Digital Transformation Building Momentum with
Solid Subscriber Growth for bartleby® Suite of Services
Board of Directors Approves Engagement of
Financial Advisor to Assist in Review of Strategic Opportunities to
Accelerate Execution of Customer-Focused Initiatives and Enhance
Shareholder Value
Barnes & Noble Education, Inc. (NYSE:BNED), a leading
solutions provider for the education industry, today reported sales
and earnings for the second quarter of fiscal year 2020, which
ended on October 26, 2019.
Financial highlights for the second quarter 2020:
- Consolidated second quarter sales of $772.2 million decreased
5.2%, as compared to the prior year period; year to date
consolidated sales of $1,091.9 million decreased 5.2%, as compared
to the prior year period.
- Consolidated second quarter GAAP net income of $35.9 million,
compared to net income of $59.7 million in the prior year period;
year to date GAAP net income of $3.8 million, compared to $21.1
million in the prior year period.
- Consolidated second quarter non-GAAP Adjusted Earnings of $37.8
million, compared to $60.2 million in the prior year period; year
to date non-GAAP Adjusted Earnings of $7.8 million, compared to
$21.6 million in the prior year period.
- Consolidated second quarter non-GAAP Adjusted EBITDA of $74.5
million, compared to $95.5 million in the prior year period; year
to date non-GAAP Adjusted EBITDA of $49.4 million, compared to
$63.1 million in the prior year period.
Operational highlights for the second quarter 2020:
- Gained 100,000 subscribers for the bartleby® suite of services
year to date, including the month of November.
- Continued to enhance bartleby learn™, growing the number of
step-by-step solutions available in the content library to more
than two million.
- Announced new agreement with VitalSource®, part of Ingram
Content Group. Under the agreement, VitalSource’s technology will
power the BNC FirstDay™ inclusive access platform, bringing
together VitalSource’s advanced technology and the unparalleled
campus and publisher relationships of Barnes & Noble College
(BNC).
- Continued growth of FirstDay inclusive access program, with
revenue increasing by 93% year over year.
- Drove new business wins as a result of the Company’s unified
and expanded sales team and dynamic, new go-to-market
strategy.
- Continued improvements in the general merchandise business,
including successfully expanding the Company’s online product
assortment through drop ship capabilities. The Company also made
continued progress on its next generation e-commerce platform,
which is expected to launch in fiscal year 2021.
- Completed additional implementations of BNC Adoption &
Insights Portal, an innovative platform that allows faculty and
academic leadership to research, submit and monitor course material
selections, further driving affordability and student success.
Strategic Review
BNED also announced today that its Board recently approved the
engagement of a financial advisor to assist in a review of
strategic opportunities to accelerate the execution of
customer-focused strategic initiatives and enhance value for BNED
shareholders, including, but not limited to, continued execution of
the Company’s current business plan, new partnerships, joint
ventures and other potential opportunities.
“Our teams continued to execute on our strategic priorities in
the first half of fiscal 2020. We succeeded in scaling our bartleby
suite of services, enhancing and scaling our FirstDay platform,
strengthening our general merchandise business and further growing
our physical and virtual store footprint. Despite the rapidly
changing nature of the industry and the current downward pressure
on our operating results, we have been able to maintain a strong
financial position by being diligent in our allocation of capital
and cost management,” said Michael P. Huseby, Chief Executive
Officer and Chairman, BNED. “Over the last two years, we have made
significant strides in our ongoing efforts to position BNED for the
future by rapidly transforming to digital products, services and
delivery. Consistent with our commitment to enhance value for
shareholders, and in response to a number of unsolicited inquiries,
the BNED Board of Directors has approved the engagement of a
financial advisor to assist with the evaluation of a range of
potential strategic opportunities. This review will help position
BNED to be able to deliver more immediate benefits for the
institutions and students we serve, and allow for the exploration
of all strategic paths to enhance shareholder value.”
Second Quarter 2020 and Year to Date Results Results for
the 13 and 26 weeks of fiscal 2020 and fiscal 2019 are as
follows:
$ in millions
13 and 26 Weeks Selected Data
(unaudited)
13
Weeks Q2 2020
13
Weeks Q2 2019
26
Weeks 2020
26
Weeks 2019
Total Sales
$
772.2
$
814.8
$
1,091.9
$
1,152.3
Net Income
$
35.9
$
59.7
$
3.8
$
21.1
Non-GAAP(1)
Adjusted EBITDA
$
74.5
$
95.5
$
49.4
$
63.1
Adjusted Earnings
$
37.8
$
60.2
$
7.8
$
21.6
(1) These non-GAAP financial measures have
been reconciled in the attached schedules to the most directly
comparable GAAP measures as required under SEC rules regarding the
use of non-GAAP financial measures.
The Company has three reportable segments: Retail, Wholesale and
Digital Student Solutions (DSS). Unallocated shared-service costs,
which include various corporate level expenses and other governance
functions, continue to be presented as Corporate Services. All
material intercompany accounts and transactions have been
eliminated in consolidation.
Retail Segment Results
Retail sales in the second quarter decreased
by $42.1 million, or 5.4%, as compared to the prior year period.
Comparable store sales in the Retail segment decreased 5.9% for the
quarter representing approximately $45.5 million in revenue.
General merchandise sales decreased 0.1% for the quarter, primarily
due to increased promotions.
Retail non-GAAP Adjusted EBITDA for the
quarter decreased by $15.6 million to $62.6 million, as compared to
$78.2 million in the prior year period. The decrease is primarily
due to lower textbook sales, a shift to lower margin digital
products and lower margin rates due to higher markdowns, partially
offset by lower selling and administrative expenses.
Wholesale Segment Results
Wholesale total sales of $40.2 million for
the quarter decreased by $0.6 million, or 1.5%, as compared to
$40.8 million in the prior year period. The decrease is primarily
due to a decrease in supply and a decrease in customer demand,
including the Company’s Retail segment.
Wholesale non-GAAP Adjusted EBITDA for the
quarter was $7.9 million, as compared to $8.9 million in the prior
year period. This decrease was primarily driven by lower sales and
lower gross margins, partially offset by lower selling and
administrative expenses.
DSS Segment Results
DSS sales of $5.2 million for the quarter
increased by $0.3 million, or 5.7%, as compared to $4.9 million in
the prior year period. The increase is primarily due to an increase
in sales of bartleby subscriptions.
DSS non-GAAP Adjusted EBITDA was $0.3 million
for the quarter, as compared to $1.4 million in the prior year
period. The decrease is primarily due to higher content
amortization costs and investments in the development, marketing
and selling of bartleby.
Other
Expenses for Corporate Services, which
includes unallocated shared-service costs, such as various
corporate level expenses and other governance functions, were $5.7
million for the quarter as compared to $6.0 million in the prior
period.
Intercompany gross margin eliminations of
$9.3 million reflected in Adjusted EBITDA, compared to $13.0
million in the prior year period, are lower due to a decrease in
inter-segment sales from Wholesale to Retail.
Outlook
For fiscal year 2020, the Company expects consolidated Adjusted
EBITDA to be between $80 million to $85 million. Capital
expenditures are expected to be in a range of $40 million to $50
million. The Company expects free cash flow to be between $25
million to $35 million, as compared to $39.7 million in fiscal year
2019. The Company defines free cash flow as Adjusted EBITDA less
capital expenditures, cash interest and cash taxes.
Conference Call
A conference call with Barnes & Noble Education, Inc. senior
management will be webcast at 10:00 a.m. Eastern Time on Wednesday,
December 4, 2019 and can be accessed at the Barnes & Noble
Education corporate website at investor.bned.com or
www.bned.com.
Barnes & Noble Education expects to report fiscal 2020 third
quarter results on or about March 3, 2020.
ABOUT BARNES & NOBLE EDUCATION, INC.
Barnes & Noble Education, Inc. (NYSE:BNED) is a
leading solutions provider for the education industry, driving
affordability, access and achievement at hundreds of academic
institutions nationwide and ensuring millions of students are
equipped for success in the classroom and beyond. Through its
family of brands, BNED offers campus retail services and academic
solutions, a digital direct-to-student learning ecosystem,
wholesale capabilities and more. BNED is a company serving all who
work to elevate their lives through education, supporting students,
faculty and institutions as they make tomorrow a better, more
inclusive and smarter world. For more information, visit
www.bned.com.
Forward-Looking Statements
This press release contains certain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995 and information relating to us and our business that are
based on the beliefs of our management as well as assumptions made
by and information currently available to our management. When used
in this communication, the words “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,”
“projections,” and similar expressions, as they relate to us or our
management, identify forward-looking statements. Moreover, we
operate in a very competitive and rapidly changing environment. New
risks emerge from time to time. It is not possible for our
management to predict all risks, nor can we assess the impact of
all factors on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements
we may make. In light of these risks, uncertainties and
assumptions, the future events and trends discussed in this press
release may not occur and actual results could differ materially
and adversely from those anticipated or implied in the
forward-looking statements. Such statements reflect our current
views with respect to future events, the outcome of which is
subject to certain risks, including, among others: general
competitive conditions, including actions our competitors and
content providers may take to grow their businesses; a decline in
college enrollment or decreased funding available for students;
decisions by colleges and universities to outsource their physical
and/or online bookstore operations or change the operation of their
bookstores; implementation of our digital strategy may not result
in the expected growth in our digital sales and/or profitability;
risk that digital sales growth does not exceed the rate of
investment spend; the performance of our online, digital and other
initiatives, integration of and deployment of, additional products
and services including new digital channels, and enhancements to
higher education digital products, and the inability to achieve the
expected cost savings; the risk of price reduction or change in
format of course materials by publishers, which could negatively
impact revenues and margin; the general economic environment and
consumer spending patterns; decreased consumer demand for our
products, low growth or declining sales; the strategic objectives,
successful integration, anticipated synergies, and/or other
expected potential benefits of various acquisitions may not be
fully realized or may take longer than expected; the integration of
the operations of various acquisitions into our own may also
increase the risk of our internal controls being found ineffective;
changes to purchase or rental terms, payment terms, return
policies, the discount or margin on products or other terms with
our suppliers; our ability to successfully implement our strategic
initiatives including our ability to identify, compete for and
execute upon additional acquisitions and strategic investments;
risks associated with operation or performance of MBS Textbook
Exchange, LLC’s point-of-sales systems that are sold to college
bookstore customers; technological changes; risks associated with
counterfeit and piracy of digital and print materials; our
international operations could result in additional risks; our
ability to attract and retain employees; risks associated with data
privacy, information security and intellectual property; trends and
challenges to our business and in the locations in which we have
stores; non-renewal of managed bookstore, physical and/or online
store contracts and higher-than-anticipated store closings;
disruptions to our information technology systems, infrastructure
and data due to computer malware, viruses, hacking and phishing
attacks, resulting in harm to our business and results of
operations; disruption of or interference with third party web
service providers and our own proprietary technology; work
stoppages or increases in labor costs; possible increases in
shipping rates or interruptions in shipping service; product
shortages, including decreases in the used textbook inventory
supply associated with the implementation of publishers’ direct to
student textbook consignment rental programs, as well as risks
associated with merchandise sourced indirectly from outside the
United States; changes in domestic and international laws or
regulations, including U.S. tax reform, changes in tax rates, laws
and regulations, as well as related guidance; enactment of laws or
changes in enforcement practices which may restrict or prohibit our
use of texts, emails, interest based online advertising, recurring
billing or similar marketing and sales activities; the amount of
our indebtedness and ability to comply with covenants applicable to
any future debt financing; our ability to satisfy future capital
and liquidity requirements; our ability to access the credit and
capital markets at the times and in the amounts needed and on
acceptable terms; adverse results from litigation, governmental
investigations, tax-related proceedings, or audits; changes in
accounting standards; and the other risks and uncertainties
detailed in the section titled “Risk Factors” in Part I - Item 1A
in our Annual Report on Form 10-K for the year ended April 27,
2019. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect,
actual results or outcomes may vary materially from those described
as anticipated, believed, estimated, expected, intended or planned.
Subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements in this paragraph. We
undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise after the date of this press
release.
EXPLANATORY NOTE
We have three reportable segments: Retail, Wholesale and DSS as
follows:
- The Retail Segment operates 1,436 college, university, and K-12
school bookstores, comprised of 772 physical bookstores and 664
virtual bookstores. Our bookstores typically operate under
agreements with the college, university, or K-12 schools to be the
official bookstore and the exclusive seller of course materials and
supplies, including physical and digital products. The majority of
the physical campus bookstores have school-branded e-commerce sites
which we operate and which offer students access to affordable
course materials and affinity products, including emblematic
apparel and gifts. The Retail Segment also offers inclusive access
programs, in which course materials, including e-content, are
offered at a reduced price through a course materials fee, and
delivered to students on or before the first day of class.
Additionally, the Retail Segment offers a suite of digital content
and services to colleges and universities, including a variety of
open educational resource-based courseware.
- The Wholesale Segment is comprised of our wholesale textbook
business and is one of the largest textbook wholesalers in the
country. The Wholesale Segment centrally sources, sells, and
distributes new and used textbooks to approximately 3,500 physical
bookstores (including our Retail Segment's 772 physical bookstores)
and sources and distributes new and used textbooks to our 664
virtual bookstores. Additionally, the Wholesale Segment sells
hardware and a software suite of applications that provides
inventory management and point-of-sale solutions to approximately
400 college bookstores.
- The Digital Student Solutions ("DSS") Segment includes
direct-to-student products and services to assist students to study
more effectively and improve academic performance. The DSS Segment
is comprised of the operations of Student Brands, LLC, a leading
direct-to-student subscription-based writing services business, and
bartleby®, a direct-to-student subscription-based offering
providing textbook solutions, expert questions and answers,
tutoring and test prep services.
Corporate Services represents unallocated shared-service costs
which include corporate level expenses and other governance
functions, including executive functions, such as accounting,
legal, treasury, information technology, and human resources.
All material intercompany accounts and transactions have been
eliminated in consolidation.
BARNES & NOBLE EDUCATION,
INC. AND SUBSIDIARIES
Condensed Consolidated
Statements of Operations
(In thousands, except per
share data)
(Unaudited)
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Sales:
Product sales and other
$
718,543
$
756,173
$
1,020,770
$
1,074,018
Rental income
53,685
58,593
71,115
78,232
Total sales
772,228
814,766
1,091,885
1,152,250
Cost of sales: (a)
Product and other cost of sales
553,070
568,971
791,401
827,723
Rental cost of sales
32,208
35,035
41,877
47,157
Total cost of sales
585,278
604,006
833,278
874,880
Gross profit
186,950
210,760
258,607
277,370
Selling and administrative expenses
113,404
115,323
211,095
214,467
Depreciation and amortization expense
15,546
16,421
31,425
32,959
Impairment loss (non-cash) (a)
—
—
433
—
Restructuring and other charges (a)
1,569
—
3,035
—
Transaction costs (a)
—
537
—
537
Operating income
56,431
78,479
12,619
29,407
Interest expense, net
1,446
1,836
3,978
5,358
Income before income taxes
54,985
76,643
8,641
24,049
Income tax expense
19,054
16,946
4,865
2,974
Net income
$
35,931
$
59,697
$
3,776
$
21,075
Income per common share:
Basic
$
0.75
$
1.26
$
0.08
$
0.45
Diluted
$
0.74
$
1.25
$
0.08
$
0.44
Weighted average common shares
outstanding:
Basic
47,853
47,184
47,717
47,050
Diluted
48,758
47,824
48,412
47,689
(a) For additional information, see Note
(a) - (d) in the Non-GAAP disclosure information of this Press
Release.
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Percentage of sales:
Sales:
Product sales and other
93.0%
92.8%
93.5%
93.2%
Rental income
7.0%
7.2%
6.5%
6.8%
Total sales
100.0%
100.0%
100.0%
100.0%
Cost of sales:
Product and other cost of sales (a)
77.0%
75.2%
77.5%
77.1%
Rental cost of sales (a)
60.0%
59.8%
58.9%
60.3%
Total cost of sales
75.8%
74.1%
76.3%
75.9%
Gross profit
24.2%
25.9%
23.7%
24.1%
Selling and administrative expenses
14.7%
14.2%
19.3%
18.6%
Depreciation and amortization expense
2.0%
2.0%
2.9%
2.9%
Impairment loss (non-cash)
—%
—%
—%
—%
Restructuring and other charges
0.2%
—%
0.3%
—%
Transaction costs
—%
—%
—%
—%
Operating income
7.3%
9.6%
1.2%
2.6%
Interest expense, net
0.2%
0.2%
0.4%
0.5%
Income before income taxes
7.1%
9.4%
0.8%
2.1%
Income tax expense
2.5%
2.1%
0.4%
0.3%
Net income
4.6%
7.3%
0.4%
1.8%
(a) Represents the percentage these costs
bear to the related sales, instead of total sales.
BARNES & NOBLE EDUCATION,
INC. AND SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(In thousands, except per
share data)
(Unaudited)
October 26, 2019
October 27, 2018
ASSETS
Current assets:
Cash and cash equivalents
$
24,594
$
20,048
Receivables, net
162,538
138,048
Merchandise inventories, net
475,422
505,943
Textbook rental inventories
68,167
70,599
Prepaid expenses and other current
assets
18,494
16,554
Total current assets
749,215
751,192
Property and equipment, net
105,156
112,029
Operating lease right-of-use assets
(a)
289,722
—
Intangible assets, net
184,188
213,886
Goodwill
4,700
53,982
Deferred tax assets, net
8,039
—
Other noncurrent assets
39,235
41,632
Total assets
$
1,380,255
$
1,172,721
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
387,704
$
443,319
Accrued liabilities
197,220
170,037
Current operating lease liabilities
(a)
107,721
—
Total current liabilities
692,645
613,356
Long-term deferred taxes, net
—
7,906
Long-term operating lease liabilities
(a)
179,613
—
Other long-term liabilities
50,677
59,419
Total liabilities
922,935
680,681
Commitments and contingencies
—
—
Stockholders' equity:
Preferred stock, $0.01 par value;
authorized, 5,000 shares; issued and outstanding, none
—
—
Common stock, $0.01 par value; authorized,
200,000 shares; issued, 52,139 and 51,026 shares, respectively;
outstanding, 48,298 and 47,561 shares, respectively
521
511
Additional paid-in-capital
730,501
722,286
Accumulated deficit
(240,801)
(199,128)
Treasury stock, at cost
(32,901)
(31,629)
Total stockholders' equity
457,320
492,040
Total liabilities and stockholders'
equity
$
1,380,255
$
1,172,721
(a) We adopted ASC 842 Leases accounting
guidance effective April 28, 2019 which requires that we recognize
a right-of-use asset and lease liability for leases with a term
greater than twelve months.
BARNES & NOBLE EDUCATION,
INC. AND SUBSIDIARIES
Sales Information
(Unaudited)
Total Sales
The components of the sales variances for
the 13 and 26 weeks period are as follows:
Dollars in millions
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Retail Sales
New stores (a)
$
39.3
$
22.5
$
46.7
$
30.3
Closed stores (a)
(24.5)
(39.6)
(32.9)
(48.6)
Comparable stores (b)
(45.5)
(46.8)
(52.3)
(53.0)
Textbook rental deferral
1.5
3.8
2.3
3.6
Service revenue (c)
(2.0)
(0.8)
(2.5)
(0.9)
Other (d)
(10.9)
0.2
(15.9)
(2.3)
Retail Sales subtotal:
$
(42.1)
$
(60.7)
$
(54.6)
$
(70.9)
Wholesale Sales:
$
(0.6)
$
(6.7)
$
(18.3)
$
(9.2)
DSS Sales
$
0.3
$
0.4
$
—
$
6.1
Eliminations (e)
$
(0.1)
$
(5.1)
$
12.5
$
(16.3)
Total sales variance
$
(42.5)
$
(72.1)
$
(60.4)
$
(90.3)
(a) The following is a store count summary
for physical stores and virtual stores:
Number of Stores:
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Physical Stores
Virtual Stores
Physical Stores
Virtual Stores
Physical Stores
Virtual Stores
Physical Stores
Virtual Stores
Number of stores at beginning of
period
777
714
753
684
772
676
768
676
Stores opened
2
9
21
9
40
55
34
26
Stores closed
7
59
1
16
40
67
29
25
Number of stores at end of period
772
664
773
677
772
664
773
677
(b) For Comparable Store Sales details,
see below.
(c) Service revenue includes brand
partnerships, shipping and handling, digital content, software,
services, and revenue from other programs.
(d) Other includes inventory liquidation
sales to third parties, marketplace sales and certain accounting
adjusting items related to return reserves, agency sales and other
deferred items.
(e) Eliminates Wholesale sales and service
fees to Retail and Retail commissions earned from Wholesale.
Comparable Sales - Retail
Segment
Comparable store sales variances by
category for the 13 and 26 week periods are as follows:
Dollars in millions
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Textbooks (Course Materials)
$
(43.9)
(7.7)%
$
(49.4)
(8.0)%
$
(55.4)
(8.0)%
$
(55.2)
(7.4)%
General Merchandise
(0.2)
(0.1)%
3.2
1.8%
5.7
1.9%
4.4
1.5%
Trade Books
(1.4)
(12.1)%
(0.6)
(4.7)%
(2.6)
(11.9)%
(2.2)
(8.8)%
Total Comparable Store Sales
$
(45.5)
(5.9)%
$
(46.8)
(5.8)%
$
(52.3)
(5.1)%
$
(53.0)
(5.0)%
Comparable store sales includes sales from physical stores that
have been open for an entire fiscal year period and virtual store
sales for the period, does not include sales from closed stores for
all periods presented, and digital agency sales are included on a
gross basis. We believe the current comparable store sales
calculation method reflects the manner in which management views
comparable sales, as well as the seasonal nature of our
business.
BARNES & NOBLE EDUCATION,
INC. AND SUBSIDIARIES
Consolidated Non-GAAP
Information
(In thousands)
(Unaudited)
Adjusted Earnings
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Net income
$
35,931
$
59,697
$
3,776
$
21,075
Reconciling items, after-tax (below)
1,903
513
3,983
546
Adjusted Earnings (Non-GAAP)
$
37,834
$
60,210
$
7,759
$
21,621
Reconciling items, pre-tax
Impairment loss (non-cash) (a)
$
—
$
—
$
433
$
—
Content amortization (non-cash) (b)
998
104
1,909
148
Restructuring and other charges (c)
1,569
—
3,035
—
Transaction costs (d)
—
537
—
537
Reconciling items, pre-tax
2,567
641
5,377
685
Less: Pro forma income tax impact (e)
664
128
1,394
139
Reconciling items, after-tax
$
1,903
$
513
$
3,983
$
546
Adjusted EBITDA
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Net income
$
35,931
$
59,697
$
3,776
$
21,075
Add:
Depreciation and amortization expense
15,546
16,421
31,425
32,959
Interest expense, net
1,446
1,836
3,978
5,358
Income tax expense
19,054
16,946
4,865
2,974
Impairment loss (non-cash) (a)
—
—
433
—
Content amortization (non-cash) (b)
998
104
1,909
148
Restructuring and other charges (c)
1,569
—
3,035
—
Transaction costs (d)
—
537
—
537
Adjusted EBITDA (Non-GAAP)
$
74,544
$
95,541
$
49,421
$
63,051
(a) During the 26 weeks ended October 26,
2019, we recognized an impairment loss (non-cash) of $433 in the
Retail Segment related to net capitalized development costs for a
project which are not recoverable.
(b) Represents amortization of content
development costs (non-cash) recorded in cost of goods sold in the
consolidated financial statements.
(c) During the 26 weeks ended October 26,
2019, we recognized restructuring and other charges totaling
$3,035, comprised primarily of severance and other employee
termination and benefit costs associated with several management
changes and the elimination of various positions as part of cost
reduction objectives, and professional service costs for
restructuring, process improvements, and shareholder activist
activities.
(d) Transaction costs are costs incurred
for business development and acquisitions.
(e) Represents the income tax effects of
the non-GAAP items.
BARNES & NOBLE EDUCATION,
INC. AND SUBSIDIARIES
Consolidated Non-GAAP
Information
(In thousands)
(Unaudited)
Free Cash Flow (non-GAAP)
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Adjusted EBITDA (non-GAAP)
$
74,544
$
95,541
$
49,421
$
63,051
Less:
Capital expenditures (a)
10,946
14,912
19,255
23,152
Cash interest paid
2,419
2,271
4,029
5,185
Cash taxes (refund) paid
721
1,272
(5,877)
2,649
Free Cash Flow (non-GAAP)
$
60,458
$
77,086
$
32,014
$
32,065
(a) Purchases of property and equipment
are also referred to as capital expenditures. Our investing
activities consist principally of capital expenditures for
contractual capital investments associated with renewing existing
contracts, new store construction, digital initiatives and
enhancements to internal systems and our website. The following
table provides the components of total purchases of property and
equipment:
Capital Expenditures
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Physical store capital expenditures
$
4,599
$
8,314
$
8,117
$
12,523
Product and system development
4,102
3,190
7,444
5,210
Content development costs
1,548
2,501
2,233
4,225
Other
697
907
1,461
1,194
Total Capital Expenditures
$
10,946
$
14,912
$
19,255
$
23,152
BARNES & NOBLE EDUCATION,
INC. AND SUBSIDIARIES
Segment Information
(In thousands, except
percentages)
(Unaudited)
Segment Information (a)
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Sales
Retail
$
741,769
$
783,906
$
1,016,425
$
1,070,991
Wholesale
40,210
40,830
112,519
130,774
DSS
5,215
4,934
10,589
10,611
Eliminations
(14,966)
(14,904)
(47,648)
(60,126)
Total
$
772,228
$
814,766
$
1,091,885
$
1,152,250
Gross profit
Retail (b)
$
161,150
$
178,805
$
223,473
$
235,370
Wholesale
12,535
14,275
27,453
33,820
DSS (b)
4,929
4,789
10,070
10,343
Eliminations
9,334
12,995
(480)
(2,015)
Total
$
187,948
$
210,864
$
260,516
$
277,518
Selling and administrative expenses
Retail
$
98,578
$
100,595
$
182,393
$
185,830
Wholesale
4,593
5,364
9,352
11,003
DSS
4,615
3,387
8,728
6,166
Corporate Services
5,668
6,016
10,675
11,509
Eliminations
(50)
(39)
(53)
(41)
Total
$
113,404
$
115,323
$
211,095
$
214,467
Adjusted EBITDA (Non-GAAP) (c)
Retail
$
62,572
$
78,210
$
41,080
$
49,540
Wholesale
7,942
8,911
18,101
22,817
DSS
314
1,402
1,342
4,177
Corporate Services
(5,668)
(6,016)
(10,675)
(11,509)
Eliminations
9,384
13,034
(427)
(1,974)
Total
$
74,544
$
95,541
$
49,421
$
63,051
(a) See Explanatory Note in this Press
Release for Segment descriptions.
(b) For the 13 and 26 weeks ended October
26, 2019, the Retail Segment gross margin excludes $210 and $394,
respectively, of amortization expense (non-cash) related to content
development costs. For the 13 and 26 weeks ended October 26, 2019,
the DSS Segment gross margin excludes $788 and $1,515,
respectively, of amortization expense (non-cash) related to content
development costs.
For the 13 and 26 weeks ended October 27,
2018, the Retail Segment gross margin excludes $104 and $148,
respectively, of amortization expense (non-cash) related to content
development costs.
(c) For additional information, see "Use
of Non-GAAP Financial Information" in the Non-GAAP disclosure
information of this Press Release.
Percentage of Segment Sales
13 weeks ended
26 weeks ended
October 26, 2019
October 27, 2018
October 26, 2019
October 27, 2018
Gross margin
Retail
21.7%
22.8%
22.0%
22.0%
Wholesale
31.2%
35.0%
24.4%
25.9%
DSS
94.5%
97.1%
95.1%
97.5%
Elimination
(62.4)%
(108.4)%
1.0%
3.4%
Total gross margin
24.3%
25.9%
23.9%
24.1%
Selling and administrative expenses
Retail
13.3%
12.8%
17.9%
17.4%
Wholesale
11.4%
13.1%
8.3%
8.4%
DSS
88.5%
68.6%
82.4%
58.1%
Corporate Services
N/A
N/A
N/A
N/A
Elimination
N/A
N/A
N/A
N/A
Total selling and administrative
expenses
14.7%
14.2%
19.3%
18.6%
Use of Non-GAAP Financial Information - Adjusted Earnings,
Adjusted EBITDA and Free Cash Flow
To supplement the Company’s consolidated financial statements
presented in accordance with generally accepted accounting
principles (“GAAP”), in the Press Release attached hereto as
Exhibit 99.1, the Company uses the non-GAAP financial measures of
Adjusted Earnings (defined as net income adjusted for certain
reconciling items), Adjusted EBITDA (defined by the Company as
earnings before interest, taxes, depreciation and amortization, as
adjusted for additional items subtracted from or added to net
income) and Free Cash Flow (defined by the Company as Adjusted
EBITDA less capital expenditures, cash interest and cash
taxes).
These non-GAAP financial measures are not intended as
substitutes for and should not be considered superior to measures
of financial performance prepared in accordance with GAAP. In
addition, the Company's use of these non-GAAP financial measures
may be different from similarly named measures used by other
companies, limiting their usefulness for comparison purposes.
The Company's management reviews these non-GAAP financial
measures as internal measures to evaluate the Company's performance
and manage the Company's operations. The Company's management
believes that these measures are useful performance measures which
are used by the Company to facilitate a comparison of on-going
operating performance on a consistent basis from period-to-period.
The Company's management believes that these non-GAAP financial
measures provide for a more complete understanding of factors and
trends affecting the Company's business than measures under GAAP
can provide alone, as it excludes certain items that do not reflect
the ordinary earnings of its operations. The Company's Board of
Directors and management also use Adjusted EBITDA as one of the
primary methods for planning and forecasting overall expected
performance, for evaluating on a quarterly and annual basis actual
results against such expectations, and as a measure for performance
incentive plans. The Company's management believes that the
inclusion of Adjusted EBITDA and Adjusted Earnings results provides
investors useful and important information regarding the Company's
operating results. The Company believes that Free Cash Flow
provides useful additional information concerning cash flow
available to meet future debt service obligations and working
capital requirements and assists investors in their understanding
of the Company’s operating profitability and liquidity as the
Company manages to the business to maximize margin and
cashflow.
The non-GAAP measures included in the Press Release attached
hereto as Exhibit 99.1 has been reconciled to the comparable GAAP
measures as required under Securities and Exchange Commission (the
“SEC”) rules regarding the use of non-GAAP financial measures. All
of the items included in the reconciliations below are either (i)
non-cash items or (ii) items that management does not consider in
assessing the Company's on-going operating performance. The Company
urges investors to carefully review the GAAP financial information
included as part of the Company’s Form 10-K dated April 27, 2019
filed with the SEC on June 25, 2019, which includes consolidated
financial statements for each of the three years for the period
ended April 27, 2019 (Fiscal 2019, Fiscal 2018, and Fiscal 2017)
and the Company's Quarterly Report on Form 10-Q for the period
ended July 28, 2018 filed with the SEC on August 27, 2019
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191204005163/en/
Media: Carolyn J. Brown
Senior Vice President Corporate Communications and Public Affairs
Barnes & Noble Education, Inc. (908) 991-2967
cbrown@bned.com
Investors: Thomas D. Donohue
Executive Vice President Chief Financial Officer Barnes & Noble
Education, Inc. (908) 991-2966 tdonohue@bned.com
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