Continues to Enhance and Scale Bartleby Suite
of Services, Pivot to Digital Courseware Delivery Gains
Momentum
Significant Cost Reduction Plan to Align with
Revenue Trends and Ongoing Digital Investments
Barnes & Noble Education, Inc. (NYSE: BNED), a
leading solutions provider for the education industry, today
reported sales and earnings for the third quarter of fiscal year
2020, which ended on January 25, 2020.
Financial highlights for the third quarter 2020:
- Consolidated third quarter sales of $502.3 million decreased
8.3%, as compared to the prior year period; year to date
consolidated sales of $1,594.2 million decreased 6.2%, as compared
to the prior year period.
- Consolidated third quarter GAAP net loss of $(1.7) million,
compared to net income of $0.8 million in the prior year period;
year to date GAAP net income of $2.1 million, compared to $21.8
million in the prior year period.
- Consolidated third quarter non-GAAP Adjusted Earnings of $(0.7)
million, compared to $3.3 million in the prior year period; year to
date non-GAAP Adjusted Earnings of $7.0 million, compared to $24.9
million in the prior year period.
- Consolidated third quarter non-GAAP Adjusted EBITDA of $13.4
million, compared to $22.2 million in the prior year period; year
to date non-GAAP Adjusted EBITDA of $62.8 million, compared to
$85.3 million in the prior year period.
Operational highlights for the third quarter 2020:
- Gained approximately 50,000 and 150,000 subscribers for the
bartleby® suite of services in the Spring Rush period and fiscal
2020 year to date, respectively, including the month of
February.
- Continued to grow BNC First Day® and BNC First Day Complete
inclusive access programs, with revenue increasing 99% fiscal 2020
year to date. Market acceptance of BNC First Day Complete gaining
rapid momentum.
- Contracted for substantial new business wins as a result of the
Company’s sales and marketing execution, including growing market
acceptance of new high-value client offerings.
- Continued progress made in the development of the Company’s
next generation e-commerce platform, which is launching in fiscal
year 2021 to deliver increased high-margin general merchandise
sales.
- Significant progress in ongoing rollout of BNC Adoption &
Insights Portal (AIP), an innovative platform that provides
enhanced support for faculty and academic leadership to research,
submit and monitor course material selections, further driving
affordability and student success.
Cost Reduction Program
The Company announced today that it is implementing a
significant cost reduction program designed to streamline
operations, maximize productivity and drive profitability. Certain
elements of this plan have recently been implemented, while other
actions are planned for fiscal year 2021, which begins in May 2020.
BNED anticipates meaningful annualized cost savings from this
program, the majority of which are expected to be realized
beginning in fiscal year 2021. As a result of the personnel and
related elements of this program, BNED expects to recognize a
restructuring charge of $10 million to $15 million during the
fourth quarter of fiscal year 2020.
“Our third quarter results continue to reflect the higher
education industry’s rapid evolution to digital courseware
solutions. While this pivot presents many challenges, we are
focused on the significant opportunities such profound change gives
us, as our campus partners actively rely on us to navigate this
rapidly changing landscape,” said Michael P. Huseby, Chief
Executive Officer and Chairman, BNED. “BNED has a clear strategy in
place, and we expect the recent actions we have taken to realign
our management team and reduce our cost structure to mitigate the
impact from revenue downtrends, as we pivot to digital courseware
delivery more rapidly. We have moved beyond the proof of concept
phase for each of our key strategic initiatives and now need to
accelerate their execution. We are establishing real momentum for
our key stabilization and growth initiatives, as is evident in the
growth of our bartleby and First Day products. As previously
disclosed, our Board engaged an independent financial advisor to
assist in a review of strategic opportunities to accelerate the
execution of strategic initiatives and enhance value for BNED
shareholders. We look forward to keeping you apprised of our
continued progress as we execute on our strategic initiatives to
enhance value for both customers and shareholders.”
Third Quarter 2020 and Year to Date
Results
Results for the 13 and 39 weeks of fiscal
2020 and fiscal 2019 are as follows:
$ in millions
13 and 39 Weeks Selected Data
(unaudited)
13
Weeks
Q3 2020
13
Weeks
Q3 2019
39
Weeks 2020
39
Weeks 2019
Total Sales
$502.3
$548.0
$1,594.2
$1,700.3
Net (Loss) Income
$(1.7)
$0.8
$2.1
$21.8
Non-GAAP(1)
Adjusted EBITDA
$13.4
$22.2
$62.8
$85.3
Adjusted Earnings
$(0.7)
$3.3
$7.0
$24.9
(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 third quarter decreased
by $40.1 million, or 8.1%, as compared to the prior year period.
Comparable store sales in the Retail segment decreased 7.3% for the
quarter representing approximately $34.4 million in revenue.
Consistent with prior years, the Spring Rush period extended beyond
the quarter due to later school openings and the continued pattern
of students buying course materials later in the semester.
Factoring in the fiscal month of February, comparable store sales
at BNC decreased 5.7% on a year to date basis.
Retail non-GAAP Adjusted EBITDA for the
quarter decreased by $2.3 million to $8.1 million, as compared to
$10.5 million in the prior year period. The decrease is primarily
due to lower textbook sales, partially offset by increased margin
rates that benefitted from fewer markdowns and a greater mix of
high-margin general merchandise sales, as well as lower selling and
administrative expenses.
Wholesale Segment Results
Wholesale total sales of $67.0 million for
the quarter decreased by $11.5 million, or 14.7%, as compared to
$78.5 million in the prior year period. The decrease is primarily
due to the shift from physical textbooks to digital products,
resulting in a decrease in customer demand.
Wholesale non-GAAP Adjusted EBITDA for the
quarter was $9.9 million, as compared to $17.5 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 $6.4 million for the quarter
increased by $1.2 million, or 22.9%, as compared to $5.2 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 $1.2 million for the quarter, as compared to $1.5 million in
the prior year period. The decrease is primarily due to investments
in the development, marketing and selling of bartleby.
For the Spring Rush period, including the
fiscal month of February, bartleby gained approximately 50,000
gross subscribers, driven by in-store sales as well as increased
customer acquisition through search engine optimization (SEO).
Other
Expenses for Corporate Services, which
includes unallocated shared-service costs, such as various
corporate level expenses and other governance functions, decreased
by $1.0 million, or 16.8%, to $5.2 million for the quarter, as
compared to $6.2 million in the prior period.
Intercompany gross margin eliminations of
$(0.8) million reflected in Adjusted EBITDA, compared to $(1.0)
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 now expected to be in a range of $35 million to
$45 million. The Company expects free cash flow to be between $30
million to $40 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 Tuesday,
March 3, 2020 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
fourth quarter results on or about June 25, 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’ digital
offerings and direct to student textbook consignment rental
programs, as well as the risks associated with the impacts that
public health crises may have on the ability of our suppliers to
manufacture or source products, particularly from outside of 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
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Sales:
Product sales and other
$
453,678
$
491,989
$
1,474,448
$
1,566,007
Rental income
48,614
56,019
119,729
134,251
Total sales
502,292
548,008
1,594,177
1,700,258
Cost of sales: (a)
Product and other cost of sales
354,999
381,953
1,146,400
1,209,676
Rental cost of sales
28,758
33,102
70,635
80,259
Total cost of sales
383,757
415,055
1,217,035
1,289,935
Gross profit
118,535
132,953
377,142
410,323
Selling and administrative expenses
106,184
110,941
317,279
325,408
Depreciation and amortization expense
15,117
16,374
46,542
49,333
Impairment loss (non-cash) (a)
—
—
433
—
Restructuring and other charges (a)
205
2,500
3,240
2,500
Transaction costs (a)
—
117
—
654
Operating (loss) income
(2,971
)
3,021
9,648
32,428
Interest expense, net
1,904
2,546
5,882
7,904
(Loss) income before income taxes
(4,875
)
475
3,766
24,524
Income tax (benefit) expense
(3,182
)
(294
)
1,683
2,680
Net (loss) income
$
(1,693
)
$
769
$
2,083
$
21,844
(Loss) Income per common share:
Basic
$
(0.04
)
$
0.02
$
0.04
$
0.46
Diluted
$
(0.04
)
$
0.02
$
0.04
$
0.46
Weighted average common shares
outstanding:
Basic
48,298
47,561
47,911
47,220
Diluted
48,298
47,937
48,767
47,772
(a) For additional information, see Note
(a) - (d) in the Non-GAAP disclosure information of this Press
Release.
13 weeks ended
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Percentage of sales:
Sales:
Product sales and other
90.3
%
89.8
%
92.5
%
92.1
%
Rental income
9.7
%
10.2
%
7.5
%
7.9
%
Total sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales:
Product and other cost of sales (a)
78.2
%
77.6
%
77.8
%
77.2
%
Rental cost of sales (a)
59.2
%
59.1
%
59.0
%
59.8
%
Total cost of sales
76.4
%
75.7
%
76.3
%
75.9
%
Gross profit
23.6
%
24.3
%
23.7
%
24.1
%
Selling and administrative expenses
21.1
%
20.2
%
19.9
%
19.1
%
Depreciation and amortization expense
3.0
%
3.0
%
2.9
%
2.9
%
Impairment loss (non-cash)
—
%
—
%
—
%
—
%
Restructuring and other charges
—
%
0.5
%
0.2
%
0.1
%
Transaction costs
—
%
—
%
—
%
—
%
Operating (loss) income
(0.5
)%
0.6
%
0.7
%
2.0
%
Interest expense, net
0.4
%
0.5
%
0.4
%
0.5
%
(Loss) income before income taxes
(0.9
)%
0.1
%
0.3
%
1.5
%
Income tax (benefit) expense
(0.6
)%
(0.1
)%
0.1
%
0.2
%
Net (loss) income
(0.3
)%
0.2
%
0.2
%
1.3
%
(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)
January 25, 2020
January 26, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
9,798
$
22,049
Receivables, net
238,045
231,106
Merchandise inventories, net
530,260
579,582
Textbook rental inventories
48,474
50,577
Prepaid expenses and other current
assets
24,617
20,691
Total current assets
851,194
904,005
Property and equipment, net
101,055
109,414
Operating lease right-of-use assets
(a)
251,743
—
Intangible assets, net
179,596
208,439
Goodwill
4,700
53,982
Deferred tax assets, net
2,647
—
Other noncurrent assets
37,169
40,216
Total assets
$
1,428,104
$
1,316,056
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
389,050
$
464,933
Accrued liabilities
193,705
219,713
Current operating lease liabilities
(a)
102,247
—
Total current liabilities
685,002
684,646
Long-term deferred taxes, net
—
7,991
Long-term operating lease liabilities
(a)
169,227
—
Other long-term liabilities
50,529
58,632
Long-term borrowings
65,900
70,100
Total liabilities
970,658
821,369
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, 48,297 and 47,561 shares, respectively
521
511
Additional paid-in-capital
732,320
724,164
Accumulated deficit
(242,494
)
(198,359
)
Treasury stock, at cost
(32,901
)
(31,629
)
Total stockholders' equity
457,446
494,687
Total liabilities and stockholders'
equity
$
1,428,104
$
1,316,056
(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 39 weeks period are as follows:
Dollars in millions
13 weeks ended
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Retail Sales
New stores (a)
$
16.3
$
18.4
$
61.9
$
48.3
Closed stores (a)
(18.1
)
(23.1
)
(50.8
)
(71.7
)
Comparable stores (b)
(37.9
)
(44.7
)
(99.0
)
(101.2
)
Textbook rental deferral
0.7
4.9
3.0
8.5
Service revenue (c)
(1.4
)
(1.3
)
(3.9
)
(1.1
)
Other (d)
0.3
(3.7
)
(5.9
)
(2.9
)
Retail Sales subtotal:
$
(40.1
)
$
(49.5
)
$
(94.7
)
$
(120.1
)
Wholesale Sales:
$
(11.5
)
$
(15.3
)
$
(29.8
)
$
(23.4
)
DSS Sales
$
1.2
$
(0.3
)
$
1.2
$
5.8
Eliminations (e)
$
4.7
$
9.7
$
17.2
$
(8.2
)
Total sales variance
$
(45.7
)
$
(55.4
)
$
(106.1
)
$
(145.9
)
(a) The following is a store count summary
for physical stores and virtual stores:
13 weeks ended
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Number of Stores:
Physical Stores
Virtual Stores
Physical Stores
Virtual Stores
Physical Stores
Virtual Stores
Physical Stores
Virtual Stores
Number of stores at beginning of
period
772
664
773
677
772
676
768
676
Stores opened
5
7
1
6
45
62
35
32
Stores closed
5
7
1
3
45
74
30
28
Number of stores at end of period
772
664
773
680
772
664
773
680
(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, 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 39 week periods are as follows:
Dollars in millions
13 weeks ended
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Textbooks (Course Materials)
$
(31.2
)
(9.3
)%
$
(44.1
)
(11.7
)%
$
(85.2
)
(8.3
)%
$
(98.9
)
(8.8
)%
General Merchandise
(0.9
)
(0.7
)%
1.9
1.6
%
4.7
1.1
%
6.3
1.5
%
Trade Books
(2.3
)
(20.2
)%
(0.5
)
(4.4
)%
(4.9
)
(14.7
)%
(2.6
)
(7.3
)%
Total Comparable Store Sales
$
(34.4
)
(7.3
)%
$
(42.7
)
(8.3
)%
$
(85.4
)
(5.7
)%
$
(95.2
)
(6.0
)%
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
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Net (loss) income
$
(1,693
)
$
769
$
2,083
$
21,844
Reconciling items, after-tax (below)
945
2,539
4,928
3,085
Adjusted Earnings (Non-GAAP)
$
(748
)
$
3,308
$
7,011
$
24,929
Reconciling items, pre-tax
Impairment loss (non-cash) (a)
$
—
$
—
$
433
$
—
Content amortization (non-cash) (b)
1,064
212
2,973
360
Restructuring and other charges (c)
205
2,500
3,240
2,500
Transaction costs (d)
—
117
—
654
Reconciling items, pre-tax
1,269
2,829
6,646
3,514
Less: Pro forma income tax impact (e)
324
290
1,718
429
Reconciling items, after-tax
$
945
$
2,539
$
4,928
$
3,085
Adjusted EBITDA
13 weeks ended
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Net (loss) income
$
(1,693
)
$
769
$
2,083
$
21,844
Add:
Depreciation and amortization expense
15,117
16,374
46,542
49,333
Interest expense, net
1,904
2,546
5,882
7,904
Income tax (benefit) expense
(3,182
)
(294
)
1,683
2,680
Impairment loss (non-cash) (a)
—
—
433
—
Content amortization (non-cash) (b)
1,064
212
2,973
360
Restructuring and other charges (c)
205
2,500
3,240
2,500
Transaction costs (d)
—
117
—
654
Adjusted EBITDA (Non-GAAP)
$
13,415
$
22,224
$
62,836
$
85,275
(a) During the 39 weeks ended January 25,
2020, 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 39 weeks ended January 25,
2020, we recognized restructuring and other charges totaling
$3,240, 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
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Adjusted EBITDA (non-GAAP)
$
13,415
$
22,224
$
62,836
$
85,275
Less:
Capital expenditures (a)
7,586
8,559
26,841
31,711
Cash interest paid
1,282
1,824
5,311
7,009
Cash taxes (refund) paid
1,915
4,367
(3,962
)
7,016
Free Cash Flow (non-GAAP)
$
2,632
$
7,474
$
34,646
$
39,539
(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
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Physical store capital expenditures
$
3,005
$
1,590
$
11,122
$
14,113
Product and system development
3,224
4,686
10,668
9,896
Content development costs
989
1,801
3,222
6,026
Other
368
482
1,829
1,676
Total Capital Expenditures
$
7,586
$
8,559
$
26,841
$
31,711
BARNES & NOBLE EDUCATION,
INC. AND SUBSIDIARIES
Segment Information
(In thousands, except
percentages)
(Unaudited)
Segment Information (a)
13 weeks ended
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Sales
Retail
$
457,988
$
498,146
$
1,474,413
$
1,569,137
Wholesale
66,996
78,508
179,515
209,282
DSS
6,435
5,237
17,024
15,848
Eliminations
(29,127
)
(33,883
)
(76,775
)
(94,009
)
Total
$
502,292
$
548,008
$
1,594,177
$
1,700,258
Gross profit
Retail (b)
$
100,000
$
106,375
$
323,473
$
341,745
Wholesale
14,235
22,739
41,688
56,559
DSS (b)
6,137
5,050
16,207
15,393
Eliminations
(773
)
(999
)
(1,253
)
(3,014
)
Total
$
119,599
$
133,165
$
380,115
$
410,683
Selling and administrative expenses
Retail
$
91,860
$
95,895
$
274,253
$
281,725
Wholesale
4,312
5,281
13,664
16,284
DSS
4,987
3,575
13,715
9,741
Corporate Services
5,154
6,197
15,829
17,706
Eliminations
(129
)
(7
)
(182
)
(48
)
Total
$
106,184
$
110,941
$
317,279
$
325,408
Adjusted EBITDA (Non-GAAP) (c)
Retail
$
8,140
$
10,480
$
49,220
$
60,020
Wholesale
9,923
17,458
28,024
40,275
DSS
1,150
1,475
2,492
5,652
Corporate Services
(5,154
)
(6,197
)
(15,829
)
(17,706
)
Eliminations
(644
)
(992
)
(1,071
)
(2,966
)
Total
$
13,415
$
22,224
$
62,836
$
85,275
(a) See Explanatory Note in this Press
Release for Segment descriptions.
(b) For the 13 and 39 weeks ended January
25, 2020, the Retail Segment gross margin excludes $210 and $604,
respectively, of amortization expense (non-cash) related to content
development costs. For the 13 and 39 weeks ended January 25, 2020,
the DSS Segment gross margin excludes $854 and $2,369,
respectively, of amortization expense (non-cash) related to content
development costs.
For the 13 and 39 weeks ended January 26,
2019, the Retail Segment gross margin excludes $131 and $279,
respectively, of amortization expense (non-cash) related to content
development costs. For both the 13 and 39 weeks ended January 26,
2019, the DSS Segment gross margin excludes $81 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
39 weeks ended
January 25, 2020
January 26, 2019
January 25, 2020
January 26, 2019
Gross margin
Retail
21.8
%
21.4
%
21.9
%
21.8
%
Wholesale
21.2
%
29.0
%
23.2
%
27.0
%
DSS
95.4
%
96.4
%
95.2
%
97.1
%
Elimination
2.7
%
2.9
%
1.6
%
3.2
%
Total gross margin
23.8
%
24.3
%
23.8
%
24.2
%
Selling and administrative expenses
Retail
20.1
%
19.3
%
18.6
%
18.0
%
Wholesale
6.4
%
6.7
%
7.6
%
7.8
%
DSS
77.5
%
68.3
%
80.6
%
61.5
%
Corporate Services
N/A
N/A
N/A
N/A
Elimination
N/A
N/A
N/A
N/A
Total selling and administrative
expenses
21.1
%
20.2
%
19.9
%
19.1
%
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), the Company's Quarterly Report
on Form 10-Q for the period ended July 28, 2018 filed with the SEC
on August 27, 2019, and the Company's Quarterly Report on Form 10-Q
for the period ended October 26, 2019 filed with the SEC on
December 4, 2019.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200303005233/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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