Barnes Noble Education, Inc. (BNED) SEC Filing 10-Q Quarterly report for the period ending Saturday, October 27, 2018

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Exhibit 99.1
bnedlogoa12.jpg

FOR IMMEDIATE RELEASE

Barnes & Noble Education Reports Second Quarter Fiscal Year 2019 Financial Results
December 4, 2018, Basking Ridge, NJ-
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 second quarter for fiscal year 2019, which ended on October 27, 2018.

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 second quarter 2019:
Consolidated second quarter sales of $814.8 million decreased 8.1%, as compared to the prior year period; year to date consolidated sales of $1,152.3 million decreased 7.3% as compared to the prior year period.
Consolidated second quarter GAAP net income increased to $59.7 million, as compared to $48.4 million in the prior year period; year to date GAAP net income increased to $21.1 million, as compared to $13.6 million in the prior year period.
Consolidated second quarter non-GAAP Adjusted Earnings increased to $60.1 million, as compared to $49.9 million in the prior year period; year to date non-GAAP Adjusted Earnings increased to $21.5 million, as compared to $20.1 million in the prior year period.
Consolidated second quarter non-GAAP Adjusted EBITDA decreased to $95.4 million, as compared to $102.4 million in the prior year period; year to date non-GAAP Adjusted EBITDA decreased to $62.9 million, as compared to $70.0 million in the prior year period.

Operational highlights for the second quarter 2019:
Increased sales of BNC First Day™ inclusive access by over 80%. The First Day platform, which is live on approximately 100 campuses, drives down the cost of course materials for students and secures a higher sell through rate for the Company.
Launched flagship student study subscription service, Bartleby Textbook Solutions, which features step-by-step textbook solutions across numerous subject areas. The product launch marks the Company’s first internally developed digital solution in its DSS segment, and is another important step in its ongoing digital transformation. The Company expects to have approximately one million textbook solutions available for the spring semester, as well as expert Q&A capabilities, providing further critical services for students to achieve better success throughout their academic journey.
Completed acquisition of PaperRater.com, a leading website that offers students a suite of writing services that includes a plagiarism checker, writing revision tools and an AI-based auto-grading scoring system to help students improve multiple facets of their writing. Along with the acquisition of Student Brands in August 2017, PaperRater bolsters the Company’s competitive position in student writing services and expands its content library.
StudyMode writing product rolled out across the majority of BNC and MBS e-commerce sites, allowing students to add a StudyMode subscription to their cart at point of purchase. StudyMode and Bartleby Textbook Solutions will also be integrated into point-of-sale and in-store systems for the spring semester.




The following information was filed by Barnes Noble Education, Inc. on Tuesday, December 4, 2018 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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  • 18418656_158
    Financial - Earnings
    The increase was driven primarily by high margin Student Brands and PaperRater subscription service revenue earned.
  • 18418656_137
    Financial - Earnings
    During the 13 weeks ended October 27, 2018, gross margin as a percentage of sales increased to 25.9% from 24.6% (excluding inventory valuation adjustment discussed below) or 130 basis points primarily due to the benefits realized from transferring underutilized inventory to MBS and due to high margin subscription service revenue earned.
  • 18418656_140
    Financial - Earnings
    During the 26 weeks ended October 27, 2018, gross margin as a percentage of sales increased to 24.1% from 23.0% (excluding inventory valuation adjustment discussed below) or 110 basis points primarily due to the benefits realized from transferring underutilized inventory to MBS and due to high margin subscription service revenue earned.
  • 18418656_189
    Financial - Expense
    Depreciation and amortization expense decreased by $0.3 million, or 1.7%, to $16.4 million during the 13 weeks ended October 27, 2018 from $16.7 million during the 13 weeks ended October 28, 2017.
  • 18418656_190
    Financial - Expense
    This decrease was primarily attributable to lower depreciation related to closed stores, offset by incremental depreciation and amortization expense resulting from the acquisition of PaperRater on August 21, 2018 associated with the identified intangibles recorded at fair value as of the acquisition date and additional capital expenditures.
  • 18418656_80
    Financial - Expense
    Our cost of sales primarily include costs such as merchandise costs, textbook rental amortization, payroll costs, as well as warehouse costs related to inventory management and order fulfillment, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses.
  • 18418656_248
    Financial - Cash Flow
    For both BNC and MBS, cash flows from operating activities are typically a use of cash in the fourth fiscal quarter, when sales volumes are materially lower than the other quarters.
  • 18418656_228
    Financial - Earnings
    To supplement our results prepared in accordance with GAAP, we use the measure of Adjusted Earnings and Adjusted EBITDA, which are non-GAAP financial measures under Securities and Exchange Commission (the "SEC") regulations.
  • 18418656_136
    Financial - Earnings
    Our gross margin decreased by $5.9 million, or 2.7%, to $210.8 million, or 25.9% of sales, during the 13 weeks ended October 27, 2018 from $216.7 million, or 24.4% of sales (or 24.6% excluding inventory valuation adjustment discussed below), during the 13 weeks ended October 28, 2017.
  • 18418656_139
    Financial - Earnings
    Our gross margin decreased by $4.5 million, or 1.6%, to $277.4 million, or 24.1% of sales, during the 26 weeks ended October 27, 2018 from $281.9 million, or 22.7% of sales (or 23.0% excluding inventory valuation adjustment discussed below), during the 26 weeks ended October 28, 2017.
  • 18418656_211
    Financial - Income
    We recorded an income tax expense of $16.9 million on a pre-tax income of $76.6 million of during the 13 weeks ended October 27, 2018, which represented an effective income tax rate of 27.1% and an income tax expense of $33.0 million on pre-tax income of $81.4 million during the 13 weeks ended October 28, 2017, which represented an effective income tax rate of 40.6%.
  • 18418656_212
    Financial - Income
    We recorded an income tax expense of $3.0 million on a pre-tax income of $24.0 million during the 26 weeks ended October 27, 2018, which represented an effective income tax rate of 12.4% and an income tax expense of $9.2 million on pre-tax income of $22.8 million during the 26 weeks ended October 28, 2017, which represented an effective income tax rate of 40.4%.
  • 18418656_143
    Financial - Earnings
    For the 26 weeks ended October 27, 2018, the BNC gross margin as a percentage of sales increased as discussed below: Product and other gross margin increased (90 basis points), driven primarily by higher margin rates (90 basis points) due to lower markdowns compared to the prior year, including the benefits realized from transferring underutilized inventory to MBS, and a favorable sales mix (60 basis points), partially offset by higher costs related to our college and university contracts (60 basis points) resulting from contract renewals and new store contracts.
  • 18418656_239
    Financial - Earnings
    We believe that the inclusion of Adjusted Earnings and Adjusted EBITDA results provides investors useful and important information regarding our operating results.
  • 18418656_192
    Financial - Expense
    This increase was primarily attributable to incremental depreciation and amortization expense associated with the property and equipment and identified intangibles recorded at fair value as of the acquisition date for Student Brands (August 3, 2017), incremental amortization expense resulting from the acquisition of identified intangibles recorded at fair value as of the acquisition date for PaperRater (August 21, 2018), and additional capital expenditures, offset by lower depreciation related to closed stores.
  • 18418656_152
    Financial - Earnings
    The gross margin increased to 26.0% during the 13 weeks ended October 27, 2018 from 25.4% (excluding the $1.0 million inventory fair value amortization) during the 13 weeks ended October 28, 2017.
  • 18418656_236
    Other - Other
    We believe that these measures are useful performance measures which are used by us to facilitate a comparison of our on-going operating performance on a consistent basis from period-to-period.
  • 18418656_231
    Financial - Earnings
    To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this Form 10-K, the reconciliation of Adjusted Earnings to net income and the reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure presented in accordance with GAAP, set forth in the tables below.
  • 18418656_153
    Revenue - Product
    The increase was primarily due to higher MBS Wholesale margins, partially offset by an unfavorable sales mix for MBS Direct due to the shift from physical textbooks to digital products which have lower margins.
  • 18418656_141
    Financial - Expense
    BNC The following table summarizes the BNC cost of sales for the 13 and 26 weeks ended October 27, 2018 and October 28, 2017: The following table summarizes the BNC gross margin for the 13 and 26 weeks ended October 27, 2018 and October 28, 2017: For the 13 weeks ended October 27, 2018, the BNC gross margin as a percentage of sales increased as discussed below: Product and other gross margin increased (110 basis points), driven primarily by higher margin rates (90 basis points) due to lower markdowns compared to the prior year, including the benefits realized from transferring underutilized inventory to MBS, and a favorable sales mix (75 basis points), partially offset by higher costs related to our college and university contracts (55 basis points) resulting from contract renewals and new store contracts.
  • 18418656_265
    Other - Other
    During the 26 weeks ended October 28, 2017, we borrowed $225.4 million and repaid $343.2 million under the Credit Agreement, for a net total of $41.8 million of outstanding borrowings as of October 28, 2017, comprised entirely of outstanding borrowings under the Credit Facility.
  • 18418656_219
    Other - Other
    During the second quarter of Fiscal 2019, we recorded an additional measurement period adjustment to further reduce our net deferred tax liability by $3.8 million as a result of accelerating certain deductions as permitted by the U.S. tax code.
  • 18418656_144
    Financial - Earnings
    Rental gross margin remained unchanged at 39.5%, driven primarily by favorable rental mix (30 basis points) and higher rental margin rates (10 basis points), offset by higher costs related to our college and university contracts (40 basis points) resulting from contract renewals and new store contracts.
  • 18418656_7
    Other - Other
    The strengths of our business includes our ability to compete by developing new products and solutions to meet market needs, our large footprint with direct access to students and faculty, our well-established, deep relationships with partners and stable, long-term contracts, and our well-recognized brands.
  • 18418656_279
    Other - Other
    The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934).
  • 18418656_142
    Financial - Earnings
    Rental gross margin increased (10 basis points), driven primarily by favorable rental mix (65 basis points), partially offset by lower rental margin rates (30 basis points) and higher costs related to our college and university contracts (25 basis points) resulting from contract renewals and new store contracts.
  • 18418656_218
    Financial - Income
    The most significant impact of the legislation for the Company was a $20.4 million reduction of the value of our net deferred (which represents future tax liabilities) and long-term tax liabilities as a result of lowering the U.S. corporate income tax rate from 35% to 21%, which was recorded in Fiscal 2018.
  • 18418656_216
    Financial - Income
    As of October 27, 2018, we had not completed the accounting for the tax effects of enactment of the Act; however, as described below, we have made a reasonable estimate of the effects on existing deferred tax balances and the one-time transition tax in accordance with SAB 118, "Income Tax Accounting Implications of the Tax Cuts and Jobs Act" (SAB 118).
  • 18418656_171
    Financial - Expense
    During the 26 weeks ended October 27, 2018, selling and administrative expenses decreased by $0.7 million, or 0.3%, to $214.5 million from $215.2 million during the 26 weeks ended October 28, 2017.
  • 18418656_172
    Financial - Expense
    The variances by segment are as follows: BNC During the 13 weeks ended October 27, 2018, selling and administrative expenses decreased by $1.4 million, or 1.5%, to $93.6 million from $95.0 million during the 13 weeks ended October 28, 2017.
  • 18418656_174
    Financial - Expense
    During the 26 weeks ended October 27, 2018, selling and administrative expenses decreased by $3.6 million, or 2.0% to $172.6 million from $176.2 million during the 26 weeks ended October 28, 2017.
  • 18418656_176
    Financial - Expense
    MBS During the 13 weeks ended October 27, 2018, MBS selling and administrative expenses decreased by $1.0 million or 7.5% to $12.3 million from $13.3 million during the 13 weeks ended October 28, 2017.
  • 18418656_177
    Financial - Expense
    During the 26 weeks ended October 27, 2018, selling and administrative expenses decreased by $1.2 million or 4.8% to $24.2 million from $25.4 million during the 26 weeks ended October 28, 2017.
  • 18418656_100
    Revenue - Product
    Other includes inventory liquidation sales to third parties, and certain accounting adjusting items related to return reserves, agency sales and other deferred items.
  • 18418656_278
    Other - Other
    On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50 million, in the aggregate, of our outstanding Common Stock.
  • 18418656_269
    MA - Other
    Our future capital requirements will depend on many factors, including, but not limited to, the economy and the outlook for and pace of sustainable growth in our markets, the levels at which we maintain inventory, the number and timing of new store openings, and any potential acquisitions of other brands or companies including digital properties.
  • 18418656_213
    Other - Other
    The effective tax rate for the 13 weeks ended July 28, 2018 is significantly lower as compared to the comparable prior year period due to the tax benefit of U.S. Tax Reform, partially offset by permanent differences.
  • 18418656_240
    Other - Other
    The following is Adjusted EBITDA by segment for the 13 and 26 weeks ended October 27, 2018 and October 28, 2017.
  • 18418656_227
    Financial - Earnings
    See Adjusted Earnings (non-GAAP) discussion below.
  • 18418656_193
    Management Change - Other
    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.
  • 18418656_114
    Revenue - Product
    General merchandise sales for BNC increased for the 13 and 26 weeks ended October 27, 2018 primarily due to higher emblematic apparel, graduation, and computer products sales.
  • 18418656_207
    Financial - Expense
    For the 26 weeks ended October 28, 2017, excluding the $3.3 million of incremental cost of sales related to amortization of the MBS inventory fair value adjustment, the CEO separation costs of $5.4 million (recorded in restructuring and other charges) and transaction costs of $1.8 million, all discussed above, operating income was $38.3 million (or 3.1% of sales).
  • 18418656_243
    Other - Other
    As of October 27, 2018, we had no outstanding borrowings under the Credit Agreement.
  • 18418656_263
    Other - Other
    During the 26 weeks ended October 27, 2018, we borrowed $119.9 million and repaid $316.3 million under the Credit Agreement, with no outstanding borrowings as of October 27, 2018.
  • 18418656_133
    Revenue - Product
    DSS total sales increased by $0.4 million or 10% to $4.9 million during the 13 weeks ended October 27, 2018 from $4.5 million during the 13 weeks ended October 28, 2017.
  • 18418656_134
    Revenue - Product
    DSS total sales increased by $6.1 million to $10.6 million during the 26 weeks ended October 27, 2018 from $4.5 million during the 26 weeks ended October 28, 2017, primarily due to the acquisition of Student Brands on August 3, 2017 and PaperRater on August 21, 2018.
  • 18418656_179
    Financial - Expense
    DSS During the 13 weeks ended October 27, 2018, DSS selling and administrative expenses increased by $1.2 million to $3.4 million from $2.2 million during the 13 weeks ended October 28, 2017.
  • 18418656_181
    Financial - Expense
    During the 26 weeks ended October 27, 2018, selling and administrative expenses increased by $3.8 million to $6.2 million from $2.4 million during the 26 weeks ended October 28, 2017.
  • 18418656_191
    Financial - Expense
    Depreciation and amortization expense increased by $1.2 million, or 3.9%, to $32.9 million during the 26 weeks ended October 27, 2018 from $31.7 million during the 26 weeks ended October 28, 2017.
  • 18418656_72
    Other - Other
    Enrollment trends, specifically at community colleges, continue to decline, led primarily by an improved economy and a dip in the United States birth rate resulting in fewer students at the traditional 18-24 year old college age.
  • 18418656_49
    Revenue - Product
    Since the demand for used textbooks has historically been greater than the available supply, our financial results are highly dependent upon MBS Wholesale?s ability to build its textbook inventory from suppliers in advance of the selling season.
  • 18418656_234
    Management Change - Other
    In addition, our use of these non-GAAP financial measures may be different from similarly named measures used by other companies, limiting their usefulness for comparison purposes.
  • 18418656_68
    Revenue - Product
    We expect general merchandise sales to continue to increase over the long term, as our product assortments continue to emphasize and reflect the changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online.
  • 18418656_27
    Other - Other
    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 wide range of offerings designed to improve student success and outcomes.
  • 18418656_24
    MA - Other
    Also in August 2018, we further expanded Student Brands' writing services via an acquisition of PaperRater, a leading website that offers students a suite of writing services aimed at improving multiple facets of writing.
  • 18418656_121
    Revenue - Product
    These decreases were partially offset by improved general merchandise sales.
  • 18418656_186
    Financial - Expense
    During the 26 weeks ended October 27, 2018, Corporate Services' selling and administrative expenses increased by $0.3 million, or 3.1%, to $11.5 million during the 26 weeks ended October 27, 2018 from $11.2 million during the 26 weeks ended October 28, 2017.
  • 18418656_67
    Revenue - Product
    Economic Environment: BNC general merchandise sales are subject to short-term fluctuations driven by the broader retail environment.
  • 18418656_135
    Financial - Expense
    Our cost of sales decreased as a percentage of sales to 74.1% during the 13 weeks ended October 27, 2018 compared to 75.6% (or 75.4% excluding inventory valuation adjustment discussed below) during the 13 weeks ended October 28, 2017.
  • 18418656_138
    Financial - Expense
    Our cost of sales decreased as a percentage of sales to 75.9% during the 26 weeks ended October 27, 2018 compared to 77.3% (or 77.0% excluding inventory valuation adjustment discussed below) during the 26 weeks ended October 28, 2017.
  • 18418656_209
    Financial - Expense
    Net interest expense increased $0.5 million to $5.4 million during the 26 weeks ended October 27, 2018 from $4.9 million during the 26 weeks ended October 28, 2017.
  • 18418656_299
    Other - Other
    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.
  • 18418656_79
    Revenue - Product
    We also derive revenue from other sources, such as sales of inventory management, hardware and point-of-sale software, direct-to-student subscription-based writing services, and other services.
  • 18418656_18
    Revenue - Product
    MBS Wholesale sells hardware and a software suite of applications that provides inventory management and point-of-sale solutions to over 400 college bookstores.
  • 18418656_268
    Other - Other
    We believe that our future cash from operations, access to borrowings under the Credit Facility, FILO Facility and short-term vendor financing will provide adequate resources to fund our operating and financing needs for the foreseeable future.
  • 18418656_25
    Other - Other
    PaperRater's services include plagiarism detection, grammar feedback, and an AI-based writing score predictor, and are highly complementary to Student Brands' existing writing service offerings.
  • 18418656_4
    Revenue - Product
    Barnes & Noble Education, Inc. ("BNED") is one of the largest contract operators of physical and virtual bookstores for college and university campuses and K-12 institutions across the United States, one of the largest textbook wholesalers and inventory management hardware and software providers, and a leading provider of digital education solutions.
  • 18418656_39
    Financial - Expense
    As tuition and other costs rise, colleges and universities face increasing pressure to attract and retain students and provide them with innovative, affordable educational content and tools that support their educational development.

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  • Form Type: Quarterly
  • Number of times amended: 0
  • Accession Number: 0001634117-18-000111
  • Submitted to the SEC: Tuesday, December 4, 2018 4:54:28 PM EST
  • Accepted by the SEC: Tuesday, December 4, 2018
  • Period ending: October 2018
  • Industry: Retail Miscellaneous Shopping Goods Stores