HMH Earnings Call

February 23, 2017

Fourth Quarter and Full Year 2016

FORWARD LOOKING STATEMENTS AND

NON-GAAP MEASURES This presentation and oral statements made in connection with this presentation contain certain statements that are not historical

facts, including information regarding our intentions, beliefs or current expectations concerning, among other things, our results of

operations, including billings and net sales; financial performance, including adjusted EBITDA margin and free cash flow; financial

condition; pre-publication (or content development) costs and total capital expenditures; liquidity; EdTech integration timing and

impact; products and services, including for new adoptions; outlook for full year 2017; prospects; growth; markets and market

share; strategies, including with respect to investing in our core products and adjacent markets; efficiency and cost savings

initiatives; the industry in which we operate; our transition to a new CEO; and potential business decisions.

Those statements constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of

1995. Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual

results to differ materially from the results express in or implied by our forward-looking statements, including, but not limited to,

those identified under the caption “Forward-Looking Statements” in our news release issued on February 23, 2017 and in the

“Special Note Regarding Forward-Looking Statements” and “Risk Factors” in our most recent Annual Report on Form 10-K and

our Quarterly Reports on Form 10-Q. We undertake no obligation, and do not expect, to publicly update or publicly revise any

forward-looking statement, whether as a result of new information, future events or otherwise.

In addition, this presentation and oral statements made in connection with this presentation reference non-GAAP financial

measures, such as adjusted EBITDA and free cash flow. The use of these non-GAAP measures are limited as they include

and/or do not include certain items not included and/or included in the most directly comparable GAAP measure. A reconciliation

of non-GAAP financial measures to the most directly comparable GAAP financial measures (to the extent available without

unreasonable efforts) is provided in the appendix to this presentation and in our news release issued on February 23, 2017, which

are posted on hmhco.com under the Investor Relations section.

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Agenda

Welcome/Introductions

Business Update

Financial Overview

Questions and Answers

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Business Update

Focus on restoring growth to core business; making strategic

investments to position HMH for long-term growth and profitability

2016 net sales of $1.37 billion; billings of $1.41 billion

Met revised year-end guidance for 2016

Fourth Quarter and Full Year 2016 Highlights

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Investing in Our Core Education Products

• HMH Science Dimensions launched in October, first

comprehensive K-12 science program specifically

designed to meet NGSS

• HMH Social Studies, 6-12 launched in November

• HMH Kids Discover Social Studies launched this

month, offers K-6 solution

• New programs effectively combine print and digital assets,

including interactive tools like HMH Field Trips for Google

Expeditions

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Expanding Upon Our Core Education Strength

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Strong

opportunities

to integrate

intervention and

core programs

and products

Increase in the

percentage of

professional

services

within core

product sales

in 2016

Strong

performance with

11 consecutive

years of sales

growth in the

Heinemann

business

Curious World

receives

industry awards

and adds

original content

from celebrated

partners

Bestselling Titles in Trade

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2018 – 2019 Opportunities

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Market Opportunity Outlook

Maintain Leadership Position and Focus on Regaining Market Share

Implement Operating Efficiencies and Improvements

Focus on Growing Adjacencies that Elevate and Enhance the Core

Invest in Core K-12 Product Development

Priorities for 2017

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1

2

3

4

Financial Overview

$239 $175

$1,375 $1,189

$36 $35

$166 $221

Q4 2015 Q4 2016 FY 2015 FY 2016

$256 $200

$1,274 $1,182

$42 $42

$142 $191

Q4 2015 Q4 2016 FY 2015 FY 2016

Fourth Quarter and Full Year 2016 Highlights1

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1 Fourth quarter and Full Year ending December 31, 2016

2 An operating measure which we derive from net sales taking into account the change in deferred revenue. See calculation

of this metric in the appendix to this presentation. 3 Please see appendix for a reconciliation of non-GAAP measures.

Adjusted

EBITDA3

$ in millions

Billings2 Net Sales

Net Income (Loss)

EdTech HMH

$1,373

$1,541 $1,410

• Net sales and Billings2

decreased primarily

due to smaller new

adoption market and

domestic education

market share loss

• Adjusted EBITDA3

lower due to decrease

in net sales

$1,416

$242 $298 $275 $210

($97)

($181)

($134)

($285)

Q4 2015 Q4 2016 FY 2015 FY 2016

$16

($19)

$235

$183

Q4 2015 Q4 2016 FY 2015 FY 2016

New State Adoptions - 2014 to 2019

State 2014A 2015A 2016A 2017E 2018E 2019E

Texas

Science

Mathematics

Social Studies

Mathematics Foreign Language Reading/Language Arts

California-SA Mathematics Mathematics

Reading/Language Arts

Mathematics

Reading/Language Arts

ESL

Reading/Language Arts

ESL

Social Studies

Social Studies

Science

Florida

Reading/Language Arts

Mathematics

Reading/Language Arts

Mathematics

Reading/Language Arts

Mathematics Social Studies

Science

Social Studies Mathematics

Alabama Social Studies

Georgia Reading/Language Arts Mathematics Reading/Language Arts Science

Social Studies

Science

Social Studies

Mathematics

Tennessee Social Studies Mathematics Science Social Studies

South Carolina Reading/Language Arts Reading/Language Arts Mathematics Reading/Language Arts

Louisiana Reading/Language Arts Mathematics Reading/Language Arts

West Virginia Reading/Language Arts

Oklahoma Reading/Language Arts

New Mexico Reading/Language Arts

Oregon

Mathematics

Reading/Language Arts

Science

Mathematics

North Carolina Mathematics

Virginia Social Studies Mathematics

Reading/Language Arts

Mathematics

Mississippi Reading/Language Arts

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Source: States’ related education websites

2017 Outlook1

Billings $1,375 million to $1,455 million

Net Sales $1,325 million to $1,405 million

Content Development Spend $140 million to $160 million

Total Capital Expenditure $190 million to $220 million

Guidance

Addressable Market Flat to slightly higher than 2016, ~$2.7B

Market Share Consistent with 2016, ~ 39%

Adjusted EBITDA Margin2 3 Flat to slightly below 2016

Free Cash Flow3 Negative at mid-point of billings guidance with potential to be break-even at top end

Additional Insight

1 HMH’s expectations as of February 23, 2017. 2 Percentage of net sales. 3 Please see appendix for a reconciliation of non-GAAP measures (to the extent available without unreasonable efforts).

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Questions and Answers

Appendix

Financial Highlights

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$ in Millions Q4 FY

2015 2016 Variance % 2015 2016 Variance %

Net Sales $298 $242 (19%) $1,416 $1,373 (3%)

Change in Deferred Revenue (23) (32) 39% 124 38 (69%)

Billings1 275 210 (24%) 1,541 1,410 (8%)

Net Loss (97) (181) 87% (134) (285) 113%

Adjusted EBITDA2 16 (19) (219%) 235 183 (22%)

Cash and Short Term Investments3 432 307 (29%)

Free Cash Flow 127 90 (29%) 162 (86) (153%)

Pre-publication Costs (25) (29) 19% (104) (124) 20%

Capital Expenditures4 $(58) $(44) (23%) $(187) $(230) 23%

1 An operating measure which we derive from net sales taking into account the change in deferred revenue. See calculation of this metric in the appendix to this presentation. 2 Please see the appendix for a reconciliation of non-GAAP measures.

3 As of December 31, 2015, cash and short term investments includes cash and cash equivalents of $234.3M and short term investments of $198.1M. As of December 31, 2016,

it includes, cash and cash equivalents of $226.1M and short term investments of $80.8M. 4 Capital expenditures include pre-publication costs and property, plant and equipment expenditures.

Non-GAAP Reconciliation – Adjusted EBITDA1

1 Details may not sum to total due to rounding.

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($ in millions) Q4 FY

2015 2016 2015 2016

Net Loss $(97) $(181) $(134) $(285)

Interest Expense 10 10 32 39

Provision (Benefit) for Income Taxes 10 (81) (20) (65)

Depreciation Expense 19 21 73 80

Amortization Expense 60 60 224 218

Non-Cash Charges - Stock Compensation 3 2 12 11

Non-Cash Charges- Loss on Derivative Instrument 0 1 2 1

Non-Cash Charges- Asset Impairment Charges - 139 - 139

Purchase Accounting Adjustments 2 1 7 5

Fees Expenses or Charges for Equity Offerings, Debt or Acquisitions 7 0 26 1

Restructuring/Integration - 2 5 14

Severance, Separation Costs and Facility Closures 1 7 5 16

Loss on Extinguishment of Debt - - 3 -

Legal Settlement - - - 10

Adjusted EBITDA $16 $(19) $235 $183

Non-GAAP Reconciliation – Free Cash Flow1

1 Details may not sum to total due to rounding.

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$ in Millions Q4 FY

2015 2016 2015 2016

Net Cash Used in Operating Activities $185 $134 $348 $144

Additions to Pre-publication Costs (25) (29) (104) (124)

Additions to Property, Plant, and Equipment (33) (15) (83) (106)

Free Cash Flow $127 $90 $162 $(86)

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Billings 1

$ in millions Q4 FY

2015 2016 2015 2016

Net Sales $298 $242 Net Sales $1,416 $1,373

Change in Deferred Revenue (23) (32) Change in Deferred Revenue 124 38

Billings $275 $210 Billings $1,541 $1,410

1 Details may not sum to total due to rounding

Forward Looking Non-GAAP Reconciliations

Forward-Looking Adjusted EBITDA Margin and Free Cash Flow

Management has presented certain forward-looking statements about the Company’s expected future performance on a non-GAAP

basis, including adjusted EBITDA margin and free cash flow. Management is unable to present a quantitative reconciliation of these

forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures of net

income/loss margin and net cash provided by operating activities because management cannot reliably predict all of the necessary

components of such GAAP measures on a forward-looking basis.

The adjusted EBITDA component of adjusted EBITDA margin (which we calculate as adjusted EBITDA over net sales) is derived by

excluding and/or including certain items required to be included in/excluded from the most directly comparable GAAP financial

measure of net income/loss. The determination of the items excluded from/included in adjusted EBITDA is a matter of management

judgment and depends upon, among other things, the nature of the underlying items recognized in a given period. Historically,

management has excluded/included the following items from adjusted EBITDA (a component of adjusted EBITDA margin), and such

items may also be excluded/included in future periods and could be significant in amount.

Interest expense, tax benefit/expense, depreciation and amortization expense

Non-cash charges related to stock compensation, asset impairments and unrealized gains and losses for derivative instruments

Fees, expenses or charges related to the acquisition of other businesses, including purchase accounting adjustments, integration

costs and transaction costs

Fees, expenses or charges related to securities offerings and debt refinancings

Charges associated with restructuring and cost saving initiatives, including severance, separation and facility closure costs

Certain legal settlements or awards

Non-routine charges or gains

Our inability to present a quantitative reconciliation of adjusted EBITDA, and consequently adjusted EBITDA margin, to net

income/loss and net income/loss margin, respectively, on a forward-looking basis also prevents us from being able to present a

quantitative reconciliation of free cash flow to net cash provided by operating activities on a forward-looking basis.

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Balance Sheet ($ in Millions)

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Dec 31 2015 Dec 31 2016

Current Assets

Cash and cash equivalents $234 $226

Short-term investments 198 81

Accounts receivable less allowance for bad debts

and book returns 256 216

Inventories 171 162

Prepaid expenses and other assets 23 20

Total current assets 883 706

Property, plant, and equipment, net 150 175

Pre-publication costs, net 322 315

Royalty advances to authors, net 45 44

Goodwill 783 783

Other intangible assets, net 913 686

Deferred income taxes 4 3

Other assets 23 20

Total assets $3,122 $2,731

Dec 31 2015 Dec 31 2016

Current Liabilities

Current portion of long-term debt $8 $8

Accounts payable 94 76

Royalties payable 86 72

Salaries, wages, and commissions payable 45 41

Deferred revenue 231 273

Interest payable 0 0

Severance and other charges 5 9

Accrued postretirement benefits 2 2

Other liabilities 35 24

Total current liabilities 507 505

Long-term debt, net of discount and issuance costs 769 765

Long-term deferred revenue 441 437

Accrued pension benefits 24 29

Accrued postretirement benefits 24 22

Deferred income taxes 140 71

Other liabilities 20 22

Total liabilities 1,924 1,851

Stockholder's Equity

Common stock 1 1

Treasury stock (463) (518)

Capital in excess of par value 4,833 4,868

Retained earnings (accumulated deficit) (3,134) (3,418)

Accumulated other comprehensive income (loss) (40) (53)

Total stockholder's equity (deficit) 1,198 880

Total liability and stockholder's equity $3,122 $2,731

Income Statement ($ in Millions)

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Q4 FY

2015 2016 2015 2016

Net Sales $298 $242 $1,416 $1,373

Costs and expenses

Cost of sales, excluding publishing right and pre-publication amortization 138 126 623 611

Publishing rights amortization 19 15 81 61

Pre-publication amortization 34 37 121 130

Cost of sales 191 177 824 802

Selling and administrative (related parties of $10,489 for FY 2015) 176 161 681 700

Impairment charge for intangible assets - 139 - 139

Other intangible asset amortization 7 9 22 27 Severance and other charges 1 7 5 16

Operating Income (Loss) (77) (251) (116) (311)

Other Income (Expense)

Interest expense (10) (10) (32) (39)

Change in fair value of derivative instruments (0) (1) (2) (1)

Loss on extinguishment of debt - - (3) -

Income (Loss) before taxes (87) (262) (154) (350)

Income tax expense (benefit) 10 (81) (20) (65)

Net Income (Loss) (97) (181) (134) (285)

Statement of Cash Flows ($ in Millions)

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Twelve Months Ended

Dec 31 2015 Dec 31 2016

Cash flows from investing activities

Purchases of short-term investments $(199) $(81)

Proceeds from sales and maturities of

short-term investments 287 198

Additions to pre-publication costs (104) (124)

Additions to property, plant, and equipment (83) (106)

Acquisition of business, net of cash acquired (578) -

Investment in preferred stock - (1)

Net cash used in investing activities (677) (114)

Cash flows from financing activities

Proceeds from term loan, net of discount 796 -

Payments of long-term debt (247) (8)

Payments of deferred financing fees (15) -

Tax withholding payments related to net share

settlements of restricted stock units (1) (2)

Proceeds from stock option exercises 36 25

Repurchases of common stock (related parties

of $193,493 in 2015) (463) (55)

Issuance of common stock under employee

stock purchase plan - 2

Net cash provided by (used in) financing

activities 106 (38)

Cash and cash equivalents at beginning of

period 457 234

Net decrease in cash and cash equivalents (222) (8)

Cash and cash equivalents at end of period $234 $226

Twelve Months Ended

Dec 31 2015 Dec 31 2016

Cash flows from operating activities

Net Loss $(134) $(285)

Adjustments to reconcile net loss to net cash provided by operating

activities

Depreciation and amortization expense 297 298

Amortization of debt discount and deferred financing costs 7 4

Deferred income taxes 48 (68)

Stock-based compensation expense 12 11

Loss on extinguishment of debt 3 0

Impairment charge for intangible assets 0 139

Change in fair value of derivative instruments 2 1

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable 31 40

Inventories 26 9

Other Assets (3) 7

Accounts payable and accrued expenses 13 (24)

Royalties, net 6 (13)

Deferred revenue 124 38

Interest payable 0 0

Severance and other charges (4) 4

Accrued pension and postretirement benefits (5) 4

Other liabilities (78) (21)

Net cash provided by operating activities $348 $144