Houghton Mifflin Harcourt’s Revenues Rise, Driven by Gains in Texas and Florida

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Houghton Mifflin Harcourt reported a rise in net sales for the second quarter, buoyed by what it says are gains in the massive Texas market and solid overall sales of its reading products across the country.

The giant publisher and education content producer on Thursday said its net sales reached $389 million in the second quarter of 2019, an increase of 9 percent, or $32 million, over the same period last year.

Even so, the company’s net loss was $41 million for the second quarter, up from a loss of $18 million from the same period last year.

Investors, at least initially, were not won over. The company’s stock price had dipped by about 6 percent, to $5.43 a share, by midday. Seeking Alpha said HMH had missed on expectations for revenue and earnings per share.

The vast majority of the company’s revenue gains, $29 million, came from the company’s education products, and the rest was driven by its broader books and media sales. The company’s “core solutions” saw a growth in billings of 65 percent over last year.

On the basis of its second-quarter showing, HMH said it is raising its billings guidance slightly for the full year, from $1.49 billion to $1.59 billion, to $1.53 billion to $1.61 billion.

In a conference call on the earnings report, CEO Jack Lynch and Chief Financial Officer Joe Abbott said the company is seeing a payoff from the recent state curriculum adoption process for English/language arts in Texas. The company said it had achieved a “56 percent market share” in the state’s 2019 adoption in that subject.

The Lone Star state’s adoption is closely watched because of the market’s sheer size—the state has more than 5 million public school students—and because state officials have an approval process that influences local districts’ buying.

In addition, HMH said it has taken a leading share in adoptions in major states and is winning more contracts to provide materials in so-called “open territories.”

“Our strategy is working,” Lynch said. “Our new programs are winning in the market.”

The company has created a sustainable revenue stream “built for the long term,” Lynch argued, one rooted in the company having listened closely to K-12 districts’ needs and responding to them.

In an interview with EdWeek Market Brief on Thursday, Lynch said he sees an overall brightening of market conditions across the K-12 publishing space.

One positive sign is the buying in open-territory states, which had seen several years of decline, but which now show “a return to growth,” Lynch said. That applies to “all instructional materials, and in particular, for core instructional materials.”

Eye on Texas, Florida

He attributed that rebound partly to districts looking to refresh K-12 content, roughly five to seven years after many had bought resources during states’ adoption of Common Core State Standards.

When the buying of academic materials stalled in many state and district markets over the past few years, some assumed it reflected a reordering of demand, and K-12 buyers shifting away from core lessons to open educational resources, or do-it-yourself assembly of materials, Lynch said. “That’s not what happened,” he said.

What’s more likely is that there was a wave of buying during the common-core era, Lynch argued, then states and districts stood pat, and “now they need to replenish” those resources.

In its earnings report, the company also boasted of having won a positive review from a group that at times has looked at HMH’s materials with a critical eye. EdReports, a nonprofit that seeks to reviews curriculum for quality, gave one of EdReports’ math curricula a strong rating for alignment recently.

Earlier this year, an HMH science curriculum had received a rating of only partial-alignment with standards, a finding the company maintained did not reflect its materials’ value.

In the earnings call, Lynch also said that HMH has done well in another key market, Florida, despite recent upheaval. Earlier this year, Republican Gov. Ron DeSantis announced that the state would halt its materials adoption process as it scrubbed its materials of what he believes are any influences of the common core, which the governor opposes.

State officials said the new math adoption will play out in 2021-2022. But in the interim, HMH has had success in reaching out to districts it already serves, Lynch said, with the message, “until the [new] standards are adopted, you’re going to need material,” and advocating that they use its resource Go Math for the next three years.

Lynch declined to say how many agreements of that sort HMH has reached with Florida districts, except to say it’s a “large percentage of them.”

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