SOURCE: Varsity Group Inc.

November 14, 2007 16:15 ET

Varsity Group Inc. Reports Third Quarter Results

FAIRFAX, VA--(Marketwire - November 14, 2007) - Varsity Group Inc. (NASDAQ: VSTY) today reported financial results for the third quarter of 2007. Net revenue decreased 17.2%, or $8.1 million, to $39.1 million for the three months ended September 30, 2007. This revenue decrease included a decrease of $6.2 million for the book operations and a decrease of $1.3 million from the uniform business. Pre-tax income was $3.2 million, a 32.6% increase from the pre-tax income of $2.4 million recorded for the third quarter of 2006. Net income was $3.2 million, or $0.17 per diluted share, for the three months ending September 30, 2007, compared to a net loss of $15.6 million, or $(0.86) per diluted share, for the three months ending September 30, 2006.

Non-GAAP operating income in the third quarter of 2007 increased 23.8% to $3.7 million, compared with $3.0 million in the same period last year. Non-GAAP operating figures exclude depreciation and amortization expense, interest income and expense, income taxes, and SFAS 123(R) stock-based compensation expense.

Varsity Group Chief Financial Officer, President and CEO Jim Craig commented, "While we are disappointed in our third quarter revenue performance, we believe strides made during 2007 to improve the customer experience while reducing costs will contribute significantly to future performance."

This press release includes certain non-GAAP financial measures that involve adjustments to GAAP figures. Varsity Group believes that these non-GAAP financial measures, when considered together with the GAAP figures, can enhance an overall understanding of Varsity Group's past performance. These non-GAAP financial measures are not intended to be considered in isolation or as a substitute for GAAP figures. A reconciliation of the non-GAAP to GAAP figures follows this press release.

ABOUT VARSITY GROUP INC.

Varsity Group Inc. is an outsource solution provider to education institutions nationwide. Under the brands Varsity Books and Campus Outfitters, Varsity provides solutions that enable schools to focus on their core educational mission. Varsity Group's solutions include online textbook, school supply and full-service school uniform services.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Varsity Group's business that are not historical facts are "Forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

                            VARSITY GROUP INC.
        CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
                  (in thousands, except per share data)


                                 Three Months Ended     Nine Months Ended
                                    September 30,         September 30,
                                --------------------  --------------------
                                  2007       2006       2007       2006
                                ---------  ---------  ---------  ---------
Net sales:
   Textbooks                    $  32,377  $  38,564  $  34,261  $  40,721
   Uniforms                         3,825      5,131      5,048      6,740
   Solutions                           --        126         --        217
   Shipping                         2,856      3,344      3,119      3,659
                                ---------  ---------  ---------  ---------
      Total net sales              39,058     47,165     42,428     51,337
                                ---------  ---------  ---------  ---------

Operating expenses:
   Cost of textbooks               21,730     25,998     22,827     27,506
   Cost of uniforms                 2,015      3,004      2,696      3,736
   Cost of solutions                   --         68         --        104
   Cost of shipping                 2,888      3,294      3,235      3,675
   Sales and marketing              6,517      9,064     10,035     12,617
   General and administrative       2,602      3,282      6,362      7,373
   Amortization of acquired
    intangibles                        --         66         --        163
                                ---------  ---------  ---------  ---------
      Total operating expenses     35,752     44,776     45,155     55,174
                                ---------  ---------  ---------  ---------

Income (loss) from operations       3,306      2,389     (2,727)    (3,837)
                                ---------  ---------  ---------  ---------

Other (expense) income, net:
   Interest (expense) income,
    net                               (34)        48        (80)       265
   Other (expense), net               (51)        (8)       (90)        (7)
                                ---------  ---------  ---------  ---------
   Other (expense), income, net       (85)        40       (170)       258
                                ---------  ---------  ---------  ---------

Income (loss) before income
 taxes                              3,221      2,429     (2,897)    (3,579)

Income tax expense                     (1)   (18,031)       (16)   (15,574)
                                ---------  ---------  ---------  ---------

Net income (loss)               $   3,220  $ (15,602) $  (2,913) $ (19,153)
                                =========  =========  =========  =========

Net income (loss) per share:
   Basic                        $    0.17  $   (0.86) $   (0.16) $   (1.09)
                                =========  =========  =========  =========
   Diluted                      $    0.17  $   (0.86) $   (0.16) $   (1.09)
                                =========  =========  =========  =========

Weighted average shares:
   Basic                           18,961     18,254     18,682     17,646
                                =========  =========  =========  =========
   Diluted                         19,001     18,254     18,682     17,646
                                =========  =========  =========  =========





                            VARSITY GROUP INC.
            CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                              (in thousands)


                                              September 30,  December 31,
                                                  2007           2006
                                              -------------  -------------
ASSETS
Current Assets:
   Cash and cash equivalents                  $          70  $         436
   Restricted cash                                    2,050             --
   Short-term investments                                --          2,498
   Accounts receivable, net                           3,243          1,673
   Inventory                                          8,550          8,636
   Other                                              3,451          2,532
                                              -------------  -------------
      Total current assets                           17,364         15,775

Property, plant and equipment, net                      697          1,156
Software developed for internal use, net              2,326          2,090
Intangible assets, net of amortization                    5              8
Goodwill                                                511            511
Long-term investments                                    --          3,949
Other assets                                            209            159
                                              -------------  -------------
      Total assets                            $      21,112  $      23,648
                                              =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
   Accounts payable                           $       4,329  $       2,384
   Line of credit                                     2,172             --
   Margin loan                                           --          4,205
   Other accrued expenses and other current
    liabilities                                       2,209          2,654
   Taxes payable                                        480             56
                                              -------------  -------------
      Total current liabilities                       9,190          9,299
Long-term liabilities:
   Other non-current liabilities                        190            157
                                              -------------  -------------
      Total liabilities                               9,380          9,456
                                              -------------  -------------

Commitments and contingencies
Stockholders' equity:
   Preferred stock                                       --             --
   Common stock                                           2              2
   Additional paid-in capital                        91,171         90,721
   Accumulated unrealized loss on securities             --             (2)
   Accumulated deficit                              (77,708)       (74,796)
   Treasury stock                                    (1,733)        (1,733)
                                              -------------  -------------
   Total stockholders' equity                        11,732         14,192
                                              -------------  -------------
   Total liabilities and stockholders' equity $      21,112  $      23,648
                                              =============  =============





                            VARSITY GROUP INC.
        RECONCILIATION OF GAAP NET LOSS TO NON-GAAP OPERATING LOSS
                              (in thousands)


                                    Three months ended  Nine months ended
                                      September 30,       September 30,
                                      2007      2006      2007      2006
                                    --------- --------  --------  --------
     Net income (loss), as reported     3,220  (15,602)   (2,913)  (19,153)
                                    --------- --------  --------  --------
Adjustments:
   Depreciation and Amortization          298      416       831       934
   Interest expense (income)               34      (48)       79      (265)
   Income taxes (benefit)                   1   18,031        17    15,574
   SFAS 123(R) stock-based
    compensation                          135      182       327       379
                                    --------- --------  --------  --------
   Total Non-GAAP adjustments             468   18,581     1,254    16,622
                                    --------- --------  --------  --------
Non-GAAP operating loss (a)             3,688    2,979    (1,659)   (2,531)
                                    --------- --------  --------  --------

(a) Non-GAAP operating loss for this financial presentation represents net
    loss from continuing operations for the respective periods excluding
    depreciation and amortization expense, interest expense (income),
    income taxes (benefit) and SFAS 123(R) stock-based compensation.

    Management believes these non-GAAP financial measures, when considered
    together with the GAAP figures, can enhance an overall understanding of
    Varsity Group’s past performance.   These non-GAAP financial measures
    are not intended to be considered in isolation or as a substitute for
    GAAP figures.

Contact Information

  • Contact:
    Jim Craig
    Chief Financial Officer
    President and CEO
    Email Contact
    202-349-1231