Houghton Mifflin Harcourt Betting on Better Days Ahead, With State Adoptions

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Houghton Mifflin Harcourt says it has spent much of this year on the lean side of the lucrative sales cycle of state curriculum adoptions. But it’s betting that things will turn in a more positive direction in 2019.

That was one of the takeaways of the company’s third-quarter earnings call Thursday, which revealed a mixed set of results for the Boston-based corporation but were greeted positively by investors.

Houghton Mifflin saw its net income fall by about 5 percent, from $90.5 million to $86.3 million. It blamed that loss primarily on changing fortunes under the 2017 Republican-sponsored federal tax cut, which saved HMH $10 million in taxes in 2017 but will save only $4 million this year.

Company President and CEO Jack Lynch said in a conference call that HMH had relatively few opportunities in 2018 to get on the list of approved materials for curriculum adoptions in big states, which influences district purchasing.

That is likely to change over the coming year, as the company is poised to benefit from likely adoptions in big markets in Texas and California, as well as Florida, where it is competing for a number of district contracts, Lynch said. In those places, states create approved lists of curriculum providers in different subjects, which generally make it easier for local school systems to purchase them.

“We expect large adoptions will drive continued billing opportunities,” Lynch said, saying HMH expects to move from “the trough to the peak” of the adoption cycle next year.

HMH also saw a slight dip in its overall net sales, down $20 million, to $1.07 billion for the first nine months of 2018. Education sales fell by $29 million during that period, while HMH’s trade publishing division fared better.

The company’s results, including its earnings per share of $0.68, exceeded analysts’ expectations. Wall Street reacted favorably, sending the company’s stock price soaring 23 percent, to $8.59 a share, as of late Thursday. HMH’s stock price had been in decline for three years, having fallen from more than $26 a share in July of 2015.

The company’s billings, meanwhile, ticketed up by 1.5 percent, to $571 million, for the third quarter. For the first nine months of 2018, billings declined slightly, to $1.1 billion, year over year.

Overall billings for education products during that nine-month period fell from $979 million to $967 million. HMH’s billings from its “core solutions”–core curriculum mostly focused on reading, math, science, and social studies–fell by $55 million during that period, a drop the company attributed to products reaching the end of a cycle and needing to be be replaced–replacements the company is counting on next year.

“We’re at the end of the life [cycle] of these legacy programs,” Lynch said during the call.

The company’s billings for its “extensions” businesses, on the other hand–which includes its businesses focused on supplemental materials, academic interventions, formative assessments, and other resources–rose by $43 million to $492 million.

Houghton Mifflin has sought to rebrand itself in recent years from a publisher to a “learning company.” Lynch was named CEO in February of last year, and later the company announced a broad organizational and leadership restructuring.

That revamp is nearly complete, Joe Abbott, the chief financial officer of HMH, said in a statement accompanying the quarterly results.

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