Neebo, Inc. Reports Q4 and Year-End Financial Results

INCREASES FOURTH QUARTER ON-CAMPUS RENTAL PENETRATION TO 42.3%; ADDS 16 NEW ON-CAMPUS STORES TO ITS STORE BASE

LINCOLN, Neb.--()--Neebo, Inc. (the “Company”; NEEB+) today announced financial results for the fiscal fourth quarter and year ended March 31, 2014. Neebo, Inc. is a holding company and the beneficial owner of Nebraska Book Company, Inc., an industry leader in solutions for the college store marketplace.

Fiscal Year 2014 Financial Highlights (year ended March 31, 2014)

  • Fiscal fourth quarter 2014 rental unit penetration increased to 42.3% from 33.6% in the prior comparable period, and reached 35.9% for fiscal year 2014 from 30.7% in fiscal 2013.
  • Won 16 new on-campus stores, a 10% increase to its 156 on-campus store fleet in fiscal year 2014.
  • Voluntary debt payments totaled $26.4 million during fiscal year 2014, including $6.4 million made during fiscal fourth quarter 2014.

“Our focus remains on investing in our future and generating sales through continued growth in rental penetration and our on-campus store fleet,” said Steve Clemente, President and Chief Executive Officer of Neebo, Inc. “The return on investments made in Business Intelligence and ecommerce in fiscal year 2014 can be seen in our increased store count and rental unit penetration. Coupled with our enhanced ecommerce experience and Neebo Student Network offering, we are excited about the future growth opportunities ahead.”

The Company continues to improve its financial position through voluntary payments toward debt, and has paid down over $80.5 million of its secured term loan since it started its debt payment plan on July 1, 2012, with $26.4 million paid in fiscal year 2014 alone. “We continued to improve our financial position again this fiscal year with additional, voluntary reductions in our debt levels,” said Jon Otterberg, Chief Financial Officer of Neebo, Inc. “The costing investigation is now complete, and we are well-positioned to enhance our positive operating results as we continue to execute on our growth strategies in fiscal year 2015 and beyond.”

Fiscal Fourth Quarter 2014 Results
Fiscal fourth quarter 2014 revenue declined by $10.0 million, primarily in the College Stores Division, resulting from decreased new and used textbook sales and general merchandise sales, partially offset by increased rental revenue. The decline in sales can be attributed in part to conversions to the Company’s rental program, which led to a decrease in fiscal fourth quarter 2014 revenue due to the lower prices for rental versus sale and the longer period over which rental revenue is recognized. Rental adjusted same store sales (SSS) for its on-campus and off-campus stores were down (4.7%) and (20.0%), respectively. The Company continues to evaluate the individual performance of its off-campus store fleet.

In addition, severe weather in January and February 2014 impacted the Company’s College Stores Division results, as on-campus and off-campus stores experienced 284 total days of store closings in fiscal year 2014, as compared to 64 days during fiscal year 2013. Overall, the Company realized rental unit penetration increases in both its on- and off-campus stores during the spring back-to-school (BTS) season, up 14.0 percent points (from 17.6% to 31.7%) in its on-campus stores and 4.4 percent points (from 55.5% to 59.9%) in its off-campus fleet. Total unit rental penetration was 42.3 percent after spring BTS, versus 33.6 percent in the prior comparable period, up 8.7 percent points.

Fiscal fourth quarter 2014 Adjusted EBITDA decreased $10.3 million, from $13.5 million to $3.2 million. College Stores Division Adjusted EBITDA comprised the majority of the decline, decreasing by $7.7 million over the comparable quarter, primarily resulting from changes in certain accounting methodologies and system corrections due to the costing investigation described below. Excluding the aggregate $5.4 million decline resulting from such accounting changes and corrections, College Stores Division fourth quarter Adjusted EBITDA declined by $2.3 million, as a result of lower sales, partially offset by lower SG&A cost. Although fiscal fourth quarter 2014 SG&A costs were lower versus the comparable period, fiscal fourth quarter 2014 SG&A was negatively impacted by $1.4 million in additional advertising expenses previously reported in third quarter fiscal 2013. This adjustment, resulting from a change in the way the Company pays for advertising, inflated fourth quarter fiscal 2014 SG&A costs; however, total advertising expenses remained constant in fiscal year 2014 versus fiscal year 2013.

The remaining $2.6 million of the total fiscal fourth quarter 2014 Adjusted EBITDA variance resulted primarily from $1.4 million in lower Textbooks Division Adjusted EBITDA, caused by lower sales and the commission impact on fourth quarter fiscal 2014 versus the comparable quarter. Complementary Services Adjusted EBITDA decreased $0.4 million as a result of lower sales, and experienced a $0.7 million negative impact from intercompany eliminations changes year over year. Fiscal fourth quarter 2014 Corporate Administration costs increased by $0.1 million over the comparable period, a reflection of the investment in the Business Intelligence team, offset by cost control. In fourth quarter fiscal 2014, the Company also voluntarily pre-paid $6.4 million on its Term Loan, reducing the balance to $6.2 million at March 31, 2014, with approximately $80.5 million paid since July 1, 2012.

Fiscal Year 2014 Earnings
Total Revenue declined by $36.1 million, primarily driven by conversion of sales to rentals and lower SSS in the College Stores Division. Overall, rental unit penetration increased to 35.9 percent for fiscal year 2014 versus 30.7 percent for fiscal year 2013. As discussed above, severe weather during Spring BTS increased the number of days stores were closed by over 300 percent. Textbooks Division revenue declined $10 million and was impacted by lower sales to internal and external customers offset by sales through the Company’s ExcellenText and Net Textstore online segments.

Fiscal year 2014 Adjusted EBITDA decreased by $7.6 million, to $30.9 million (7.7% of sales) from $38.5 million (8.8% of sales) at fiscal year 2013. Fiscal year 2013 Adjusted EBITDA was revised downward from $40.6 million to $38.5 million in connection with the costing investigation as further described below.

Of the decrease in fiscal 2014 Adjusted EBITDA, $3.3 million resulted from lower Textbooks Division sales, as the gross margin and EBITDA percentage remained relatively constant from fiscal year 2014 to fiscal year 2013, at 42 percent and 27 percent, respectively. College Stores Division Adjusted EBITDA decreased by $0.9 million during fiscal year 2014 as compared to the prior year as higher gross margin was offset by declining sales and increased SG&A expenses as a percentage of sales. Complementary Services Adjusted EBITDA decreased by $0.8 million from lower sales and divisional cost reclassification. Corporate Administration expenses increased by $1.1 million from investments in personnel and cost reclassifications, and intercompany eliminations negatively impacted Adjusted EBITDA by $1.5 million year over year.

Fiscal Third Quarter 2014 Earnings Revision
Concurrently with publishing these financial statements for the fiscal year ended March 31, 2014, the Company is also revising its previously published financial statements for the three and nine months ended December 31, 2013. As a result of the Company’s investigation of costing issues, the Company refined the methodology for calculating rental depreciation in its College Stores Division and adjusted the capitalization of commissions realized on interdivision purchases and sales in its Textbooks Division. In conjunction with revising fiscal third quarter 2014, the Company is withdrawing its Management’s Discussion and Analysis for the three and nine months ended December 31, 2013. Investors are urged to review the Management’s Discussion and Analysis for fiscal year 2014 that the Company is issuing today. Revenue for the fiscal third quarter 2014 was not impacted, and the change had no material impact on cash flow from operations. The following table reconciles EBITDA to Adjusted EBITDA, as revised, to the numbers originally disclosed:

   
($ in 000’s) Three months ended December 31, 2013
        Adjusted
Revenue     EBITDA     EBITDA
As previously reported 64,632 (2,194 ) (242 )
 
Rental Depreciation (Note 1) 2,164 2,164
Inventory Obsolescence - College Stores (Note 2) (16 ) 360
Textbooks Commissions (Note 3) 983 983
Inventory Obsolescence - Textbooks (Note 4) (81 ) 52
Discontinued operations (Note 5) 23 -
Other Miscellaneous One-Time Costs -     -       209  
Total Adjustments -     3,073       3,768  
As revised 64,632     879       3,526  
 

Note 1) During the investigation of costing issues, the Company refined its methodology for calculating rental depreciation to more appropriately reflect the life cycle of textbook rentals.
Note 2) and Note 4) The inventory obsolescence adjustment represents a refinement to the factors used in estimating the reserve that more accurately reflects the Company's historical experience.
Note 3) The Textbooks Division commissions adjustment represents an accounting methodology change commencing at the beginning of fiscal year 2014 to more accurately record the capitalization of commissions related to all internal sales and returns.
Note 5) Impact of closed stores moved to discontinued operations in fiscal third quarter 2014.

Fiscal Second Quarter 2014 Earnings Revision
Concurrently with publishing these financial statements for the fiscal year ended March 31, 2014, the Company is also revising its previously published financial statements for the three and six months ended September 30, 2013. As a result of the Company’s investigation of costing issues, the Company refined the methodology for calculating rental depreciation in its College Stores Division and adjusted the capitalization of commissions realized on interdivision purchases and sales in its Textbooks Division. In conjunction with revising fiscal second quarter 2014, the Company is withdrawing its Management’s Discussion and Analysis for the three and six months ended September 30, 2013. Investors are urged to review the Management’s Discussion and Analysis for fiscal year 2014 that the Company is issuing today. Revenue for the fiscal second quarter 2014 was not impacted, and the change had no material impact on cash flow from operations. The following table reconciles EBITDA to Adjusted EBITDA, as revised, to the numbers originally disclosed:

   
($ in 000’s) Three months ended September 30, 2013
        Adjusted
Revenue     EBITDA     EBITDA
As previously reported 161,222 26,103 25,565
 
Rental Depreciation (Note 1) (378 ) (378 )
Inventory Obsolescence - College Stores (Note 2) 177 491
Textbooks Commissions (Note 3) 604 604
Inventory Obsolescence - Textbooks (Note 4) 112 291
Discontinued operations (Note 5) (24 ) -
Other Miscellaneous One-Time Costs       -       183  
Total Adjustments -     491       1,191  
As revised 161,222     26,594       26,756  
 

Note 1) During the investigation of costing issues, the Company refined its methodology for calculating rental depreciation to more appropriately reflect the life cycle of textbook rentals.
Note 2) and Note 4) The inventory obsolescence adjustment represents a refinement to the factors used in estimating the reserve that more accurately reflects the Company's historical experience.
Note 3) The Textbooks Division commissions adjustment represents an accounting methodology change commencing at the beginning of fiscal year 2014 to more accurately record the capitalization of commissions related to all internal sales and returns.
Note 5) Impact of closed stores moved to discontinued operations in fiscal second quarter 2014.

Investigation of Costing Issues
The Company has now completed its investigation of certain costing issues within its inventory system, as well as overall accounting policies and procedures. The five month investigation, which included significant assistance from a top accounting firm, examined areas including, but not limited to: the cost transfer between the IT systems and the accounting system for rentals and sales, related systems and operational processes involved, rental depreciation methodologies, deferred revenue and cost recognition, accrual levels for invoices and credits, obsolescence reserve and overhead capitalization policies and methodologies, accounting for intercompany eliminations, and intercompany merchandise transfers and sales.

As a result of this investigation, the Company modified certain estimates such as inventory obsolescence and rental depreciation. Based on extensive research on textbook lifecycles, the Company modified its rental depreciation methodologies. This accounting change recognized additional rental gross margin in the fiscal third quarter 2014, with the majority of this increase offset by increased cost of $3.5 million in the used sale gross margin, recognized in fiscal fourth quarter 2014. In addition, during the costing investigation the Company discovered a system issue that occurred when a book was rented from one store and sourced from another, which resulted in a rental inventory value issue. The Company also discovered a system issue that occurred when its guest services team modified a rental record, and the modification was not captured in the costing system, which resulted in a rental inventory value issue. Both issues were addressed in fourth quarter fiscal 2014, resulting in a $1.9 million negative impact to gross profit. In addition, the Company identified $2.5 million of expense which should have been recorded in fiscal year 2013, and therefore revised fiscal year 2013 Adjusted EBITDA downward from $40.6 million to $38.5 million to reflect this change. This $2.5 million downward adjustment to fiscal year 2013 Adjusted EBITDA was offset by the $0.4 million impact to discontinue operations to reflect store closures in fiscal year 2014.

The investigation is now complete, and at this time the Company does not believe any further adjustments will be necessary. However, the Company has requested additional time to release the results for fiscal first quarter 2015 and a majority of the lenders under its working capital and term loan facilities, as well as a majority of the holders of its senior secured notes, have agreed to extend the deadline for delivery of the Company’s fiscal first quarter 2015 financials from August 29, 2014 to September 29, 2014. Once finalized, fiscal first quarter 2015 results will be shared via a quarterly earnings conference call, press release, and on the Company’s website.

In Process of Negotiating ABL
The Company continues to make progress toward refinancing its working capital facility. In the meantime, the Company has agreed with its existing lenders to extend its credit facility through December 31, 2014. The Company believes that it has adequate liquidity to meet its cash needs during this period. In addition, the Company continues to investigate the options available to lower its cost of capital.

The following table presents selected financial data for continuing operations as of and for the year ended March 31, 2014 and 2013 ($ in 000’s):

           
Twelve months ended
Percent
March 31, 2014 March 31, 2013 Change
 
Total assets $ 238,323 $ 295,175 (19.3 )%
Long-term debt 118,538 133,451 (11.2 )%
 
Revenues, net of returns 400,472 436,578 (8.3 )%
Adjusted EBITDA** 30,878 38,444 (19.7 )%
Adjusted EBITDA Margin 7.7 % 8.8 %
 
Net cash flows from operating activities 29,003 21,576 34.4 %
Net cash flows used in investing activities (8,442 ) (8,251 ) 2.3 %
Net cash used in financing activities (36,014 ) (94,031 ) (61.7 )%
 

* Not meaningful
** Adjusted EBITDA is a non-GAAP financial measure. See additional disclosure below.

Conference Call
Management will hold a conference call Thursday September 4, 2014, from 9:00 a.m. to 9:30 a.m. CDT to report the Company’s fiscal year 2014 fourth quarter and year-end financial results.

To participate in the conference call, interested parties should call 800-230-1085 or 612-234-9959 (international) and dial in 10 minutes prior to the start time of the call. The participant access code is 334180.

A replay of the conference call will be available from September 4, 2014, at 11:00 a.m. CDT through September 18, 2014, at 11:59 p.m. CDT. To access the replay, callers should dial 800-475-6701 or 320-365-3844 (international) and use access code 334180.

The audited consolidated financial statements as of and for the year ended March 31, 2014, 2013 and 2012 are located on the Financial Filings page of the Company’s website at http://www.nebook.com/financial/company_filings.asp.

+Neebo, Inc. common stock is not listed, traded or quoted on any U.S. stock exchange but is quoted on the OTC Pink Market under the symbol NEEB.

About the Company
Neebo, Inc. is the beneficial owner of Nebraska Book Company, Inc., which began in 1915 with a single college store near the University of Nebraska campus and now operates more than 215 stores, serving more than 2 million students at colleges and universities nationwide. Nebraska Book Company, Inc. sells and rents more than 7.8 million textbooks annually and supports technology platforms and e-commerce sites at more than 1,200 bookstore locations. Additional information about Nebraska Book Company, Inc. can be found at the Company’s website: http://www.nebook.com.

Notice Regarding Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause the Company’s business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include statements that discuss management’s beliefs and assumptions and can be identified by the use of words such as “will,” “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue” or the negative of such terms, or other comparable terminology. These forward-looking statements, which include the Company’s plans and expectations related to growth opportunities, generating sales, improving the Company’s financial position and operating results and refinancing its working capital facility, the Company’s beliefs related to further adjustments to its financial statements based on its recent investigation of costing issues, whether the Company has sufficient liquidity to meet its cash needs, and the anticipated release of the Company’s results for the first quarter of fiscal year 2015, speak only as of the date of this press release. The Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by applicable law. Additional information regarding forward-looking statements, as well as risks and uncertainties that may affect results and could cause results to differ materially from those expressed in such forward-looking statements, is contained in the Management’s Discussion and Analysis that was posted on the Company’s website today.

Selected Financial Data
The information contained herein is more fully detailed and explained in the Company’s Audited Consolidated Financial Statements and Management’s Discussion and Analysis, which are available at http://www.nebook.com/financial/company_filings.asp.

 

Consolidated Statement of Operations ($ in 000’s)

                       
Three months ended Twelve months ended
Successor Successor Predecessor Non-GAAP
twelve months nine months three months twelve months
ended ended ended ended
March 31, March 31, March 31, March 31, June 30, March 31,
2014 2013 2014 2013 2012 2013
Revenues, net of returns $ 116,013 $ 126,532 $ 400,472 $ 374,343 $ 62,235 $ 436,578
Costs of sales   80,211     72,968     246,387     214,038     39,099     253,137  
Gross profit   35,802     53,564     154,085     160,305     23,136     183,441  
 
Operating expenses:
Selling, general, and administrative 36,616 44,460 133,580 119,829 28,509 148,338
Depreciation 1,562 1,790 6,480 5,132 1,461 6,593
Amortization   2,267     1,624     8,846     6,115     2,033     8,148  
  40,445     47,874     148,906     131,076     32,003     163,079  
Income (loss) from operations   (4,643 )   5,690     5,179     29,229     (8,867 )   20,362  
 
Other (income) expenses:
Interest expense 5,359 6,431 39,676 22,029 8,350 30,379
Interest income   (61 )   (121 )   (10 )   (48 )   (14 )   (62 )
  5,298     6,310     39,666     21,981     8,336     30,317  

Income (loss) before reorganization items and income taxes

(9,941 ) (620 ) (34,487 ) 7,248 (17,203 ) (9,955 )
Reorganization items       (2,910 )       (4,218 )   (275,466 )   (279,684 )

Income (loss) from continuing operations before income taxes

(9,941 ) 2,290 (34,487 ) 11,466 258,263 269,729
Income tax expense (benefit)  

6,334

    436     (3,097 )   4,279         4,279  
Income (loss) from continuing operations

(16,275

) 1,854 (31,390 ) 7,187 258,263 265,450

Income (loss) from discontinued operations, net of tax

 

(1,553

)   (2,495 )   (3,117 )   (2,248 )   (1,976 )   (4,224 )
 
Net income (loss) $

(17,828

) $ (641 ) $ (34,507 ) $ 4,939   $ 256,287   $ 261,226  
 
                       

Net Revenues by Segment ($ in 000’s)

 
Three months ended Twelve months ended
Successor Successor Predecessor Non-GAAP
twelve months nine months three months twelve months
Successor Successor ended ended ended ended
March 31, March 31, March 31, March 31, June 30, March 31,
2014 2013 2014 2013 2012 2013
College Stores $ 86,305 $ 96,755 $ 275,610 $ 266,698 $ 38,178 $ 304,876
Textbooks 22,824 23,359 127,960 111,786 25,885 137,671
Complementary Services 4,330 5,699 19,263 18,420 4,984 23,404
Intercompany eliminations   2,555   720   (22,361 )   (22,561 )   (6,812 )   (29,373 )
Total net revenues $ 116,013 $ 126,532 $ 400,472   $ 374,343   $ 62,235   $ 436,578  
 
                       

Gross Profit by Segment ($ in 000’s)

 
Three months ended Twelve months ended
Successor Successor Predecessor Non-GAAP
twelve months nine months three months twelve months
Successor Successor ended ended ended ended
March 31, March 31, March 31, March 31, June 30, March 31,
2014 2013 2014 2013 2012 2013
College Stores $ 22,396 $ 34,216 $ 90,540 $ 93,060 $ 13,666 $ 106,726
Textbooks 6,488 10,666 53,694 56,272 9,055 65,327
Complementary Services 1,895 2,869 9,237 8,997 2,513 11,510
Intercompany eliminations   5,022   5,813   614   1,976   (2,098 )   (122 )
Total gross profit $ 35,802 $ 53,564 $ 154,085 $ 160,305 $ 23,136   $ 183,441  
 
                       

EBITDA and Adjusted EBITDA ($ in 000’s)

 
Three months ended Twelve months ended
Successor Successor Predecessor Non-GAAP
twelve months nine months three months twelve months
Successor Successor ended ended ended ended
March 31, March 31, March 31, March 31, June 30, March 31,
2014 2013 2014 2013 2012 2013

EBITDA

Net income (loss) $

(17,828

) $ (641 ) $ (34,507 ) $ 4,939 $ 256,287 $ 261,226
Interest expense, net 5,298 6,310 39,666 21,981 8,336 30,317
Provision (benefit) for income taxes

6,333

436 (3,097 ) 4,279 4,279
Depreciation 1,562 1,790 6,480 5,132 1,461 6,593
Amortization   2,267     1,624     8,846     6,115     2,033     8,148  
 
EBITDA  

(2,368

)   9,519     17,388     42,446     268,117     310,563  
 

Adjusted EBITDA

EBITDA

(2,368

) 9,519 17,388 42,446 268,117 310,563
Reorganization professional fees (2,910 ) (4,218 ) 13,382 9,164

Gain on settlement of liabilities subject to compromise

(288,848 ) (288,848 )
Fresh start adjustments (1,318 ) (10,511 ) (10,511 )
Discontinued operations

1,553

2,495 3,117 2,248 1,976 4,224
Severance and voluntary costs 283 76 1,012 322 230 552
Site closures, settlements and other costs 118 166 533 699
Share-based compensation 58 111 235 111 8 119
Other miscellaneous one-time costs   3,640     5,467     9,126     10,225     2,257     12,482  
 
Adjusted EBITDA $ 3,166   $ 13,558   $ 30,878   $ 40,789   $ (2,345 ) $ 38,444  
 
                       

The following table provides Adjusted EBITDA on a segment basis ($ in 000’s)

 
Three months ended Twelve months ended
Successor Successor Predecessor Non-GAAP
twelve months nine months three months twelve months
Successor Successor ended ended ended ended
March 31, March 31, March 31, March 31, June 30, March 31,
2014 2013 2014 2013 2012 2013
College Stores $ 247 $ 7,976 $ 10,088 $ 13,360 $ (2,397 ) $ 10,963
Textbooks 1,303 2,676 34,394 33,369 4,294 37,663
Complementary Services (125 ) 296 (345 ) 533 (102 ) 431
Corporate Administration (3,375 ) (3,234 ) (13,273 ) (9,674 ) (2,536 ) (12,210 )
Intercompany Eliminations   5,116     5,844     14     3,201     (1,604 )   1,597  
Total adjusted EBITDA $ 3,166   $ 13,558   $ 30,878   $ 40,789   $ (2,345 ) $ 38,444  
 

Non-GAAP Financial Information
The common definition of EBITDA is “Earnings before Interest, Taxes, Depreciation and Amortization.” In evaluating financial performance, the Company uses Adjusted EBITDA to evaluate, assess and benchmark its operational results. The Company’s definition of Adjusted EBITDA is EBITDA plus adjustments to exclude the effects of certain items of revenue or gain and expense or loss.

EBITDA and Adjusted EBITDA are not measures of financial performance under generally accepted accounting principles (“GAAP”). They should not be considered in isolation or as a substitute for net income (loss) in accordance with GAAP. EBITDA and Adjusted EBITDA exclude components that are significant in understanding and assessing our results of operations and cash flows. In addition, the Company’s measure of Adjusted EBITDA, as presented in this press release, may not be comparable to similarly titled measures used by other companies.

However, EBITDA and Adjusted EBITDA are presented, as management believes the measures are relevant and useful information widely used by analysts, investors and other interested parties in our industry. The Company understands certain investors use them to measure the Company’s operating performance. Accordingly, management is disclosing this information to permit a more comprehensive analysis of the Company’s operating performance and to provide an additional measure of performance. EBITDA and Adjusted EBITDA financial information are reconciled to net income (loss).

Contacts

Neebo, Inc.
Media Relations:
Cassie Grenemeier, 402-730-0500
cgrenemeier@neebo.com

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Contacts

Neebo, Inc.
Media Relations:
Cassie Grenemeier, 402-730-0500
cgrenemeier@neebo.com