Shares of Houghton Mifflin Harcourt Company (NASDAQ:HMHC) are rocketing 14.1% as of noon EDT on news that the textbook publisher has agreed to sell its Riverside clinical and standardized testing portfolio to San Francisco-based private equity firm Alpine Investors for $140 million.
Houghton Mifflin clarified that the assets it is selling include "the Woodcock-Johnson family, the Cognitive Abilities Test (CogAT), Iowa Assessments and the distribution of Battelle Developmental Inventory (BDI) among other assets." At the same time, Houghton Mifflin will retain its "Reading Inventory, Math Inventory, Phonics Inventory and Reading Counts" assets.
Houghton Mifflin did more than $1.4 billion in business last year. The assets it's selling off accounted for "approximately $80 million in billings to HMH in 2017." Thus, even after the divestiture, Houghton Mifflin should continue to have $1.3 billion in annual sales. It will also have an extra $135 million in spending money, the cash balance of its sales price after deducting various and sundry expenses of the sale.
Now here's the bad news: $135 million will be barely enough to offset the $113.5 million in operating losses that the company booked last year. It will also leave the company with $80 million less revenue on which to earn profits in future years.
Investors can hope, of course, that in selling the Riverside assets, Houghton Mifflin offloaded loss-making assets and retained more profitable products. We won't know that for sure, however, until management updates us on its guidance for this year's financial results -- which it says it will do in its "third quarter earnings call," probably still two months away.