | 0.04 | 1.61 | (0.07 | ) | ||||||||||
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|
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|
|
|
|||||||||
| Net (loss) income |
$ | (0.38 | ) | $ | (0.66 | ) | $ | 1.63 | $ | (3.82 | ) | |||||
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|||||||||
| Weighted average shares outstanding |
||||||||||||||||
| Basic |
127,686,147 | 125,867,093 | 127,337,815 | 125,455,487 | ||||||||||||
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| Diluted |
127,686,147 | 125,867,093 | 131,402,866 | 125,455,487 | ||||||||||||
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Houghton Mifflin Harcourt Company
Consolidated Statements of Cash Flows
| Years Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| (in thousands of dollars) | ||||||||
| Cash flows from operating activities |
||||||||
| Net income (loss) |
$ | 213,578 | $ | (479,838 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||
| Loss from discontinued operations, net of tax |
1,005 | 9,148 | ||||||
| Gain on sale of discontinued operations, net of tax |
(212,523 | ) | — | |||||
| Gain on sale of assets |
(3,661 | ) | — | |||||
| Depreciation and amortization expense |
194,433 | 214,429 | ||||||
| Operating lease assets, amortization and impairments |
16,249 | 5,397 | ||||||
| Amortization of debt discount and deferred financing costs |
2,705 | 2,636 | ||||||
| Gain on investments |
(1,942 | ) | (2,091 | ) | ||||
| Deferred income taxes |
2,400 | (14,355 | ) | |||||
| Stock-based compensation expense |
12,217 | 11,160 | ||||||
| Write-off of property, plant, and equipment |
1,606 | — | ||||||
| Loss on extinguishment of debt |
12,505 | — | ||||||
| Impairment charge for goodwill |
— | 279,000 | ||||||
| Change in fair value of derivative instruments |
1,221 | (672 | ) | |||||
| Changes in operating assets and liabilities, net of acquisitions |
||||||||
| Accounts receivable |
(28,928 | ) | 32,369 | |||||
| Inventories |
28,083 | 42,936 | ||||||
| Other assets |
(28,895 | ) | (4,860 | ) | ||||
| Accounts payable and accrued expenses |
18,788 | (34,039 | ) | |||||
| Royalties payable and author advances, net |
13,247 | (18,095 | ) | |||||
| Deferred revenue |
59,391 | 57,178 | ||||||
| Interest payable |
218 | 7,191 | ||||||
| Severance and other charges |
(19,185 | ) | 7,183 | |||||
| Accrued pension and postretirement benefits |
(2,946 | ) | 3,443 | |||||
| Operating lease liabilities |
(6,687 | ) | (1,996 | ) | ||||
| Other liabilities |
(9,090 | ) | (9,639 | ) | ||||
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| Net cash provided by operating activities - continuing operations |
263,789 | 106,485 | ||||||
| Net cash provided by operating activities - discontinued operations |
3,880 | 8,763 | ||||||
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| Net cash provided by operating activities |
267,669 | 115,248 | ||||||
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| Cash flows from investing activities |
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| Additions to pre-publication costs |
(56,210 | ) | (60,872 | ) | ||||
| Additions to property, plant, and equipment |
(39,093 | ) | (50,940 | ) | ||||
| Proceeds from sale of business |
340,593 | — | ||||||
| Proceeds from sale of assets |
5,000 | — | ||||||
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| Net cash provided by (used in) investing activities - continuing operations |
250,290 | (111,812 | ) | |||||
| Net cash used in investing activities - discontinued operations |
(647 | ) | (459 | ) | ||||
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| Net cash provided by (used in) investing activities |
249,643 | (112,271 | ) | |||||
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| Cash flows from financing activities |
||||||||
| Borrowings under revolving credit facility |
— | 150,000 | ||||||
| Payments of revolving credit facility |
— | (150,000 | ) | |||||
| Payments of long-term debt |
(342,031 | ) | (19,000 | ) | ||||
| Tax withholding payments related to net share settlements of restricted stock units |
— | (48 | ) | |||||
| Issuance of common stock under employee stock purchase plan |
410 | 918 | ||||||
| Net collections under transition services agreement |
6,240 | — | ||||||
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| Net cash used in financing activities - continuing operations |
(335,381 | ) | (18,130 | ) | ||||
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| Net increase (decrease) in cash and cash equivalents |
181,931 | (15,153 | ) | |||||
| Cash and cash equivalents at beginning of the period |
281,200 | 296,353 | ||||||
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| Cash and cash equivalents at end of the period |
$ | 463,131 | $ | 281,200 | ||||
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Houghton Mifflin Harcourt Company
Non-GAAP Reconciliations (Unaudited)
Adjusted EBITDA 1
(in thousands of dollars)
| Three Months Ended December 31, |
Years Ended December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net (loss) income from continuing operations |
$ | (46,429 | ) | $ | (88,342 | ) | $ | 2,060 | $ | (470,690 | ) | |||||
| Interest expense |
8,210 | 8,753 | 34,998 | 37,931 | ||||||||||||
| Interest income |
(25 | ) | (26 | ) | (77 | ) | (899 | ) | ||||||||
| Provision (benefit) for income taxes |
6,577 | (1,247 | ) | 2,686 | (12,457 | ) | ||||||||||
| Depreciation expense |
10,533 | 12,492 | 44,867 | 49,874 | ||||||||||||
| Amortization expense |
39,202 | 41,864 | 149,566 | 164,555 | ||||||||||||
| Non-cash charges—goodwill impairment |
— | 17,000 | — | 279,000 | ||||||||||||
| Non-cash charges—stock-compensation |
3,490 | 2,865 | 12,217 | 11,160 | ||||||||||||
| Non-cash charges— (gain) loss on derivative instruments |
306 | (500 | ) | 1,221 | (672 | ) | ||||||||||
| Fees, expenses or charges for equity offerings, debt or acquisitions/dispositions |
29 | 714 | 895 | 1,080 | ||||||||||||
| Gain on investments |
(500 | ) | (353 | ) | (1,942 | ) | (2,091 | ) | ||||||||
| Gain on sale of assets |
— | — | (3,661 | ) | — | |||||||||||
| Loss on extinguishment of debt |
— | — | 12,505 | — | ||||||||||||
| Legal settlement |
— | — | 2,470 | — | ||||||||||||
| Restructuring/severance and other charges |
2,469 | 98 | 12,349 | 31,874 | ||||||||||||
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| Adjusted EBITDA from continuing operations |
$ | 23,862 | $ | (6,682 | ) | $ | 270,154 | $ | 88,665 | |||||||
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Free Cash Flow 1
(in thousands of dollars)
| Three Months Ended December 31, |
Years Ended December 31, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Cash flows from operating activities |
||||||||||||||||
| Net cash provided by operating activities |
$ | 71,092 | $ | 40,468 | $ | 263,789 | $ | 106,485 | ||||||||
| Cash flows from investing activities |
||||||||||||||||
| Additions to pre-publication costs |
(14,106 | ) | (9,953 | ) | (56,210 | ) | (60,872 | ) | ||||||||
| Additions to property, plant, and equipment |
(10,421 | ) | (15,665 | ) | (39,093 | ) | (50,940 | ) | ||||||||
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| Free Cash Flow |
$ | 46,565 | $ | 14,850 | $ | 168,486 | $ | (5,327 | ) | |||||||
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| 1 | All amounts have been adjusted to eliminate the impact of the HMH Books & Media business which has been removed from continuing operations and classified as discontinued operations. |
Houghton Mifflin Harcourt Company
Calculation of Billings (Unaudited)
Billings 1
(in thousands of dollars)
| Three Months Ended December 31, |
Years Ended December 31, |
|||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net sales |
$ | 178,805 | $ | 141,167 | $ | 1,050,802 | $ | 840,454 | ||||||||
| Change in deferred revenue |
(46,709 | ) | (48,169 | ) | 59,391 | 58,178 | ||||||||||
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| Billings |
$ | 132,096 | $ | 92,998 | $ | 1,110,193 | $ | 898,632 | ||||||||
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Billings is an operating measure utilized by the Company derived as shown above.
| 1 | All amounts have been adjusted to eliminate the impact of the HMH Books & Media business which has been removed from continuing operations and classified as discontinued operations. |