Bankruptcy. Layoffs. Leadership changes. This decade has not been kind to traditional textbook publishers, as many have struggled to transition their business from print to digital.
Yet despite it all, Houghton Mifflin Harcourt, a stalwart in the K-12 publishing industry, says it’s been in a “sea of calm” as of late.
That’s how its CEO Jack Lynch described the recent years for his company. But has everything really been smooth sailing?
At EdSurge Fusion earlier this month, we pressed him on the state of his company’s digital transition. The following is an excerpt of our interview, edited for clarity.
EdSurge: The past few years have been fairly dramatic for the publishing industry—a lot of wheeling and dealing. Pearson has been cutting things and retrenching a bit. Then there’s the planned merger between Cengage and McGraw-Hill. Where is Houghton Mifflin Harcourt amidst this sea of change?
Lynch: I would have to say we are in a sea of calm.
No drama. We’re very focused on customers. We’re not focused on mergers and acquisitions or selling [assets].
The thesis of the Cengage and McGraw-Hill merger is to consolidate in the higher education space. They will put together their K-12 assets, but the [focus] is in higher ed. Then as you point out, Pearson exited the K-12 courseware industry. We’ve been steadfast in terms of our focus on K-12. We’re not interested in higher education, and we’re not interested in virtual schools or any other industries adjacent to K-12.
So what’s been some of the recent news coming from your team?
Our third quarter was a record quarter. We had a 31 percent growth in our top-line business, and importantly, growth not only in our core curriculum, but also what we call “extensions” businesses, which is intervention, supplemental and professional learning. And we raised our guidance for the second time this year for both our billings and free cashflow. So we’ll do $100 million to $120 million in free cashflow this year.
What do you attribute that to?
This is the first year that we’ve introduced new products since our new management team came together.
When did that new team come in?
In 2017, we put together a new strategy and a new team, and this is the first set of products that have come off the new assembly line...
Specifically, what are these new products that you’re referring to?
Our core curriculum for reading and literature, and our core curriculum for math. Those are the two newest programs. And in reading, we were able to win 56 percent share of the Texas [English Language Arts] adoption. And we also have a leading share in all the other major state adoptions and in what we call “open territory,” which are areas that don’t do state adoptions.
How are these products different from what you offered in the past?
One is the linkage of assessment to instruction. Teachers want to be able to differentiate their instruction by academic ability. So they want to group their kids and ensure that they all get the instruction they need based on what they know and what they’re ready to learn next in a pedagogical sequence.
Our programs now have a computer adaptive assessment, which will assess kids and group them so the teacher can know the different needs of their students, and then measure their progress towards their end-of-year goals. That’s probably the most significant difference—the wedding together of assessment with instruction, as opposed to them being two separate things.
In the last earnings report you referred to, the company made several references to an ongoing strategic transformation for the company. Can you clarify what that means?
The ongoing transformation has been a move from a publisher focused on great content, to a learning company focused on great outcomes. For over a century, we have been focused on producing great content as a publisher, and it is necessary to have high quality, efficacious content in K-12 instruction. But it’s insufficient. You need professional development, you need assessment technology, you need a solution that’s going to help a teacher produce great outcomes.
You mentioned earlier that you are not pursuing acquisitions, but you did buy Waggle earlier this year. Are you actively looking at other opportunities at the moment?
We’re always looking. We’re going through a refinancing right now, and we want to ensure that we have a structure that allows us, throughout any point in the state adoption cycle for core curriculum, to get the capital required to do an acquisition, a major acquisition.
There may be times where we’ll put that on pause and go do an acquisition. But in any case, we’re not looking to do anything transformational. We're looking to essentially leverage the existing platform we have and then make what I would call bolt-on acquisitions. So smaller in size, but which can help extend the value we can create for teachers.
You mentioned earlier that HMH has been in a “no drama” phase in terms of your transformation. But the earnings report also mentioned a streamlining of operations that included making layoffs. How does that play into the transformation?
About a year ago we spent a lot of time focusing on research with our customers—teachers as well as administrators. And we asked them four questions. Of the things that we do for you, what are those things that you just do not value? Things that we’ve done historically for traditional reasons, but which you do not perceive them to be valuable, and things we should eliminate. The second question was: What are the things that are important to you? The third question was: What do we do some of that you’d like more of? And then the last question: What does the industry not do to address needs that you have?
This was not was an across the board, “let’s just cut costs” move. It was a highly differentiated and approach to realigning our cost structure to customer needs.
How did the teachers responded to the first question? What have you done traditionally that they just don’t find really valuable anymore?
In their core curriculum market, for example, we have produced a lot of what we call “ancillaries.” These are materials that support students’ learning but are ancillary to the core text. Over time that’s turned into an arms race between us and our competitors, where we just keep adding more and more ancillary material to help differentiate the program.
What’s an example?
A set of vocabulary cards. Or a digital virtual field trip, that can be interesting. It may be valuable to do on occasion, but it’s not essential to what a teacher wants to accomplish. And so there’s a long list of those things that have a lot of appeal when you’re trying to select from one commodity to another commodity.
It’s getting back to the basics of focusing on what’s important, versus all the surrounding stuff, and either eliminating or reducing things that absorb a lot of time, activity and cost, and which our teachers don’t attach value to. You often find that teachers will take the core materials out of the box, and then they take the ancillaries and put it in the closet.
What are your personal observations about the print-to-digital transition in schools? Some expected it should’ve gone faster. Do you feel like it’s taking longer than anticipated?
A lot of folks said we’d be at one-to-one [ratio of devices to students] five years ago, 10 years ago. I first came into this industry in 1999 and I thought it would take five years. It was during the dot-com revolution. So I was one of those crystal ballers who got it wrong too.
But here’s the thing that I think people are recognizing. When you see the blowback to personalized learning, whether it be AltSchool or the personalized learning solutions that get kids in front of computers all day long, it’s because we don’t want is to move into this dystopian world where kids are receiving device-mediated instruction.
There’s a more nuanced view, where digital is more purposeful in the classroom. There’s a recognition that social discourse is one of the ways in which kids learn. Project-based learning is another way kids learn. Digital tools are really good for unburdening a teacher by automating lower-value activities. It’s really good for assessing and tracking progress and it’s really good for personalizing and engaging kids in personalized instruction. But where it goes off the rails is when people just get kids in front of computers all day long.