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

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

Good morning, and welcome to Cengage's Fiscal 2021 Fourth Quarter and Full Year 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 are neither historical facts nor assurances of future performance and 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 the pandemic's 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 historical in nature are forward-looking. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Many factors could cause our actual results and financial conditions 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 2021, annual report for the year ended March 31, 2021, and a special note regarding forward-looking statements section of the same report, which will be posted to the company website shortly. Any forward-looking statement made by us in this presentation is based only on information currently available to us and speaks only as of the date on which it is made. The company disclaims any duty or intention to publicly update or revise any forward-looking statements, whether written or oral that may be made from time to time, whether as a result of new information, future developments or otherwise. 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, pro forma adjusted cash EBITDA less prepub on a quarterly and year-to-date basis and free cash flow, levered free cash flow, pro forma unlevered free cash flow and pro forma net leverage 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. Finally, during the fourth quarter of fiscal year 2021, we changed our segment reporting structure to better align with the strategy of the company. Our previous reportable segments, Learning, Gale and International have been recast to conform to the current presentation. Following this change, we are organized into 6 reportable segments on the basis of products and customers served by each segment, identified as follows: U.S. higher education, international higher education, secondary education, workforce skills, English language teaching and research. U.S. higher education, secondary education and workforce skills were previously within the Learning segment. International Higher Education and English language teaching were previously in the International segment and research represents the previous Gale segment. 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 fiscal year ended March 31, 2021, before we open the call for questions. Let me now introduce the Chief Executive Officer of Cengage, Michael Hansen.

Thank you, Richard, and good morning, everybody. Across our businesses, we experienced a very strong finish to the year and are in a solid position to carry that momentum forward. Our optimism at the close of fiscal year '21 is based on 3 critical dynamics. First, our U.S. Higher Ed business returned to growth, driven by strong digital performance and is well positioned to sustain this growth going forward. Second, demand for our workforce skills business is exploding as employers, governments and learners seek and support reskilling and upskilling opportunities. And third, the rest of our portfolio is recovering from COVID effects providing great impetus for the year ahead. In addition, the macro changes already underway in education further bolster our optimism for the future. For example, Cengage is one of the few large-scale digital players in the $7 billion Higher Ed course materials market and the $8 billion adjacent curriculum markets across international higher education, secondary education and English Language Teaching. These markets have a common set of attractive characteristics including large addressable customer bases, stable learner demand, continuous customer relationships and incumbency advantages. Across all our markets and in Higher Ed cost materials, in particular, digital solutions are becoming the preferred and standard model, providing a better experience for learners and educators and greater value for Cengage due to the recurring customer relationships, better sell-through and higher margins. While our business has always benefited from good unit economics and low capital intensity. Our operating leverage and cash flow generation continue to improve as our portfolio becomes predominantly digital and highly synergistic. Fiscal year 2021 was an inflection point for Cengage with a return to growth in U.S. Higher Ed, marking an important milestone of our digital-first strategy, which we embarked on more than 8 years ago. More recently, COVID has accelerated many macro trends in the education system, creating major growth opportunities for us across our portfolio where we are positioned to deliver our digital products and services and support the growing demand for alternative pathways to education to gain employable skills. Against this backdrop, we have our sights set firmly on the next decade, where we aim to be the leader in getting learners career-ready, not just degree-ready. We will achieve this goal by executing against 3 strategic priorities. Our first priority is to aggressively drive digital adoptions in our U.S. Higher Ed business to capture significant remaining growth opportunity. Based on our market leadership around student affordability and the success of our differentiated digital strategy with Cengage Unlimited, we will leverage our technology platforms, high-quality content, faculty services and commercial innovation to fully capture the enrollment bounce that we expect to see in the Higher Ed market during fiscal '22 and beyond. Our second priority is to rapidly grow our workforce skills business to meet the exploding demand for career-focused learning pathways. This opportunity is our most prominent area of growth over the next several years. We plan to capitalize by rapidly growing our already sizable foothold in vocational certificate pathways, a broad set of markets that we call education for employment. To do this, we are investing to scale our Ed2Go business, which will expand the reach of our career-focused solutions across channels to serve academic institutions, employers, governments and learners. Our third priority is to leverage the many synergies across our portfolio to create value in adjacent markets and drive operational efficiency and scale. Our portfolio of businesses shares technology, content and distribution platforms, which position us for long-term growth and competitive advantage. The shift of all businesses in our portfolio to greater emphasis on digital creates opportunity to further leverage our shared assets, capabilities and learnings based on our successful transformation of the U.S. Higher Ed core business. These 3 priorities represent a clear path to achieve our aspiration to help learners become career-ready, not just degree-ready and will position Cengage as the leading provider of college and career learning in the next decade. Now let's turn to the U.S. Higher Ed segment, which is our largest and most profitable business. The U.S. Higher Ed business returned to overall growth in fiscal year '21, with digital revenue growth outweighing print revenue declines for the first time. At the end of the fiscal year, U.S. Higher Ed digital net sales reached 83% of total. And the business sustained very attractive characteristics, including its resilience and competitive advantage with difficult to replicate technology platforms, supplementing the existing content catalog and distribution rate. It's stable and predictable cash flows as a result of high customer loyalty amongst educators now enhanced with digitally enabled recurring revenue models and direct purchasing from student consumers. These results in its high profitability and strong operating leverage with digital migration driving ongoing gross margin improvements. Our performance was achieved despite an unprecedented 4% decline in student enrollment last year caused by the COVID pandemic. Students who did enroll continue to seek affordable quality cost materials, evidenced by the strong growth of Cengage Unlimited subscribers, which as of March 31, totaled more than 4.4 million subscriptions sold since launch. Our Digital First strategy is further supported by our continued market share gains of 100 basis points as recorded in the MPI data. Fiscal year '21 also saw an unprecedented shift in instructor and student preferences accelerated by the impact of COVID on the Higher Ed system. For example, we expect to sustain increased demand for digital course materials based on instructive feedback and the 57% of faculty who are more optimistic about digital learning materials now than they were pre-pandemic. In addition, 43% of administrators expect more use of courseware post pandemic. Finally, our robust 90% faculty retention rate proves the immense stickiness of our digital course materials. Yet, we continue to raise the bar on our own growth expectations in U.S. Higher Ed and are focused on 3 areas of specific additional opportunity. First, we will win digital adoptions from competitors like we've done in the past, leading with Cengage Unlimited, Cengage Unlimited institutional and inclusive access options are supported by our superior platform and services; second, we will convert remaining Cengage print adoptions to digital with ongoing product innovation; and third, we will monetize more seats in our existing digital adoptions. One tangible example how we are sustaining our digital momentum is through the launch of Infuse, a differentiated solution that tightly integrates our instructional assets with the learning management system, making it easy to use for faculty in their daily workflow and helping us extend our digital solutions to previously reluctant instructors. While COVID accelerated the digital migration by U.S. Higher Ed instructors, all evidence points to the fact that the long-term secular trend towards digital is enduring. Thus, our optimism is based on a number of factors, including our strong track record of digital unit growth that has been established over many years. The clear desire by instructors and learners to continue to use digital materials post pandemic evidenced by the more than 87% of Cengage instructors who shared their plans to continue using courseware in the upcoming fall semester. We see downward pricing pressure moderating based largely on the affordability strategies that we have championed for years. Our print business creates less drag every year. The business will benefit from enrollment tailwinds with U.S. colleges expecting a number of years of enrollment growth as a result of returning students who deferred study during COVID and government stimulus funding. We are now well into the forthcoming fall sales season, and our faculty customers are looking forward to the academic year ahead. One that feels a bit more normal with the opportunity for more in-person learning but also greater use of blended learning modalities and thus, continued high usage of digital solutions. Next, let's turn to the exciting opportunity we are pursuing in our workforce skills segment. While growing for many years, demand for shorter, affordable and more career-focused alternative training pathways is now exploding. These trends have been greatly accelerated by COVID, which delivered many years of progress in just a few months. Our workforce skill segment, including our Ed2Go business is at the forefront of our efforts to play a crucial role supporting learners who seek education and skills to be successful in their careers. Ed2Go partners with colleges to offer out-of-the-box online certificate training courses and career-focused disciplines, benefiting from more learners choosing nondegree certificate pathways and more institutions opting to deliver these courses online, Ed2Go grew 46% in fiscal '21 and cemented its leading position in the rapidly growing $1.5 billion continuing education market. Through partnerships with higher education institutions, we are proud to have lifted over 100,000 learners onto a better career trajectory and higher earnings during fiscal '21 alone. Looking ahead, we are ramping up our investment in this business to expand our core catalog, build partnerships with more colleges and enhance our student marketing model. Achieving our goal of being the leader in getting learners career ready not just degree ready, means that we need to think broadly inclusive of all assets in our portfolio. We already have many assets that support those who see career specific skills across a range of learning pathways. We have turned the comprehensive opportunity in the short duration online, affordable reskilling and upskilling market as education for employment. With career-focused products and services available across our portfolio, including Ed2Go, our Milady business as well as U.S. and international vocational and trades training markets, the secondary career and technical education segment and the private language school markets, we already have a strong foothold in this space. Beyond our current portfolio, we will actively invest to align with changes in the job market and learner preferences as well as to support the estimated $30 billion that employers, governments and learners will spend on career-focused training. Turning finally to our third priority, which is focused on leveraging synergies across our portfolio to create value in adjacent markets and drive operational efficiency and scale. Our synergy businesses include international higher education, secondary education, English language teaching and Gale. Each of these businesses leverages assets from our core technology, content and distribution platforms, while simultaneously benefiting from underlying demand growth in their respective markets. In addition to clear synergies, we continue to leverage lessons learned from our migration in U.S. Higher Ed. This allows us to learn from prior experience and accelerate the transformation of our synergy businesses, bringing higher monetization, sticking our customer relationships and expanding operating margin. Let me share a few illustrative examples. First, Cengage is the leader in the $1.4 billion market of U.S. originated course materials and our international Higher Ed business leverages U.S. versions or adaptive content which accounts for 75% of our revenue and very high gross margins. In addition, B2B institutional models are fueling the upward momentum of this business. As one example of this momentum, we piloted Cengage Unlimited International and already have 9 contracts signed with institutions. In our secondary business, we leverage Higher Ed technology and content to achieve industry-leading margins. In this business, we are pursuing a highly differentiated strategy focusing on the growing digital-ready and stable career and college readiness segment. Our English language teaching business saw significant digital migration momentum during the past fiscal year, creating an opportunity for reuse of Cengage technology to enable rapid innovation and enhanced margins. While impacted by school and education center closures driven by the global pandemic, we are seeing strong underlying growth to return to pre-pandemic levels as public and private schools reopen and professional and academic travel resumes. Lastly, our Gale business counts highly sought after product offerings for teaching and research with 95% penetration of top higher education institutions. While impacted by the pandemic driven library closures, this business has proven its resiliency as a leading provider of digital research services benefiting from strong relationships with institutions, schools and libraries across the world. Looking ahead, tailwinds in emerging markets and growing demand in secondary education will prove volumes for this business. Before turning the conversation over to Bob, who will walk us through the detailed financial results and outlook, let me summarize a few key points from this business update. COVID simply accelerated key secular drivers already underway, which our strategy has been focused on for many years. Specifically, digital migration across all Cengage businesses and demand for career readiness strength. COVID did broaden awareness of the value of digital solutions to instructors and learners, which provided higher quality learning experiences. For Cengage, they provide even more replicable customer relationship with a more predictable revenue trajectory. Finally, all of this was made possible by the resilient execution-focused Cengage culture, which rightly has become the beacon in our industry. Bob, over to you.

Thank you, Michael, and good morning, everybody. Before we jump in, a couple of points upfront just to level set. Firstly, in our earnings pre-release in this presentation, we have highlighted pro forma adjusted cash ELPP. The intention here is to provide a better comparison of historic data and highlight the underlying performance of the business and to help you frame projections of future performance. In fiscal '21, the most significant adjustment related to a nonrecurring 11 million stock obsolescence charge in secondary education. This was driven by the exit of certain product lines in K8 as we shift our strategic focus to career and college readiness segments in high school. In addition to this, we adjusted for $3 million of onetime professional services fees tied to initiatives related to our strategy coming out of COVID and a further $4 million to annualized benefits from real estate changes and buyouts of Author IP, which were fully actioned in fiscal '21. We restated fiscal '20 to a pro forma basis to provide an appropriate comparison. Secondly, with our fiscal '21 results, as Richard addressed, we have adopted a new reporting segment structure to provide greater insight and transparency into the performance of the business. The appendix to the presentation includes restated historical financials in the new segment structure, including quarterly results for fiscal '20 and '21 and a reconciliation to help you bridge from the prior segments. If we turn to the financial highlights slide. Overall, Cengage finished the year strongly. We saw positive momentum across the business through Q4, which is carried into the current fiscal year. Adjusted cash revenues for the final quarter were $316 million, up 1%. This was underpinned by U.S. Higher Ed, where revenues were up 11% to $187 million. This was very much in line with our expectations and driven by digital sales growth of 25%. With a strong Q4, full year adjusted cash revenues was $1.26 billion, down 6% on the prior year despite the COVID impact. This highly resilient performance in the face of COVID was driven by 6% growth in digital sale, propelling annual digital sales to $917 million. Digital now represents 73% of our total net sales, up over 7 points. The strong progress in digital further enhances the profitability, predictability and growth prospects of the business. Pro forma adjusted cash ELPP was flat at $315 million. Cost efficiencies from continuing simplification of our operating model tied to our digital strategy, and effective COVID mitigation underpinned another year of strong margin expansion. Our pro forma adjusted cash ELPP margin reached 25%. The business generated $159 million of levered free cash flow in fiscal '21 and ended the year in a significantly strengthened liquidity position with $458 million of cash on hand. The combination of a resilient profit performance and strong cash generation also delivered another meaningful reduction in our pro forma net leverage ratio, which now stands at 5.6x, half a turn better than a year ago. The next slide sets out revenue in ELPP performance in our new segment structure. The segment analysis highlights the contribution of the U.S. Higher Ed business, which represents over 50% of revenues and around 70% of total contribution from our market-facing businesses. U.S. Higher Ed has progressively improved its margin to well over 50%. All our businesses were impacted by COVID in fiscal '21. We saw positive impacts on digital demand across all the Cengage businesses, which we believe will be sustained and more temporary pressures on overall demand driven by widespread school closures and enrollment declines. The impact of COVID was most acute in our international Higher Ed, English language teaching, research and secondary education businesses. As we chart a course out of COVID, I wanted to touch on the drivers of fiscal '21 performance and trends we saw through the fourth quarter and into this fiscal year, which are relevant to the future growth trajectory and sustainability of digital demand. If we turn to U.S. Higher Ed on the next slide. U.S. Higher Ed carried the strong digital momentum from the fall season into the spring semester to deliver net sales growth of 4% for the full year, consistent with the expectations we set out in our last investor call. The strength of digital momentum in driving the overall performance is evident across all key measures and is underpinned by the continuing success of Cengage Unlimited which remains a unique offering and is now a $250 million annual revenue stream. Digital net sales grew by 11%, courseware activations were up 15% and Cengage Unlimited subscriptions increased 19%. Digital units grew by 16%, reflecting share gains, digital migration and improved sell-through. This double-digit unit growth overcame mid-single-digit enrollment declines and lower ARPU. It's important to note that the lower ARPU is down to a large part to our success of our strategy in increasing share and sell-through of affordable products. Our institutional business also continues to grow strongly and was up 40% in fiscal '21 to almost $100 million in annual revenues. We have a clearly differentiated proposition in offering Cengage Unlimited Institutional, a true SaaS-based seat model alongside our comprehensive inclusive access program. The clear momentum going into this current academic year and the strong foundations on which it's built give us confidence that the U.S. Higher Ed business has a sustainable positive growth trajectory. The U.S. Higher Ed business is now 83% digital and over 85% of our business is recurring. With customers reengaging, there are increasing opportunities to gain adoption share. There is also considerable opportunity to further grow digital revenue through the conversion of current Cengage content users and through our institutional offerings. And on top of that, we have strong tailwinds from enrollment. We turn to our other segments on the next slide. In International Higher Ed, full year net sales were down 20%, acutely impacted by COVID-driven enrollment declines, which were amplified by higher dependency on print and distributors. Strong growth in digital sales mitigated these impacts to some extent and underlying sales and demand recovery is evident through Q4 and into this year and is being led by the Europe, Middle East and Africa region. In secondary education, stabilization and recovery has been evident throughout the second half of fiscal '21, and we saw good growth in late-season orders across both Q3 and Q4, which moderated full year net sales declined to 17%. Whilst the market is recovering, we expect fiscal '22 to be a transitional year as we refocused the business on career and college readiness and STEM and social science at high school programs, where we expect to see good growth. In English Language Teaching, full year net sales were significantly impacted by widespread school closures and a higher dependency on print and classroom teaching. Whilst demand stabilized through the second half of fiscal '21 and sales are now recovering, the pace of the rebound across international markets varies widely. In Asia and China, our largest segment, representing around 40% of annual sales, demand is now broadly back to pre-Covid levels. In contrast, sales in European travel-based markets remain under pressure. On the next slide. In research, our Gale business has proved resilient, with full year revenues down just 8%, underpinned by strong renewal rates across its large subscription base. Promisingly, revenues for the final quarter of last year were flat as transactional demand for archives and large print products recovered with institutions reopening and budgetary concerns easing. Ed2Go, our workforce skills business to successfully leverage its leading position in the academic online continuing education segment and captured sharply increased demand for online vocational training and reskill. For the full year, its adjusted cash revenues grew by 46% to $49 million. The business has delivered revenue growth of over 40% through the fourth quarter and continues to see strong demand translating into strong double-digit revenue growth going into fiscal '22, albeit at a marginally slower pace than in fiscal '21 as we expected. The profit drivers of the business in fiscal '21 are summarized on the next page. The profit impact of the overall revenue decline and drags from the acquisition of Canada and normalization of bonus and sales commission benefits in fiscal '20 were fully mitigated by annualized benefits of restructuring in fiscal '20 and the combination of structural and temporary COVID savings actioned in fiscal '21. As a result, pro forma adjusted cash ELPP was held flat in fiscal '21, and we delivered another year of strong margin expansion, which reached 25% on a pro forma basis. Over recent years, we have progressively lowered our cost base whilst positioning the business for future growth. Significant benefits have been realized both through reduced direct costs driven by digital sales and savings initiatives and the ongoing simplification of our operating model in line with our digital strategy. Excluding the onetime obsolescence charge, gross margin has increased by around 270 basis points from fiscal '18 to 79% in fiscal '21. This is equivalent to well over $30 million of sustainable profit improvement delivered through reduced manufacturing, distribution and third-party content costs as well as increased value capture through direct to student and institutional sales. The significant progress we have made through the transformation and simplification of our operating model is summarized on the next page, Slide 19. OpEx and prepub costs have been reduced by around $130 million compared to 2019 or $140 million, excluding this year's acquisition of Canada, including CapEx efficiencies through leveraging spend across segments and the gross margin gains, I previously referred to, total cost benefit in the last 2 years were approximately $180 million. Of these benefits, with Canada now part of the base and adjusting the short-term COVID savings, approximately $120 million will be sustained going into fiscal '22. Turning to cash flow and liquidity on the next slide. On an unlevered basis, the business generated $358 million of free cash flow, representing cash conversion of 114% and providing well over 2x interest cover, a key target for the business. The business has low capital intensity and strong structural cash dynamics, which are being further improved by the growth in digital. Digital drives benefits from reduced inventory, subscription models and direct billings to students and institutions. These benefits supplemented COVID mitigation actions and other programs, which together drove meaningful improvements in working capital in fiscal '21. It's worth noting that prior to this year, the business has consistently converted around 90% of profits to cash over fiscal years '18 to '20. This represents an average of $270 million of unlevered free cash flow per year, underpinned by the highly reliable profit and cash generation of the core U.S. Higher Ed business. In fiscal '22, operating cash conversion will remain strong, but is expected to temporarily dip in this historic average, a short-term COVID benefits reversing the year resulting in modest growth in working capital. CapEx is expected to revert to a normalized level of $40 million to $45 million and the benefits from timing of interest payments $40 million in fiscal '21 will not recur. Turning to the next slide, liquidity and net debt. The strong cash performance significantly increased our total liquidity, which stood at $557 million at the end of March and drove the continued reduction in our pro forma leverage ratio. This now stands at 5.6x, half a turn better than a year ago. Through continued strong cash flow generation and expected profit growth, we are targeting bringing the net leverage to 4x or below over the medium term, absent any broader capital structure or portfolio changes. It's worth noting with the strong cash performance, under our existing credit agreements, the business will pay down a little over $40 million of the term loan later this month under the excess cash flow provision of that agreement. You will also be aware that yesterday, we launched the refinancing of the Term Loan B, addressing the most proximate maturities in the debt structure. We expect to close this transaction over the coming weeks, and we will be grateful for your continuing support. With the business on a strong trajectory coming out of fiscal '21 and COVID impacted markets showing early signs of recovery, we want to again provide some broad guidance for the year ahead, which is summarized on the final slide. We expect Cengage to deliver overall top line growth in fiscal '22, underpinned by the digital momentum in U.S. Higher Ed, continuing high demand in growth in workforce skill and the post-COVID recovery underway in international Higher Ed and ELT. Within the mid-single-digit revenue growth range we are anticipating and the continued gross margin momentum, we expect the business to deliver solid ELPP growth whilst funding investments in growth initiatives, notably workforce skills. Expansion of the ELPP margin will be temporarily muted in FY '22 as short-term COVID cost benefits normalize before continuing to expand in fiscal '23 and beyond. We expect the combination of our operating costs, prepublication spend and CapEx to increase by between $40 million and $50 million in fiscal '22. This is driven by normalization of short-term COVID benefit, the full year effect of the Canada acquisition, and investments in workforce skills, all partly offset by incremental structural savings and ongoing simplification of our operating model. In recent months, we have further rationalized U.S. Higher Ed, secondary education and international Higher Ed and continue to streamline our real estate portfolio. Finally, we expect to continue to reduce leverage through fiscal '22 through the combination of profit growth and healthy cash generation. In closing, I'd also leave you with a couple of key points in summary. Cengage is a digital business built on strong foundations over an extended period. This conveys significant benefits in terms of revenue growth, predictability and profitability. Our largest and most profitable business, U.S. Higher Ed, is past its inflection point. The business is on a digitally driven sustainable growth track with strong industry tailwinds. Workforce skills has become a substantial growth engine in the portfolio, a meaningful contributor to Cengage's overall growth. And finally, the rest of the portfolio is well positioned to recover post COVID and that recovery is well underway. We will now open for questions.

[Operator Instructions] Our first question comes from the line of Matt Swope with Robert W. Baird.

If I could actually just sneak in a couple of quick ones. Bob, could you comment on your -- in your term loan refi on what the other $400 million of secured debt will be and what your plan might be for the unsecured bonds? And then, Michael, for you, if I could. You talked a lot about workforce skills. I'm having a little trouble reconciling some of the challenges that the community college business is facing versus the growth in workforce skills? You could maybe comment on how big your exposure is in community college and sort of how those 2 relate to each other?

Yes, Matt. Thanks, and let me start with the second question, and then Bob can answer the first question. So the workforce skills business that we have works with community colleges. And essentially, the community colleges are offering as part of their offering, continuing education, but our offering is typically through third parties and that is third parties like Ed2Go. So that is a very specific part of the workforce skills market. The workforce skills market is though much broader. There are basically 3 broad segments in workforce skills. One is the segment that I just described, which we call the academic segment, where essentially the academic institutions, primarily but not exclusively community college, could also be 4-year colleges, are offering continuing education nondegree conferring continuing education to interested parties. The second one is the, what we call, the direct-to-consumer market where essentially students are looking for that education directly through providers, website, et cetera. And then the third and by far, biggest market segment there is the employer market where employers contracting directly with providers of education. There might be established community colleges or there might be new providers like ourselves or like Coursera or others like that to deliver very specific learning outcomes, upskilling and reskilling. So that market is, as we said, very large and growing extremely rapidly. Now you're referring to our exposure of the 2 community colleges. That is in a different capacity, so to speak, and our Higher Ed business, community colleges, educate about 7 million of the 18 million students in the United States. Our exposure to them is roughly proportionate to that. But that -- I mean, they have seen declines in enrollment as a result of the pandemic. They're seeing now some of the latent coming demand back, but that business is very different than the workforce skills business. So it's a different side business for them and the workforce skills market is much broader. Does it help? Does it clarify this?

Community College piece would fall under the U.S. Higher Ed. And obviously, you've now segmented workforce skills separately. So we should really think about those as 2 different buckets?

Completely different bucket, exactly. It just happens to be that workforce skills -- one subsegment of workforce skills, the academic subsegment. Basically students go to the community college or other colleges for that matter, say, hey, I really don't want to enroll in the degree program, but I would like to get a specific field. Do you have everything on offering in your -- typically on the website, and then they get referred to Ed2Go. That's basically how that works. So think about it as a very different market.

And should we think about your -- to what you said, your U.S. Higher Ed revenue being about $718 million from community colleges then?

Yes, roughly. I'm not sure the number is exactly correct, but it's roughly proportionate to the number of students in community colleges. But we -- I can also follow up and give you the specific number. We have that...

Yes, Michael, I thought our split on Higher Ed was about 35% of the overall rev.

35%? Okay. Richard knows it better than I do. So I hope that helps, Matt.

Great. Yes. So I wanted to...

Yes. Matt, so just taking the 2 points in turn. On the term loan refinancing and the $400 million of the secured debt, we will sort of release details on that sort of in due course as we get into next week. On the question around the notes, I guess it is print of mind for me is the first thing. But you'll be aware there's core protection on the note. And as I think about the timing of refinancing, that maturity is 2024. And as I think about the trajectory of the business and the very high conviction we have in that trajectory and what that -- the potential that, that has in terms of the rating of the company. given sort of current economics, I think that's a little bit further out from where we are today.

Our next question comes from the line of Sami Kassab with Exane BNP Paribas.

I have 2 questions as well, if I may, please. The first one is on the short term, the other one longer term. You referred to tailwinds in enrollment, Michael. If not mistaken, the Spring '21 college enrollment stats were actually showing more of a decline and worsening of the enrollment picture with, especially, community colleges. So can you elaborate a little bit the tailwinds you're referring to? What are the signs that lead you to perhaps expect a bounce in enrollment in fall '21? And secondly, now that you have successfully turned around the U.S. Higher Ed business. Can we look into the next 3 to 5 years? And what would be Cengage's top line growth, sustainable top line growth characteristics? Is it the mid-single digit that you're seeing in fiscal '22? Or can the growth accelerate further as the business becomes increasingly more digital and workforce skills ramps up?

Thank you, Sami, and happy to answer those questions. Good to hear your voice. So let me start with the first one, the enrollment question. So clearly, the biggest markets that we are participating in are currently emerging from the pandemic. First and foremost, the U.S. market, but also some of our international markets, Canada, Australia, et cetera. And what we are seeing and what we're hearing from our customers, the institution is that there were a significant number of students that because of the circumstances of the pandemic, the uncertainty surrounding their jobs, the uncertainties surrounding how teaching would actually occur in colleges at that time that deferred their attendance, which led to an overall decline in enrollments of about 4%, a little over 4%, which in context is unprecedented in the last 20 years. Colleges have never seen that kind of decline. What they are seeing though now is that this pent-up demand is slowly coming back online, particularly as more and more colleges are announcing their plans for the fall to be in either full in-person or hybrid type of environment. So we are seeing that pent-up demand coming from -- coming back online, so to speak. The second factor which is also a bit work in progress, but will affect enrollment, maybe not this fall, but in the spring and next fall is a government stimulus funding. As you probably followed, there is a very live discussion in Washington right now and not only in Washington and other capital as well about the importance to close the skills gap, the importance to close the wealth gap and that education is a key lever to do that. And for that, the government is willing to spend money in the U.S. There is talk about 2 years free community college, which would, obviously, be a boost to enrollment for community colleges. It's too early to say what exactly the shape of the legislation is. But I think it is fair to say at this point that is broad bipartisan support for spending a stimulus money on education specifically, whether that is through extended programs or free community college, I think, remains to be seen. So with those 2 factors, we feel cautiously optimistic about tailwinds in enrollment. But as we said before, the nature of the business is such that even without those tailwinds, we feel very confident that the business will grow because of the digital opportunity that has already materialized and the additional potential that is out there. And so that's with regard to the tailwind in enrollment. The second question about the long-term growth prospects. We feel that the mid-single-digit growth that we're seeing for this year, as we have explained, is not really driven primarily by a bounce back from the COVID crisis. But there's clearly an element in those markets that have been hit hard by the COVID crisis. ELT, first and foremost, language teaching, but also the Gale business, our Gale business. So we're getting a bit of a lift up in the near term from that return to somewhat normal post-COVID. But as you rightly pointed out, we feel that mid-single-digit growth is a very sustainable longer-term growth rate for the business because of our investments in workforce skills and the significant demand that comes from individuals who want to get skills that are not necessarily degrees but also and very importantly from employers. So we see this as a driver of our growth, and we feel very confident about projecting that growth rate out into the outer years.

Our next question comes from the line of Lovro Curcija with SKY Harbor Capital.

If I can touch a little bit on the competition, and we've seen some headlines around McGraw. When you and McGraw really has a good quarter or performs well. What is the read-through there for the industry? Are you taking -- I'm assuming you're taking more of the market share from renting and let's say, Chegg and less from your direct competitors like McGraw? Is that a right assumption?

It's not 100% correct. We are taking share from our direct competitors, and we are taking share from what you described as rental, i.e. the aftermarket used not buying materials at all. It's also aftermarket to some extent. So we are driving the penetration of what percent of students in every given class buys material and buys material from us through the transformation of digital. So if you have -- to put it simply, if you have a digital adoption with a faculty that actually -- who actually uses digital, your sell-through rate into that class of, say, 100 students is very high, it's 80%, 85%, 90%, right? Because the students essentially need to buy the digital material. In our case, because of Cengage Unlimited, it is also a very affordable and a very good value proposition for the students. So we are taking market share that way. But we are also taking market share with Unlimited from competitors whether that's McGraw, whether it's Pearson, whether these are smaller competitors that are not capable of investing the same amount of money into their digital platforms, we are taking market share away from them as evidenced by the NPI data that we are publishing and that the 6 largest competitors consistently contribute their information to. And as you can see from their -- our market share since the introduction of Cengage Unlimited from our direct competitors has consistently increased year-over-year.

Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Hansen for any closing comments.

Yes. Thank you all for participating in the call. We know it's been a very busy couple of weeks, and we talked to many of you in different forms and formats. We appreciate the continued engagement, and we appreciate the thoughtful questions. And for those of you who are celebrating Juneteenth, happy Juneteenth and have a good long weekend, and we hope to talk to you next week.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.