Cengage Learning Holdings II, Inc. (CNGO) Earnings Call Transcript & Summary

Good morning, and welcome to the Cengage Fiscal 2021 Third Quarter Investor Update. Participating on the call will be Michael Hansen, Chief Executive Officer; Bob Munro, Chief Financial Officer; and Richard Veith, Senior Vice President and Treasurer. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Richard Veith.

Good morning, and welcome to Cengage's fiscal 2021 Third Quarter Investor update. A copy of the slide presentation for today's call has been posted to the company's website at cengage.com/investor. The following discussion may contain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to future results, and events, and they are based on Cengage's current expectations and assumptions. All statements regarding the anticipated effects of the novel coronavirus or COVID-19 pandemic, and the responses thereto, including a pandemics impact on general economic and market conditions as well as on our business, customers, end markets, results of operation and financial condition and anticipated actions to be taken by management to sustain the company during the economic uncertainty caused by the pandemic and related governmental and business actions as well as other statements that are not strictly historic in nature, are forward-looking. Many factors could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements. You should consider such factors, many of which are subject to the risks and uncertainties discussed in the Risk Factors section of our fiscal 2020 annual report for the year ended March 31, 2020, and a special note regarding forward-looking statements. Section of the same report and the Risk Factors section of our fiscal 2021 third quarter report for the 3 and 9 months ended December 31, 2020, which will be publicly posted to Cengage's website shortly. The company disclaims any duty or intention to publicly update or revise any forward-looking statement, whether written or oral. This presentation including the appendix, contains disclosures of adjusted revenue, adjusted cash revenue, adjusted EBITDA, adjusted cash EBITDA, adjusted EBITDA less prepub, adjusted cash EBITDA less prepub on a quarterly and year-to-date basis and free cash flow and levered cash flow on a year-to-date basis, all of which are non-GAAP financial measures. Adjusted revenues and adjusted EBITDA measures are on a constant currency basis. Definitions, rationale for the use of these measures and reconciliations of each to its most directly comparable GAAP financial measure are provided in the appendix to today's slide deck. Our investor presentation may also contain discussions of gross sales measures by markets, which represent amounts invoiced to our customers. Consequently, gross sales are before any adjustments for sales returns provision or revenue deferral. We believe this measure provides investors with a more comprehensive understanding of our underlying revenue results and trends by presenting amounts invoiced on a consistent basis. We may also discuss net sales, which represents gross sales less actual returns of products. And now we can turn to Slide 3 for today's agenda. Michael Hansen, Chief Executive Officer, will provide an update on the business, followed by Bob Munro, Chief Financial Officer, who will take you through the details of our financial results for the third quarter and for the 9 months ended December 31, 2020 before we open the call for questions. Let me now introduce the Chief Executive Officer of Cengage, Michael Hansen.

Richard, thank you, and good morning, everyone. As many of you know, our business cycle is driven by the academic calendar, which does not closely align with calendar quarters. In addition, our business transformation has, for some time, pushed revenue from our third into our fourth quarter as students buy digital products directly from us and closer to the beginning of the semester. To make our report most reflective of the true underlying dynamics, we will, therefore, share our results on a quarter and year-to-date basis as well as give you a snapshot of what we already know about our fourth quarter results. In summary, we have maintained strong financial momentum despite pandemic headwinds throughout the third quarter. Here is where we are 9 months into our fiscal 2021. Our year-to-date adjusted cash revenues were $946 million, down 8% against the same period last year. On a trailing 12-month basis, digital sales now represent 71% of our total net sales. In U.S. higher education, digital sales represent 83% of net sales. Our year-to-date adjusted cash EBITDA less prepub was $240 million, up 10% against the prior period, driven by the digital transformation and a continued focus on operational effectiveness. We generated $142 million of levered free cash flow year-to-date. As a result, we ended December with a strong cash balance of $445 million and total liquidity of $528 million. These robust financial results reflect the successful execution of our strategy and the unwavering commitment of my more than 4,000 colleagues around the globe to effectively support our customers through the pandemic. Our core U.S. higher education business continues to show solid revenue growth, driven by digital products with a more streamlined cost structure due to the simplification of our operating model. Ed2Go, our online skills business continues to effectively capture heightened demand for its vocational training, reskilling and upskilling courses. Ed2Go maintained its revenue growth rate of over 40% throughout the third quarter. As Ed2Go courses start on a rolling year-round basis, this business is not subject to the seasonality of the U.S. Higher Ed business. We remain bullish about the future growth prospects of Ed2Go and the overall online skill space. We are continuing to invest to capture the significant opportunities afforded by the accelerating shift to online skills training and the role we can play in addressing clear and significant skills gaps that exist across the workforce. Our other businesses continued to see a temporary negative revenue effect of the COVID pandemic. However, we do start to see signs of stabilization and eventual recovery. The pace of that recovery will vary by business and geography. Before I address the outlook for the fourth quarter and our next fiscal year, let me provide some further insight into the key performance trends across each of our major businesses. I will start with our largest and most profitable business, U.S. Higher Education on Slide 6. To best understand the momentum in this business, we have to look at the fall and spring academic semester which is currently underway. As you may recall, our first half year performance of 4% net sales growth was driven by strong digital unit growth of 16% which was the biggest component of our overall unit growth of 9%. As a result of our strategic focus on affordability, the price per unit declined as students opted for our more affordable digital solutions and the Cengage Unlimited subscription. Despite the fact that faculty were reluctant to switch course material providers in the middle of the pandemic, we still gained market share in Courseware adoption. Turning to the third quarter performance. As expected, year-to-date net sales growth moderated through the quarter as students purchased digital products closer to the beginning of the semester in January. In addition, this year, around 1/3 of schools opted to start classes later in January which accentuated this continuing shift. The digital momentum going into the spring season is evident from the year-to-date performance with digital units up 9%. Courseware activations up 20% and Cengage Unlimited subscription up 21%. As of today, we are well advanced in our spring season, and we are seeing the timing differences reverse as expected. We are also seeing the same underlying trends as in the fall. Digital unit growth is overpowering both lower ARPU as well as enrollment pressures, which we will expect will be lower by mid-single digits for the year. We are on track to deliver underlying net sales growth for the full year, in line with the 4% achieved in the fall. This momentum underpins our conviction that we will end this year having again, meaningfully outperformed the course materials market as measured by MPI. Our relative performance through the year-to-date is set out on Slide 7. On a trailing 12-month basis, through the end of the fall season in October, Cengage net sales grew by 8%, representing 9 points of outperformance against the industry, which declined by 1%. We fully expect to have outperformed the industry yet again once the MPI data for the full year will be released in March. We now have 26% market share on a trailing 12-month basis. This year, the majority of share gain was from the aftermarket and less directly from competitors due to COVID-driven reluctance of faculty to switch providers, which I mentioned before. As we look forward to the coming fall selling season, it is clear that customers are looking to reengage, and there will be increased opportunity for adoption gains. In the Institutional segment, which has been growing strongly, we have a clear differentiated proposition in offering Cengage Unlimited Institutional and a comprehensive Inclusive Access program. Cengage Unlimited institutional now has over 150 direct customers, and together with Inclusive Access, comprises 14% of our Higher Education revenue. The clear momentum going into the next academic year and the strong foundations on which this year's success has been built, gives us confidence that the U.S. Higher Education business has a sustainable, positive growth trajectory, despite continuing macro and COVID uncertainties. The U.S. Higher Ed business is now 83% digital, and over 88% of our business is recurring on a trailing 12-month basis. On top of increasing opportunities to gain adoption share as customers reengage, there is considerable opportunity to further grow digital revenue through the conversion of current Cengage content users to digital and through our institutional offerings. At the same time, the impact of the decline of print units and bundles continues to get smaller every year, and we have now crossed this important inflection point. Looking forward to next fiscal year, enrollment remains a key variable and difficult to predict at this stage. It is very influenced by any further federal support for which, based on our own student research, we believe the enrollment outlook is stable to positive compared to this year. There may be potential upside from prospective enrollment growth as students who delayed starts this year enroll overcoming semesters. Slide 8 covers the trends we are seeing across our other businesses where we have seen demand decline stabilize and broadly begin to recover, albeit on different trajectories across markets. Gale has continued to improve resilience against widespread closures of institutions and libraries in the first half and an uncertain funding environment. The business has largely completed its database subscription renewals for this year which year-to-date renewal rate successfully maintained at 94%, inline with prior year. For the full year, we expect Gale's adjusted cash revenue performance to be broadly inline with a 10% decline through the year-to-date. This reflects a fourth quarter where we expect recovering demand for digital archives in the international segment to offset continuing sales shortfalls from budgetary pressures in U.S. market. Looking forward into fiscal '22. There remains significant uncertainty around public library and academic institutional budget. In the U.S. market, we have seen this impact archive and, other, more discretionary purchasing outside core collections and database renewals. We expect these pressures to persist in fiscal '22. Against this, the improved sales momentum we are seeing currently outside the U.S. provide some basis for cautious optimism that international market demand will continue to recover, and at least mitigate potential further weakness domestically. In our International English Language Teaching business, prior to the onset of COVID, the business delivered consistent strong growth over many years driving revenues to around $100 million in Fiscal '20. COVID had a significant but temporary impact on the business due to its high dependency on print, classroom teaching and language travel across markets in Europe. Year-to-date revenues are down over 25%, broadly consistent with our range of expectations for the full year. We expect the business to recover as markets reopen in Fiscal '22. In Asia, our largest market, we expect a relatively quick recovery across most countries led by China. In Europe, Middle East and Africa, whilst we expect [ beyond ] states to also recover earlier in the cycle. European sales are likely to be slower, given the dependency on travel market. In Latin America, we expect the recovery to be more extended with high reliance on school reopenings in key markets of Mexico and Brazil, which are currently uncertain. With a clear track record of successful growth and global demand for English language teaching expected to continue to grow, we believe the business will return to its strong historic growth trajectory in 2022. In international Higher Education, the impact of COVID has similarly been more acute. Beyond the global enrollment pressures and impact of closures, this reflects higher structural dependency on print product and distributors channels to market. For the full year, we expect international Higher Education revenues to be down over 20%, with sharply accelerated growth in digital-only partly mitigating significant print declines exacerbated by like spread distributor destocking. Digital activations grew 35% by the end of Q3, and Digital now represents 35% of net sales year-to-date, up from 22% in the same period prior year. Looking forward into Fiscal '22, we expect our international Higher Education business to gradually recover. Across markets, the patient recovery and scale of digital opportunity to which COVID has been a catalyst will vary. We are focused on evolving our strategies and further leveraging the breadth of our U.S. digital capabilities to target these opportunities and actively drive the recovery through Fiscal '22. In the U.S. Schools business, we saw some benefit in Q3 from late cycle demand as the market started to stabilize. At this stage of the year, the selling season is essentially complete, with typically low volumes of orders expected in Q4. As such, we expect the year-to-date sales decline to carry through to the full year and for the business to finish in line to marginally ahead of the overall 20% market decline. Whilst Digital share of the sales mix has remained relatively stable at around 60%, within this, demand for digital stand-alone products grew strongly. Usage of our digital products further accelerated over Q3 as the school year progressed with activations up 40% year-on-year. At this stage, it is difficult to assess the K-12 market environment going into fiscal '22. While the present adoptions are proceeding as planned in a cyclically low adoption year, there remains significant uncertainty around state and local budget. Federal support through the stimulus bill is likely to address some budget pressures, but the impact on cost material spend is unclear. Looking at Cengage as a whole, we are now almost halfway through our final quarter and are tracking to our expectations. Nevertheless, there remains some residual risk in the balance of the quarter, most notably related to Gale's fourth quarter dependency and continuing volatility in international markets. At this stage, we cannot provide specific guidance for fiscal '21. The business is on track to exit this most challenging of years in a strong financial position and with good revenue growth momentum in key markets. This is primarily due to the strong trajectory of the U.S. Higher Ed and the online skills space. This will be complemented by the expected stabilization and recovery across other markets, which, together with our continuing focus on the operational transformation of the business bodes well to accelerate future growth and profitability. Notwithstanding this, there remains considerable uncertainty around the macroeconomic and education funding environment, which will drive the pace and shape of recovery from COVID. In fiscal year '21, we have demonstrated our ability to successfully navigate a highly uncertain and rapidly changing landscape. Our agility and the success of our digital strategy gives us confidence looking forward to fiscal 2022. I will now hand over to Bob, who will provide you with some more color on our financial performance through the end of the third quarter and our liquidity position. Bob?

Thank you, Michael, and good morning. Turning to Slide 10 and the third quarter. In a cyclically low sales period, Cengage delivered a solid third quarter in line with our expectations. Adjusted cash revenues were $223 million, down 9%. Adjusted cash EBITDA less prepub was a small seasonal loss of $3 million. The profit impact of the decline in revenues was moderated by continued improvements in gross margin and further savings from ongoing cost programs. Gross margin was up 280 basis points to 77.9% driven by structural savings actions and product mix effects. Operating and prepublication costs were reduced by $4 million, adding to the $61 million of savings already achieved in the first half. These third quarter costs include a $2 million impact to the Nelson Canada acquisition as well as a $5 million impact related to the decision to enable employees to earn back salary, which they sacrificed over the first 5 months of the year. Before these items, our Q3 costs were down 6%. The overall third quarter revenue performance was significantly impacted by expected sales shifts and later spring's college start dates in U.S. Higher Ed, which are normalizing in the fourth quarter. Total Learning segment adjusted cash revenues were down 3% on the prior year. This reflects an underlying 6% decline in U.S. Higher Ed, which was largely offset by another strong quarter in online skills, which grew over 40%, and growth in the School business, which benefited from late season orders in a small quarter. For Gale and the International businesses, the trading environment and key underlying business drivers evident in the first half, have largely persisted through the third quarter, which was otherwise, being impacted by phasing. Gale third quarter revenues declined 18% compared to a decline of 7% in the first half. This principally reflects adverse phasing of archive sales and new product releases compared to the prior period. In International, adjusted cash revenue declined 16% compared to a decline of 23% in the first half, with the quarter benefiting from favorable phasing in the Australia School business. These phasing effects are expected to reverse in the fourth quarter. Turning now to the year-to-date performance on Slide 11. Adjusted cash revenues for the 9 months to the end of December were $946 million, revenues of $77 million lower, down 8% compared to the prior year. Adjusted cash EBITDA less prepub for the year-to-date was $240 million, 10% ahead of the prior year. At Gale, revenues of $137 million or 10% behind the prior period. In the U.S. market, revenues are down 10%, the strong subscription renewal rates were outweighed by shortfalls in print and archive sales. We are seeing demand for products outside core collections in the U.S. library market being disproportionately impacted by increasing budgetary pressures. In Gale's International segment, which has high dependency on archive sales in the fourth quarter, revenues are down 15%. In contrast to the U.S., we expect a much stronger fourth quarter and end to the year, reflecting improved sales momentum and archive demand recovering in many international markets. This is being led by our largest market, China, where revenues were down just 2% by the end of Q3. At International, adjusted cash revenues were $149 million, down $39 million or 21% against last year. Within International, English Language Teaching revenues declined by 26% year-to-date. Declines have stabilized across all markets, and we are seeing certain markets begin to recover, most notably Asia, driven by China. In Asia, we saw a return to growth in the third quarter, with sales up 18%, driving growth to 4% on a year-to-date basis. The European, Latin America and U.S. markets are recovering more slowly. These markets remain more acutely impacted by the pandemic with extended school closures and continued constraints over English language markets. In International Higher Education, adjusted cash revenues were down 16% through the third quarter. This includes the benefit of $9 million of revenue growth from the acquisition of Canada, which partly mitigates significant COVID-driven declines across other markets. The Canadian business, which serves our largest international market is performing ahead of our acquisition expectations. On a pro forma like-for-like basis, sales are down 7% this year, underpinned by relatively higher digital penetration. In other markets, declines are being driven by high print dependency, lower enrollments and widespread distributor destocking. These broad drivers were further exacerbated in certain key markets by lower international student activity. Turning to Slide 13. In School, adjusted cash revenue was $125 million, down 19% against the prior year, with late season orders moderating the rate of decline from the first half. Across product segments, our high school advanced placement and career readiness programs have been less impacted than the K-8 segment. The school business has now largely completed its selling season with the fourth quarter representing less than 10% of annual sales. In higher education and skills, adjusted cash revenues through the third quarter increased by $6 million to $535 million, representing growth of 1%. Our Ed2Go online skills business continues to translate sharply increased market demand for online vocational training and reskilling and upskilling courses into high revenue growth. Adjusted cash revenues were $34 million year-to-date, up over 40% on the prior period. The business has very strong operating leverage, with this growth in profit contribution outpacing revenue. Turning to Higher Education on Slide 14. Underlying adjusted cash revenues for the U.S. Higher Education business were broadly flat, underpinned by net sales growth of 1%. The moderation of year-to-date sales growth through the third quarter was in line with our expectations. It reflects the continuing structural shift in sales patterns from the third to fourth quarter. This is driven by accelerating digital growth and related channel shifts and amplified this year by delays to spring semester school starts. Digital net sales grew by 4% or $15 million in the year-to-date. And on a trailing 12-month basis, digital net sales now account for 83% of total net sales. This acceleration in digital growth and penetration continues to improve the profile of our Higher Ed business. This fiscal year has seen a pronounced shift away from high-return products. The gross sales of such product is down 27% compared to last year. This reduces revenue volatility and gives us further confidence in the trajectory of the business through the spring season and in our expectation that full year net sales growth will be in line with the 4% in the full season. Now turning to adjusted cash EBITDA less prepub on Slide 15. Adjusted cash EBITDA less prepub was $240 million, 10% or $22 million ahead of last year. The $77 million year-to-date decline in adjusted cash revenues translates to a gross margin impact of $43 million. The gross margin rate improved by around 170 basis points to 78.3%, which moderated the impact of the revenue shortfall. This was driven by structural cost actions and product mix benefits. We expect to both to stay and build on these benefits through ongoing cost programs aligned to our digital strategy as we go forward. The gross margin shortfall was more than outweighed by $65 million of operating cost and prepub reductions. These savings continue to flow from our actions to mitigate the impact of the COVID crisis, the ongoing digital transformation of our business and the annualization benefits from the restructuring in the second half of the last fiscal year. The cumulative savings are expected to moderate in the fourth quarter as year-to-date timing differences reverse and benefits to the Q4 fiscal '20 and not repeated. Notwithstanding these effects, the business will deliver strong and sustainable expansion of the ELPP margin for the full year, albeit at a lower rate than in the year-to-date. The trajectory of our cost base is set out on Slide 16. Through the end of December, operating costs were $501 million. This reflects $65 million of cost savings before CapEx reductions. With an additional $10 million reduction in underlying capital expenditure, total spend has declined by $75 million, a 12% reduction. This underlying reduction in CapEx excludes the $14 million onetime impact of fitting out our Boston office in fiscal '20. In our second quarter call, we indicated that full year spend savings, including underlying CapEx, would be around $60 million. We remain on track to achieve savings in this range, which are net of this $10 million increase in costs from the Canada acquisition and the extension of our annual incentive plan to enable employees to earn back salary sacrificed in the first half of Fiscal '21. This amounted to over $20 million. The projected costs in Q4 include the incremental quarterly impact of Canada and the salary sacrifice, which together add $10 million to the cost base compared to the prior year. In addition, it reflects the fact that Q4 Fiscal '20 benefited from below target sales commission and annual incentive costs, which will normalize this year. The range of the Q4 forecast principally reflects considerations around normal operational spend and investment decisions. Against a normalized Fiscal '20 as baseline, our expectation of structural savings including enhancements to gross margin that we will carry into Fiscal '22 is broadly unchanged at around $50 million. Let me now turn to our cash flow performance and liquidity position on Slide 17. The business generated $142 million of levered free cash flow through December, compared to an outflow of $31 million in the same period last year. This $173 million improvement is driven by the strong operating performance of the business and successful execution of a comprehensive liquidity management program that we put in place at the onset of COVID. For the full year, we expect the levered free cash flow to be well over $100 million ahead of the prior year, but to moderate from the year-to-date position. This is being driven by the unwinding of certain temporary working capital benefits in the fourth quarter. The business ended the quarter with $445 million in cash and continues to maintain a strong liquidity position. This is summarized on Slide 18. The business has progressively strengthened its cash and liquidity position over the course of this year. Total liquidity was $528 million at the end of December. This comprised unencumbered cash balances of $445 million and $82 million of additional availability under the revolving credit facility. In October, we successfully amended and extended our revolving credit facility for an additional 3 years to October 2023. The amendment provides $225 million maximum borrowing capacity through June 2021 and then $206.5 million through the remaining term. The improved profitability and strong cash generation through Q3 reduced net leverage at December 31 to 5.6x, down from 6.5x at the end of Fiscal '20. The leverage ratio at December 31 benefits from certain cash and cost phasing effects, which will reverse in the fourth quarter. As a result, we expect to end the year with a leverage ratio of around 6x, still well ahead of the fiscal '20 closing position despite the significant COVID headwinds this year. We expect to maintain this momentum into fiscal '22 and we'll target further meaningful reductions in leverage over the year. With good momentum in reducing leverage we are continuing to consider timing and options around refinancing the capital structure to ensure the business has the financing in place to support our growth strategy over the long term. We expect to conclude any refinancing well in advance of the term loan maturity in June 2023. I will now hand back to Michael for some concluding remarks.

Thank you, Bob. In closing, I want to leave you with a couple of key points in summary. Having returned to sales growth through the fall season, our core U.S. Higher Education business is on track to maintain this growth through the spring. Underpinned by a successful digital and affordability focused strategy. Online skills is an emerging substantial growth engine in the portfolio, and we will continue to invest to capture additional opportunities. The rest of the portfolio remains well positioned to recover post COVID, which we expect to take hold in fiscal '22. As a result of our early and decisive action to preserve profitability and liquidity, Cengage is firmly on track to exit this most challenging of years in a strong financial position and with good growth momentum going into our fiscal '22. Finally, we are thrilled to welcome Alexandra Bernadotte CEO and founder of Beyond 12; and Dr. Michael Lomax, President and CEO of UNCF to our Board this past January. Both Ms. Bernadotte and Dr. Lomax are experienced educational leaders who are dedicated to transforming the system and increasing access to education for all students. They bring in wealth of firsthand operational experience and will be valued contributors for Cengage as we move forward, executing against our business strategy. We will now open the floor for your questions.

[Operator Instructions] Our first question is from Matt Swope with Baird.

Could you help, Michael or Bob, on the Higher Ed unit front. At the 6-month period, Higher Ed units were up about 9%. And after 9 months, that was down to up about 2%. It looks to me like units were down about 30% in the third quarter. You talked about a number of reasons where there's been timing shifts, but that seems like a big difference. Can you help with that number?

Sure. I'll have Bob chime in on that one. Yes.

Matt, so I think as Michael alluded to, there have been sort of a number of timing shifts around later starts, but also that the normal shift that we're seeing as a result of sort of channel shifts to direct students and so on. That's sort of further amplified by the trends that we saw last year. And if you sort of think back 12 months ago, we were talking about significant distortions in sort of unit and sales patterns as a result of channel partner buying trends, where we had very high gross sales and then extended returns periods, which sort of basically flowed through into the principally into the fourth quarter. So that's what's amplifying it. I think just to give you some sort of assurances, we think from sort of Q3 into Q4 all the sort of trends that we expected to see in terms of unit growth recovering, in terms of activation growth, which is up over 10%, in terms of direct student purchasing through cengage.com also up to over 10%. Those are all being played out through the spring season-to-date as we expected. So yes, there's a lot of noise, but it's all reversing through in the spring season as we expected.

And our next question is from Nick Dempsey with Barclays.

Yes. I've got 2 actually. Just first of all, I wonder, Michael, whether you could update us on your thinking about enrollments for the full '21 season versus other people? I mean previously, when you spoke what you were expecting a further decline when everywhere else, people have been expecting some kind of modest increase. So I wondered if you could sort of update us on that. And then the other thing is when we break down the detail of Higher Education across the key players, the 3 key players, McGraw-Hill is seeing very good growth in Connect. By implication, I think you guys seeing growth in MindTap and WebAssign through 2020. Pearson has seen no growth in MyLabs. Has there been a kind of change in that market, the homework help market, which has meant that you guys, the McGraw and you guys have caught up share versus Pearson? Or what's defining that quite big difference?

Yes, Nick, good to hear your voice. Let me take those in order. In terms of enrollment, I think that what we are seeing right now, the actual enrollment data is 2 things. Overall, enrollment is down, as you know, to the tune of about 4%, but there is a big difference between 2-year community colleges and 4-year schools, where, with 2 year community colleges, the decline is much more pronounced and is around double digits, call it, 10%-ish. The question that you're asking is, looking forward. And I think looking forward, we believe that the structural decline, which is mostly driven by demographics and the rise of alternatives. In other words, students have -- the fewer students and the students have more choices. That will continue, but that decline, in particular, in this situation, could be offset by the pent-up demand because people have essentially deferred going to college, not taken the course, too much uncertainty. Things were not readily available because they didn't know how the online experience would be, et cetera, et cetera. That could release in the next fall season. And the second thing that will influence this, and I've talked to a number of community colleges about this is, there is a strong belief that any additional stimulus funding will find its way into the education sector, in the sense that there is historical evidence that if stimulus funds are made available, students in the United States are using them -- are using a good portion of those to actually enroll and participate in the education system. So I think there are some puts and takes. And on balance, I would say, I'm cautiously optimistic for the fall. But as you know, even the stimulus and the exact shape and size of the stimulus funding is still under discussion in Washington, and they'll probably take another few days for this to pan out. And then we'll have to see how that translates. In terms of the competitive scenario that you are describing, I think you are accurate based on the data that we have in terms of your description. My observation would be that clearly, the homework solution that was introduced some -- well, by now, it's almost 12 years ago, into the market, has had a meaningful impact, has allowed Pearson to have a meaningful share of that and Pearson was clearly leading. Now there are additional things that faculty does not just designing homework through the digital platforms. And I think what you're seeing is that, in particular, I can speak to MindTap and WebAssign, that those additional features and functionalities, and frankly, also the quality of the user interface and importantly, the quality of the service that they're getting really makes a difference and has caused us to gain market share. So I think your conclusion is right. Those are the underlying reasons that I would point to.

Our next question is from Todd Morgan with Jefferies.

Wanted to follow-up, Michael, on comments you made on the sort of the thinking on higher education net sales for the full year. I think year-to-date, it's sort of a 1% number, and I think you sort of suggested that you think you can bring that back to the run rate you had through the middle of the year, about a 4% level. Was just trying to make sure I was understanding that correctly because I think that would imply a pretty big jump in the fiscal fourth quarter. And I guess along with that, it sounds like there's a part of that is sort of the timing differences of when schools have started up. I don't know if you could in any way kind of size how much of the sales that would have normally occurred in a normal school year in the fiscal third quarter actually rolled into the fourth quarter on the Higher Ed side?