Bluestem Group Inc. Announces Unaudited Consolidated Second Quarter Results

EDEN PRAIRIE, Minn.--()--Bluestem Group Inc. ("Bluestem Group" or the "Company")(OTCMKTS: BGRP) today reported unaudited consolidated financial results that include its wholly-owned subsidiary, Bluestem Brands, Inc. and its subsidiaries (“Bluestem”), for the 13- and 26-weeks ended August 4, 2017 and July 29, 2016. We refer to the 13-week periods in this release as the "second quarter". Bluestem is a multi-brand, online retailer of a broad selection of name-brand and private label general merchandise serving the boomer and senior demographic, generally considered age 50 and over, and low- to middle-income consumers across all age demographics.

Second Quarter Fiscal 2017 Highlights

  • Bluestem Group cash and cash equivalents as of the end of second quarter 2017 were $129.1 million
  • Bluestem Brands net sales for the second quarter of fiscal 2017 were $438.9 million, a 6.2% decrease compared to the second quarter of fiscal 2016
  • Bluestem Brands net sales for the second quarter of fiscal 2017, excluding business that have been or are being exited, were $431.0 million, a 2.5% decrease compared to the second quarter of fiscal 2016
  • Bluestem Brands lender net liquidity was $66.3 million as of the end of the second quarter compared to a covenant requirement of $40.0 million
  • Bluestem Brands merchandise inventories as of the end of the second quarter 2017 were $183.1 million a 27.8% decrease from $253.8 million as of the end of second quarter 2016

I am pleased with our second quarter performance. We continued to make progress on our turnaround plan, including identifying additional cost savings, stabilization of our credit portfolio, higher quality new customers within the Northstar portfolio, improving inventory productivity, and identifying initiatives to generate additional sales within the Orchard portfolio. Despite tightening our credit risk underwriting for our Northstar portfolio and a substantial reduction in inventory levels we were able to produce essentially flat sales in a tough environment, providing comfort that we are on the right track but recognizing that sustained diligence is required to successfully execute our turnaround plan. Our overall performance allowed us to end the quarter comfortably within our covenant requirements. As we begin the third quarter I am encouraged by our performance and expect continued progress on all of our initiatives as well as operating within our covenant requirements,” said Steve Nave, Bluestem Group’s President and Chief Executive Officer.

Second Quarter Fiscal 2017 Bluestem Group Consolidated Statistics

             
unaudited in millions (except loss per share) Q2 2017 Q2 2016
Bluestem Group net loss $ (14.3 ) $ (11.3 )
Bluestem Group basic and diluted loss per share $ (0.11 ) $ (0.09 )
Bluestem Group Adjusted EBITDA $ 18.6 $ 25.8
Bluestem Group cash and cash equivalents* $ 129.1 $ 178.5

*Q2 2017 includes impact of $80.2 million dividend paid in Q1 2017

Second Quarter Fiscal 2017 Bluestem Brands Stand-Alone Statistics

               
unaudited in millions Q2 2017 Q2 2016
Bluestem Brands net sales $ 438.9 $ 468.1
Bluestem Brands net loss $ (6.8 ) $ (7.5 )
Bluestem Brands Adjusted EBITDA $ 21.1 $ 27.7
 
Northstar Portfolio net sales $ 221.1 $ 222.7
Orchard Portfolio net sales $ 204.9 $ 226.5
Northstar portfolio active accounts 1.5 1.6
Orchard Portfolio gross active customers 7.7 7.7
Northstar Portfolio revolving credit portfolio:
30+ day delinquency rate 18.2 % 17.7 %
Net principal charge-off rate 21.7 % 19.9 %
 

All financial information included in this release is unaudited. Information for Bluestem Group is presented on a consolidated basis. Consolidated information for Bluestem Group’s wholly-owned subsidiary, Bluestem Brands, Inc., is also presented on a stand-alone basis.

Adjusted EBITDA is defined in the accompanying financial information of Bluestem Group and Bluestem Brands. Please see “Bluestem Group Inc. and Bluestem Brands, Inc. Financial Information-Overview and Basis of Presentation” below and accompanying disclosures for a more detailed explanation of the foregoing matters, reconciliations to results reported under GAAP and other important information for investors to consider.

Earnings Teleconference Information
The Company will host a conference call at 9:00AM ET on Wednesday, September 13, 2017. The conference call can be accessed at (888) 715-1387 or (719) 325-4842 (International), conference ID # 4402710 and will be broadcast simultaneously at http://www.bluestem.com/investor-relations. Following completion of the call, a recorded replay of the webcast will be available on Bluestem’s website. To listen to the telephone replay, call toll-free (844) 512-2921 or (412) 317-6671 (International), replay pin # 4402710. The telephone replay will be available at 12:00PM ET September 13, 2017. Additional investor information can be accessed at http://www.bluestem.com/investor-relations.

About Bluestem Group
Bluestem Group Inc. is a holding company whose businesses include Bluestem Brands, a national, multi-brand, online retailer of a broad selection of name-brand and private label general merchandise serving the boomer and senior demographic, generally considered age 50 and over, and low- to middle-income consumers over all age demographics through 14 retail brands that include: Appleseed’s, Bedford Fair, Blair, Draper’s & Damon’s, Fingerhut, Gettington, Gold Violin, Haband, LinenSource (currently in the process of exiting), Norm Thompson, Old Pueblo Traders, Sahalie, Tog Shop and Wintersilks. Complementing each brand is a large selection of merchandise with payment options that provide customers with the flexibility of paying over time. Bluestem Group is headquartered in Eden Prairie, MN. For additional information visit the Bluestem Group website at www.bluestem.com.

Forward Looking Statements
This release contains statements that are “forward-looking statements”. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. All statements contained herein that are not clearly historical in nature are forward-looking. In some cases, you can identify these statements by use of forward-looking words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “intend,” “could” or similar expressions. In particular, statements regarding Bluestem Group’s plans, strategies, prospects and expectations regarding its business are forward-looking statements. You should be aware that these statements and any other forward-looking statements in this document only reflect Bluestem Group’s beliefs, assumptions and expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Many of these risks, uncertainties and assumptions are beyond Bluestem Group’s control and may cause actual results and performance to differ materially from Bluestem Group’s expectations. Forward-looking statements are based on Bluestem Group’s beliefs, assumptions and expectations of its future performance and actions, taking into account all information currently available to Bluestem Group. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to Bluestem Group or are within its control. If a change occurs, Bluestem Group’s plans, business, financial condition, and liquidity may vary materially from those expressed in its forward-looking statements. Important factors that could cause the actual results to be materially different from Bluestem Group’s expectations include the risks and uncertainties set forth in “Risk Factors” in Bluestem Group’s Report as of and for the fiscal years ended February 3, 2017 and January 29, 2016.

Accordingly, you should not place undue reliance on the forward-looking statements contained in this release. These forward-looking statements are made only as of the date of this release. Bluestem Group undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

BLUESTEM GROUP INC.
BLUESTEM BRANDS, INC.
FINANCIAL INFORMATION
13- and 26-weeks ended August 4, 2017 and July 29, 2016

Overview and Basis of Presentation
As used in this release:

  • “Bluestem Group,” “we,” “us,” “our,” or “the Company” refers to Bluestem Group Inc. with its consolidated subsidiaries
  • “BGI Holding Company” refers to the Bluestem Group Inc. legal entity, excluding its subsidiaries
  • “Bluestem” refers to Bluestem Brands, Inc., an indirect subsidiary of Bluestem Group Inc., which consists of the Northstar Portfolio of retail brands, the Orchard Portfolio of retail brands and PayCheck Direct (which was exited in the first quarter of fiscal 2017 and currently is winding down)
  • "Northstar Portfolio” refers to the consolidated Fingerhut and Gettington retail brands
  • “Orchard Portfolio” refers to the consolidated Appleseed’s, Bedford Fair, Blair, Draper’s & Damon’s, Gold Violin, Haband, LinenSource (currently in the process of exiting), Norm Thompson, Old Pueblo Traders, Sahalie, Solutions (which was exited in the fourth quarter of fiscal 2016), Tog Shop, and WinterSilks retail brands
  • “Capmark Portfolio” refers to the commercial real estate finance operations of Bluestem Group Inc.

The accompanying financial information for Bluestem Group Inc. is presented on a consolidated basis, including Bluestem Brands, Inc. and its consolidated subsidiaries. The accompanying financial information for Bluestem Group’s wholly-owned subsidiary, Bluestem, is also presented on a stand-alone basis. All financial information included in this release is unaudited.

The Company reviews and presents the consolidated business results based on the organizational structure management uses to evaluate performance and make decisions on allocating resources and assessing performance. Beginning in fiscal 2017, the consolidated business results are presented in three categories: Northstar Portfolio, Orchard Portfolio, and Corporate and other.

Financial Information
To supplement the historical financial data derived from Bluestem Group’s and Bluestem’s consolidated financial statements, which are prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), this release uses adjusted EBITDA as a non-GAAP performance measure. In addition, Bluestem’s stand-alone consolidated financial statements includes contribution margin, adjusted general and administrative expenses, free cash flow, program agreement adjusted EBITDA, lender adjusted EBITDA, leverage ratio debt, program agreement leverage ratio, lender leverage ratio, working capital, adjusted working capital, program agreement net liquidity and lender net liquidity as non-GAAP performance measures. These measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP. Please see the accompanying report on Bluestem Group’s and Bluestem’s results for further important information concerning these measures.

 

BLUESTEM GROUP INC.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited - in thousands, except shares and per share amounts)

     
13-Weeks Ended 26-Weeks Ended
August 4, 2017   July 29, 2016 August 4, 2017   July 29, 2016
Net sales and revenue
Net sales $ 438,893 $ 468,102 $ 866,515 $ 896,618
Commercial real estate revenue, net (298 ) 57   1,407   595  
Total net sales and revenue 438,595   468,159   867,922   897,213  
Costs and expenses
Cost of goods sold 228,708 242,361 452,527 457,078
Sales and marketing expenses 113,399 131,208 236,444 264,207
Net credit expense 29,487 18,644 59,423 35,821
General and administrative expenses 55,511 53,896 121,845 120,844
Amortization and depreciation not included in cost of goods sold 13,913 18,257 29,326 34,491
Loss on impairment 430 230 430
Gain on derivatives in our own equity       (548 )
Total costs and expenses 441,018 464,796 899,795 912,323
 
Operating (loss) income (2,423 ) 3,363 (31,873 ) (15,110 )
 
Interest expense, net 12,751   13,682   25,616   27,205  
Loss before income taxes (15,174 ) (10,319 ) (57,489 ) (42,315 )
Income tax (benefit) expense (831 ) 967   (124 ) 2,728  
Net loss $ (14,343 ) $ (11,286 ) $ (57,365 ) $ (45,043 )
 
Other comprehensive loss
Unrealized loss on interest rate swap, net of tax (558 ) (423 ) (793 ) (756 )
Net change in unrealized gains/losses on investments securities, net of tax       (231 )
Comprehensive loss $ (14,901 ) $ (11,709 ) $ (58,158 ) $ (46,030 )
 
Basic and diluted loss per share - common stockholders
Basic and diluted loss per share $ (0.11 ) $ (0.09 ) $ (0.43 ) $ (0.34 )
Basic and diluted weighted average shares outstanding 132,179,980 131,956,673 132,108,129 133,747,141
 
 

BLUESTEM GROUP INC.
Condensed Consolidated Balance Sheets
(unaudited - in thousands)

     
August 4, 2017 February 3, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 129,064 $ 212,942
Restricted cash 16,891 15,797
Customer accounts receivable, net of allowance of $12,404 and $17,041 23,524 50,053
Merchandise inventories 183,103 229,970
Promotional material inventories 44,040 49,730
Other current assets 30,054   39,135  
Total current assets 426,676 597,627
Property and equipment, net 114,957 130,065
Intangibles, net 199,904 208,563
Goodwill 202,556 202,556
Other assets 9,641   41,926  
Total Assets $ 953,734   $ 1,180,737  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 157,395 $ 221,539
Accrued costs and other liabilities 75,500 154,095
Short-term debt 54,559   47,500  
Total current liabilities 287,454 423,134
Long-term debt 432,950 468,924
Deferred income taxes 37,796 37,474
Other long-term liabilities 37,126   37,470  
Total liabilities 795,326   967,002  
 
Stockholders' Equity:
Series A participating convertible preferred stock 5,000 5,000
Common stock 1,323 1,323
Treasury stock (131 ) (131 )
Additional paid-in capital 292,767 289,789
Retained earnings (140,379 ) (82,867 )
Accumulated other comprehensive (loss) income, net of tax (172 ) 621  
Total stockholders’ equity 158,408   213,735  
Total Liabilities and Stockholders' Equity $ 953,734   $ 1,180,737  
 
 

BLUESTEM GROUP INC.
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)

   
26-Weeks Ended
August 4, 2017   July 29, 2016
Operating Activities
Net loss $ (57,365 ) $ (45,043 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation expense 31,878 36,804
Loss on impairment 230 430
Provision for doubtful accounts 38,631 13,257
Provision for deferred income taxes 322 332
Loss on servicing right 590
Net gains on loans held for sale, investment securities and other (626 ) (127 )
Stock-based compensation expense 2,612 2,801
Other, net 1,433 2,447
Net change in assets and liabilities:
Customer account receivables 19,032 (2,244 )
Merchandise inventories 46,867 9,814
Promotional material inventories 5,690 (3,239 )
Other assets 10,434 5,120
Accounts payable and other liabilities (62,198 ) (16,986 )
Payments from loans held for sale   1,120  
Net cash provided by operating activities 37,530 4,486
 
Investing Activities
Purchases of customer accounts receivable (432,691 ) (432,625 )
Proceeds from sale of customer accounts receivable 401,558 432,690
Net purchases of property and equipment (8,885 ) (27,914 )
Distributions from equity investments 8,215 8,181
Net (increase) decrease in restricted cash (1,093 ) 483
Other (13 )  
Net cash used in investing activities (32,909 ) (19,185 )
 
Financing Activities
Repayments of debt (14,401 ) (15,137 )
Borrowings on asset backed line of credit 210,246 471,751
Repayments on asset backed line of credit (204,219 ) (436,842 )
Payments for the repurchase of common stock (12,554 )
Payment of dividends (80,201 )  
Net cash (used in) provided by financing activities (88,575 ) 7,218
 
Effect of Foreign Exchange Rates on Cash 76   38  
 
Net Decrease in Cash and Cash Equivalents (83,878 ) (7,443 )
Cash and Cash Equivalents, Beginning of Period 212,942   185,944  
Cash and Cash Equivalents, End of Period $ 129,064   $ 178,501  
 

BLUESTEM GROUP INC.
Non-GAAP Financial Measure
(unaudited - in thousands)

To supplement the consolidated financial statements of Bluestem Group Inc. and its subsidiaries, which are presented in accordance with GAAP, we use the following measure that is not in accordance with, or an alternative to, measures prepared in accordance with GAAP ("non-GAAP measure"):

Adjusted EBITDA, as presented, represents net loss attributable to Bluestem Group Inc. before income tax (benefit) expense, interest expense, amortization and depreciation expense, loss on impairment, (gain) loss on servicing right, stock-based compensation expense, gain on derivatives in our own equity, integration costs, restructuring costs, Orchard Portfolio segmentation and positioning research and other.

We provide this measure because we believe it is useful to investors in evaluating our operating performance compared to other companies in our industry. As a non-GAAP measure, it has limitations in that it does not reflect all of the amounts associated with Bluestem Group Inc.'s results of operations as determined in accordance with GAAP and is not based on any comprehensive set of accounting rules or principles. This non-GAAP measure should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP. In addition, our calculation of Adjusted EBITDA may not be comparable to the calculation of such measure by other companies.

The following table reconciles Adjusted EBITDA from the nearest GAAP performance measure, which is net loss:

     
13-Weeks Ended   26-Weeks Ended
August 4, 2017   July 29, 2016 August 4, 2017   July 29, 2016
Adjusted EBITDA:
Net loss $ (14,343 ) $ (11,286 ) $ (57,365 ) $ (45,043 )
Income tax (benefit) expense (831 ) 967 (124 ) 2,728
Interest expense 12,752 13,683 25,617 27,206
Amortization and depreciation expense 15,077 19,379 31,878 36,697
Loss on impairment 430 230 430
(Gain) loss on servicing right (660 ) 590
Stock-based compensation expense 1,266 1,403 2,612 2,603
Gain on derivatives in our own equity (548 )
Integration costs 1,197 3,266
Restructuring costs 1,750 15,892
Orchard Portfolio segmentation and positioning research 2,502 2,864
Other 1,055     2,670    
Adjusted EBITDA $ 18,568   $ 25,773   $ 24,864   $ 27,339  
 
 

BLUESTEM BRANDS, INC.
Condensed Consolidated Statements of Loss and Selected Operating Data
(unaudited - in thousands)

     
13-Weeks Ended
August 4, 2017   July 29, 2016 Change (a)
Net sales $ 438,893 $ 468,102 (6.2 )%
Cost of goods sold 228,708   242,361   (5.6 )%
Gross profit 210,185 225,741 (6.9 )%
Sales and marketing expenses 113,399 131,208 (13.6 )%
Net credit expense 28,399 18,644 52.3 %
General and administrative expenses 54,314 52,430 3.6 %
Amortization and depreciation not included in cost of goods sold (b) 13,913 18,257 (23.8 )%
Loss on impairment 430 n/m
Interest expense, net (c) 12,751   13,682   (6.8 )%
Loss before income taxes (12,591 ) (8,910 ) 41.3 %
Income tax benefit (5,822 ) (1,439 ) 304.6 %
Net loss $ (6,769 ) $ (7,471 ) (9.4 )%
 
Margins and Expenses as a Percentage of Net Sales:
Gross profit 47.9 % 48.2 % (30 ) bps
Sales and marketing expenses 25.8 % 28.0 % (220 ) bps
Net credit expense 6.5 % 4.0 % 250 bps
Contribution margin (d) $ 68,387 $ 75,889 (9.9 )%
As a percentage of net sales 15.6 % 16.2 % (60 ) bps
Adjusted general and administrative expenses (d) $ 47,893 $ 49,453 (3.2 )%
As a percentage of net sales 10.9 % 10.6 % 30 bps
Adjusted EBITDA (d) $ 21,071 $ 27,686 (23.9 )%
As a percentage of net sales 4.8 % 5.9 % (110 ) bps
 
Selected Financial Data:
Lender net liquidity (d) $ 66,253 $ 81,372 (18.6 )%
Availability on inventory line of credit $ 62,409 $ 77,924 (19.9 )%
Free cash flow (d) $ 19,126 $ 23,176 (17.5 )%
Lender leverage ratio (d) 3.84 3.42 12.3 %
Lender leverage ratio requirement 4.50 4.75
Program agreement leverage ratio (d) 4.21 3.42 23.1 %
Program agreement leverage ratio requirement 5.00 5.00
 
Selected Operating Data:
Northstar Portfolio revolving new customer credit accounts (e) 108 131 (17.6 )%
Fingerhut FreshStart new customer credit accounts (e) 42 45 (6.7 )%
Orchard Portfolio new gross customers (f) 457 549 (16.8 )%
Northstar Portfolio active accounts (g) 1,546 1,645 (6.0 )%
Orchard Portfolio gross active customers (h) 7,710 7,718 (0.1 )%
 

(a) Changes in rates are presented as the basis point ("bps") increase (decrease) from the prior period.
(b) Consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense related to software and office equipment. Owned fulfillment facilities and equipment depreciation is included in cost of goods sold.
(c) Interest expense is net of interest income.
(d) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(e) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates initially included in FreshStart new customer credit accounts when their initial order was made.
(f) Individual customers who have made a first time purchase from a particular brand within the Orchard Portfolio during the period presented. Unique new customers, representing unique individuals who have made a first time purchase from the Orchard Portfolio during the 13-weeks ended August 4, 2017 and July 29, 2016, were 144 thousand and 234 thousand, respectively.
(g) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.
(h) Individual customers that have made at least one purchase from a particular brand within the previous twelve fiscal months. Unique active customers, representing unique individuals who have made at least one purchase from the Orchard Portfolio during the twelve fiscal months ended August 4, 2017 and July 29, 2016, were 4.7 million and 5.0 million, respectively.

 

BLUESTEM BRANDS, INC.
Condensed Consolidated Statements of Loss and Selected Operating Data
(unaudited - in thousands)

     
26-Weeks Ended
August 4, 2017   July 29, 2016 Change (a)
Net sales $ 866,515 $ 896,618 (3.4 )%
Cost of goods sold 452,527   457,078   (1.0 )%
Gross profit 413,988 439,540 (5.8 )%
Sales and marketing expenses 236,444 264,207 (10.5 )%
Net credit expense 62,101 35,821 73.4 %
General and administrative expenses 119,349 117,390 1.7 %
Amortization and depreciation not included in cost of goods sold (b) 29,326 34,491 (15.0 )%
Loss on impairment 230 430 (46.5 )%
Interest expense, net (c) 25,616   27,205   (5.8 )%
Loss before income taxes (59,078 ) (40,004 ) 47.7 %
Income tax benefit (21,856 ) (13,362 ) 63.6 %
Net loss $ (37,222 ) $ (26,642 ) 39.7 %
 
Margins and Expenses as a Percentage of Net Sales:
Gross profit 47.8 % 49.0 % (120 ) bps
Sales and marketing expenses 27.3 % 29.5 % (220 ) bps
Net credit expense 7.2 % 4.0 % 320 bps
Contribution margin (d) $ 115,443 $ 139,512 (17.3 )%
As a percentage of net sales 13.3 % 15.6 % (230 ) bps
Adjusted general and administrative expenses (d) $ 97,557 $ 110,621 (11.8 )%
As a percentage of net sales 11.3 % 12.3 % (100 ) bps
Adjusted EBITDA (d) $ 26,850 $ 31,352 (14.4 )%
As a percentage of net sales 3.1 % 3.5 % (40 ) bps
 
Selected Financial Data:
Lender net liquidity (d) $ 66,253 $ 81,372 (18.6 )%
Availability on inventory line of credit $ 62,409 $ 77,924 (19.9 )%
Free cash flow (d) $ 23,828 $ 21,915 8.7 %
Lender leverage ratio (d) 3.84 3.42 12.3 %
Lender leverage ratio requirement 4.50 4.75
Program agreement leverage ratio (d) 4.21 3.42 23.1 %
Program agreement leverage ratio requirement 5.00 5.00
 
Selected Operating Data:
Northstar Portfolio revolving new customer credit accounts (e) 197 251 (21.5 )%
Fingerhut FreshStart new customer credit accounts (e) 96 95 1.1 %
Orchard Portfolio new gross customers (f) 1,109 1,977 (43.9 )%
Northstar Portfolio active accounts (g) 1,546 1,645 (6.0 )%
Orchard Portfolio gross active customers (h) 7,710 7,718 (0.1 )%
 

(a) Changes in rates are presented as the basis point ("bps") increase (decrease) from the prior period.
(b) Consists of amortization expense of customer relationship finite-lived intangible assets and depreciation expense related to software and office equipment. Owned fulfillment facilities and equipment depreciation is included in cost of goods sold.
(c) Interest expense is net of interest income.
(d) Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(e) Customers that have made their initial order on account during the fiscal period presented. Revolving new customer credit accounts excludes FreshStart graduates initially included in FreshStart new customer credit accounts when their initial order was made.
(f) Individual customers who have made a first time purchase from a particular brand within the Orchard Portfolio during the period presented. Unique new customers, representing unique individuals who have made a first time purchase from the Orchard Portfolio during the 26-weeks ended August 4, 2017 and July 29, 2016, were 363 thousand and 416 thousand, respectively.
(g) Revolving credit customers that have made at least one purchase on account within the previous twelve fiscal months and at least one payment on account since origination.
(h) Individual customers that have made at least one purchase from a particular brand within the previous twelve fiscal months. Unique active customers, representing unique individuals who have made at least one purchase from the Orchard Portfolio during the twelve fiscal months ended August 4, 2017 and July 29, 2016, were 4.7 million and 5.0 million, respectively.

 

BLUESTEM BRANDS, INC.
Condensed Consolidated Balance Sheets
(unaudited - in thousands)

     
August 4, 2017 February 3, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 9,698 $ 7,916
Restricted cash 16,806 15,713
Customer accounts receivable, net of allowance of $5,857 and $17,041 5,636 50,053
Merchandise inventories 183,103 229,970
Promotional material inventories 44,040 49,730
Prepaid expenses and other assets 24,882   27,896  
Total current assets 284,165 381,278
Property and equipment, net 114,957 130,065
Intangible assets, net 199,904 208,563
Goodwill 202,556 202,556
Other assets 2,022   3,514  
Total Assets $ 803,604   $ 925,976  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 157,394 $ 221,539
Current income taxes payable 17,450 34,059
Accrued costs and other liabilities 90,103 83,055
Short-term debt 54,559   47,500  
Total current liabilities 319,506 386,153
Long-term debt 432,733 445,736
Deferred income taxes 52,690 56,758
Other long-term liabilities 29,313   29,870  
Total liabilities 834,242 918,517
 
Stockholders' equity:
Common stock
Additional paid-in capital 369,602 369,602
Retained earnings (400,133 ) (362,764 )
Accumulated other comprehensive (loss) income, net of tax (107 ) 621  
Total stockholders' equity (30,638 ) 7,459  
Total Liabilities and Stockholders’ Equity $ 803,604   $ 925,976  
 
 

BLUESTEM BRANDS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)

   
26-Weeks Ended
August 4, 2017   July 29, 2016
Operating Activities
Net loss $ (37,222 ) $ (26,642 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation expense 31,878 36,804
Loss on impairment 230 430
Provision for doubtful accounts 42,417 13,257
Provision for deferred income taxes (4,068 ) (1,058 )
Loss on servicing right 590
Stock-based compensation expense 2,400 2,527
Other, net 1,202 2,732
Net change in assets and liabilities:
Customer accounts receivable 3,288 (2,498 )
Merchandise inventories 46,867 9,814
Promotional material inventories 5,690 (3,239 )
Prepaid expenses and other assets 4,233 6,310
Current income taxes payable (16,609 ) (13,544 )
Accounts payable and other liabilities (59,474 ) (18,798 )
Net cash provided by operating activities 21,422 6,095
 
Investing Activities
Purchase of customer accounts receivable (432,691 ) (432,625 )
Proceeds from sale of customer accounts receivable 431,403 432,690
Net purchase of property and equipment (8,885 ) (27,914 )
Net (increase) decrease in restricted cash (1,093 ) 483  
Net cash used in investing activities (11,266 ) (27,366 )
 
Financing Activities
Repayments of debt (14,401 ) (15,021 )
Borrowings on asset backed line of credit 210,246 471,751
Repayments on asset backed line of credit (204,219 ) (436,842 )
Net cash (used in) provided by financing activities (8,374 ) 19,888  
 
Net Increase (Decrease) in Cash and Cash Equivalents 1,782 (1,383 )
Cash and Cash Equivalents, Beginning of Period 7,916   11,870  
Cash and Cash Equivalents, End of Period $ 9,698   $ 10,487  
 
 

BLUESTEM BRANDS, INC.
Supplemental Financial Information - Segment Net Sales
(unaudited - in thousands, except average order size)

     
13-Weeks Ended
August 4, 2017   July 29, 2016 Change
$   % of Sales $   % of Sales %
Total sales by merchandise category:
Home $ 124,347 27.6 % $ 134,460 27.8 % (7.5 )%
Entertainment 88,697 19.7 % 86,846 17.9 % 2.1 %
Fashion 237,408   52.7 % 263,129   54.3 % (9.8 )%
Total merchandise sales(a) 450,452 100.0 % 484,435 100.0 % (7.0 )%
Corporate and other(b) 12,934 18,930
Returns and allowances (44,692 ) (53,613 ) (16.6 )%
Commissions and other revenues 20,199   18,350   10.1 %
Net sales $ 438,893   $ 468,102   (6.2 )%
Gross profit rate 47.9 % 48.2 % (30 ) bps
Sales and marketing expense rate 25.8 % 28.0 % (220 ) bps
Contribution margin rate(c) 15.6 % 16.2 % (60 ) bps
Average order size(d) $ 108 $ 117
 
Northstar Portfolio sales by merchandise category:
Home $ 105,453 46.2 % $ 112,104 48.0 % (5.9 )%
Entertainment 88,697 38.9 % 86,846 37.1 % 2.1 %
Fashion 34,110   14.9 % 34,728   14.9 % (1.8 )%
Total merchandise sales(a) 228,260 100.0 % 233,678 100.0 % (2.3 )%
Returns and allowances (12,214 ) (16,050 ) (23.9 )%
Commissions and other revenues 5,010   5,028   (0.4 )%
Net sales $ 221,056   $ 222,656   (0.7 )%
 
Gross profit rate 42.9 % 41.6 % 130 bps
Sales and marketing expense rate 15.5 % 18.5 % (300 ) bps
Contribution margin rate(c) 14.1 % 15.9 % (180 ) bps
Average order size(d) $ 239 $ 239
 
Orchard Portfolio sales by merchandise category:
Home $ 18,894 8.5 % $ 22,356 8.9 % (15.5 )%
Fashion 203,298   91.5 % 228,401   91.1 % (11.0 )%
Total merchandise sales(a) 222,192 100.0 % 250,757 100.0 % (11.4 )%
Returns and allowances (32,478 ) (37,563 ) (13.5 )%
Commissions and other revenues 15,189   13,322   14.0 %
Net sales $ 204,903   $ 226,516   (9.5 )%
 
Gross profit rate 52.5 % 54.5 % (200 ) bps
Sales and marketing expense rate 36.6 % 37.1 % (50 ) bps
Contribution margin rate(c) 15.9 % 17.4 % (150 ) bps
Average order size(d) $ 69 $ 77
 

(a) Total merchandise sales includes shipping and handling revenue and is net of sales discounts.
(b) Corporate and other consist of adjustments to Bluestem's net sales related to in-transit product sales from shipping point to estimated time of delivery to the customer, net sales of PayCheck Direct and the elimination of inter-segment activities.
(c) Represents contribution margin as a percentage of net sales. Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(d) Represents merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented.

 

BLUESTEM BRANDS, INC.
Supplemental Financial Information - Segment Net Sales
(unaudited - in thousands, except average order size)

     
26-Weeks Ended
August 4, 2017   July 29, 2016 Change
$   % of Sales $   % of Sales %
Total sales by merchandise category:
Home $ 230,876 25.3 % $ 248,739 26.1 % (7.2 )%
Entertainment 161,807 17.7 % 157,176 16.5 % 2.9 %
Fashion 519,305   57.0 % 546,739   57.4 % (5.0 )%
Total merchandise sales(a) 911,988 100.0 % 952,654 100.0 % (4.3 )%
Corporate and other(b) 7,708 14,991
Returns and allowances (92,381 ) (106,752 ) (13.5 )%
Commissions and other revenues 39,200   35,725   9.7 %
Net sales $ 866,515   $ 896,618   (3.4 )%
 
Gross profit rate 47.8 % 49.0 % (120 ) bps
Sales and marketing expense rate 27.3 % 29.5 % (220 ) bps
Contribution margin rate(c) 13.3 % 15.6 % (230 ) bps
Average order size(d) $ 107 $ 111
 
Northstar Portfolio sales by merchandise category:
Home $ 194,436 46.1 % $ 203,241 47.7 % (4.3 )%
Entertainment 161,807 38.3 % 157,176 37.0 % 2.9 %
Fashion 65,943   15.6 % 64,871   15.3 % 1.7 %
Total merchandise sales(a) 422,186 100.0 % 425,288 100.0 % (0.7 )%
Returns and allowances (23,380 ) (28,796 ) (18.8 )%
Commissions and other revenues 9,296   9,341   (0.5 )%
Net sales $ 408,102   $ 405,833   0.6 %
 
Gross profit rate 42.6 % 42.9 % (30 ) bps
Sales and marketing expense rate 15.4 % 19.5 % (410 ) bps
Contribution margin rate(c) 13.6 % 15.4 % (180 ) bps
Average order size(d) $ 232 $ 235
 
Orchard Portfolio sales by merchandise category:
Home $ 36,440 7.4 % $ 45,498 8.6 % (19.9 )%
Fashion 453,362   92.6 % 481,868   91.4 % (5.9 )%
Total merchandise sales(a) 489,802 100.0 % 527,366 100.0 % (7.1 )%
Returns and allowances (69,001 ) (77,956 ) (11.5 )%
Commissions and other revenues 29,904   26,384   13.3 %
Net sales $ 450,705   $ 475,794   (5.3 )%
 
Gross profit rate 52.6 % 54.8 % (220 ) bps
Sales and marketing expense rate 38.1 % 37.6 % 50 bps
Contribution margin rate(c) 14.4 % 17.2 % (280 ) bps
Average order size(d) $ 72 $ 76
 

(a) Total merchandise sales includes shipping and handling revenue and is net of sales discounts.
(b) Corporate and other consist of adjustments to Bluestem's net sales related to in-transit product sales from shipping point to estimated time of delivery to the customer, net sales of PayCheck Direct and the elimination of inter-segment activities.
(c) Represents contribution margin as a percentage of net sales. Please refer to the "Bluestem Brands, Inc. - Non-GAAP Financial Measures" within this release for a reconciliation of non-GAAP financial measures to GAAP and why Bluestem believes these are important measures of its performance.
(d) Represents merchandise sales including shipping and handling revenue divided by the number of merchandise orders fulfilled during the fiscal period presented.

 

BLUESTEM BRANDS, INC.
Supplemental Financial Information - Credit Portfolio
(unaudited - in thousands, except average balance outstanding)

   
13-Weeks Ended
August 4, 2017   July 29, 2016   Change %
Net credit expense:
Credit management costs $ 16,748 $ 18,052 (7.2 )%
Provision for doubtful accounts - company-owned customer accounts receivable 1,496 4,332 (65.5 )%
Provision for doubtful accounts - loss on sale of Northstar customer accounts receivable to SCUSA 18,983 2,846 567.0 %
Provision for doubtful accounts - loss on sale of PayCheck Direct customer accounts receivable to BGI Holding Company 20     100.0 %
Provision for doubtful accounts 20,499 7,178 185.6 %
Finance charge and fee income, net (222 ) 141 (257.4 )%
Servicing fee income and portfolio profit sharing (7,966 ) (6,727 ) 18.4 %
Gain on servicing right (660 )   n/m
Net credit expense $ 28,399   $ 18,644   52.3 %
 
Serviced Portfolio Selected Credit Data: 13-Weeks Ended
August 4, 2017
Revolving(a) FreshStart(b)
Balance active accounts 1,740 112
Average balance outstanding $ 784 $ 97
Customer accounts receivable $ 1,364,648 $ 10,803
Balances 30+ days delinquent(c) $ 248,037 $ 4,085
Balances 30+ days delinquent as a percentage of total customer accounts receivable(d) 18.2 % 37.8 %
Average customer accounts receivable $ 1,400,838 $ 12,153
Finance charge and fee income $ 89,948 $ 194
Finance charge and fee income rate(e) 25.7 % 1.2 %
Net principal charge-offs $ 75,954 $ 4,630
Net principal charge-off rate(f) 21.7 % 29.0 %
 
13-Weeks Ended
July 29, 2016
Revolving(a) FreshStart(b)
Balance active accounts 1,820 114
Average balance outstanding $ 739 $ 101
Customer accounts receivable $ 1,344,320 $ 11,615
Balances 30+ days delinquent(c) $ 237,466 $ 4,571
Balances 30+ days delinquent as a percentage of total customer accounts receivable(d) 17.7 % 39.4 %
Average customer accounts receivable $ 1,377,563 $ 13,485
Finance charge and fee income $ 93,274 $ (247 )
Finance charge and fee income rate(e) 27.1 % (1.7 )%
Net principal charge-offs $ 68,598 $ 4,991
Net principal charge-off rate(f) 19.9 % 33.5 %
 

(a) Revolving serviced portfolio includes Northstar Portfolio revolving credit accounts.
(b) FreshStart serviced portfolio is Fingerhut's installment accounts.
(c) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end.
(d) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end as a percentage of total customer accounts receivable as of the customers' statement cycle dates prior to or on fiscal period end.
(e) Revolving finance charge and fee income rate represents finance charge and fee income as a percentage of average customer accounts receivable for the 13-week periods ended August 4, 2017 and July 29, 2016, respectively, annualized to 52-week periods for comparability. FreshStart finance charge and fee income rate represents finance charge and fee income as a percentage of the 13 weeks of FreshStart related sales five months prior to the 13-week periods ended August 4, 2017 and July 29, 2016, respectively.
(f) Revolving net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 13-week periods ended August 4, 2017 and July 29, 2016, respectively, annualized to 52-week periods for comparability. FreshStart net principal charge-off rate represents net principal charge-offs as a percentage of the 13 weeks of FreshStart related sales five months prior to the 13-week periods ended August 4, 2017 and July 29, 2016, respectively.

 

BLUESTEM BRANDS, INC.
Supplemental Financial Information - Credit Portfolio
(unaudited - in thousands, except average balance outstanding)

   
26-Weeks Ended
August 4, 2017   July 29, 2016   Change %
Net credit expense:
Credit management costs $ 35,570 $ 37,601 (5.4 )%
Provision for doubtful accounts - company-owned customer accounts receivable(a) 7,436 8,126 (8.5 )%
Provision for doubtful accounts - loss on sale of Northstar customer accounts receivable to SCUSA 31,195 5,131 508.0 %
Provision for doubtful accounts - loss on sale of PayCheck Direct customer accounts receivable to BGI Holding Company 3,786     100.0 %
Provision for doubtful accounts 42,417 13,257 220.0 %
Finance charge and fee income (1,402 ) (1,427 ) (1.8 )%
Servicing fee income and portfolio profit sharing (15,074 ) (13,610 ) 10.8 %
Loss on servicing right 590     n/m
Net credit expense $ 62,101   $ 35,821   73.4 %
 
Serviced Portfolio Selected Credit Data: 26-Weeks Ended
August 4, 2017
Revolving(b) FreshStart(c)
Balance active accounts 1,740 112
Average balance outstanding $ 784 $ 97
Customer accounts receivable $ 1,364,648 $ 10,803
Balances 30+ days delinquent(d) $ 248,037 $ 4,085
Balances 30+ days delinquent as a percentage of total customer accounts receivable(e) 18.2 % 37.8 %
Average customer accounts receivable $ 1,422,387 $ 13,957
Finance charge and fee income $ 184,093 $ 1,361
Finance charge and fee income rate(f) 25.9 % 5.2 %
Net principal charge-offs $ 146,822 $ 7,381
Net principal charge-off rate(g) 20.6 % 28.1 %
 
26-Weeks Ended
July 29, 2016
Revolving(b) FreshStart(c)
Balance active accounts 1,820 114
Average balance outstanding $ 739 $ 101
Customer accounts receivable $ 1,344,320 $ 11,615
Balances 30+ days delinquent(d) $ 237,466 $ 4,571
Balances 30+ days delinquent as a percentage of total customer accounts receivable(e) 17.7 % 39.4 %
Average customer accounts receivable $ 1,392,709 $ 15,433
Finance charge and fee income $ 190,816 $ 1,255
Finance charge and fee income rate(f) 27.4 % 4.9 %
Net principal charge-offs $ 130,204 $ 7,951
Net principal charge-off rate(g) 18.7 % 31.0 %
 

(a) Includes $2.0 million additional provision due to the exit of PayCheck Direct.
(b) Revolving serviced portfolio includes Northstar Portfolio revolving credit accounts.
(c) FreshStart serviced portfolio is Fingerhut's installment accounts.
(d) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end.
(e) Delinquent balances as of the customers' statement cycle dates prior to or on fiscal period end as a percentage of total customer accounts receivable as of the customers' statement cycle dates prior to or on fiscal period end.
(f) Revolving finance charge and fee income rate represents finance charge and fee income as a percentage of average customer accounts receivable for the 26-weeks ended August 4, 2017 and July 29, 2016 annualized to 52-week periods for comparability. FreshStart finance charge and fee income rate represents finance charge and fee income as a percentage of the 52 weeks of FreshStart related sales five months prior to the 26-weeks ended August 4, 2017 and July 29, 2016.
(g) Revolving net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 26-weeks ended August 4, 2017 and July 29, 2016, respectively annualized to 52-week periods for comparability. FreshStart net principal charge-off rate represents net principal charge-offs as a percentage of the 26 weeks of FreshStart related sales five months prior to the 26-weeks ended August 4, 2017 and July 29, 2016, respectively.

BLUESTEM BRANDS, INC.
Non-GAAP Financial Measures
(unaudited - in thousands)

To supplement the consolidated financial information of Bluestem Brands, Inc. and its subsidiaries for the 13- and 26-weeks ended August 4, 2017, which are presented in accordance with GAAP, Bluestem uses the following measures that are not in accordance with, or an alternative to, measures prepared in accordance with GAAP ("non-GAAP measures"):

Contribution margin, as presented, is defined as net sales less cost of goods sold, sales and marketing expenses and net credit expense. Contribution Margin represents the combined performance of merchandising, marketing and credit management activities.

Adjusted general and administrative expenses, as presented, is defined as general and administrative expenses adjusted for stock-based compensation expense, integration costs, restructuring costs, Orchard Portfolio segmentation and positioning research and other.

Adjusted EBITDA, as presented, represents net loss before income tax benefit, interest expense, amortization and depreciation expense, loss on impairment, (gain) loss on servicing right, stock-based compensation expense, integration costs, restructuring costs, Orchard Portfolio segmentation & positioning research and other.

Free cash flow, as presented, represents Adjusted EBITDA, as defined above, less maintenance capital expenditures.

Program agreement adjusted EBITDA, as presented, represents Adjusted EBITDA, as defined above, plus adjustments allowed for under Bluestem's Program Agreement including certain transaction-related expected cost savings, certain non-cash charges, certain one-time charges and expected cost savings reflecting the projected impact of cost synergies such as savings in headcount reduction, print and paper, transportation, credit operations and marketing and other. Other includes charges such as, but not limited to or necessarily inclusive of, strategic investments, system implementations and executive recruiting.

Lender adjusted EBITDA, as presented, represents Program Agreement Adjusted EBITDA, as defined above, less designated unrestricted subsidiaries, which consists of the subsidiary making sales for our PayCheck Direct business, and incremental expected cost savings as allowed for under Bluestem's lender agreements.

Leverage ratio debt, as presented, is defined as short-term debt plus long-term debt plus deferred charges and less cash and cash equivalents.

Program agreement leverage ratio, as presented, represents Leverage Ratio Debt, as defined above, divided by Program Agreement Adjusted EBITDA, as defined above.

Lender leverage ratio, as presented, represents Leverage Ratio Debt, as defined above, divided by Lender Adjusted EBITDA, as defined above.

Working capital, as presented, is defined as total current assets less total current liabilities.

Adjusted working capital, as presented, represents working capital, as defined above, plus current income taxes payable.

Program agreement net liquidity, as presented, is defined as cash and cash equivalents less credit card receivables ("Lender cash and cash equivalents") as defined by the lender plus availability under the asset backed line of credit.

Lender net liquidity, as presented, is defined as program agreement net liquidity, as defined above, less unrestricted subsidiary cash as defined by the lender.

We provide these measures because we believe they are useful to investors in evaluating our operating performance and financial condition compared to other companies in our industry and to evaluate our financial condition and operating performance compared to term loan and program agreement financial covenants. As non-GAAP measures, they have limitations in that they do not reflect all of the amounts associated with Bluestem's results of operations as determined in accordance with GAAP and are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures should be considered along with the GAAP financial presentation and should not be considered in isolation or as a substitute for results reported in accordance with GAAP. In addition, our calculations of contribution margin, adjusted general and administrative expense, adjusted EBITDA, free cash flow, program agreement adjusted EBITDA, lender adjusted EBITDA, leverage ratio debt, program agreement leverage ratio, lender leverage ratio, working capital, adjusted working capital, and program agreement and lender net liquidity may not be comparable to the calculations of such measures by other companies.

The following table reconciles contribution margin from the nearest GAAP performance measure, which is net loss:

     
13-Weeks Ended 26-Weeks Ended
August 4, 2017   July 29, 2016 August 4, 2017   July 29, 2016
Contribution margin:
Net loss $ (6,769 ) $ (7,471 ) $ (37,222 ) $ (26,642 )
Income tax benefit (5,822 ) (1,439 ) (21,856 ) (13,362 )
Interest expense, net 12,751 13,682 25,616 27,205
Loss on impairment 430 230 430
Amortization and depreciation not included in cost of sales 13,913 18,257 29,326 34,491
General and administrative expenses 54,314   52,430   119,349   117,390  
Contribution margin $ 68,387   $ 75,889   $ 115,443   $ 139,512  
 
Contribution margin % of net sales 15.6 % 16.2 % 13.3 % 15.6 %
 

The following table reconciles adjusted general and administrative expenses from the nearest GAAP performance measure, which is general and administrative expenses:

     
13-Weeks Ended 26-Weeks Ended
August 4, 2017   July 29, 2016 August 4, 2017   July 29, 2016
Adjusted general and administrative expenses:
General and administrative expenses $ 54,314 $ 52,430 $ 119,349 $ 117,390
Less:
Stock-based compensation expense 1,166 1,247 2,400 2,527
Integration costs 1,197 3,266
Restructuring costs 1,698 13,858
Orchard Portfolio segmentation and positioning research 2,502 2,864
Other 1,055   533   2,670   976  
Adjusted general and administrative expenses $ 47,893   $ 49,453   $ 97,557   $ 110,621  
 
Adjusted general and administrative expenses % of net sales 10.9 % 10.6 % 11.3 % 12.3 %
 

The following table reconciles adjusted EBITDA from the nearest GAAP performance measure, which is net loss:

     
13-Weeks Ended 26-Weeks Ended
August 4, 2017   July 29, 2016 August 4, 2017   July 29, 2016
Adjusted EBITDA:
Net loss $ (6,769 ) $ (7,471 ) $ (37,222 ) $ (26,642 )
Income tax benefit (5,822 ) (1,439 ) (21,856 ) (13,362 )
Interest expense 12,752 13,683 25,617 27,206
Amortization and depreciation expense 15,077 19,379 31,878 36,697
Loss on impairment   430   230   430  
EBITDA 15,238 24,582 (1,353 ) 24,329
(Gain) loss on servicing right (660 ) 590
Stock-based compensation expense 1,166 1,247 2,400 2,527
Integration costs 1,197 3,266
Restructuring costs 1,770 19,679
Orchard Portfolio segmentation and positioning research 2,502 2,864
Other 1,055   660   2,670   1,230  
Adjusted EBITDA $ 21,071   $ 27,686   $ 26,850   $ 31,352  
 
Adjusted EBITDA % of net sales 4.8 % 5.9 % 3.1 % 3.5 %
 

The following table reconciles free cash flow from adjusted EBITDA:

     
13-Weeks Ended 26-Weeks Ended
August 4, 2017   July 29, 2016 August 4, 2017   July 29, 2016
Free cash flow:
Adjusted EBITDA $ 21,071 $ 27,686 $ 26,850 $ 31,352
Less:
Maintenance capital expenditures 1,945   4,510   3,022   9,437  
Free cash flow $ 19,126   $ 23,176   $ 23,828   $ 21,915  
 
Free cash flow % of net sales 4.4 % 5.0 % 2.7 % 2.4 %
 

The following table presents trailing twelve months lender adjusted EBITDA and leverage ratios:

   
Trailing Twelve Fiscal Months
August 4, 2017   July 29, 2016
Adjusted EBITDA $ 86,360 $ 134,767
Expected cost savings (a) 16,797 23,425
Non-cash charges 196 689
One-time charges 858
Other (b) 12,510   7,110  
Program agreement adjusted EBITDA 116,721   165,991  
Unrestricted subsidiary (c) 9,479
Incremental expected cost savings (a,d) 1,896    
Lender adjusted EBITDA $ 128,096   $ 165,991  
 
Leverage ratio debt:
Short-term debt
Current portion of term loan, net of discount $ 23,943 $ 24,877
Asset backed line of credit 28,757 55,095
Capital lease obligation and other 1,859   2,614  
Total short-term debt 54,559 82,586
Term loan, net of discount 431,516 475,073
Capital lease obligation 1,216   2,775  
Total long-term debt 432,732   477,848  
Total debt 487,291 560,434
Plus: Deferred charges 8,137 11,132
Less: Cash and cash equivalents (3,927 ) (3,448 )
Leverage ratio debt $ 491,501   $ 568,118  
 
Program agreement leverage ratio 4.21 3.42
Program agreement leverage ratio requirement 5.00 5.00
 
Lender leverage ratio 3.84 3.42
Lender leverage ratio requirement 4.50 4.75
 

(a) Expected cost savings reflects the projected impact of cost synergies such as, but not limited to or necessarily inclusive of the implemented headcount reductions, catalog circulation reductions and anticipated vendor savings.
(b) Other includes charges such as, but not limited to or necessarily inclusive of, strategic investment charges, system implementation charges and executive recruiting.
(c) Bluestem Enterprises, Inc. ("BEI"), a subsidiary of Bluestem, was designated as an unrestricted subsidiary under Bluestem's term loan agreement at the end of fiscal 2016, which requires BEI's results of operations to be excluded from Bluestem's consolidated adjusted EBITDA calculation per the term loan agreement.
(d) Due to the unrestricted subsidiary designation, incremental expected cost savings above Program Agreement threshold limitations are able to be included in lender adjusted EBITDA.

The following table presents adjusted working capital and net liquidity:

     
August 4, 2017 July 29, 2016
Total current assets $ 284,165 $ 404,522
Total current liabilities 319,506   380,006
Working capital $ (35,341 ) $ 24,516
Plus: Current income taxes payable (e) 17,450   21,039
Adjusted working capital $ (17,891 ) $ 45,555
 
Cash & cash equivalents $ 9,698 $ 10,487
Less: Third party credit card receivables 5,771   7,039
Lender cash & cash equivalents 3,927 3,448
Plus: Asset backed line availability 62,409   77,924
Program agreement net liquidity $ 66,336   $ 81,372
Less: Unrestricted subsidiary cash (83 )
Lender net liquidity $ 66,253   $ 81,372
 
Program agreement and lender net liquidity requirement $ 40,000 $ 40,000

(e) Current income taxes payable are substantially all inter-company liabilities among entities consolidated within Bluestem Group Inc.

Contacts

Investor Relations:
ICR
Denise Garcia
IR@bluestembrands.com

Contacts

Investor Relations:
ICR
Denise Garcia
IR@bluestembrands.com