Financial Performance - Cash flows used in operating activities from continuing operations during the 26 weeks ended October 28, 2023 were $(47.2) million, a decrease of $57.3 million compared to cash flows provided by operating activities of $10.1 million during the same period in 2022[135]. - Net Income from Continuing Operations was $24.9 million for the 13 weeks ended October 28, 2023, compared to $24.2 million for the same period in 2022[166]. - Cash Flow from Operating Activities from Continuing Operations was $(47.2) million for the 26 weeks ended October 28, 2023, compared to $10.1 million for the same period in 2022[166]. - The company reported a net loss of $(674) for the 13 weeks ended October 28, 2023, compared to a net loss of $(2,024) for the same period in 2022[202]. - The company reported a net loss of $26,208 thousand for the period ending October 28, 2023, an improvement from a net loss of $30,563 thousand in the same period last year[220]. - For the 13 weeks ended October 28, 2023, net income from continuing operations was $24.85 million, compared to $24.17 million for the same period in 2022, representing a year-over-year increase of 2.8%[299]. - Total sales for the 13 weeks ended October 28, 2023, were $610,379, compared to $608,633 for the same period in 2022, reflecting a slight increase of 0.3%[297]. - Total sales for the 13 weeks ended October 28, 2023 were $2,784 thousand, a decrease from $8,465 thousand in the same period last year[261]. Debt and Interest Expenses - Interest expense recognized during the 26 weeks ended October 28, 2023 was $18.9 million, compared to $8.8 million for the same period in 2022, indicating a significant increase[143]. - The Term Loans accrue interest at a rate of 11.25%, with all interest during the 13 weeks ended October 28, 2023 incurred in kind[141]. - The company incurred debt issuance costs totaling $11.5 million related to the July 2023 Credit Agreement amendment, which will be amortized over the term of the credit agreement[139]. - The company incurred debt issuance costs totaling $1.4 million related to the October 2023 Credit Agreement amendment[168]. - The company incurred debt issuance costs totaling $0.4 million related to the March 2023 Term Loan Credit Agreement amendment[183]. - The company incurred interest expense of $10,664 for the 13 weeks ended October 28, 2023, compared to $4,886 for the same period in 2022, representing a significant increase of 118.5%[202]. - The company incurred $863 for interest in kind on the Term Loans during the 26 weeks ended October 28, 2023, with $30,863 of outstanding borrowings as of that date[285]. Sales and Revenue - Retail sales increased by $9.7 million, or 1.2%, to $844.8 million during the 26 weeks ended October 28, 2023, compared to $835.1 million during the same period in 2022[161]. - Total course material product sales increased by $26.6 million, or 4.9%, to $573.9 million during the 26 weeks ended October 28, 2023, primarily due to the growth of BNC First Day programs[161]. - Total general merchandise product net sales decreased by $17.8 million, or 8.4%, to $193.7 million during the same period, primarily due to lower commissions for logo general merchandise[161]. - Total BNC First Day Sales rose to $199.2 million, up from $143.3 million year-over-year, also a 39% increase[320]. - First Day Complete Sales increased to $136.4 million on October 28, 2023, from $90.0 million on October 29, 2022, representing a 52% increase[320]. - First Day Sales reached $62.8 million, up 18% from $53.3 million in the previous year[320]. Operational Changes and Restructuring - The company raised additional liquidity and took operational restructuring actions to improve liquidity and alleviate substantial doubt about its ability to continue as a going concern[166]. - The company’s workforce reduction and operational streamlining efforts are expected to enhance productivity and profitability moving forward[257]. - The company achieved annualized savings of $30,000 to $35,000 from cost reduction initiatives implemented during Fiscal 2023, with further planned savings of approximately $25,000 in Fiscal 2024[257]. - During the 13 weeks ended October 28, 2023, restructuring and other charges totaled $4.3 million, compared to $0.3 million for the same period in 2022[179]. Cash and Liquidity - Cash, cash equivalents, and restricted cash at the end of the period were $35,341, including $20,333 of restricted cash related to commission due to Lids[215]. - The company expects to maintain adequate liquidity levels to support ongoing inventory purchases and related vendor payments[176]. - The tightening of available credit commitments raised substantial doubt about the company's ability to continue as a going concern, which management addressed by implementing a liquidity improvement plan[215]. - Cash and cash equivalents decreased to $15,008 thousand from $17,296 thousand year-over-year, a decline of approximately 13.2%[219]. - The company reported a total stockholders' equity of $105,964 thousand, down from $200,464 thousand year-over-year, a decrease of approximately 47%[219]. Stock Repurchase and Shareholder Actions - During the 13 and 26 weeks ended October 28, 2023, the company repurchased 66,852 and 144,750 shares of Common Stock, respectively, outside of the stock repurchase program[152]. - As of October 28, 2023, the approximate dollar value of shares that may yet be purchased under publicly announced plans or programs is 26,669,324[178]. - The company repurchased 66,852 shares of Common Stock during the 13 weeks ended October 28, 2023, as part of employee tax withholding obligations[276]. Segment Performance - The company has two reportable segments: Retail and Wholesale, following the classification of the DSS Segment as Assets Held for Sale and Discontinued Operations[238]. - The Wholesale Segment serves approximately 2,900 physical bookstores and 554 virtual bookstores, indicating a broad distribution network[274]. - The company operates 1,271 physical, virtual, and custom bookstores, serving more than 5.8 million students[226]. Future Outlook and Strategy - The company plans to continue expanding its market presence through new strategies and partnerships[322]. - The company plans to move many institutions to the First Day Complete model in Fiscal 2024 and the majority by Fiscal 2025[228]. - The company expects gross general merchandise sales to increase over the long term, driven by evolving product assortments and enhanced e-commerce capabilities through the F/L Relationship with Fanatics and Lids[226].

Financial Data and Key Metrics Changes - The first quarter consolidated total revenue increased by almost 4% to $264.2 million, with adjusted EBITDA improving by approximately 22% [10][20] - Retail segment revenue increased by $9 million or 3.8% to $245.5 million, driven by an 8.4% increase in course material revenue [11][48] - Consolidated adjusted EBITDA grew by 21.8% or $7.5 million to a negative $26.8 million [20][22] - Merchandise inventories decreased by 17% or $79.4 million to $384.2 million compared to the prior year [24] Business Line Data and Key Metrics Changes - Course materials gross margin declined due to higher markdowns and a higher percentage of lower-margin digital course material sales [21] - First Day Complete revenue increased by 55% year-over-year, with total course material sales up by 8.4% [13][48] - Retail gross profit decreased by $3.7 million or 6.9%, while retail gross margin decreased by 230 basis points to 20.5% [48] Market Data and Key Metrics Changes - The First Day Complete model is now implemented in 157 campus stores, representing enrollment of nearly 800,000 students, a 46% increase over the fall of 2022 [41] - First Day Complete course material sales increased by 82% year-over-year in stores that transitioned to the model [46] Company Strategy and Development Direction - The company is focusing on operational efficiencies and cost reductions to drive profitable growth [4] - The First Day Complete model is a cornerstone of the long-term profitability growth plan, with expectations for increased student participation rates over time [14][19] - The company is winding down underperforming stores, operating 117 fewer stores compared to the previous year [11][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the positive impact of the First Day Complete model on student experience and institutional partnerships [14][44] - The company expects to maintain its fiscal 2024 adjusted EBITDA expectation of approximately $40 million despite inventory delays [52] - Management highlighted the importance of adapting to the current operating environment and the potential for future growth through strategic initiatives [40][55] Other Important Information - The company welcomed two new directors to the board, bringing fresh perspectives to its transformation efforts [25] - The company is actively pursuing a more permanent capital structure to support its business model transformation [40] Q&A Session Summary Question: Can you provide more color on the inventory delays? - Management clarified that the delays were primarily felt in course materials and that they prioritized clearing course materials vendors to mitigate impacts on fall rush sales [28][57] Question: What is the runway for additional store wind-downs? - Management indicated that the future of store wind-downs depends on the success of converting stores to the First Day Complete model and improving profitability [32][60] Question: What has been the impact on general merchandise sales at schools that transitioned to First Day Complete? - Management noted that there has not been a decrease in student traffic; in fact, more students are coming into stores to pick up their First Day Complete packages [63][64]

Financial Performance - For the 13 weeks ended July 29, 2023, the company incurred a Net Loss from Continuing Operations of $(50.9) million, compared to $(50.3) million for the same period in 2022[200]. - Adjusted EBITDA for the 13 weeks ended July 29, 2023, was $(49.97) million, compared to $(34.31) million for the same period in 2022[220]. - The company reported EBITDA from discontinued operations of $427 million for the 13 weeks ended July 29, 2023, compared to $889 million for the same period in 2022[221]. Cash Flow and Liquidity - Cash Flow Used In Operating Activities from Continuing Operations was $(119.9) million for the 13 weeks ended July 29, 2023, compared to $(28.6) million for the same period in 2022[200]. - Free Cash Flow (non-GAAP) for the 13 weeks ended July 29, 2023, was $(129.96) million, a significant decrease from $(39.19) million in the prior year[199]. - As of July 29, 2023, the company had $19.3 million in cash on hand, including $10.7 million of restricted cash related to a merchandising partnership agreement[227]. - The company raised additional liquidity and implemented operational restructuring actions to alleviate substantial doubt about its ability to continue as a going concern[200]. Debt and Credit Agreement - As of July 29, 2023, the company had outstanding borrowings of $249.7 million under the Credit Agreement, compared to $230.3 million as of July 30, 2022[207]. - The company amended its Credit Agreement on July 28, 2023, extending the maturity date to December 28, 2024, and adding a minimum Consolidated EBITDA financial maintenance covenant[207]. - The company incurred debt issuance costs totaling $11.0 million related to the July 2023 Credit Agreement amendment[207]. Operational Challenges - The company experienced significant negative impacts from the COVID-19 pandemic, resulting in changes in customer behaviors and lower enrollments affecting financial results[227]. - The company faced challenges including product shortages and increased labor costs, which may impact future performance[224]. Strategic Initiatives - The company is focused on aligning cash outflows to course material vendors with cash inflows collected from schools, particularly with the adoption of BNC First Day programs[230]. - The company is exploring strategic alternatives to effect a "Specified Liquidity Transaction" as part of its ongoing financial strategy[228]. Legal and Market Risks - The company is involved in various legal claims and proceedings but does not expect a material adverse effect on future financial results[243]. - There have been no material changes to market risk disclosures since the fiscal year ended April 29, 2023[241]. Capital Expenditures - Total Capital Expenditures for the 13 weeks ended July 29, 2023, were $4.22 million, down from $7.53 million in the same period of 2022[199]. - As of July 29, 2023, the company has no off-balance sheet arrangements[238]. Stock Repurchase Program - The company has approximately $26.7 million remaining under its stock repurchase program as of July 29, 2023[237].

Financial Data and Key Metrics Changes - Consolidated fiscal '23 revenue from continuing operations was $1.5 billion, an increase of 3.2% [44] - Consolidated adjusted EBITDA grew by $2.2 million to negative $8.1 million [44] - Retail non-GAAP adjusted EBITDA for fiscal '23 was $10.6 million, an increase of $2 million, primarily due to a $52 million revenue increase [45] Business Line Data and Key Metrics Changes - Total retail gross comparable store sales in fiscal '23 increased by 3.2% [7] - Retail gross comparable course material sales grew by 0.4%, while general merchandise gross comparable store sales increased by 8.6% [7] - Total course materials revenue increased by 1.8%, driven by a 48% increase in First Day and First Day Complete revenues, offset by a 9.4% decline in the traditional a la carte model [19] Market Data and Key Metrics Changes - In fiscal '23, the company added a record number of schools for the fall semester, with 157 campus stores committed to utilize First Day Complete, representing an enrollment increase of approximately 800,000 students, a 46% increase versus fall 2022 [11] - Fiscal '23 wholesale revenue decreased by 5.2% to $106.4 million due to supply constraints and a shift to digital course materials [21] Company Strategy and Development Direction - The company is transitioning to a more profitable subscription-like model, First Day Complete, which is expected to approach the majority of course material revenue in fiscal '24 [19] - The company divested its Digital Student Solutions business to focus on First Day Complete and general merchandise growth [5] - The company aims to enhance its general merchandise business and has seen an 8.6% growth in gross comparable store sales [49] Management's Comments on Operating Environment and Future Outlook - Management acknowledged that the operating environment remained challenging in fiscal '23, but significant progress was made to transform the business for sustained profitable growth [3] - The company is entering fiscal '24 as a more efficient entity with a clear focus on strengths and opportunities for profitable growth over the next several years [6] - Management expressed confidence in the ability to grow the top line through primary growth initiatives, including general merchandise and First Day Complete [47] Other Important Information - The company has strengthened its liquidity and financial position to accelerate the execution of its strategy [5] - The amended credit facility extends the maturity of debt facilities and provides additional liquidity to fund operations [66][74] Q&A Session Summary Question: Progress on First Day Complete and expectations for courseware material sales - Management expects First Day and First Day Complete to continue growing significantly, with a focus on transitioning schools to this model [31][64] Question: Future of a la carte required materials business - The company will continue to support the a la carte model but is moving towards the subscription model as the industry standard [61] Question: Enrollment trends at partner schools - Management noted that it is too early to provide specific enrollment trends, but they are optimistic about the upcoming academic year [60][35] Question: Updated terms of the amended credit facility - The amended credit facility extends maturities and provides ample liquidity to support operations, allowing for flexibility in executing growth initiatives [66][74]

Financial Performance - Total sales for fiscal year 2023 were $1,543,208 thousand, a 3.2% increase from $1,495,734 thousand in 2022[25] - Gross profit for fiscal year 2023 was $349,439 thousand, a 1.9% increase from $342,832 thousand in 2022[25] - Net loss for fiscal year 2023 was $101,862 thousand, a 47.9% increase from $68,857 thousand in 2022[25] - The company's pre-tax earnings would be affected by approximately $3.3 million in Fiscal 2023 if there is a 10% change in rental cost of goods sold[486] - A 10% change in long-term incentive compensation expense would impact pre-tax earnings by approximately $0.5 million in Fiscal 2023[488] - A 10% decrease in estimated discounted cash flows would not have materially affected the company's operations in Fiscal 2023[490] Assets and Liabilities - Cash and cash equivalents as of April 29, 2023 totaled $14.2 million, a 61.6% increase from $8.8 million in 2022[464] - Receivables decreased to $92,512 thousand in 2023 from $136,001 thousand in 2022, a 32% decline[476] - Merchandise inventories increased to $322,979 thousand in 2023 from $293,854 thousand in 2022, a 9.9% rise[476] - Total current assets were $537,001 thousand in 2023, a 1% increase from $531,705 thousand in 2022[476] - Total liabilities increased to $850,028 thousand in 2023 from $843,179 thousand in 2022, a 0.8% rise[476] Impairment and Valuation - The company recognized an impairment charge of $6.0 million related to long-lived assets in fiscal year 2023[472] - Significant assumptions for impairment analysis include annual revenue growth rates, gross margin rates, and weighted average cost of capital[490] - The company uses the Black-Scholes model to determine the fair value of stock options and phantom shares[488] - The fair value of cash-settled phantom share units is remeasured at each reporting period based on current risk-free rate and volatility assumptions[488] Tax and Refunds - The company expects to receive additional tax refunds of approximately $10.0 million[481] - Deferred tax assets are evaluated based on future taxable income expectations and carryforward periods[491] - The company does not recognize tax benefits for positions with a 50% or lower likelihood of being sustained upon audit[491] Operational and Accounting Practices - Management evaluates conditions that may raise substantial doubt about the company's ability to continue as a going concern[483] - Textbook rental inventories are amortized to their estimated residual value over the rental period[486]

Barnes & Noble Education (NYSE:BNED) Q3 2023 Earnings Conference Call March 9, 2023 4:30 PM ET Company Participants Hunter Blankenbaker - VP, IR Michael Huseby - CEO Thomas Donohue - EVP and CFO Jonathan Shar - EVP, BNED Retail, President Barnes & Noble College Conference Call Participants Ryan MacDonald - Needham & Co. Alex Fuhrman - Craig Hallum Capital Operator Good afternoon. Thank you for attending today’s Barnes & Noble Education Fiscal 2023 Third Quarter Earnings Conference Call. My name is Hannah, a ...

Financial Performance - For the 39 weeks ended January 28, 2023, total sales amounted to $1,328,020, an increase from $1,270,569 for the same period in 2022, representing a growth of approximately 4.5%[103] - Total gross profit for the 39 weeks ended January 28, 2023, was $312,533, up from $292,549 in the prior year, indicating a growth of approximately 6.8%[103] - Selling and administrative expenses totaled $305,045 for the 39 weeks ended January 28, 2023, compared to $295,597 for the same period in 2022, marking an increase of about 3.2%[103] - The Retail Segment generated sales of $1,256,376 for the 39 weeks ended January 28, 2023, compared to $1,194,161 for the same period in 2022, reflecting an increase of about 5.2%[103] - The Wholesale Segment's sales for the 39 weeks ended January 28, 2023, were $97,161, down from $103,192 in the same period of 2022, reflecting a decline of approximately 5.8%[103] - The Digital Student Solutions (DSS) Segment generated sales of $26,659 for the 39 weeks ended January 28, 2023, compared to $26,012 in the prior year, indicating a slight increase of about 2.5%[103] - Total sales for the 13 weeks ended January 28, 2023, were $447,064,000, an increase from $402,798,000 for the same period in 2022, representing a growth of 11.0%[112] - Gross profit for the 39 weeks ended January 28, 2023, was $312,533,000, compared to $292,549,000 for the same period in 2022, reflecting an increase of 6.8%[112] - The net loss for the 13 weeks ended January 28, 2023, was $(25,049,000), an improvement from $(36,801,000) in the same period of 2022[112] - Operating loss for the 39 weeks ended January 28, 2023, was $(39,040,000), compared to $(49,281,000) for the same period in 2022, indicating a reduction of 20.9%[112] - Interest expense for the 39 weeks ended January 28, 2023, was $15,672,000, up from $7,809,000 in the same period of 2022, showing an increase of 100.0%[112] - Basic earnings per share (EPS) for the 13 weeks ended January 28, 2023, was $(0.48), compared to $(0.71) for the same period in 2022[112] Debt and Financing - The company borrowed $512,000 and repaid $452,100 under the Credit Agreement during the 39 weeks ended January 28, 2023, resulting in outstanding borrowings of $255,600[85] - The company amended its Credit Agreement on March 8, 2023, extending the maturity date to August 29, 2024, and reducing commitments by $20,000 to $380,000[85] - The company borrowed $30,000 thousand under the Term Loan Credit Agreement, with outstanding borrowings of $30,000 thousand as of January 28, 2023[123] - The Term Loans accrue interest at a rate of 11.25%, payable quarterly, with a maturity date extended to December 7, 2024[123] - The company incurred debt issuance costs totaling $2,614 thousand related to the Term Loan Credit Agreement, which will be amortized over the term of the facility[123] Assets and Liabilities - Total current assets increased to $790,078 thousand as of January 28, 2023, compared to $765,391 thousand as of January 29, 2022, reflecting a growth of 3.3%[121] - Total liabilities rose to $1,104,620 thousand as of January 28, 2023, up from $1,029,270 thousand as of January 29, 2022, indicating an increase of 7.3%[121] - The total stockholders' equity decreased to $176,486 thousand as of January 28, 2023, down from $237,460 thousand as of January 29, 2022, a decline of 25.6%[121] Cash Flow and Expenditures - Cash payments for lease liabilities within operating activities were $100,130 thousand for the 39 weeks ended January 28, 2023, compared to $95,042 thousand for the same period in the previous year, reflecting an increase of 5.5%[128] - Net cash flows provided by financing activities during the 39 weeks ended January 28, 2023, were $56.4 million, compared to $20.7 million for the same period in 2022[313] - Capital expenditures totaled $26.9 million during the 39 weeks ended January 28, 2023, down from $33.4 million for the same period in 2022[313] Stock and Compensation - The company repurchased 347,808 shares of Common Stock during the 39 weeks ended January 28, 2023, for employee tax withholding obligations[105] - Total compensation expense for long-term incentive awards was $940,000 for the 13 weeks ended January 28, 2023, down from $2.1 million for the same period in 2022[295] - The company reported a total stock-based awards expense of $4.6 million for the 39 weeks ended January 28, 2023, compared to $4.5 million for the same period in 2022[295] - Total unrecognized compensation cost related to unvested awards as of January 28, 2023, was $9,838, expected to be recognized over a weighted-average period of 2.1 years[139] - The company granted 908,247 restricted stock units (RSUs) to employees with a three-year vesting period during the 39 weeks ended January 28, 2023[138] Tax and Impairment - Income tax expense recorded was $267 on a pre-tax loss of $(24,782) for the 13 weeks ended January 28, 2023, resulting in an effective tax rate of (1.1)%[141] - The effective tax rate for the 39 weeks ended January 28, 2023, was lower compared to the prior year due to foreign taxes and lower projected annual taxable loss[141] - An impairment loss of $6,008 was recognized during the 13 and 39 weeks ended January 28, 2023, compared to an impairment loss of $6,411 for the same periods in 2022[157] Operational Highlights - The company operates 1,388 college, university, and K-12 school bookstores, including 785 physical and 603 virtual bookstores[150] - The company maintains a partnership with Fanatics to enhance e-commerce capabilities and product assortment for campus stores[148] - The company is in the process of implementing a remediation plan for a material weakness identified in its internal controls related to deferred tax asset valuation allowance[294]

Financial Data and Key Metrics Changes - Total sales for Q2 2023 were $617.1 million, a decline of $9.9 million or 1.6% compared to $627 million in the prior year [31] - Consolidated revenue and adjusted EBITDA were essentially flat year-over-year, primarily due to the growth of higher margin First Day Complete (FDC) and general merchandise businesses [13][31] - The second quarter consolidated gross margin rate was 23.5%, compared to 23.2% in the prior year, primarily due to higher retail gross margins [34] Business Line Data and Key Metrics Changes - Retail revenue decreased by 1.7% year-over-year to $598.6 million, with gross comparable course material revenue down 4.6% [14][31] - FDC revenue grew 97% to $89.9 million, with 111 campus stores utilizing FDC for the fall term, representing approximately 545,000 undergraduate students [15][32] - General merchandise sales increased by 4.5% on a gross comparable basis, driven by strength in logo and emblematic sales [17][32] - DSS revenues increased by 2.3% to $8.5 million, although the growth was lower than anticipated due to product offering mix and lower web traffic [18][32] Market Data and Key Metrics Changes - Wholesale revenue declined by 2.5% to $21.1 million, impacted by supply constraints and lower overall demand due to declining enrollment [19][33] - The decline in the traditional à la carte course material model was attributed to faculty assigning fewer materials and students opting not to purchase materials [12][14] Company Strategy and Development Direction - The company is focusing on accelerating the transition to the FDC model, which aims to provide greater access, affordability, and convenience for students [11][25] - Cost reduction initiatives are being implemented to streamline operations and align capital allocation with high-return opportunities, expecting annual run rate savings of $30 million to $35 million [10][23] - The company plans to reinvest most of the savings into strategic priorities, particularly the FDC model [23][64] Management's Comments on Operating Environment and Future Outlook - Management noted ongoing challenges in the higher education space, including negative enrollment trends and rising operating costs [12][30] - The company expressed confidence in its ability to create durable growth and shareholder value through decisive actions and strategic investments [30][62] Other Important Information - The company expects to achieve free cash flow breakeven in the DSS segment in fiscal year 2024 [21] - The cash balance at the end of the quarter was $19.1 million, with outstanding borrowings of $252 million, an increase from $183.3 million in the prior year [37] Q&A Session Summary Question: How to drive accelerated adoption of First Day Complete? - Management emphasized the importance of leading the industry towards the FDC model and working closely with schools to ensure successful implementation [41][42] Question: Magnitude of cost cuts across segments? - Management indicated that cuts would be made across all segments, with a focus on aligning resources with the FDC model [48][49] Question: Impact of students not purchasing course materials? - Management acknowledged that the decline in the à la carte model indicates many students are not purchasing necessary materials, which impacts overall business [50][51] Question: Timeline for realizing cost savings? - Management expects the full annualized effect of cost savings to be realized in fiscal year 2024, with ongoing initiatives already in place [60][62]

Financial Position and Borrowings - The company has a credit facility with a committed principal amount of $400,000, with an option to request an increase of up to $100,000[81]. - As of October 29, 2022, the company had $222,000 in outstanding borrowings under the credit facility, compared to $183,300 as of October 30, 2021, reflecting an increase of 21.1% year-over-year[81]. - The company borrowed $318,200 and repaid $321,900 under the credit agreement during the 26 weeks ended October 29, 2022[81]. - The term loan credit agreement provides for term loans of $30,000, with an interest rate of 11.25%, maturing on June 7, 2024[82]. - The company incurred debt issuance costs of $1,964 related to the term loan credit agreement, which will be amortized over the term of the loan[85]. - The company had $222.0 million and $30.0 million in outstanding borrowings under the Credit Agreement and Term Loan Agreement, respectively, as of October 29, 2022[184]. - The company borrowed $30.0 million under the Term Loan Credit Agreement during the 26 weeks ended October 29, 2022, with an outstanding balance of $30.0 million as of the same date[194]. Revenue and Sales Performance - Total sales for the 13 weeks ended October 29, 2022, were $617.1 million, a decrease of 1.4% from $627.0 million for the same period in 2021[126]. - Total sales for the 13 weeks ended October 29, 2022, were $617,098, a decrease of 1.6% compared to $626,977 for the same period in 2021[134]. - Total sales for the 26 weeks ended October 29, 2022, increased to $880,956, up 1.5% from $867,771 in the prior year[134]. - Product sales and other for the 13 weeks ended October 29, 2022, were $575,764, down 0.3% from $577,329 in the prior year[134]. - Total course material product sales decreased by $13.9 million, or 3.2%, to $419.9 million during the 13 weeks ended October 29, 2022[139]. - Revenue from First Day models increased by $47.2 million to $143.2 million, or 49%, during the 13 weeks ended October 29, 2022, compared to $96.0 million during the same period in 2021[142]. - Retail sales decreased by $10.3 million, or 1.7%, to $598.6 million during the 13 weeks ended October 29, 2022, compared to $608.9 million during the same period in 2021[139]. - Retail sales increased by $15.7 million, or 1.9%, during the 26 weeks ended October 29, 2022, compared to the same period in 2021[139]. Expenses and Cost Management - The company recognized restructuring and other charges totaling $635 during the 26 weeks ended October 29, 2022, a decrease of 78.9% compared to $3,021 in the same period of the previous year[90]. - Lease expenses for the 26 weeks ended October 29, 2022, totaled $116,325, an increase of 7.5% from $107,803 in the same period of the previous year[89]. - Selling and administrative expenses as a percentage of total sales were 17.4% for the 13 weeks ended October 29, 2022, compared to 17.2% for the same period in 2021[129]. - Selling and administrative expenses for the 13 weeks ended October 29, 2022, decreased by $0.8 million, or 0.8%, to $107.1 million from $107.9 million during the same period in 2021[153]. - DSS selling and administrative expenses increased by $0.8 million, or 11.3%, to $8.1 million during the 13 weeks ended October 29, 2022, driven by increased operating costs and compensation expenses[158]. - Corporate Services' selling and administrative expenses decreased by $1.7 million, or 25.5%, to $5.1 million during the 13 weeks ended October 29, 2022, due to lower incentive plan compensation costs[159]. Profitability and Income - Net income for the 13 weeks ended October 29, 2022, was $22.1 million, compared to $22.5 million for the same period in 2021, reflecting a decrease of 1.7%[126]. - Adjusted Earnings (non-GAAP) was $24.0 million during the 13 weeks ended October 29, 2022, compared with $25.0 million during the same period in 2021, a decrease of 4.0%[168]. - Adjusted EBITDA for the 13 weeks ended October 29, 2022, was $39.4 million, slightly up from $39.0 million in the same period last year[126]. - Operating income was $26.7 million during the 13 weeks ended October 29, 2022, compared to $24.6 million during the same period in 2021, representing an increase of 8.6%[163]. - The effective income tax rate for the 26 weeks ended October 29, 2022, was (2.1)% on a pre-tax loss of $(29,930) million[98]. - The effective income tax rate for the 13 weeks ended October 29, 2022, was (1.4)%, compared to (0.9)% for the same period in 2021[166]. Operational Challenges and Market Conditions - The company is experiencing downward enrollment trends, particularly at community colleges, which correlate with economic conditions and unemployment rates[121]. - The impact of COVID-19 has led to a challenging labor market, affecting the company's ability to recruit employees and resulting in increased borrowings[119]. - The company continues to face significant price competition in the textbook and course materials market, with students being highly price sensitive[121]. - The company is exposed to risks related to counterfeit and piracy of digital and print materials[204]. - The company may face challenges related to attracting and retaining employees[204]. - The company faces risks associated with potential disruptions to information technology systems and third-party web service providers[204]. - The company is subject to various risks from international operations, including regulatory changes and supply chain disruptions[204]. Cash Flow and Capital Expenditures - Free cash flow for the 26 weeks ended October 29, 2022, was $38,864, compared to $37,738 for the same period in the previous year[181]. - Capital expenditures for the 26 weeks ended October 29, 2022, totaled $20,573, an increase from $21,264 in the prior year[183]. - Cash flows provided by operating activities during the 26 weeks ended October 29, 2022 were $9.4 million, a decrease of $14.9 million compared to $24.3 million during the same period in 2021[188]. - Cash flows used in investing activities were $(20.3) million for the 26 weeks ended October 29, 2022, compared to $(20.9) million in the prior year, primarily due to lower capital expenditures[189]. - Cash flows provided by financing activities increased to $23.7 million during the 26 weeks ended October 29, 2022, up from $3.4 million in the same period of 2021, driven by higher net borrowings[190]. Internal Controls and Compliance - A material weakness in internal controls was identified due to insufficient precision in the analysis of deferred tax asset valuation allowance[209]. - The company is in the process of implementing a remediation plan for the identified material weakness, expected to occur in Q4 of Fiscal 2023[209]. - The effectiveness of the company's disclosure controls and procedures was evaluated, concluding they were not effective at the reasonable assurance level[209]. - The company has not identified any changes in internal control over financial reporting that materially affected its operations during the second quarter[210].

Financial Data and Key Metrics Changes - Total sales for Q1 2023 were $263.9 million, a 9.6% increase from $240.8 million in the prior year [22] - Retail sales increased by $26 million or 12.4%, benefiting from a strong graduation season and higher demand for general merchandise [22][23] - The retail non-GAAP adjusted EBITDA loss was $25 million, compared to a loss of $19.6 million in the prior year [17] Business Line Data and Key Metrics Changes - Retail segment sales increased by $26 million, while wholesale segment revenue declined by 16.6% to $37.1 million due to supply constraints and lower demand for physical textbooks [22][26] - DSS segment sales grew by $0.9 million or 10.6% to $9.2 million, driven by an increase in subscription sales [26] Market Data and Key Metrics Changes - The First Day sales grew by 67% to $45 million, with First Day Complete sales doubling to $16.9 million [24] - The number of campus stores utilizing the First Day Complete program increased to 111, representing an 85% growth in undergraduate enrollment compared to Fall 2021 [14] Company Strategy and Development Direction - The company is focusing on expanding its First Day Complete program, which has shown to improve student outcomes and increase enrollment [13][19] - There is a strong pipeline of institutions evaluating the FDC program, indicating potential for continued growth [15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about increased on-campus traffic and fewer restrictions, which may positively impact enrollment and sales [32] - The company is preparing for a robust Fall Rush, expecting strong demand for general merchandise and course materials [52] Other Important Information - The consolidated gross margin rate for the quarter was 24.1%, down from 24.9% in the prior year, primarily due to lower sales in the wholesale segment [27] - Cash balance at the end of the quarter was $9.1 million, with outstanding borrowings of $260.3 million [29] Q&A Session Summary Question: What is the enrollment outlook for this Fall? - Management is optimistic about increased traffic and fewer restrictions on campuses, but specific enrollment data will be available after the ad drop period [32][34] Question: What trends are observed in the First Day Complete program? - There is improved knowledge and acceptance of the program, with expectations of positive gains in participation rates [40] Question: How is consumer spending behavior changing? - While inflation is impacting costs, management expects a strong Fall Rush and is prepared for increased demand [52][54]