John Wiley & Sons Inc

NYSE:WLY

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, and welcome to Wiley's First Quarter Fiscal Year 2020 Earnings Call. As a reminder, this call is being recorded. At this time, I would like to introduce Wiley's Vice President of Investor Relations, Brian Campbell. Please go ahead.

[Brian Campbell, Vice President of Investor Relations]

Hello, everyone, and welcome to Wiley's first quarter 2020 earnings update. With me in the room is Brian Napack, President and CEO; and John Kritzmacher, CFO and EVP Operations. A few reminders to start, first, the call is being recorded and may include forward-looking statements. You shouldn't rely on these statements as actual results may differ materially and are subject to factors discussed in our SEC filings. The company does not undertake any obligations to update or revise forward-looking statements to reflect subsequent events or circumstances. Second, Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. Non-GAAP metrics which generally exclude items that impact comparability comprise the following: adjusted EPS, free cash flow less product development spending, adjusted operating income and margin, adjusted contribution to profit, adjusted EBITDA and results on a constant currency basis and results excluding the impact of acquisitions. These performance measures do not have standardized meanings prescribed by U.S. GAAP, and therefore may not be comparable to the calculation of similar measures used by other companies. This should not be viewed as alternatives to measures under GAAP. Also note, we abbreviate constant currency as CC. Please see the reconciliation and explanations of all non-GAAP financial measures presented in the supplementary information included in our press release. Important to note, all variances in this presentation exclude the impact of currency unless otherwise noted. For those who prefer to listen to the call over the phone, but still want to view the slides, we recommend that you click on the gears icon located on the lower portion of the left-hand side window and select Live Phone. This will eliminate any delays in viewing the slide transitions as well as remove any potential background, if you prefer to ask a question. After the call, a copy of the presentation and a playback of the webcast will be available on our Investor Relations webpage. I'll now turn the call over to Brian Napack, Wiley's President and CEO.

[Brian Napack, President and Chief Executive Officer]

Thank you, Brian, and thank you all for joining us today. I'm going to start with a brief refresher on the new segment definitions that we announced last quarter. Going forward, we will be reporting on the following three segments: Research Publishing and Platforms, Education Publishing and Professional Learning, and Education Services. These segments align well with the way we manage the business and with our growth strategy. Research Publishing and Platforms or Research is essentially unchanged from prior periods. It includes our research journal publishing, our author services, and corporate services, and Atypon, our research platforms business. For context, this segment accounted for over half of Wiley's total revenue this quarter. The second segment, Education Publishing and Professional Learning delivers educational products in the form of content and courseware, Test Prep programs, corporate training and digital learning platforms for students, professionals, universities and corporations. Within this segment, Education Publishing refers to our higher education and reference publishing and our Test Prep business. Professional Learning refers to our Professional Development programs, corporate training services, and professional books, which are all focused on the development of skills and capabilities in corporate settings. Education Publishing and Professional Learning accounted for around a third of total Wiley revenue in the quarter. We like the potential synergies and efficiencies enabled by this new alignment. Education Services is our third segment. It delivers tech-enabled services that help universities, corporations and students to achieve important educational outcomes. This segment includes degree program management and credentialing services such as boot camps. Education Services accounted for 12% of revenue this quarter and is growing nicely. Please see the attached financial schedules for more financial detail regarding these segments and see our August 8-K for historical segment restatements. With that context, I'll now give an overview of the key takeaways from our Q1 performance. Overall performance was mixed in the quarter. Good revenue and EBITDA growth in Research and Education Services offset a decline in Education Publishing and Professional Learning. I'll walk through the segment results shortly, but I'm generally pleased with the momentum that we saw in key areas of the business including Research Publishing overall, Open Access, Atypon, and our Education Services businesses. We did see a substantial earnings decline year-on-year, but this was largely anticipated due to our investments in growth and efficiency initiatives across the company. We expect higher revenues for the remaining three quarters with top-line growth every quarter compared to prior year and a significantly lower rate of decline in earnings than we saw in the first quarter. As such, we're confident that we will meet our full year outlook. You will note that our outlook has been updated, but only to reflect the impact of our recent zyBooks acquisition. Free cash flow performance for the quarter was favorable to prior year by $45 million, driven mostly by clearing out the Q4 backlog of Journal Subscription Collections. John will talk more about this, but we anticipate fiscal year '20 free cash flow to be in the range of $210 million to $230 million, up from $149 million in fiscal '19. We continue to make very good progress in implementing our strategy to lead in Research and Education, while enhancing the efficiency and effectiveness of our organization. I'll highlight key elements of this progress below and we're beginning to see early indicators of success across our businesses. Two notable steps forward in the first quarter were our acquisitions of Knewton, which we spoke about last quarter, and now Zyante, a rapidly growing digital courseware business, which we acquired for $56 million. Zyante known in the market as zyBooks has created a catalog of compelling and effective courses in fast growing computer science and STEM disciplines. And they're gaining very rapid adoption. We'll talk more about the strategic importance of these acquisitions a bit later. But first, I'll go into a bit more detail on the results. On the top-line, Wiley's revenue grew 5% for the quarter, driven by good growth in Research and Education Services, as well as the inorganic contributions of our recent acquisitions. Adjusted EBITDA at constant currency was down 18%, while EPS declined 54% in the first quarter. As indicated, this earnings decline was largely anticipated, driven by the timing of efficiency gains, planned investments in growth initiatives and our recent acquisitions. Our Research business had a positive quarter all around with revenue up 3% and adjusted EBITDA up 5%. Open Access Publishing continues to show strong double-digit growth, and we continue to make great progress as a leader in Research Publishing. To-date, we have signed five innovative mixed model publishing deals around the world. To remind you, mixed model is defined as a combination of traditional subscriptions and Open Access, were pay-to-publish models. These deals include Germany, Norway, The Netherlands, and Ohio and Virginia in the U.S.. These are all good deals for both Wiley and for our customers. The common thread in all of them is the creation of new ways to help researchers publish and promote their work while being both scalable and economically beneficial to both sides. The agreements that we announced this quarter with both OhioLINK and Virginia's academic library consortium represent Open Access solutions well suited for the U.S. market. Notably, subscriptions continue to be the core model for these customers where Open Access or OA, being complementary and additive. It's important to note that mixed model deals like these are important alongside subscription models but still remain a relatively small part of the global Research Publishing business. OA was 6% of our Research revenue for fiscal '19, and is consistently growing at strong double-digit rates. Going forward, we expect a healthy mix of business models. Most importantly, Wiley is well positioned to take advantage of the opportunity to publish more through all our business models as global Research output continues to increase. Without question the secret to our long-term success in Research is the strength of our Journal Publishing portfolio. Our global reach includes over 1,600 journal titles, including many of the research community's most highly respected brands. These high impact brands are where leading researchers go to publish their unique and valuable discoveries. Our market share of papers published continues to grow, and in the latest annual Clarivate Journal Citation Report is a strong 10%, and we received a total of 26 number one rankings. Separately, we continue to add important and prestigious society partnerships. Quality matters to the research community and Wiley's portfolio of brands keeps getting stronger. Driven by this and by strong endemic growth in global R&D spending, demand to publish in our journals continues to rise, with article submissions growing at high single-digit rates, significantly above market growth. And our online library usage continues growing at strong double-digit rates, the latter being driven by significant usage growth in Asia. Finally, Atypon our industry leading research platform continues its strong growth. Revenue was up 10% in the quarter and we continue to see good momentum in the pipeline. Moreover, user sessions were up 12% for the trailing 12 month period compared to prior year for a total of 3.2 billion sessions. That's a huge number. And it reflects the kind of global impact that we're targeting at Wiley. So overall, it was a good quarter for our Research business. Let's move on to Education Publishing and Professional Learning. The Education Publishing part of this segment had a difficult first quarter with revenue down 10% due to softness in books and Test Prep. I would note that first quarter is seasonally much lighter than the rest of the year for Education Publishing. And the Professional Learning business was down 2% in the quarter with continued growth in our corporate training business offset by declines in trade book publishing. Overall adjusted EBITDA for Education Publishing and Professional Learning was down 37% for the quarter due to lower revenue and costs associated with investments in growth initiatives. For the full year, we are anticipating marginal revenue growth for the Education Publishing and Professional Learning segment, inclusive of the Knewton and zyBooks contributions. At a more granular level, the decline in Test Prep revenue reflected lighter demand for our GMAT and the CPA programs, while at the same time we see good momentum in our CFA and CMA programs and also in the signing of 26 new university Test Prep partners. We continue to anticipate double-digit growth in Test Prep for the year. Despite this, our higher ed publishing business is actually seeing positive momentum in important areas. We've seen good user growth in digital courseware and we've seen strong early momentum in inclusive access and rental programs, business models that ensure all students have access to our course materials at affordable prices. We are growing our front-list in high demand disciplines like STEM, computer science and accounting, and we have significantly upgraded our learning technology platforms. We have strong publishing plans in place, and believe that we are well on our way to returning our profitable higher education publishing business to grow. Notably, we recently signed up the prestigious American Society for Microbiology to a unique new partnership. Among other things we will be launching a new subscription service based on ASM's excellent content and built on our own Atypon platform. This exciting opportunity leverages Wiley’s strength in both publishing and platforms. We see many more of these cross Wiley opportunities in the future. Our corporate training business continues to demonstrate solid momentum growing nicely and signing new training partners to market our professional development programs. In Corporate e-Learning, CrossKnowledge landed 13 new Corporate Learning clients this quarter including BlackRock, and has a strong pipeline for the rest of the year. Wiley Education Services had a good first quarter with both revenue and EBITDA up significantly. Backing out inorganic contributions from The Learning House acquisition acquired in November of 2018, growth was about 9%. With The Learning House, revenue was up 69%. Adjusted EBITDA in Education Services rose $2 million, from a $2 million loss to a small profit, a result of added scale, [organic] revenue and efficiency gains including continuing benefit from The Learning House integration. We've always taken a measured long-term approach to growing this business and feel very good about where we're headed. I'm pleased to see the revenue and EBITDA improvement in this quarter. I'm also pleased with our momentum in signing new partners and expanding programs at existing partners. We signed four new partnerships in the quarter, adding to our industry leading university footprint. These included Eastern Oregon University and Babson College. We also announced new programs at Northern Illinois University and the University of Birmingham in the UK. I would like to talk a bit now about our two new EdTech acquisitions, and how they directly support Wiley’s strategy and our future success in education. You will recall that Wiley's goal in education is to lead in high demand career focused discipline such as STEM, business finance and accounting and computer science. These are areas, where the Wiley brand is strong, where demand is high due to continued job growth and where effective digital courseware is absolutely essential to achieving learning outcomes. You will also recall that we are committed to delivering more affordable content solutions and business models that ensure every student can have access to our Wiley content to help them achieve their goals. So, three strategic pillars I’ve just talked about. One, a focus on high demand disciplines in fast growing careers; two, great education technology; and three, more affordable solutions. This past quarter we made two important moves that support all three of these strategic pillars. On May 31st, we acquired Knewton, a market leader in data driven adaptive learning. Over the past decade, Knewton created one of the most advanced education platforms in the industry. The Knewton engine is strongly additive to Wiley's EdTech arsenal and is broadly applicable across our entire Education business. Using this platform Knewton today delivers a highly effective, but low cost courseware offering known as Alta. Alta courses have been proven to help students succeed in a wide array of large introductory courses in math, economics, statistics and chemistry. Alta courseware is currently in use by over 50,000 students and this number is growing rapidly. On July 1st, we acquired zyBooks for $56 million. Like Knewton, zyBooks provides truly innovative, high-impact digital courseware that meets the needs of today's students at a cost that is significantly lower than traditional textbooks. Its digital first approach publishing delivers engaging content in a package that works for today's students. Built on a unique platform in an innovative approach to teaching and learning, zyBooks drive higher learner engagement and persistence by delivering compelling easy-to-consume content and hands-on learning. In use it has been shown to be significantly more effective than traditional content and it is taking off in the market, especially in the fast-growing computing and STEM disciplines that Wiley is targeting. Since 2012, the company has served over 600,000 students at over 600 institutions. The rate of uptake and strong double-digit revenue growth speaks for itself. These two important acquisitions address all three pillars that I outlined earlier, high demand career focus disciplines, great EdTech and affordable solutions. Knewton and zyBooks are delivering solutions that the market is demanding and that are strongly additive to Wiley's plans in education. With that, I'll hand the call over to John to run you through the financials.

[John Kritzmacher, Chief Financial Officer]

Thank you, Brian. Our free cash flow performance for the quarter was favorable by $45 million, consistent with our expectations for clearing the fourth quarter backlog of calendar year 2019 journal subscription collections. As a reminder, Wiley's cash flow is typically use of cash in the first half of the fiscal year, principally due to the timing of collections for annual journal subscriptions which is heavily skewed toward the late fall and winter months. Cash from operations for the quarter was a use of $94 million, a $51 million improvement over prior year, while free cash flow improved by $45 million to a use of $125 million. Capital expenditures, including technology, property and equipment and product development spending rose $6 million to $30 million due to expected investment in products and platforms. Balance sheet remains strong with our net debt-to-EBITDA ratio at 1.7 inclusive of our recent acquisitions. We continue to return cash to shareholders in the form of dividends and share repurchases. In June, the company raised its dividend to $0.34 per quarter, a 3% increase over prior year. During the first quarter, we also repurchased 218,000 shares at an average cost per share of $45.97 for a total share repurchase of $10 million. Approximately 1.7 million shares remained in our current repurchase authorization. We are tightly focused on executing our strategy to lead in research and career focused education. Our strategy includes company-wide business optimization initiatives, which are enabling efficiency improvements and savings across the business. In connection with these optimization initiatives, we recorded an $11 million restructuring charge in the quarter. The charge reflects actions to reduce management layers and increase spans of control in several parts of the business. It also reflects actions underway to implement process improvements across several functions, including content management, technology and other shared services functions. As a reminder, we expect gross annualized savings over the three year period to be approximately $100 million, although most of that will be reinvested to enable profitable revenue growth. On our last call, we indicated that we expected the Q1 restructuring charge of $15 million to $20 million. Our lower actual charge in the quarter largely reflects some further work to be done on our business optimization execution plans and we do anticipate some additional restructuring charges across the three year period. Moving on to our fiscal 2020 outlook, we anticipate improved revenue and cash flow for fiscal 2020 accompanied by a rather large dip in earnings, which we discussed on our year-end call in June. Much of this earnings dip is related to investments for growth, including acquisitions. For context, incremental investments for profitable growth will drive about $0.35 of the fiscal '20 EPS decline. The remaining difference includes slightly more than $0.15 in higher depreciation and amortization and $0.07 from higher interest expense. Based on leading indicators, we are reaffirming our full year outlook but updating it to reflect the recent addition of zyBooks. Given the closing of the zyBooks acquisition in the third month of our fiscal year, zyBooks will contribute $15 million in revenue and unfavorably impacts EBITDA and EPS by $3 million and $0.10 respectively. For the remaining three quarters, we expect seasonally higher revenues and year-over-year top-line growth in every quarter. Earnings will be lower than prior year for the remainder of fiscal 2020, but the rate of decline will be substantially lower than we observed in the first quarter and in line with our prior annual guidance. Our updated outlook reflects these impacts and is as follows: Revenue between $1.855 billion and $1.885 billion as compared to a fiscal '19 actual of $1.8 billion even; Adjusted EBITDA between $357 million and $372 million as compared to $388 million in fiscal 2019; Adjusted EPS of $2.35 to $2.45 as compared to fiscal 2019 actual of $2.96. As noted, most of the variance is a result of investment in growth initiatives and acquisitions. And finally, free cash flow between $210 million and $230 million as compared to $149 million in fiscal 2019. Note, our outlook is based upon average foreign exchange rates for our fiscal year 2019 and excludes the impact of foreign exchange movements in fiscal year 2020. Foreign exchange rate movements adversely impacted our first quarter revenue by $6 million and had only a modest impact on earnings. Current exchange rates were at a hold, we would see a significant adverse impact to revenue and earnings over the balance of this year. On our last call, we also shared financial performance targets for our fiscal 2022, including revenue of approximately $2 billion and EBITDA of approximately $440 million. The zyBooks acquisition will further strengthen our position to achieve these longer term revenue and earnings objectives. And now, I'll hand the call back to Brian.

[Brian Napack, President and Chief Executive Officer]

Thanks, John. Let me quickly summarize the key messages for this quarter. Performance was mixed in the first quarter, good revenue and EBITDA growth in Research and Education Services offsetting decline in Education Publishing and Professional Learning. We're pleased with the momentum we're seeing key strategic areas of our business, which is Research Publishing overall, Open Access, Atypon and Education Services. We experienced softness in Education Publishing and Professional Learning, specifically in books and Test Prep, but we expect better performance through the rest of the year. This, along with our planned investments, resulted in a significant quarterly earnings dip. Cash flow performance for the quarter was favorable by $45 million or a 26% improvement over prior year showcasing the strong and sustainable cash flow characteristics of our business. We're very pleased about the progress we're making in implementing our strategy to lead in Research and Education, while improving the efficiency and effectiveness of our businesses. We added critical capabilities and momentum in Education with the zyBooks and Knewton acquisitions, and in doing so, have advanced our key strategies to lead in high growth disciplines, have great education technology and deliver affordable solutions for students. Finally, we are reaffirming our full year outlook updated for the acquisition of zyBooks. For the year, we expect revenue and cash flow improvement, but an earnings dip as we invest in growth and acquisitions. As noted in June, we expect those investments to result in significant improvement in fiscal '21 and beyond. I want to finish by thanking all of our wonderful Wiley colleagues for their great contributions to our growing momentum and to the ongoing success of our researchers, learners, corporations and universities around the world. And thank you all for joining us today. One reminder, we would love to have you attend our upcoming Investor Day scheduled for Friday, October 5th in Hoboken, New Jersey. We will have various members of the team presenting and providing more color on our strong markets and on the road ahead for John Wiley & Sons. If you're interested in attending, which we hope you are, please RSVP to Brian Campbell. With that as background, we welcome your comments and questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Daniel Moore with CJS Securities. Your line is now open.

[Daniel Moore, CJS Securities]

Let me start with zyBooks, the recent acquisition. Based on guidance, it looks like EBITDA was -- is at least on a trailing basis, negative by a few million dollars. Just wanted to check if that's correct? And number two, just more strategically, what is it that they bring to the table? I think you gave good color, Brian, but maybe a little more color on what they bring to the table that, you -- Wiley hasn't developed internally? And I have quick follow-up there. Thank you.

[John Kritzmacher, Chief Financial Officer]

So Dan, it's John. As we noted in the slides, we're going to see a modestly adverse impact to EBITDA from the zyBooks acquisitions in the year. But its rate of growth going forward is substantial. And so, with its growth we expect to get into EBITDA positive territory quickly.

[Brian Napack, President and Chief Executive Officer]

And I'll pick it up from there. From a strategic perspective, as I think I commented on, zyBooks fits perfectly with our strategy, this three part, three pillar strategy that I reviewed a couple of times with regard to targeting high growth disciplines in high growth job categories so that the education we provide is -- the education is being demanded in the marketplace as driven by the labor market. I'll talk about the technology platform as well. They deliver very innovative technology platform and take a digital first approach to publishing which is very different than the way anybody has previously published in these areas, essentially they are providing the content to students in a really easily digestible, accessible way, very lightweight, and then following that up with hands-on activity that drives home the learning. This lightweight approach is extremely engaging for students who don't want to read the chapters after chapters in textbooks and really want to get their hands-on and start learning right from the start. And so that approach has come up with a course catalog in these high-growth disciplines that is growing extremely rapidly. This digital-first approach to publishing means that we don't have to come out with new additions every few years, we can continue to update content as we go along. And because it’s lightweight content, the content itself is cheaper to create. So in total we can deliver effective outcomes that are lower cost to create, lower cost to the student and ultimately very profitable. So as you know, Wiley is focused as a publisher in higher ed. We're not trying to do everything. We're trying to focus on disciplines where they there will be growth. We're trying to focus on -- in disciplines and courses where the technology really makes a difference and we’re trying to deliver these things on a low cost basis. To the extent that I'm repeating myself it's because I think that those messages are really important. We're not trying to do everything. We're trying to win where the market needs great solution. So why didn’t we deliver this stuff ourselves? Fact is this is a completely different way to publish. This digital-first approach to publishing is lightweight, not text-heavy. Demonstration heavy content is much more appealing and the idea that this particular company had innovated to the numbers that I indicated, here we're talking about over half a million students have already been exposed to this stuff, means that we’re buying success and momentum in addition to the innovation. So for us it was really a no-brainer. It was hand in glove with our strategy and we believe this is one of the key elements that will help us to return that business to growth.

[Daniel Moore, CJS Securities]

You did cover a lot of that but the -- fleshing it out helps. So, thank you. Just switching gears, Education Services, pretty good momentum, 9% organic growth. To what extent is Learning House helping the, I hate to use, the Deltak, the kind of legacy but the legacy OPM businesses find their footing. Maybe any color there? And then just a glide path stronger operating margins in the past where you talked about double-digit as a goal. Any color in terms of timing when we get to stronger operating margins for the segment, it would be helpful? Thank you.

[Brian Napack, President and Chief Executive Officer]

You bet. I will address both of those questions. It’s Brian. From the perspective of what Learning House brings to the table, we found in Learning House a very complementary company to our Wiley Education Services formerly as you point out called Deltak a number of years ago, we found a very complementary company on a number of different levels. The first way that it’s complementary is that it brings a different sort of school into the mix. It brings -- it has brought smaller schools into the mix, ones that really need us in order to succeed, schools that can’t succeed without us. And that balance of smaller, high quality but smaller regional schools balances nicely with our more prominent larger schools that Deltak had service and that Wiley Education Services services now. And so the portfolio is a very nice balance now that is unequaled in the marketplace. We had a full range of schools from big marquee schools down to small high-quality regional schools, and we feel that, that is a real strength. They're able to move quicker. They're able to work more closely with their partners. And these partnerships are very, very sticky. So A, portfolio. B, and I won't go into great detail, but each of the company's had strengths. Strengths in enrollment, strengths in identification of students, strengths in the design of programs, strengths in the management of those programs, strengths in relationships. And the combination of the two was extremely complementary. So that was great. We found two really good management teams. And instead of picking one and getting rid of the other, we blended the two to take the best of each. So combined now we have an extremely strong management team and I will unabashedly say I think we have the best most solid operating management team in the industry. So that breadth of portfolio, the breadth of skills that are now threaded together allows us to, we think, outcompete anybody in the marketplace and provide, this is the final piece of the complementary portfolio, a broad portfolio of services from one size fits all OPM down to individual tailored services needed by specific schools at specific times to additional certification and non-traditional credentialing programs that these schools need in order to provide things like IT and computer skill, computer training, computer technology training for their students, which they are unable to do themselves, we can put those programs together and deliver to them. That's a very, very powerful combination. All of that leads to the answer to your second question, which is this integration, which we've been doing has allowed us to combine operations and gain scale. And with that scale, we've been able to gain efficiencies. So there are enormous number of benefits that we see both strategically, operationally and financially. And in terms of the glide path, we've said a number of times that we believe this business will be in mid double-digit to upper mid double-digit sort of margins. John?

[John Kritzmacher, Chief Financial Officer]

We specifically -- in our fiscal year '22 targets that we talked about on our last call, when we provided a view of where we see ourselves headed longer term, we specifically called out that Education Services we're driving to be in the range of 15% EBITDA margin in the third year out.

[Brian Napack, President and Chief Executive Officer]

Yes. In the third year out. So -- and we're sticking to that. That’s what we believe we're going to be doing.

[Operator]

Thank you. And our next question comes from the line of Drew Crum with Stifel. Your line is now open.

[Drew Crum, Stifel]

So I think you suggested that the Ed Publishing Professional Learning segment would grow with the inclusion of Knewton and zyBooks for fiscal '20. If you back those out, how are you thinking about the performance of the legacy business through the balance of the fiscal year? And I just -- kind of drilling down a little bit deeper within that segment, that the Test Prep business was down in the quarter. You get some very difficult comparisons in the second half of the fiscal year. But you suggested that the business would be up double-digits. Can you just reconcile that or help us understand what the drivers are?

[John Kritzmacher, Chief Financial Officer]

Sure. First in terms of expectations, if you will, for the base of the business, for the balance of the year, our view for the year has been to see mid-single-digit decline in revenue, and some substantial erosion of profit margin along with that during this transition period. So the performance in the first quarter is in line with our assessment there. We still are anticipating mid-single-digit decline overall in the traditional businesses there. But we do see on the back half of the year generally more strength as compared to the prior year. We've got efforts underway to address our cost structure. And we're going to see -- as you noted, we're going to see some growth out of the businesses that we acquired. So overall, no big surprises, somewhat lower than expectations in the first quarter. But nothing that materially changes our view around that for the year. Test Prep, we had a couple of things that hit us in the first quarter. As Brian described, we saw some softness in GMAT. Frankly, a big part of that was that we released a new edition in the fourth quarter which saw very high demand. So that tended to have a bit of a trough incoming inside of first quarter. There’s also some softness in GMAT candidates. But expect some of that's going to work its way out over the balance of the year. So the timing in general there around the new edition released in the fourth quarter. On the CPA side, we ran into some challenges around pricing execution in e-commerce. We've addressed that, demand’s picking up again in the month of August. So we had a little bit of a bump in the road, but we believe that we're on track to hit our goals around CPA excel for the year as well.

[Drew Crum, Stifel]

And then just shifting gears to …

[John Kritzmacher, Chief Financial Officer]

Overall -- just, Drew, if I could just to add on, to reiterate a comment that Brian made. We do still anticipate solid double-digit growth in Test Prep for the year. We fully anticipate with the acquisitions, as you noted, that we will actually see for the year albeit a bit of inorganic contribution. We do expect to show revenue growth in the segment for the year.

[Brian Napack, President and Chief Executive Officer]

And I'll just add on the traditional publishing side of the business. We are seeing early indications of the strategy that we're putting in place playing out. It takes a while for these things to play through in the marketplace. But we feel pretty good about our publishing program and what we're seeing from a momentum perspective. I'm not getting out in front and making big promises here. But I think we're going to see that business continue to strengthen in the quarters, and in the years to come. That doesn't change our outlook or what we're saying. But we can see inside the business and see what's happening and we're positive about it.

[Drew Crum, Stifel]

And then just maybe shifting gears to the gross margin line. I know what the metric that you tend to focus on was. But it was down 270 basis points in the quarter to 66%. If I look at your business over the last four or five years, this is a line that was consistently in the low-70s range. So I guess specific to fiscal 1Q, can you talk about what drove the lower gross margin? And is that kind of indicative of what you've seen across the business the last couple of years? And I guess looking forward, where do you see gross margin selling out at?

[John Kritzmacher, Chief Financial Officer]

So Drew the single biggest factor in our gross margin is going to be the impact of our growth, substantial growth in Education Services, right? That’s going to be a lower gross margin business at this stage in its development. So that's by far the most significant contributor and we talked a few moments ago about our expectations for driving improvements in the EBITDA performance up to 15% EBITDA as a percent of revenue in fiscal ‘22. So that's a key contributor. And there is a bit of pressure in other parts of the business. I would note and we've been upfront about this but there is some pressure on royalties in the Research Journal business where it’s highly competitive and we’ve seen some pressure there. We are managing our portfolio to optimize our spend on royalties associated with journals. And then I would say consistent with what you've noted around some pressure on margin, we're working really hard on what we’d refer to as business optimization initiatives which really improve the speed and quality with which we get things done. But the fundamental consequence of those things is that we’re lowering cost to protect and improve our bottom-line. So you are going to see a little bit of a rotation, you’re going to see us drive some expenses below gross margin in order to balance it out overall. But we are still very much committed and confident in our ability to improve our overall operating margin over the planning period that we talked about.

[Operator]

Thank you. [Operator instructions]. And our next question comes from the line of Nick Dempsey with Barclays.

[Nick Dempsey, Barclays]

First of all Springer Nature, excluding the Nature titles is charging the same article processing charge that you are as part of their recently announced deal with Projekt Deal in Germany. I imagine that Springer Nature, ex-Nature has a much lower impact, right, on your full collection of titles. So did they get a better deal in Germany there? Second question within Education Publishing I appreciate that it was down 10% constant currency. I know there is some small benefit from acquisition in there. Are you able to tell us what the decline was excluding those acquisitions in the quarter?

[Brian Napack, President and Chief Executive Officer]

Okay, so we will take them in order. I will take the Springer Nature question; John will take the Ed Pub decline question. So look, all these deals are different. This deal hasn’t been announced publicly. It hasn’t even been made publicly. We did note with interests that they excluded the Nature titles, which is the preeminent brand in the industry. It is not surprising that Springer Nature wanted to exclude them for the obvious reasons. We don't -- and yes you're right with some of your assertions about that impact factor but each one of these deals is different. We're going to study it in detail when it comes out. We believe that any material improvement in terms will cascade -- from our perspective will cascade through the market in the long run. We're very pleased with the deal that we did. We believe it's a sustainable deal. It sets a benchmark for an orderly transition for those parts of the world in those territories that can move in that direction. We're very optimistic about it. So I think we'll have more to comment on when we -- when they actually signed a deal and when we actually see the details. But right now we were not at all discomforted by what we saw on the marketplace and feel pretty good about what it indicates for the future of the transition.

[John Kritzmacher, Chief Financial Officer]

And then Nick, to your question about Education Publishing down for the quarter, how much was that actually mitigated by acquisitions that we made? The acquisitions were Knewton, as we discussed at the front end of the quarter, and then zyBooks in the last month of the quarter, so only one month of zyBooks in our results. The overall contribution to our performance in the quarter, really not material, on order of $2 million to $3 million of revenue.

[Operator]

Thank you. And that does conclude today's question-and-answer session. I'd now like to turn the call back to Mr. Napack for any further remarks.

[Brian Napack, President and Chief Executive Officer]

Yes, just I want to thank everyone for joining us on the call today. We're going to look forward to talking to some of you, hopefully many of you in October at our Investor Meeting. And we look forward to presenting our second quarter results in December. And until then, we will see you soon.

[Operator]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.