What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-19 compared with 2024-05-08 · 268 added, 106 removed, 80 unchanged (82% of the section changed)

14 unchanged sentences

our foreign operations and the reinvestment of our earnings related thereto;

our investment in and protection of our IP;

our investment in and protection of our intellectual property (“ IP”);

our employees;

6 unchanged sentences

Actual results could differ materially from those projected in the forward-looking statements, therefore we caution you not to place undue reliance on these forward-looking statements.

Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the risk factors contained under Part I, Item 1 A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 , filed with the Securities and Exchange Commission the (“SEC”) on March 11, 2024 and Part I, Item 1 A, “Risk Factors” in Barnes & Noble Educations’ Annual Report on Form 10-K for the fiscal year ended April 27, 2024 filed with the SEC on July 1, 2024.

Any forward-looking statements made by us in this report speak only as of the date of this report, and we do not intend to update these forward-looking statements after the filing of this report, unless required to do so by applicable law or regulation.

You are urged to review carefully and consider our various disclosures in this report and in our other reports publicly disclosed or filed with the SEC that attempt to advise you of the risks and factors that may affect our business.

We are a premier licensing company focused on the invention, acceleration, and scaling, through licensing, of innovative haptic technologies that allow people to use their sense of touch to engage with products and experience the digital world around them.

We are one of the leading experts in haptics, and our focus on innovation allows us to deliver world-class intellectual property (“IP”) and technology that enables the creation of products that delight end users.

Our technologies are designed to facilitate the creation of high-quality haptic experiences, enable their widespread distribution, and ensure that their playback is optimized.

Our primary business is currently in the mobility, gaming, and automotive markets, but we believe our technology is broadly applicable and see opportunities in evolving new markets, including virtual and augmented reality, and wearables, as well as residential, commercial, and industrial Internet of Things.

In recent years, we have seen a trend towards broad market adoption of haptic technology.

As other companies follow our leadership in recognizing how important tactile feedback can be in people’s digital lives, we expect the opportunity to license our IP and technologies will continue to expand.

COMPANY OVERVIEW

Immersion Corporation (“Immersion”) was incorporated in 1993 in California and reincorporated in Delaware in 1999 .

In this Management’s Discussion and Analysis of Financial Condition and Results of Operations the terms the “Company,” “us,” “we,” or “our” refer to Immersion and its consolidated subsidiaries.

Immersion generates license and royalty revenues from a wide range of intellectual property (“IP”) that more fully engage users’ sense of touch when operating digital devices.

We focus on the following target application areas:

mobile devices, wearables, consumer, mobile entertainment and other content;

console gaming;

and commercial.

On June 10, 2024, we acquired a controlling interest in Barnes & Noble Education, Inc., a Delaware corporation (“Barnes & Noble Education”), refer to Note 2 .

Business Combination for more information.

The financial results of Barnes & Noble Education have been included in our condensed consolidated financial statements from the acquisition date of June 10, 2024.

Following the closing of the Transactions (as defined in Note 2 .

Business Combination) with Barnes & Noble Education we operate our business in two operating segments:

Immersion and Barnes & Noble Education.

RESULTS OF OPERATION

Three Months Ended June 30,

Six Months Ended June 30,

Royalty and license

Barnes & Noble Education :

Product and other

Rental income

Total revenues

Cost of sales (excludes depreciation and amortization expense):

Barnes & Noble Education :

Product and other cost of sales

Rental cost of sales

Operating expenses:

Selling and administrative expenses

Barnes & Noble Education :

Selling and administrative expenses

Depreciation and amortization expense

Restructuring and other charges

Total operating expenses

Operating income

Interest and other income, net

Interest expense

Income before provision for income taxes

Provision for income taxes

Net loss attributable to noncontrolling interests

Net income attributable to Immersion stockholders

Earnings per common share attributable to Immersion stockholders:

Weighted Average Common Stock Outstanding

Immersion generates license and royalty revenues from a wide range of intellectual property (“IP”) that more fully engage users’ sense of touch when operating digital devices.

We focus on the following target application areas:

mobile devices, wearables, consumer, mobile entertainment and other content;

console gaming;

and commercial.

We have adopted a business model under which we offer licenses to our patented technology to our customers and offer our customers enabling software, related tools and technical assistance related to integrate our patented technology into our customers’ products or enhance the functionality of our patented technology.

Our licenses enable our customers to deploy haptically-enabled devices, content and other offerings, which they typically sell under their own brand names.

We and our wholly-owned subsidiaries hold more than 800 issu ed or pending patents worldwide as of March 31, 2024 .

We and our wholly-owned subsidiaries hold more than 800 issu ed or pending patents worldwide as of June 30, 2024 .

Our patents cover a wide range of digital technologies and ways in which touch-related technology can be incorporated into and between hardware products and components, systems software, application software, and digital content.

1 unchanged sentence

Our portfolio includes numerous patents and patent applications that we believe may become essential to emerging standards in development by Standards Development Organizations (“SDOs”) including media standards in development by ISO/IEC Moving Picture Expert Group (MPEG) and software and system standards in development at IEEE-SA.

We were incorporated in 1993 in California and reincorporated in Delaware in 1999 .

Results of Operations

Total revenues for the three months ended March 31, 2024 was $ 43.8 million, an increase of $ 36.8 million, or 520 %, compared to the same period in 2023 .

Total operating expenses were $ 27.2 million the three months ended March 31, 2024 , an increase of $ 23.4 million, or 614 %, compared to the same period in 2023 .

Net income was $ 18.7 million in the three months ended March 31, 2024 compared to a net income of $ 8.3 million in the same period in 2023 .

The following table sets forth our Condensed Consolidated Statements of Income and Comprehensive Income data as a percentage of total revenues:

Three Months Ended March 31,

Fixed fee license revenue

A summary of our resu lts of operation for the th ree and six months ended June 30, 2024, and 2023 is as follows (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Fix license revenue

Per unit royalty revenue

Total royalty and license revenue

Development, services, and other

Total revenues

Operating expenses:

Sales and marketing

Research and development

General and administrative

Total operating expenses

Selling and administrative expenses

Operating income

Interest and other income (loss), net

Income before provision for income taxes

Provision for income taxes

Our revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements.

Immersion revenue is primarily derived from fixed fee license agreements and per-unit royalty agreements.

Royalty and license revenue is composed of per unit royalties earned based on usage or net sales by licensees and fixed payment license fees charged for our IP and software.

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

A revenue summary for the three months ended March 31, 2024 and 2023 is as follows (in thousands, except for percentages):

Three Months Ended March 31,

Fixed fee license revenue

Per-unit royalty revenue

Total royalty and license revenue

Development, services, and other revenue

Total revenues

Royalty and license revenue

Fixed fee license revenue increased by $ 37.5 million in the first quarter of 2024 compared to the same period in 2023 primarily due to an increase in gaming license revenue we recognized in the first quarter of 2024 following the License and Settlement Agreement we entered into with Meta Platforms, Inc., (“Meta”) in February 2024.

Per-unit royalty revenue decreased by $ 0.7 million, or 12 %, in the first quarter of 2024 compared to the same period in 2023 , primarily due to a $1.1 million decrease in royalties from gaming licensees partially offset by a $ 0.5 million increase in royalties from automotive licensees.

We expect royalty and license revenue to continue to be a major component of our future revenue as our technology is included in products and we succeed in our efforts to monetize our IP.

Our fixed fee license revenue could fluctuate depending upon the timing of execution of new fixed license fee arrangements.

We also anticipate that our royalty revenue will fluctuate relative to our customers’ unit shipments.

Geographically, revenues generated in North America, Asia and Europe for the three months ended March 31, 2024 represented 88%, 11%, and 1%, respectively, of our total revenue as compared to 12%, 84%, and 4%, respectively, for the three months ended March 31, 2023 .

Fixed fee license revenue increased by $ 47.5 million in the second quarter of 2024 compared to the same period in 2023 primarily due to an increase in mobility license revenue we recognized in the second quarter of 2024 following the new license agreements we entered into in the first half of 2024 .

Per-unit royalty revenue decreased by $ 2.1 million, or 37 %, in the second quarter of 2024 compared to the same period in 2023 , primarily due to a $ 1.6 million decrease in royalties from mobility licensees, a $ 0.9 million decrease in royalties from gaming licensees and a $ 0.5 million decrease in royalties from automotive licensees.

Geographically, revenues generated in Asia, North America and Europe for the three months ended June 30, 2024 represented 98 %, 2 %, and 0 %, respectively, of our total revenue as compared to 14 %, 83 %, and 3 %, respectively, for the three months ended June 30, 2023 .

Fixed fee license revenue increased by $ 85.1 million in the first six months of 2024 compared to the same period in 2023 primarily due to a $ 47.6 million increase in mobility license revenue and $ 37.5 million increase in gaming license revenue primarily resulting from new license agreements we entered into in the first half of 2024 .

Per-unit royalty revenue decreased by $ 2.9 million, or 25 %, in the first six months of 2024 compared to the same period in 2023 , primarily due to a $ 1.8 million decrease in royalties from gaming licensees and a $ 1.8 million decrease in royalties from mobility licensees.

Geographically, revenues generated in Asia, North America and Europe for the six months ended June 30, 2024 represented 58 %, 41 %, and 1 %, respectively, of our total revenue as compared to 83 %, 13 %, and 4 %, respectively, for the six months ended June 30, 2023 .

Operating Expenses

A summary of operating expenses for the three months ended March 31, 2024 , and 2023 is as follows (in thousands, except for percentages):

Three Months Ended March 31,

Sales and marketing

Research and development

General and administrative

Sales and Marketing - Our sales and marketing expenses primarily consisted of employee compensation and benefits, including stock-based compensation;

marketing costs and allocated facilities costs.

Sales and marketing expenses increased $ 1.2 million in the three months ended March 31, 2024 compared to the same period in 2023 primarily attributable to a $1.3 million increase in compensation, benefits and other personnel-related costs due to an increase in variable compensation and stock-based compensation.

Research and Development - Our research and development expenses primarily consisted of employee compensation and benefits, including stock-based compensation and office expense.

Research and development expenses decreased $ 0.1 million, or 68 %, in the three months ended March 31, 2024 , compared to the same period in 2023 .

This decrease was primarily attributable to decreases in compensation, benefits and other personnel-related costs due to a decrease in severance costs.

General and Administrative - Our general and administrative expenses primarily consisted of employee compensation and benefits including stock-based compensation;

A summary of operating expenses for the three and six months ended June 30, 2024 , and 2023 is as follows (in thousands, except for percentages):

Three Months Ended June 30,

Six Months Ended June 30,

Selling and administrative expense

Selling and administrative expenses - Our selling and administrative expenses primarily consisted of employee compensation and benefits including stock-based compensation;

legal and other professional fees;

1 unchanged sentence

office expense;

and allocated facilities costs.

General and administrative expenses increased $ 22.3 million in the three months ended March 31, 2024 as compared to the same period in 2023 primarily due to a $20.8 million increase in legal costs and a $1.7 million increase in compensation, benefits and other personnel related costs.

The increase in compensation, benefits and other personnel related costs in the three months ended March 31, 2024 compared to the same period in 2023 were largely driven by increases in variable compensation partially offset by a decrease in stock-based compensation.

The increase in legal costs in the three months ended March 31, 2024 compared to the same period in 2023 was due to an increase from legal costs related to the Meta litigation.

We are engaged in, and may be required to engage in further, litigation to protect our IP, which may cause our general and administrative expenses to substantially increase reflecting such litigation costs.

Interest and Other Income (Loss)

Interest and Other Income (loss) - Interest and other income consists primarily of interest and dividend income from cash and cash equivalents and marketable debt and equity securities, short-term investments realized and unrealized gains (losses) on our marketable equity securities and derivative instruments and realized gains (losses) on our marketable debt securities.

Three Months Ended March 31,

Interest and other income (loss), net

Other income (expense), net

and facilities costs.

Selling and administrative expenses increased $ 10.3 million in the three months ended June 30, 2024 as compared to the same period in 2023 primarily due to a $ 5.7 million increase in legal costs and a $ 4.9 million increase in compensation, benefits and other personnel related costs.

Selling and administrative expenses increased $ 33.7 million in the six months ended June 30, 2024 as compared to the same period in 2023 primarily due to a $ 26.5 million increase in legal costs and a $ 7.6 million increase in compensation, benefits and other personnel related costs.

The increase in compensation, benefits and other personnel related costs in the three and six months ended June 30, 2024 compared to the same period in 2023 were largely driven by increases in variable compensation.

The increase in legal costs in the three and six months ended June 30, 2024 compared to the same period in 2023 was due to an increase from legal costs related to the new license agreements and Barnes & Noble Education Transactions.

Barnes & Noble Education

Barnes & Noble Education 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.

Barnes & Noble Education is also one of the largest textbook wholesalers, inventory management hardware and software providers.

Barnes & Noble Education operates 1,163 physical, virtual, and custom bookstores and services more than 5.8 million students, delivering essential educational content, tools and general merchandise within a dynamic omnichannel retail environment.

The strengths of Barnes & Noble Education's business include its ability to compete by developing new products and solutions to meet market needs, its large operating footprint with direct access to students and faculty, its well-established, deep relationships with academic partners and stable, long-term contracts and its well-recognized brands.

Barnes & Noble Education provides product and service offerings designed to address the most pressing issues in higher education, including equitable access, enhanced convenience and improved affordabil ity through innovative course material delivery models designed to drive improved student experiences and outcomes.

Barnes & Noble Education offers its 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.

Barnes & Noble Education expects to continue to introduce scalable and advanced solutions focused largely on the student and customer experience, expand its e-commerce capabilities and accelerate such capabilities through its service providers, Fanatics Retail Group Fulfillment, LLC (“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 its revenue opportunities through strategic relationships.

Barnes & Noble Education expect gross comparable store general merchandise sales to increase over the long term, as its product assortments continue to emphasize and reflect changing consumer trends, and Barnes & Noble Education evolves its presentation concepts and merchandising of products in stores and online, which Barnes & Noble Education expects to be further enhanced and accelerated through the F/L Relationship.

Fanatics and Lids, acting on Barnes & Noble Education's behalf as its service providers, provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of its logo general merchandise business.

The Barnes & Noble brand (licensed from Barnes & Noble Education’s former parent) along with its 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.

Barnes & Noble Education’s large college footprint, reputation, and credibility in the marketplace not only support its marketing efforts to universities, students, and faculty, but are also important to its relationship with leading publishers who rely on Barnes & Noble Education as one of their primary distribution channels.

BNC First Day Equitable and Inclusive Access Programs

Barnes & Noble provides 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.

Barnes & Noble Education offer its 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 all or 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.

• 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 Barnes & Noble Education's equitable and inclusive access First Day Complete and First Day models is an important strategic initiative 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 Barnes& Noble Education 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 Barnes & Noble Education to reverse historical long-term trends in course materials revenue declines, which has been observed at those schools where such programs have been adopted and improve predictability of its future results.

In 2024 , the growth of the BNC First Day programs offset the declines in a la carte courseware sales and closed store sales.

Barnes & Noble Education is moving quickly to accelerate its First Day Complete strategy.

Many institutions adopted First Day Complete in Fiscal 2024 , and Barnes & Noble plans to continue to scale the number of schools adopting First Day Complete in 2025 and beyond.

Relationship with Fanatics and Lids

In December 2020, Barnes & Noble Education entered into the F/L Relationship.

Fanatics and Lids, acting on its behalf as its service providers, provide unparalleled product assortment, e-commerce capabilities and powerful digital marketing tools to drive increased value for customers and accelerate growth of our logo general merchandise business.

Fanatics operates as Barnes & Noble Education's service provider, including processing consumer personal information on it 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, Barnes & Noble Education campus stores have improved access to trend and sales performance data on licensees, product styles, and design treatments.

Barnes & Noble Education maintains its relationships with campus partners and remain responsible for staffing and managing the day-to-day operations of our campus bookstores.

Barnes & Noble Education also work closely with its 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.

Barnes & Noble Education 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 its partner campus stores, and Lids owns the inventory it manages, relieving it of the obligation to finance inventory purchases from working capital.

Bares & Noble Education's business is highly seasonal.

For example, its retail business is seasonal, particularly with respect to textbook sales and rentals, with the major portion of sales and operating profit realized during the fiscal quarters when college students generally purchase and rent textbooks for the upcoming semesters and lowest in the other fiscal quarters.

Barnes & Noble Education's 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 its equitable and inclusive access programs, the ability to secure inventory on a timely basis.

Given the growth of BNC First Day programs, the timing of cash collection from Barnes & Noble Education's 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 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 Barnes & Noble Education's sales shift to BNC First Day equitable and inclusive access offerings, it is focused on efforts to better align the timing of its cash outflows to course material vendors and cash inflows from collections 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 textbooks where revenue is recognized over the rental period, and (ii) a la 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.

A summary of Barnes & Noble Education results of operation for the reporting period from June 10, 2024, to June 30, 2024, is as follows (in thousands):

For the reporting period from June 10, 2024 to June 30, 2024

Product and other

Rental income

Total revenue

Cost of sales (excluding depreciation and amortization expense):

Product and other cost of sales

Rental cost of sales

Total cost of sale

Operating expenses

Selling and administrative expenses

Depreciation and amortization expense

Restructuring and other charges

Total operating expenses

Operating loss

Barnes & Noble Education primarily derives its revenues from sale of course materials, which include new, used, rental and digital textbooks.

Additionally, at college and university bookstores which Barnes & Noble Education operates, it sells general merchandise, including emblematic apparel and gifts, trade books, computer products, school and dorm supplies, convenience and café items and graduation products.

Barnes & Noble Education's rental income is primarily derived from the rental of physical textbooks.

Barnes & Noble Education also derives revenue from other sources, such as sales of inventory management, hardware and point-of-sale software, and other services.

Total revenue was $ 47.0 million during the period from June 10, 2024, to June 30, 2024, primarily consisting of $ 45.1 million product and other sales and $ 1.9 million of rental sales.

Cost of sales

Barnes & Noble Education 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.

Selling and administrative

Barnes & Noble Education 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.

Restructuring and other charges

During the period of June 10, 2024, to June 30, 2024, Barnes & Noble Education recognized restructuring and other charges totaling $ 2.4 million, comprised primarily of $ 2.0 million of severance costs related to the departure of its Chief Executive Officer on June 11, 2024 and $ 0.4 million costs associated with legal and advisory professional services.

Interest and Other Income (loss), Interest Expenses and Income Taxes

A summary of consolidated interest and other Income (loss), interest expense and income taxes for the three and six months ended June 30, 2024 and 2023 are as follows (in thousands, except for percentages):

Three Months Ended June 30,

Six Months Ended June 30,

Operating income

Interest and other income (loss), net

Interest and other income (loss) increased $ 1.9 million during the three months ended March 31, 2024 compared to the same period in 2023 , primarily driven by a $0.9 million increase in net gains from investments in marketable equity securities and derivative instruments and a $ 0.9 million increase in interest income.

Other income (expense), net decreased $ 0.3 million during the three months ended March 31, 2024 compared to the same period in 2023 , primarily driven by a $ 0.2 million increase in net foreign currency translation losses.

A summary of provision for income taxes and effective tax rates for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

Three Months Ended March 31,

Interest expense

Income before provision for income taxes

Provision for income taxes

Effective tax rate

Provision for income taxes for the three months ended March 31, 2024 resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate.

Provision for income taxes for the three months ended March 31, 2023 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

We provided no valuation allowance for federal assets, whose future realization is more likely than not and continue to maintain full valuation allowance for state deferred tax assets in the United States as well as federal tax assets in Canada.

Interest and other income (loss), net decreased $ 2.2 million during the three months ended June 30, 2024 compared to the same period in 2023 , primarily due to a $ 2.7 million decrease in net gains from investments in marketable equity securities and derivative instruments and a $ 0.6 million increase in interest income.

Interest and other income (loss), net decreased $ 0.6 million during the six months ended June 30, 2024 , compared to the same period in 2023 , primarily driven by a $ 1.8 million de crease in net gains from investments in marketable equity securities and derivative instruments and a $ 0.3 million increase in net foreign currency translation loss partially offset a $ 1.5 million increase in interest income.

Interest expense - Interest expenses primarily consisted of the interest charges related to Barnes& Noble Education's credit facility .

Provision for income taxes – The changes in the provision for income taxes are described below.

Provision for income taxes for the three and six months ended June 30, 2024 resulted primarily from estimated domestic and foreign taxes included in the calculation of the effective tax rate.

Provision for income taxes for the three months ended June 30, 2023 resulted primarily from estimated foreign taxes included in the calculation of the effective tax rate.

We maintain no valuation allowance against our U.S.

federal deferred tax assets and maintain al valuation allowance against certain our U.S.

state and Canadian federal deferred tax assets.

The change in the estimated effective tax rate was mainly driven by higher U.S.

taxable income which was a result of higher U.S.

passive income.

The year-over-year change in provision for income taxes resulted primarily from the change in income from continuing operations across various tax jurisdictions.

We continue to maintain full valuation allowance for state and certain foreign deferred tax assets in the United States and Canada as a result of uncertainties regarding the realization of the asset balance due to historical losses, the variability of operating results, and uncertainty regarding near term projected results.

In the event that we determine the deferred tax assets are realizable based on an assessment of relevant factors, an adjustment to the valuation allowance may increase income in the period such determination is made.

1 unchanged sentence

We also maintain liabilities for uncertain tax positions.

As of March 31, 2024 , we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 7.5 million, of which $ 4.9 million could be payable in cash.

As of June 30, 2024 , we had unrecognized tax benefits under ASC 740 Income Taxes of approximately $ 7.6 million, of which $ 4.9 million could be payable in cash.

In addition, interest and penalty $ 0.3 million could also be payable in cash in relation to the unrecognized tax benefits.

2 unchanged sentences

We do not expect to have any significant changes to unrecognized tax benefits during the next twelve months.

Barnes & Noble Education

Barnes & Noble Education recorded an income tax provision of $ 0.1 million on pre-tax loss of $ 76.3 million during the period of June 10, 2024, to June 30, 2024, which represented an effective income tax rate of ( 0.1 )%.

In assessing the realizability of the deferred tax assets, management considered whether it is more likely than not that some or all of the deferred tax assets would be realized.

As of June 30, 2024, Barnes & Noble Education determined that it was more likely than not that Barnes & Noble Education would not realize all deferred tax assets and its tax rate for the current fiscal year reflects this determination.

Barnes & Noble Education will continue to evaluate this position.

LIQUIDITY AND CAPITAL RESOURCES

2 unchanged sentences

All marketable securities are stated at market value.

Realized gains and losses on marketable equity securities and marketable debt securities are recorded in Other income (expense), net on the Condensed Consolidated Statements of Income and Comprehensive Income.

Unrealized gains and losses on marketable equity securities (including mutual funds) are reported as Other income (expense), net on our Condensed Consolidated Statement of Income and Comprehensive Income.

Unrealized gains and losses on marketable equity securities (including mutual funds) are reported as Other income (expense), net on our Condensed Consolidated Statement of Operations and Comprehensive Income.

Unrealized gains and losses on marketable debt securities reported as a component of Accumulated other comprehensive income on our Condensed Consolidated Balance Sheets .

Certificates of deposit are report as Investment - current or Investment -noncurrent based on their remaining maturity days.

Interest income from certificates of deposit are reported as Interest and other income (loss), net on the Condensed Consolidated Statement of Income and Comprehensive Income.

Cash, cash equivalents and investments-current - As of March 31, 2024 , our cash, cash equivalents, and investments- current totaled $ 179.1 million, an increase of $ 18.7 million from $ 160.4 million on December 31, 2023 .

A summary of select cash flow information for the three months ended March 31, 2024 and 2023 are as follows (in thousands):

Three Months Ended March 31,

Net cash provided by operating activities

Net cash provided by (used in) investing activities

Net cash used in financing activities

Certificates of deposit are reported as Investment - current or Investment -noncurrent based on their remaining maturity days.

Interest income from certificates of deposit are reported as Interest and other income (loss), net on the Condensed Consolidated Statement of Operations and Comprehensive Income.

Cash, cash equivalents and investments-current - As of June 30, 2024 , our cash, cash equivalents, and investments- current totaled $ 133.4 million, a $ 27 .

0 million decrease from $ 160.4 million on December 31, 2023 .

In addition, as of June 30, 2024, we had restricted cash of $ 14.6 million .

A summary of select cash flow information for the three months ended June 30, 2024 and 2023 are as follows (in thousands):

Six Months Ended June 30,

Net cash provided by (used) in operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Cash provided by (used in) operating activities - Our operating activities primarily consists of net income adjusted for certain non-cash items including depreciation and amortization;

stock-based compensation expense, deferred income taxes and the effect of changes in operating assets and liabilities.

Net cash provided by operating activities was $ 29.9 million in the three months ended March 31, 2024 , a $ 26.4 million increase compared to the same period in 2023 .

This cash increase was primarily attributable to a $10.0 million increase in net income and $16.9 million increase from changes in net operating assets partially offset by a $0 .9 million decrease in non-cash items.

The increase in cash from changes in net operating assets primarily consisted of $8.5 million increase in deferred revenue resulted from the Nintendo license agreement renewal and $6.1 million increase in income taxes payable.

Cash provided by (used in) investing activities - Our investing activities primarily consist of purchases of marketable securities and other investments and proceeds from disposal of marketable securities and other investments;

Net cash used in operating activities was $ 56.0 million in the six months ended June 30, 2024 , a $ 64.8 million decrease compared to the same period in 2023 .

This cash decrease was primarily attributable to an $ 94.0 million decreases from changes in operating assets and liabilities partially offset by $ 24.3 million increase from changes in net income and a $ 4.9 million increase from non-cash items .

Net cash provided by operating activities was $ 8.8 million in the six months ended June 30, 2023, a $ 9.9 million decrease compared to the same period in 2022 .

This cash decrease was primarily attributable to a $ 15.7 million decrease from changes in non-cash items and $ 6.3 million decrease from changes in net operating assets partially offset by a $ 12.0 million increase in net income

Cash used in investing activities - Our investing activities primarily consist of purchases of marketable securities and other investments and proceeds from disposal of marketable securities and other investments;

proceeds from issuance of derivative instruments;

payments made to settle derivative instruments and purchases of property and equipment.

Net cash provided in investing activities during the three months ended March 31, 2024 was $ 6.9 million primarily consisting of $48.7 million in proceeds from selling marketable securities and derivatives partially offset by a $40.9 million in cash used to purchase marketable securities and in the settlement of derivative instruments.

Net cash used in investing activities during the three months ended March 31, 2023 was $19.7 million primarily consisting of $56.3 million in cash used to purchase marketable securities and in the settlement of derivative instrument partially offset by $36.6 million in proceeds from selling marketable securities and derivatives.

Net cash used in investing activities during the six months ended June 30, 2024 was $ 31.4 million primarily consisting of $ 87.4 million in cash used to purchase marketable securities and in the settlement of derivative instruments, $ 29.6 million cash used in business acquisition, net of cash acquired partially offset by $ 86.6 million in proceeds from selling marketable securities and derivatives.

Net cash used in investing activities during the six months ended June 30, 2023 was $ 22.7 million primarily consisting of $ 104.6 million in cash used to purchase marketable securities and in the settlement of derivative instrument partially offset by $ 81.9 million in proceeds from selling marketable securities and derivatives.

Cash provided by (used in) financing activities — Our financing activities primarily consist of cash proceeds from issuance of common stock, proceeds from stock option exercises and stock purchases under our employee stock purchase plan and cash paid for repurchases of our common stock.

Net cash used in financing activities during the three months March 31, 2024 was $ 1.7 million primarily consisting of $1.5 million in dividend payments, and $0.3 million in shares withheld to cover payroll taxes.

Net cash used in financing activities during the three months ended March 31, 2023 was $ 5.2 million primarily consisting of $4.4 million cash paid for stock repurchases and $0.8 million in shares withheld to cover payroll taxes.

Total cash, cash equivalents, and short-term investments were $ 179.1 million as of March 31, 2024 of which approximately 35%, or $63.4 million, was held by our foreign subsidiaries and subject to repatriation tax effects.

Net cash used in financing activities during the six months June 30, 2024 was $ 81.8 million primarily consisting of $ 101.5 million proceeds from borrowing under Barnes & Noble Education's credit facility partially offset by $ 16.1 million debt repayment and $ 3.0 million in dividend payments.

Net cash used in financing activities during the six months ended June 30, 2023 was $ 9.0 million primarily consisting of $ 5.4 million in dividend payments, $ 2.9 million stock repurchases and $ 0.9 million in shares withheld to cover payroll taxes.

Total cash, cash equivalents, and short-term investments were $ 133.4 million as of June 30, 2024 of which approximately 25 %, or $ 33.9 million, was held by our foreign subsidiaries and subject to repatriation tax effects.

Our intent is to permanently reinvest a majority of our earnings from foreign operations, and current plans do not anticipate that we will need funds generated from foreign operations to fund our domestic operations.

On November 13 , 2023 , our Board declared a quarterly dividend in the amount of $ 0.045 per share , will be payable, subject to any prior revocation, on January 25, 2024 to shareholders of record on January 14, 2024.

Future dividends will be subject to further review and approval by the Board in accordance with applicable law.

The Board reserves the right to adjust or withdraw the quarterly dividend in future periods as it reviews our capital allocation strategy from time-to-time.

On February 21, 2023, the Board declared a quarterly dividend, in the amount of $ 0.03 per share, which was paid on April 28, 2023 to stockholders of record on April 13, 2023.

On February 28, 2024, our Board declared a quarterly dividend in the amount of $ 0.045 per share , which was paid on April 19 , 2024 to shareholders of record on April 12 , 2024.

On November 13, 2023, our Board declared a quarterly dividend in the amount of $ 0.045 per share, which was paid on January 25, 2024 to stockholders of record on January 14, 2024 .

On February 28, 2024, our Board declared a quarterly dividend in the amount of $ 0.045 per share , which was paid on April 19 , 2024 , to stockholders of record on April 12 , 2024 .

On May 8, 2024, our Board declared a quarterly dividend in the amount of $ 0.045 per share, which was paid on July 26, 2024, to stockholders of record on July 8, 2024.

On August 12, 2024, our Board declared a quarterly dividend in the amount of $ 0.045 per share, payable on October 18, 2024, to stockholders of record on October 4, 2024.

We may continue to invest in, protect, and defend our extensive IP portfolio, which can result in the use of cash in the event of litigation.

On December 29, 2022, our Board of Directors ( the “ Board” ) approved a stock repurchase program of up to $ 50.0 million of our common stock for a period of up to twelve months (the “December 2022 Stock Repurchase Program”), which terminated and superseded the stock repurchase program that had been approved by the Board on February 23, 2022.

On December 29, 2022, our Board approved a stock repurchase program of up to $ 50.0 million of our common stock for a period of up to twelve months (the “December 2022 Stock Repurchase Program”), which terminated and superseded the stock repurchase program that had been approved by the Board on February 23, 2022.

Any stock repurchases may be made through open market and privately negotiated transactions, at such times and in such amounts as management deems appropriate, including pursuant to one or more Rule 10 b 5 - 1 trading plans adopted in accordance with Rule 10 b 5 - 1 of the Securities Exchange Act of 1934 , as amended.

4 unchanged sentences

On August 8, 2023, the Board approved an amendment to extend the expiration date of the December 2022 Stock Repurchase Program that was set to expire on December 29, 2023, to December 29, 2024 .

During 2023, we repurchased 1,217,774 shares of our common stock for $ 8.3 million at an average purchase price of $ 6.77 per share.

We did not repurchase any stock during the three months ended March 31, 2024.

As of March 31, 2024, we had $ 41.7 million available for repurchase under the December 2022 Stock Repurchase Program.

We did not have any other significant non-cancellable purchase commitments as of March 31, 2024 .

We anticipate that capital expenditures for property and equipment for the remainder of 2024 will be less than $ 1.0 million.

As of June 30, 2024 , we had $ 41.7 million available for repurchase under the December 2022 Stock Repurchase Program.

As of the date of this Quarterly Report on Form 10-Q, we believe we have sufficient capital resources to meet our working capital needs for the next twelve months and beyond.

5 unchanged sentences

Actual results may differ from these estimates and assumptions.

Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023 , filed with the SEC on March 11, 2024, for a complete discussion of our critical accounting policies and estimates.

Business Combination

The results of a business acquired in a business combination are included in our consolidated financial statements from the date of the acquisition.

Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date, which may be considered preliminary and subject to adjustment during the measurement period, which is up to one year from the acquisition date.

Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.

We perform valuations of assets acquired and liabilities assumed and allocate the purchase price to the respective assets and liabilities.

Determining the fair value of assets acquired and liabilities assumed requires significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue, costs and cash flows, discount rates, royalty rates and selection of comparable companies.

We engage the assistance of third-party valuation specialists in concluding fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

The resulting fair values and useful lives assigned to acquisition-related intangible assets impact the amount and timing of future amortization expense.

These estimates are inherently uncertain and unpredictable, and if different estimates were used the purchase price for the acquisition could be allocated to the acquired assets and liabilities differently from the allocation that we have made.

In addition, unanticipated events and circumstances may occur, which may affect the accuracy or validity of such estimates, and if such events occur, we may be required to record a charge against the value ascribed to an acquired asset, an increase in the amounts recorded for assumed liabilities, or an impairment of some or all of the goodwill.

Goodwill recognized in connection with our acquisition of Barnes & Nobel Education was $ 14.2 million.

Barnes & Noble Education is a separate reporting unit, and all goodwill was allocated to this reporting unit.

Goodwill is not amortized but reviewed for impairment at least annually at year-end, and when triggering events occur between annual impairment tests.

The identified intangible assets arising from the Barnes & Noble acquisition were trade names and customer relationships $ 95.0 million in aggregate fair value.

We determined the fair values of the acquired intangible assets using an income approach with estimated indefinite useful life for the trade name and 13 years for customer relationships.

The noncontrolling interest in Barnes & Noble Education was valued based on the closing price of Barnes and Noble Education’s common stock as of June 10, 2024.

We evaluate our intangible assets for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Factors that could trigger an impairment analysis include significant under-performance relative to historical or projected future results of operations, significant changes in the manner of our use of the acquired assets, or the strategy for our overall business or significant negative industry or economic trends.

If this evaluation indicates that the value of the intangible asset may be impaired, we assess the likelihood of recoverability of the net carrying value of the asset over its remaining useful life.

If this assessment indicates that the intangible asset is not recoverable based on the estimated undiscounted future cash flows of the intangible asset over its remaining useful life, we reduce the net carrying value of the related intangible asset to an estimated fair value.

Barnes & Noble Education

Revenue Recognition and Deferred Revenue

Product sales and rentals

The majority of Barnes & Noble Education's revenue is derived from the sale of products through its bookstore locations, including virtual bookstores, and its bookstore affiliated e-commerce websites, and contains a single performance obligation.

Revenue from sales of products is recognized at the point in time when control of the products is transferred to its customers in an amount that reflects the consideration it expects to be entitled to in exchange for the products.

Product revenue is recognized when the customer takes physical possession of its products, which occurs either at the point of sale for products purchased at physical locations or upon receipt of our products by customers for products ordered through websites and virtual bookstores.

Product revenue shipped from wholesale operations are recognized upon shipment of physical textbooks at which point title passes and risk of loss is transferred to the customer.

Additional revenue is recognized for shipping charges billed to customers and shipping costs are accounted for as fulfillment costs within cost of sale.

Revenue from the sale of digital textbooks, which contains a single performance obligation, is recognized when the customer accesses the digital content as product revenue in Barnes & Noble Education's condensed consolidated financial statements.

A software feature is embedded within the content of digital textbooks, such that upon expiration of the term the customer is no longer able to access the content.

While the sale of the digital textbook allows the customer to access digital content for a fixed period of time, once the digital content is delivered to the customer, our performance obligation is complete.

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.

Rental periods are typically for a single semester and are always less than one year in duration.

Barnes & Noble Education offers a buyout option to allow the purchase of a rented physical textbook at the end of the rental period if the customer desires to do so.

It records the buyout purchase when the customer exercises and pays the buyout option price which is determined at the time of the buyout.

In these instances, Barnes & Noble Education accelerates any remaining deferred rental revenue at the point of sale.

Revenue recognized for our BNC First Day offerings is consistent with Barnes & Noble Education's policies outlined above 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 Barnes & Noble Education's 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.

Barnes & Noble Education estimates returns based on an analysis of historical experience.

A provision for anticipated merchandise returns is provided through a reduction of sales and cost of goods sold in the period that the related sales are recorded.

For sales and rentals involving third-party products, we evaluate whether we are acting as a principal or an agent.

Our determination is based on our evaluation of whether we control the specified goods or services prior to transferring them to the customer.

There are significant judgments involved in determining whether we control the specified goods or services prior to transferring them to the customer including whether we have the ability to direct the use of the good or service and obtain substantially all of the remaining benefits from the good or service.

For those transactions where we are the principal, we record revenue on a gross basis, and for those transactions where we are an agent to a third-party, we record revenue on a net basis.

Effective in April 2021, as contemplated by the F/L Relationship related merchandising agreement and e-commerce agreement, we began to transition the fulfillment of our logo general merchandise sales to Lids and Fanatics.

As the logo general merchandise sales are fulfilled by Lids and Fanatics, we recognize commission revenue earned for these sales on a net basis in our consolidated financial statements, as compared to the recognition of logo general merchandise sales on a gross basis in the periods prior to the transition.

Barnes & Noble Education does not have gift cards or customer loyalty programs.

Barnes & Noble Education do not treat any promotional offers as expenses.

Sales tax collected from its customers is excluded from reported revenues.

Barnes & Noble Education's payment terms are generally 30 days and do not extend beyond one year.

Service and other revenue

Service and other revenue is primarily derived from brand marketing services which includes promotional activities and advertisements within Barnes & Noble Education's physical bookstores and web properties performed on behalf of third-party customers, shipping and handling, non-return rental penalty fees, and revenue from other programs.

Merchandise Inventories

Merchandise inventories, which consist of finished goods, are stated at the lower of cost or market.

Market value of the inventory, which is all purchased finished goods, is determined based on its estimated net realizable value, which is generally the selling price less normally predictable costs of disposal and transportation.

Cost is determined primarily by the retail inventory method.

Barnes & Noble Education's textbook and trade book inventories are valued using the LIFO method and the related reserve was not material to the recorded amount of our inventories.

Reserves for non-returnable inventory are based on our history of liquidating non-returnable inventory.

Reserve calculations are sensitive to certain significant assumptions, including markdowns, sales below cost , inventory aging and expected demand.

Barnes & Noble Education does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate the non-returnable inventory reserve.

However, if assumptions based on its history of liquidating non-returnable inventory are incorrect, Barnes & Noble Education may be exposed to losses or gains that could be material.

For our physical bookstores, we also estimate and accrue shortage for the period between the last physical count of inventory and the balance sheet date.

Shortage rates are estimated and accrued based on historical rates and can be affected by changes in merchandise mix and changes in actual shortage trends.

Barnes & Noble Education does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate shortage rates.

However, if our estimates regarding shortage rates are incorrect, we may be exposed to losses or gains that could be material.

Textbook Rental Inventories

Physical textbooks out on rent are categorized as textbook rental inventories.

At the time a rental transaction is consummated , the book is removed from merchandise inventories and moved to textbook rental inventories at cost.

The cost of the book is amortized down to its estimated residual value over the rental period.

The related amortization expense is included in cost of goods sold.

At the end of the rental period, upon return, the book is removed from textbook rental inventories and recorded in merchandise inventories at its amortized cost.

Barnes & Noble do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to calculate rental cost of goods sold.

However, if our estimates regarding residual value are incorrect, we may be exposed to losses or gains that could be material.

Please refer to Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 11, 2024, and Barnes & Noble Education's Annual Report on Form 10-K for the year ended April 27, 2024 for a complete discussion of our critical accounting policies and estimates.

The preparation of financial statements and related disclosures in conformity with U.S.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis