Market Overview

Barnes & Noble Education Reports First Quarter Fiscal Year 2019 Financial Results

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Releases New Student Hub on Bartleby.com with Introduction of
Bartleby Textbook Solutions

Launches Next Generation First Day™ Inclusive Access Platform

Barnes
& Noble Education, Inc. (NYSE:
BNED), a leading provider of
educational products and services solutions for higher education and
K-12, today reported sales and earnings for the first quarter for fiscal
year 2019, which ended on July 28, 2018. Barnes & Noble Education is a
highly seasonal business, and the first quarter has historically been a
period of low sales activity for the Company.

The Company has three reportable segments: Barnes & Noble College
Booksellers, LLC ("BNC"), MBS Textbook Exchange, LLC ("MBS"), and
Digital Student Solutions ("DSS"). All material intercompany accounts
and transactions have been eliminated in consolidation.

Financial highlights for the first quarter 2019:

  • Consolidated first quarter sales of $337.5 million decreased 5.1%, as
    compared to the prior year period.
  • Consolidated first quarter GAAP net loss of $(38.6) million, as
    compared to net loss of $(34.8) million in the prior year period.
    Consolidated first quarter non-GAAP Adjusted Earnings of $(38.6)
    million, as compared to $(29.8) million in the prior year period.
  • Consolidated first quarter non-GAAP Adjusted EBITDA of $(32.5)
    million, flat as compared to the prior year period.

Operational highlights for the first quarter 2019:

  • Completed development of Bartleby,
    an online student success hub comprised of two products that support
    better learning: Bartleby Textbook Solutions and Bartleby
    Writing
    . Bartleby Textbook Solutions is the first
    internally developed digital solution in the Company's DSS segment,
    and another important step in its ongoing digital transformation.
  • Launched next generation First Day™ inclusive access solution,
    completing implementations on approximately 100 campuses for the
    upcoming Fall semester in the Company's BNC segment.
  • Began the implementation of McGraw-Hill Education and Pearson's rental
    programs, as contemplated by previously announced agreements in the
    Company's MBS segment.
  • Began to realize meaningful synergies between Student Brands
    subscription-based web properties and college bookstore footprint in
    the Company's DSS segment. StudyMode,
    a Student Brands website that helps students improve their writing
    performance, was offered through more than 150 BNC e-commerce sites
    during the quarter, allowing students to add a StudyMode
    subscription to their cart at point of purchase on their bookstore
    website. The StudyMode subscription offering will be expanded
    to the majority of the Company's BNC and MBS e-commerce sites for the
    Fall semester.

Michael P. Huseby, Chairman and Chief Executive Officer, Barnes & Noble
Education said:

"We are pleased with the strides that have been made across all areas of
Barnes & Noble Education this quarter, especially within our DSS
segment. In addition to leveraging our large store footprint to directly
offer student access to StudyMode, we also took an important
first step in the internal development of digital solutions for our DSS
segment with the launch of Bartleby, our student success hub. Our
teams have worked relentlessly throughout this quarter to develop Bartleby
Textbook Solutions
, the centerpiece of Bartleby, and we are
pleased to deliver a new pathway for learning that is available to
students anytime, anywhere.

We are making the appropriate investments and taking the necessary
actions for BNED to effectively compete and deliver on our company
purpose—serving all who work to elevate their lives through
education.
Our strategy to transform BNC and MBS to better serve the
changing needs of our partners while innovating scalable, high margin
DSS offerings is well underway. Our MBS and Student Brands acquisitions
continue to provide us with substantial operating cash flow to help fund
this transformation. We remain focused on the strong execution of our
strategy and leveraging our new digital platform and product offerings
to deliver substantial value for our customers, employees and
shareholders."

First Quarter Results for 2019

       

Results for the 13 weeks of fiscal 2019 and fiscal 2018 are as
follows:

 

$ in millions

Selected Data (unaudited)

13 Weeks

13 Weeks

Q1 2019

Q1 2018

Total Sales

$337.5

$355.7

Net Loss

$(38.6)

$(34.8)

 

Non-GAAP(1)

Adjusted EBITDA

$(32.5)

$(32.5)

Adjusted Earnings

$(38.6)

$(29.8)

(1) These non-GAAP financial measures have been reconciled in the
attached schedules to the most directly comparable GAAP measure as
required under SEC rules regarding the use of non-GAAP financial
measures.

The first quarter 2019 financial results include Student Brands, LLC for
the entire period and the first quarter 2018 financial results exclude
Student Brands as it was acquired on August 3, 2017 (the second quarter
of fiscal year 2018).

Consolidated Results

Consolidated first quarter sales of $337.5 million decreased $18.2
million, or 5.1%, as compared to the prior year period. These sales
decreases were primarily attributable to declines at MBS and BNC,
partially offset by the addition of the Student Brands business in the
second quarter of fiscal year 2018.

The Company's non-GAAP Adjusted EBITDA was flat at $(32.5) million for
the quarter, as compared to the prior year period. The contributions
from DSS, lower Corporate Services expenses and improved results at BNC
are offset by the decreases at MBS and a higher intercompany profit
elimination between BNC and MBS. This elimination is expected to be
recognized in the second quarter of fiscal year 2019 as BNC sells
through the inventory which was purchased from MBS.

BNC Results

BNC sales in the seasonally low first quarter decreased by $4.8 million,
or 1.9%, as compared to the prior year period. Comparable store sales at
BNC decreased 2.2% for the quarter representing approximately $4.9
million in revenue.

BNC non-GAAP Adjusted EBITDA for the quarter improved by $2.3 million to
$(29.7) million, as compared to $(32.0) million in the prior year
period. Higher gross margins and decreases in selling and administrative
expenses exceeded the impact of the comparable store sales decline.

MBS Results

MBS total sales of $130.3 million for the quarter decreased by $9.5
million, or 6.8%, as compared to $139.8 million in the prior year period.

MBS Wholesale net sales of $88.4 million for the quarter decreased by
$4.1 million, or 4.4%, as compared to $92.5 million during the prior
year period. MBS Wholesale gross sales increased, but were offset by
increased return reserves. MBS Direct sales of $41.9 million for the
quarter decreased by $5.4 million, or 11.4%, as compared to $47.3
million in the prior year period. The decrease was primarily due to the
timing of shipments for Fall Rush and lower K-12 sales.

MBS non-GAAP Adjusted EBITDA for the quarter was $14.9 million for the
quarter, as compared to $17.8 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 Results

DSS sales of $5.7 million for the quarter reflects the operating results
of Student Brands, which generates sales through subscriptions to its
digital properties.

DSS non-GAAP Adjusted EBITDA was $2.8 million for the quarter,
reflecting earnings of Student Brands, offset by investments in the
development of the Company's new Bartleby product offering, Bartleby
Textbook Solutions
. Quarterly comparisons are not relevant, as
Student Brands was acquired subsequent to the end of the first quarter
of fiscal year 2018.

Other

Expenses for Corporate Services, which includes unallocated
shared-service costs, such as various corporate level expenses and other
governance functions, were $5.5 million for the quarter as compared to
$6.4 million in the prior period.

Intercompany gross margin eliminations of $(15.0) million reflected in
Adjusted EBITDA, compared to $(11.6) million in the prior year period,
is higher due to an increase in inter-segment sales from MBS to BNC.
Such profit is expected to be recognized in the second quarter as BNC
sells through the inventory which was purchased from MBS.

Outlook

For fiscal year 2019, the Company continues to expect consolidated sales
to be in the range of $2.2 billion to $2.3 billion before intercompany
eliminations. This guidance reflects the current expected comparable
store sales decline at BNC to be in the mid-single digit percentage
point range year over year. The Company currently expects consolidated
fiscal year 2019 Adjusted EBITDA to be relatively comparable to fiscal
year 2018, in a range of $110 million to $125 million, reflecting the
expected comparable store sales decline at BNC and the increasing costs
associated with developing new DSS and other digital offerings. Capital
expenditures are currently expected to be approximately $60 million,
increasing over fiscal year 2018 primarily due to the Company's
anticipated investments in digital content required to develop and offer
new DSS products.

Conference Call

A conference call with Barnes & Noble Education, Inc. senior management
will be webcast at 10:00 a.m. Eastern Time on Wednesday, August 22, 2018
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 2019 second quarter
results on or about December 6, 2018.

ABOUT BARNES & NOBLE EDUCATION, INC.

Barnes & Noble Education, Inc. (NYSE:BNED) is a leading
provider of higher education and K-12 educational products and
solutions. Through its Barnes & Noble College and MBS Textbook Exchange
segments, Barnes & Noble Education operates 1,437 physical and virtual
bookstores across the U.S., serving more than 6 million students and
faculty. Through its Digital Student Solutions segment, the Company
offers a suite of digital software, content and services including
direct-to-student study tools, serving approximately 100,000 subscribers
in more than 15 countries and receiving more than 20 million unique
monthly visitors to its sites. The Company also operates one of the
largest textbook wholesale distribution channels in the United States.
For more information please visit www.bned.com.

BNED companies include: Barnes
& Noble College Booksellers, LLC
, MBS
Textbook Exchange, LLC
, BNED
LoudCloud, LLC
, Student
Brands, LLC
, and Promoversity,
LLC
. General information on Barnes & Noble Education may be obtained
by visiting the Company's corporate website: 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; 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, including MBS
Textbook Exchange, LLC and Student Brands, LLC, may not be fully
realized or may take longer than expected; the integration of MBS
Textbook Exchange, LLC's operations into our own may also increase the
risk of our internal controls being found ineffective; 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; 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; changes to purchase or rental terms, payment terms, return
policies, the discount or margin on products or other terms with our
suppliers; 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; the risk of price reduction or change in format of course
materials by publishers, which could negatively impact revenues and
margin; 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 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 which may restrict or
prohibit our use of emails or similar marketing 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 28, 2018. 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

The condensed consolidated financial statements for the 13 weeks ended
July 28, 2018 include the financial results of Student Brands, LLC (in
the DSS segment) for the entire period and the condensed consolidated
financial statements for the 13 weeks ended July 29, 2017 exclude the
financial results of Student Brands, LLC as it was acquired on August 3,
2017 (the second quarter of fiscal year 2018).

We have three reportable segments: BNC, MBS and DSS as follows:

  • The BNC Segment is comprised of the operations of Barnes &
    Noble College Booksellers, LLC ("BNC") which operates 753 physical
    campus bookstores, the majority of which also have school-branded
    e-commerce sites operated by BNC and which offer students access to
    affordable course materials and affinity products, including
    emblematic apparel and gifts. BNC also offers its First Day™ inclusive
    access program, in which course materials, including e-content, are
    offered at a reduced price through a course materials fee, and
    delivered to students digitally on or before the first day of class.
    Additionally, the BNC segment offers a suite of digital content,
    software, and services to colleges and universities through our
    LoudCloud platform, such as predictive analytics, a variety of open
    educational resources courseware, and a competency-based learning
    platform.
  • The MBS Segment is comprised of MBS Textbook Exchange, LLC's
    ("MBS") two highly integrated businesses: MBS Direct which operates
    684 virtual bookstores for college and university campuses, and K-12
    schools, and MBS Wholesale which is one of the largest textbook
    wholesalers in the country. MBS Wholesale's business centrally sources
    and sells new and used textbooks to more than 3,500 physical college
    bookstores, including BNC's 753 campus bookstores. MBS Wholesale sells
    hardware and a software suite of applications that provides inventory
    management and point-of-sale solutions to over 400 college bookstores.
  • The Digital Student Solutions ("DSS") Segment includes
    direct-to-student product and service offerings to assist students to
    study more effectively and improve academic performance, thus enabling
    them to gain the valuable skills necessary to succeed after college.
    DSS is comprised of the operations of Student Brands, LLC, a leading
    direct-to-student subscription-based writing services business, with
    approximately 100,000 subscribers across its digital properties.
    Additionally, in August 2018, we launched our student success hub on
    bartleby.com
    with the introduction of Bartleby Textbook
    Solutions. Bartleby Textbook Solutions is the first internally
    developed product within DSS, and will be the core product offering in
    our student success hub. The Bartleby Textbook Solutions subscription
    is accessible anytime and anywhere, both within our managed bookstore
    footprint, and nationally to students. The DSS segment also includes
    tutoring and test prep services offered through our partnership with The
    Princeton Review
    . We currently offer these online student services
    directly to students, and increasingly will be leveraging our BNC and
    MBS physical and virtual bookstore footprint to market directly to
    students where we serve as the campus bookstore. We continue to
    aggressively expand our ecosystem of products and services through our
    own continued internal development, as well as by partnering with
    other companies to provide a complete hub of products and services
    designed to improve student success and outcomes.

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.

Our condensed consolidated financial statements reflect the following
reclassifications for consistency with the current year presentation:

  • Cost of Sales expenses primarily related to facility costs and
    insurance for the Corporate Services category have been reclassified
    to Selling and Administrative Expenses in the condensed consolidated
    statements of operations.
  • For our digital rental products, we have reclassified Rental Income to
    Product Sales and Other, and have reclassified Rental Cost of Sales to
    Product and Other Cost of Sales in the condensed consolidated
    statements of operations, with no impact to Gross Margin. Digital
    rental revenue and digital rental cost of sales are recognized at the
    time of delivery and are not deferred over the rental period.

Prior periods presented reflect the reclassifications noted above.

   

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

 
13 weeks ended
July 28,
2018
    July 29,
2017
Sales:
Product sales and other $ 317,845 $ 334,969
Rental income 19,639   20,742  
Total sales 337,484   355,711  
Cost of sales: (a)
Product and other cost of sales 258,752 277,678
Rental cost of sales 12,122   12,833  
Total cost of sales 270,874   290,511  
Gross profit 66,610   65,200  
Selling and administrative expenses 99,144 99,897
Depreciation and amortization expense 16,538 15,017
Restructuring and other charges (a) 5,236
Transaction costs (a)   589  
Operating loss (49,072 ) (55,539 )
Interest expense, net 3,522   3,038  
Loss before income taxes (52,594 ) (58,577 )
Income tax benefit (13,972 ) (23,794 )
Net loss $ (38,622 ) $ (34,783 )
 
Loss per common share:
Basic $ (0.82 ) $ (0.75 )
Diluted $ (0.82 ) $ (0.75 )
Weighted average common shares outstanding:
Basic 46,917 46,517
Diluted 46,917 46,517
 
(a) For additional information, see Note (a) - (c) in the Non-GAAP
disclosure information of this Press Release.
 
   
 
13 weeks ended
July 28,
2018
    July 29,
2017
Percentage of sales:
Sales:
Product sales and other 94.2 % 94.2 %
Rental income 5.8 % 5.8 %
Total sales 100.0 % 100.0 %
Cost of sales:
Product and other cost of sales (a) 81.4 % 82.9 %
Rental cost of sales (a) 61.7 % 61.9 %
Total cost of sales 80.3 % 81.7 %
Gross profit 19.7 % 18.3 %
Selling and administrative expenses 29.4 % 28.1 %
Depreciation and amortization expense 4.9 % 4.2 %
Restructuring and other charges % 1.5 %
Transaction costs % 0.2 %
Operating loss (14.6 )% (15.7 )%
Interest expense, net 1.0 % 0.9 %
Loss before income taxes (15.6 )% (16.6 )%
Income tax benefit (4.1 )% (6.7 )%
Net loss (11.5 )% (9.9 )%
 
(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)

               
July 28,
2018
  July 29,
2017
ASSETS
Current assets:
Cash and cash equivalents $ 13,258 $ 14,192
Receivables, net 99,775 112,472
Merchandise inventories, net 729,877 770,691
Textbook rental inventories 6,237 6,931
Prepaid expenses and other current assets 18,738   23,260  
Total current assets 867,885   927,546  
Property and equipment, net 108,090 113,085
Intangible assets, net 213,945 206,382
Goodwill 49,282 329,467
Other noncurrent assets 41,659   42,195  
Total assets $ 1,280,861   $ 1,618,675  
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 463,723 $ 511,488
Accrued liabilities 93,232 89,934
Short-term borrowings 100,000   100,000  
Total current liabilities 656,955   701,422  
Long-term deferred taxes, net 3,172 19,791
Other long-term liabilities 58,852 96,457
Long-term borrowings 130,200   120,100  
Total liabilities 849,179   937,770  
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,
50,032 and 49,372 shares, respectively; outstanding, 46,917 and
46,517 shares, respectively
501 494
Additional paid-in-capital 719,664 710,851
Accumulated deficit (258,825 ) (2,420 )
Treasury stock, at cost (29,658 ) (28,020 )
Total stockholders' equity 431,682   680,905  
Total liabilities and stockholders' equity $ 1,280,861   $ 1,618,675  
 
   

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Sales Information

(Unaudited)

       

 

Total Sales

 

The components of the sales variances for the 13 week periods are
as follows:

 
Dollars in millions 13 weeks ended
July 28, 2018     July 29, 2017
BNC Sales
New stores (a) $ 6.7 $ 15.4
Closed stores (a) (6.8 ) (2.3 )
Comparable stores (b) (4.9 ) (4.8 )
Textbook rental deferral (0.2 ) 1.3
Service revenue (c) 0.4 1.9
Other (d)   (0.8 )
BNC sales subtotal: $ (4.8 )     $ 10.7  
MBS Sales (e)
Wholesale $ (4.1 ) $ 92.5
Direct (5.4 ) 47.3  
MBS sales subtotal: $ (9.5 ) $ 139.8
 
DSS Sales (f) $ 5.7
Eliminations (g) $ (9.6 ) (34.0 )
Total sales variance: $ (18.2 ) $ 116.5  

(a) The following is a store count summary for BNC physical stores
and MBS virtual stores:

       
13 weeks ended July 28, 2018 13 weeks ended July 29, 2017
BNC Stores     MBS Direct Stores BNC Stores     MBS Direct Stores
Number of stores at beginning of period 768 676 769 712
Stores opened 13 17 24 5
Stores closed 28   9   12   8
Number of stores at end of period 753   684   781   709
 

(b)

 

For Comparable Store Sales details, see below.

 

(c)

Service revenue includes Promoversity, brand partnerships,
shipping and handling, LoudCloud digital content, software, and
services, and revenue from other programs.

 

(d)

Other includes inventory liquidation sales to third parties, and
certain accounting adjusting items related to return reserves,
agency sales and other deferred items.

 

(e)

The variance for the MBS segment for the 13 weeks ended July 29,
2017 represents the sales activity for MBS Textbook Exchange, LLC
("MBS") which we acquired on February 27, 2017 (the fourth quarter
of Fiscal 2017).

 

(f)

DSS segment revenue includes Student Brands, LLC
subscription-based writing services business. The condensed
consolidated financial statements for the 13 weeks ended July 28,
2018 include the financial results of Student Brands, LLC for the
entire period and the condensed consolidated financial statements
for the 13 weeks ended July 29, 2017 exclude the financial results
of Student Brands, LLC as it was acquired on August 3, 2017 (the
second quarter of fiscal year 2018).

 

(g)

Eliminates MBS sales to BNC and BNC commissions earned from MBS.

 
   

Comparable Store Sales - Barnes & Noble College

 

 

Comparable store sales variances by category for the 13 week
periods are as follows:

 
13 weeks ended
July 28, 2018     July 29, 2017
Textbooks (Course Materials) $ (4.5 )     (5.0)% $ (7.7 )     (7.9)%
General Merchandise 1.2 1.0% 3.6 3.3%
Trade Books (1.6 ) (12.9)% (0.7 ) (5.7)%
Total Comparable Store Sales $ (4.9 ) (2.2)% $ (4.8 ) (2.2)%
 

Comparable store sales includes sales from stores that have been open
for an entire fiscal year 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. Prior
year comparable store sales exclude store inventory sales to MBS, which
are reflected as intercompany inventory transfers since the acquisition.

   

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Consolidated Non-GAAP Information

(In thousands)

(Unaudited)

       
 
Adjusted Earnings 13 weeks ended
July 28, 2018   July 29, 2017
Net loss $ (38,622 ) $ (34,783 )
Reconciling items, after-tax (below)   5,006  
Adjusted Earnings (Non-GAAP) $ (38,622 ) $ (29,777 )
 
Reconciling items, pre-tax
Inventory valuation amortization (MBS) (non-cash) (a) $ $ 2,248
Restructuring and other charges (b) 5,236
Transaction costs (c)   589  
Reconciling items, pre-tax 8,073
Less: Pro forma income tax impact (d)   3,067  
Reconciling items, after-tax $   $ 5,006  
 
     
Adjusted EBITDA 13 weeks ended
July 28, 2018 July 29, 2017
Net loss $ (38,622 ) $ (34,783 )
Add:
Depreciation and amortization expense 16,538 15,017
Interest expense, net 3,522 3,038
Income tax benefit (13,972 ) (23,794 )
Inventory valuation amortization (MBS) (non-cash) (a) 2,248
Restructuring and other charges (b) 5,236
Transaction costs (c)   589  
Adjusted EBITDA (Non-GAAP) $ (32,534 ) $ (32,449 )
 

(a)

 

For the 13 weeks ended July 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 was recognized over six months
from the date of acquisition and was 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. During the 13 weeks ended
July 29, 2017, we recognized restructuring and other charges of
approximately $5.2 million, which is comprised of the severance
and transition payments. For additional information, see Form 8-K
dated July 19, 2017, filed with the SEC on July 20, 2017.

 

(c)

Transaction costs are costs incurred for business development and
acquisitions.

 

(d)

Represents the income tax effects of the non-GAAP items.

   

BARNES & NOBLE EDUCATION, INC. AND SUBSIDIARIES

Segment Information

(In thousands, except percentages)

(Unaudited)

 
Segment Information (a) 13 weeks ended
July 28, 2018     July 29, 2017
Sales
BNC $ 245,175 $ 249,977
MBS 130,324 139,801
DSS 5,677
Elimination (43,692 ) (34,067 )
Total $ 337,484   $ 355,711  
 
Gross profit
BNC $ 49,315 $ 49,224
MBS (b) 26,751 29,837
DSS 5,554
Elimination (15,010 ) (11,613 )
Total $ 66,610   $ 67,448  
 
Selling and administrative expenses
BNC $ 79,015 $ 81,181
MBS 11,859 12,076
DSS 2,779 223
Corporate Services 5,493 6,417
Elimination (2 )  
Total $ 99,144   $ 99,897  
 
Adjusted EBITDA (Non-GAAP) (c)
BNC $ (29,700 ) $ (31,957 )
MBS (b) 14,892 17,761
DSS 2,775 (223 )
Corporate Services (5,493 ) (6,417 )
Elimination (15,008 ) (11,613 )
Total $ (32,534 ) $ (32,449 )

 

(a)

 

See Explanatory Note in this Press Release for Segment
descriptions and consolidation information.

 

(b)

For the 13 weeks ended July 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 was recognized over six months
from the date of acquisition and was allocated based on monthly
sales.

 

(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
July 28, 2018     July 29, 2017
Gross margin
BNC 20.1 % 19.7 %
MBS 20.5 % 21.3 %
DSS 97.8 % %
Elimination 34.4 % 34.1 %
Total gross margin 19.7 % 19.0 %
 
Selling and administrative expenses
BNC 32.2 % 32.5 %
MBS 9.1 % 8.6 %
DSS 49.0 % %
Corporate Services N/A N/A
Total selling and administrative expenses 29.4 % 28.1 %
 

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.

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 28, 2018 filed with the SEC on June 20, 2018,
which includes consolidated financial statements for each of the three
years for the period ended April 28, 2018 (Fiscal 2018, Fiscal 2017, and
Fiscal 2016).

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