Wiley: Mild Headwinds, But Heavy Insider Selling Activity

seekingalpha09-16

Wiley reported a 10% YoY revenue decline in Q1 FY 2025, mainly due to three divestitures in 2024 that resulted in pretax losses.Despite improved margins, the learning segment's revenue was flat, with ...

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Morsa Images John Wiley & Sons, Inc. (NYSE:WLY) recently published Q1 FY 2025 earnings results on September 6.  In this article, I will discuss their recent performance and the headwinds that the company is experiencing, including the impact of their three divestitures since the beginning of 2024. In the outlook section, I will provide the rationale behind my Hold rating, by reviewing the recent financial metrics of the company, the recent price action, and the 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-based company that provides content, services, and digital platforms to researchers, students, and corporations. Like most publishers, they have been transitioning to a predominantly digital model, with over 83% of its revenue in FY 2024 derived from digital products and services. They have three business segments:   Research: this segment includes STM publishing and research for academic institutions, corporations, and government customers.  Learning: this segment offers educational content, including digital courseware 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.  I considered including below a breakdown of the revenue per business segment to understand the weight of each segment to the annual revenue of the company.    Segment 2024 2023 2022   Research 1,042.7 1,080.3 1,111.3   Learning 574.7 546.4 581.2   Held for Sale/Sold 255.5 393.2 390.4   Click to enlarge Author's compilation from latest 10-K Given that they operate internationally, I considered including below a breakdown of their revenue per geographical area.    Geographical Area 2024 2023 2022   United States 995.4 1,059.1 1,081.3   Other Countries 877.6 960.8 1,001.6   Total 1,873.0 2,019.9 2,082.9   Click to enlarge  I am glad to see a ~50/50 split between the US and other countries, mainly due to the diversification of their revenue. Ownership-wise, the latest 14A shows that all 17 directors and executive officers own collectively less than 1% of both class A and class B common stock. I am discouraged about this, as they have less than 1% of voting power in the company.  Recent Performance Let's start with the dessert. In Q1 FY 2025, the company reported a 10% YoY decline in revenue. Let me explain below why I am not sweating a drop about this decline.  In 2024, the company divested three business units within its portfolio:   University Services: the transaction was completed on January 1, 2024. The pretax loss on the sale was $105.6 million, which was later reduced by $1.5 million in Q1 2025 due to customer agreements and working capital adjustments. Wiley Edge: the sale was completed on August 31, 2024, incurring a pretax loss of $19.6 million.  CrossKnowledge: the sale was completed on August 31, 2024, and led to a total impairment charge of $51 million.   Therefore, the $47 million revenue decline in Q1 2025 is justified by these 3 divestitures.  On that note, I have to admit that I am discouraged about these transactions, given that all of them registered a pretax loss. Also, these divestitures were part of a wider cost saving initiative of $130 million. However, their strategy to reduce non core activities led to a restructuring expense of $3.87 million.  These restructuring costs had a direct impact on margins, although I have to admit that I was surprised to see an improvement of 230 basis points in the adjusted EBITDA margin.  This was mainly driven by the learning segment, where cost saving initiatives led to an improvement of 780 basis points in adj. EBITDA margins. However, despite better margins, the learning segment had a relatively flat revenue growth, declining by 1% YoY, due to pressures in the professional publishing market. The main headwind came from softening corporate spending on training and development, an main component of the professional publishing business. The learning segment also includes AI content licensing deals, which added $21 million in revenue. Nonetheless, this revenue is mainly opportunistic and non recurring, which makes me concerned as the lack of new contracts in AI could drive the revenue down by a significant amount in the next quarters.  Outlook Since December last year, the share price increased by over 50%.    Trading View The weekly chart above also shows the cyclicality of this business, and even though it seems that we are halfway through an uptrend, the overall trend in the past couple of years is declining.  The price action in the weekly chart makes sense when looking at how operating income and EBITDA evolved over the last few years.    Trading View As you can see above, the growth has been relatively flat (slightly declining) since 2017. Therefore, I am not surprised to see the share price fluctuating sideways.  When comparing total debt to total current assets, Wiley has been reducing their debt since 2020, but total current assets also decreased. Nonetheless, I am quite positive about the debt level, which is just x2 their current assets.    Trading View A similar trend is seen in the cashflow statement, where both operating and free cashflows have been declining since 2020.    Tradind View In regards to the insider trading activity, in my view, the picture doesn't look very favorable this year.  Several SVPs and executives, including the CEO, Kissner Matthew, and the CFO, Van Tassell Christina, sold a significant amount of shares since the start of 2024.    OpenInsider The books say that insider selling is not relevant to the share price (only insider buying). However, my experience indicates otherwise, particularly when executives sell 30% to 60% of their ownership in the company. So, does this mean that the share price will decline in the near future? In my view, absolutely not. However, my confidence in a continued uptrend is certainly not very high due to the recent insider selling activity. Therefore, I maintain a Hold rating for this stock.  Conclusion To conclude, I see Wiley in a transitional phase, focusing on cost saving initiatives and streamlining its operations through divestitures. On one hand, I feel 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 revenue that the company generates remains unpredictable in the near term.   Additionally, the recent insider selling activity and lack of meaningful insider ownership in the company further decrease my confidence in their near term performance, leading to my Hold rating.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2467831787"}