Barnes Noble Education Inc

During Fiscal 2024, 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 purchase textbooks for the upcoming Fall and Spring semesters, respectively. As of April 27, 2024, we had $28.6 million of cash on hand, including $18.1 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.

Going Concern evaluation in conjunction with the issuance of the April 27, 2024 Consolidated Financial Statements

The accompanying 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 consolidated financial statements are issued.

Our primary sources of cash are net cash flows from operating activities and funds available under our Credit Facility. 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. The tightening of our available credit commitments, including the elimination and repayment of our seasonal borrowing facility (FILO Facility) of $40.0 million, has had a significant impact on our liquidity during Fiscal 2023 and Fiscal 2024, including our ability to make timely vendor payments and school commission payments. Our recurring losses and projected cash needs, combined with our current liquidity levels and the maturity of our Credit Facility and Term Loan, which were originally scheduled to become due on December 28, 2024 and April 7, 2025, respectively, raised substantial doubt about our ability to continue as a going concern beyond twelve months from the issuance of our third quarter financial statements as of March 12, 2024 as disclosed in our previously filed Quarterly Report on Form 10-Q.

On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt and Note 17. Subsequent Events.

As a result of the equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, all executed on June 10, 2024, Management concluded that substantial doubt about the Company's ability to continue as a going concern no longer exists.

Sources and Uses of Cash Flow - Continuing Operations

As of April 27, 2024 and April 29, 2023, we had cash of $10.5 million and $14.2 million, respectively. As of April 27, 2024 and April 29, 2023, we had restricted cash of $18.1 million and $16.7 million, respectively, comprised of $17.1 million and $15.8 million, respectively, in prepaid and other current assets in the consolidated balance sheet primarily related to segregated funds for commission due to Lids for logo merchandise sales as per the Lids service provider merchandising agreement and $1.0 million and $0.9 million, respectively, in other noncurrent assets in the consolidated balance sheets 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 and cash inflows from collections 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 schools' 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 Fiscal 2024 were $(1.5) million compared to cash flows provided by operating activities from continuing operations of $90.5 million during Fiscal 2023. The increase in cash flows used in operating activities from continuing operations of $92.1 million was primarily due to the timing of payables ($63.1 million) to vendors for inventory purchases and expenses, all of which were delayed resulting from lower borrowing base availability under our credit facility, lower accounts receivables collections ($55.1 million) compared to the prior year, and higher payments for interest expense ($5.9 million), offset by higher earnings ($27.7 million).

Cash Flow from Investing Activities from Continuing Operations

Cash flows used in investing activities from continuing operations during Fiscal 2024 were $(14.0) million compared to $(24.5) million during Fiscal 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 $(14.1) million and $(25.1) million during Fiscal 2024 and Fiscal 2023, respectively.

Cash Flow from Financing Activities from Continuing Operations

Cash flows used in financing activities from continuing operations during Fiscal 2024 were $(5.7) million compared to $(49.7) million during Fiscal 2023. Our cash flow used in financing from continuing operations decreased due to a decrease in net borrowings during the year, offset by an increase in deferred financing costs paid.

(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including amending and extending the maturity date of the Credit Facility to June 9, 2028 and converting all outstanding principal and interest amounts owed under our Term Loan Credit Agreement into shares of our Common Stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.

(b) For additional information on deferred financing costs, see Deferred Financing Costs below.

June 2024 Equity and Debt Transactions

On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.

Credit Facility

As of April 27, 2024, we are party to a credit agreement (the “Credit Agreement”), which was amended from time to time including on April 16, 2024, March 12, 2024, 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. 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. Proceeds from the Credit Facility are used for general corporate purposes, including seasonal working capital needs. 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). For information regarding the Credit Agreement amendments, deferred financing costs and terms, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt.

As of April 27, 2024, and through the date of this filing, we were in compliance with all debt covenants under the Credit Agreement.

During the 52 weeks ended April 27, 2024, we borrowed $563.0 million and repaid $552.2 million under the Credit Agreement, with $164.9 million of outstanding borrowings as of April 27, 2024 under the Credit Facility. During the 52 weeks ended April 29, 2023, we borrowed $590.3 million and repaid $631.8 million under the Credit Agreement, with $154.2 million of outstanding borrowings as of April 29, 2023, comprised entirely of borrowings under the Credit Facility and $0 under the FILO Facility, which was repaid on August 1, 2022. As of both April 27, 2024 and April 29, 2023, we have issued $3.6 million and $2.1 million, respectively, in letters of credit under the Credit Facility.

Term Loan

As of April 27, 2024, we are party to a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) with TopLids LendCo, LLC and Vital Fundco, LLC to incur the Term Loan Facility, which was amended on March 8, 2023 and July 28, 2023. The Term Loan Credit Agreement matures on April 7, 2025. The proceeds of the Term Loans were used to finance working capital, and to pay fees and expenses related to the Term Loan Facility. For information regarding the Term Loan Credit Agreement amendments, deferred financing costs and terms, see Part II - Item 8. Financial Statements and Supplementary Data - Note 7. Debt.

During the 52 weeks ended April 27, 2024, we incurred $2.7 million for interest in kind on the Term Loan Credit Agreement and repaid $0 under the Term Loan Credit Agreement, with $32.7 million of outstanding borrowings as of April 27, 2024. During the 52 weeks ended April 29, 2023, we borrowed $30.0 million and repaid $0 under the Term Loan Credit Agreement, with $30.0 million of outstanding borrowings as of April 29, 2023.

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.

(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including amending and extending the maturity date of the Credit Facility to June 9, 2028 and converting all outstanding principal and interest amounts owed under our Term Loan Credit Agreement into shares of our Common Stock. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.

Interest Expense

The following table presents interest expense on the consolidated statement of operations and cash interest paid:

Income Tax Implications on Liquidity

As of April 27, 2024, we recognized a current income tax receivable for net operating loss carrybacks in prepaid and other current assets on the consolidated balance sheet. We received refunds of $15.8 million refund in Fiscal 2023, an $8.5 million refund (including $0.9 million in interest) in Fiscal 2024 and we expect to receive additional refunds of approximately $2.4 million in Fiscal 2025.

Share Repurchases

On December 14, 2015, our Board of Directors authorized a stock repurchase program of up to $50 million, in the aggregate, of our outstanding common stock. The stock repurchase program is carried out at the direction of management (which may include a plan under Rule 10b5-1 of the Securities Exchange Act of 1934). The stock repurchase program may be suspended, terminated, or modified at any time. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. During Fiscal 2024 and Fiscal 2023, we did not purchase shares under the stock repurchase program. As of April 27, 2024, approximately $26.7 million remains available under the stock repurchase program.

During Fiscal 2024 and Fiscal 2023, we also repurchased 147,885 shares and 347,808 shares, respectively, of our common stock in connection with employee tax withholding obligations for vested stock awards.

Contractual Obligations

The following table sets forth our contractual obligations as of June 21, 2024 (in millions):

(a) On June 10, 2024, subsequent to the end of Fiscal 2024, we completed various transactions, including an equity rights offering, private equity investment, Term Loan debt conversion, and Credit Facility refinancing, to substantially deleverage our consolidated balance sheet. These transactions raised additional capital for repayment of indebtedness and provide additional flexibility for working capital needs, which will also allow us to strategically invest in innovation and continue to execute our strategic initiatives, including but not limited to the growth of our First Day Complete program. For additional information, see Part II - Item 8. Financial Statements and Supplementary Data - Note 17. Subsequent Events.

(b) Our contracts for physical bookstores with colleges and universities are typically five years with renewal options, but can range from one to 15 years, and are typically cancelable by either party without penalty with 90 to 120 days' notice. Annual projections are based on current minimum guarantee amounts. In approximately 50% of our contracts with colleges and universities that include minimum guarantees, the minimum guaranteed amounts adjust annually to equal less than the prior year's commission earned. See Part II - Item 8. Financial Statements and Supplementary Data — Note 8. Leases.

(c) Includes information technology contracts.

(d) Other long-term liabilities excludes expected payments related to employee benefit plans.

Certain Relationships and Related Party Transactions

See Part II - Item 8. Financial Statements and Supplementary Data — Note 10. Related Party Transactions.