Barnes & Noble Education, Inc. 10-Q

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations Unless the context otherwise indicates, references to “we,” “us,” “our” and “the Company” refer to Barnes & Noble Education, Inc. or “BNED”, a Delaware corporation. References to “Barnes & Noble College” or “BNC” refer to our subsidiary Barnes & Noble College Booksellers, LLC. References to “MBS” refer to our subsidiary MBS Textbook Exchange, LLC. Overview Description of Business 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. We are also one of the largest textbook wholesalers, inventory management hardware and software providers, and a leading provider of digital education solutions. We operate 1,388 physical, virtual, and custom bookstores and serve more than 6 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment. Additionally, we offer direct-to-student products and services to help students study more effectively and improve academic performance. The strengths of our business include our ability to compete by developing new products and solutions to meet market needs, our large operating footprint with direct access to students and faculty, our well-established, deep relationships with academic partners and stable, long-term contracts and our well-recognized brands. We expect to continue to introduce scalable and advanced digital solutions focused largely on the student, expand our e-commerce capabilities and accelerate such capabilities through our merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. D/B/A "Lids" (“Lids”) (collectively referred to herein as the “F/L Partnership”), increase market share with new accounts, and expand our strategic opportunities through acquisitions and partnerships. We expect gross general merchandise sales to continue to increase over the long term, as our product assortments continue to emphasize and reflect changing consumer trends, and we evolve our presentation concepts and merchandising of products in stores and online, which we expect to be further enhanced and accelerated through the F/L Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo general merchandise business. The Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels, and for being a trusted source for students in our direct-to-student digital solutions business. For additional information related to our business, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. Financing Arrangements On March 8, 2023, subsequent to quarter end, we amended our existing Credit Agreement to, among other things, extend the maturity date thereunder by six months to August 29, 2024. The amendment also reduces the commitments under the Credit Agreement by $20 million to $380 million. On March 8, 2023, subsequent to quarter end, we amended the Term Loan Credit Agreement to, among other things, extend the maturity date thereunder by six months to December 7, 2024. For additional information, see Item 1. Financial Statements - Note 14. Subsequent Event. Cost Savings Initiative On December 2, 2022, the Board of Directors approved a company-wide initiative to drive efficiencies, streamline operations, simplify the organizational structure and further reduce non-essential costs. These actions were substantially implemented in December 2022. The Company incurred restructuring charges, primarily related to severance, of approximately $6 million in the third quarter of fiscal 2023 and, as a result, expects to save $10 million to $15 million in fiscal year 2023. These initiatives are expected to provide annualized savings of $30 million to $35 million. The restructuring charges are excluded from non-GAAP adjusted EBITDA and from the annualized and fiscal year 2023 savings. We continue to focus on achieving efficiencies and reducing costs to further improve our operating performance. First Day Inclusive and Equitable Access Programs We provide product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordability through innovative course material delivery models 24 Table of Contents designed to drive improved student experiences and outcomes. We offer our BNC First Day ® inclusive and equitable access programs, consisting of First Day Complete and First Day , in which course materials, including both physical and digital content, are offered at a reduced price through a course fee or included in tuition, and delivered to students on or before the first day of class. • First Day Complete is adopted by an institution and includes all classes, providing students both physical and digital materials. The First Day Complete model drives substantially greater unit sales and sell-through for the bookstore. • Through First Day , digital course materials are adopted by a faculty member for a single course, and students receive their materials through their school's learning management system. Offering courseware sales through our inclusive and equitable access First Day Complete and First Day models is a key, and increasingly important strategic initiative of ours to meet the market demands of substantially reduced pricing to students, as well as the opportunity to improve student outcomes, while, at the same time, increasing our market share, revenue and relative gross profits of courseware sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales. We expect these programs to allow us to ultimately reverse historical long-term trends in courseware revenue declines, which has been observed at those schools where such programs have been adopted. We are moving quickly and decisively to accelerate our First Day Complete strategy. We plan to move many institutions to First Day Complete for the Fall of 2023 and the majority of schools by Fall 2024. As of January 28, 2023, 116 campus stores adopted our First Day Complete course materials delivery program for the 2023 Spring Term, representing approximately 580,000 in total undergraduate student enrollment (as reported by National Center for Education Statistics), compared to 76 campus stores representing approximately 380,000 in total undergraduate student enrollment or the 2022 Spring Term. During the 13 weeks ended January 28, 2023, First Day Complete sales increased by $28.9 million to $66.9 million, or 76%, as compared to $38.0 million in the prior year period. During the 39 weeks ended January 28, 2023, First Day Complete sales increased by $83.8 million to $173.4 million, or 94%, as compared to $89.6 million in the prior year period. Partnership with Fanatics and Lids In December 2020, we entered into the F/L Partnership. Through this partnership, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our general merchandise business. Fanatics’ cutting-edge e-commerce and technology expertise offers our campus stores expanded product selection, a world-class online and mobile experience, and a progressive direct-to-consumer platform. Coupled with Lids, the leading standalone brick and mortar retailer focused exclusively on licensed fan and alumni products, our campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments. We maintain our relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores. We also work closely with our campus partners to ensure that each campus store maintains unique aspects of in-store merchandising, including localized product assortments and specific styles and designs that reflect each campus’s brand. We leverage Fanatics’ e-commerce technology and expertise for the operational management of the emblematic merchandise and gift sections of our campus store websites. Lids manages in-store assortment planning and merchandising of emblematic apparel, headwear, and gift products for our partner campus stores, and Lids owns the inventory it manages, relieving us of the obligation to finance inventory purchases from working capital. COVID-19 Business Impact Our business has been significantly negatively impacted by the COVID-19 pandemic, as many schools adjusted their learning models and on-campus activities. However, on campus traffic continues to grow from increased campus events and activities, as compared to the last two years. Our third quarter 2022 results were negatively impacted by a Covid variant experienced on campuses across the country during the 2022 Spring Term which did not recur during the 2023 Spring Term. While the impact of the COVID-19 pandemic is lessening, we cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including variants, on enrollments, campus activities, university budgets, athletics and other areas that directly affect our business operations . Although most four year schools returned to a traditional on-campus environment, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings. Segments We have three reportable segments: Retail, Wholesale and DSS. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, continue to be presented as “Corporate Services”. We identify our segments in accordance with the way our business is managed (focusing on the financial information 25 Table of Contents distributed) and the manner in which our chief operating decision maker allocates resources and assesses financial performance. The following summarizes the three segments. For additional information about each segment's operations, see Part I - Item 1. Business in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022 . Retail Segment 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 independently or along with our merchant partners, 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 are offered at a reduced price through a fee charged by the institution or included in tuition, 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. Wholesale Segment 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. DSS Segment 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. Seasonality Our business is highly seasonal. Our quarterly results also may fluctuate depending on the timing of the start of the various schools' semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. Our fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of April. For our retail operations, sales are generally highest in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials, and lowest in the first and fourth fiscal quarters. Sales attributable to our wholesale business are generally highest in our first, second and third quarter, as it sells textbooks and other course materials for retail distribution. For our DSS segment, or direct-to-student business, sales and operating profit are realized relatively consistently throughout the year. Trends, Competition and Other Business Conditions Affecting Our Business The market for educational materials is undergoing unprecedented change. 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. Current trends, competition and other factors affecting our business include: • Overall Economic Environment, Capital Markets, College Enrollment and Consumer Spending Patterns. Our business is affected by the impact of the COVID-19 pandemic, the overall economic environment, capital markets, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise. • Impact of the COVID-19 Pandemic : The COVID-19 pandemic has materially and adversely impacted certain segments of the U.S. economy, with legislative and regulatory responses including unprecedented monetary and fiscal policy actions across all sectors. Many colleges and K-12 schools had been required to cease in-person classes in an attempt to limit the spread of the COVID-19 virus and ensure the safety of their students. Although most academic institutions have since reopened, some are providing alternatives to traditional in-person instruction, including online and hybrid learning options and significantly reduced classroom sizes. While many athletic conferences resumed their sport 26 Table of Contents activities, other events, such as parent and alumni weekends and prospective student campus tour activities, some may still be curtailed or offered virtually. Additionally, our business, like many others has been affected by the challenging labor market and the ability to recruit employees. The impact of COVID-19 store closings during Fiscal 2021 to Fiscal 2022 resulted in the loss of cash flow and increased borrowings that we would not otherwise have expected to incur. • Economic Environment: Retail general merchandise sales are subject to short-term fluctuations driven by the broader retail environment and other economic factors, such as interest rate fluctuations and inflationary considerations. The broader macro-economic global supply chain issues have impacted our ability to source textbooks, school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing. A significant reduction in U.S. economic activity could lead to decreased consumer spending. • Capital Market Trends : We may require additional capital in the future to sustain or grow our business. The future availability of financing will depend on a variety of factors, such as economic and market conditions, and the availability of credit. These factors could materially adversely affect our costs of borrowing, and our financial position and results of operations would be adversely impacted. Volatility in global financial markets may also limit our ability to access the capital markets at a time when we would like, or need, to raise capital, which could have an impact on our ability to react to changing economic and business conditions. • Enrollment Trends: The growth of our business depends on our ability to attract new customers and to increase the level of engagement by our current student customers. We continue to see downward enrollment trends. Enrollment trends, specifically at community colleges, generally correlate with changes in the economy and unemployment factors, e.g., low unemployment tends to lead to low enrollment and higher unemployment rates tend to lead to higher enrollment trends, as students generally enroll to obtain skills that are in demand in the workforce. Enrollment trends have been negatively impacted overall by COVID-19 concerns at physical campuses. Additionally, enrollment trends are impacted by the dip in the United States birth rate resulting in fewer students at the traditional 18-24 year-old college age. Online degree program enrollments continue to grow, even in the face of declining overall higher education enrollment. • Increased Use of Online and Digital Platforms as Companions or Alternatives to Printed Course Materials. Students and faculty can now choose from a wider variety of educational content and tools than ever before, delivered across both print and digital platforms. • Increasing Costs Associated with Defending Against Security Breaches and Other Data Loss, Including Cyber-Attacks. We are increasingly dependent upon information technology systems, infrastructure and data. Cyber-attacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. We continue to invest in data protection, including insurance, and information technology to prevent or minimize these risks and, to date, we have not experienced any material service interruptions and are not aware of any material breaches. • Distribution Network Evolving. The way course materials are distributed and consumed is changing significantly, a trend that is expected to continue. The market for course materials, including textbooks and supplemental materials, is intensely competitive and subject to rapid change. • Disintermediation . We are experiencing growing competition from alternative media and alternative sources of textbooks and other course materials. In addition to the official physical or virtual campus bookstore, course materials are also sold through off-campus bookstores, e-commerce outlets, digital platform companies, publishers, including Cengage, Pearson and McGraw Hill, bypassing the bookstore distribution channel by selling or renting directly to students and educational institutions, and student-to-student transactions over the Internet. • Supply Chain and Inventory. Since the demand for used textbooks has historically been greater than the available supply, our financial results are highly dependent upon Wholesale’s ability to build its textbook inventory from suppliers in advance of the selling season. Recently, the impact of fewer students on campus due to the COVID-19 pandemic has significantly impacted our on-campus buyback programs which supplies Wholesale’s used textbook inventory for future selling periods. Some textbook publishers have begun to supply textbooks pursuant to consignment or rental programs which could impact used textbook supplies in the future. Additionally, Wholesale is a national distributor for rental textbooks offered through McGraw-Hill Education's and Pearson Education’s consignment rental program, both of which are relatively nascent. The broader macro-economic global supply chain issues may also impact our ability to source school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing. • Price Competition. In addition to the competition in the services we provide to our customers, our textbook and other course materials business faces significant price competition. Students purchase textbooks and other course materials from multiple providers, are highly price sensitive, and can easily shift spending from one provider or format to another. 27 Table of Contents • First Day Complete and First Day Models. Offering courseware sales through our inclusive and equitable access First Day Complete and First Day models is a key, and increasingly important, strategic initiative of ours to meet the market demands of substantially reduced pricing to students. Our First Day Complete and First Day programs contribute to improved student outcomes, while increasing our market share, revenue and relative gross profits of courseware sales given the higher volumes of units sold in such models as compared to historical sales models that rely on individual student marketing and sales. We expect these programs to allow us to ultimately reverse historical long-term trends in courseware revenue declines, which has been observed at those schools where such programs have been adopted. We are moving quickly and decisively to accelerate our First Day Complete strategy. While we plan to move many institutions to First Day Complete for the Fall of 2023, and the majority of our schools by Fall 2024, we cannot guarantee that we will be able to achieve these plans within these timeframes or at all. • A Large Number of Traditional Campus Bookstores Have Yet to be Outsourced. • Outsourcing Trends. We continue to see the trend towards outsourcing in the campus bookstore market and also continue to see a variety of business models being pursued for the provision of course materials (such as inclusive and equitable access programs and publisher subscription models) and general merchandise. • New and Existing Bookstore Contracts . We expect awards of new accounts resulting in new physical and virtual store openings will continue to be an important driver of future growth in our business. We also expect that certain less profitable or non-essential bookstores we operate may close. The scope of any such store closures remains uncertain, although we are not aware, at this time, of any significant volume of stores which we operate that are likely to close or have informed us of upcoming closures. For additional discussion of our trends and other factors affecting our business, see Part I - Item 1. Business in our Annual Report on Form 10-K for the year ended April 30, 2022. Elements of Results of Operations Our condensed consolidated financial statements reflect our consolidated financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States (“GAAP”). The results of operations reflected in our consolidated financial statements are presented on a consolidated basis. All material intercompany accounts and transactions have been eliminated in consolidation. Our sales are primarily derived from the sale of course materials, which include new, used and digital textbooks, and at college and university bookstores which we operate, we sell high margin general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items and graduation products. Our rental income is primarily derived from the rental of physical textbooks. We also derive revenue from other sources, such as sales of inventory management, hardware and point-of-sale software, direct-to-student subscription-based services, and other services. Our cost of sales primarily includes costs such as merchandise costs, textbook rental amortization, content development cost amortization, warehouse costs related to inventory management and order fulfillment, insurance, certain payroll costs, and management service agreement costs, including rent expense, related to our college and university contracts and other facility related expenses. Our selling and administrative expenses consist primarily of store payroll and store operating expenses. Selling and administrative expenses also include long-term incentive plan compensation expense and general office expenses, such as merchandising, procurement, field support, finance and accounting, and operating costs related to our direct-to-student subscription-based services business. Shared-service costs such as human resources, legal, treasury, information technology, and various other corporate level expenses and other governance functions, are not allocated to any specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above. 28 Table of Contents Results of Operations - Summary 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Sales: Product sales and other (a) $ 402,755 $ 377,713 $ 1,231,465 $ 1,182,812 Rental income 44,309 25,085 96,555 87,757 Total sales $ 447,064 $ 402,798 $ 1,328,020 $ 1,270,569 Net loss $ (25,049) $ (36,801) $ (55,612) $ (57,901) Adjusted Earnings (non-GAAP) (b) $ (11,380) $ (28,946) $ (38,113) $ (44,005) Adjusted EBITDA by Segment (non-GAAP) (b) Retail $ 6,173 $ (15,386) $ 20,604 $ 4,436 Wholesale 3,105 4,163 7,461 11,810 DSS 1,253 1,476 2,322 3,975 Corporate Services (5,572) (5,154) (17,861) (19,407) Elimination 1,464 1,800 (157) 556 Total Adjusted EBITDA (non-GAAP) $ 6,423 $ (13,101) $ 12,369 $ 1,370 (a) 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 consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition. For Retail Gross Comparable Store Sales details, see below. (b) Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment are non-GAAP financial measures. See Use of Non-GAAP Measures discussion below. The following table sets forth, for the periods indicated, the percentage relationship that certain items bear to total sales: 13 weeks ended 39 weeks ended January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Sales: Product sales and other 90.1 % 93.8 % 92.7 % 93.1 % Rental income 9.9 6.2 7.3 6.9 Total sales 100.0 100.0 100.0 100.0 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales (a) 79.4 78.8 78.2 78.2 Rental cost of sales (a) 52.4 72.3 54.3 60.5 Total cost of sales 76.7 78.4 76.5 77.0 Gross margin 23.3 21.6 23.5 23.0 Selling and administrative expenses 22.3 25.2 23.0 23.3 Depreciation and amortization expense 2.4 3.0 2.6 2.9 Impairment loss (non-cash) 1.3 1.6 0.5 0.5 Restructuring and other charges 1.3 — 0.5 0.2 Operating loss (4.0) % (8.2) % (3.1) % (3.9) % (a) Represents the percentage these costs bear to the related sales, instead of total sales. 29 Table of Contents Results of Operations - 13 and 39 weeks ended January 28, 2023 compared with the 13 and 39 weeks ended January 29, 2022 13 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total Sales: Product sales and other $ 376,950 $ 38,958 $ 9,010 $ — $ (22,163) $ 402,755 Rental income 44,309 — — — — 44,309 Total sales 421,259 38,958 9,010 — (22,163) 447,064 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 309,123 32,290 1,811 — (23,580) 319,644 Rental cost of sales 23,210 — — — — 23,210 Total cost of sales 332,333 32,290 1,811 — (23,580) 342,854 Gross profit 88,926 6,668 7,199 — 1,417 104,210 Selling and administrative expenses 82,753 3,563 7,632 5,572 (47) 99,473 Depreciation and amortization expense 8,749 1,357 506 6 — 10,618 Impairment loss (non-cash) 6,008 — — — — 6,008 Restructuring and other charges 1,452 931 1,848 1,744 — 5,975 Operating (loss) income $ (10,036) $ 817 $ (2,787) $ (7,322) $ 1,464 $ (17,864) 13 weeks ended January 29, 2022 Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total Sales: Product sales and other $ 349,655 $ 37,039 $ 9,430 $ — $ (18,411) $ 377,713 Rental income 25,085 — — — — 25,085 Total sales 374,740 37,039 9,430 — (18,411) 402,798 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 287,435 28,935 1,498 — (20,175) 297,693 Rental cost of sales 18,144 — — — — 18,144 Total cost of sales 305,579 28,935 1,498 — (20,175) 315,837 Gross profit 69,161 8,104 7,932 — 1,764 86,961 Selling and administrative expenses 84,626 3,941 7,775 5,154 (36) 101,460 Depreciation and amortization expense 8,939 1,396 1,826 18 — 12,179 Impairment loss (non-cash) 6,411 — — — — 6,411 Restructuring and other charges 30 — — 16 — 46 Operating (loss) income $ (30,845) $ 2,767 $ (1,669) $ (5,188) $ 1,800 $ (33,135) 30 Table of Contents 39 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total Sales: Product sales and other $ 1,159,821 $ 97,161 $ 26,659 $ — $ (52,176) $ 1,231,465 Rental income 96,555 — — — — 96,555 Total sales 1,256,376 97,161 26,659 — (52,176) 1,328,020 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 931,539 78,139 5,283 — (51,890) 963,071 Rental cost of sales 52,416 — — — — 52,416 Total cost of sales 983,955 78,139 5,283 — (51,890) 1,015,487 Gross profit 272,421 19,022 21,376 — (286) 312,533 Selling and administrative expenses 251,843 11,561 23,909 17,861 (129) 305,045 Depreciation and amortization expense 27,147 4,076 2,646 41 — 33,910 Impairment loss (non-cash) 6,008 — — — — 6,008 Restructuring and other charges 1,452 931 1,848 2,379 — 6,610 Operating (loss) income $ (14,029) $ 2,454 $ (7,027) $ (20,281) $ (157) $ (39,040) 39 weeks ended January 29, 2022 Dollars in thousands Retail Wholesale DSS Corporate Services Eliminations Total Sales: Product sales and other $ 1,106,404 $ 103,192 $ 26,012 $ — $ (52,796) $ 1,182,812 Rental income 87,757 — — — — 87,757 Total sales 1,194,161 103,192 26,012 — (52,796) 1,270,569 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 894,936 79,063 4,144 — (53,219) 924,924 Rental cost of sales 53,096 — — — — 53,096 Total cost of sales 948,032 79,063 4,144 — (53,219) 978,020 Gross profit 246,129 24,129 21,868 — 423 292,549 Selling and administrative expenses 242,477 12,319 21,527 19,407 (133) 295,597 Depreciation and amortization expense 27,015 4,060 5,627 53 — 36,755 Impairment loss (non-cash) 6,411 — — — — 6,411 Restructuring and other charges 2,113 — — 954 — 3,067 Operating (loss) income $ (31,887) $ 7,750 $ (5,286) $ (20,414) $ 556 $ (49,281) Sales The following table summarizes our sales for the 13 and 39 weeks ended January 28, 2023 and January 29, 2022: 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 Var $ Var % January 28, 2023 January 29, 2022 Var $ Var % Product sales and other $ 402,755 $ 377,713 $ 25,042 6.6% $ 1,231,465 $ 1,182,812 $ 48,653 4.1% Rental income 44,309 25,085 $ 19,224 76.6% 96,555 87,757 $ 8,798 10.0% Total Sales $ 447,064 $ 402,798 $ 44,266 11.0% $ 1,328,020 $ 1,270,569 $ 57,451 4.5% The sales increase during the 13 and 39 weeks ended January 28, 2023 is primarily related to higher course material sales, primarily at our First Day programs and higher general merchandise sales as many schools approach a more traditional on campus learning experience. 31 Table of Contents The components of the variances for the 13 and 39 week periods are reflected in the table below. Sales variances 13 weeks ended 39 weeks ended Dollars in millions January 28, 2023 January 28, 2023 Retail Sales New stores $ 21.6 $ 73.5 Closed stores (13.7) (39.8) Comparable stores (a) 22.5 28.8 Textbook rental deferral 17.7 6.5 Service revenue (b) (1.1) (3.4) Other (c) (0.5) (3.4) Retail sales subtotal: $ 46.5 $ 62.2 Wholesale Sales $ 1.9 $ (6.0) DSS Sales $ (0.4) $ 0.7 Eliminations (d) $ (3.7) $ 0.6 Total sales variance: $ 44.3 $ 57.5 (a) In December 2020, we entered into merchandising partnership with Fanatics Retail Group Fulfillment, LLC, Inc. (“Fanatics”) and Fanatics Lids College, Inc. D/B/A "Lids" (“Lids”) (collectively referred to herein as the “F/L Partnership”). 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 consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition. For Retail Gross Comparable Store Sales details, see below. (b) Service revenue includes brand partnerships, shipping and handling, and revenue from other programs. (c) Other includes inventory liquidation sales to third parties, marketplace sales and certain accounting adjusting items related to return reserves, and other deferred items. (d) Eliminates Wholesale sales and service fees to Retail and Retail commissions earned from Wholesale. See discussion of intercompany activities and eliminations below. Retail The following is a store count summary for physical stores and virtual stores. Many of the store closings relate to closing less profitable stores, including satellite store locations. 13 weeks ended 39 weeks ended January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Number of Stores: Physical Virtual Total Physical Virtual Total Physical Virtual Total Physical Virtual Total Beginning of period 793 606 1,399 794 651 1,445 805 622 1,427 769 648 1,417 Opened — 4 4 6 — 6 34 28 62 47 35 82 Closed 8 7 15 1 9 10 54 47 101 17 41 58 End of period 785 603 1,388 799 642 1,441 785 603 1,388 799 642 1,441 Generally, sales are impacted by revenue from net new/closed stores, increased campus traffic, and an increase in the number of on campus activities and events, such as graduations, alumni events and prospective student campus tours, as schools approach a more traditional campus experience. We continued to experience higher sales related to our First Day programs and higher general merchandise sales, especially for graduation products, logo products, and cafe and convenience products, as on campus traffic continues to grow compared to the prior year. Sales were negatively impacted by lower enrollments, primarily at community colleges and by international students, and the continuation of remote and hybrid class offerings. Retail sales increased by $46.5 million, or 12.4%, to $421.2 million during the 13 weeks ended January 28, 2023 from $374.7 million during the 13 weeks ended January 29, 2022. Our third quarter 2022 results were negatively impacted by a Covid variant experienced on campuses across the country during the 2022 Spring Term which did not recur during the 2023 Spring Term. In addition, our sales and margins were positively impacted in Q3 2023 compared to Q3 2022 as a result of improved availability of used inventory which was constrained in 2022. • Product sales and other increased by $27.3 million, or 7.8%, to $377.0 million during the 13 weeks ended January 28, 2023 from $349.7 million during the 13 weeks ended January 29, 2022. During the 13 weeks ended January 28, 2023, 32 Table of Contents total course material product sales increased by $23.8 million, or 9.1%, to $286.7 million; total general merchandise product sales increased by $5.0 million, or 6.6%, to $81.8 million as students return to on campus activities, partially offset by a decrease in service and other revenue of $1.6 million, or 15.6%, to $8.4 million. • Revenue from both of our First Day inclusive and equitable access programs increased by $45 million, or 59%, to $121 million during the 13 weeks ended January 28, 2023, as compared to $76 million during the 13 weeks ended January 29, 2022. Specifically, First Day Complete total sales increased by $29 million, or 76%, to $67 million during the 13 weeks ended January 28, 2023, as compared to $38 million during the 13 weeks ended January 29, 2022. As of January 28, 2023, 116 campus stores adopted our First Day Complete course materials delivery program for the 2023 Spring Term, representing approximately 580,000 in total undergraduate student enrollment (as reported by National Center for Education Statistics), compared to 76 campus stores representing approximately 380,000 in total undergraduate student enrollment in the 2022 Spring Term. • Total course material rental income increased by $19.2 million, or 76.6%, to $44.3 million during the 13 weeks ended January 28, 2023 from $25.1 million during the 13 weeks ended January 29, 2022 primarily due to increased rental textbook activity in our First Day Complete program and improved availability of used textbook inventory. Retail sales increased by $62.2 million, or 5.2%, to $1,256.4 million during the 39 weeks ended January 28, 2023 from $1,194.2 million during the 39 weeks ended January 29, 2022. • Product sales and other increased by $53.4 million, or 4.8%, to $1,159.8 million during the 39 weeks ended January 28, 2023 from $1,106.4 million during the 39 weeks ended January 29, 2022. During the 39 weeks ended January 28, 2023, total course material product sales increased by $15.3 million, or 1.9%, to $834.2 million; total general merchandise product sales increased by $44.9 million, or 18.1%, to $293.3 million as students return to on campus activities, partially offset by a decrease in service and other revenue of $6.8 million, or 32.3%, to $32.3 million primarily due to lower shipping and handling income resulting from increased in-store order fulfillment. • Revenue from both of our First Day inclusive and equitable access programs increased by $110 million, or 55%, to $309 million during the 39 weeks ended January 28, 2023, as compared to $199 million during the 39 weeks ended January 29, 2022. Specifically, First Day Complete total sales increased by $84 million, or 94%, to $174 million during the 39 weeks ended January 28, 2023, as compared to $90 million during the 39 weeks ended January 29, 2022. As of January 28, 2023, 116 campus stores adopted our First Day Complete course materials delivery program for the 2023 Spring Term, representing approximately 580,000 in total undergraduate student enrollment (as reported by National Center for Education Statistics), compared to 76 campus stores representing approximately 380,000 in total undergraduate student enrollment in the 2022 Spring Term. • Total course material rental income increased by $8.8 million, or 10.0%, to $96.6 million during the 39 weeks ended January 28, 2023 from $87.8 million during the 39 weeks ended January 29, 2022 primarily due to increased rental textbook activity in our First Day Complete program and improved availability of used textbook inventory. Retail Gross Comparable Store Sales During the 13 and 39 weeks ended January 28, 2023, logo general merchandise sales are reflected in 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 for the majority of our e-commerce websites during the 39 weeks ended January 29, 2022. 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 33 Table of Contents 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. During the 13 and 39 weeks ended January 28, 2023, Retail Gross Comparable Store general merchandise sales increased by 2.3% and 11.3%, respectively. During the 13 and 39 weeks ended January 28, 2023, Retail Gross Comparable Store course material sales increased by 7.4% and 0.3%, respectively. The increase in course material sales was primarily due to the growth of First Day inclusive and equitable access programs (as discussed above), partially offset by a shift to lower cost options and more affordable solutions, including digital offerings. Retail Gross Comparable Store Sales variances by category for the 13 and 39 week periods are as follows: 13 weeks ended 39 weeks ended Dollars in millions January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Textbooks (Course Materials) $ 21.3 7.4 % $ (11.9) (4.0) % $ 2.9 0.3 % $ 17.4 2.0 % General Merchandise 2.6 2.3 % 42.8 58.6 % 42.6 11.3 % 169.5 81.2 % Total Retail Gross Comparable Store Sales $ 23.9 5.9 % $ 30.9 8.4 % $ 45.5 3.6 % $ 186.9 17.6 % Wholesale Wholesale sales increased by $1.9 million, or 5.2% to $38.9 million during the 13 weeks ended January 28, 2023 from $37.0 million during the 13 weeks ended January 29, 2022. The increase is primarily due to increased customer demand compared to the prior year period, partially offset by higher returns and allowances. Wholesale sales decreased by $6.0 million, or 5.8% to $97.2 million during the 39 weeks ended January 28, 2023 from $103.2 million during the 39 weeks ended January 29, 2022. The decrease is primarily due to lower gross sales impacted by supply constraints resulting from the lack of textbook purchasing opportunities during the prior fiscal year, a decrease in customer demand resulting from a shift in buying patterns from physical textbooks to digital products, and lower demand from other third-party clients, and higher returns and allowances. DSS DSS total sales decreased by $0.4 million, or 4.5% to $9.0 million during the 13 weeks ended January 28, 2023 from $9.4 million during the 13 weeks ended January 29, 2022. Sales decreased in both Bartleby and Student Brands subscription sales. DSS total sales increased by $0.7 million, or 2.5% to $26.7 million during the 39 weeks ended January 28, 2023 from $26.0 million during the 39 weeks ended January 29, 2022. Sales increased primarily due to an increase in Student Brands subscription sales. Cost of Sales and Gross Margin Our cost of sales decreased as a percentage of sales to 76.7% during the 13 weeks ended January 28, 2023 compared to 78.4% during the 13 weeks ended January 29, 2022. Our gross margin increased by $17.2 million, or 19.8%, to $104.2 million, or 23.3% of sales, during the 13 weeks ended January 28, 2023 from $87.0 million, or 21.6% of sales during the 13 weeks ended January 29, 2022. Our cost of sales decreased as a percentage of sales to 76.5% during the 39 weeks ended January 28, 2023 compared to 77.0% during the 39 weeks ended January 29, 2022. Our gross margin increased by $20.0 million, or 6.8%, to $312.5 million, or 23.5% of sales, during the 39 weeks ended January 28, 2023 from $292.5 million, or 23.0% of sales during the 39 weeks ended January 29, 2022. During the 39 weeks ended January 29, 2022, we recognized a merchandise inventory loss of $0.4 million in cost of goods sold in the Retail Segment discussed below. For additional information, see Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies - Merchandise Inventories. Retail The following table summarizes the Retail cost of sales for the 13 and 39 weeks ended January 28, 2023 and January 29, 2022: 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 % of Related Sales January 29, 2022 % of Related Sales January 28, 2023 % of Related Sales January 29, 2022 % of Related Sales Product and other cost of sales $ 309,123 82.0% $ 287,435 82.2% $ 931,539 80.3% $ 894,936 80.9% Rental cost of sales 23,210 52.4% 18,144 72.3% 52,416 54.3% 53,096 60.5% Total Cost of Sales $ 332,333 78.9% $ 305,579 81.5% $ 983,955 78.3% $ 948,032 79.4% 34 Table of Contents The following table summarizes the Retail gross margin for the 13 and 39 weeks ended January 28, 2023 and January 29, 2022: 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 % of Related Sales January 29, 2022 % of Related Sales January 28, 2023 % of Related Sales January 29, 2022 % of Related Sales Product and other gross margin $ 67,827 18.0% $ 62,220 17.8% $ 228,282 19.7% $ 211,468 19.1% Rental gross margin 21,099 47.6% 6,941 27.7% 44,139 45.7% 34,661 39.5% Gross Margin $ 88,926 21.1% $ 69,161 18.5% $ 272,421 21.7% $ 246,129 20.6% For the 13 and 39 weeks ended January 28, 2023, the Retail Product and other gross margin as a percentage of sales increased as discussed below: • For the 13 weeks ended January 28, 2023, Product and other gross margin increased (20 basis points), driven primarily by lower contract costs as a percentage of sales related to our college and university contracts (200 basis points) resulting from contract renewals and new store contracts, partially offset by lower margin rates (105 basis points) due to higher markdowns and an unfavorable sales mix (75 basis points) due to the increased shift to lower margin digital products. • For the 39 weeks ended January 28, 2023, Product and other gross margin increased (60 basis points), driven primarily by a favorable sales mix (85 basis points) due to higher general merchandise sales and higher margin rates (10 basis points) due to lower markdowns, partially offset by higher contract costs as a percentage of sales related to our college and university contracts (40 basis points) resulting from contract renewals and new store contracts. For the 13 and 39 weeks ended January 28, 2023, the Retail Rental gross margin as a percentage of sales increased driven primarily by higher rental margin rates primarily due to our First Day Complete program and favorable rental mix due to improved availability of used textbook inventory, partially offset by higher contract costs as a percentage of sales related to our college and university contracts resulting from contract renewals and new store contracts. Wholesale The cost of sales and gross margin for Wholesale were $32.3 million, or 82.9% of sales, and $6.7 million, or 17.1% of sales, respectively, during the 13 weeks ended January 28, 2023. The cost of sales and gross margin for Wholesale was $28.9 million or 78.1% of sales and $8.1 million or 21.9% of sales, respectively, during the 13 weeks ended January 29, 2022. The cost of sales and gross margin for Wholesale were $78.1 million, or 80.4% of sales, and $19.0 million, or 19.6% of sales, respectively, during the 39 weeks ended January 28, 2023. The cost of sales and gross margin for Wholesale was $79.1 million or 76.6% of sales and $24.1 million or 23.4% of sales, respectively, during the 39 weeks ended January 29, 2022. The gross margin rate decreased during both the 13 and 39 weeks ended January 28, 2023 primarily due to higher markdowns. DSS The gross margin for the DSS segment was $7.2 million, or 79.9% of sales, during the 13 weeks ended January 28, 2023 and $7.9 million, or 84.1% of sales, during the 13 weeks ended January 29, 2022. The gross margin for the DSS segment was $21.4 million, or 80.2% of sales, during the 39 weeks ended January 28, 2023 and $21.9 million, or 84.1% of sales, during the 39 weeks ended January 29, 2022. The high gross margins are driven primarily by high margin subscription service revenue earned. Intercompany Eliminations During the 13 weeks ended January 28, 2023 and January 29, 2022, our sales eliminations were $(22.2) million and $(18.4) million, respectively. During the 39 weeks ended January 28, 2023 and January 29, 2022, our sales eliminations were $(52.2) million and $(52.8) million, respectively. These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale. During the 13 weeks ended January 28, 2023 and January 29, 2022, the cost of sales eliminations were $(23.6) million and $(20.2) million, respectively. During the 39 weeks ended January 28, 2023 and January 29, 2022, the cost of sales eliminations were $(51.9) million and $(53.2) million, respectively. These cost of sales eliminations represent (i) the recognition of intercompany profit for Retail inventory that was purchased from Wholesale in a prior period that was subsequently sold to external customers during the current period and the elimination of Wholesale service fees charged for fulfillment of inventory 35 Table of Contents for virtual store sales, net of (ii) the elimination of intercompany profit for Wholesale inventory purchases by Retail that remain in ending inventory at the end of the current period. During the 13 weeks ended January 28, 2023 and January 29, 2022, the gross margin eliminations were $1.4 million and $1.8 million, respectively. During the 39 weeks ended January 28, 2023 and January 29, 2022, the gross margin eliminations were $(0.3) million and $0.4 million, respectively. The gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods. Selling and Administrative Expenses 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 % of Sales January 29, 2022 % of Sales January 28, 2023 % of Sales January 29, 2022 % of Sales Total Selling and Administrative Expenses $ 99,473 22.3% $ 101,460 25.2% $ 305,045 23.0% $ 295,597 23.3% During the 13 weeks ended January 28, 2023, selling and administrative expenses decreased by $2.0 million, or 2.0%, to $99.5 million from $101.5 million during the 13 weeks ended January 29, 2022. During the 39 weeks ended January 28, 2023, selling and administrative expenses increased by $9.4 million, or 3.2%, to $305.0 million from $295.6 million during the 39 weeks ended January 29, 2022. The variances by segment are discussed by segment below. Retail During the 13 weeks ended January 28, 2023, Retail selling and administrative expenses decreased by $1.9 million, or 2.2%, to $82.7 million from $84.6 million during the 13 weeks ended January 29, 2022. This decrease was primarily due to a $3.0 million decrease in comparable store payroll and operating costs primarily due to cost initiatives implemented during the quarter, and a $1.3 million decrease in incentive plan compensation expense, including compensation expense related to phantom share awards, partially offset by a $1.5 million increase in net new/closed store payroll and operating costs, and a $1.0 million increase in corporate payroll, infrastructure and product development costs. During the 39 weeks ended January 28, 2023, Retail selling and administrative expenses increased by $9.3 million, or 3.9%, to $251.8 million from $242.5 million during the 39 weeks ended January 29, 2022. This increase was primarily due to an increase in store payroll and operating costs at new/closed stores and comparable stores of $6.8 million and $1.3 million, respectively, and an $8.7 million increase in corporate payroll, infrastructure and product development costs, partially offset by a $7.6 million decrease in incentive plan compensation expense, including compensation expense related to phantom share awards. The payroll increase is primarily related to increased staffing at stores that had temporarily or partially closed due to limited on campus activities related to the COVID-19 pandemic in the prior year. The increase is also due to greater on campus activity and related sales during the 39 weeks ended January 28, 2023 and costs to support the growth in First Day programs. Wholesale Wholesale selling and administrative expenses decreased by $0.4 million, or 9.6%, to $3.5 million from $3.9 million during the 13 weeks ended January 29, 2022. The decrease was primarily driven by lower compensation expense of $0.3 million, including incentive plan compensation expense, and lower operating costs of $0.1 million. Wholesale selling and administrative expenses decreased by $0.7 million, or 6.2%, to $11.6 million from $12.3 million during the 39 weeks ended January 29, 2022. The decrease was primarily driven by lower compensation expense, including incentive plan compensation expense of $0.6 million. DSS During the 13 weeks ended January 28, 2023, DSS selling and administrative expenses decreased by $0.2 million, or 1.8%, to $7.6 million from $7.8 million during the 13 weeks ended January 29, 2022. The decrease in costs was primarily driven by a decrease of $0.4 million in incentive plan compensation expense, partially offset by higher compensation expense of $0.1 million and an increase of $0.1 million in operating costs invested in the business associated with product development, sales and infrastructure costs aimed at increasing revenue. During the 39 weeks ended January 28, 2023, DSS selling and administrative expenses increased by $2.4 million, or 11.1%, to $23.9 million from $21.5 million during the 39 weeks ended January 29, 2022. The increase in costs was primarily driven by an increase of $1.4 million in compensation expense and an increase of $1.6 million in operating costs invested in the business associated with product development, sales and infrastructure costs aimed at increasing revenue, partially offset by lower incentive plan compensation expense of $0.6 million. DSS has begun to adjust its cost structure, particularly within its Bartleby organization, to focus on enhanced profitability and sustainable growth. 36 Table of Contents Corporate Services During the 13 weeks ended January 28, 2023, Corporate Services' selling and administrative expenses increased by $0.4 million, or 8.1%, to $5.6 million from $5.2 million during the 13 weeks ended January 29, 2022. The increase in costs was primarily due to higher compensation expense of $0.6 million and higher professional service costs of $0.3 million, partially offset by lower incentive plan compensation costs of $0.5 million. During the 39 weeks ended January 28, 2023, Corporate Services' selling and administrative expenses decreased by $1.5 million, or 8.0%, to $17.9 million from $19.4 million during the 39 weeks ended January 29, 2022. The decrease in costs was primarily due to lower incentive plan compensation costs of $2.7 million, primarily related to phantom share awards, partially offset by higher professional service costs of $0.8 million and higher compensation expense of $0.4 million. Depreciation and Amortization Expense 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 % of Sales January 29, 2022 % of Sales January 28, 2023 % of Sales January 29, 2022 % of Sales Total Depreciation and Amortization Expense $ 10,618 2.4% $ 12,179 3.0% $ 33,910 2.6% $ 36,755 2.9% Depreciation and amortization expense decreased by $1.6 million, or 12.8%, to $10.6 million during the 13 weeks ended January 28, 2023 from $12.2 million during the 13 weeks ended January 29, 2022. Depreciation and amortization expense decreased by $2.8 million, or 7.7%, to $33.9 million during the 39 weeks ended January 28, 2023 from $36.8 million during the 39 weeks ended January 29, 2022. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during Fiscal 2023 and Fiscal 2022. Impairment Loss (non-cash) We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets . During the 13 and 39 weeks ended January 28, 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.0 million (both pre-tax and after-tax), comprised of $0.7 million, $1.7 million, and $3.6 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the condensed consolidated statement of operations. During the 13 and 39 weeks ended January 29, 2022, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.4 million (both pre-tax and after-tax), comprised of $0.7 million, $1.8 million, $3.7 million and $0.2 million of property and equipment, operating lease right-of-use assets, amortizable intangibles, and other noncurrent assets, respectively, on the condensed consolidated statement of operations. For additional information, see Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies and Note 6. Fair Value Measurements . Restructuring and other charges During the 13 and 39 weeks ended January 28, 2023, we recognized restructuring and other charges totaling $6.0 million and $6.6 million, respectively, comprised primarily of $4.7 million in each period for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $1.3 million and $1.9 million, respectively, primarily for costs primarily associated with professional service costs for restructuring and process improvements. During the 13 and 39 weeks ended January 29, 2022, we recognized restructuring and other charges totaling $0 and $3.1 million, respectively. The $3.1 million for the 39 weeks ended January 29, 2022 is comprised primarily of $1.3 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $1.8 million for costs primarily associated with professional service costs for restructuring, process improvements, and development and integration associated with the F/L Partnership. 37 Table of Contents Operating Loss 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 % of Sales January 29, 2022 % of Sales January 28, 2023 % of Sales January 29, 2022 % of Sales Total Operating Loss $ (17,864) (4.0)% $ (33,135) (8.2)% $ (39,040) (3.1)% $ (49,281) (3.9)% Our operating loss was $(17.9) million during the 13 weeks ended January 28, 2023, compared to operating loss of $(33.1) million during the 13 weeks ended January 29, 2022. The decrease in operating loss is due to the matters discussed above. For the 13 weeks ended January 28, 2023, excluding the $6.0 million of impairment loss (non-cash) and $6.0 million of restructuring and other charges, discussed above, operating loss was $(5.9) million (or (1.3)% of sales). For the 13 weeks ended January 29, 2022, excluding the $6.4 million of impairment loss (non-cash), discussed above, operating loss was $(26.7) million (or (6.6)% of sales). Our operating loss was $(39.0) million during the 39 weeks ended January 28, 2023, compared to operating loss of $(49.3) million during the 39 weeks ended January 29, 2022. The decrease in operating loss is due to the matters discussed above. For the 39 weeks ended January 28, 2023, excluding the $6.0 million of impairment loss (non-cash) and $6.6 million of restructuring and other charges, discussed above, operating loss was $(26.4) million (or (2.0)% of sales). For the 39 weeks ended January 29, 2022, excluding the $0.4 million of merchandise inventory loss, the $6.4 million of impairment loss (non-cash) and the $3.1 million of restructuring and other charges, discussed above, operating loss was $(39.4) million (or (3.1)% of sales). Interest Expense, Net 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Interest Expense, Net $ 6,918 $ 3,051 $ 15,672 $ 7,809 Net interest expense increased by $3.9 million to $6.9 million during the 13 weeks ended January 28, 2023 from $3.1 million during the 13 weeks ended January 29, 2022. Net interest expense increased by $7.9 million to $15.7 million during the 39 weeks ended January 28, 2023 from $7.8 million during the 39 weeks ended January 29, 2022. The increase was primarily due to higher borrowings and higher interest rates compared to the prior year. Income Tax Expense 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 Effective Rate January 29, 2022 Effective Rate January 28, 2023 Effective Rate January 29, 2022 Effective Rate Income Tax Expense $ 267 (1.1)% $ 615 (1.7)% $ 900 (1.6)% $ 811 (1.4)% We recorded an income tax expense of $0.3 million on pre-tax loss of $(24.8) million during the 13 weeks ended January 28, 2023, which represented an effective income tax rate of (1.1)% and we recorded an income tax expense of $0.6 million on a pre-tax loss of $(36.2) million during the 13 weeks ended January 29, 2022, which represented an effective income tax rate of (1.7)%. We recorded an income tax expense of $0.9 million on pre-tax loss of $(54.7) million during the 39 weeks ended January 28, 2023, which represented an effective income tax rate of (1.6)% and we recorded an income tax expense of $0.8 million on a pre-tax loss of $(57.1) million during the 39 weeks ended January 29, 2022, which represented an effective income tax rate of (1.4)%. The effective tax rate for the 13 weeks ended January 28, 2023 is higher as compared to the prior year comparable period due to state tax adjustments recorded in the prior year. The effective tax rate for the 39 weeks ended January 28, 2023 is lower as compared to the prior year comparable period due to foreign taxes and lower projected annual taxable loss in the current year. 38 Table of Contents Net Loss 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Net loss $ (25,049) $ (36,801) $ (55,612) $ (57,901) As a result of the factors discussed above, net loss was $(25.0) million during the 13 weeks ended January 28, 2023, compared with net loss of $(36.8) million during the 13 weeks ended January 29, 2022. As a result of the factors discussed above, net loss was $(55.6) million during the 39 weeks ended January 28, 2023, compared with net loss of $(57.9) million during the 39 weeks ended January 29, 2022. Adjusted Earnings (non-GAAP) is $(11.4) million during the 13 weeks ended January 28, 2023, compared with $(28.9) million during the 13 weeks ended January 29, 2022. Adjusted Earnings (non-GAAP) is $(38.1) million during the 39 weeks ended January 28, 2023, compared with $(44.0) million during the 39 weeks ended January 29, 2022. See Adjusted Earnings (non-GAAP) discussion below. Use of Non-GAAP Measures - Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow To supplement our results prepared in accordance with generally accepted accounting principles (“GAAP”), we use the measure of Adjusted Earnings, Adjusted EBITDA, Adjusted EBITDA by Segment, and Free Cash Flow, which are non-GAAP financial measures under Securities and Exchange Commission (the “SEC”) regulations. We define Adjusted Earnings as net income adjusted for certain reconciling items that are subtracted from or added to net income (loss). We define Adjusted EBITDA as net income (loss) plus (1) depreciation and amortization; (2) interest expense and (3) income taxes, (4) as adjusted for items that are subtracted from or added to net income (loss). We define Free Cash Flow as Cash Flows from Operating Activities less capital expenditures, cash interest and cash taxes. To properly and prudently evaluate our business, we encourage you to review our condensed consolidated financial statements included elsewhere in this Form 10-Q, the reconciliation of Adjusted Earnings to net income (loss), the reconciliation of consolidated Adjusted EBITDA to consolidated net income (loss), and the reconciliation of Adjusted EBITDA by Segment to net income (loss) by segment, the most directly comparable financial measure presented in accordance with GAAP, set forth in the tables below. 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 our on-going operating performance. 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, 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. We review these non-GAAP financial measures as internal measures to evaluate our performance at a consolidated level and at a segment level and manage our operations. 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. We believe that these non-GAAP financial measures provide for a more complete understanding of factors and trends affecting our business than measures under GAAP can provide alone, as they exclude certain items that management believes do not reflect the ordinary performance of our operations in a particular period. Our Board of Directors and management also use Adjusted EBITDA and Adjusted EBITDA by Segment, at a consolidated and at a segment level, as one of the primary methods for planning and forecasting expected performance, for evaluating on a quarterly and annual basis actual results against such expectations, and as a measure for performance incentive plans. Management also uses Adjusted EBITDA by Segment to determine segment capital allocations. We believe that the inclusion of Adjusted Earnings, Adjusted EBITDA, and Adjusted EBITDA by Segment results provides investors useful and important information regarding our operating results, in a manner that is consistent with management's evaluation of business performance. We believe 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 our operating profitability and liquidity as we manage the business to maximize margin and cash flow. 39 Table of Contents Consolidated Adjusted Earnings (non-GAAP) 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Net loss $ (25,049) $ (36,801) $ (55,612) $ (57,901) Reconciling items (below) 13,669 7,855 17,499 13,896 Adjusted Earnings (non-GAAP) $ (11,380) $ (28,946) $ (38,113) $ (44,005) Reconciling items Impairment loss (non-cash) (a) $ 6,008 $ 6,411 $ 6,008 $ 6,411 Merchandise inventory loss (a) — — — 434 Content amortization (non-cash) 1,686 1,398 4,881 3,984 Restructuring and other charges (a) 5,975 46 6,610 3,067 Reconciling items (b) $ 13,669 $ 7,855 $ 17,499 $ 13,896 (a) See Management Discussion and Analysis and Results of Operations discussion above. (b) There is no pro forma income effect of the non-GAAP items. Consolidated Adjusted EBITDA (non-GAAP) 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Net loss $ (25,049) $ (36,801) $ (55,612) $ (57,901) Add: Depreciation and amortization expense 10,618 12,179 33,910 36,755 Interest expense, net 6,918 3,051 15,672 7,809 Income tax expense 267 615 900 811 Impairment loss (non-cash) (a) 6,008 6,411 6,008 6,411 Merchandise inventory loss (a) — — — 434 Content amortization (non-cash) 1,686 1,398 4,881 3,984 Restructuring and other charges (a) 5,975 46 6,610 3,067 Adjusted EBITDA (non-GAAP) $ 6,423 $ (13,101) $ 12,369 $ 1,370 (a) See Management Discussion and Analysis and Results of Operations discussion above. The following is Adjusted EBITDA by segment for the 13 and 39 weeks ended January 28, 2023 and January 29, 2022. Adjusted EBITDA - by Segment 13 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale DSS Corporate Services (a) Eliminations Total Net (loss) income $ (10,036) $ 817 $ (2,787) $ (14,507) $ 1,464 $ (25,049) Add: Depreciation and amortization expense 8,749 1,357 506 6 — 10,618 Interest expense, net — — — 6,918 — 6,918 Income tax expense — — — 267 — 267 Impairment loss (non-cash) (a) 6,008 — — — — 6,008 Content amortization (non-cash) — — 1,686 — — 1,686 Restructuring and other charges (b) 1,452 931 1,848 1,744 — 5,975 Adjusted EBITDA (non-GAAP) $ 6,173 $ 3,105 $ 1,253 $ (5,572) $ 1,464 $ 6,423 40 Table of Contents Adjusted EBITDA - by Segment 13 weeks ended January 29, 2022 Dollars in thousands Retail Wholesale DSS Corporate Services (a) Eliminations Total Net (loss) income $ (30,845) $ 2,767 $ (1,669) $ (8,854) $ 1,800 $ (36,801) Add: Depreciation and amortization expense 8,939 1,396 1,826 18 — 12,179 Interest expense, net — — — 3,051 — 3,051 Income tax expense — — — 615 — 615 Impairment loss (non-cash) (a) 6,411 — — — — 6,411 Content amortization (non-cash) 79 — 1,319 — — 1,398 Restructuring and other charges (b) 30 — — 16 — 46 Adjusted EBITDA (non-GAAP) $ (15,386) $ 4,163 $ 1,476 $ (5,154) $ 1,800 $ (13,101) Adjusted EBITDA - by Segment 39 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale DSS Corporate Services (a) Eliminations Total Net (loss) income $ (14,029) $ 2,454 $ (7,027) $ (36,853) $ (157) $ (55,612) Add: Depreciation and amortization expense 27,147 4,076 2,646 41 — 33,910 Interest expense, net — — — 15,672 — 15,672 Income tax expense — — — 900 — 900 Impairment loss (non-cash) (a) 6,008 — — — — 6,008 Content amortization (non-cash) 26 — 4,855 — — 4,881 Restructuring and other charges (b) 1,452 931 1,848 2,379 — 6,610 Adjusted EBITDA (non-GAAP) $ 20,604 $ 7,461 $ 2,322 $ (17,861) $ (157) $ 12,369 Adjusted EBITDA - by Segment 39 weeks ended January 29, 2022 Dollars in thousands Retail Wholesale DSS Corporate Services (a) Eliminations Total Net (loss) income $ (31,887) $ 7,750 $ (5,286) $ (29,034) $ 556 $ (57,901) Add: Depreciation and amortization expense 27,015 4,060 5,627 53 — 36,755 Interest expense, net — — — 7,809 — 7,809 Income tax expense — — — 811 — 811 Impairment loss (non-cash) (a) 6,411 — — — — 6,411 Merchandise inventory loss (b) 434 — — — — 434 Content amortization (non-cash) 350 — 3,634 — — 3,984 Restructuring and other charges (b) 2,113 — — 954 — 3,067 Adjusted EBITDA (non-GAAP) $ 4,436 $ 11,810 $ 3,975 $ (19,407) $ 556 $ 1,370 (a) Interest expense is reflected in Corporate Services as it is primarily related to our Credit Agreement and Term Loan Agreement which fund our operating and financing needs across the organization. Income taxes are reflected in Corporate Services as we record our income tax provision on a consolidated basis. (b) See Management Discussion and Analysis and Results of Operations discussion above. 41 Table of Contents Free Cash Flow (non-GAAP) 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Net cash flows (used in) provided by operating activities $ (31,958) $ (16,375) $ (22,582) $ 7,901 Less: Capital expenditures (a) 6,326 12,129 26,899 33,393 Cash interest 6,105 2,320 13,406 5,982 Cash taxes 1 (38) (15,582) (7,816) Free Cash Flow (non-GAAP) $ (44,390) $ (30,786) $ (47,305) $ (23,658) (a) Purchases of property and equipment are also referred to as capital expenditures. Our investing activities consist principally of capital expenditures for contractual capital investments associated with renewing existing contracts, new store construction, digital initiatives and enhancements to internal systems and our website. The following table provides the components of total purchases of property and equipment: Capital Expenditures 13 weeks ended 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 January 28, 2023 January 29, 2022 Physical store capital expenditures $ 1,700 $ 5,081 $ 12,248 $ 12,561 Product and system development 2,972 4,398 8,584 11,878 Content development costs 1,168 2,037 4,481 6,749 Other 486 613 1,586 2,205 Total Capital Expenditures $ 6,326 $ 12,129 $ 26,899 $ 33,393 Liquidity and Capital Resources Our primary sources of cash are net cash flows from operating activities, funds available under our credit agreement and short-term vendor financing. As of January 28, 2023, we had $255.6 million and $30.0 million outstanding borrowings under the Credit Agreement and Term Loan Agreement, respectively. See Financing Arrangements discussion below. On March 8, 2023, subsequent to quarter end, we amended our existing Credit Agreement to, among other things, extend the maturity date thereunder by six months to August 29, 2024. The amendment also reduces the commitments under the Credit Agreement by $20,000 to $380,000. On March 8, 2023, subsequent to quarter end, we amended the Term Loan Credit Agreement to, among other things, extend the maturity date thereunder by six months to December 7, 2024. For additional information, see Financing Arrangements below . We believe that our future cash from operations, access to borrowings under the Credit Agreement and Term Loan Agreement will provide adequate resources to fund our operating and financing needs for the foreseeable future. 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. To the extent that available funds are insufficient to fund our future activities, we may need to raise additional funds through public or private financing of debt or equity. Our access to, and the availability of, financing in the future will be impacted by many factors, including the liquidity of the overall capital markets and the current state of the economy. There can be no assurances that we will have access to capital markets on acceptable terms. COVID-19 Business Impact Our business has been significantly negatively impacted by the COVID-19 pandemic, as many schools adjusted their learning models and on-campus activities. However, on campus traffic continues to grow from increased campus events and activities, as compared to the last two years. Our third quarter 2022 results were negatively impacted by a Covid variant experienced on campuses across the country during the 2022 Spring Term which did not recur during the 2023 Spring Term. While the impact of COVID-19 pandemic are lessening, we cannot accurately predict the duration or extent of the impact of the COVID-19 virus, including variants, on enrollments, campus activities, university budgets, athletics and other areas that 42 Table of Contents directly affect our business operations . Although most four year schools returned to a traditional on-campus environment for learning, there is still uncertainty about the duration and extent of the impact of the COVID-19 pandemic, including on enrollments at community colleges and by international students, the continuation of remote and hybrid class offerings, and its effect on our ability to source products, including textbooks and general merchandise offerings. We will continue to assess our operations and will continue to consider the guidance of local governments and our campus partners to determine how to operate our bookstores in the safest manner for our employees and customers. If economic conditions caused by the pandemic do not recover as currently estimated by management or market factors currently in place change, there could be a further impact on our results of operations, financial condition and cash flows from operations. Sources and Uses of Cash Flow 39 weeks ended Dollars in thousands January 28, 2023 January 29, 2022 Cash, cash equivalents, and restricted cash at beginning of period $ 21,934 $ 16,814 Net cash flows (used in) provided by operating activities (22,582) 7,901 Net cash flows used in investing activities (26,327) (32,659) Net cash flows provided by financing activities 56,422 20,686 Cash, cash equivalents, and restricted cash at end of period $ 29,447 $ 12,742 As of January 28, 2023 and January 29, 2022, we had restricted cash of $18.3 million and $2.8 million, respectively, comprised of $17.4 million and $1.9 million, respectively, in prepaid and other current assets in the consolidated balance sheet related to segregated funds for commission due to Lids for logo merchandise sales as per the F/L Partnership's merchandising agreement and $0.9 million for both periods in other noncurrent assets in the condensed consolidated balance sheet related to amounts held in trust for future distributions related to employee benefit plans. Cash Flow from Operating Activities Our business is highly seasonal. For our retail operations, cash flows from operating activities are typically a source of cash in the second and third fiscal quarters, when students generally purchase and rent textbooks and other course materials for the upcoming semesters based on the typical academic semester. Given the growth of First Day programs and the timing of cash collection from our school partners, the third fiscal quarter which has been a source of cash has shifted to the fourth quarter. When a school adopts our 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 our third quarter given the timing of the Spring Term and our 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 our sales shift to First Day inclusive and equitable access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors with cash inflows collected from schools. For our wholesale operations, cash flows from operating activities are typically a source of cash in the second and fourth fiscal quarters, as payments are received from the summer and winter selling season when they sell textbooks and other course materials for retail distribution. For both retail and wholesale, 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. For our DSS segment, cash flows are not seasonal as cash flows from operating activities are typically consistent throughout the year. Our quarterly cash flows also may fluctuate depending on the timing of the start of the various school’s semesters, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. 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 $7.9 million during the 39 weeks ended January 29, 2022. This decrease in cash flows provided by operating activities of $30.5 million was primarily due to changes in our working capital in our third quarter due to increased adoption of our First Day inclusive and equitable access offering in the third quarter of 2023 compared to 2022. During the 13 weeks ended January 28, 2023, First Day Complete sales increased $28.9 million to $66.9 million, or 76%, as compared to $38.0 million in the prior year period, which resulted in higher inventory purchases and higher receivables, offset by higher payables and right-of-use payments during the third quarter in the current year period compared to the prior year period. Cash Flow from Investing Activities Cash flows used in investing activities during the 39 weeks ended January 28, 2023 were $(26.3) million compared to $(32.7) million during the 39 weeks ended January 29, 2022. The decrease in cash used in investing activities is primarily due to lower capital expenditures and contractual capital investments associated with content development, digital initiatives, 43 Table of Contents enhancements to internal systems and websites, and new store construction. Capital expenditures totaled $26.9 million and $33.4 million during the 39 weeks ended January 28, 2023 and January 29, 2022, respectively. Cash Flow from Financing Activities Cash flows provided by financing activities during the 39 weeks ended January 28, 2023 were $56.4 million compared to $20.7 million during the 39 weeks ended January 29, 2022. This net change of $35.7 million is primarily due to higher net borrowings. Financing Arrangements Credit Facility We have a credit agreement (the “Credit Agreement”), amended from time to time, including on March 31, 2021 and March 1, 2019, under which the lenders committed to provide us with a 5-year asset-backed revolving credit facility in an aggregate committed principal amount of $400 million (the “Credit Facility”) effective from the March 1, 2019 amendment. We had the option to request an increase in commitments under the Credit Facility of up to $100 million, subject to certain restrictions. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. The agreement included an incremental first in, last out seasonal loan facility (the “FILO Facility”) for a $100 million maintaining the maximum availability under the Credit Agreement at $500 million. From and after July 31, 2022, commitments under the FILO Facility were reduced to $0. As of January 28, 2023, we were in compliance with all debt covenants under the Credit Agreement. On March 8, 2023, subsequent to quarter end, we amended our existing Credit Agreement to (i) extend the maturity date of the Credit Agreement by six months to August 29, 2024, (ii) reduce the commitments under the Credit Agreement by $20 million to $380 million, (iii) increase the applicable margin with respect to the interest rate under the Credit Agreement to 3.375% per annum, in the case of interest accruing based on a Secured Overnight Financing Rate, and 2.375%, in the case of interest accruing based on an alternative base rate, in each case, without regard to a pricing grid, (iv) reduce advance rates with respect to the borrowing base (x) by 500 basis points upon the achievement of certain liquidity events, which may include a sale of equity interests or of assets (a “Specified Event”), or, if such a Specified Event shall not have occurred, on May 31, 2023 and (y) by an additional 500 basis points on September 29, 2023, (v) amend certain negative covenants and add certain additional covenants, (vi) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) to be at all times greater than the greater of 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and $32.5 million and (vii) require repayment of the loans under the Credit Agreement upon a Specified Event. In addition, the amendment requires the achievement of a Specified Event by no later than May 31, 2023 (as such date may be extended pursuant to the terms fo the Credit Agreement). During the 39 weeks ended January 28, 2023, we borrowed $512.0 million and repaid $452.1 million under the Credit Agreement, with $255.6 million of outstanding borrowings as of January 28, 2023, comprised entirely of borrowings under the Credit Facility. During the 39 weeks ended January 29, 2022, we borrowed $463.2 million and repaid $440.4 million under the Credit Agreement, with $200.4 million of outstanding borrowings as of January 29, 2022, comprised entirely of borrowings under the Credit Facility. As of both January 28, 2023 and January 29, 2022, we have issued $4.8 million in letters of credit under the Credit Facility. For additional information including interest terms and covenant requirements related to the Credit Facility and FILO Facility, refer to Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. Term Loan On June 7, 2022, we entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with TopLids LendCo, LLC and Vital Fundco, LLC and we entered an amendment to our existing Credit Agreement. For additional information, see the Company’s Report on Form 8-K dated June 7, 2022 and filed with the SEC on June 10, 2022. The Term Loan Credit Agreement provides for term loans in an amount equal to $30.0 million (the “Term Loan Facility” and, the loans thereunder, the “Term Loans”). The proceeds of the Term Loans are being used to finance working capital, and to pay fees and expenses related to the Term Loan Facility. During the 39 weeks ended January 28, 2023, we borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of January 28, 2023. We incurred debt issuance costs totaling $2.6 million related to the Term Loan Credit Agreement. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the consolidated balance sheets, and subsequently amortized ratably over the term of the Term Loan Facility. The Term Loans accrue interest at a rate equal to 11.25%, payable quarterly, and mature on June 7, 2024. We have the right, through December 31, 2022, to pay all or a portion of the interest on the Term Loans in kind. To date, all interest on the 44 Table of Contents term loan has been paid in cash. The Term Loans do not amortize prior to maturity. Solely to the extent that any Term Loans remain outstanding on June 7, 2023, we must pay a fee of 1.5% of the outstanding principal amount of the Term Loans on such date. On March 8, 2023, subsequent to quarter end, we extended and amended the Term Loan Credit Agreement to (i) extend the maturity date of the Term Loan Credit Agreement by six months to December 7, 2024, (ii) permit the application of certain proceeds to the repayment of the loans under Credit Agreement and (iii) amend certain negative covenants and add certain additional covenants. In addition, the amendment requires the achievement of a Specified Event (as described above) no later than May 31, 2023. We paid a fee of $0.05 million on the amendment closing date to the lenders under the Term Loan Credit Agreement. For additional information related to the Credit Agreement amendment and the Term Loan Agreement amendment, see the Company’s Report on Form 8-K dated March 8, 2023 and filed with the SEC on March 9, 2023.The Term Loan Credit Agreement does not contain a financial covenant, but otherwise contains representations and warranties, covenants and events of default that are substantially the same as those in the Credit Agreement, including restrictions on the ability of the Company and its subsidiaries to incur additional debt, incur or permit liens on assets, make investments and acquisitions, consolidate or merge with any other company, engage in asset sales and make dividends and distributions. The Term Loan Facility is secured by second-priority liens on all assets securing the obligations under the Credit Agreement, which is all of the assets of the Company and the Guarantors, subject to customary exclusions and limitations set forth in the Term Loan Credit Agreement and the other loan documents executed in connection therewith. The Credit Agreement amendment permitted us to incur the Term Loan Facility and also provides that, upon repayment of the Term Loan Credit Agreement (and, if applicable, any replacement credit facility thereof), we may incur second lien secured debt in an aggregate principal amount not to exceed $75.0 million. Income Tax Implications on Liquidity For the fiscal year ended April 30, 2022, we filed an application to change our tax year from January to April under the automatic consent provisions. As a result of the tax year-end change, there is no longer a long-term tax payable associated with the LIFO reserve in other long-term liabilities. We have filed our federal income tax returns for the tax year ended January 2021, which included claims for $33.6 million in refunds for cash taxes paid in prior years. We received refunds of $7.8 million in Fiscal 2022 and $15.8 million on August 29, 2022 (Fiscal 2023). We expect to receive additional refunds of approximately $10.0 million. Share Repurchases During the 39 weeks ended January 28, 2023, we did not repurchase any of our Common Stock under the stock repurchase program. As of January 28, 2023, approximately $26.7 million remains available under the stock repurchase program. During the 39 weeks ended January 28, 2023, we repurchased 347,808 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards. Contractual Obligations Our projected contractual obligations are consistent with amounts disclosed in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. Off-Balance Sheet Arrangements As of January 28, 2023, we have no off-balance sheet arrangements as defined in Item 303 of Regulation S-K. Critical Accounting Policies Our policies regarding the use of estimates and other critical accounting policies are consistent with the disclosures in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022. 45 Table of Contents Disclosure Regarding Forward-Looking Statements This quarterly report on Form 10-Q 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 Form 10-Q 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; 46 Table of Contents • 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 fiscal 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 Form 10-Q. Item 3: Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the items discussed in Part II - Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.