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 1,272 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 below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate directly by the institution as a course charge or included in tuition. During the 39 weeks ended January 27, 2024, BNC First Day total revenue increased by $136 million, or 44%, to $445 million compared to $309 million during the prior year period. These programs have allowed us to reverse historical long-term trends in course materials revenue declines as the growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales. 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 service providers, 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 Relationship”), win new accounts, and expand our revenue opportunities through strategic relationships. We expect gross comparable store general merchandise sales 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 Relationship. As our service providers, we receive unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools from Fanatics and Lids on our behalf to drive increased value for customers and accelerate growth of our logo general merchandise business. The Barnes & Noble brand (licensed from our former parent) along with our subsidiary brands, BNC and MBS, are synonymous with innovation in bookselling and campus retailing, and are widely recognized and respected brands in the United States. Our large college footprint, reputation, and credibility in the marketplace not only support our marketing efforts to universities, students, and faculty, but are also important to our relationship with leading publishers who rely on us as one of their primary distribution channels. 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. 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 below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate directly by the institution as a course charge or included in tuition. • First Day Complete is adopted by an institution and includes the majority of 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. 31 Table of Contents • 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, and improve predictability of our future results. The growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales. We are moving quickly and decisively to accelerate our First Day Complete strategy. We have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond. The following table summarizes our BNC First Day sales for the 13 and 39 weeks ended January 27, 2024 and January 28, 2023: Dollars in millions 13 weeks ended 39 weeks ended January 27, 2024 January 28, 2023 Var $ Var % January 27, 2024 January 28, 2023 Var $ Var % First Day Complete Sales $ 109.5 $ 66.9 $ 42.6 64% $ 271.5 $ 173.4 $ 98.1 57% First Day Sales $ 74.5 $ 53.8 $ 20.7 38% $ 173.6 $ 135.7 $ 37.9 28% Total BNC First Day Sales $ 184.0 $ 120.7 $ 63.3 52% $ 445.1 $ 309.1 $ 136.0 44% First Day Complete Spring 2024 Spring 2023 Var # Var % Number of campus stores 160 116 44 38% Estimated enrollment (a) 805,000 580,000 225,000 39% (a) Total undergraduate and graduate student enrollment as reported by National Center for Education Statistics (NCES) Relationship with Fanatics and Lids In December 2020, we entered into the F/L Relationship. Under the related service provider agreements, 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, operates as our service provider, including processing consumer personal information on our behalf, using their cutting-edge e-commerce and technology expertise to offer our campus store websites 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. Financing Arrangements and Strategic Review Pursuant to the July 28, 2023 Credit Agreement amendment, the Board established a committee consisting of three independent directors 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). The Board continues its ongoing review of a broad range of strategic alternatives available to the Company, including but not limited to potential capital raises, asset divestitures, a sale of the business, and pursuit of standalone growth plans. The Board has not set a timetable for the conclusion of this review, nor has it made any decisions 32 Table of Contents related to any further actions at this time. There can be no assurance that the review will result in any transaction or other strategic change or outcome. Cost Savings Initiative During Fiscal 2023, we implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability. We reduced 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. Over the course of Fiscal 2024, we have achieved annualized savings of approximately $30 million to $35 million from the Fiscal 2023 cost savings initiatives. Additionally, during Fiscal 2024, Management's plan to implement further cost savings measures, including reduction of gross capital expenditures, amounting to approximately $25 million, of which approximately $18 million has been achieved during the 39 weeks ended January 27, 2024. Management believes that these plans are within its control and will be focused on implementing these cost savings measures. Segments 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 39 weeks ended January 27, 2024, we recorded a Gain on Sale of Business of $3.5 million in Loss from Discontinued Operations, Net, 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. 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 a 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 1,272 college, university, and K-12 school bookstores, comprised of 717 physical bookstores and 555 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 service providers, 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 below market rates, as compared to the total retail price for the same course materials if purchased separately (a la carte) and students are billed the below market rate directly by the institution as a course charge 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 39 weeks ended January 27, 2024, we opened 41 stores and closed 135 stores in the Retail Segment with estimated net annual sales of $65 million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond. These programs have allowed us to reverse historical long-term trends in course materials revenue declines as the growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales. 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 717 physical bookstores) and sources and distributes new and used textbooks to our 555 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 325 college bookstores. 33 Table of Contents 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. For example, our retail business is seasonal, particularly with respect to textbook sales and rentals, 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 and lowest in the first and fourth fiscal quarters. Our quarterly results also may fluctuate depending on the timing of the start of the various schools’ semesters, the revenue impact of accounting principles with respect to the recognition of revenue associated with our equitable and inclusive access programs, the ability to secure inventory on a timely basis, as well as shifts in our fiscal calendar dates. These shifts in timing may affect the comparability of our results across periods. 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. See Revenue Recognition and Deferred Revenue discussion below. 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 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. As the concentration of digital product sales increases, revenue will be recognized earlier during the academic term as digital textbook revenue is recognized when the customer accesses the digital content compared to: (i) the rental of physical textbook where revenue is recognized over the rental period, and (ii) ala carte courseware sales where 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. 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 changes. 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. 34 Table of Contents • 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. In the Fall of 2023, we observed increased 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. • 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, and 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. 35 Table of Contents • 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 as the growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales. We are moving quickly and decisively to accelerate our First Day Complete strategy. While we have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond, we cannot guarantee that we will be able to achieve these plans within these timeframes or at all. Additionally, the United States Department of Education has recently proposed regulatory changes that, if adopted as proposed, could impact equitable and inclusive access models across the higher education industry. • 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, as we focus on the profitability of our stores. 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. The growth of our BNC First Day programs offsets declines in a la carte courseware sales and closed store sales. We are moving quickly and decisively to accelerate our First Day Complete strategy. 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, 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 36 Table of Contents to a specific reporting segment and are recorded in Corporate Services as discussed in the Overview - Segments discussion above. 37 Table of Contents Results of Operations - Summary - Continuing Operations (a) 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Sales: Product sales and other (b) $ 415,375 $ 393,745 $ 1,237,723 $ 1,204,806 Rental income 41,298 44,309 93,490 96,555 Total sales $ 456,673 $ 438,054 $ 1,331,213 $ 1,301,361 Loss from continuing operations $ (9,928) $ (22,134) $ (35,045) $ (48,288) Adjusted Earnings (non-GAAP) - Continuing Operations (c) $ (717) $ (11,999) $ (16,927) $ (37,492) Adjusted EBITDA by Segment (non-GAAP) - Continuing Operations (c) Retail $ 17,850 $ 6,173 $ 47,315 $ 20,604 Wholesale 4,725 3,105 9,729 7,461 Corporate Services (5,092) (5,572) (15,297) (17,861) Elimination 2,797 1,464 1,972 (157) Total Adjusted EBITDA (non-GAAP) (c) $ 20,280 $ 5,170 $ 43,719 $ 10,047 (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. (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 39 weeks ended January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Sales: Product sales and other 91.0 % 89.9 % 93.0 % 92.6 % Rental income 9.0 10.1 7.0 7.4 Total sales 100.0 100.0 100.0 100.0 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales (a) 80.1 80.7 80.1 79.5 Rental cost of sales (a) 57.9 52.4 56.3 54.3 Total cost of sales 78.1 77.9 78.4 77.6 Gross margin 21.9 22.1 21.6 22.4 Selling and administrative expenses 17.5 21.0 18.3 21.6 Depreciation and amortization expense 2.2 2.3 2.3 2.4 Impairment loss (non-cash) 1.3 1.4 0.4 0.5 Restructuring and other charges 0.7 0.9 0.9 0.4 Operating income (loss) from continuing operations 0.2 % (3.5) % (0.3) % (2.5) % (a) Represents the percentage these costs bear to the related sales, instead of total sales. 38 Table of Contents 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 39 weeks ended January 27, 2024, we recorded a Gain on Sale of Business of $3.5 million in Loss from Discontinued Operations, Net, 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 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Total sales $ — $ 9,010 $ 2,784 $ 26,659 Cost of sales (a) — 1,811 76 5,283 Gross profit (a) — 7,199 2,708 21,376 Selling and administrative expenses 177 7,632 3,101 23,909 Depreciation and amortization — 506 3 2,646 Gain on sale of business (477) — (3,545) — Impairment loss (non-cash) (b) — — 610 — Restructuring costs (c) 11 1,848 3,308 1,848 Transaction costs — — 13 — Operating income (loss) 289 (2,787) (782) (7,027) Income tax expense — 128 20 297 Income (loss) from discontinued operations, net of tax $ 289 $ (2,915) $ (802) $ (7,324) (a) Cost of sales and gross profit for the DSS Segment includes amortization expense (non-cash) related to content development costs of $0 and $1.7 million for the 13 weeks ended January 27, 2024 and January 28, 2023, respectively, and $0 and $4.9 million for the 39 weeks ended January 27, 2024 and January 28, 2023, respectively. (b) During the 39 weeks ended January 27, 2024, 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 39 weeks ended January 27, 2024, we recognized restructuring and other charges of $3.3 million comprised of severance and other employee termination costs. 39 Table of Contents Results of Operations - Continuing Operations - 13 and 39 weeks ended January 27, 2024 compared with the 13 and 39 weeks ended January 28, 2023 13 weeks ended January 27, 2024 Dollars in thousands Retail Wholesale Corporate Services Eliminations Total Sales: Product sales and other $ 398,148 $ 37,167 $ — $ (19,940) $ 415,375 Rental income 41,298 — — — 41,298 Total sales 439,446 37,167 — (19,940) 456,673 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 326,294 29,171 — (22,737) 332,728 Rental cost of sales 23,909 — — — 23,909 Total cost of sales 350,203 29,171 — (22,737) 356,637 Gross profit 89,243 7,996 — 2,797 100,036 Selling and administrative expenses 71,393 3,271 5,092 — 79,756 Depreciation and amortization expense 8,817 1,321 10 — 10,148 Impairment loss (non-cash) 5,798 — — — 5,798 Restructuring and other charges — — 3,413 — 3,413 Operating income (loss) $ 3,235 $ 3,404 $ (8,515) $ 2,797 $ 921 13 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale Corporate Services Eliminations Total Sales: Product sales and other $ 376,950 $ 38,958 $ — $ (22,163) $ 393,745 Rental income 44,309 — — — 44,309 Total sales 421,259 38,958 — (22,163) 438,054 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 309,123 32,290 — (23,580) 317,833 Rental cost of sales 23,210 — — — 23,210 Total cost of sales 332,333 32,290 — (23,580) 341,043 Gross profit 88,926 6,668 — 1,417 97,011 Selling and administrative expenses 82,753 3,563 5,572 (47) 91,841 Depreciation and amortization expense 8,749 1,357 6 — 10,112 Impairment loss (non-cash) 6,008 — — — 6,008 Restructuring and other charges 1,452 931 1,744 — 4,127 Operating (loss) income $ (10,036) $ 817 $ (7,322) $ 1,464 $ (15,077) 40 Table of Contents 39 weeks ended January 27, 2024 Dollars in thousands Retail Wholesale Corporate Services Eliminations Total Sales: Product sales and other $ 1,190,752 $ 96,931 $ — $ (49,960) $ 1,237,723 Rental income 93,490 — — — 93,490 Total sales 1,284,242 96,931 — (49,960) 1,331,213 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 966,573 77,051 — (51,929) 991,695 Rental cost of sales 52,606 — — — 52,606 Total cost of sales 1,019,179 77,051 — (51,929) 1,044,301 Gross profit 265,063 19,880 — 1,969 286,912 Selling and administrative expenses 217,748 10,151 15,297 (3) 243,193 Depreciation and amortization expense 26,694 3,852 30 — 30,576 Impairment loss (non-cash) 5,798 — — — 5,798 Restructuring and other charges 555 526 11,239 — 12,320 Operating income (loss) $ 14,268 $ 5,351 $ (26,566) $ 1,972 $ (4,975) 39 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale Corporate Services Eliminations Total Sales: Product sales and other $ 1,159,821 $ 97,161 $ — $ (52,176) $ 1,204,806 Rental income 96,555 — — — 96,555 Total sales 1,256,376 97,161 — (52,176) 1,301,361 Cost of sales (exclusive of depreciation and amortization expense): Product and other cost of sales 931,539 78,139 — (51,890) 957,788 Rental cost of sales 52,416 — — — 52,416 Total cost of sales 983,955 78,139 — (51,890) 1,010,204 Gross profit 272,421 19,022 — (286) 291,157 Selling and administrative expenses 251,843 11,561 17,861 (129) 281,136 Depreciation and amortization expense 27,147 4,076 41 — 31,264 Impairment loss (non-cash) 6,008 — — — 6,008 Restructuring and other charges 1,452 931 2,379 — 4,762 Operating (loss) income $ (14,029) $ 2,454 $ (20,281) $ (157) $ (32,013) Sales The following table summarizes our sales for the 13 and 39 weeks ended January 27, 2024 and January 28, 2023: 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 Var $ Var % January 27, 2024 January 28, 2023 Var $ Var % Product sales and other $ 415,375 $ 393,745 $ 21,630 5.5% $ 1,237,723 $ 1,204,806 $ 32,917 2.7% Rental income 41,298 44,309 $ (3,011) (6.8)% 93,490 96,555 $ (3,065) (3.2)% Total Sales $ 456,673 $ 438,054 $ 18,619 4.3% $ 1,331,213 $ 1,301,361 $ 29,852 2.3% The sales increase during the 13 and 39 weeks ended January 27, 2024 is primarily related to higher course material sales, primarily at our BNC First Day programs, offset by declines in a la carte courseware sales, including lower sales from closed stores. See Retail discussion below. 41 Table of Contents The components of the sales variances for the 13 and 39 week periods are reflected in the table below. Sales variances 13 weeks ended 39 weeks ended Dollars in millions January 27, 2024 January 27, 2024 Retail Sales (a) New stores $ 10.1 $ 31.0 Closed stores (25.0) (62.0) Comparable stores (a) 37.3 61.9 Textbook rental deferral (4.4) (4.1) Service revenue (b) 0.7 0.3 Other (c) (0.5) 0.8 Retail sales subtotal: $ 18.2 $ 27.9 Wholesale Sales $ (1.8) $ (0.2) Eliminations (d) $ 2.2 $ 2.2 Total sales variance: $ 18.6 $ 29.9 (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 partnership marketing, 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 39 weeks ended January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Number of Stores: Physical Virtual Total Physical Virtual Total Physical Virtual Total Physical Virtual Total Beginning of period 717 554 1,271 793 606 1,399 774 592 1,366 805 622 1,427 Opened 6 4 10 — 4 4 19 22 41 34 28 62 Closed 6 3 9 8 7 15 76 59 135 54 47 101 End of period 717 555 1,272 785 603 1,388 717 555 1,272 785 603 1,388 During the 39 weeks ended January 27, 2024, we opened 41 stores and closed 135 stores in the Retail Segment, with estimated net annual sales of $65 million as we pruned some under-performing, less profitable stores, satellite stores, and certain other contracts were awarded to competitors. We have seen many institutions adopt First Day Complete in Fiscal 2024 and plan to continue to scale the number of schools adopting First Day Complete in Fiscal 2025 and beyond. Generally, sales are impacted by revenue from net new/closed stores, conversion to BNC First Day programs, 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. Retail sales increased by $18.2 million, or 4.3%, to $439.4 million during the 13 weeks ended January 27, 2024 from $421.2 million during the 13 weeks ended January 28, 2023. • Product sales and other increased by $21.2 million, or 5.6%, to $398.1 million during the 13 weeks ended January 27, 2024 from $376.9 million during the 13 weeks ended January 28, 2023. ◦ Course material product sales increased by $31.0 million, or 10.8%, to $317.7 million during the 13 weeks ended January 27, 2024, compared to $286.7 million in the prior year period, primarily due to the growth of our BNC First Day programs, which increased by $63.3 million, or 52%, to $184.0 million, offset by a decline of $35.4 million in a la carte courseware sales, including lower sales from closed stores. 42 Table of Contents Dollars in millions 13 weeks ended January 27, 2024 January 28, 2023 Var $ Var % First Day Complete Sales $ 109.5 $ 66.9 $ 42.6 64% First Day Sales $ 74.5 $ 53.8 $ 20.7 38% Total BNC First Day Sales $ 184.0 $ 120.7 $ 63.3 52% ◦ General merchandise product net sales decreased by $9.0 million, or 11.0%, to $72.8 million, compared to $81.8 million in the prior year period, primarily due to a lower average commission rate resulting in lower commissions received for logo general merchandise as part of the F/L Relationship-related agreements, under which the commission rates adjust as the relationship matures, as well as the impact of closed stores, lower trade books and cafe and convenience product sales. Retail Gross Comparable Store Sales for general merchandise decreased by $5.7 million, or 4.6%, compared to the prior year period as discussed below. ◦ Service and other revenue decreased by $0.8 million, or 9.9%, to $7.6 million, compared to $8.4 million in the prior year period, primarily due to lower marketplace sales. • Rental income for course materials decreased by $3.0 million, or 6.8%, to $41.3 million during the 13 weeks ended January 27, 2024 from $44.3 million during the 13 weeks ended January 28, 2023 primarily due to the increased shift to digital course materials, offset by the growth in rental income resulting from the adoption of our BNC First Day programs. Retail sales increased by $27.9 million, or 2.2%, to $1,284.2 million during the 39 weeks ended January 27, 2024 from $1,256.3 million during the 39 weeks ended January 28, 2023. • Product sales and other increased by $30.9 million, or 2.7%, to $1,190.7 million during the 39 weeks ended January 27, 2024 from $1,159.8 million during the 39 weeks ended January 28, 2023. ◦ Course material product sales increased by $57.4 million, or 6.9%, to $891.6 million during the 39 weeks ended January 27, 2024, compared to $834.2 million in the prior year period, primarily due to the growth of our BNC First Day programs, which increased by $136.0 million, or 44%, to $445.1 million, offset by a decline of $78.1 million in a la carte courseware sales, including lower sales from closed stores. Dollars in millions 39 weeks ended January 27, 2024 January 28, 2023 Var $ Var % First Day Complete Sales $ 271.5 $ 173.4 $ 98.1 57% First Day Sales $ 173.6 $ 135.7 $ 37.9 28% Total BNC First Day Sales $ 445.1 $ 309.1 $ 136.0 44% First Day Complete Spring 2024 Spring 2023 Var # Var % Number of campus stores 160 116 44 38% Estimated enrollment (a) 805,000 580,000 225,000 39% (a) Total undergraduate and post graduate student enrollment (as reported by National Center for Education Statistics). ◦ General merchandise product net sales decreased by $26.7 million, or 9.1%, to $266.5 million, compared to $293.3 million in the prior year period, primarily due to a lower average commission rate resulting in lower commissions received for logo general merchandise as part of the F/L Relationship-related agreements, under which the commission rates adjust as the relationship matures, as well as the impact from closed stores, lower trade books and cafe and convenience product sales, offset by higher graduation and supplies product sales. Retail Gross Comparable Store Sales for general merchandise decreased by $2.0 million, or 0.4%, compared to the prior year period as discussed below. ◦ Service and other revenue increased by $0.2 million to $32.6 million, compared to $32.4 million in the prior year period, primarily due to higher other income for non-return rental penalty fees, offset by lower marketplace sales. • Rental income for course materials decreased by $3.1 million, or 3.2%, to $93.5 million during the 39 weeks ended January 27, 2024 from $96.6 million during the 39 weeks ended January 28, 2023 primarily due to the increased shift to 43 Table of Contents digital course materials, offset by the growth in rental income resulting from the adoption of our BNC First Day programs. 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), offset by declines in a la carte courseware sales. The decrease in general merchandise sales are primarily related to lower logo product sales, as well as lower trade books and cafe and convenience product sales, offset by higher graduation and supplies product sales. Retail Gross Comparable Store Sales variances by category for the 13 and 39 week periods are as follows: 13 weeks ended 39 weeks ended Dollars in millions January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Textbooks (Course Materials) $ 43.8 14.1 % $ 21.3 7.4 % $ 78.3 8.8 % $ 2.9 0.3 % General Merchandise (5.7) (4.6) % 2.6 2.3 % (2.0) (0.4) % 42.6 11.3 % Total Retail Gross Comparable Store Sales $ 38.1 8.8 % $ 23.9 5.9 % $ 76.3 5.7 % $ 45.5 3.6 % Wholesale Wholesale sales decreased by $1.8 million, or 4.6% to $37.2 million during the 13 weeks ended January 27, 2024 from $39.0 million during the 13 weeks ended January 28, 2023. The decrease is primarily due to lower gross sales of $4.5 million, partially offset by lower returns and allowances of $2.7 million compared to the prior year period. Wholesale sales decreased by $0.2 million, or 0.2% to $96.9 million during the 39 weeks ended January 27, 2024 from $97.1 million during the 39 weeks ended January 28, 2023. The decrease is primarily due to higher returns and allowances of $2.0 million, partially offset by higher gross sales of $1.8 million compared to the prior year period. Cost of Sales and Gross Margin Our cost of sales increased as a percentage of sales to 78.1% during the 13 weeks ended January 27, 2024 compared to 77.9% during the 13 weeks ended January 28, 2023. Our gross margin increased by $3.0 million, or 3.1%, to $100.0 million, or 21.9% of sales, during the 13 weeks ended January 27, 2024 from $97.0 million, or 22.1% of sales during the 13 weeks ended January 28, 2023. Our cost of sales increased as a percentage of sales to 78.4% during the 39 weeks ended January 27, 2024 compared to 77.6% during the 39 weeks ended January 28, 2023. Our gross margin decreased by $4.2 million, or 1.5%, to $286.9 million, or 21.6% of sales, during the 39 weeks ended January 27, 2024 from $291.1 million, or 22.4% of sales during the 39 weeks ended January 28, 2023. 44 Table of Contents Retail The following table summarizes the Retail cost of sales for the 13 and 39 weeks ended January 27, 2024 and January 28, 2023: 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 % of Related Sales January 28, 2023 % of Related Sales January 27, 2024 % of Related Sales January 28, 2023 % of Related Sales Product and other cost of sales $ 326,294 82.0% $ 309,123 82.0% $ 966,573 81.2% $ 931,539 80.3% Rental cost of sales 23,909 57.9% 23,210 52.4% 52,606 56.3% 52,416 54.3% Total Cost of Sales $ 350,203 79.7% $ 332,333 78.9% $ 1,019,179 79.4% $ 983,955 78.3% The following table summarizes the Retail gross margin for the 13 and 39 weeks ended January 27, 2024 and January 28, 2023: 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 % of Related Sales January 28, 2023 % of Related Sales January 27, 2024 % of Related Sales January 28, 2023 % of Related Sales Product and other gross margin $ 71,854 18.0% $ 67,827 18.0% $ 224,179 18.8% $ 228,282 19.7% Rental gross margin 17,389 42.1% 21,099 47.6% 40,884 43.7% 44,139 45.7% Gross Margin $ 89,243 20.3% $ 88,926 21.1% $ 265,063 20.6% $ 272,421 21.7% For the 13 and 39 weeks ended January 27, 2024, the Retail Product and other gross margin as a percentage of sales decreased as discussed below: • For the 13 weeks ended January 27, 2024, Product and other gross margin as a percentage of sales was flat primarily from increased sales of $63.3 million from higher margin First Day Complete course material sales, and lower contract costs as a percentage of sales related to our college and university contracts as a result of the shift to digital and First Day models and lower performing school contracts not renewed (90 basis points), were partially offset by lower margin rates for course materials due to higher markdowns, including markdowns related to closed stores (70 basis points), and lower general merchandise sales, primarily from closed stores, a lower average commission rate and an unfavorable sales mix due to the shift to digital course materials (20 basis points). • For the 39 weeks ended January 27, 2024, Product and other gross margin as a percentage of sales decreased (90 basis points), driven primarily by lower margin rates for course materials due to higher markdowns, including markdowns related to closed stores, and lower general merchandise sales, primarily from closed stores and a lower average commission rate (170 basis points) and an unfavorable sales mix due to the shift to digital course materials (35 basis points). These decreases in gross margin rate were partially offset by increased sales of $136.0 million from higher margin First Day Complete course material sales, and lower contract costs as a percentage of sales related to our college and university contracts as a result of the shift to digital and First Day models, and lower performing school contracts not renewed (115 basis points). For the 13 and 39 weeks ended January 27, 2024, the Retail Rental gross margin as a percentage of sales decreased driven primarily by lower rental margin rates, higher markdowns and unfavorable rental mix, partially offset by lower contract costs as a percentage of sales related to our college and university contracts as a result of the shift to digital and the adoption of our BNC First Day models and lower performing school contracts not renewed. Wholesale The cost of sales and gross margin for Wholesale were $29.2 million, or 78.5% of sales, and $8.0 million, or 21.5% of sales, respectively, during the 13 weeks ended January 27, 2024. The cost of sales and gross margin for Wholesale was $32.3 million or 82.9% of sales and $6.7 million or 17.1% of sales, respectively, during the 13 weeks ended January 28, 2023. The gross margin rate increased during the 13 weeks ended January 27, 2024 primarily due to lower returns and allowances and lower warehouse costs, partially offset by higher markdowns. The cost of sales and gross margin for Wholesale were $77.1 million, or 79.5% of sales, and $19.9 million, or 20.5% of sales, respectively, during the 39 weeks ended January 27, 2024. The cost of sales and gross margin for Wholesale was $78.1 45 Table of Contents million or 80.4% of sales and $19.0 million or 19.6% of sales, respectively, during the 39 weeks ended January 28, 2023. The gross margin rate increased during the 39 weeks ended January 27, 2024 primarily due to lower warehouse costs, partially offset by higher product costs and higher markdowns. Intercompany Eliminations During the 13 weeks ended January 27, 2024 and January 28, 2023, our sales eliminations were $(19.9) million and $(22.2) million, respectively. During the 39 weeks ended January 27, 2024 and January 28, 2023, our sales eliminations were $(50.0) million and $(52.2) million, respectively. These sales eliminations represent the elimination of Wholesale sales and fulfillment service fees to Retail and the elimination of Retail commissions earned from Wholesale. During the 13 weeks ended January 27, 2024 and January 28, 2023, the cost of sales eliminations were $(22.7) million and $(23.6) million, respectively. During the 39 weeks ended January 27, 2024 and January 28, 2023, the cost of sales eliminations were $(51.9) million and $(51.9) 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. During the 13 weeks ended January 27, 2024 and January 28, 2023, the gross margin eliminations were $2.8 million and $1.4 million, respectively. During the 39 weeks ended January 27, 2024 and January 28, 2023, the gross margin eliminations were $2.0 million and $(0.3) million, respectively. The gross margin eliminations reflect the net impact of the sales eliminations and cost of sales eliminations during the above mentioned reporting periods. Selling and Administrative Expenses 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 % of Sales January 28, 2023 % of Sales January 27, 2024 % of Sales January 28, 2023 % of Sales Total Selling and Administrative Expenses $ 79,756 17.5% $ 91,841 21.0% $ 243,193 18.3% $ 281,136 21.6% During the 13 weeks ended January 27, 2024, selling and administrative expenses decreased by $12.1 million, or 13.2%, to $79.8 million from $91.8 million during the 13 weeks ended January 28, 2023. During the 39 weeks ended January 27, 2024, selling and administrative expenses decreased by $37.9 million, or 13.5%, to $243.2 million from $281.1 million during the 39 weeks ended January 28, 2023. The variances by segment are discussed below. Retail During the 13 weeks ended January 27, 2024, Retail selling and administrative expenses decreased by $11.4 million, or 13.7%, to $71.4 million from $82.8 million during the 13 weeks ended January 28, 2023. This decrease was primarily due to cost savings initiatives comprised of a $7.9 million decrease in comparable store payroll expense, new/closed store payroll expense and related operating costs, and a $3.4 million decrease in corporate payroll expense, infrastructure and product development costs. During the 39 weeks ended January 27, 2024, Retail selling and administrative expenses decreased by $34.1 million, or 13.5%, to $217.7 million from $251.8 million during the 39 weeks ended January 28, 2023. This decrease was primarily due to cost savings initiatives comprised of a $25.7 million decrease in comparable store payroll expense, new/closed store payroll expense and related operating costs, and a $8.4 million decrease in corporate payroll expense, infrastructure and product development costs. Wholesale During the 13 weeks ended January 27, 2024, Wholesale selling and administrative expenses decreased by $0.3 million, or 8.2%, to $3.3 million from $3.6 million during the 13 weeks ended January 28, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $0.4 million, partially offset by higher operating expenses of $0.1 million. During the 39 weeks ended January 27, 2024, Wholesale selling and administrative expenses decreased by $1.4 million, or 12.2%, to $10.2 million from $11.6 million during the 39 weeks ended January 28, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $1.6 million, partially offset by higher operating expenses of $0.2 million. 46 Table of Contents Corporate Services During the 13 weeks ended January 27, 2024, Corporate Services' selling and administrative expenses decreased by $0.5 million, or 8.6%, to $5.1 million from $5.6 million during the 13 weeks ended January 28, 2023. The decrease was primarily due to lower payroll expense of $0.3 million and lower operating costs of $0.2 million. During the 39 weeks ended January 27, 2024, Corporate Services' selling and administrative expenses decreased by $2.6 million, or 14.4%, to $15.3 million from $17.9 million during the 39 weeks ended January 28, 2023. The decrease was primarily due to cost savings initiatives comprised of lower payroll expense of $1.8 million and lower operating costs of $0.8 million. Depreciation and Amortization Expense 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 % of Sales January 28, 2023 % of Sales January 27, 2024 % of Sales January 28, 2023 % of Sales Total Depreciation and Amortization Expense $ 10,148 2.2% $ 10,112 2.3% $ 30,576 2.3% $ 31,264 2.4% Depreciation and amortization expense was flat at $10.1 million for both the 13 weeks ended January 27, 2024 and the 13 weeks ended January 28, 2023. Depreciation and amortization expense decreased by $0.7 million, or 2.2%, to $30.6 million during the 39 weeks ended January 27, 2024 from $31.3 million during the 39 weeks ended January 28, 2023. The decrease was primarily attributable to lower depreciable assets and intangibles due to the store impairment loss recognized during Fiscal 2024 and Fiscal 2023. Impairment Loss (non-cash) We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets . During the 13 and 39 weeks ended January 27, 2024, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $5.8 million (both pre-tax and after-tax), comprised of $0.4 million, $2.7 million, and $2.7 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the condensed consolidated statement of operations. During the 13 and 39 weeks ended January 28, 2023, we evaluated certain of our store-level long-lived assets in the Retail segment for impairment. Based on the results of the impairment tests, we recognized an impairment loss (non-cash) of $6.0 million (both pre-tax and after-tax), comprised of $0.7 million, $1.7 million, and $3.6 million of property and equipment, operating lease right-of-use assets, and amortizable intangibles, respectively, on the condensed consolidated statement of operations. For additional information, see Item 1. Financial Statements - Note 2. Summary of Significant Accounting Policies and Note 6. Fair Value Measurements . Restructuring and other charges During the 13 and 39 weeks ended January 27, 2024, we recognized restructuring and other charges totaling $3.4 million and $12.3 million, respectively, comprised primarily of $3.4 million and $11.2 million, respectively, for costs primarily associated with professional service costs for restructuring as discussed below and process improvements, and $0 and $1.1 million, respectively, for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost savings initiatives. Pursuant to the July 28, 2023 Credit Agreement amendment, the Board established a committee consisting of three independent directors 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). Restructuring and other expenses associated with the costs of this committee, as well as other related professional service costs, are expected to decrease when the Company concludes on a strategic alternative. During the 13 and 39 weeks ended January 28, 2023, we recognized restructuring and other charges totaling $4.1 million and $4.8 million, respectively, comprised primarily of $2.8 million in each period for severance and other employee termination and benefit costs associated with elimination of various positions as part of cost reduction objectives, and $1.3 million and $2.0 million, respectively, primarily for costs primarily associated with professional service costs for restructuring and process improvements. 47 Table of Contents Operating Income (Loss) 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 % of Sales January 28, 2023 % of Sales January 27, 2024 % of Sales January 28, 2023 % of Sales Total Operating Income (Loss) $ 921 0.2% $ (15,077) (3.5)% $ (4,975) (0.3)% $ (32,013) (2.5)% Our operating income was $0.9 million during the 13 weeks ended January 27, 2024, compared to operating loss of $(15.1) million during the 13 weeks ended January 28, 2023. The increase in operating income is due to the matters discussed above. For the 13 weeks ended January 27, 2024, operating income, excluding the $5.8 million of impairment loss (non-cash) and the $3.4 million of restructuring and other charges, discussed above, was $10.1 million (or 2.2% of sales). For the 13 weeks ended January 28, 2023, operating loss, excluding the $6.0 million of impairment loss (non-cash) and the $4.1 million of restructuring and other charges, discussed above, was $(5.0) million (or (1.1)% of sales). Our operating loss was $(5.0) million during the 39 weeks ended January 27, 2024, compared to $(32.0) million during the 39 weeks ended January 28, 2023. The decrease in operating loss is due to the matters discussed above. For the 39 weeks ended January 27, 2024, operating income, excluding the $5.8 million of impairment loss (non-cash) and the $12.3 million of restructuring and other charges, discussed above, was $13.1 million (or 1.0% of sales). For the 39 weeks ended January 28, 2023, operating loss, excluding the $6.0 million of impairment loss (non-cash) and the $4.8 million of restructuring and other charges, discussed above, was $(21.2) million (or (1.6)% of sales). Interest Expense, Net 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Interest Expense, Net $ 10,620 $ 6,918 $ 29,538 $ 15,672 Net interest expense increased by $3.7 million to $10.6 million during the 13 weeks ended January 27, 2024 from $6.9 million during the 13 weeks ended January 28, 2023. Net interest expense increased by $13.9 million to $29.5 million during the 39 weeks ended January 27, 2024 from $15.7 million during the 39 weeks ended January 28, 2023. Interest expense increased by $13.9 million compared to the prior year period, comprised of $7.2 million resulting from higher borrowings and higher interest rates and $6.3 million resulting from increased amortization of deferred financing costs. The following table disaggregates interest expense for the 13 and 39 week periods: 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Interest Incurred Credit Facility $ 5,747 $ 5,215 $ 18,286 $ 11,910 Term Loan 907 853 3,074 2,213 Total Interest Incurred $ 6,654 $ 6,068 $ 21,360 $ 14,123 Amortization of Deferred Financing Costs Credit Facility $ 3,662 $ 396 $ 7,456 $ 1,187 Term Loan 312 462 924 871 Total Amortization of Deferred Financing Costs $ 3,974 $ 858 $ 8,380 $ 2,058 Interest Income, net of expense $ (8) $ (8) $ (202) $ (509) Total Interest Expense $ 10,620 $ 6,918 $ 29,538 $ 15,672 Cash interest paid during the 39 weeks ended January 27, 2024 and January 28, 2023 was $19,640 and $13,406, respectively. 48 Table of Contents Income Tax Expense 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 Effective Rate January 28, 2023 Effective Rate January 27, 2024 Effective Rate January 28, 2023 Effective Rate Income Tax Expense $ 229 (2.4)% $ 139 (0.6)% $ 532 (1.5)% $ 603 (1.3)% We recorded an income tax expense of $0.2 million on pre-tax loss of $(9.7) million during the 13 weeks ended January 27, 2024, which represented an effective income tax rate of (2.4)% and we recorded an income tax expense of $0.1 million on a pre-tax loss of $(22.0) million during the 13 weeks ended January 28, 2023, which represented an effective income tax rate of (0.6)%. We recorded an income tax expense of $0.5 million on pre-tax loss of $(34.5) million during the 39 weeks ended January 27, 2024, which represented an effective income tax rate of (1.5)% and we recorded an income tax expense of $0.6 million on a pre-tax loss of $(47.7) million during the 39 weeks ended January 28, 2023, which represented an effective income tax rate of (1.3)%. The effective tax rate for the 13 weeks ended January 27, 2024 is lower than the prior year comparable period due to immaterial return to provision adjustments recorded in the prior year period. The effective tax rate for the 39 weeks ended January 27, 2024 is materially consistent with the prior year comparable period. For additional information, see Item 1. Financial Statements - Note 12. Income Taxes. Net Loss from Continuing Operations 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Net Loss from Continuing Operations $ (9,928) $ (22,134) $ (35,045) $ (48,288) As a result of the factors discussed above, net loss from continuing operations was $(9.9) million during the 13 weeks ended January 27, 2024, compared with $(22.1) million during the 13 weeks ended January 28, 2023 and net loss from continuing operations was $(35.0) million during the 39 weeks ended January 27, 2024, compared with $(48.3) million during the 39 weeks ended January 28, 2023. Adjusted Earnings (non-GAAP) is $(0.7) million during the 13 weeks ended January 27, 2024, compared with $(12.0) million during the 13 weeks ended January 28, 2023. Adjusted Earnings (non-GAAP) is $(16.9) million during the 39 weeks ended January 27, 2024, compared with $(37.5) million during the 39 weeks ended January 28, 2023. 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. 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. 49 Table of Contents 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 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. For a discussion regarding the Seasonality of our business, see See Management Discussion and Analysis - Seasonality discussion above. Consolidated Adjusted Earnings (non-GAAP) - Continuing Operations 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Net loss from continuing operations (a) $ (9,928) $ (22,134) $ (35,045) $ (48,288) Reconciling items (below) 9,211 10,135 18,118 10,796 Adjusted Earnings (non-GAAP) $ (717) $ (11,999) $ (16,927) $ (37,492) Reconciling items Impairment loss (non-cash) (a) $ 5,798 $ 6,008 $ 5,798 $ 6,008 Content amortization (non-cash) — — — 26 Restructuring and other charges (b) 3,413 4,127 12,320 4,762 Reconciling items (c) $ 9,211 $ 10,135 $ 18,118 $ 10,796 (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. 50 Table of Contents Consolidated Adjusted EBITDA (non-GAAP) - Continuing Operations 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Net loss from continuing operations (a) $ (9,928) $ (22,134) $ (35,045) $ (48,288) Add: Depreciation and amortization expense 10,148 10,112 30,576 31,264 Interest expense, net (b) 10,620 6,918 29,538 15,672 Income tax expense 229 139 532 603 Impairment loss (non-cash) (c) 5,798 6,008 5,798 6,008 Content amortization (non-cash) — — — 26 Restructuring and other charges (c) 3,413 4,127 12,320 4,762 Adjusted EBITDA (Non-GAAP) - Continuing Operations $ 20,280 $ 5,170 $ 43,719 $ 10,047 Adjusted EBITDA (Non-GAAP) - Discontinued Operations $ (177) $ 1,253 $ (393) $ 2,322 Adjusted EBITDA (Non-GAAP) - Total $ 20,103 $ 6,423 $ 43,326 $ 12,369 (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) 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. (c) See Management Discussion and Analysis and Results of Operations discussion above. The following is Adjusted EBITDA - Continuing Operations by Segment for the 13 and 39 weeks ended January 27, 2024 and January 28, 2023. Adjusted EBITDA - by Segment 13 weeks ended January 27, 2024 Dollars in thousands Retail Wholesale Corporate Services (b) Eliminations Total Net income (loss) from continuing operations (a) $ 3,235 $ 3,404 $ (19,364) $ 2,797 $ (9,928) Add: Depreciation and amortization expense 8,817 1,321 10 — 10,148 Interest expense, net — — 10,620 — 10,620 Income tax expense — — 229 — 229 Impairment loss (non-cash) (a) 5,798 — — — 5,798 Content amortization (non-cash) — — — — — Restructuring and other charges (c) — — 3,413 — 3,413 Adjusted EBITDA (non-GAAP) $ 17,850 $ 4,725 $ (5,092) $ 2,797 $ 20,280 Adjusted EBITDA - by Segment 13 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale Corporate Services (b) Eliminations Total Net (loss) income from continuing operations (a) $ (10,036) $ 817 $ (14,379) $ 1,464 $ (22,134) Add: Depreciation and amortization expense 8,749 1,357 6 — 10,112 Interest expense, net — — 6,918 — 6,918 Income tax benefit — — 139 — 139 Impairment loss (non-cash) (a) 6,008 — — — 6,008 Content amortization (non-cash) — — — — — Restructuring and other charges (c) 1,452 931 1,744 — 4,127 Adjusted EBITDA (non-GAAP) $ 6,173 $ 3,105 $ (5,572) $ 1,464 $ 5,170 51 Table of Contents Adjusted EBITDA - by Segment 39 weeks ended January 27, 2024 Dollars in thousands Retail Wholesale Corporate Services (b) Eliminations Total Net income (loss) from continuing operations (a) $ 14,268 $ 5,351 $ (56,636) $ 1,972 $ (35,045) Add: Depreciation and amortization expense 26,694 3,852 30 — 30,576 Interest expense, net — — 29,538 — 29,538 Income tax expense — — 532 — 532 Impairment loss (non-cash) (a) 5,798 — — — 5,798 Content amortization (non-cash) — — — — — Restructuring and other charges (c) 555 526 11,239 — 12,320 Adjusted EBITDA (non-GAAP) $ 47,315 $ 9,729 $ (15,297) $ 1,972 $ 43,719 Adjusted EBITDA - by Segment 39 weeks ended January 28, 2023 Dollars in thousands Retail Wholesale Corporate Services (b) Eliminations Total Net (loss) income from continuing operations (a) $ (14,029) $ 2,454 $ (36,556) $ (157) $ (48,288) Add: Depreciation and amortization expense 27,147 4,076 41 — 31,264 Interest expense, net — — 15,672 — 15,672 Income tax expense — — 603 — 603 Impairment loss (non-cash) (a) 6,008 — — — 6,008 Content amortization (non-cash) 26 — — — 26 Restructuring and other charges (c) 1,452 931 2,379 — 4,762 Adjusted EBITDA (non-GAAP) $ 20,604 $ 7,461 $ (17,861) $ (157) $ 10,047 (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) 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. (c) See Management Discussion and Analysis and Results of Operations discussion above. Adjusted EBITDA (non-GAAP) - Discontinued Operations 13 weeks ended 39 weeks ended January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Income (loss) from discontinued operations (a) $ 289 $ (2,915) $ (802) $ (7,324) Add: Depreciation and amortization expense — 506 3 2,646 Income tax expense — 128 20 297 Content amortization (non-cash) — 1,686 — 4,855 Gain on sale of business (477) — (3,545) — Impairment loss (non-cash) — — 610 — Restructuring and other charges 11 1,848 3,308 1,848 Transaction costs — — 13 — Adjusted EBITDA (Non-GAAP) - Discontinued Operations $ (177) $ 1,253 $ (393) $ 2,322 (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. 52 Table of Contents Free Cash Flow (non-GAAP) 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Net cash flows used in operating activities from continuing operations (a) $ (36,061) $ (31,321) $ ( 83,221 ) $ ( 21,248 ) Less: Capital expenditures (b) 3,263 4,877 11,459 21,700 Cash interest 5,668 6,105 19,640 13,406 Cash taxes (118) 1 270 (15,582) Free Cash Flow (non-GAAP) $ (44,874) $ (42,304) $ (114,590) $ (40,772) (a) See Liquidity and Capital Resources - Sources and Uses of Cash Flow discussion below. The increase in Net cash flows used in operating activities from continuing operations is due to higher accounts receivables and higher inventory levels primarily related to our increased adoption of our BNC First Day equitable and inclusive access sales; higher payments for interest expense; and higher payables due to delayed payments to vendors for inventory purchases and expenses, as a result of borrowing capacity limitations under our credit facility. 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. (b) 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 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Physical store capital expenditures $ 1,158 $ 1,700 $ 5,106 $ 12,248 Product and system development 1,588 2,691 5,048 7,866 Other 517 486 1,305 1,586 Total Capital Expenditures $ 3,263 $ 4,877 $ 11,459 $ 21,700 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. 53 Table of Contents 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 January 27, 2024, we had $15.0 million of cash on hand, including $6.9 million of restricted cash primarily related to segregated funds for commission due to Lids for logo merchandise sales as per the F/L Relationship-related agreements. 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, including increased competition and disintermediation, 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. We recognized Net Loss from Continuing Operations of $(9.9) million and $(22.1) million for the 13 weeks ended January 27, 2024 and January 28, 2023 , respectively, and a Net Loss from Continuing Operations of $(35.0) million and $(48.3) million for the 39 weeks ended January 27, 2024 and January 28, 2023 , 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) Provided by Operating Activities from Continuing Operations were $(83.2) million and $(21.2) million for the 39 weeks ended January 27, 2024 and January 28, 2023 , 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 FILO Facility in fiscal year 2023 of $40.0 million, had a significant impact on our liquidity during fiscal year 2023 and fiscal year 2024, including our ability to make timely vendor payments and school commission payments. Our losses and projected cash needs, combined with our current liquidity levels and the maturity of our Credit Facility, which becomes due on December 28, 2024, raises substantial doubt about our ability to continue as a going concern. The Company's ability to continue as a going concern is contingent upon the successful execution of management's plan to improve the Company’s liquidity, including (1) raising additional liquidity and (2) continuing to take additional operational restructuring actions to achieve the required levels of liquidity to support the operations of the business. Pursuant to the July 28, 2023 Credit Agreement amendment, the Board established a committee consisting of three independent directors 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). The Board continues its ongoing review of a broad range of strategic alternatives available to the Company, including but not limited to potential capital raises, asset divestitures, a sale of the business, and pursuit of standalone growth plans. The Board has not set a timetable for the conclusion of this review, nor has it made any decisions related to any further actions at this time. There can be no assurance that the review will result in any transaction or other strategic change or outcome. 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 54 Table of Contents 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). On October 10, 2023, we amended our existing Credit Agreement to revise certain reporting requirements to the administrative agent and lenders under the Credit Agreement. The amendment introduced a Specified Liquidity Transaction Fee of $3.8 million that would become due and payable at the earlier to occur of (1) January 31, 2024, to the extent a Specified Liquidity Transaction (as defined in the Credit Agreement) has not been consummated prior to such date (or such later date that is up to thirty days thereafter to the extent agreed to in writing by the Administrative Agent in its sole discretion) or (b) an Event of Default under the Credit Agreement. On December 12, 2023, we amended our existing Credit Agreement to, among other things: (i) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times to be greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32.5 million or, subject to the satisfaction of certain conditions relating to the repayment of the Credit Agreement in full, (B) (a) $20 million for the period of December 8, 2023 through January 12, 2024, (b) $25 million for the period from January 26, 2024 through February 9, 2024, (c) $25 million for the period of April 1, 2024 through April 30, 2024 and (d) $30 million for the period of May 1, 2024 through May 31, 2024, and (ii) revise certain reporting requirements under the Credit Agreement. The amendment also revised the Specified Liquidity Transaction Fee introduced in the October 2023 Credit Agreement Amendment such that the $3.8 million became due, upon the effective date of the December 2023 amendment and was paid on January 31, 2024. On March 12, 2024, we amended our existing Credit Agreement to, among other things, (i) revise certain reporting requirements under the Credit Agreement and (ii) set certain milestones for liquidity and refinancing contingency plans, with respect to which we must execute a binding commitment no later than April 3, 2024 (as may be extended by the administrative agent to April 10, 2024). 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 . Operational restructuring plans During Fiscal 2023, we implemented a significant cost reduction program designed to streamline our operations, maximize productivity and drive profitability. We reduced 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. Over the course of Fiscal 2024, we have achieved annualized savings of approximately $30 million to $35 million from the Fiscal 2023 cost savings initiatives. Additionally, during Fiscal 2024, Management's plan to implement further cost savings measures, including reduction of gross capital expenditures, amounting to approximately $25 million, of which approximately $18 million has been achieved during the 39 weeks ended January 27, 2024. Management believes that these plans are within its control and will be focused on implementing these cost savings measures. During the 13 weeks ended January 27, 2024, Net Loss from Continuing Operations improved by $12.2 million, or 55%, compared to the prior year period. Net Income (Loss) from Continuing Operations, Excluding interest expense, impairment loss (non-cash) and restructuring and other charges, improved by $15.0 million during the 13 weeks ended January 27, 2024 compared to the prior year period. During the 39 weeks ended January 27, 2024, Net Loss from Continuing Operations improved by $13.3 million, or 28%, compared to the prior year period. Net Income (Loss) from Continuing Operations, excluding interest expense, impairment loss (non-cash) and restructuring and other charges, improved by $34.4 million during the 39 weeks ended January 27, 2024 compared to the prior year period. The improvements in Net Loss from Continuing Operations during the 13 and 39 weeks are primarily due to operational improvements including successful implementation of our BNC First Day programs, and cost savings initiatives. 55 Table of Contents 13 weeks ended 39 weeks ended Dollars in millions January 27, 2024 January 28, 2023 Var $ Var % January 27, 2024 January 28, 2023 Var $ Var % Net loss from continuing operations $ (9.9) $ (22.1) $ 12.2 55% $ (35.0) $ (48.3) $ 13.3 28% Reconciling items: Interest Expense (a) $ 10.6 $ 6.9 $ 3.7 54% $ 29.5 $ 15.7 $ 13.8 88% Impairment loss (non-cash) 5.8 6.0 (0.2) (3)% 5.8 6.0 (0.2) (3)% Restructuring and other charges 3.4 4.1 (0.7) (17)% 12.3 4.8 7.5 156% Total Reconciling items $ 19.8 $ 17.0 $ 2.8 16% $ 47.6 $ 26.5 $ 21.1 80% Net Income (Loss) from Continuing Operations Excluding Interest Expense, Impairment Loss and Restructuring and Other Charges $ 9.9 $ (5.1) $ 15.0 294% $ 12.6 $ (21.8) $ 34.4 158% (a) Interest expense increased by $13.9 million compared to the prior year period, comprised of $7.2 million resulting from higher borrowings and higher interest rates and $6.3 million resulting from increased amortization of deferred financing costs. For additional information, see Deferred Financing Costs and Interest Expense below. Sources and Uses of Cash Flow - Continuing Operations 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 Net cash flows used in operating activities from continuing operations $ (83,221) $ (21,248) Net cash flows used in investing activities from continuing operations (11,381) (21,128) Net cash flows provided by financing activities from continuing operations 59,893 56,422 Net change in cash, cash equivalents, and restricted cash from continuing operations $ (34,709) $ 14,046 As of January 27, 2024 and January 28, 2023, we had restricted cash of $6.9 million and $18.3 million, respectively, comprised of $6.0 million and $17.4 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 service provider 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. 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 39 weeks ended January 27, 2024 were $(83.2) million compared to $(21.2) million during the 39 weeks ended January 28, 2023. This increase in cash flows used in operating activities from continuing operations of $62.0 million was primarily due to changes in working capital, including higher accounts receivables of $81.7 million and higher inventory levels of $88.2 million primarily related to our increased adoption of our BNC First Day equitable and inclusive access sales; higher payments for interest expense of $6.2 million; offset 56 Table of Contents by higher payables of $78.0 million due to delayed payments to vendors for inventory purchases and expenses, as a result of borrowing capacity limitations under our credit facility. Cash Flow from Investing Activities from Continuing Operations Cash flows used in investing activities from continuing operations during the 39 weeks ended January 27, 2024 were $(11.4) million compared to $(21.1) million during the 39 weeks ended January 28, 2023. 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 $11.5 million and $21.7 million during the 39 weeks ended January 27, 2024 and January 28, 2023, respectively. Cash Flow from Financing Activities from Continuing Operations Cash flows provided by financing activities from continuing operations during the 39 weeks ended January 27, 2024 were $59.9 million compared to $56.4 million during the 39 weeks ended January 28, 2023. This net change of $3.5 million is primarily due to higher net borrowings of $10.0 million, partially offset by higher payments for deferred financing costs of $7.2 million. Financing Arrangements As of Maturity Date January 27, 2024 January 28, 2023 Credit Facility December 28, 2024 $ 224,067 $ 255,600 Term Loan April 7, 2025 31,750 30,000 sub-total 255,817 285,600 Less: Deferred financing costs, Term Loan (a) (1,559) (1,743) Total debt $ 254,258 $ 283,857 Balance Sheet classification: Short-term borrowings $ 224,067 $ — Long-term borrowings 30,191 283,857 Total debt $ 254,258 $ 283,857 (a) For additional information on Credit Facility and Term Loan deferred financing costs, see Deferred Financing Costs below. Credit Facility We have a credit agreement (the “Credit Agreement”), amended from time to time including on December 12, 2023, October 10, 2023, 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, no later than 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 57 Table of Contents 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 required 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. 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). For additional information related to the Credit Agreement amendment, see the Company's Report on Form 8-K filed with the SEC on July 28, 2023. During the 39 weeks ended January 27, 2024, we incurred debt issuance costs totaling $11.5 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. October 2023 Credit Agreement Amendment On October 10, 2023, we amended our existing Credit Agreement to amend certain reporting requirements to the administrative agent and lenders under the Credit Agreement. The amendment introduced a Specified Liquidity Transaction Fee of $3.8 million that would become due and payable at the earlier to occur of (1) January 31, 2024, to the extent a Specified Liquidity Transaction (as defined in the Credit Agreement) has not been consummated prior to such date (or such later date that 58 Table of Contents is up to thirty days thereafter to the extent agreed to in writing by the Administrative Agent in its sole discretion) or (b) an Event of Default under the Credit Agreement. During the 39 weeks ended January 27, 2024, we incurred debt issuance costs totaling $1.4 million related to the October 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. December 2023 Credit Agreement Amendment On December 12, 2023, we amended our existing Credit Agreement to, among other things: (i) amend the financial maintenance covenant to require Availability (as defined in the Credit Agreement) at all times to be greater than the greater of (x) 10% of the Aggregate Loan Cap (as defined in the Credit Agreement) and (y) (A) $32.5 million or, subject to the satisfaction of certain conditions relating to the repayment of the Credit Agreement in full, (B) (a) $20 million for the period of December 8, 2023 through January 12, 2024, (b) $25 million for the period from January 26, 2024 through February 9, 2024, (c) $25 million for the period of April 1, 2024 through April 30, 2024 and (d) $30 million for the period of May 1, 2024 through May 31, 2024, and (ii) revise certain reporting requirements under the Credit Agreement. The amendment also revised the Specified Liquidity Transaction Fee introduced in the October 2023 Credit Agreement Amendment such that the $3.8 million became due and was paid on January 31, 2024. During the 39 weeks ended January 27, 2024, we incurred debt issuance costs totaling $4.1 million related to the December 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. For additional information related to the Credit Agreement amendment, see the Company’s Report on Form 8-K dated December 12, 2023 and filed with the SEC on December 13, 2023. March 2024 Credit Agreement Amendment On March 12, 2024, we amended our existing Credit Agreement to, among other things, (i) revise certain reporting requirements under the Credit Agreement and (ii) set certain milestones for liquidity and refinancing contingency plans, with respect to which we must execute a binding commitment no later than April 3, 2024 (as may be extended by the administrative agent to April 10, 2024). As of January 27, 2024, 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 39 weeks ended January 27, 2024, we borrowed $454.5 million and repaid $384.5 million under the Credit Agreement, and had outstanding borrowings of $224.1 million as of January 27, 2024, comprised entirely of borrowings under the Credit Facility. During the 39 weeks ended January 28, 2023, we borrowed $482.0 million and repaid $452.1 million under the Credit Agreement, and had outstanding borrowings of $255.6 million as of January 28, 2023, comprised entirely of borrowings under the Credit Facility. As of January 27, 2024 and January 28, 2023, we have issued $3.6 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 April 7, 2025. The proceeds of the Term Loans are being used to finance working capital, and to pay fees and expenses related to the Term Loan Facility. During the 39 weeks ended January 27, 2024, we incurred $1.8 million for interest in kind on the Term Loan and repaid $0 under the Term Loan Credit Agreement, with $31.8 million of outstanding borrowings as of January 27, 2024. During the 39 weeks ended January 28, 2023, we borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of January 28, 2023. March 2023 Term Loan Credit Agreement Amendment 59 Table of Contents 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). For additional information, see the Company's Report on Form 8-K dated March 8, 2023 and filed with the SEC on March 9, 2023. 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 a reduction to long-term borrowings in the consolidated balance sheets, and subsequently amortized ratably over the term of the Term Loan Facility. 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). For additional information, see the Company's Report on Form 8-K filed with the SEC on July 28, 2023. During the 39 weeks ended January 27, 2024, 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 a reduction to long-term borrowings 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. All interest on the Term Loan prior to July 29, 2023 was paid in cash. During the 13 weeks ended October 28, 2023 and 13 weeks ended January 27, 2024, all interest on the Term Loan was incurred in kind as permitted under the July 2023 Term Loan Amendment. 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. Deferred Financing Costs The debt issuance costs have been deferred and are presented as noted below in the consolidated balance sheets, and are subsequently amortized ratably over the term of respective debt. Dollars in thousands As of Balance Sheet Location Maturity Date/ Amortization Term January 27, 2024 January 28, 2023 Credit Facility - Prepaid and Other Current Assets December 28, 2024 $ 14,570 $ 1,583 Credit Facility - Other noncurrent assets — 132 Credit Facility - sub-total 14,570 1,715 Term Loan - Contra Debt April 7, 2025 1,559 1,743 Total deferred financing costs $ 16,129 $ 3,458 60 Table of Contents Interest Expense During the 13 weeks ended January 27, 2024 and January 28, 2023, we recognized interest expense of $10.6 million and $6.9 million, respectively, and during the 39 weeks ended January 27, 2024 and January 28, 2023, we recognized interest expense of $29.5 million and $15.7 million, respectively. The following table disaggregates interest expense for the 13 and 39 week periods: 13 weeks ended 39 weeks ended Dollars in thousands January 27, 2024 January 28, 2023 January 27, 2024 January 28, 2023 Interest Incurred Credit Facility $ 5,747 $ 5,215 $ 18,286 $ 11,910 Term Loan 907 853 3,074 2,213 Total Interest Incurred $ 6,654 $ 6,068 $ 21,360 $ 14,123 Amortization of Deferred Financing Costs Credit Facility $ 3,662 $ 396 $ 7,456 $ 1,187 Term Loan 312 462 924 871 Total Amortization of Deferred Financing Costs $ 3,974 $ 858 $ 8,380 $ 2,058 Interest Income, net of expense $ (8) $ (8) $ (202) $ (509) Total Interest Expense $ 10,620 $ 6,918 $ 29,538 $ 15,672 Cash interest paid during the 39 weeks ended January 27, 2024 and January 28, 2023 was $19.6 million and $13.4 million, respectively. 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 January 27, 2024, 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 received an $8.5 million refund (including $0.9 million in interest) on February 16, 2024 and we expect to receive additional refunds of approximately $2.4 million. Share Repurchases During the 13 and 39 weeks ended January 27, 2024, we did not repurchase any of our Common Stock under the stock repurchase program. As of January 27, 2024, approximately $26.7 million remains available under the stock repurchase program. During the 13 and 39 weeks ended January 27, 2024, we repurchased 3,135 and 147,885 of our Common Stock, respectively, outside of the stock repurchase program in connection with employee tax withholding obligations for vested stock awards. Contractual Obligations Our projected contractual obligations are consistent with amounts disclosed in Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources in our Annual Report on Form 10-K for the fiscal year ended April 29, 2023. Off-Balance Sheet Arrangements As of January 27, 2024, 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. 61 Table of Contents Disclosure Regarding Forward-Looking Statements This quarterly report on Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and information relating to us and our business that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this communication, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “will,” “forecasts,” “projections,” and similar expressions, as they relate to us or our management, identify forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Such statements reflect our current views with respect to future events, the outcome of which is subject to certain risks, including, among others: • 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 continue as a going concern; • 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 United States Department of Education has recently proposed regulatory changes that, if adopted as proposed, could impact equitable and inclusive access models across the higher education industry; • 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 service provider relationships, 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 Relationship”), and the potential for adverse operational and financial changes to these strategic service provider relationships, 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; • 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; 62 Table of Contents • 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 the potential loss of control over personal information; • risks associated with the potential misappropriation of our 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 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, service providers, and campus 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 applicable domestic and international laws, rules or regulations, including, without limitation, U.S. tax reform, changes in tax rates, laws and regulations, as well as related guidance; • changes in and enactment of applicable laws, rules or regulations or changes in enforcement practices including, without limitation, with regard to consumer data privacy rights, which may restrict or prohibit our use of consumer personal information for 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. 63 Table of Contents 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.