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. We operate 1,289 physical, virtual, and custom bookstores and serve more than 5.8 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment. 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 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 designed to drive improved student experiences and outcomes. We offer our BNC First Day ® equitable and inclusive access programs, consisting of First Day Complete and First Day , which provide faculty required course materials on or before the first day of class at a discounted rate, as compared to the total retail price for the same course materials if purchased separately. The BNC First Day discounted price is offered as a course fee or included in tuition. During the first quarter ended July 29, 2023, BNC First Day total revenue increased by $16.7 million, or 37%, to $61.7 million compared to $45.1 million during the prior year period. We expect to continue to introduce scalable and advanced solutions focused largely on the student and customer experience, 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”), win new accounts, and expand our strategic opportunities through 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. During the 13 weeks ended July 29, 2023, Retail Gross Comparable Store general merchandise sales increased by 5.3%. 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. 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 29, 2023. Financing Arrangements During the 13 weeks ended July 29, 2023, we amended our existing Credit Agreement and Term Loan Agreement to, extend the maturity dates and modify various terms to provide additional liquidity. For additional information, see Item 1. Financial Statements - Note 7. Debt. Sale of DSS Segment During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. On May 31, 2023, we completed the sale of these assets related to our DSS Segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and other considerations. During the 13 weeks ended July 29, 2023, we recorded a Gain on Sale of Business of $3.1 million in Net Loss from Discontinued Operations related to the sale. Net cash proceeds from the sale were used for debt repayment and provided additional funds for working capital needs under our Credit Facility. For additional information, see Note 2. Summary of Significant Accounting Policies. 27 Table of Contents Cost Savings Initiative We have implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability. We have taken steps to significantly reduce our workforce, eliminated duplicate administrative headcounts at all levels, implemented improved system development processes to reduce maintenance costs, reduced capital expenditures, and evaluated operating contractual obligations for cost savings. We have achieved meaningful cost savings from this program of approximately $17 million d uring the second half of the year ended April 29, 2023. These initiatives are expected to provide annualized savings of $30 million to $35 million in Fiscal 2024. Management's plans over the next twelve months include the further reduction of gross capital expenditures and other cost saving measures of approximately $25 million. Management believes that these plans are within its control and probable of being implemented on a timely basis. BNC First Day Equitable and Inclusive 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 designed to drive improved student experiences and outcomes. We offer our BNC First Day ® equitable and inclusive access programs, consisting of First Day Complete and First Day , which provide faculty required course materials on or before the first day of class at a discounted rate, as compared to the total retail price for the same course materials if purchased separately. The BNC First Day discounted price is offered as a course fee or included in tuition. • First Day Complete is adopted by an institution and includes all undergraduate classes (and on occasion graduate classes), providing students both physical and digital materials. The First Day Complete model drives substantially greater unit sales and sell-through for the bookstore. • First Day is adopted by a faculty member for a single course, and students receive primarily digital course materials through their school's learning management system ("LMS"). Offering course materials through our equitable and inclusive 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 course material 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. These programs have allowed us to reverse historical long-term trends in course materials revenue declines, which have 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 in Fiscal 2024 and the majority of our schools by Fiscal 2025, with continued relative adoption of this model thereafter. In the Fall of 2023, 157 campus stores are utilizing First Day ® Complete representing enrollment of nearly 800,000 undergraduate and post graduate students (as reported by National Center for Education Statistics), an increase of approximately 46% compared to Fall of 2022. During the 13 weeks ended July 29, 2023, First Day Complete sales increased by $9.1 million, or 55%, to $25.5 million as compared to $16.5 million in the prior year period. During the 13 weeks ended July 29, 2023, First Day sales increased by $7.7 million, or 27%, to $36.3 million as compared to $28.6 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. 28 Table of Contents Segments During the fourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. We completed the sale of the previous DSS Segment during the first quarter of Fiscal 2024. For additional information, see Note 2. Summary of Significant Accounting Policies. We have two reportable segments: Retail and Wholesale. Additionally, unallocated shared-service costs, which include various corporate level expenses and other governance functions, are not allocated to any specific reporting segment and 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 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 29, 2023 . Retail Segment The Retail Segment operates 1,289 college, university, and K-12 school bookstores, comprised of 726 physical bookstores and 563 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 offers our BNC First Day ® equitable and inclusive access programs, consisting of First Day Complete and First Day , which provide faculty required course materials on or before the first day of class at a discounted rate, as compared to the total retail price for the same course materials if purchased separately. The BNC First Day discounted price is offered as a course fee or included in tuition. 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. During the 13 weeks ended July 29, 2023, we opened 20 stores and closed 97 stores in the Retail Segment, with estimated net annual sales of $52 million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We plan to move many institutions to First Day Complete in Fiscal 2024 and the majority of our stores by Fiscal 2025, with continued relative adoption of this model thereafter. 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 2,900 physical bookstores (including our Retail Segment's 726 physical bookstores) and sources and distributes new and used textbooks to our 563 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 330 college bookstores. 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. Our retail business is highly seasonal, with the major portion of sales and operating profit realized during the second and third fiscal quarters, when college students generally purchase and rent textbooks for the upcoming semesters. Retail product revenue is recognized when the customer takes physical possession of our products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by our customers for products ordered through our websites and virtual bookstores. Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized at the point of sale as product revenue in our condensed consolidated financial statements. Revenue from the rental of physical textbooks is deferred and recognized over the rental period based on the passage of time commencing at the point of sale, when control of the product transfers to the customer and is recognized as rental income in our condensed consolidated financial statements. Depending on the product mix offered under the BNC First 29 Table of Contents Day offerings, revenue recognized is consistent with our policies for product, digital and rental sales, net of an anticipated opt-out or return provision. Given the growth of BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's 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 BNC First Day equitable and inclusive access offerings, we are focused on efforts to better align the timing of our cash outflows to course material vendors and schools with cash inflows collected from schools, including modifying payment terms in existing and future school contracts. Sales attributable to our wholesale business are generally highest in our first, second and third quarters, as it sells textbooks and other course materials for retail distribution. Trends, Competition and Other Business Conditions Affecting Our Business The market for educational materials continues to undergo significant 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 Capital Markets, Economic Environment, College Enrollment and Consumer Spending Patterns. Our business is affected by capital markets, the overall economic environment, funding levels at colleges and universities, by changes in enrollments at colleges and universities, and spending on course materials and general merchandise. • Capital Market Trends : We may require additional capital in the future to sustain or grow our business, including implementation of our strategic initiatives. 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 have and could continue to 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. • 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. Broader macro-economic global supply chain issues could impact our ability to source textbooks, school supplies and general merchandise sold in our campus bookstores, including technology-related products and emblematic clothing. Union and labor market issues may also impact our ability to provide services and products to our customers. A significant reduction in U.S. economic activity could lead to decreased consumer spending. • 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 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. 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 Open Educational Resources ("OER"), Online and Digital Platforms as Companions or Alternatives to Traditional Course Materials, Including Artificial Intelligence ("AI") Technologies. 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. 30 Table of Contents • 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, including student-to-student transactions over the Internet, and multi-title subscription access. • Suppliers, Supply Chain and Inventory. The products that we sell originate from a wide variety of domestic and international vendors. During Fiscal 2023, our four largest retail suppliers, excluding our wholesale business which fulfills orders for all our physical and virtual bookstores, accounted for approximately 28% of our merchandise purchased, with the largest supplier accounting for approximately 8% of our merchandise purchased. 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. In Fiscal 2021 and Fiscal 2022, during the COVID-19 pandemic, the impact of fewer students on campus, and the resulting increase in transition to digital materials, 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. We do not have long-term arrangements with most of our suppliers to guarantee availability of merchandise, content or services, particular payment terms or the extension of credit limits. If our current suppliers were to stop selling merchandise, content or services to us on acceptable terms, including as a result of one or more supplier bankruptcies due to poor economic conditions or refusal by such suppliers to ship products to us due to delayed or extended payment windows as a result of our own liquidity constraints, we may be unable to procure the same merchandise, content or services from other suppliers in a timely and efficient manner and on acceptable terms, or at all. Additionally, delayed or incomplete publisher shipments of physical textbook orders, or delays in receiving digital courseware access codes, could have an adverse impact on sales, including our First Day Complete equitable access program, which relies upon timely receipt of inventory in advance of class start dates each academic term. 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. • First Day Complete and First Day Models. Offering course materials sales through our equitable and inclusive 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 course materials 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. These programs have allowed us to reverse historical long-term trends in course materials revenue declines, which have 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 in Fiscal 2024, and the majority of our schools by Fiscal 2025, 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 equitable and inclusive 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. 31 Table of Contents 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 fiscal year ended April 29, 2023. 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 condensed consolidated financial statements are presented on a consolidated basis. All material intercompany accounts and transactions have been eliminated in consolidation. During the fourth quarter of Fiscal 2023, assets related to our DSS Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Certain assets and liabilities associated with the DSS Segment are presented in our condensed consolidated balance sheets as current "Assets Held for Sale" and current "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the condensed consolidated statements of operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our condensed consolidated statements of cash flows. Our sales are primarily derived from the sale of course materials, which include new, used, rental and digital textbooks. Additionally, at college and university bookstores which we operate, we sell 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, 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, and finance and accounting. 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. Results of Operations - Summary - Continuing Operations (a) 13 weeks ended (a) Dollars in thousands July 29, 2023 July 30, 2022 Sales: Product sales and other (b) $ 252,650 $ 243,762 Rental income 11,511 10,912 Total sales $ 264,161 $ 254,674 Net loss from continuing operations $ (49,971) $ (50,322) Adjusted Earnings (non-GAAP) - Continuing Operations (c) $ (45,338) $ (49,921) Adjusted EBITDA by Segment (non-GAAP) - Continuing Operations (c) Retail $ (18,882) $ (24,985) Wholesale 2,406 2,768 Corporate Services (4,918) (7,214) Elimination (5,448) (4,879) Total Adjusted EBITDA (non-GAAP) $ (26,842) $ (34,310) (a) During the fourth quarter of Fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all periods reported above. (b) Logo general merchandise sales for the Retail Segment are recognized on a net basis as commission revenue in the condensed consolidated financial statements. For Retail Gross Comparable Store Sales details, see below. 32 Table of Contents (c) 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 July 29, 2023 July 30, 2022 Sales: Product sales and other 95.6 % 95.7 % Rental income 4.4 4.3 Total sales 100.0 100.0 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales (a) 81.9 78.9 Rental cost of sales (a) 56.6 57.4 Total cost of sales 80.8 78.0 Gross margin 19.2 22.0 Selling and administrative expenses 29.3 35.5 Depreciation and amortization expense 3.9 4.3 Restructuring and other charges 1.8 0.1 Operating loss from continuing operations (15.8) % (17.9) % (a) Represents the percentage these costs bear to the related sales, instead of total sales. Results of Operations - Discontinued Operations During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations and is no longer a reportable segment. Certain assets and liabilities associated with the DSS Segment are presented in our condensed consolidated balance sheets as "Assets Held for Sale" and "Liabilities Held for Sale". The results of operations related to the DSS Segment are included in the condensed consolidated statements of operations as "Loss from discontinued operations, net of tax." The cash flows of the DSS Segment are also presented separately in our condensed consolidated statements of cash flows. On May 31, 2023, we completed the sale of these assets related to our DSS Segment for cash proceeds of $20 million, net of certain transaction fees, severance costs, escrow, and other considerations. During the 13 weeks ended July 29, 2023, we recorded a Gain on Sale of Business of $3.1 million in Net Loss from Discontinued Operations related to the sale. Net cash proceeds from the sale were used for debt repayment and to provide additional funds for working capital needs under our Credit Facility. 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Total sales 2,784 9,184 Cost of sales (a) 76 1,701 Gross profit (a) 2,708 7,483 Selling and administrative expenses 2,281 8,145 Depreciation and amortization — 1,637 Gain on sale of business (3,068) — Impairment loss (non-cash) (b) 610 — Restructuring costs (c) 3,287 — Transaction costs (5) — Operating loss (397) (2,299) Income tax expense 20 86 Loss from discontinued operations, net of tax $ (417) $ (2,385) (a) Cost of sales and Gross margin for the DSS Segment includes amortization expense (non-cash) related to content development costs of $0 and $1.6 million for the 13 weeks ended July 29, 2023 and July 30, 2022, respectively. 33 Table of Contents (b) During the 13 weeks ended July 29, 2023, we recognized an impairment loss (non-cash) of $0.6 million (both pre-tax and after-tax), comprised of $0.1 million and $0.5 million of property and equipment and operating lease right-of-use assets, respectively, on the condensed consolidated statement of operations as part of discontinued operations. (c) During the 13 weeks ended July 29, 2023, we recognized restructuring and other charges of $3.3 million comprised of severance and other employee termination costs. Results of Operations - Continuing Operations - 13 weeks ended July 29, 2023 compared with the 13 weeks ended July 30, 2022 13 weeks ended July 29, 2023 Dollars in thousands Retail Wholesale Corporate Services Eliminations Total Sales: Product sales and other $ 233,949 $ 38,791 $ — $ (20,090) $ 252,650 Rental income 11,511 — — — 11,511 Total sales 245,460 38,791 — (20,090) 264,161 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 188,656 32,997 — (14,639) 207,014 Rental cost of sales 6,513 — — — 6,513 Total cost of sales 195,169 32,997 — (14,639) 213,527 Gross profit 50,291 5,794 — (5,451) 50,634 Selling and administrative expenses 69,173 3,388 4,918 (3) 77,476 Depreciation and amortization expense 8,966 1,277 10 — 10,253 Restructuring and other charges 526 526 3,581 — 4,633 Operating (loss) income $ (28,374) $ 603 $ (8,509) $ (5,448) $ (41,728) 13 weeks ended July 30, 2022 Dollars in thousands Retail Wholesale Corporate Services Eliminations Total Sales: Product sales and other $ 225,595 $ 37,083 $ — $ (18,916) $ 243,762 Rental income 10,912 — — — 10,912 Total sales 236,507 37,083 — (18,916) 254,674 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 176,249 30,184 — (14,029) 192,404 Rental cost of sales 6,265 — — — 6,265 Total cost of sales 182,514 30,184 — (14,029) 198,669 Gross profit 53,993 6,899 — (4,887) 56,005 Selling and administrative expenses 79,004 4,131 7,214 (8) 90,341 Depreciation and amortization expense 9,529 1,349 18 — 10,896 Restructuring and other charges — — 375 — 375 Operating (loss) income $ (34,540) $ 1,419 $ (7,607) $ (4,879) $ (45,607) Sales The following table summarizes our sales for the 13 weeks ended July 29, 2023 and July 30, 2022: 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Var $ Var % Product sales and other $ 252,650 $ 243,762 $ 8,888 3.6% Rental income 11,511 10,912 $ 599 5.5% Total Sales $ 264,161 $ 254,674 $ 9,487 3.7% 34 Table of Contents The sales increase during the 13 weeks ended July 29, 2023 is primarily related to higher course material sales, primarily at our First Day programs. During the first quarter ended July 29, 2023, BNC First Day total revenue increased by $16.7 million, or 37%, to $61.7 million compared to $45.1 million during the prior year period. The components of the variances for the 13 week periods are reflected in the table below. Sales variances 13 weeks ended Dollars in millions July 29, 2023 Retail Sales (a) New stores $ 4.7 Closed stores (7.3) Comparable stores (a) 8.6 Textbook rental deferral 2.1 Service revenue (b) (0.3) Other (c) 1.2 Retail sales subtotal: $ 9.0 Wholesale Sales $ 1.7 Eliminations (d) $ (1.2) Total sales variance: $ 9.5 (a) Logo general merchandise sales for the Retail Segment are recognized on a net basis as commission revenue in the condensed consolidated financial statements. 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. 13 weeks ended July 29, 2023 July 30, 2022 Number of Stores: Physical Virtual Total Physical Virtual Total Beginning of period 774 592 1,366 805 622 1,427 Opened 8 12 20 26 14 40 Closed 56 41 97 38 23 61 End of period 726 563 1,289 793 613 1,406 During the 13 weeks ended July 29, 2023, we opened 20 stores and closed 97 stores in the Retail Segment, with estimated net annual sales of $52 million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We plan to move many institutions to First Day Complete in Fiscal 2024 and the majority of our stores by Fiscal 2025, with continued relative adoption of this model thereafter. 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, athletic events, alumni events and prospective student campus tours, as schools approach a more traditional campus experience. We continued to experience higher sales related to our BNC First Day programs and higher general merchandise gross 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 $9.0 million, or 3.8%, to $245.5 million during the 13 weeks ended July 29, 2023 from $236.5 million during the 13 weeks ended July 30, 2022. • Product sales and other increased by $8.4 million, or 3.7%, to $233.9 million during the 13 weeks ended July 29, 2023 from $225.6 million during the 13 weeks ended July 30, 2022. During the 13 weeks ended July 29, 2023, total course material product sales increased by $11.0 million, or 8.7%, to $138.5 million primarily due to the growth of our BNC First Day programs discussed below; total general merchandise product net sales decreased by $0.1 million, or 0.2%, to 35 Table of Contents $88.7 million primarily due to lower commissions for logo general merchandise part of the F/L Partnership agreements, under which the commission rates adjusts as the relationship matured, offset by higher graduation product sales. Effective August 1, 2023, the commission rates for logo general merchandise increases for an estimated one year period under the terms of the July 2023 Term Loan Credit Agreement amendment. Retail Gross Comparable Store Sales for general merchandise increased by 5.3% as discussed below. Service and other revenue decreased by $2.5 million, to $6.7 million primarily due to lower other income for non-return rental penalty fees. • Revenue from both of our BNC First Day equitable and inclusive access programs increased by $16.7 million, or 37%, to $61.8 million during the 13 weeks ended July 29, 2023, as compared to $45.1 million during the 13 weeks ended July 30, 2022. First Day sales increased by $7.7 million, or 27%, to $36.3 million during the 13 weeks ended July 29, 2023, as compared to $28.6 million during the 13 weeks ended July 30, 2022. First Day Complete total sales increased by $9.0 million, or 55%, to $25.5 million during the 13 weeks ended July 29, 2023, as compared to $16.5 million during the 13 weeks ended July 30, 2022. As of July 29, 2023, 157 campus stores are utilizing First Day Complete course materials delivery program for the 2023 Fall Term, representing approximately 800,000 in total undergraduate and post graduate student enrollment (as reported by National Center for Education Statistics), compared to 111 campus stores representing approximately 545,000 in total undergraduate student enrollment in the 2022 Fall Term. • Total course material rental income increased by $0.6 million, or 5.5%, to $11.5 million during the 13 weeks ended July 29, 2023 from $10.9 million during the 13 weeks ended July 30, 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 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 in Retail Gross Comparable Store Sales compared to a net basis as commission revenue in our condensed consolidated financial statements. We believe the current Retail Gross Comparable Store Sales calculation method reflects management’s view that such comparable store sales are an important measure of the growth in sales when evaluating how established stores have performed over time. We present this metric as additional useful information about the Company’s operational and financial performance and to allow greater transparency with respect to important metrics used by management for operating and financial decision-making. Retail Gross Comparable Store Sales are also referred to as "same-store" sales by others within the retail industry and the method of calculating comparable store sales varies across the retail industry. As a result, our calculation of comparable store sales is not necessarily comparable to similarly titled measures reported by other companies and is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP. The increase in course material sales was primarily due to the growth of BNC First Day equitable and inclusive access programs (as discussed above), partially offset by a shift to lower cost options and more affordable solutions, including digital offerings. The increase in general merchandise sales was primarily due to higher sales related to graduation products and logo products, and cafe and convenience products. Retail Gross Comparable Store Sales variances by category for the 13 week periods are as follows: 13 weeks ended Dollars in millions July 29, 2023 July 30, 2022 Textbooks (Course Materials) $ 9.0 6.5 % $ 1.9 1.5 % General Merchandise 6.8 5.3 % 31.6 34.0 % Total Retail Gross Comparable Store Sales $ 15.8 5.9 % $ 33.5 15.0 % Wholesale Wholesale sales increased by $1.7 million, or 4.6% to $38.8 million during the 13 weeks ended July 29, 2023 from $37.1 million during the 13 weeks ended July 30, 2022. The increase is primarily due to higher gross sales of $5.1 million compared to the prior year period, partially offset by higher returns and allowances of $3.4 million. Cost of Sales and Gross Margin Our cost of sales increased as a percentage of sales to 80.8% during the 13 weeks ended July 29, 2023 compared to 78.0% during the 13 weeks ended July 30, 2022. Our gross margin decreased by $5.4 million, or 9.6%, to $50.6 million, or 19.2% of sales, during the 13 weeks ended July 29, 2023 from $56.0 million, or 22.0% of sales during the 13 weeks ended July 30, 2022. 36 Table of Contents Retail The following table summarizes the Retail cost of sales for the 13 weeks ended July 29, 2023 and July 30, 2022: 13 weeks ended Dollars in thousands July 29, 2023 % of Related Sales July 30, 2022 % of Related Sales Product and other cost of sales $ 188,656 80.6% $ 176,249 78.1% Rental cost of sales 6,513 56.6% 6,265 57.4% Total Cost of Sales $ 195,169 79.5% $ 182,514 77.2% The following table summarizes the Retail gross margin for the 13 weeks ended July 29, 2023 and July 30, 2022: 13 weeks ended Dollars in thousands July 29, 2023 % of Related Sales July 30, 2022 % of Related Sales Product and other gross margin $ 45,293 19.4% $ 49,346 21.9% Rental gross margin 4,998 43.4% 4,647 42.6% Gross Margin $ 50,291 20.5% $ 53,993 22.8% For the 13 weeks ended July 29, 2023, the Retail Product and other gross margin as a percentage of sales decreased as discussed below: • For the 13 weeks ended July 29, 2023, Product and other gross margin decreased (250 basis points), driven primarily by lower margin rates for course materials (200 basis points) due to higher markdowns, including markdowns related to closed stores, and lower margin rates due to the shift to digital course materials; and lower commissions for logo general merchandise (290 basis points) as part of the F/L Partnership agreements, under which the commission rates adjust as the relationship matures. Effective August 1, 2023, the commission rates for logo general merchandise increases for an estimated one year period under the terms of the July 2023 Term Loan Credit Agreement amendment. These decreases were partially offset by lower contract costs as a percentage of sales related to our college and university contracts (210 basis points) resulting from contract renewals, and a favorable sales mix (30 basis points) due to increased sales primarily for graduation products. • For the 13 weeks ended July 29, 2023, the Retail Rental gross margin as a percentage of sales increased driven primarily by favorable rental mix due to improved availability of used textbook inventory, partially offset by higher rental margin rates. Wholesale The cost of sales and gross margin for Wholesale were $33.0 million, or 85.1% of sales, and $5.8 million, or 14.9% of sales, respectively, during the 13 weeks ended July 29, 2023. The cost of sales and gross margin for Wholesale was $30.2 million or 81.4% of sales and $6.9 million or 18.6% of sales, respectively, during the 13 weeks ended July 30, 2022. The gross margin rate decreased during the 13 weeks ended July 29, 2023 primarily due to higher product costs and an increase in the returns and allowances, partially offset by lower markdowns. Intercompany Eliminations During the 13 weeks ended July 29, 2023 and July 30, 2022, our sales eliminations were $(20.1) million and $(18.9) 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 July 29, 2023 and July 30, 2022, the cost of sales eliminations were $(14.6) million and $(14.0) 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 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. 37 Table of Contents During the 13 weeks ended July 29, 2023 and July 30, 2022, the gross margin eliminations were $(5.5) million and $(4.9) 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 Dollars in thousands July 29, 2023 % of Sales July 30, 2022 % of Sales Total Selling and Administrative Expenses $ 77,476 29.3% $ 90,341 35.5% During the 13 weeks ended July 29, 2023, selling and administrative expenses decreased by $12.9 million, or 14.2%, to $77.5 million from $90.3 million during the 13 weeks ended July 30, 2022. The variances by segment are discussed below. Retail During the 13 weeks ended July 29, 2023, Retail selling and administrative expenses decreased by $9.8 million, or 12.4%, to $69.2 million from $79.0 million during the 13 weeks ended July 30, 2022. This decrease was primarily due to cost savings initiatives comprised of a $6.0 million decrease in comparable store payroll expense, new/closed store payroll expense and related operating costs, a $1.6 million decrease in corporate payroll expense, infrastructure and product development costs, and a $2.2 million decrease in incentive plan compensation expense. Wholesale Wholesale selling and administrative expenses decreased by $0.7 million, or 18.0%, to $3.4 million from $4.1 million during the 13 weeks ended July 30, 2022. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $0.6 million and lower incentive plan compensation expense of $0.1 million. Corporate Services During the 13 weeks ended July 29, 2023, Corporate Services' selling and administrative expenses decreased by $2.3 million, or 31.8%, to $4.9 million from $7.2 million during the 13 weeks ended July 30, 2022. The decrease in costs was primarily due to cost savings initiatives comprised of lower incentive plan compensation expense of $1.5 million, lower payroll expense of $0.6 million, and lower operating costs of $0.2 million. Depreciation and Amortization Expense 13 weeks ended Dollars in thousands July 29, 2023 % of Sales July 30, 2022 % of Sales Total Depreciation and Amortization Expense $ 10,253 3.9% $ 10,896 4.3% Depreciation and amortization expense decreased by $0.6 million, or 5.9%, to $10.3 million during the 13 weeks ended July 29, 2023 from $10.9 million during the 13 weeks ended July 30, 2022. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during Fiscal 2023. Restructuring and other charges During the 13 weeks ended July 29, 2023, we recognized restructuring and other charges totaling $4.6 million, comprised primarily of $1.1 million for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost savings initiatives, and $3.5 million for costs primarily associated with professional service costs for restructuring and process improvements. During the 13 weeks ended July 30, 2022, we recognized restructuring and other charges totaling $0.4 million, comprised primarily of costs primarily associated with professional service costs for restructuring and process improvements. Operating Loss 13 weeks ended Dollars in thousands July 29, 2023 % of Sales July 30, 2022 % of Sales Total Operating Loss $ (41,728) (15.8)% $ (45,607) (17.9)% Our operating loss was $(41.7) million during the 13 weeks ended July 29, 2023, compared to operating loss of $(45.6) million during the 13 weeks ended July 30, 2022. The decrease in operating loss is due to the matters discussed above. For the 38 Table of Contents 13 weeks ended July 29, 2023, excluding the $4.6 million of restructuring and other charges, discussed above, operating loss was $(37.1) million (or (14.0)% of sales). For the 13 weeks ended July 30, 2022, excluding the $0.4 million of restructuring and other charges, discussed above, operating loss was $(45.2) million (or (17.8)% of sales). Interest Expense, Net 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Interest Expense, Net $ 8,254 $ 3,868 Net interest expense increased by $4.4 million to $8.3 million during the 13 weeks ended July 29, 2023 from $3.9 million during the 13 weeks ended July 30, 2022. The increase was primarily due to higher borrowings and higher interest rates compared to the prior year. Income Tax (Benefit) Expense 13 weeks ended Dollars in thousands July 29, 2023 Effective Rate July 30, 2022 Effective Rate Income Tax (Benefit) Expense $ (11) 0% $ 847 (1.7)% We recorded an income tax benefit of $(0.01) million on pre-tax loss of $(50.0) million during the 13 weeks ended July 29, 2023, which represented an effective income tax rate of 0% and we recorded an income tax expense of $0.8 million on a pre-tax loss of $(49.5) million during the 13 weeks ended July 30, 2022, which represented an effective income tax rate of (1.7)%. The effective tax rate for the 13 weeks ended July 29, 2023 is lower than the prior year comparable period due to the utilization of the discrete tax provision methodology in the current year. For additional information, see Item 1. Financial Statements - Note 12. Income Taxes. Net Loss from Continuing Operations 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Net Loss from Continuing Operations $ (49,971) $ (50,322) As a result of the factors discussed above, net loss from continuing operations was $(50.0) million during the 13 weeks ended July 29, 2023, compared with $(50.3) million during the 13 weeks ended July 30, 2022. Adjusted Earnings (non-GAAP) is $(45.3) million during the 13 weeks ended July 29, 2023, compared with $(49.9) million during the 13 weeks ended July 30, 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 from continuing operations adjusted for certain reconciling items that are subtracted from or added to net income (loss) from continuing operations. We define Adjusted EBITDA as net income (loss) from continuing operations 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) from continuing operations. 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) from continuing operations, the reconciliation of consolidated Adjusted EBITDA to consolidated net income (loss) from continuing operations, and the reconciliation of Adjusted EBITDA by Segment to net income (loss) from continuing operations 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. 39 Table of Contents 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. Consolidated Adjusted Earnings (non-GAAP) - Continuing Operations 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Net loss from continuing operations (a) $ (49,971) $ (50,322) Reconciling items (below) 4,633 401 Adjusted Earnings (non-GAAP) $ (45,338) $ (49,921) Reconciling items Content amortization (non-cash) $ — $ 26 Restructuring and other charges (b) 4,633 375 Reconciling items (c) $ 4,633 $ 401 (a) During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above. (b) See Management Discussion and Analysis and Results of Operations discussion above. (c) There is no pro forma income effect of the non-GAAP items. Consolidated Adjusted EBITDA (non-GAAP) - Continuing Operations 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Net loss from continuing operations (a) $ (49,971) $ (50,322) Add: Depreciation and amortization expense 10,253 10,896 Interest expense, net 8,254 3,868 Income tax (benefit) expense (11) 847 Content amortization (non-cash) (d) — 26 Restructuring and other charges (c) 4,633 375 Adjusted EBITDA (Non-GAAP) - Continuing Operations $ (26,842) $ (34,310) Adjusted EBITDA (Non-GAAP) - Discontinued Operations $ 427 $ 889 Adjusted EBITDA (Non-GAAP) - Total $ (26,415) $ (33,421) 40 Table of Contents (a) During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above. (b) See Management Discussion and Analysis and Results of Operations discussion above. The following is Adjusted EBITDA by Segment for the 13 weeks ended July 29, 2023 and July 30, 2022. Adjusted EBITDA - by Segment 13 weeks ended July 29, 2023 Dollars in thousands Retail Wholesale Corporate Services (b) Eliminations Total Net (loss) income from continuing operations (a) $ (28,374) $ 603 $ (16,752) $ (5,448) $ (49,971) Add: Depreciation and amortization expense 8,966 1,277 10 — 10,253 Interest expense, net — — 8,254 — 8,254 Income tax benefit — — (11) — (11) Restructuring and other charges (c) 526 526 3,581 — 4,633 Adjusted EBITDA (non-GAAP) $ (18,882) $ 2,406 $ (4,918) $ (5,448) $ (26,842) Adjusted EBITDA - by Segment 13 weeks ended July 30, 2022 Dollars in thousands Retail Wholesale Corporate Services (b) Eliminations Total Net (loss) income from continuing operations (a) $ (34,540) $ 1,419 $ (12,322) $ (4,879) $ (50,322) Add: Depreciation and amortization expense 9,529 1,349 18 — 10,896 Interest expense, net — — 3,868 — 3,868 Income tax expense — — 847 — 847 Content amortization (non-cash) 26 — — — 26 Restructuring and other charges (c) — — 375 — 375 Adjusted EBITDA (non-GAAP) $ (24,985) $ 2,768 $ (7,214) $ (4,879) $ (34,310) (a) During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above. (b) See Management Discussion and Analysis and Results of Operations discussion above. (c) 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. Adjusted EBITDA (non-GAAP) - Discontinued Operations 13 weeks ended July 29, 2023 July 30, 2022 Loss from discontinued operations (a) $ (417) $ (2,385) Add: Depreciation and amortization expense — 1,637 Income tax expense 20 86 Content amortization (non-cash) — 1,551 Gain on sale of business (3,068) — Impairment loss (non-cash) 610 — Restructuring and other charges 3,287 — Transaction costs (5) — Adjusted EBITDA (Non-GAAP) - Discontinued Operations $ 427 $ 889 (a) During the fourth quarter of fiscal 2023, assets related to our Digital Student Solutions ("DSS") Segment met the criteria for classification as Assets Held for Sale and Discontinued Operations. Net Loss from Continuing Operations excludes the results of operations related to the DSS Segment for all years reported above. For additional information, see Note 2. Summary of Significant Accounting Policies. 41 Table of Contents Free Cash Flow (non-GAAP) 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Net cash flows used in operating activities from continuing operations $ ( 119,858 ) $ ( 28,607 ) Less: Capital expenditures (a) 4,219 7,530 Cash interest 5,534 2,933 Cash taxes 345 122 Free Cash Flow (non-GAAP) $ (129,956) $ (39,192) (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, 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 Dollars in thousands July 29, 2023 July 30, 2022 Physical store capital expenditures $ 2,205 $ 4,496 Product and system development 1,763 2,486 Other 251 548 Total Capital Expenditures $ 4,219 $ 7,530 Liquidity and Capital Resources The accompanying condensed consolidated financial statements are prepared in accordance with U.S. GAAP applicable to a going concern. This presentation contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described below. Pursuant to ASC 205-40, Presentation of Financial Statements — Going Concern (“ASC 205-40”) , management must evaluate whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that these condensed consolidated financial statements are issued. In accordance with ASC 205-40, management’s analysis can only include the potential mitigating impact of management’s plans that have not been fully implemented as of the issuance date of these condensed consolidated financial statements if (a) it is probable that management’s plans will be effectively implemented on a timely basis, and (b) it is probable that the plans, when implemented, will alleviate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern. Our primary sources of cash are net cash flows from operating activities, funds available under our Credit Agreement, Term Loan Agreement, and short-term vendor financing. Our liquidity is highly dependent on the seasonal nature of our business, particularly with respect to course material sales, as sales are generally highest in the second and third fiscal quarters, when college students generally purchase textbooks for the upcoming Fall and Spring semesters, respectively. As of July 29, 2023, we had $19.3 million of cash on hand, including $10.7 million of restricted cash related to segregated funds for commission due to Fanatics for logo merchandise sales as per the merchandising partnership agreement. Our business was significantly negatively impacted by the COVID-19 pandemic during the years ended April 30, 2022 and May 1, 2021, as many schools adjusted their learning models and on-campus activities. Although most academic institutions have since reopened after the COVID-19 pandemic, the lingering impacts of the pandemic have resulted in changes in customer behaviors, lower enrollments, and an evolving educational landscape which continued to impact our financial results during the year ended April 29, 2023. Some institutions are still providing alternatives to traditional in-person instruction, including online and hybrid learning options and significantly reduced classroom sizes. The impact of COVID-19 store closings, as well as lower earnings during the year ended April 29, 2023, resulted in the loss of cash flows and increased borrowings that we would not otherwise have expected to incur. 42 Table of Contents We incurred a Net Loss from Continuing Operations of $(50.9) million and $(50.3) million for the 13 weeks ended July 29, 2023 and July 30, 2022, respectively, and we incurred a Net Loss from Continuing Operations of $(90.1) million , $(61.6) million , and $(133.6) million for the years ended April 29, 2023, April 30, 2022, and May 1, 2021, respectively. Our Cash Flow Used In Operating Activities from Continuing Operations were $(119.9) million and $(28.6) million for the 13 weeks ended July 29, 2023 and July 30, 2022, respectively, and were $90.5 million , $(16.2) million , and $27.0 million , for the years ended April 29, 2023, April 30, 2022, and May 1, 2021, respectively. The tightening of our available credit commitments, including the elimination and repayment of our seasonal borrowing facility (FILO Facility) of $40.0 million, has had a significant impact on our liquidity during the year ended April 29, 2023, including our ability to make timely vendor payments and school commission payments, resulting in a positive cash flow from operations offset by a use of cash for financing activities. Our losses and projected cash needs, combined with our current liquidity level, raised substantial doubt about our ability to continue as a going concern as of the year ended April 29, 2023, which Management subsequently remediated by implementing a plan to improve the Company’s liquidity and successfully alleviate substantial doubt including (1) raising additional liquidity an d (2) taking additional operational restructuring actions. Debt amendments On July 28, 2023, we amended our existing Credit Agreement to (i) extend the maturity date of the Credit Agreement to December 28, 2024, (ii) reduce advance rates with respect to the borrowing base by 1000 basis points on September 2, 2024 (in lieu of the reductions previously contemplated for September 2023), (iii) subject to the conditions set forth in such amendment, add a CARES Act tax refund claim to the borrowing base, from April 1, 2024 through July 31, 2024, (iv) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32.5 million minus, subject to the conditions set forth in such amendment, (B) (a) $7.5 million for the period of April 1, 2024 through and including April 30, 2024, (b) $2.5 million for the period of May 1, 2024 through and including May 31, 2024 and (c) $0 at all other times, (v) add a minimum Consolidated EBITDA (as defined in the Credit Agreement) financial maintenance covenant, and (vi) amend certain negative and affirmative covenants and add certain additional covenants, all as more particularly set forth in such amendment. The amendment also requires that we appoint a Chief Restructuring Officer and that, by August 11, 2023, we (i) appoint two independent members to the board of directors of the Company from prospective candidates that have been previously disclosed to the Administrative Agent and the Lenders and (ii) appoint a committee of the board of directors of the Company to consist of three board members (two of whom will be the new independent directors), and as of the date of this filing, we have satisfied such requirements. The committee’s responsibilities will include, among other things, to explore, consider, solicit expressions of interest or proposals for, respond to any communications, inquiries or proposals regarding, and advise as to all strategic alternatives to effect a “Specified Liquidity Transaction” (as defined in the Credit Agreement). There can be no guarantee or assurances that any such transaction or transactions be consummated. We must pay (i) a fee of 0.50% of the outstanding principal amount of the commitments under the Credit Agreement March 2023 amendment (as defined in the Credit Agreement) on the closing date (in lieu of the deferred fee previously contemplated in connection with the March 2023 amendment (as defined in the Credit Agreement)) and (ii) a fee of 1.00% of the outstanding principal amount of the commitments under the Credit Agreement as of the closing date on the earlier to occur of September 2, 2024 and an Event of Default (as defined in the Credit Agreement). On July 28, 2023, we amended our Term Loan to (i) extend the maturity date of the Term Loan Agreement to April 7, 2025, (ii) allow for interest to be paid in kind until September 2, 2024, (iii) amend the 1.50% anniversary fee to recur on June 7 of each year that the Term Loan Agreement remains outstanding, with 2024 fee deferred to the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement) and (iv) amend certain negative covenants and affirmative and add certain additional covenants. We must pay a fee of $0.05 million to the lenders under the Term Loan Agreement on the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement). Operational restructuring plans We have implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability. We have taken steps to significantly reduce our workforce, eliminated duplicate administrative headcounts at all levels, implemented improved system development processes to reduce maintenance costs, reduced capital expenditures, and evaluated operating contractual obligations for cost savings. We have achieved meaningful cost savings from this program of approximately $17.0 million d uring the second half of the year ended April 29, 2023. These initiatives are expected to provide annualized savings of $30.0 million to $35.0 million in Fiscal 2024. Management's plans over the next twelve months include the further reduction of gross capital expenditures and other cost saving measures of approximately $25.0 million. Management believes that these plans are within its control and probable of being implemented on a timely basis. During the 13 weeks ended July 29, 2023, Net Loss from Continuing Operations decreased by $0.3 million compared to the prior year period. During the 13 weeks ended July 29, 2023, Net Loss from Continuing Operations, excluding interest expense and restructuring and other charges, improved by $9.0 million primarily due to operational improvements and cost 43 Table of Contents savings initiatives. As discussed below, our first quarter is generally a low sales period, as the majority of sales and operating profit will be realized during the second and third quarters. Management believes that the expected impact on our liquidity and cash flows resulting from the debt amendments and the operational initiatives outlined above are sufficient to enable the Company to meet its obligations for at least twelve months from the issuance date of these condensed consolidated financial statements and to continue to alleviate the conditions that initially raised substantial doubt about the Company's ability to continue as a going concern. See Part I - Risk Factors - We are dependent upon access to the capital markets, bank credit facilities, and short-term vendor financing for liquidity needs in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023 . Sources and Uses of Cash Flow - Continuing Operations 13 weeks ended Dollars in thousands July 29, 2023 July 30, 2022 Net cash flows used in operating activities from continuing operations $ (119,858) $ (28,607) Net cash flows used in investing activities from continuing operations (4,141) (7,530) Net cash flows provided by financing activities from continuing operations 93,176 33,429 Net change in cash, cash equivalents, and restricted cash from continuing operations $ (30,823) $ (2,708) As of July 29, 2023 and July 30, 2022, we had restricted cash of $11.6 million and $7.5 million, respectively, comprised of $10.7 million and $6.6 million, respectively, in prepaid and other current assets in the condensed consolidated balance sheet related to segregated funds for commission due to Lids for logo merchandise sales as per the Lids 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 from Continuing Operations 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 our BNC First Day programs, the timing of cash collection from our school partners may shift to periods subsequent to when the revenue is recognized. When a school adopts our BNC First Day equitable and inclusive access offerings, cash collection from the school generally occurs after the institution's 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 BNC First Day equitable and inclusive 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, including modifying payment terms in existing and future school contracts. For our wholesale operations, cash flows from operating activities are typically a source of cash in the second and third fiscal quarters, as payments are received from the summer and winter selling season when our wholesale business 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. 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 from continuing operations during the 13 weeks ended July 29, 2023 were $(119.9) million compared to $(28.6) million during the 13 weeks ended July 30, 2022. This increase in cash flows used in operating activities from continuing operations of $91.3 million was primarily due to timing of payables primarily due to delayed payments to vendors for inventory purchases and expenses, which were delayed resulting from lower borrowing base availability, increased accounts receivables primarily related to our increased adoption of our BNC First Day equitable and inclusive access sales for Summer terms; and higher interest expense paid. Cash Flow from Investing Activities from Continuing Operations Cash flows used in investing activities from continuing operations during the 13 weeks ended July 29, 2023 were $(4.1) million compared to $(7.5) million during the 13 weeks ended July 30, 2022. The decrease in cash used in investing activities is primarily due to lower capital expenditures and contractual capital investments, enhancements to internal systems and websites, and new store construction. Capital expenditures totaled $4.2 million and $7.5 million during the 13 weeks ended July 29, 2023 and July 30, 2022, respectively. 44 Table of Contents Cash Flow from Financing Activities from Continuing Operations Cash flows provided by financing activities from continuing operations during the 13 weeks ended July 29, 2023 were $93.2 million compared to $33.4 million during the 13 weeks ended July 30, 2022. This net change of $59.8 million is primarily due to higher net borrowings and higher payments for deferred financing costs. Financing Arrangements As of July 29, 2023 July 30, 2022 Credit Facility $ 249,735 $ 190,300 FILO Facility — 40,000 Term Loan 30,000 30,000 sub-total 279,735 260,300 Less: Deferred financing costs (2,072) (1,750) Total debt $ 277,663 $ 258,550 Balance Sheet classification: Short-term borrowings $ — $ 40,000 Long-term borrowings 277,663 218,550 Total debt $ 277,663 $ 258,550 Credit Facility We have a credit agreement (the “Credit Agreement”), amended from time to time including on July 28,2023, May 24, 2023, March 8, 2023, March 31, 2021 and March 1, 2019, under which the lenders originally committed to provide us with a 5 year asset-backed revolving credit facility in an aggregate committed principal amount of $400.0 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 $100.0 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 $100.0 million maintaining the maximum availability under the Credit Agreement at $500.0 million. As of July 31, 2022, the FILO Facility was repaid and eliminated according to its terms and future commitments under the FILO Facility were reduced to $0. March 2023 Credit Agreement Amendment On March 8, 2023, 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 $20.0 million to $380.0 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 (see discussion below) 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. For additional information related to the Credit Agreement amendment, see the Company’s Report on Form 8-K dated March 8, 2023 and filed with the SEC on March 9, 2023. As noted above, the amendment requires the achievement of a Special Event by no later than May 31, 2023 (as such date may be extended pursuant to the terms of the Credit Agreement). See Note 2. Summary of Significant Accounting Policies for information related to the sale of our DSS segment on May 31, 2023 . We paid a fee of 0.25% of the outstanding principal amount of the commitments under the Credit Agreement on the amendment closing date and we will pay an additional fee of 1.00% of the outstanding principal amount of the commitments under the Credit Agreement on September 29, 2023. During the 52 weeks ended April 29, 2023, we incurred debt issuance costs totaling $4.1 million related to the March 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently amortized ratably over the term of the credit agreement. 45 Table of Contents May 2023 Credit Agreement Amendment On May 24, 2023, we amended our existing Credit Agreement to (i) increase the applicable margin with respect to the interest rate under the Credit Agreement to 3.75% per annum, in the case of interest accruing based on SOFR, and 2.75%, in the case of interest accruing based on an alternative base rate, in each case, without regard to a pricing grid, (ii) defer the reduction of advance rates used to calculate our borrowing capacity by an amount equal to 500 basis points previously required on May 31, 2023 to September 1, 2023, (iii) require cash flow reporting and variance testing commencing June 3, 2023 and (iv) defer partial prepayment of the term loan from the DSS segment sale proceeds to September 1, 2023. We did not incur debt issuance costs related to the May 2023 Credit Agreement amendment. For additional information related to the Credit Agreement amendment, see the Company’s Report on Form 8-K dated May 24, 2023 and filed with the SEC on May 31, 2023. July 2023 Credit Agreement Amendment On July 28, 2023, we amended our existing Credit Agreement to (i) extend the maturity date of the Credit Agreement to December 28, 2024, (ii) reduce advance rates with respect to the borrowing base by 1000 basis points on September 2, 2024 (in lieu of the reductions previously contemplated for September 2023), (iii) subject to the conditions set forth in such amendment, add a CARES Act tax refund claim to the borrowing base, from April 1, 2024 through July 31, 2024, (iv) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32.5 million minus, subject to the conditions set forth in such amendment, (B) (a) $7,500 for the period of April 1, 2024 through and including April 30, 2024, (b) $2,500 for the period of May 1, 2024 through and including May 31, 2024 and (c) $0 at all other times, (v) add a minimum Consolidated EBITDA (as defined in the Credit Agreement) financial maintenance covenant, and (vi) amend certain negative and affirmative covenants and add certain additional covenants, all as more particularly set forth in such amendment. The amendment also requires that we appoint a Chief Restructuring Officer and that, by August 11, 2023, we (i) appoint two independent members to the board of directors of the Company from prospective candidates that have been previously disclosed to the Administrative Agent and the Lenders and (ii) appoint a committee of the board of directors of the Company to consist of three board members (two of whom will be the new independent directors). The committee’s responsibilities will include, among other things, to explore, consider, solicit expressions of interest or proposals for, respond to any communications, inquiries or proposals regarding, and advise as to all strategic alternatives to effect a “Specified Liquidity Transaction” (as defined in the Credit Agreement). There can be no guarantee or assurances that any such transaction or transactions be consummated. We must pay (i) a fee of 0.50% of the outstanding principal amount of the commitments under the Credit Agreement March 2023 amendment (as defined in the Credit Agreement) on the closing date (in lieu of the deferred fee previously contemplated in connection with the March 2023 amendment (as defined in the Credit Agreement)) and (ii) a fee of 1.00% of the outstanding principal amount of the commitments under the Credit Agreement as of the closing date on the earlier to occur of September 2, 2024 and an Event of Default (as defined in the Credit Agreement). During the 13 weeks ended July 29, 2023, we incurred debt issuance costs totaling $11.0 million related to the July 2023 Credit Agreement amendment. The debt issuance costs have been deferred and are presented as prepaid and other current assets and other noncurrent assets in the condensed consolidated balance sheets, and subsequently amortized ratably over the term of the credit agreement. As of July 29, 2023, and through the date of this filing, we were in compliance with all debt covenants under the Credit Agreement. The Credit Facility is secured by substantially all of the inventory, accounts receivable and related assets of the borrowers under the Credit Facility. This is considered an all asset lien (inclusive of proceeds from tax refunds payable to the Company and a pledge of equity from subsidiaries, exclusive of real estate). During the 13 weeks ended July 29, 2023, we borrowed $145.2 million and repaid $49.6 million under the Credit Agreement, and had outstanding borrowings of $249.7 million as of July 29, 2023, comprised entirely of borrowings under the Credit Facility. During the 13 weeks ended July 30, 2022, we borrowed $117.2 million and repaid $112.6 million under the Credit Agreement, and had outstanding borrowings of $230,300 as of July 30, 2022, comprised $190.3 million and $40.0 million of borrowings under the Credit Facility and FILO Facility, respectively. As of July 29, 2023 and July 30, 2022, we have issued $0.6 million and $4.8 million, respectively, in letters of credit under the Credit Facility. 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 into an amendment to our existing Credit Agreement, which permitted us to incur the Term Loan Facility (as defined below). 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”) and matures on June 7, 2024. 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 13 weeks ended July 29, 46 Table of Contents 2023, we borrowed $0 and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of July 29, 2023. During the 13 weeks ended July 30, 2022, we borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement. March 2023 Term Loan Credit Agreement Amendment On March 8, 2023, we 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 to conform to the Credit Agreement. In addition, the amendment requires the achievement of a Specified Event (as described above) by no later than May 31, 2023 (as such date may be extended under the Credit Agreement, but no later than August 31, 2023 without consent from lenders under the Term Loan Credit Agreement). During the 52 weeks ended April 29, 2023, we incurred debt issuance costs totaling $0.4 million related to the March 2023 Term Loan Credit Agreement amendment. We paid a fee of $0.05 million on the amendment closing date to the lenders under 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 condensed consolidated balance sheets, and subsequently amortized ratably over the term of the credit agreement. July 2023 Term Loan Credit Agreement Amendment On July 28, 2023, we amended our Term Loan to (i) extend the maturity date of the Term Loan Agreement to April 7, 2025, (ii) allow for interest to be paid in kind until September 2, 2024, (iii) amend the 1.50% anniversary fee to recur on June 7 of each year that the Term Loan Agreement remains outstanding, with 2024 fee deferred to the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement) and (iv) amend certain negative covenants and affirmative and add certain additional covenants. We must pay a fee of $0.05 million to the lenders under the Term Loan Agreement on the earlier of September 2, 2024 and the Termination Date (as defined in the Term Loan Agreement). During the 13 weeks ended July 29, 2023, we incurred debt issuance costs totaling $0.4 million related to the July 2023 Term Loan Credit Agreement amendment. 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. To date, all interest on the term loan has been paid in cash. The Term Loans do not amortize prior to maturity. 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. As of July 29, 2023, we recognized a current income tax receivable for net operating loss carrybacks in prepaid and other current assets on the condensed consolidated balance sheet. We received refunds of $7.8 million in Fiscal 2022 and a $15.8 million refund in Fiscal 2023. We expect to receive additional refunds of approximately $10.0 million. Share Repurchases During the 13 weeks ended July 29, 2023, we did not repurchase any of our Common Stock under the stock repurchase program. As of July 29, 2023, approximately $26.7 million remains available under the stock repurchase program. During the 13 weeks ended July 29, 2023, we repurchased 77,898 shares of our Common Stock outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards. 47 Table of Contents 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 29, 2023. Off-Balance Sheet Arrangements As of July 29, 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 29, 2023. 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: • the amount of our indebtedness and ability to comply with covenants applicable to current and /or 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; • our ability to maintain adequate liquidity levels to support ongoing inventory purchases and related vendor payments in a timely manner; • our ability to attract and retain employees; • the pace of equitable access adoption in the marketplace is slower than anticipated and our ability to successfully convert the majority of our institutions to our BNC First Day ® equitable and inclusive access course material models or successfully compete with third parties that provide similar equitable and inclusive access solutions; • the strategic objectives, successful integration, anticipated synergies, and/or other expected potential benefits of various strategic and restructuring initiatives, may not be fully realized or may take longer than expected; • dependency on strategic partnerships, such as with VitalSource Technologies, Inc. and the 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”), and the potential for adverse operational and financial changes to these partnerships, may adversely impact our business; • non-renewal of managed bookstore, physical and/or online store contracts and higher-than-anticipated store closings; • decisions by colleges and universities to outsource their physical and/or online bookstore operations or change the operation of their bookstores; • general competitive conditions, including actions our competitors and content providers may take to grow their businesses; • the risk of changes in price or in formats of course materials by publishers, which could negatively impact revenues and margin; • changes to purchase or rental terms, payment terms, return policies, the discount or margin on products or other terms with our suppliers; 48 Table of Contents • 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; • work stoppages or increases in labor costs; • possible increases in shipping rates or interruptions in shipping services; • a decline in college enrollment or decreased funding available for students; • decreased consumer demand for our products, low growth or declining sales; • the general economic environment and consumer spending patterns; • trends and challenges to our business and in the locations in which we have stores; • 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, including the adoption of artificial intelligence technologies for educational content; • risks associated with counterfeit and piracy of digital and print materials; • risks associated with data privacy, information security and intellectual property; • disruptions to our information technology systems, infrastructure, data, supplier systems, and customer ordering and payment systems due to computer malware, viruses, hacking and phishing attacks, resulting in harm to our business and results of operations; • disruption of or interference with third party web service providers and our own proprietary technology; • risks associated with the impact that public health crises, epidemics, and pandemics, such as the COVID-19 pandemic, 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; • lingering 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, or similar marketing and sales activities; • 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 29, 2023. 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 29, 2023. 49 Table of Contents