BARNES & NOBLE EDUCATION, INC. | ||||
(Exact name of registrant as specified in its charter) | ||||
Delaware | 1-37499 | 46-0599018 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
120 Mountain View Blvd., Basking Ridge, NJ | 07920 | |||
(Address of principal executive offices) | (Zip Code) | |||
Registrant’s telephone number, including area code: (908) 991-2665 | ||||
Not Applicable | ||||
(Former name or former address, if changed since last report) |
□ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
□ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
□ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
□ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Exhibit No. | Description | |
Exhibit No. | Description | |
Media Contact: | Investor Contact: | ||
Carolyn J. Brown | Thomas Donohue | ||
Vice President | Vice President | ||
Corporate Communications | Treasurer and Investor Relations | ||
Barnes & Noble Education, Inc. | Barnes & Noble Education, Inc. | ||
(908) 991-2967 | (908) 991-2966 | ||
cbrown@bned.com | tdonohue@bned.com |
• | Consolidated sales of $355.7 million increased by $116.5 million, or 48.7%, as compared to prior year period. |
• | BNC comparable store sales decreased 2.5% in the quarter, as compared with a decrease of 2.8% in the prior year period. |
• | Consolidated net loss of $(34.8) million, as compared with a net loss of $(27.9) million in the prior year period. |
• | Non-GAAP Adjusted EBITDA improved by $4.1 million to $(32.4) million, from $(36.5) million in the prior year period. |
• | Non-GAAP Adjusted Earnings of $(29.8) million, as compared to $(25.9) million in the prior year period. |
• | BNC opened 24 new physical stores this quarter with estimated annual sales of $49 million, bringing total stores operated by BNC to 781 locations as of July 29, 2017. |
• | MBS opened 10 new virtual stores this quarter with estimated annual revenue of $4 million, bringing total contracts operated by MBS to 714 as of July 29, 2017. |
• | Completed the acquisition of Student Brands, LLC, a leading direct-to-student subscription-based writing skills services business, on August 3, 2017 for $58.5 million. Student Brands is expected to contribute more than $10 million of EBITDA to BNED’s consolidated results over the next twelve months and significantly expands the Company’s opportunity to market the services students need to improve performance in the classroom and to secure jobs after graduation. |
• | Launched implementations of LoudSight, the Company’s predictive analytics offering, with Unizin, a nonprofit consortium of 22 schools focused on promoting affordability, access, and student success in digital education. |
• | Signed a multi-year contract with Eastern Gateway Community College which includes providing institutional-wide LMS and predictive analytics solutions, as well as operating a traditional physical bookstore. |
• | Partnered with Target to promote its brand and college essentials to our customer base. |
• | Collaborated with major publishers in the Educational Publishers Enforcement Group (“EPEG”) to implement enhanced anti-counterfeiting procedures developed by EPEG to assist publishers and distributors in combating counterfeit print textbooks. |
• | BNC operates 781 physical campus bookstores, the majority of which also have school-branded e-commerce sites operated by BNC, and BNC also includes our digital operations. |
• | MBS operates 714 virtual bookstores and is the largest contract operator of virtual bookstores for college and university campuses, and private/parochial K-12 schools. MBS is also one of the largest textbook wholesalers in the country. MBS's wholesale business centrally sources and sells new and used textbooks to more than 3,700 physical college bookstores, including BNC’s 781 campus bookstores. |
13 weeks ended | |||||||
July 29, 2017 | July 30, 2016 | ||||||
Sales: | |||||||
Product sales and other | $ | 334,502 | $ | 217,736 | |||
Rental income | 21,209 | 21,501 | |||||
Total sales | 355,711 | 239,237 | |||||
Cost of sales: | |||||||
Product and other cost of sales | 277,741 | 177,994 | |||||
Rental cost of sales | 13,257 | 13,830 | |||||
Total cost of sales | 290,998 | 191,824 | |||||
Gross profit | 64,713 | 47,413 | |||||
Selling and administrative expenses | 99,410 | 83,937 | |||||
Depreciation and amortization expense | 15,017 | 12,921 | |||||
Restructuring and other charges (a) | 5,236 | 1,790 | |||||
Transaction costs (a) | 589 | 1,527 | |||||
Operating loss | (55,539 | ) | (52,762 | ) | |||
Interest expense, net | 3,038 | 666 | |||||
Loss before income taxes | (58,577 | ) | (53,428 | ) | |||
Income tax benefit | (23,794 | ) | (25,512 | ) | |||
Net loss | $ | (34,783 | ) | $ | (27,916 | ) | |
Loss per common share: | |||||||
Basic | $ | (0.75 | ) | $ | (0.60 | ) | |
Diluted | $ | (0.75 | ) | $ | (0.60 | ) | |
Weighted average common shares outstanding: | |||||||
Basic | 46,517 | 46,349 | |||||
Diluted | 46,517 | 46,349 | |||||
(a) For additional information, see Note (a) - (c) in the Non-GAAP disclosure information of this Press Release. | |||||||
13 weeks ended | |||||
July 29, 2017 | July 30, 2016 | ||||
Percentage of sales: | |||||
Sales: | |||||
Product sales and other | 94.0 | % | 91.0 | % | |
Rental income | 6.0 | % | 9.0 | % | |
Total sales | 100.0 | % | 100.0 | % | |
Cost of sales: | |||||
Product and other cost of sales (a) | 83.0 | % | 81.7 | % | |
Rental cost of sales (a) | 62.5 | % | 64.3 | % | |
Total cost of sales | 81.8 | % | 80.2 | % | |
Gross profit | 18.2 | % | 19.8 | % | |
Selling and administrative expenses | 27.9 | % | 35.1 | % | |
Depreciation and amortization expense | 4.2 | % | 5.4 | % | |
Restructuring and other charges | 1.5 | % | 0.7 | % | |
Transaction costs | 0.2 | % | 0.6 | % | |
Operating loss | (15.6 | )% | (22.0 | )% | |
Interest expense, net | 0.9 | % | 0.3 | % | |
Loss before income taxes | (16.5 | )% | (22.3 | )% | |
Income tax benefit | (6.7 | )% | (10.7 | )% | |
Net loss | (9.8 | )% | (11.6 | )% | |
(a) Represents the percentage these costs bear to the related sales, instead of total sales. |
July 29, 2017 | July 30, 2016 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 14,192 | $ | 8,906 | |||
Receivables, net | 112,472 | 38,898 | |||||
Merchandise inventories, net | 780,414 | 724,329 | |||||
Textbook rental inventories | 6,931 | 7,527 | |||||
Prepaid expenses and other current assets | 13,537 | 8,614 | |||||
Total current assets | 927,546 | 788,274 | |||||
Property and equipment, net | 112,799 | 107,347 | |||||
Intangible assets, net | 206,382 | 197,508 | |||||
Goodwill | 329,467 | 281,337 | |||||
Other noncurrent assets | 42,481 | 39,003 | |||||
Total assets | $ | 1,618,675 | $ | 1,413,469 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 511,488 | $ | 560,163 | |||
Accrued liabilities | 89,934 | 41,949 | |||||
Short-term borrowings | 100,000 | — | |||||
Total current liabilities | 701,422 | 602,112 | |||||
Long-term deferred taxes, net | 19,791 | 35,636 | |||||
Other long-term liabilities | 96,457 | 74,976 | |||||
Long-term borrowings | 120,100 | 25,000 | |||||
Total liabilities | 937,770 | 737,724 | |||||
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, 49,372 and 48,655 shares, respectively; outstanding, 46,517 and 46,086 shares, respectively | 494 | 487 | |||||
Additional paid-in-capital | 710,851 | 701,393 | |||||
Retained earnings | (2,420 | ) | (914 | ) | |||
Treasury stock, at cost | (28,020 | ) | (25,221 | ) | |||
Total stockholders' equity | 680,905 | 675,745 | |||||
Total liabilities and stockholders' equity | $ | 1,618,675 | $ | 1,413,469 |
13 weeks ended | |||||||
July 29, 2017 | July 30, 2016 | ||||||
Numerator for basic and diluted earnings per share: | |||||||
Net loss available to common shareholders | $ | (34,783 | ) | $ | (27,916 | ) | |
Denominator for basic and diluted earnings per share: | |||||||
Basic weighted average common shares | 46,517 | 46,349 | |||||
Loss per common share: | |||||||
Basic | $ | (0.75 | ) | $ | (0.60 | ) | |
Diluted | $ | (0.75 | ) | $ | (0.60 | ) | |
Segment Information (a) | 13 weeks ended | ||||||
July 29, 2017 | July 30, 2016 | ||||||
Sales | |||||||
BNC | $ | 249,977 | $ | 239,237 | |||
MBS | 139,801 | — | |||||
Elimination | (34,067 | ) | — | ||||
Total | $ | 355,711 | $ | 239,237 | |||
Gross profit | |||||||
BNC | $ | 48,737 | $ | 47,413 | |||
MBS (excluding $2,248 of incremental cost of sales related to inventory fair value amortization) (b) | 29,837 | — | |||||
Elimination | (11,613 | ) | — | ||||
Total | $ | 66,961 | $ | 47,413 | |||
Selling and administrative expenses | |||||||
BNC | $ | 85,642 | $ | 83,937 | |||
MBS | 13,768 | — | |||||
Total | $ | 99,410 | $ | 83,937 | |||
Adjusted EBITDA | |||||||
BNC | $ | (36,905 | ) | $ | (36,524 | ) | |
MBS (b) | 16,069 | — | |||||
Elimination | (11,613 | ) | — | ||||
Total | $ | (32,449 | ) | $ | (36,524 | ) | |
Percentage of Segment Sales | 13 weeks ended | ||||||
July 29, 2017 | July 30, 2016 | ||||||
Gross margin | |||||||
BNC | 19.5 | % | 19.8 | % | |||
MBS (excluding $2,248 of incremental cost of sales related to inventory fair value amortization) (b) | 21.3 | % | — | % | |||
Elimination | 34.1 | % | — | % | |||
Total gross margin | 18.8 | % | 19.8 | % | |||
Selling and administrative expenses | |||||||
BNC | 34.3 | % | 35.1 | % | |||
MBS | 9.8 | % | — | % | |||
Total selling and administrative expenses | 27.9 | % | 35.1 | % | |||
(a) Effective with the acquisition of MBS Textbook Exchange, LLC ("MBS") on February 27, 2017, we determined that we have two reportable segments: Barnes & Noble College Booksellers, LLC ("BNC") and MBS, whereas BNC was previously our only reportable segment prior the acquisition. For more information, see the Explanatory Note. | |||||||
(b) For additional information, see Note (a) in the Non-GAAP disclosure information of this Press Release. | |||||||
Adjusted Earnings | 13 weeks ended | ||||||
July 29, 2017 | July 30, 2016 | ||||||
Net loss | $ | (34,783 | ) | $ | (27,916 | ) | |
Reconciling items, after-tax (below) | 5,006 | 2,031 | |||||
Adjusted Earnings (Non-GAAP) | $ | (29,777 | ) | $ | (25,885 | ) | |
Reconciling items, pre-tax | |||||||
Inventory valuation amortization (MBS) (non-cash) (a) | $ | 2,248 | $ | — | |||
Restructuring and other charges (b) | 5,236 | 1,790 | |||||
Transaction costs (c) | 589 | 1,527 | |||||
Reconciling items, pre-tax | 8,073 | 3,317 | |||||
Less: Pro forma income tax impact (d) | 3,067 | 1,286 | |||||
Reconciling items, after-tax | $ | 5,006 | $ | 2,031 | |||
Adjusted EBITDA | 13 weeks ended | ||||||
July 29, 2017 | July 30, 2016 | ||||||
Net loss | $ | (34,783 | ) | $ | (27,916 | ) | |
Add: | |||||||
Depreciation and amortization expense | 15,017 | 12,921 | |||||
Interest expense, net | 3,038 | 666 | |||||
Income tax benefit | (23,794 | ) | (25,512 | ) | |||
Inventory valuation amortization (MBS) (non-cash) (a) | 2,248 | — | |||||
Restructuring and other charges (b) | 5,236 | 1,790 | |||||
Transaction costs (c) | 589 | 1,527 | |||||
Adjusted EBITDA (Non-GAAP) | $ | (32,449 | ) | $ | (36,524 | ) | |
(a) For the 13 weeks ended Jul 29, 2017, gross margin includes $2.2 million of incremental cost of sales related to amortization of the MBS inventory fair value adjustment of $3.7 million recorded as of the acquisition date, February 27, 2017. The non-cash fair value inventory adjustment for MBS will be recognized over six months from the date of acquisition and is allocated based on monthly sales. | |||||||
(b) On July 19, 2017, Mr. Max J. Roberts resigned as Chief Executive Officer of the Company and Mr. Michael P. Huseby was appointed to the position of Chief Executive Officer and Chairman of the Board, both effective as of September 19, 2017. Pursuant to the terms of the Retirement Letter Agreement and consistent with Mr. Roberts’s employment agreement, Mr. Roberts will receive an aggregate payment of approximately $4.4 million, comprised of salary, bonus and benefits. In addition, the Company will pay Mr. Roberts and Mr. Huseby a one-time cash transition payment of approximately $0.5 million and $0.3 million, respectively, at the time of the transition. During the 13 weeks ended July 29, 2017, we recognized restructuring and other charges of approximately $5.2 million, which is comprised of the liability for the termination and transition payments. For additional information, see Form 8-K dated July 19, 2017, filed with the SEC on July 20, 2017. | |||||||
In Fiscal 2016, we implemented a plan to restructure our digital operations which was completed in the first quarter of Fiscal 2017, and was primarily comprised of costs related to employee matters. | |||||||
(c) Transaction costs are costs incurred for business development and acquisitions. | |||||||
(d) Represents the income tax effects of the non-GAAP items. | |||||||
Use of Non-GAAP Financial Information - Adjusted Earnings and Adjusted EBITDA | |||||||
To supplement the Company’s condensed 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) and 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). | |||||||
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. These non-GAAP financial measures should not be considered as alternatives to net income as an indicator of the Company's performance or any other measures of performance derived in accordance with GAAP. | |||||||
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 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 29, 2017 filed with the SEC on July 12, 2017, which includes consolidated financial statements for each of the three years for the period ended April 29, 2017 (Fiscal 2017, Fiscal 2016, and Fiscal 2015). | |||||||
Dollars in millions | 13 weeks ended | |||||||
July 29, 2017 | July 30, 2016 | |||||||
MBS Sales (a) | ||||||||
Wholesale | $ | 92.5 | $ | — | ||||
Direct | 47.3 | — | ||||||
MBS total sales subtotal: | $ | 139.8 | $ | — | ||||
BNC Sales | ||||||||
New stores (b) | $ | 15.4 | $ | 8.5 | ||||
Closed stores (b) | (2.3 | ) | (1.8 | ) | ||||
Comparable stores (c) | (5.5 | ) | (6.2 | ) | ||||
Textbook rental deferral | 1.3 | 1.4 | ||||||
Service revenue (d) | 1.9 | 0.1 | ||||||
Other (e) | (0.1 | ) | (1.8 | ) | ||||
BNC total sales subtotal: | $ | 10.7 | $ | 0.2 | ||||
Eliminations (f) | $ | (34.0 | ) | $ | — | |||
Total sales variance | $ | 116.5 | $ | 0.2 |
(a) | On February 27, 2017, we acquired MBS Textbook Exchange, LLC ("MBS"). The condensed consolidated financial statements for the 13 weeks ended July 29, 2017 include the financial results of MBS and all material intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements for the 13 weeks ended July 30, 2016 exclude the financial results of MBS. |
(b) | The following is a store count summary for BNC physical stores and MBS virtual stores: |
13 weeks ended July 29, 2017 | 13 weeks ended July 30, 2016 | |||||||
BNC Stores | MBS Direct Stores | BNC Stores | ||||||
Stores opened | 24 | 10 | 33 | |||||
Stores closed | 12 | 8 | 14 | |||||
Number of stores open at end of period | 781 | 714 | 770 | |||||
(c) | See below. |
(d) | Service revenue includes Promoversity, LoudCloud, brand partnerships, shipping and handling and revenue from other programs. |
(e) | Other includes certain adjusting items related to return reserves and other deferred items. |
(f) | Eliminate MBS sales to BNED and BNED commissions earned from MBS. |
13 weeks ended | ||||||||||||||
July 29, 2017 | July 30, 2016 | |||||||||||||
Textbooks | $ | (8.4 | ) | (8.5 | )% | $ | (6.9 | ) | (6.8 | )% | ||||
General Merchandise | 3.6 | 3.3 | % | 1.6 | 1.6 | % | ||||||||
Trade Books | (0.7 | ) | (5.4 | )% | (0.6 | ) | (4.7 | )% | ||||||
Other | — | — | % | (0.3 | ) | (89.3 | )% | |||||||
Total Comparable Store Sales | $ | (5.5 | ) | (2.5 | )% | $ | (6.2 | ) | (2.8 | )% |