Barnes & Noble Education Reports Second Quarter Fiscal Year 2021 Financial Results

BASKING RIDGE, N.J.–(BUSINESS WIRE)–Barnes & Noble Education, Inc. (NYSE: BNED), a leading solutions provider for the education industry, today reported sales and earnings for the second quarter of fiscal year 2021, which ended on October 31, 2020.

BNED’s fiscal 2021 second quarter results were significantly impacted by the ongoing COVID-19 pandemic, as many schools continued to adjust their learning model and restrict on-campus activities in response to the pandemic. Fewer students returned to campus this fall, as many schools implemented a remote learning model and curtailed on-campus classes and activities. While many big-conferences resumed their sport activities, fan attendance at the games was either eliminated or severely restricted, which further impacted the Company’s high-margin general merchandise business. Additionally, sales were impacted by overall enrollment declines in higher education.

The COVID-19 impact on higher education remains a fluid situation and BNED remains committed to supporting its campus partners through its flexible offerings and ability to quickly pivot to ensure uninterrupted service as institutions manage the safety of their campuses and the Company manages the safety of its campus stores.

Financial highlights for the second quarter 2021:

• Consolidated second quarter sales of $595.5 million decreased 22.9%, as compared to the prior year period; year to date consolidated sales of $799.5 million decreased 26.8%, as compared to the prior year period.
• Consolidated second quarter GAAP net income of $7.5 million, compared to GAAP net income of $35.9 million in the prior year period; year to date GAAP net loss of $39.1 million, compared to GAAP net income of $3.8 million in the prior year period.
• Consolidated second quarter non-GAAP Adjusted Earnings of $11.1 million, compared to non-GAAP Adjusted Earnings of $37.8 million in the prior year period; year to date non-GAAP Adjusted Earnings of $(30.6) million, compared to non-GAAP Adjusted Earnings of $7.8 million in the prior year period.
• Consolidated second quarter non-GAAP Adjusted EBITDA of $24.5 million, compared to non-GAAP Adjusted EBITDA of $74.5 million in the prior year period; year to date non-GAAP Adjusted EBITDA loss of $13.5 million, compared to non-GAAP Adjusted EBITDA $49.4 million in the prior year period.

Operational highlights for the second quarter 2021:

• BNC First Day® year-over-year revenue increased 77%, benefitting from the accelerated move to digital courseware.
• Successfully launched BNC First Day Complete at twelve campuses for the Fall 2020 term. The Company expects to transition additional colleges and universities to the First Day Complete model for Spring 2021.
• Gained over 120,000 gross subscribers for the bartleby® suite of services year to date, with DSS revenue increasing 14%.
• Continued to drive bartleby growth through search engine optimization (SEO) and partnerships with Blackboard and VitalSource, demonstrating a strong channel for growth to supplement fewer in-person selling opportunities caused by the COVID-19 pandemic.
• Continued to attract new clients and generate new business growth, signing over $70 million in net new business to date this fiscal year and expanding BNED’s footprint by 47 BNC institutions and 31 K-12 schools.
• Continued development of the Company’s next generation eCommerce platform; expected phased roll-out throughout calendar year 2021 to grow high-margin general merchandise sales.

“Our teams continued to make tremendous progress in growing and enhancing our offerings and services this quarter, despite the many challenges presented by the ongoing COVID-19 pandemic. As students adjusted to a blended learning environment on campuses nationwide this fall, our flexible offerings ensured that students were equipped with their course materials regardless of whether their schools resumed classes on campus, remotely or adopted a hybrid learning model,” said Michael P. Huseby, Chief Executive Officer and Chairman, BNED. “Our bartleby direct-to-student offerings became increasingly relevant in this environment, providing students with the academic support they need. We continue to scale our bartleby solutions through our existing channels, such as in-store sales and SEO, in addition to leveraging new channels, such as our recently announced Blackboard Assist partnership, to ensure we are providing widespread access to digital learning support at a time when students need it most.”

“As anticipated, we experienced lower physical textbook revenues, as well as a substantial year over year decline in our higher margin general merchandise business this quarter due to the pandemic. In addition to fewer students on campus, our general merchandise business was impacted by the cancellation of many athletic and in-store social events,” continued Mr. Huseby. “We expect the impacts of COVID-19 to extend into the new year, and as such, we are continuing to manage expenses and liquidity prudently. Our current liquidity position remains strong despite the challenging climate. As students, faculty and institutions continue to adapt to an educational landscape that is changing each day, we remain well-positioned to provide invaluable services and support to ensure all of our customers have the tools they need for success.”

Second Quarter 2021 and Year to Date Results

Results for the 13 and 26 weeks of fiscal 2021 and fiscal 2020 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.

Retail Segment Results

Retail sales in the second quarter decreased by $165.2 million, or 22.3%, as compared to the prior year period. Comparable store sales in the Retail segment decreased 28.1% for the quarter, inclusive of a 52% general merchandise comparable sales decline, primarily due to fewer students on campus, curtailed campus activities and significant restrictions on attendance at sporting events.

Retail non-GAAP Adjusted EBITDA for the quarter decreased by $44.2 million to $18.3 million, as compared to non-GAAP Adjusted EBITDA of $62.6 million in the prior year period. The decrease is primarily due to lower textbook sales and lower sales of higher-margin general merchandise products, partially offset by lower selling and administrative expenses.

Wholesale Segment Results

Wholesale sales of $36.4 million for the quarter decreased by $3.8 million, or 9.5%, as compared to $40.2 million in the prior year period. The decrease is primarily due to decreased gross sales, partially offset by lower returns and allowances, both impacted by the COVID-19 pandemic.

Wholesale non-GAAP Adjusted EBITDA for the quarter was $6.6 million, as compared to non-GAAP Adjusted EBITDA of $7.9 million in the prior year period. This decrease was primarily driven by lower sales and lower gross margins, partially offset by lower selling and administrative expenses.

DSS Segment Results

DSS sales of $5.9 million for the quarter increased by $0.7 million, or 14.0%, 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 $0.7 million for the quarter, as compared to non-GAAP Adjusted EBITDA of $0.3 million in the prior year period, benefitting from the increase in bartleby subscriptions.

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 $5.7 million in the prior period.

Intercompany gross margin eliminations of $4.4 million reflected in non-GAAP Adjusted EBITDA, compared to $9.3 million in the prior year period, are lower due to a decrease in inter-segment sales from Wholesale to Retail.

Additional Events

Pursuant to BNED’s cooperation agreement with Outerbridge, the Company nominated, and stockholders approved Zachary Levenick as an independent director at the Company’s 2020 Annual Meeting that was held on October 22, 2020.

Conference Call

A conference call with Barnes & Noble Education, Inc. senior management will be webcast at 8:30 a.m. Eastern Time on Tuesday, December 8, 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 2021 third quarter results on or about March 4, 2021.

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 COVID-19 and the governmental responses to it, including its impact across our businesses on demand and operations, as well as on the operations of our suppliers and other business partners, and the effectiveness of our actions taken in 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, 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 May 2, 2020. 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 1,439 college, university, and K-12 school bookstores, comprised of 768 physical bookstores and 671 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 3,400 physical bookstores (including our Retail Segment’s 768 physical bookstores) and sources and distributes new and used textbooks to our 671 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.

Comparable Sales – Retail Segment

Comparable store sales variances by category for the 13 and 26 week periods are as follows:

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.

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 May 2, 2020 filed with the SEC on July 14, 2020, which includes consolidated financial statements for each of the three years for the period ended May 2, 2020 (Fiscal 2020, Fiscal 2019, and Fiscal 2018) and the Company’s Quarterly Report on Form 10-Q for the period ended August 1, 2020 filed with the SEC on September 3, 2020.