Wiley: Headwinds, but tough domestic sales activity (NYSE:WLY)

John Wiley & Sons, Inc. (NYSE: WLY) recently released its Q1 FY 2025 earnings results on September 6.

In this article, I will discuss their recent performance and the headwinds the company is experiencing, including the impact of the three assignees from the beginning of 2024.

In the outlook section, I will present the rationale behind my Hold rating by reviewing the company’s recent financials, recent price action and recent insider trading activity.

As always, I like to start with a company overview section for those readers new to this stock.

Company overview

Wiley is a New Jersey company that provides content, services and digital platforms to researchers, students and corporations.

Like most publishers, they have moved to a predominantly digital model, with more than 83% of its revenue in fiscal 2024 coming from digital products. and services.

They have three segments of activity:

• Research: This segment includes STM’s publishing and research for academic institutions, corporations and government clients.
• Learning: This segment provides educational content including digital courses and assessments for students, professionals and institutions.
• Held for Sale/Sold: This segment includes businesses that have been divested or are in the process of being sold, including University Services, CrossKnowledge and Wiley Edge.

We’ve considered including a breakdown of revenue by business segment below to understand each segment’s share of the company’s annual revenue.

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Compilation of author from latest 10-K

Given that they operate internationally, we considered including a breakdown of their revenue by geography below.

Click to enlarge

I’m glad to see a ~50/50 split between the US and other countries, mainly due to the diversification of their incomes.

In terms of ownership, the most recent 14A shows that all 17 directors and executive officers collectively own less than 1% of the Class A and Class B common stock. I’m disheartened by this because they own less than 1% of voting power in the company.

Recent performance

Let’s start with dessert.

In the first quarter of 2025, the company reported a 10% annual revenue decline. Let me explain below why I’m not even sweating this decline.

In 2024, the company divested three business units from its portfolio:

• University Services: The transaction was completed on January 1, 2024. The pre-tax loss on the sale was $105.6 million, which was further reduced by $1.5 million in Q1 2025 due to customer agreements and capital adjustments of work.
• Wiley Edge: The sale was completed on August 31, 2024, recording a pre-tax loss of $19.6 million.
• CrossKnowledge: The sale was completed on August 31, 2024 and resulted in a total impairment charge of $51 million.

Therefore, the $47 million decrease in revenue in Q1 2025 is accounted for by these 3 disposals.

On that note, I have to admit that I’m discouraged about these trades, given that they all made a pre-tax loss.

These divestments were also part of a broader $130 million cost savings initiative. However, their strategy to reduce non-core activities resulted in a restructuring charge of $3.87 million.

These restructuring costs had a direct impact on margins, although I must admit I was surprised to see a 230 basis point improvement in adjusted EBITDA margin.

This was driven primarily by the learning segment, where cost-saving initiatives led to a 780 basis point improvement in adj. EBITDA margins.

However, despite the better margins, the learning segment saw relatively flat revenue growth, down 1% from last year due to pressures in the professional publishing market. The main headwind came from declining corporate spending on training and development, a core component of the professional publishing business.

The learning segment also includes AI content licensing deals, which added $21 million in revenue. However, these revenues are mainly opportunistic and non-recurring, which worries me as the lack of new contracts in AI could lead to a significant decline in revenues in the coming quarters.

Outlook

Since last December, the share price has risen by more than 50%.

The weekly chart above also shows the cyclicality of this business, and while it looks like we’re in the middle of an uptrend, the overall trend over the past two years is down.

The price action on the weekly chart makes sense when looking at how operating income and EBITDA have performed over the past few years.

As you can see above, growth has been relatively steady (down slightly) since 2017. So I’m not surprised to see the share price move sideways.

When comparing total debt to total current assets, Wiley has reduced its debt since 2020, but total current assets have also decreased. However, I am quite positive about their debt level which is only x2 their current assets.

A similar trend is seen in the cash flow situation, where both operating and free cash flows have declined since 2020.

In terms of insider trading activity, in my opinion, the picture does not look very favorable this year.

Several SVPs and executives, including CEO Kissner Matthew and CFO Van Tassell Christina, have sold a significant amount of stock since early 2024.

The books say that insider selling is not relevant to stock price (only insider buying). However, my experience suggests otherwise, particularly when executives sell 30% to 60% of their ownership in the company.

So does this mean the share price will fall in the near future?

From my point of view, absolutely not. However, my confidence in a continued uptrend is certainly not very high given the recent domestic selling activity. Therefore, I maintain a Hold rating on this stock.

Conclusion

Bottom line, I see Wiley in a transition phase, focusing on cost-saving initiatives and streamlining its operations through divestitures.

On the one hand, I am positive about their efforts to improve margins and their ability to find and close opportunistic AI licensing deals. However, due to the non-recurring nature of these contracts, the total revenues the company generates remain unpredictable in the short term.

Additionally, recent insider selling activity and the lack of significant insider ownership in the company further lowers my confidence in their near-term performance, leading to my Hold rating.