Earnings Call Transcript - WLY Q4 2021

Operator, Operator

Good day and thank you for standing by. Welcome to Wiley's Fourth Quarter and full year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Operator provided instructions to participants. I would now like to turn the conference over to your speaker today, Mr. Brian Campbell, Vice President, Investor Relations. Please go ahead.

Brian Campbell, Vice President, Investor Relations

Thank you, Joan. Hello, everyone and thank you for joining us. With me are Brian Napack, President and Chief Executive Officer; and John Kritzmacher, Chief Financial Officer. A few reminders to start. This 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. Also, Wiley provides non-GAAP measures as a supplement to evaluate underlying operating profitability and performance trends. These measures do not have standardized meanings prescribed by U.S. GAAP and therefore may not be comparable to similar measures used by other companies, nor should they be viewed as alternatives to measures under GAAP. Unless otherwise noted, we will refer to non-GAAP metrics on the call and variances are on a year-over-year basis and will exclude the impact of currency. After the call, a copy of this presentation and playback of the webcast will be available on our new Investor Relations web page. I'll now turn the call over to Wiley's President and CEO, Brian Napack.

Brian Napack, President and Chief Executive Officer (CEO)

Well, good morning, everyone and thanks for joining us. Let me start by acknowledging our colleagues, customers, and partners in India, Sri Lanka, and Brazil and elsewhere around the world where they are still struggling mightily with COVID-19. We all look forward to a day when this terrible crisis is behind us. This past year's profound health, economic, and social challenges continue to remind us Wiley of the importance of what we do. We enable scientific and medical discovery. We power education, and we shape the workforce of tomorrow. To our work, Wiley as a business is committed to unlocking human potential, which we need now more than ever. Fiscal 2021 was a good year for Wiley. Our consistent strategic focus on open research and career-connected education paid off, and we saw strong financial performance and increasing momentum. Our markets began to emerge from long periods of transition, and they demonstrated strong demand for fully differentiated digital products and services and for business models that work for both Wiley and for our customers. Long-term trends, such as open access and online education were pulled forward by the crisis, clarifying what the future of research and education will look like and strengthening our growth outlook. Wiley's execution in this most challenging year was exceptional. Our team around the world adapted well to a fully virtual work environment and very fast changing market conditions. They took good care of our customers during a time of great need while continuing to drive our strategy forward and improve our operations. Notably, our colleague engagement worldwide has risen significantly during this period. One reason for the high engagement is our people's deep belief in the unique impact that they have on society year in and year out. The more researchers and learners we help to succeed, the greater the impact, and there was a lot of opportunity for impact this year. Overall, fiscal 2021 was a year in which we continued to execute on our strategy and in which the market told us that we were on the right track. Long-term opportunities are expanding in open research and career-connected education and we're going after them. During the year, we saw the acceleration of three long-standing trends that define our markets: the shift toward open research; the migration toward online and hybrid education in both university and corporate settings; and the increased adoption of digital tools and courseware for learners. As you know, Wiley's strategies are tightly aligned with these trends. We're capitalizing strongly on the growth of open research, where revenue is a direct function of the quantity of articles published and the price we charge. We've realized significant volume gains in fiscal 2021 based on the quality and breadth of our journals and on the excellent performance of our strategic read-and-publish agreements. These volume gains are driving double-digit open access (OA) revenue growth. The demand for online degrees and credentials accelerated significantly through the year, hastened by the pandemic. As it did, Wiley's network of leading universities and corporate partners enabled learners to improve their career prospects through education. Consequently, enrollment was up significantly. Wiley has long been a strategic partner for both universities and corporations, and our services were in high demand as institutions planned for their hybrid futures. This move to digital education also drove an accelerated shift toward digital curriculum. Our volumes were up significantly as digital courseware products, such as the highly effective zyBooks line, emerged as the preferred learning toolset in today's world of anytime, anywhere education. Wiley is the leader in digital courseware, and we continue to realize significant growth in adoptions and usage. As the market goes increasingly nontraditional, new opportunities are opening up for companies like Wiley that can deliver for learners, wherever and whenever they choose to learn. At Wiley, we are highly motivated by our environmental and social responsibilities, both in our core lines of business and as a global corporate citizen. In February, we signed the UN Global Compact, a pledge to drive business action in support of achieving specific sustainable development goals by 2030. As a company committed to research and education, Wiley's growth strategies themselves have impact and our success leads to ever greater societal benefit. For example, the rapid growth of open research output means that more cutting-edge knowledge is being delivered to the world faster and more openly, so it can have more impact. The same can be said for our work in education, with a growing reach of our career-connected offerings leading directly to unlocking career potential for millions of learners, many of whom would not have otherwise had access to the opportunity. Across Wiley, we're always looking for ways to increase access and lower costs for those most in need. One example is our long-time partnership with Research4Life, through which we provide free or low-cost access to our content in developing countries. More broadly, Wiley's work to ensure a vibrant research ecosystem directly advances the UN sustainable development goals in areas such as good health and well-being and climate action. Wiley is also finding ways to improve access to high-impact education from lowering the cost of courseware, which we've been doing, to delivering faster and more targeted career credentials to extending our footprint in underserved markets. Our M3 technology career program in India, for example, targets at-risk populations, such as candidates who are the first in their families to access higher education, and it targets those from households earning less than $500 a month. Notably, over half of our candidates for credentials in India are women. By actively targeting impact in this way, Wiley is helping to fulfill the UN's sustainable development goals for quality education and reduced inequality. We're pleased to report that Wiley achieved carbon neutral certification for fiscal 2020, and our fiscal 2021 physical measurements are now getting underway. As a predominantly digital company, we will continue to drive reductions in our carbon emissions by reducing the company's production of printed products such as books and journals and by pursuing a broad green plan. During the year, I signed the CEO Action for Diversity and Inclusion. The CEO Action is a significant commitment to sustain concrete action that advances thinking, behavior, and business practices in the workplace. Wiley also proudly received an A grade in the MSCI ESG Ratings Report and a perfect score from the Human Rights Campaign for LGBTQ workplace equality. At an industry level, as the Chairman of the Association of American Publishers, I am personally advancing two ambitious initiatives industry-wide, one on sustainability and the other on DE&I. Wiley will continue to drive impact, both as an enabler of discovery and learning and through corporate responsibility across our global footprint. Now, I will review our results for the quarter and then for the year. The team delivered another quarter of strong execution and performance. Revenue rose by 10%, adjusted EBITDA by 21%; and adjusted EPS by 41%. Research revenue for the quarter was up 9%, 4% organically, driven by continued momentum in Open Access, corporate solutions, and research platforms. Academic & Professional Learning (APL) grew 12%, largely by strong demand for content and courseware across both education publishing and professional learning. This growth was helped by an accelerating recovery in corporate training. Education Services rose 7%, driven by growth in degree program enrollment and M3 job placements. Earnings growth was largely fueled by strong profit performance in APL and Ed Services, driven by both revenue growth and significant cost structure improvements. This offset a decline in research due to investments in editorial capacity to fuel our further growth and higher annual incentive compensation related to fiscal 2021 performance. For the year, Wiley reported strong growth across all financial metrics. Revenue was up 4%, adjusted EBITDA up 16%, and adjusted EPS up 27%. Free cash flow for the year was up 48% to a historical high of $257 million. As you can see, it was a good year, especially in light of the considerable COVID-19 related disruption. John will walk you through the cash flow and capital allocations later in the presentation. I'll now turn to our segment performance. Wiley Research delivered another strong year with revenue up 5% or 3% organically. This was fueled by consistent execution of our strategy to take advantage of the increasing global demand to publish open access research. Adjusted EBITDA rose 6% for the full year, with an EBITDA margin of 35%. Research article output continues to grow nicely with volume growth supported by strong open access pricing power, resulting in double-digit growth in our OA revenue. This OA growth more than offset modest pricing pressure that we saw in our subscription business due to COVID-19's impact on library budgets. Our strategic read-and-publish agreements, what we sometimes refer to as transitional agreements, continue to contribute to robust growth in publishing volume. During fiscal 2021 we signed multiyear agreements with consortia in Italy, Ireland, Spain and Switzerland. Hindawi, the innovative open access publisher we acquired in December, is already adding significant value as we integrated a fast-growing collection of 200 journals. As noted, we anticipate significant revenue synergies from the expansion of our journal portfolio and by offering a broader range of platforms and services to our existing society and publishing partners. We are well along in the integration of Hindawi and it is going very well. Wiley Research is also seeing continued strong momentum from our platforms, corporate solutions, and society publishing partners. Of note is the success we're seeing in the career centers that we manage for corporate and society partners. We recently signed up GlaxoSmithKline and Pfizer among others. We're also seeing continued success in the addition of new society publishing business with net wins for calendar year 2021 of over $10 million annually. Other noteworthy developments in research from the past year include the following. In just 12 months, Literatum usage grew by 31% to 4.6 billion user sessions, while the platform maintained a 98% client retention rate. We are increasingly leveraging our broad product offering in Publishing and Platforms to build expansive new partnerships with major societies, such as the Chinese Medical Association Publishing House and the American Association for the Advancement of Science (AAAS). During the year we continued to build our proprietary journal portfolio, including launching a major new flagship journal called Natural Sciences, which we created in partnership with the influential Projekt DEAL consortium out of Germany. We're very excited about the potential of this journal. Internally, it's critical that we don't take our eye off the optimization ball. Through fiscal 2021 we continued to make significant gains in the efficiency of our publishing operations while supporting our unprecedented volume growth. Over the past few years, Wiley took a strong position to stand as a strong ally to the evolving research sector. We chose to be bold and to move deliberately toward new publishing models and platforms, actively pursuing strategies that align us with the market and that put the researcher first. The result has been a steady upward revenue trajectory from 2% organic in fiscal 2020 to a mid-single-digit growth outlook for fiscal 2022. From where we sit, market trends remain favorable. Scientific research investment and output continue to grow nicely and research is increasingly integrated into both corporate strategy and government policy around the world. One important macro indicator: global R&D spending is forecast to rise by 5% in calendar 2021. Demand to publish peer-reviewed research will continue to be very strong and access to that research is essential. Looking forward, Wiley is in a great position to meet the growing needs of the global research ecosystem. Now on to Academic and Professional Learning. I'm pleased to report that our education publishing business returned to modest growth this year. It did so due to the combination of a winning publishing platform, favorable market dynamics, and consistent customer-centric strategies, which include the multi-year build-out of our courseware portfolio and a tight focus on high demand disciplines and careers such as technology education. In professional learning, we continue to see steady recovery from the impact of COVID-19 driven by strong momentum in our professional publishing program, and by the continuing recovery of corporate training. That said, COVID-19 was highly disruptive to in-person corporate training and test prep and we had to navigate through that. Though the year APL revenue was down 2%, the fourth quarter saw growth of 12% compared to the fourth quarter of last year. Adjusted EBITDA accelerated in the second half of the year, driven by revenue performance and gains from optimization. We finished up 4% at a full year EBITDA margin of 25%. Other APL highlights from the year include the following. Our WileyPLUS Platform recorded 1 million activations for the first time and revenue from our zyBooks program increased by over 50%, now with over 400,000 subscribers. We launched a partnership with Southern New Hampshire University, the largest non-profit provider of higher education in the United States with 175,000 students. Together, we are redesigning their MBA program to allow learners to complete their degree in one year at a materially lower cost. This is a good example of Wiley's broad ability to help universities succeed by supporting their evolution with great content, great services and leading edge innovation. Finally I'm happy to say that our well-known Dummies franchise grew 9%, confirming the longstanding appeal of this consumer-focused brand for many millions of learners. We've been quite deliberate in our strategies to grow and optimize academic and professional learning and I'm pleased to say that we expect a return to growth in fiscal 2022. It's too early to comment on fall enrollment except to say that we don't anticipate the same undergraduate enrollment headwinds that we saw last year despite some COVID-19 induced uncertainty that remains in the system. We expect to have a better view of enrollment as we get closer to the start of the school year in the fall. While it is hard to predict the post-pandemic future, it is clear that the transition to online learning will continue to drive the increasing adoption of digital content courseware in both academic and corporate settings. Professors and students alike are now beyond the tipping point and are readily adopting and implementing fairly priced digital programs to support their learning journeys. And corporate leaders are increasingly focused on real-time development of their teams to fill skill gaps, which is similarly driving demand for digital content and platforms. All this bodes well for our APL offerings as the labor market drives an increasing need for Wiley's career-connected content and services. Fiscal 2021 was also a good year for our Ed Services segment with COVID-19 as a contributor to online enrollment. For the year revenue rose 21%, 7% organically powered by 14% growth in student enrollment and 20% growth in new student starts. Adjusted EBITDA more than doubled this year as our focus on optimizing the student journey from lead to graduation began to pay off. We finished with a full year EBITDA margin of 18%, up from 9% last year. Beyond our strong financial performance, we saw a number of other notable achievements during the year. The team signed eight full service institutional partnerships including the University of Montana, La Trobe University in Australia, Tel Aviv University in Israel in this quarter, and Norwich University in Vermont. We also added important partnerships for unbundled services with New York University and the University of Wyoming. Building the online catalogs of our existing partners is always a top priority, and we added over 40 new degree programs at existing partner schools in areas ranging from business and healthcare to computer science and public administration. Despite COVID-19 headwinds in the early stages of the pandemic, we've gained momentum with M3 through the year as corporate demand for tech talent accelerated. In the fourth quarter, we signed four major global corporations following three that we signed in the third quarter. We also delivered record placements with existing Fortune 100 customers. We head into fiscal 2022 with great momentum here. The pipeline is strong and we're expanding in new markets as a global player. Around the world demand continues to grow for high quality career focused online degrees and job-ready talent. Over the past few years we've been focused on meeting these needs by building a solid foundation for durable profitable growth in Ed Services. This begins with delivering an exceptional value proposition to our university and corporate partners. It also means serving them efficiently and profitably, which is what we are doing. We've raised our EBITDA margin from 3% in fiscal 2019 to 18% in fiscal 2021, while also achieving significant revenue growth. With this foundation in place, we can set our sights on meeting demand with low teens organic revenue growth expected in fiscal 2022, up from 7% this year. Looking ahead, we expect universities to continue to actively transition to hybrid online degree delivery and we will continue to enable their success by delivering high impact learning experiences. We expect demand to remain strong for academic credentials as students and professionals look to differentiate themselves in a competitive labor market. This will include increasing demand for new forms of targeted credentials that are quicker to get, more affordable, and that give workers the precise skills they need to succeed. The pandemic has only accelerated the need to close the talent gap whether by helping our university partners deliver graduates that can hit the ground running or by helping corporations to identify, train, and place great talent, Wiley will play a major role in creating the labor force for the post-pandemic economy. I'll now pass the call over to John for more detail on our financial results.

John Kritzmacher, Chief Financial Officer (CFO)

Thank you, Brian and good morning, everyone. As Brian noted, the Wiley team has made significant progress in refining and executing our growth strategies while also driving important gains in operational efficiency and effectiveness. Our improved revenue and profitability in fiscal year 2021 is clear evidence of our strong momentum. Following an extended period of limited revenue growth, we now anticipate organic revenue growth of 5% or more in the coming year. We will continue to invest in the expanding opportunities in our markets. In research, we will publish more to meet global demand, leveraging Hindawi to drive open access revenue synergies and we will go broader with publishing and platform offerings for societies and corporations. In career-connected education, we will continue to expand our online degree programs and drive online enrollment, scale our digital courseware portfolio and expand the IT talent development pipeline along with our base of corporate clients. Finally, in our relentless pursuit of operational excellence, we will continue to expand publishing capacity and workflow automation, drive student acquisition improvements, and enhance our direct-to-consumer capabilities, including our e-commerce experience. Looking ahead now to fiscal 2022, total Wiley revenue is expected to exceed $2 billion for the first time in our history, growing by mid-to-high single digits to a range of $2.07 billion to $2.1 billion. For the year, we anticipate revenue growth in all three segments, including mid-to-high single-digit growth for research, low single-digit growth for academic and professional learning, and low teens growth for Education Services. Adjusted EBITDA is expected to range between $415 million and $435 million, with profit gains on higher revenue, tempered by investments to accelerate growth in Research and Education Services accompanied by higher T&E expenses through the resumption of in-person business activities. Adjusted EPS is anticipated to range between $2.80 and $3.05, reflecting higher depreciation and amortization expense related to investments and acquisitions, along with a higher effective tax rate. Capital expenditures including technology, property and equipment, and product development spending, are expected to range between $120 million and $130 million compared to $103 million in fiscal 2021 as we invest in the previously noted growth initiatives. Wiley’s free cash flow generation will remain strong, although we will continue to see some variances from year-to-year. Wiley generated $173 million of free cash flow in fiscal 2020 and $257 million in fiscal 2021. Fiscal 2021 performance was driven by strong cash earnings, lower CapEx and a $21 million CARES Act related tax refund reported in Q2 and received in Q3. Looking ahead to fiscal 2022, we anticipate free cash flow of approximately $200 million to $220 million. While cash earnings are again expected to be strong, we see certain headwinds as compared to fiscal 2021, including $20 million to $30 million higher CapEx in fiscal 2022, higher net cash taxes in fiscal 2022 due to the CARES Act related tax refund received in fiscal 2021, and higher annual incentive compensation payments to be issued in the first quarter of fiscal 2022 for above-target performance in fiscal 2021. Our strong balance sheet and cash flows over time enabled us to confidently invest, acquire and return cash to shareholders. As previously noted, fiscal 2021 free cash flow of $257 million was 48% higher than the prior year. CapEx was $103 million for the year, $12 million lower than the prior year due to delayed investment in the early days of COVID-19. As a reminder, we acquired open access publisher Hindawi this year for $298 million. As we noted at the time of acquisition, Hindawi’s attractive financial profile includes strong double-digit revenue growth and EBITDA margins in excess of 40%. Our net debt-to-EBITDA ratio inclusive of the Hindawi acquisition was 1.7 at the end of April, compared to 1.6 last year. Our strong cash flow for the year complements a healthy balance sheet with more than $90 million of cash on hand and undrawn revolving credit capacity in excess of $660 million at year end. Approximately 30% of our free cash flow was allocated to the dividend this year, and the dividend was raised for the 27th consecutive year. Our current dividend yield is a little over 2%. And finally, share repurchases were lower due to cash conservation in the early months of COVID-19. Since resuming repurchases in January, we acquired approximately 310,000 shares at an average cost per share of $50.93. Notwithstanding the reduced level of share repurchases this year, we maintained a strong track record of returning cash to shareholders with dividends and share repurchases totaling $93 million. I'll now turn the call back to Brian.

Brian Napack, President and Chief Executive Officer (CEO)

Thanks, John. Let me quickly summarize the key takeaways before I open it up to Q&A. Fiscal 2021 was a good year overall for Wiley, as our growth strategies in open research and career-connected education took firm root. These growth strategies continued to benefit from long-term market trends, which have been pulled forward significantly in the past year. So despite COVID-19 related headwinds, these strategies and favorable market dynamics drove strong performance and increasing momentum across the company. We expect long-term opportunities to expand in open research, online education and digital curriculum. Nonetheless, we must remain focused and vigilant as we step forward into the uncharted post-pandemic world. That said, we play in fundamentally good markets and at our core, Wiley remains a very strong company with exceptional brands, a solid financial position and powerful growth engines. And as an impact company, we're powering discovery and learning worldwide and through this unlocking human potential. All of us at Wiley are very proud of our purpose. And we're highly motivated to expand our impact by doing whatever we can to increase the success of our millions and millions of learners and researchers around the globe. In closing, I want to thank our wonderful Wiley colleagues for their truly remarkable accomplishments this past year. They demonstrated resilience and a dedication to each other, and also to our mission. They delivered results for our customers and our shareholders, all in the face of significant disruption. I'm very proud to work with each and every one of them. I'll now open the floor to any comments and questions.

Operator, Operator

Your first question comes from Daniel Moore with CJS Securities. Your line is open. You may ask your question.

Daniel Moore, Analyst (CJS Securities)

Brian, John, good morning. Thanks for the color and thanks for taking the questions.

Brian Napack, President and Chief Executive Officer (CEO)

Good morning.

Daniel Moore, Analyst (CJS Securities)

Obviously, the top-line outlook is really encouraging across the board. Starting with research, you raised the outlook to mid-to-high single-digit growth. First, it looks like pricing pressure from colleges and universities related to COVID-19 is abating; is that correct? Second, are you seeing the increase largely driven by open access accelerating? I also have a quick follow-up on publishing.

Brian Napack, President and Chief Executive Officer (CEO)

Yes, absolutely. Dan, it's a great question, because ultimately our future is defined by the health of our publishing programs, and the balance between our subscription businesses and our open access business. I would not say that pricing pressure has abated because the university ecosystems worldwide continue to be under significant financial pressure. Having said that, what the last year has demonstrated is that our high-quality essential content is something that librarians in universities are simply not willing to go without. So, we expect to see some continued financial pressure. But again, what we've said many times is that that pressure will be modest, and it will continue to be more than offset by the second half item that you referenced, which is our OA growth. We continue to see significant growth in OA with submissions up in the upwards of 20% and output up in the mid-teens. As that happens, we move to a p times q environment that continues to drive revenue growth in a very direct way, especially considering the very solid pricing power that we have due to the high quality of our journal portfolio. So, I wouldn't say that the tough times are over for universities, and I think we're going to have to continue to work with them affirmatively like we did last year when we went out with a 0% price increase, and that's going through our P&L this year. Certainly, in certain institutions where research is less essential, there might have been a little bit more pressure. But overall, our customer base and the renewal rates are extremely high, both on a gross and a net basis. So, we're very pleased with where we're coming out of this. And of course, as we move forward, it's all about the quality and the volume of our publishing program, which both undergird our traditional subscription business and fuel the growth engine that open access has become for us.

Daniel Moore, Analyst (CJS Securities)

That's great color. Switching gears to academic and professional learning, what kind of assumption or projection are we making if you just isolate the textbook portion of the business in terms of the guide? And how much of rebound or recovery are you experiencing in corporate and professional learning? You touched on it, but any more color there would be great.

Brian Napack, President and Chief Executive Officer (CEO)

Sure. So, the academic content business, which is often referred to as the textbook business, has been in a period of transition for a long time, but it is no longer simply the textbook business. It really is the digital content and courseware business now, where well over 50% of our revenue comes from digital units. That's important to note. We are seeing significant growth in our digital units and in our digital revenues, and we'll continue to see some pressure in the print parts of the business, which we did not expect to disappear completely in the near term. But the uptake that we've seen in digital content and courseware has become the norm. This last year proved that because it not only forced people to go digital, it actually proved the value of powerful, digital, interactive, personalized products where you can measure impact and you can learn whenever and wherever you want. We like the future of that business because the high-quality content that we produce is essential, and it has been proven repeatedly. Now that we're through the transition, we expect the business to behave like a modest, low-to-modest growth business and to be profitable along the way. Does that address your question on that part of it? I'll move to the corporate part next.

Daniel Moore, Analyst (CJS Securities)

Yes, absolutely. And maybe corporate reopening as COVID abates?

Brian Napack, President and Chief Executive Officer (CEO)

Yes, so corporate is interesting. There are dynamics driven more by the skill gap and by the need to get teams highly functioning and individuals highly performing. What we saw last year was that our business that supports in-person training shifted dramatically to virtual delivery. At this point, well over 80% of our trainings remain virtual even as in-person activities resume, because people have realized virtual delivery allows them to reach more people and have more regular interactions. This virtualization and digital approach add significant total addressable market because learning can be part of more people's day-to-day jobs throughout the year as opposed to single in-person events. So corporate training has come back quite nicely, though not yet to 100% of historical levels. The virtual and digital aspects are adding new opportunities and we are positioned well to participate in that recovery and expansion.

Operator, Operator

Your next question comes from the line of Greg Pendy with Sidoti. Your line is open.

Gregory Pendy, Analyst (Sidoti)

Hey, guys, thanks for taking my questions. I wanted to make sure I understood correctly when you said the trends were pulled forward. For the Academic and Professional Learning segment, is it fair to say that the low single-digit guidance will be front-weighted throughout the year because of test prep trends during COVID-19? In other words, will revenues be higher in the first half given those COVID-related comparisons?

Brian Napack, President and Chief Executive Officer (CEO)

I understand the question. The businesses most affected by COVID-19, such as Test Prep and our in-person corporate training, will see recoveries that are a direct function of the recovery in those sectors. Our in-person corporate training business is growing back both within the traditional in-person piece and in the more digital opportunities created by virtualization. As those recoveries occur, you'll see corresponding improvements in our growth rates compared to the prior year COVID-affected periods. In test prep, the dynamic is a bit less clear because full resumption of testing centers and exam administration is not yet fully back in all markets. As that comes back, we will track with it, but we don't have full visibility on the timing because it's a function of public health conditions and other elements outside our control.

Gregory Pendy, Analyst (Sidoti)

Understood, that's very helpful. I wanted to dig into the editorial capacity that ramped up in the Research Division. Can you give a little color on that? It seems like you have some positive moving parts with Hindawi's high margins coming in. Can you explain how to think about that and whether the editorial investments will continue into 2022?

Brian Napack, President and Chief Executive Officer (CEO)

Yes. We saw an unprecedented surge in demand from the beginning of the pandemic on top of already high levels of demand. That demand presents itself as increased submissions and the requirement to evaluate and process them through the pipeline. A significant portion of our investment was to keep up with that demand. We are also investing in automation to streamline those processes. In the near term we brought on significant capacity to meet demand. In the longer run you should see increased productivity as we process that pipeline in a more streamlined and automated fashion. We saw the growth opportunity and invested to capitalize on it. Over time we expect that automation and process improvements will help translate revenue growth more directly into profitability. The Hindawi acquisition contributes positively to profitability because they have pioneered efficient, streamlined processes for processing high volumes of open access articles. John, is there anything you would add to that?

John Kritzmacher, Chief Financial Officer (CFO)

Greg, when you're looking at the fourth quarter results, you see a dip in the EBITDA margin that is significantly driven by annual incentive compensation being above target in the fourth quarter. That meaningfully weighed on research results in the quarter. We expect to head back toward our trend line around EBITDA margin in that business; the fourth quarter was significantly impacted by incentive compensation.

Gregory Pendy, Analyst (Sidoti)

Got it. And one final question: the real estate savings of about $8 million in run rate—has that started to be realized in this quarter or will it take some time to work its way into results?

John Kritzmacher, Chief Financial Officer (CFO)

Greg, we're underway. Over the last couple of quarters we've been running about $2 million a quarter in savings.

Gregory Pendy, Analyst (Sidoti)

Okay, perfect. All right, well thanks a lot. That's all I got.

Brian Napack, President and Chief Executive Officer (CEO)

Great, thank you.

John Kritzmacher, Chief Financial Officer (CFO)

Thank you.

Operator, Operator

We have a follow-up question from Daniel Moore with CJS Securities. Your line is open.

Daniel Moore, Analyst (CJS Securities)

Thank you again. I wanted to get to the profitability portion of the guide. On a go-forward basis, the EBITDA and EPS guidance implies fairly modest incremental margins given the investments you laid out. Is there any way to quantify the magnitude of the investments in Research versus the T&E headwind? And secondly, Hindawi—we had expected it to be accretive by fiscal 2023 on a GAAP basis. What kind of dilution are we looking at for fiscal 2022 from Hindawi for EPS?

John Kritzmacher, Chief Financial Officer (CFO)

Let me respond. We are investing substantially both in Research and in Education Services; those are the most significant areas of investment. We do see some pressure on T&E, call it single-digit millions of dollars, as we ease our way back into in-person business activity, including travel and some events that add value to the business. Another factor significantly impacting EPS is higher depreciation and amortization associated with investments and acquisitions. We are also anticipating an increase in our effective tax rate from roughly 20.5% in fiscal 2021 to something in the 22% to 23% range. With regard to Hindawi, we had said Hindawi would be about $0.15 dilutive to EPS in our fiscal year 2021 and that's about where we ended up. We expect that level of dilution will decline significantly in fiscal 2022 and then be accretive to our earnings in fiscal 2023 as we had previously stated. From an EBITDA and cash flow perspective, Hindawi will be significantly accretive to Wiley in fiscal year 2022. So we're on the track we had expected.

Daniel Moore, Analyst (CJS Securities)

Very helpful. I'm fascinated by the automation and the investments that you are making longer term. Any kind of margin benefit you can discuss or is it a little early or premature for that?

John Kritzmacher, Chief Financial Officer (CFO)

It's a little early, but we do expect that these investments will both improve our top-line growth and drive efficiency gains. Most notably on the Research side, we're going to drive process efficiency and automation that will help us grow rapidly in Open Access while managing the associated costs and improving margin over time. There's work to be done, but yes, we expect these investments to improve margin along with revenue.

Brian Napack, President and Chief Executive Officer (CEO)

Dan, I wanted to add that we're on a long-term path to both take advantage of current market opportunities and to make the businesses better. The two objectives go together. For example, as we invest in the automation of our Research publishing processes, several beneficial things happen. We move from manual processes to more digital, automated, and AI-driven processes. The investment in automation also makes the process faster, which the market wants and which allows us to put more through the system. Automation helps us place more articles within our portfolio while maintaining quality because we can sort, process, edit, and produce more efficiently. That expansion of capacity and speed is critical to capturing the market's growing output. In short, we're investing significantly in processes and infrastructure to make the business better and more profitable at the same time—better for customers, better for us, and generating improved profitability. I hope that's clear.

Daniel Moore, Analyst (CJS Securities)

Yes, it's very helpful. As I said at the outset, the trajectory of the business is really encouraging. I appreciate the color and look forward to hearing more.

Brian Napack, President and Chief Executive Officer (CEO)

Great, thank you.

John Kritzmacher, Chief Financial Officer (CFO)

Thanks, Dan.

Operator, Operator

All right, no further question at this time. I'll now hand the call back to the company.

Brian Napack, President and Chief Executive Officer (CEO)

Great. I want to thank you all for joining the call today. We will look forward to sharing our first quarter results in September. I want you all to note that our Investor Day is now scheduled for Friday, October 29. It will be a virtual Investor Day. Please reach out to Brian Campbell for more details and we'll look forward to seeing you then. Thanks, everybody.

John Kritzmacher, Chief Financial Officer (CFO)

Thanks, everyone.

Operator, Operator

Thank you. And that concludes today's conference. Thank you all for joining. You may now disconnect.