Barnes & Noble Education Reports Third Quarter Fiscal Year 2023 Financial Results

Consolidated Revenue Increased 11.0% to $447.1 Million

BNC’s First Day® Complete Revenue Grew 76%

Retail Gross Comparable Store Sales Increased 5.9%

Consolidated GAAP Net Loss Improved by $11.8 Million and Consolidated Adjusted EBITDA (Non-GAAP) Improved by $19.5 Million

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 2023, which ended on January 28, 2023.

Financial highlights for the Third Quarter 2023:

• Consolidated third quarter GAAP sales of $447.1 million increased 11.0%, as compared to the prior year period. The Company’s third quarter Fiscal 2022 results were impacted by the effects of COVID-19 and the Omicron variant which impacted students return to campus and on-campus activities.
• Consolidated third quarter GAAP gross profit of $104.2 million increased 19.8%, as compared to the prior year period. GAAP gross margin increased to 23.3%, as compared to 21.6% in the prior year period.
• Consolidated selling and administrative expenses were down $2.0 million, as compared to the prior year period. Consolidated selling and administrative expenses as a percent of revenue decreased to 22.3% from 25.2% in the prior year.
• Consolidated third quarter GAAP net loss of $(25.0) million, compared to a net loss of $(36.8) million in the prior year period.
• Consolidated third quarter non-GAAP Adjusted Earnings of $(11.4) million, compared to $(28.9) million in the prior year period.
• Consolidated third quarter non-GAAP Adjusted EBITDA of $6.4 million, compared to $(13.1) million in the prior year period.

Operational highlights for the Third Quarter 2023:

• BNC’s First Day® Complete offering revenue grew 76% to $67 million.
• 116 campus stores utilized BNC’s First Day Complete courseware delivery program during the 2023 Spring Term, at institutions representing approximately 580,000* in total undergraduate enrollment; up from 76 campus stores and approximately 380,000* in total undergraduate enrollment in the 2022 Spring Term.
• Total Retail segment gross comparable store sales increased by 5.9%, comprised of a 7.4% increase in course material sales due to the strength of the Company’s First Day Complete offering and higher digital course materials, and a 2.3% increase in general merchandise sales. For comparable store sales reporting purposes, logo general merchandise sales fulfilled by Lids and Fanatics are included on a gross basis. Please see more detailed definition in the third quarter Results table and Retail segment discussion below.
• Wholesale revenue was $38.9 million, representing 5.2% year-over-year growth and the first quarter of growth since the first quarter of Fiscal 2020.

*As reported by National Center for Education Statistics (NCES)

“We delivered solid results in the third quarter, with strong topline growth, increased profitability, and continued progress on our strategic initiatives. First Day Complete revenue grew 76% as the colleges and universities we serve continue to recognize the clear benefits to student outcomes and faculty instruction. We are in active dialogues with hundreds of institutional partners regarding First Day Complete and we are encouraged by the progress we have made. We remain confident about the long-term growth of the equitable access model and in our ability to successfully accelerate the transition of our business model,” said Michael P. Huseby, Chief Executive Officer, BNED. “Our profitability improved this quarter driven by the growth of higher margin revenue streams and the execution of our previously announced cost reduction initiatives, which we began to see the partial benefits of in the third quarter. We continue to focus on achieving efficiencies and reducing costs to further improve our operating performance and position us for sustainable EBITDA growth.”

Third Quarter 2023 and Year to Date Results

Results for the 13 and 39 weeks of fiscal 2023 and fiscal 2022 are as follows:

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.

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 of $421.2 million increased by $46.5 million, or 12.4%, as compared to the prior year period due to increases in course material sales and general merchandise sales.

Retail Gross Comparable Store Sales increased 5.9% for the quarter, with comparable course material sales increasing 7.4%. Rental income increased 76.6% to $44.3 million for the 13 weeks ended January 28, 2023. The increases in course material product sales and rental income were primarily due to increased revenue from the Company’s First Day models, which increased by 58.6% to $120.7 million. Additionally, higher-margin rental income benefited from the improved availability of used textbook inventory, which was impacted by supply constraints in Fiscal 2022.

Retail Gross Comparable Store Sales for general merchandise increased 2.3%. Strong logo product sales were offset by a decline in graduation products and supply products.

Retail non-GAAP Adjusted EBITDA for the quarter was $6.2 million, as compared to $(15.4) million in the prior year period. Retail Non-GAAP Adjusted EBITDA increased $21.6 million due to higher revenue and a 260 basis point increase in gross margin to 21.1%. Additionally, retail sales and administrative expenses as a percent of revenue decreased to 19.6% compared to 22.6% in the prior year period, due to a partial quarter benefit from the Company’s initiatives to drive efficiencies, simplify organizational structure, and reduce non-essential costs, and lower incentive compensation expense.

Wholesale Segment Results

Wholesale third quarter sales of $38.9 million increased $1.9 million, or 5.2%, as compared to the prior year period. The increase is primarily due to increased customer demand compared to the prior year period, partially offset by higher returns and allowances.

Wholesale non-GAAP Adjusted EBITDA for the quarter declined to $3.1 million, as compared to $4.2 million in the prior year, primarily due to higher markdowns, partially offset by lower selling and administrative costs.

DSS Segment Results

DSS third quarter sales of $9.0 million decreased $0.4 million, or 4.5%, as compared to the prior year period. During the quarter, DSS took steps to streamline its operational structure, optimize its go-to-market strategy and reduce its customer acquisition costs to position itself for sustainable, profitable growth.

DSS non-GAAP Adjusted EBITDA was $1.3 million for the quarter, as compared to $1.5 million in the prior year period. The decrease was due primarily due to lower sales and lower gross margin, offset by lower selling and administrative costs, including lower incentive compensation expense.

Balance Sheet and Cash Flow

The Company’s cash and cash equivalents balance was $11.1 million and total outstanding debt was $285.6 million as of January 28, 2023. Cash flows used in operating activities during the 39 weeks ended January 28, 2023 were $(22.6) million compared to cash flows provided by operating activities of $7.9 million during the 39 weeks ended January 29, 2022. This $30.5 million decrease in cash flows provided by operating activities was primarily due to changes in the Company’s working capital due to increased adoption of its First Day inclusive and equitable access offerings. During the 13 weeks ended January 28, 2023, First Day Complete sales increased by $29 million to $67 million, or 76%, as compared to $38 million in the prior year period, which resulted in higher inventory purchases and receivables, offset by higher payables and right-of use payments during the third quarter and year to date of Fiscal 2023.

Given the growth of First Day programs and the timing of cash collection from the Company’s school partners, the third quarter fiscal quarter which has been a source of cash has shifted to the fourth quarter. When a school adopts the Company’s First Day inclusive and equitable access offerings, cash collection from the school generally occurs after the student drop/add dates, which is later in the working capital cycle, particularly in the Company’s third quarter given the timing of the Spring Term and its quarterly reporting period, as compared to direct-to-student point-of-sale transactions where cash is generally collected during the point-of-sale transaction or within a few days from the credit card processor. As a higher percentage of the Company’s sales shift to First Day inclusive and equitable access offerings, BNED is focused on efforts to better align the timing of its cash outflows to course material vendors with cash inflows collected from schools.

Amended and Extended Credit Facility

On March 8, 2023, the Company amended its existing Credit Agreement to, among other things, extend the maturity date by six months to August 2024 and reduce the commitments under the Credit Agreement by $20 million to $380 million. Additionally, the Company amended the existing Term Loan Credit Agreement to, among other things, extend the maturity date by six months to December 2024.

Fiscal 2023 Outlook

For fiscal year 2023, the Company expects consolidated non-GAAP Adjusted EBITDA to be between $20 million to $30 million, representing non-GAAP Adjusted EBITDA growth of $25 million to $35 million compared to fiscal year 2022. The Company’s Retail segment will be the primary driver of non-GAAP Adjusted EBITDA growth driven by new and ongoing First Day Complete course material model implementations, growth within its general merchandise business, new business margin, and cost reductions.

Conference Call

A conference call with Barnes & Noble Education, Inc. senior management will be webcast at 4:30 p.m. Eastern Time on Thursday, March 9, 2023 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 2023 fourth quarter results in late June 2023.

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, including any statements made in regards to our response to the COVID-19 pandemic. 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: risks associated with public health crises, epidemics, and pandemics, such as the COVID-19 pandemic, including the duration, spread, severity, and any recurrences thereof, and the impact such public health crises have on the overall demand for BNED products and services, our operations, the operations of our suppliers and other business partners, and the effectiveness of our response to these risks; 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, the inability to achieve the expected cost savings during the anticipated time frame, and the inability to implement our cost saving initiatives in a timely and efficient manner; 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 30, 2022. 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 1,388 college, university, and K-12 school bookstores, comprised of 785 physical bookstores and 603 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 websites 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 and equitable 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 3,000 physical bookstores (including our Retail Segment's 785 physical bookstores) and sources and distributes new and used textbooks to our 603 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 340 college bookstores.

• The Digital Student Solutions ("DSS") Segment includes 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^®, an institutional and direct-to-student subscription-based offering providing textbook solutions, expert questions and answers, writing and tutoring.

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.

Retail Gross Comparable Store Sales

Retail Gross Comparable Store Sales variances by category for the 13 and 39 week periods are as follows:

To supplement the Total Sales table presented above, the Company uses Retail Gross Comparable Store Sales as a key performance indicator. Retail Gross Comparable Store Sales includes sales from physical and virtual stores that have been open for an entire fiscal year period and does not include sales from permanently closed stores for all periods presented. For Retail Gross Comparable Store Sales, sales for logo general merchandise fulfilled by Lids, Fanatics and digital agency sales are included on a gross basis for consistent year-over-year comparison.

Effective in April 2021, as contemplated by the F/L Partnership's merchandising agreement and e-commerce agreement, we began to transition the fulfillment of logo general merchandise sales to Lids and Fanatics. The transition to Lids for campus stores was effective in April 2021, and the e-commerce websites transitioned to Fanatics throughout Fiscal 2022. As the logo general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our condensed consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition.

We believe the current Retail Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.