Image source: Houghton Mifflin Harcourt.

What happened

Shares of educational content and services company Houghton Mifflin Harcourt (NASDAQ:HMHC) tumbled on Thursday following a disappointing third-quarter report. HMH missed analyst estimates for revenue and earnings by a wide margin, sending the stock down 22% by 11 a.m. EDT.

So what

HMH reported third-quarter revenue of $533 million, down 7.4% year over year and about $50 million below the average analyst estimate. Billings decreased 9% year over year to $620 million, with the company pointing to a smaller new adoption market, lower market share, and lower delivered professional services revenue as the main drivers of the decline.

Earnings per share came in at $0.73, down from $0.94 in the prior-year period and $0.15 short of analyst expectations. Lower revenue was the main reason for the earnings decline, but a lower income tax benefit compared to the same period last year also contributed.

HMH Interim CEO Gordon Crovitz discussed how the company plans to return to growth:

While we are disappointed with the Company's performance year to date, especially in the domestic education market, we are squarely focused on restoring growth to the business. We are taking necessary steps to remedy issues which resulted in loss of market share in California this year, as well as to accelerate growth in our adjacent markets in order to create greater value for shareholders and improve our financial performance.

Now what

Due to HMH's poor third-quarter performance, the company lowered its outlook for 2016. It now expects to produce revenue between $1.32 billion and $1.38 billion, down from a previous range of $1.485 billion to $1.555 billion. Billings are now expected to come in between $1.37 billion and $1.43 billion, down from a previous range of $1.525 billion to $1.595 billion.

It was a rough quarter for HMH, and its guidance doesn't suggest that things will get better anytime soon. Investors are right to be concerned following a big miss and slashed guidance, and the steep drop in the stock price on Thursday may be just the beginning if the company can't turn things around.

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