Barnes & Noble Education Reports Full Year. Standstill Agreement with Key Investor

Two important news stories related to the performance and future of Barnes & Noble Education this week.

Firstly, the company reported their full year results and, no surprise, the business performance was much below 2019.  From their press release:

Financial results for the fourth quarter and fiscal year 2020:

• Consolidated fourth quarter sales of $256.9 million decreased 23.2% as compared to the prior year period; fiscal year 2020 consolidated sales of $1,851.1 million decreased 9.0% as compared to the prior year.
• Consolidated fourth quarter GAAP net loss was $(40.3) million, compared to a net loss of $(46.2) million in the prior year period. Consolidated fiscal year 2020 GAAP net loss was $(38.3) million, compared to a net loss of $(24.4) million in the prior year.
• Consolidated fourth quarter non-GAAP Adjusted EBITDA loss was $(20.7) million, compared to non-GAAP Adjusted EBITDA of $19.7 million in the prior year; fiscal year 2020 consolidated non-GAAP Adjusted EBITDA was $42.2 million, compared to non-GAAP Adjusted EBITDA of $104.9 million in the prior year.
• Consolidated fourth quarter non-GAAP Adjusted Earnings was $(28.1) million, compared to non-GAAP Adjusted Earnings of $0.5 million in the prior year period; fiscal year 2020 consolidated non-GAAP Adjusted Earnings was $(21.1) million, compared to non-GAAP Adjusted Earnings of $25.4 million in the prior year.

Operational highlights for the fiscal year 2020:

• Progressed on the execution of a number of strategic initiatives; all of which remained on target prior to the onset of the COVID-19 pandemic, which has accelerated the demand and need to scale such key initiatives.
• Continued to drive subscriptions for the Company’s bartleby® suite of solutions, gaining more than 170,000 subscribers in fiscal year 2020, representing over 200% growth over fiscal year 2019 new subscribers.
• Achieved a six-fold increase in fiscal year 2020 bartleby revenue versus prior year; bartleby peak Spring traffic increased over 10x year-over-year and almost 3x versus peak Fall traffic.
• Completed initial build of the Company’s next generation eCommerce platform; recently executed selective launch with expected further roll-out throughout fiscal year 2021 to grow increased high-margin general merchandise sales.
• Continued to grow the BNC First Day® inclusive access programs, with revenue increasing 91% year-over-year.
• Increased adoption of BNC First Day Complete, with eleven campus partners utilizing the complete access model in the upcoming Fall Term 2020, increasing from four in fiscal year 2020.
• Continued to win new business for both physical and virtual bookstores, including the University of Nevada, Reno, Western Kentucky University, Front Range Community College and The City Colleges of Chicago.
• Provided valuable solutions to schools to help mitigate the COVID-19 on-campus learning disruption utilizing BNED’s virtual store offerings and course material fulfillment capabilities, its BNC First Day offering, and its digital bartleby offerings to help students continue to perform while studying remotely.

COVID-19 impacts on bookstore sales were particularly acute in the final quarter with same store sales of $238.5 million for the quarter, declining $81.4 million, or 25.4%, as compared to the prior year period, with comparable store sales decreasing 34.7%. Retail non-GAAP Adjusted EBITDA was $(13.0) million for the quarter, compared to $29.1 million in the prior year period.

While the company is excited about their online subscription study tools and products, the revenue base is still low versus the overall company. 2020 full year DSS revenues of $24mm were 10% higher versus 2019 but saw a 21% increase in the 4th quarter which could bode well for future growth during the COVID period.  However, any suggestion this line item compensates for the decline in retail sales in the short to medium term would be misguided.

Later in the week, the company also announced they have reached a cooperation agreement with Outerbridge Investment LLC a key investor which will result in Outerbridge placing board members on the B&N Education board.  From the press release:

Pursuant to the cooperation agreement, Outerbridge will vote all of its shares in favor of all the persons nominated by the Board to serve as directors of the Company at the 2020 Annual Meeting, which will include Mr. Robinson. Additionally, pursuant to the agreement, the Company has agreed to nominate Zachary Levenick as a director candidate for election at the 2020 Annual Meeting. Outerbridge has also agreed to abide by certain customary standstill provisions. The full agreement between BNED and Outerbridge will be filed in a Form 8-K with the U.S. Securities and Exchange Commission.

“We have engaged in a constructive dialogue with BNED over the past year and are pleased to have reached this agreement in support of BNED’s future,” said Rory Wallace, Chief Investment Officer of Outerbridge. “With its unique set of offerings that serve digital, virtual and in-person education, and its highly differentiated retail business, BNED has a special opportunity not only to deliver value to its shareholders and to all stakeholders in the higher education system, but to help shape the future of the industry by stepping forward in this time of disruption. The Company has demonstrated its ability to manage expenses and liquidity while simultaneously growing bartleby^® and its inclusive access offerings, First Day^® and First Day Complete at an impressive, and accelerating, rate. We remain deeply committed to BNED, which we believe to be an investment opportunity with tremendous standalone and strategic value, and are excited to continue our engagement with management and the Board as we pursue our common goal of enhancing shareholder value.”

Morgan Stanley & Co. is acting as financial advisor to the Company and Gibson, Dunn & Crutcher LLP is acting as legal counsel to the Company. Olshan Frome Wolosky LLP is acting as legal counsel to Outerbridge.

Earlier in 2020, the company enacted a short term shareholder rights plan otherwise known as a poison pill defence to ward off unwanted suitors.  (Press Release)

BNED is trending higher over the past six months but remains significantly below its 52 week high.

MediaWeek Report (Vol 13, No 10): Business Strategy in Time of Change

Some interesting recent clips related to publishing media and business strategy.

At Information Media Partners, I have been helping clients with sales, revenue and cost containment strategies to mitigate the issues presented by the difficult economy.  We are always happy to take a call (908 938 4889) or email to discuss your particular challenge.

Business Strategy:

From McKinsey: Covid-19 and student learning in the United States.  The Hurt Could Last a Lifetime

Even more troubling is the context: the persistent achievement disparities across income levels and between white students and students of black and Hispanic heritage. School shutdowns could not only cause disproportionate learning losses for these students—compounding existing gaps—but also lead more of them to drop out. This could have long-term effects on these children’s long-term economic well-being and on the US economy as a whole.

Several articles from From Strategy+Business: How managers are building new skills to deal with the pandemic:

And starting in May, across the many interviews I’ve been conducting with senior leaders, I’ve heard more optimism in their voices — a sense that their companies were settling into a new normal, and that for all the health and economic damage the pandemic has caused and all the uncertainty that remains, they were seeing positive developments in the cultures of their companies.
A big reason for this shift is that the practice of certain core leadership skills that everyone knows are important (yet many struggle to implement) is suddenly becoming a daily habit.

And: The ability to cope with ambiguity is at a particular premium.

But when the COVID-19 national emergency was declared on March 13, owners Thomas de Geest and Rossanna Figuera realized they had exactly enough cash on hand to give their workers two weeks’ severance pay. Tearfully, they said goodbye and emptied their bank account. Once they made the painful decision to let their employees go, the couple made arrangements with creditors and landlords. Then they focused on what they could do to help others. They found the answer in their mission: to give people the happiest moment of their day.

And: To lead in a changed world make yourself essential

Everything you do now will be scrutinized: Is it essential or not? Companies holding out for a post–COVID-19 bounce back to things as they were will be sorely disappointed. Instead, consider this just the beginning of shifting behavior from consumers. That reality calls for a new kind of thinking and action from companies: Double down on digital transformation, know what to hold, manage in shorter increments, and plan for operational resilience.

Academic Publishing:

Techdirt notes the growth of preprint servers across all major publisher platform as a bi-product of the Covid-19 challenges.

An excellent new survey of the field, "Preprints in the Spotlight", rightly notes that preprints have attained a new prominence recently thanks to COVID-19. The urgent global need for information about this novel disease has meant that traditional publishing timescales of months or more are simply too slow. Preprints allow important data and analysis to be released worldwide almost as soon as they are available. The result has been a flood of preprints dealing with coronavirus: two leading preprint servers, medRxiv and bioRxiv, have published over 4,500 preprints on COVID-19 at the time of writing. The publishing giant Elsevier was one of the first to notice the growing popularity of preprints. Back in 2016, Elsevier acquired the leading preprint server for the social sciences, SSRN. Today, Elsevier is no longer alone in seeing preprints as a key sector.

Ithaka: University Presses in Time of Covid-19

Over the past few weeks, Ithaka S+R has conducted conversations with a variety of university press directors to get a sense of how they are faring during this uncertain and challenging time. We spoke with a total of 11 directors representing small, medium, and large presses from public and private universities, all in the US. The discussions were wide ranging, touching on everything from how they were coping with the practical issues around pivoting to a remote workforce, to the broader question of the expected impact of the pandemic on their current and future programs. It should be noted that many of these conversations took place before the killing of George Floyd and the ensuing struggle to address systemic racism that has seized all of us personally and reverberated within our organizations. This too is shaping presses in powerful ways, but we confine this report to our exploration of their responses to the COVID challenge. Here is what we learned from these discussions, starting today with the present circumstances. In a second piece, we will examine how press directors are looking ahead to the future.

Culture:

The art of political writing from The New statesman:  

The art of political writing: Bernardine Evaristo, Colson Whitehead, Edna O’Brien and more Orwell Prize-shortlisted writers explain how politics informs their prose.

Classes Going all Online? ICE says Foreign Students Must Leave the Country

 

Returning to campus in the fall for many college students is still a movable feast:  Some schools such as CSU came out early to state that students would be online for the fall while many others have had a wait and see attitude.  Today, Harvard announced a mixed offering for students with some on-campus and others having to take their course load online.

This unsettled environment has raised all kinds of questions for students, administrators and faculty and aside from the obvious health issues and risks, there have been very legitimate questions raised by all parties - but particularly students - on the 'value' on on-line learning versus the in-clasUs experience. For example, college and graduate schools are facing pressure over the tuition price differential between the tradition on-campus delivery and the on-line products which many colleges and graduate schools have launched and promoted to address broader constituencies. Pricing for the on-line only programs was lower than the on-campus version and prior to Covid-19 differentiation was easy to define; however, when all courses are delivered online the differences may be scant.

Today the difference between online and in-person education hit another road block: The US Immigration and Customs Service (ICE) modified their Student and Exchange Visitor Program (SEVP) to exclude on-line education from their permitted exemptions.  This new guidance was published on the ICE site as follows:

Temporary exemptions for the fall 2020 semester include:

1. Nonimmigrant F-1 and M-1 students attending schools operating entirely online may not take a full online course load and remain in the United States. The U.S. Department of State will not issue visas to students enrolled in schools and/or programs that are fully online for the fall semester nor will U.S. Customs and Border Protection permit these students to enter the United States. Active students currently in the United States enrolled in such programs must depart the country or take other measures, such as transferring to a school with in-person instruction to remain in lawful status. If not, they may face immigration consequences including, but not limited to, the initiation of removal proceedings.
2. Nonimmigrant F-1 students attending schools operating under normal in-person classes are bound by existing federal regulations. Eligible F students may take a maximum of one class or three credit hours online.
3. Nonimmigrant F-1 students attending schools adopting a hybrid model—that is, a mixture of online and in person classes—will be allowed to take more than one class or three credit hours online. These schools must certify to SEVP, through the Form I-20, “Certificate of Eligibility for Nonimmigrant Student Status,” certifying that the program is not entirely online, that the student is not taking an entirely online course load this semester, and that the student is taking the minimum number of online classes required to make normal progress in their degree program. The above exemptions do not apply to F-1 students in English language training programs or M-1 students pursing vocational degrees, who are not permitted to enroll in any online courses.

Students attending education institutions under the above visa requirements are required to register withing 10 days if there are any changes in their programs. This set of requirements will likely cause confusion and further possible financial issues for schools already impacted by a decline in profitable foreign student populations.  Whether a campus moves courses online or not will be outside the control of all students but if here on an F-1 visa a student may face dire consequences:

If students find themselves in this situation, they must leave the country or take alternative steps to maintain their nonimmigrant status such as a reduced course load or appropriate medical leave.

Whether this issue impacts decision making on-campus remains to be seen but, with the financial model of many schools under threat, this additional issue is not what they were looking for. Sadly, support from the federal government is in short supply when it comes to extending the global (soft) influence of the US through education or shared work experience.  Hopefully better days may be on the horizon.

Electric Book Works: Visualizing Digital Book Production

Interesting visualization of the 'new' digital book production process from Electric Book Works:

https://electricbookworks.github.io/modern-book-production/

MediaWeek Report (Vol 13, No 9): Education News - Wiley Reports & Pearson shares jump 11% as activist Cevian discloses stake

Wiley reported 4Q and full year results:

FOURTH QUARTER 2020 SUMMARY

• GAAP Results: Revenue of $475 million (-3%) and EPS of -$2.83, primarily due to impact of unusual items totalling -$3.49 per share, including non-cash goodwill and trade name impairments
• Adjusted Results (at constant currency): Revenue -2%, EBITDA -23%, and EPS -44%, mainly reflecting the COVID-19 impact on print books, test prep, and corporate training
• Strong momentum in Open Access research publishing and digital courseware
• Addition of four new university partners in Education Services (Drake University, University of Iowa, Methodist University, and Point University)

FISCAL YEAR 2020 SUMMARY

• GAAP results: Revenue of $1,831 million, and EPS of -$1.32 primarily due to fourth quarter non-cash goodwill and trade name impairments
• Adjusted results (at constant currency): Revenue +3%, EBITDA -8%, and EPS -21%
• Free Cash Flow of $173 million, up $24 million (+16%) from prior year
• Digital products and tech-enabled services rose to nearly 80% of total revenue

Pearson Shares Jump on Cevian Investment:

From Reuters:

Shares in Pearson (PSON.L) jumped 11% on Friday after activist investor Cevian Capital disclosed a 5.4% stake in the British education publisher, lifting expectations for a performance boosting shake-up at the company. Cevian Capital, which holds large stakes in companies such as Ericsson (ERICb.ST), ABB (ABBN.S) and CRH (CRH.L), said it had been following Pearson closely for several years.

LIBER Webinar: The Anatomy of a Transformative Agreement

A Selected List of My Popular Presentations

I have placed many of my public industry presentations and speeches on Slideshare but I thought I would link to some of the more popular posts.  Most of these are available for download but if you have a problem let me know.

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More at Slideshare with this link