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Q3-2017 Investor Presentation
1. McGraw-Hill Education
Q3-2017 Update
November 14, 2017
This presentation has been prepared for investors in the currently outstanding debt of McGraw-Hill Global Education Holdings, LLC and MHGE Parent, LLC. Final
2. Important Notice
2
Forward-Looking Statements
This presentation includes statements that are, or may be deemed to be, “forward-looking statements.” These forward-looking statements can be identified by the use of
forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their
negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of
places throughout this presentation and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of
operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the
future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity,
and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this
presentation. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the
forward-looking statements contained in this presentation, those results of operations, financial condition and liquidity or developments may not be indicative of results or
developments in subsequent periods.
Any forward-looking statements we make in this presentation speak only as of the date of such statement, and we undertake no obligation to update such statements.
Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and
should only be viewed as historical data.
Non-GAAP Financial Measures
Certain financial information included herein, including Billings, EBITDA and Adjusted EBITDA, are not presentations made in accordance with U.S. GAAP, and use of such
terms varies from others in our industry. Billings, EBITDA and Adjusted EBITDA should not be considered as alternatives to revenue, net income from continuing operations,
operating cash flows or any other performance measures derived in accordance with U.S. GAAP as measures of operating performance, debt covenant compliance or cash
flows as measures of liquidity. Billings, EBITDA and Adjusted EBITDA have important limitations as analytical tools, and you should not consider them in isolation or as
substitutes for analysis of our results as reported under U.S. GAAP. This presentation includes a reconciliation of certain non-GAAP financial measures to the most directly
comparable financial measures calculated in accordance with U.S. GAAP.
Adjusted EBITDA, which is defined in accordance with our debt agreements, is provided herein on a segment basis and on a consolidated basis. Adjusted EBITDA by
segment, as determined in accordance with Accounting Standards Codification Topic 280, Segment Reporting, is a measure used by Management to assess the performance
of our segments. Adjusted EBITDA on a consolidated basis is presented as a debt covenant compliance measure. Management believes that the presentation of Adjusted
EBITDA is appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at
the same level in the future as well as other items to assess our debt covenant compliance, ability to service our indebtedness and make capital allocation decisions in
accordance with our debt agreements.
6. 6
McGraw-Hill Higher Ed Performance Overview
Key MHE drivers for a successful 2017 – So far, so good….Q4 remains important
Timing Seasonal Considerations & Drivers Results/Status
Jan. – Feb. Digital sales / paid activations Strong results driven by e-commerce and paid activations
Feb. – Apr. Actual product returns Improvement in product returns vs. 2016
Apr. – June
Low digital;
Start of print ordering by channel
Digital sales later in season
- Digital ordering continues to shift to the start of school (Q2 to
Q3) as direct-to-student sales increase
End of June – early
Sept.
Digital & print shift from Q2 to Q3
Sell-through of larger front-list
Abatement of print channel destocking
Solid Performance
- Anticipated digital & print shift from late June to closer to school
year did occur
- Net sales +3.4% YTD Sept. 30th 2017 vs. -10.7% YTD Sept. 30th
2016
Aug. – Sept.
Direct-to-student e-commerce sales
Paid digital activations
Strong results
- Direct-to-student e-commerce +15.3% YTD Oct. 31st
- Connect/LearnSmart paid activations +7.7% YTD Oct. 31st
Oct. – Nov.
Actual product returns
Digital growth continues into Oct.
- Actual returns down $31M or -15.3% YTD Oct. 31st 2017.; rest of
Nov. is critical
- Some shifting of digital activations and sales from Sept. as
students trial digital and activate in Oct.
Dec.
Continue to shift to Jan. direct-to-student digital
sales with the ongoing digital transition
Too early in the season to determine impact of sales shift to Q1
Note: Connect paid activations and direct-to-student e-commerce sales updated as of YTD 10/31/17
7. McGraw-Hill K-12 Performance: YTD 9/30/17
Billings (net of accrued returns) $680M (-3.4%)
Digital Billings $269M (+21.2%)
% Digital Billings 40% +800bps
vs. Industry Performance as per AAP1: YTD 9/30/17
MHE Net Sales (-3.2%)
Industry Net Sales (-3.8%)
MHE Market Share Change +~10 bps
MHE Adoption Net Sales (-3.1%)
Industry Adoption Net Sales (-1.0%)
MHE Market Share Change -~70 bps
MHE Open Territory Sales (-3.3%)
Industry Open Territory Net Sales (-6.3%)
MHE Market Share Change +~60 bps
Key Indicators: YTD 9/30/17
ConnectED Unique Users 7.2M (+22.4%)
ALEKS Unique Users 2.0M (+17.0%)
7
1 As per Monthly AAP data
- Cohort of publishers for monthly AAP data differs from that of annual AAP data
- Monthly data reflects net sales on an actual returns basis submitted by 6-7 publishers
- Annual data reflects net sales on an actual returns basis submitted by 5 publishers
K-12
McGraw-Hill K-12 Q3-2017 Results
Held market share overall despite tough CA comp; gained market share in Open Territory
Expect to retain a leadership position in second year of
the California ELA Adoption despite tough comparison
to outsized 2016 performance and to lead Florida Social
Studies Adoption
- 2017 CA English Language Arts Billings in line with
August estimate with total MHE CA sales greater
than $200M
- 2017 FL Social Studies Billings ahead of prior
estimate with total MHE FL sales greater than
$60M
Gained market share in Open Territory YTD Sept 30
th
,
while market contracted 6% YTD, contrary to broad
industry expectations for market growth
- Some schools ordered later than normal this year
and some school districts have deferred purchase
decisions
- Q4 is a seasonally small period
Preparations for 2018 and 2019 new adoptions remain
on track, specifically California Social Studies (2018),
Florida Science (2018), Texas Reading (2019), California
Science (2019) and Florida Math (2019)
- On November 9
th
, McGraw-Hill’s Social Studies
program was approved for sale in California
Note: Primary difference between Billings and net sales (industry market share measure) is the accrual of returns
8. 8
K-12 New Adoption Market Overview
Significant Adoption growth anticipated in 2019 & 2020; cyclically smaller market in 2018
*Disciplines reflect 2ndand 3rdyear of major purchasing
Source: MHE estimate of total market without adjustment for participation or market share
2017E 2018E 2019E 2020E
Big-3 State New Adoption
Estimated Total Market
California
Reading*
~$400M
Reading*
~$60-80M
Social Studies*
~$85-115M
Social Studies*
(Yr.3 Remainder)
Social Studies
~$60-80M
Science
~$100-125M
Science*
(Yr. 2)
Florida
Social Studies
>$100M
Science
~$125-150M
Math
~$150-200M
Reading
Texas
Reading
~$300-350M
Reading (9-12)
Big-3 State New Adoption
Estimated Total Market
>$500M ~$245-310M ~$635-790M
All Other State New Adoption
Estimated Total Market
~$100-150M ~$250-300M ~$275-325M
Total New Adoption Estimate ~$600-650M ~$500-$600M ~$900-$1,100M
- Open Territory (New and Residual) total market estimated to fluctuate -3% to +3% per annum through 2018-2020E
- Adoption market data above is new adoption only and does not include residual sales; see Appendix slide 29 for
additional details
- Market size ranges driven by several factors including 1) applicable enrollment, 2) potential use of core instructional
funds for off-list purchases (e.g. supplemental), and 3) other factors that may influence or defer purchase decisions
9. 9
International & Professional
International
Digital transition continues but not enough to offset
declining print sales in several regions including Europe,
India and Asia
Billings on large Middle East contract to be recognized in
fourth quarter; similar to prior year
- Middle East contract is largely digital content
Billings impact of $4M from sale of Canadian K-12
business in Q2
YTD favorable FX impact versus prior year of $2M on
Billings and $3M on EBITDA
Professional
Digital subscription Billings favorable YTD, nearly
offsetting print decline, with a strong pipeline built for Q4
as the digital conversion continues
- YTD Access digital Billings subscription growth up 5%
Margin improvement from continued growth in digital,
coupled with operating expense reductions from earlier
restructuring
McGraw-Hill International Performance: YTD 9/30/17
Billings (constant FX)1 $189M (-6.8%)
Digital Billings $31M (+2.1%)
Digital Billings % 16% +100bps
YTD 9/30/17 Key Indicators - International
Connect/LearnSmart Paid Activations +~330K (+21%)
ALEKS Unique Users +~123K (+27%)
McGraw-Hill Professional Performance: YTD 9/30/17
Billings $80M (-1.5%)
Digital Billings $40M (+2.7%)
Digital Billings % 50% +200bps
Key Indicators - Professional
Access Platform Renewal Rate2 93%
1K-12 business in Canada was sold in May 2017
2As of December 2016; updated on an annual basis
McGraw-Hill International & Professional Q3-2017 Results
Digital transition continues but sales growth not enough to offset print headwinds
10. 0.7 1.0
1.6 2.0 1.7 2.00.8
0.9
1.1
1.3
1.2
1.5
1.5
2.0
2.7
3.3
2.9
2013 2014 2015 2016 YTD Sept
2016
YTD Sept
2017
K-12 Higher Ed
2.2 2.6
3.0 3.3 3.1
3.4
2013 2014 2015 2016 YTD Sept
2016
YTD Sept
2017
CONNECT/LEARNSMART PAID ACTIVATIONS (US HIGHER ED)
ALEKS UNIQUE USERS (GLOBAL HIGHER ED, K-12)
(Millions)
ConnectED UNIQUE USERS (K-12)
2.2
3.5
5.2
7.1
5.9
7.2
2013 2014 2015 2016 YTD Sept
2016
YTD Sept
2017
+7%
+22%
+22%
LONG-STANDING LEADER IN DIGITAL ADAPTIVE LEARNING
MHE digital adaptive learning exhibiting growth in users, paid activations
and interactions
Continued growth in Connect/LearnSmart paid activations +7.7% YTD
10/31/17
Back-to-school season extended well into October as the successful
digital transition has driven additional purchases through mid-terms/first
assignment
~74M assignments submitted through Connect, up 10% Y/Y
~8.5B interactions (questions answered) on LearnSmart since 2009
~6.2B interactions (questions answered) on ALEKS since 2010
McGraw-Hill Education Q3-2017 Digital Ed Tech Highlights
~15 billion cumulative adaptive interactions providing valuable insights into learning
outcomes
10
3.5
International Connect/LearnSmart Paid Activations of ~330K+ not incl.in Connect/LearnSmart totals above;
International ALEKS Unique Users of ~123K+ incl. within total ALEKS Unique Users above.
11. 34% 38% 45%
56% 57% 63%
66% 62% 55%
44% 43% 37%
2013 2014 2015 2016 YTD 2016 YTD 2017
Digital Print (Traditional + Custom)
DIGITAL VS. PRINT BILLINGS MIX %1
11
YTD NINE MONTH E-COMMERCE NET SALES SURPASS FY 2016
Digital Billings continue to grow as a share of total Higher Ed
Billings and reached 63% of total in YTD Sept. 30
th
, up 6
percentage points
1
Digital sales benefited in part from more professors transitioning
to digital when the new front-list editions became available
Direct-to-student e-commerce sales represented 32% of total
Higher Ed Billings in the YTD period (seasonally impacted)
E-commerce is now a larger channel than the next three
distribution channel partners combined, which each grew net
sales YTD September
August and September remain largest months for e-commerce
but growth continues into October
McGraw-Hill Education Higher Ed Q3-2017 Digital Billings
6 percentage point gain in digital mix driving revenue stability and predictability
$67
$105
$140
$172 $162
$186
2013 2014 2015 2016 YTD 2016 YTD 2017
E-COMMERCE NET SALES*
+15%
($ in Millions)
YTD Sept
2016
YTD Sept
2017
(Traditional + Custom)
YTD Sept
2016
YTD Sept
2017
*Direct-to-student e-commerce net sales of $195, up +15% as of YTD 10/31/17
1Effective Q4-16 and prospectively, MHE no longer incudes the change in deferred royalties within
the change of deferred revenue. On a FY basis, the net change is immaterial; prior periods do not
reflect the change.
13. $13 $14
$39 $40
46% 46% 48% 50%
$16 $16
$30 $31
17% 19% 15% 16%
$130 $141
$222
$269
34% 39% 32% 40%
$170
$202
$320
$359
$329 $373
$612
$701
40% 45% 39% 46%
13
($ in Millions)
MCGRAW-HILL EDUCATION1
+14%
K-12HIGHER ED1
PROFESSIONALINTERNATIONAL
% of Total
Billings
% of Total
Billings
% of Total
Billings
% of Total
Billings
% of Total
Billings
+12% +21%
+3%
+2%
Q3-16 Q3-17
Q3-16 Q3-17
57% 63%
+18%
Q3-16 Q3-17
+9%
Q3-16 Q3-17
+2%
+6%
Q3-16 Q3-17
+13%
McGraw-Hill Education Q3-2017 Digital Billings Mix
Digital Billings up across all business units in Q3 and YTD
Higher Ed favorably impacted by
growth in e-commerce sales
K-12 driven by product mix with
strong sales of 6-12 digital
Literature in California and Social
Studies in Florida
52% 58%
YTD Sept 2016 YTD Sept 2017
YTD Sept 2016 YTD Sept 2017
YTD Sept 2016 YTD Sept 2017 YTD Sept 2016 YTD Sept 2017
YTD Sept 2016 YTD Sept 2017
1Effective Q4-16 and prospectively, MHE no longer incudes the change in deferred royalties within the change of deferred revenue. On a FY basis, the net change is immaterial;
prior periods do not reflect the change.
14. BILLINGS1
MHE YTD Billings down 1.6%
Higher Ed business turned around in 2017 with outperformance in front-
list, stabilization of back-list and continued growth in digital
K-12 gained market share in an Open Territory market that declined.
Adoption state Billings were strong but down vs. a tough comp in 2016
EBITDA BEFORE AND AFTER PRE-PUBLICATION EXPENSE
EBITDA before pre-publication investment flat YTD as digital product mix
and previous cost containment efforts more than offset lower Billings
YTD pre-publication investment of $74M, up $19M or +34% as the
company invests in a larger Higher Ed front-list in 2018 and ahead of
large K-12 adoptions in 2018-2020; FY 17 pre-publication anticipated at
$100-105M
FY 2018 pre-publication investment anticipated to be up ~$10-15M,
driven by K-12
$433
$417
$480 $478
Q3-16 Q3-17 YTD Sept 2016 YTD Sept 2017
$409 $392 $425 $405
49% 48% 27% 27%
$832 $823
$1,551 $1,527
MHE TOTAL BILLINGS1
14
($ in Millions)
Digital %
(2%)
40% 45%
Constant FX (-1%) $820 (-2%) $1,525
McGraw-Hill Education
Q3-16 Q3-17
39% 46%
(1%)
MHE EBITDA BEFORE PRE-PUBLICATION INVESTMENT
(0%)
Constant FX (-5%) $391 (-6%) $402
(4%)
McGraw-Hill Education Financial Review
Strong performance in line with October preliminary report
MHE ADJUSTED EBITDA2
Margin %
Q3-16 Q3-17
YTD Sept 2017YTD Sept 2016
YTD Sept 2016 YTD Sept 2017
1Effective Q4-16 and prospectively, MHE no longer incudes the change in deferred royalties within the change
of deferred revenue. On a FY basis, the net change is immaterial; prior periods do not reflect the change.
2
Includes the impact of pre-publication costs incurred in advance of future year sales. Pre-publication costs relate to the cost of developing products and are capitalized and amortized over
the life of the new product for GAAP purposes and in Adjusted Post-Plate EBITDA reflected as cash investment.
52% 51% 31% 31%Margin %
(4%) (5%)
15. BILLINGS
YTD Billings driven by solid front-list performance (in both print and
digital) and continued digital strength
Front-list print increased 3% vs. a decline of 36% in prior year
Net sales to each of three largest distribution partners increased YTD
YTD 9/30/17 Connect activations up 7% and e-commerce sales grew 15%
Expect product returns to continue to trend favorably and in-line with
management expectations
1% of YTD Billings growth driven by change in deferred royalty
calculation change; will reverse itself in Q4
EBITDA BEFORE AND AFTER PRE-PUBLICATION INVESTMENTS
YTD EBITDA before pre-publication up 7% as stronger top line results
and historical cost savings drove margin expansion
YTD pre-publication investment of $24M, up $6M or +35% to support
investment in current year and 2018-2020 front-list
$202
$208
$212
$228
Q3-16 Q3-17 YTD Sept 2016 YTD Sept 2017
$192 $199 $194 $204
$326 $347
$562 $574
15
($ in Millions)
HIGHER ED TOTAL BILLINGS1
+2%
52% 58% 57% 63%
+6%
59% 57% 35% 35%
Q3-16 Q3-17
1
Effective Q4-16 and prospectively, MHE no longer incudes the change in deferred royalties within the change of deferred revenue. On a FY basis, the net change is immaterial;
prior periods do not reflect the change.
2
Includes the impact of pre-publication costs incurred in advance of future year sales.
Higher Ed Financial Review
Investment in front-list & continued digital leadership drove strong YTD performance
+3%
+5%
+7%
+3%
HIGHER ED EBITDA BEFORE PRE-PUBLICATION INVESTMENTS
Margin %
Higher Education
YTD Sept 2016 YTD Sept 2017
62% 60% 38% 40%
Q3-16 Q3-17 YTD Sept 2017YTD Sept 2016
HIGHER ED ADJUSTED EBITDA2
Digital %
Margin %
16. K-12 ADJUSTED EBITDA1
$193 $180
$234 $217
Q3-16 Q3-17 YTD Sept 2016 YTD Sept 2017
$185 $168
$210
$181
48% 47% 30% 27%
$383 $360
$704 $680
16
($ in Millions)
K-12 TOTAL BILLINGS
(3%)
(14%)
34% 39% 32% 40%
(6%)
Q3-16 Q3-17
(9%)
Q3-16 Q3-17
BILLINGS
YTD Billings declined slightly due to a tough comparison vs. 2016 CA
performance and despite taking market share in a declining Open
Territory market where some local district buying decisions were
postponed
MHE preparations on track and progressing for future new Adoption
opportunities in 2018 and 2019
EBITDA BEFORE AND AFTER PRE-PUBLICATION EXPENSE
YTD EBITDA before pre-publication down 7% as margins were impacted
by the lower Billings
YTD pre-publication investment of $36M, up $13M or +57% reflecting
investment in 2018 and 2019 adoption opportunities
K-12 Financial Review
Held market share despite tough comparison in adoption market
YTD Sept 2016 YTD Sept 2017
YTD Sept 2016 YTD Sept 2017
K-12
K-12 EBITDA BEFORE PRE-PUBLICATION INVESTMENTS
(7%)
(7%)
Margin %
1
Includes the impact of pre-publication costs incurred in advance of future year sales.
50% 50% 33% 32%
Digital %
Margin %
17. $22
$14
$16
$6
Q3-16 Q3-17 YTD Sept 2016 YTD Sept 2017
$17
$13
$7
(-$2)18% 15% 4%
-1%
$95 $86
$203
$191
INTERNATIONAL ADJUSTED EBITDA1
17
($ in Millions)
INTERNATIONAL TOTAL BILLINGS
Q3-16 Q3-17
Q3-16 Q3-17
BILLINGS
YTD Billings down 6% in reported currency, and decreased 7% in
constant currency
Excluding Canadian K-12 divestiture, reported YTD Billings declined 4%
versus prior year
EBITDA BEFORE AND AFTER PRE-PUBLICATION EXPENSE
YTD decline in EBITDA resulting from Billings decline and Middle East
contract related expense timing
YTD pre-publication investment of $8M, down $1M or -10%
YTD Sept 2016 YTD Sept 2017
YTD Sept 2016 YTD Sept 2017
International
INTERNATIONAL EBITDA BEFORE PRE-PUBLICATION INVESTMENTS
Margin %
International Financial Review
Digital transition continues; Middle East contract billings anticipated in Q4
Constant FX (-13%) $83 (-7%) $189
17% 19% 15% 16%
(6%)
(10%)
* % Y/Y change not meaningful
Constant FX nm $11 nm -$5
K-12 business in Canada was sold in May 2017.
1Includes the impact of pre-publication costs incurred in advance of future year sales
* % Y/Y change not meaningful
Digital %
Margin % 23% 16% 8% 3%
18. $9
$10
$16
$19
$10 $12
$21
$25
Q3-16 Q3-17 YTD Sept 2016 YTD Sept 2017
$28 $30
$81 $80
PROFESSIONAL ADJUSTED EBITDA1
18
($ in Millions)
PROFESSIONAL TOTAL BILLINGS
Q3-16 Q3-17
Q3-16 Q3-17
BILLINGS
Digital growth in Access product line is offset by continuing expected
declines in trade print portfolio
EBITDA BEFORE AND AFTER PRE-PUBLICATION EXPENSE
YTD growth in EBITDA from margin growth as a result of higher digital
Billings, coupled with operating expense savings from earlier
restructuring
YTD pre-publication investment of $5M, up $0.1M or +3%
Professional Financial Review
Digital growth continues with digital pipeline building in Q4
YTD Sept 2016 YTD Sept 2017
YTD Sept 2016 YTD Sept 2017
Professional
PROFESSIONAL EBITDA BEFORE PRE-PUBLICATION INVESTMENTS
+17%
+18%
Margin %
1
Includes the impact of pre-publication costs incurred in advance of future year sales.
37% 42% 26% 31%
(1%)
+5%
46% 48% 50%46%
31% 35% 20% 24%
+22%
+19%
Digital %
Margin %
19. MHE’s cash position is building in the second half of
the year with $668M of liquidity at Sept. 30
th
and
continuing to grow in Q4
- Revolver fully repaid; $350M undrawn capacity
$50M repurchase authorization for 8.5% 2019
PIK/Toggle Notes remains available as of today with
cash held at Holdco
- No repurchases made in Q3-17; $8M
repurchases made subsequently
- Debt callable at par
Term Loan Restricted Payment capacity was ~$160M
at Sept. 30, 2017 and will fluctuate seasonally
1
- Not impacted by subsequent repurchases as
cash used was already at Holdco
Capital Structure and Liquidity
Significant seasonal cash balances building; bank revolver fully repaid
Senior Secured Term Loan due 2022 $1,555
Revolving Credit Facility due 2021 ($350M) 0
Total First Lien Indebtedness $1,555
Less: McGraw-Hill Global Education
Cash and Cash Equivalents (246)
Net First Lien Indebtedness $1,309
Last Twelve Months Covenant EBITDA $402
Net First Lien Leverage Ratio 3.3x
Senior Unsecured Notes Due 2024 400
Net Total Indebtedness $1,709
Cash and Cash Equivalents
McGraw-Hill Global Education Holdings $246
MHGE Parent LLC (Holdco) / MHE Inc. 59
Total McGraw-Hill Education, Inc. $305
Available under Credit Facilities at Sept. 30, 2017 350
Total Liquidity $655
MCGRAW-HILL EDUCATION INC. (MHE INC.) LIQUIDITY: 9/30/17
Notes
˗ Net Total Indebtedness calculation excludes $451M debt held at MHGE Parent LLC and cash held at MHGE Parent LLC and MHE Inc. as of Sept. 30th
˗ Net First Lien Leverage covenant takes effect only if 30% of revolving line of credit is drawn at quarter-end. Usage was less than 30% at Sept. 30, so covenant did
not apply. Covenant level is 5.25x in Q2 and 4.8x in Q1, Q3 and Q4. 19
MCGRAW-HILL GLOBAL EDUCATION HOLDINGS COVENANT
LEVERAGE
($ in Millions)
1
Includes $100M general RP basket
20. 20
MHE performed competitively in both Higher Ed and K-12 YTD Sept. 30
th
Higher Ed plan was to rebuild the front-list and to continue growing digital
- Successfully drove Billings stabilization YTD vs. decline of 11% last year
K-12 plan was to aggressively compete in Adoption market against a tough 2016 outperformance
comparison and to take market share in Open Territory
- Plan was successful in retaining leading market share in the two largest adoption markets and taking
market share in Open Territory
International business continues in transition with revenue related to large Middle East contract expected
in Q4
Professional business continues digital growth with success of Access platform
Revolving line of credit fully repaid and significant seasonal cash balances building
Reinvesting in 2018 front-list for Higher Education and 2018-2020 Adoption opportunities in K-12
- Particularly K-12 large opportunities in 2019 and 2020
Summary
Stabilization in Higher Ed; competitive performance in K-12 with large opportunities
ahead
22. FinancialTermsandAcronyms
22
Financial Terms Description
Adjusted EBITDA
Non-GAAP financial measure that includes adjustments required or permitted in calculating covenant compliance under our debt agreements. Adjusted EBITDA
is a non-GAAP financial measure defined as net income from continuing operations plus net interest, income taxes, depreciation and amortization (including
amortization of pre-publication investment cash costs) and adjusted to exclude unusual items and other adjustments required or permitted in calculating
covenant compliance under our debt agreements less cash spent for pre-publication investment in addition to the change in deferred revenue.
Billings (formerly
referred to as Adjusted
Revenue)
Non-GAAP financial measure that we define as U.S. GAAP revenue plus the net change in deferred revenue excluding the impact of purchase accounting.
Billings, a measure used by management to assess sales performance, is defined as the total amount of revenue that would have been recognized in a period if
all revenue were recognized immediately at the time of sale.
Change in Deferred
Revenue
The Company receives cash up-front for most product sales but recognizes revenue (primarily related to digital sales) over time recording a liability for deferred
revenue at the time of sale. This adjustment represents the net effect of converting deferred revenues to a cash basis assuming the collection of all receivable
balances.
Change in Deferred
Royalty
Represents royalties primarily associated with digital sales which are deferred and amortized over the subscription period. It is the net effect of converting
deferred royalties to a cash basis assuming the payment of all amounts owed in the period incurred.
Digital Billings (formerly
referred to as Digital
Adjusted Revenue)
Represents standalone digital sales and, where digital product is sold in a bundled arrangement, only the value attributed to the digital component(s) is
included. The attribution of value in bundled arrangement is based on relative selling prices (inclusive of discounts).
EBITDA Earnings before interest (net), income tax, depreciation and amortization.
Front-list and Back-list
Front-list represents brand new titles and new revisions of existing titles previously published. For example, the 2017 front-list represents 2018 and 2017
copyrights sold in 2017. Back-list represents copyrights from 2016 and prior sold in 2017.
Net Sales Gross sales less actual returns; net sales are not adjusted for the impact of accruals / net change in deferred revenue.
Pre-publication
Investment
Pre-publication costs reflect the costs incurred in the development of instructional solutions, principally design and content creation. These costs are capitalized
when the title is expected to generate future economic benefits and are amortized upon publication of the title over its estimated useful life of up to six years.
Sell-through Represents the percentage of net sales a new or revised title generates vs. prior editions of the same title.
KPI Terms Description
Paid Activation
A user who accesses a purchased digital product for the first time. Access can be through a physical access card purchased from a bookstore or directly over
MHE’s e-commerce channel.
Unique User on a
platform
An individual who authenticates a product at least once during a given period of time.
23. Product Description Higher Education K-12 International Professional
Access
Digital subscription platform that provides easily searchable and
customizable digital content integrated with dynamic and functional
workflow tools
ALEKS Adaptive learning technology for the K-12 and Higher Ed markets
Connect
Open learning environment for students and instructors in the Higher
Education market and K-12 students taking AP courses
Connect2
Collaborative teaching and learning environment for the International
Higher Education market
ConnectED Content delivery platform for the K-12 market
ELLevate English Six level English Language Learning (ELL) course
Engrade
Developer of an open digital platform for K-12 education that unifies
the data, curriculum and tools to drive student achievement and
inform district educational strategy
LearnSmart
Adaptive learning program which personalizes learning and designs
targeted study paths for students
Redbird
A leading digital personalized learning company that offers courses in
K-12 math, language arts and writing, and virtual professional
development programs for educators
SmartBook
Adaptive reading product designed to help students understand and
retain course material by guiding each student through a highly
personal study experience
StudyWise
Adaptive offering that supports students in adaptive practice on
smartphones. StudyWise extends the reach of Connect and Connect2
allowing students to efficiently learn in their natural environment
DigitalProductOfferingDescriptions
23
25. 25
Billings is a non-GAAP sales performance measure that provides useful information in evaluating our period-to-period performance because it reflects the total amount
of revenue that would have been recognized in a period if we recognized all print and digital revenue at the time of sale. We use Billings as a sales performance measure
given that we typically collect full payment for our digital and print solutions at the time of sale or shortly thereafter, but recognize revenue from digital solutions and
multi-year deliverables ratably over the term of our customer contracts. As sales of our digital learning solutions have increased, so has the amount of revenue that is
deferred in accordance with U.S. GAAP. Billings is a key metric we use to manage our business as it reflects the sales activity in a given period, provides comparability
from period-to-period during this time of digital transition and is the basis for all sales incentive compensation. In the K-12 market where customers typically pay for five
to eight year contracts upfront and the ongoing costs to service any contractual obligation are limited, the impact of the change in deferred revenue is most significant.
Billings is U.S. GAAP revenue plus the net change in deferred revenue.
EBITDA, a measure used by management to assess operating performance, is defined as net income from continuing operations plus net interest, income taxes,
depreciation and amortization (including amortization of pre-publication investment cash costs). Adjusted EBITDA is a non-GAAP debt covenant compliance measure
that is defined in accordance with our debt agreements. Adjusted EBITDA is a material term in our debt agreements and provides an understanding of our debt
covenant compliance, ability to service our indebtedness and make capital allocation decisions in accordance with our debt agreements.
Each of the above described measures is not a recognized term under U.S. GAAP and does not purport to be an alternative to revenue, income from continuing
operations, or any other measure derived in accordance with U.S. GAAP as a measure of operating performance, debt covenant compliance or to cash flows from
operations as a measure of liquidity. Additionally, each such measure is not intended to be a measure of free cash flows available for management’s discretionary use,
as it does not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Such measures have limitations as analytical
tools, and you should not consider any of such measures in isolation or as substitutes for our results as reported under U.S. GAAP. Management compensates for the
limitations of using non-GAAP financial measures by using them to supplement U.S. GAAP results to provide a more complete understanding of the factors and trends
affecting the business than U.S. GAAP results alone. Because not all companies use identical calculations, our measures may not be comparable to other similarly titled
measures of other companies.
Management believes Adjusted EBITDA is helpful in highlighting trends because Adjusted EBITDA excludes the results of decisions that are outside the control of
operating management and can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax rules in
the jurisdictions in which companies operate, and capital investments. In addition, Billings and Adjusted EBITDA provides more comparability between the historical
operating results and operating results that reflect purchase accounting and the new capital structure post the Founding Acquisition as well as the digital transformation
that we are undertaking which requires different accounting treatment for digital and print solutions in accordance with U.S. GAAP.
Management believes that the presentation of Adjusted EBITDA is appropriate to provide additional information to investors about certain material non-cash items and
about unusual items that we do not expect to continue at the same level in the future as well as other items to assess our debt covenant compliance, ability to service
our indebtedness and make capital allocation decisions in accordance with our debt agreements.
Note: In compliance with SEC interpretative guidance, we now refer to ‘Adjusted Revenue’ as ‘Billings’ throughout the presentation.
BillingsandAdjustedEBITDA
26. Twelve Months Ended December 31 Nine Months Ended
2012 2013 2014 2015 2016 Sept. 30, 2016 Sept. 30, 2017
Digital Net Sales
Front-list $100 $126 $132 $156 $149 $115 $127
Back-list 137 153 194 220 263 211 232
Total Digital Net Sales $237 $278 $326 $376 $411 326 $359
Y/Y %
Front-list (6.0%) 25.1% 5.2% 18.2% (4.7%) (5.9%) 10.7%
Back-list 53.7% 11.8% 27.1% 13.4% 19.2% 19.9% 9.8%
Total Digital Net Sales 21.1% 17.4% 17.2% 15.3% 9.3% 9.3% 10.1%
Print Net Sales
Front-list $317 $323 $291 $233 $149 $120 $123
Back-list 205 215 233 178 152 117 100
Total Print Net Sales $523 $538 $524 $411 $302 $237 $223
Y/Y %
Front-list (23.9%) 1.9% (9.9%) (20.0%) (35.9%) (35.8%) 2.7%
Back-list 0.6% 4.7% 8.5% (23.6%) (14.6%) (19.7%) (14.7%)
Total Print Net Sales (15.9%) 3.0% (2.6%) (21.6%) (26.7%) (28.7%) (5.9%)
Total Net Sales
Front-list $418 $449 $423 $389 $298 $235 $250
Back-list 342 368 427 398 415 328 331
Total Net Sales 2
$760 $817 $851 $787 $713 $563 $582
Y/Y %
Front-list (20.3%) 7.5% (5.7%) (8.1%) (23.4%) (24.0%) 6.6%
Back-list 16.7% 7.5% 16.2% (6.8%) 4.1% 2.0% 1.0%
Total Net Sales (7.0%) 7.5% 4.2% (7.4%) (9.5%) (10.7%) 3.4%
Other (Accounting Accruals/Reversals) 2 (1) 4 5 (2) (6) (5)
Total Net Sales3
$762 $816 $855 $793 $711 $556 $576
Y/Y % (7.5%) 7.1% 4.8% (7.3%) (10.3%) (10.9%) 3.6%
26
($ in Millions)
1
2017 front-list represents 2018 and 2017 copyrights sold in 2017; they do not begin to impact current year until very late Q2.
2
Gross sales less actual returns; net sales are not adjusted for the impact of accruals / net change in deferred revenue.
3
Reflects the impact of accounting related to accruals / deferrals.
MHEHigherEdFront-List/Back-ListNetSales1
27. 27
($ in Millions)
1
MPI data reflects gross and net sales on an actual returns basis and includes other adjustments, eg. Advanced Placement products, which are reported in the K-12 business.
Amounts may not sum due to rounding.
HigherEdIndustryandMHEHigherEdSalesTrend
2011 2012 2013 2014 2015 2016 Sept 2016 Sept 2017
Higher Ed Industry per Management Practice, Inc.1
Higher Ed Market
Gross Sales $5,726 $5,420 $5,453 $5,465 $5,302 $4,695 $3,646 $3,477
Returns 1,323 1,311 1,262 1,214 1,377 1,250 829 621
Net Sales $4,403 $4,110 $4,191 $4,251 $3,925 $3,446 $2,817 $2,855
Y/Y %
Gross Sales n/a (5.3%) 0.6% 0.2% (3.0%) (11.4%) (9.8%) (4.7%)
Returns n/a (0.9%) (3.7%) (3.8%) 13.5% (9.2%) (1.6%) (25.0%)
Net Sales n/a (6.7%) 2.0% 1.4% (7.7%) (12.2%) (11.9%) 1.3%
McGraw-Hill Education Return Detail
Actual Returns $263 $276 $257 $252 $277 $237 $163 $134
Reserve for Returns Adjustment (3) (13) 9 16 (31) (23) (10) 3
Reported Returns $260 $263 $266 $268 $246 $215 $153 $138
Return Accrual % 24.4% 25.8% 25.1% 24.4% 23.4% 22.7% 22.7% 21.2%
Nine Months EndedTwelve Months Ended December 31
28. 28
1
Excludes new state adoptions in non-core disciplines such as career and technical education, music, art, world languages, health, etc.
Purchases from AR and IN classified as open territory effective 2015.
GA has revised its adoption schedule to “local school system decisions” for 2017 and, as a result, predictability is not assured, so the schedule above will not reflect GA adoptions post-2016.
2
Mississippi swapped Science (now 2018) with Social Studies (now 2019).
*Disciplines reflect 2
nd
and 3
rd
year of major purchasing.
K-12IndustryNewAdoptionMarketOverview
2012 2013 2014 2015 2016 2017 2018E 2019E 2020E
Largest Adoption States
Reading Reading* Science Science*
Math Social Studies Social Studies* Social Studies*
Reading (K-5) Reading (6-12)
Math (K-5) Math (6-12)
Math (K-8) Math (9-12)
Social Studies
Science*
All Other Adoption States
Alabama Math Reading Social Studies Science Math
Arkansas Math
Math*
Reading
Idaho Science Reading Math Social Studies Reading Science
Indiana Reading Reading*
Math (K-8)
Social Studies
North Carolina Math Science Social Studies Reading
New Mexico Science Math Reading Social Studies Science Math
Math
Social Studies (6-12)
Math Reading
Social Studies* Science
Social Studies
Math
Science
Social Studies 2
MathReading
Math Reading*
Social Studies
Reading Math (9-12) Reading Science 2
Social Studies Science Reading Math
Social StudiesScienceMathReading*Reading
Social Studies
Reading
Social Studies
Social Studies (K-5)Reading
Science
Science
Social Studies
Louisiana
New State Adoptions by Purchase Year
1
California (K-8)
Florida
Texas
Georgia
Science Reading (K-8)
MathScienceSocial Studies
Math
Social Studies
Math* Reading Reading*
West Virginia
Mississippi
Oklahoma
Oregon
South Carolina
Tennessee
Virginia
Reading (9-12) Reading (K-6) Social Studies Math Science
Reading Science Math Reading
Social Studies
Reading (K-12)
Reading (9-12)
Math
Reading
29. 29
($ in Millions)
Twelve Months Ended December 31 Nine Months Ended
2012 2013 2014 2015 2016 Sept. 30, 2016 Sept. 30, 2017
K-12 Industry per Association of American Publishers (AAP)
AAP U.S. Net Sales 1
Total Adoption $1,311 $1,391 $1,860 $1,621 $1,250 $1,234 $1,221
Open Territory 1,423 1,563 1,425 1,431 1,467 1,424 1,335
Total Net Sales $2,734 $2,954 $3,285 $3,052 $2,717 $2,658 $2,556
Y/Y %
Total Adoption n/a 6.2% 33.6% (12.8%) (22.9%) n/a (1.0%)
Open Territory n/a 9.8% (8.8%) 0.4% 2.5% n/a (6.3%)
Total Net Sales n/a 8.1% 11.2% (7.1%) (11.0%) n/a (3.8%)
McGraw-Hill Education K-12
McGraw-Hill Education Billings 2
Total Adoption $320 $318 $366 $450 $411 $391 $380
Open Territory / Other 378 359 369 348 348 313 300
Total K-12 Billings $698 $677 $734 $798 $758 $704 $680
Y/Y %
Total Adoption n/a (0.5%) 15.0% 23.0% (8.6%) (5.6%) (2.8%)
Open Territory / Other n/a (5.0%) 2.6% (5.7%) (0.1%) (1.3%) (4.2%)
Total K-12 Billings n/a (3.0%) 8.5% 8.6% (4.9%) (3.7%) (3.4%)
MHE Adoption Participation % 96% 79% 67% 76% 87% 87% 96%
1
AAP annual data reflects unrestated net sales on an actual returns basis submitted by five publishers; data reflects US sales & includes sales of AP products, software & platforms, etc.
AAP includes front-list and back-list net sales; annual data prior to 2015 has not been restated for the shift of AR and IN from adoption to open territory.
Monthly AAP data reflects net sales on an actual returns basis submitted by six - seven publishers; YTD 2016 data has been restated.
2
MHE Billings reflect an accrued returns basis and will not reconcile to AAP submission due to classification of revenue; total adoption includes new adoption and residual.
MHE Billings have not been restated for the shift of AR and IN in prior periods.
K-12IndustryandMHEK-12SalesTrend
30. 30
Figures are represented on a cash basis inclusive of actual returns but excluding purchase accounting adjustments. Accrued returns are reflected in print revenue.
1Effective Q4-16 and prospectively, MHE no longer incudes the change in deferred royalties within the change of deferred revenue. On a FY basis, the net change is immaterial;
prior periods do not reflect the change.
($ in Millions) Q3-2017 Billings Detail by Component
YTD Sept. 2017 Billings Detail by Component
Digitalvs.PrintBillingsDetail
2015 2016 2017 2016 2015 2016 2017 2016 2015 2016 2017 2016
Higher Ed1
$288 $320 $359 12.0% $342 $242 $215 (11.0%) $630 $562 $574 2.1%
K-12 276 222 269 21.2% 456 482 411 (14.7%) 731 704 680 (3.4%)
International 24 30 31 2.1% 193 173 160 (7.3%) 217 203 191 (5.9%)
Professional 37 39 40 2.7% 46 42 40 (5.4%) 82 81 80 (1.5%)
Other 2 0 1 N/M 0 1 0 N/M 2 1 1 N/M
Total MHE $627 $612 $701 14.5% $1,036 $939 $826 (12.0%) $1,663 $1,551 $1,527 (1.6%)
% of Total
Higher Ed 46% 57% 63% 54% 43% 37% 100% 100% 100%
K-12 38% 32% 40% 62% 68% 60% 100% 100% 100%
International 11% 15% 16% 89% 85% 84% 100% 100% 100%
Professional 45% 48% 50% 55% 52% 50% 100% 100% 100%
Total MHE 38% 39% 46% 62% 61% 54% 100% 100% 100%
% D vs % D vs % D vs
Sep YTD Digital Billings Sep YTD Print Billings Sep YTD Total Billings
2015 2016 2017 2016 2015 2016 2017 2016 2015 2016 2017 2016
Higher Ed1
$160 $170 $202 18.4% $226 $156 $145 (6.8%) $386 $326 $347 6.4%
K-12 169 130 141 8.7% 266 253 219 (13.4%) 435 383 360 (5.9%)
International 13 16 16 2.1% 87 79 70 (12.1%) 100 95 86 (9.7%)
Professional 11 13 14 6.1% 19 15 16 4.8% 30 28 30 5.4%
Other 1 0 0 N/M (0) 0 0 N/M 0 0 0 N/M
Total MHE $355 $329 $373 13.5% $597 $503 $450 (10.6%) $952 $832 $823 (1.1%)
% of Total
Higher Ed 42% 52% 58% 58% 48% 42% 100% 100% 100%
K-12 39% 34% 39% 61% 66% 61% 100% 100% 100%
International 13% 17% 19% 87% 83% 81% 100% 100% 100%
Professional 38% 46% 46% 62% 54% 54% 100% 100% 100%
Total MHE 37% 40% 45% 63% 60% 55% 100% 100% 100%
% D vs % D vs% D vs
Q3 Digital Billings Q3 Print Billings Q3 Total Billings
31. Free Cash Flow
31
($ in Millions)
Cash Flow Comparison 2016 2017 Y/Y $
Adjusted EBITDA 425 405 (21)
∆ in Accounts Receivable, net (188) (208) (19) AR: sales growth in Sep and timing of collections
∆ in Inventories, net (18) 1 19 Inventory: higher Dec-16 balances in anticipation of future K-12 opportunities
∆ in Prepaid & Other Current Assets (20) (7) 14 Prepaid: non-operational Transitional Services Agreement receivable changes
∆ in Accounts Payable and Accrued Expenses (107) (46) 61 (~$15M) and settlement of available-for-sale balances (~$5M) in FY 16
∆ in Other Current Liabilities (31) (26) 4 AP / Accrued: lower spend in FY 16 and timing of AP payments in FY 15 and FY16
∆ in Reported Working Capital Accounts (364) (286) 78 (~$40M), lower compensation accruals at Dec-16 (~$15M)
Adjustments to Derive Operational Working Capital1
29 5 (24) Other Current: driven by timing of expense and new capital lease obligations
∆ in Adjusted Working Capital Accounts (335) (281) 54 beginning in FY 16
Adjusted EBITDA less Adjusted ∆ in Working Capital Accounts 90 124 34
Pre-publication Investment 55 74 19 Pre-pub: driven by investment in Higher Ed front-list and K-12 new adoption
Restructuring and Cost Savings Implementation Charges (10) (9) 0 opportunities
Sponsor Fees (3) (3) 0
Cash Interest (140) (121) 19 Cash Interest: largely driven by refinancing
Net (loss) from Discontinued Operations (2) (0) 1
Operational Working Capital Adjustments and Other2 (2) (8) (6)
Cash (used for) provided by operating activities (11) 56 67
∆ in NWC including Adjustments to Derive Operational Working Capital
2016 2017 Y/Y $
Adjusted EBITDA less ∆ in Working Capital Accounts per above 90 124 34 ∆ in Accounts Receivable, net (184) (223) (39)
- Capital Expenditures & Payment of Capital Lease Obligations (29) (38) (9) ∆ in Inventories, net (17) (2) 15
Operating Free Cash Flow2
61 86 25 ∆ in Prepaid & Other Current Assets (8) 11 19
∆ in AP and Accrued Expenses (108) (44) 64
∆ in Other Current Liabilities (18) (23) (5)
Cash Balance at Beginning of Period 553 419 (134) Total (335) (281) 54
Cash (used for) provided by operating activities (11) 56 67
Dividends (320) (4) 317 Pre-Publication Investment Detail
Net Debt (Payments) / Receipts 146 (12) (158) 2016 2017 Y/Y $
Repurchase of MHGE PIK Toggle Notes - (48) (48) Higher Education 18 24 6
Pre-publication Investment (55) (74) (19) K-12 23 36 13
Capital Expenditures (26) (32) (5) International 9 8 (1)
Investments, Acquisitions & Divestitures, net - 7 7 Professional 5 5 0
Payment of Capital Lease Obligations (2) (6) (4) Total 55 74 19
Repurchase of Equity (6) (6) 0
Other (12) 4 17
Cash Balance at End of Period 266 305 40
Source: Consolidated Statement of Cash Flows and Adjusted EBITDA reconciliation
1
includes the impact of certain non operational, Cash EBITDA or capital structure working capital items
(i.e., purchase accounting, accrued interest, deferred royalties, income taxes, available for sale assets, etc.)
2
includes adjustment for deferred royalties included in calculation of Adjusted EBITDA
Nine Months Ended Sep 30,
Key Drivers
Key Variance Drivers
32. Adjusted EBITDA Reconciliation
32
($ in Millions)
($ in Millions) Year Ended LTM
Sept. 30, 2016 Sept. 30, 2017 Sept. 30, 2016 Sept. 30, 2017 Dec. 31, 2016 Sept. 30, 2017
Net Income 139$ 125$ (89)$ (35)$ (135)$ (82)$
Interest (income) expense, net 43 46 155 133 200 178
Provision for (benefit from) taxes on income 4 4 9 10 15 16
Depreciation, amortization and plate investment amortization 60 73 158 180 202 224
EBITDA 247$ 248$ 233$ 288$ 282$ 336$
Change in deferred revenue (a) 190 188 211 205 173 167
Change in deferred royalties (b)1
(12) (29) (17) (35) (18) (36)
Restructuring and cost savings implementation charges (c) 3 3 10 9 17 17
Sponsor fees (d) 1 1 3 3 4 4
Loss on extinguishment of debt (e) - - 27 - 27 -
Other (f) 4 6 14 8 29 23
Pre-publication investment cash costs (g) (24) (25) (55) (74) (90) (108)
Adjusted EBITDA 409$ 392$ 425$ 405$ 423$ 402$
Three Months Ended Nine Months Ended
Amounts above may not sum due to rounding.
1Effective Q4-16 and prospectively, MHE no longer incudes the change in deferred royalties within the change of deferred revenue. On a FY basis, the net change is immaterial;
prior periods do not reflect the change.
33. Adjusted EBITDA Footnotes
33
(a) We receive cash up-front for most sales but recognize revenue (primarily related to digital sales) over time recording a
liability for deferred revenue at the time of sale. This adjustment represents the net effect of converting deferred revenues
to a cash basis assuming the collection of all receivable balances.
(b) Represents royalties primarily associated with digital sales which are deferred and amortized over the subscription period.
It is the net effect of converting deferred royalties to a cash basis assuming the payment of all amounts owed in the period
incurred
(c) Represents severance and other expenses associated with headcount reductions and other cost savings initiated as part of
our formal restructuring initiatives to create a flatter and more agile organization.
(d) Beginning in 2014, $3.5 million of annual management fees was recorded and payable to Apollo.
(e) This amount represents the write-off of unamortized deferred financing fees, original debt discount and other fees and
expenses associated with the Company’s refinancing of its existing indebtedness on May 4, 2016.
(f) For the three and nine months ended September 30, 2017 the amount represents (i) non-cash incentive compensation
expense and (ii) other adjustments required or permitted in calculating covenant compliance under our debt agreements.
For the three and nine months ended September 30, 2016, the amount represents (i) non-cash incentive compensation
expense and (ii) other adjustments required or permitted in calculating covenant compliance under our debt agreements.
(g) Represents the cash cost for pre-publication investment during the period.
34. Revenue Bridge & Segment Detail
34
($ in Millions)
Amounts above may not sum due to rounding.
Sept. 30, 2016 Sept. 30, 2017 Sept. 30, 2016 Sept. 30, 2017
Reported Revenue 642$ 635$ 1,340$ 1,321$
Change in Deferred Revenues 190 188 211 205
Billings 832$ 823$ 1,551$ 1,527$
Billings by segment
Higher Education1
326$ 347$ 562$ 574$
K - 12 383 360 704 680
International 95 86 203 191
Professional 28 30 81 80
Other 0 0 1 1
Total Billings 832$ 823$ 1,551$ 1,527$
Adjusted EBITDA
Higher Education 192 199 194 204
K - 12 185 168 210 181
International 17 13 7 (2)
Professional 9 10 16 19
Other 6 2 (2) 3
Total Adjusted EBITDA 409$ 392$ 425$ 405$
Three Months Ended Nine Months Ended
1Effective Q4-16 and prospectively, MHE no longer incudes the change in deferred royalties within the change of deferred revenue. On a FY basis, the net change is immaterial;
prior periods do not reflect the change.
35. 35
($ in Millions)
Adjusted Operating Expenses Bridge
Sept. 30, 2016 Sept. 30, 2017 Sept. 30, 2016 Sept. 30, 2017
Operating Expense Bridge
Total Reported Operating Expenses 299$ 315$ 899$ 908$
Less: Depreciation & Amortization of intangibles (31) (33) (97) (100)
Less: Amortization of prepublication costs (29) (40) (61) (80)
Less: Restructuring and cost savings implementation charges (3) (3) (10) (9)
Less: Other adjustments (5) (7) (16) (24)
Adjusted Operating Expenses 230$ 231$ 715$ 695$
Three Months Ended Nine Months Ended
Amounts above may not sum due to rounding.
