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Bluestem Group Inc. Announces Unaudited Consolidated Third Quarter Results

EDEN PRAIRIE, Minn.--(BUSINESS WIRE)-- 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 Brands”), for the 13- and 39-weeks ended November 3, 2017 and October 28, 2016. We refer to the 13-week periods in this release as the "third 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.

Third Quarter Fiscal 2017 Highlights

  • Bluestem Group cash and cash equivalents as of the end of third quarter 2017 were $119.1 million
  • Bluestem Brands net sales for the third quarter of fiscal 2017 were $399.8 million, a 10.2% decrease compared to the third quarter of fiscal 2016
  • Bluestem Brands net sales for the third quarter of fiscal 2017, excluding business that have been or are being exited, were $398.2 million, a 5.0% decrease compared to the third quarter of fiscal 2016
  • Bluestem Brands adjusted EBITDA for the third quarter of fiscal 2017 was $11.0 million, an increase of $11.9 million compared to the third quarter of fiscal 2016
  • Bluestem Brands lender net liquidity was $70.5 million as of the end of the third quarter compared to a covenant requirement of $40.0 million
  • Bluestem Brands merchandise inventories as of the end of the third quarter 2017 were $234.9 million, a 20.1% decrease from $294.1 million as of the end of third quarter 2016

Steve Nave, Bluestem Group’s President and Chief Executive Officer stated, “I am pleased that we were able to drive a significant year-over-year increase in EBITDA in the third quarter. We drove a 320 basis points increase in contribution margin through substantial improvements in both our gross margin rate and advertising efficiencies, which were partially offset by higher provision expenses against our owned credit receivables. These improvements are a key aspect of our turnaround strategy and we expect additional benefit from ongoing initiatives in both of these areas. Actions aimed at eliminating operating costs from both portfolios and improve inventory productivity also contributed to the improved performance. While we have continued to see evidence of stabilization in our delinquency levels, credit losses remain above prior year levels. However, I remain confident that we are making the appropriate credit underwriting adjustments”. Mr. Nave continued, “Overall, we are pleased with the execution of our strategic turnaround initiatives, but recognize that we still have a lot of work in front of us before we achieve our goal of stable profitable growth.”

Third Quarter Fiscal 2017 Bluestem Group Consolidated Statistics

unaudited in millions (except loss per share) Q3 2017 Q3 2016
Bluestem Group net loss $ (16.5 ) $ (32.4 )
Bluestem Group basic and diluted loss per share $ (0.12 ) $ (0.25 )
Bluestem Group Adjusted EBITDA $ 9.7 $ (2.2 )
Bluestem Group cash and cash equivalents* $ 119.1 $ 162.3

*Q3 2017 includes impact of $80.2 million dividend paid in Q1 2017

Third Quarter Fiscal 2017 Bluestem Brands Stand-Alone Statistics

unaudited in millions Q3 2017 Q3 2016
Bluestem Brands net sales $ 399.8 $ 445.1
Bluestem Brands net loss $ (10.8 ) $ (20.9 )
Bluestem Brands Adjusted EBITDA $ 11.0 $ (0.9 )
Northstar Portfolio net sales $ 210.1 $ 218.3
Orchard Portfolio net sales $ 201.7 $ 218.7
Northstar portfolio active accounts 1.5 1.6
Orchard Portfolio gross active customers 7.5 7.6
Northstar Portfolio revolving credit portfolio:
30+ day delinquency rate 19.8 % 19.1 %
Net principal charge-off rate 21.2 % 20.2 %

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 Thursday, December 21, 2017. The conference call can be accessed at (888) 394-8218 or (323) 794-2149 (International), conference ID # 1334614 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 # 1334614. The telephone replay will be available at 12:00PM ET December 21, 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 13 retail brands that include: Appleseed’s, Bedford Fair, Blair, Draper’s & Damon’s, Fingerhut, Gettington, Gold Violin, Haband, 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 39-weeks ended November 3, 2017 and October 28, 2016

Overview and Basis of Presentation

As used in this release:

  • “Bluestem Group,” "BGI," “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 Brands" or “Bluestem” refers to Bluestem Brands, Inc., an indirect subsidiary of Bluestem Group, which consists of Northstar Portfolio, Orchard Portfolio 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 (retail stores were exited during the first quarter of fiscal 2017), Gold Violin, Haband, LinenSource (which was exited in the second quarter of fiscal 2017), 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

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, adjusted 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.
Results for the 13- and 39-Weeks Ended November 3, 2017

BLUESTEM GROUP INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited - in thousands, except shares and per share amounts)

13-Weeks Ended 39-Weeks Ended

November 3,
2017

October 28,
2016

November 3,
2017

October 28,
2016

Net sales and revenue
Net sales $ 399,798 $ 445,085 $ 1,266,314 $ 1,341,703
Commercial real estate revenue, net 1,115 163 2,522 758
Total net sales and revenue 400,913 445,248 1,268,836 1,342,461
Costs and expenses
Cost of goods sold 208,663 245,260 661,190 702,338
Sales and marketing expenses 107,192 130,095 343,636 394,302
Net credit expense 30,398 23,898 89,821 59,719
General and administrative expenses 46,274 51,910 168,119 172,755
Amortization and depreciation not included in cost of goods sold 13,471 17,347 42,797 51,838
Loss on impairment 230 430
Gain on derivatives in our own equity (548 )
Gain on debt extinguishment (2,509 ) (2,509 )
Total costs and expenses 405,998 466,001 1,305,793 1,378,325
Operating loss (5,085 )

(20,753 )

(36,957 )

(35,864 )
Interest expense, net 12,785 13,189 38,401 40,394
Loss before income taxes (17,870 )

(33,942 )

(75,358

)

(76,258 )
Income tax (benefit) expense (1,390 )

(1,509 )

(1,514

)

1,219
Net loss $ (16,480 )

$ (32,433 )

$ (73,844 )

$ (77,477 )
Other Comprehensive loss
Unrealized gain (loss) on interest rate swap, net of tax 917

246

124

(510 )
Net change in unrealized gains/losses on investments securities, net of tax 4 (227 )
Comprehensive loss $ (15,563 )

$ (32,183 )

$ (73,720 )

$ (78,214 )
Basic and diluted loss per share - common stockholders
Basic and diluted loss per share $ (0.12 )

$ (0.25 )

$ (0.56 )

$ (0.58 )
Basic and diluted weighted average shares outstanding 132,326,876 132,036,278 132,181,045 133,176,853

BLUESTEM GROUP INC.

Condensed Consolidated Balance Sheets

(unaudited - in thousands)

November 3,
2017

February 3,
2017

October 28,
2016

ASSETS
Current assets:
Cash and cash equivalents $ 119,123 $ 212,942 $ 162,293
Restricted cash 27,109 15,797 17,936
Customer accounts receivable, net of allowance of $8,176, $17,041 and $10,566 13,628 50,053 34,792
Merchandise inventories 234,856 229,970 294,111
Promotional material inventories 64,034 49,730 83,432
Other current assets 33,860 39,135 56,076
Total current assets 492,610 597,627 648,640
Property and equipment, net 110,470 130,065 134,762
Intangibles, net 195,565 208,563 432,679
Goodwill 202,556 202,556 367,481
Other assets 10,471 41,926 64,740
Total Assets $ 1,011,672 $ 1,180,737 $ 1,648,302
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 209,769 $ 221,539 $ 266,835
Accrued costs and other liabilities 84,956 154,095 107,115
Short-term debt 75,411 47,500 82,660
Total current liabilities 370,136 423,134 456,610
Long-term debt 426,615 468,924 476,019
Deferred income taxes 37,988 37,474 98,692
Other long-term liabilities 33,807 37,470 15,256
Total liabilities 868,546 967,002 1,046,577
Stockholders' Equity:
Series A participating convertible preferred stock 5,000 5,000 5,000
Common stock 1,332 1,323 1,323
Treasury stock (131 ) (131 ) (131 )
Additional paid-in capital 293,038 289,789 368,671
Retained earnings (156,858 ) (82,867 ) 227,368
Accumulated other comprehensive (loss) income, net of tax 745 621 (506 )
Total stockholders’ equity 143,126 213,735 601,725
Total Liabilities and Stockholders' Equity $ 1,011,672 $ 1,180,737 $ 1,648,302

BLUESTEM GROUP INC.

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

39-Weeks Ended

November 3,
2017

October 28,
2016

Operating Activities
Net loss $ (73,844 ) $ (77,477 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation expense 46,485 55,141
Loss on impairment 230 430
Provision for doubtful accounts 61,420 24,792
Provision for deferred income taxes 794 418
Gain on servicing right (968 )
Net gains on loans held for sale, investment securities and other (1,614 ) (122 )
Gain on debt extinguishment (2,509 )
Stock-based compensation expense 3,164 4,178
Other, net 1,737 3,446
Net change in assets and liabilities:
Customer account receivables 26,505 (14,966 )
Merchandise inventories (4,886 ) (30,532 )
Promotional material inventories (14,304 ) (30,179 )
Other assets 7,742 2,313
Accounts payable and other liabilities (233 ) 82,485
Payments from loans held for sale 1,289
Net cash provided by operating activities 52,228 18,707
Investing Activities
Purchases of customer accounts receivable (652,326 ) (666,034 )
Proceeds from sale of customer accounts receivable 600,826 666,116
Net purchases of property and equipment (14,604 ) (36,456 )
Distributions from equity investments 8,215 9,613
Net (increase) decrease in restricted cash (11,311 ) 4,633
Other (13 ) (565 )
Net cash used in investing activities (69,213 ) (22,693 )
Financing Activities
Repayments of debt (21,601 ) (22,353 )
Extinguishment of debt (18,150 )
Borrowings on asset backed line of credit 339,603 730,413
Repayments on asset backed line of credit (314,694 ) (697,049 )
Payments for the repurchase of common stock (12,554 )
Payment of dividends (80,201 )
Net cash used in by financing activities (76,893 ) (19,693 )
Effect of Foreign Exchange Rates on Cash 59 28
Net Decrease in Cash and Cash Equivalents (93,819 ) (23,651 )
Cash and Cash Equivalents, Beginning of Period 212,942 185,944
Cash and Cash Equivalents, End of Period $ 119,123 $ 162,293

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 on servicing right, stock-based compensation expense, gain on derivatives in our own equity, gain on debt extinguishment, 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 39-Weeks Ended

November 3,
2017

October 28,
2016

November 3,
2017

October 28,
2016

Adjusted EBITDA:
Net loss $ (16,480 ) $ (32,433 ) $ (73,844 ) $ (77,477 )
Income tax (benefit) expense (1,390 ) (1,509 ) (1,514 ) 1,219
Interest expense 12,787 13,189 38,404 40,395
Amortization and depreciation expense 14,607 18,444 46,485 55,141
Loss on impairment 230 430
Gain on servicing right (1,558 ) (968 )
Stock-based compensation expense 552 1,377 3,164 3,980
Gain on derivatives in our own equity (548 )
Gain on debt extinguishment (2,509 ) (2,509 )
Integration costs 655 3,921
Restructuring costs (207 ) 15,685
Orchard Portfolio segmentation and positioning research 815 3,679
Other 533 588 3,203 588
Adjusted EBITDA $ 9,659 $ (2,198 ) $ 34,524 $ 25,140

Bluestem Brands, Inc.
Results for the 13- and 39-Weeks Ended November 3, 2017

BLUESTEM BRANDS, INC.

Condensed Consolidated Statements of Loss and Selected Operating Data

(unaudited - in thousands)

13-Weeks Ended

November 3,
2017

October 28,
2016

Change (a)
Net sales $ 399,798 $ 445,085 (10.2 )%
Cost of goods sold 209,003 245,260 (14.8 )%
Gross profit 190,795 199,825 (4.5 )%
Sales and marketing expenses 107,192 130,095 (17.6 )%
Net credit expense 29,636 23,898 24.0 %
General and administrative expenses 43,832 50,539 (13.3 )%
Amortization and depreciation not included in cost of goods sold (b) 13,471 17,347 (22.3 )%
Interest expense, net (c) 12,785 13,432 (4.8 )%
Loss before income taxes (16,121 ) (35,486 ) (54.6 )%
Income tax benefit (5,318 ) (14,595 ) (63.6 )%
Net loss $ (10,803 ) $ (20,891 ) (48.3 )%
Margins and Expenses as a Percentage of Net Sales:
Gross profit 47.7 % 44.9 % 280 bps
Sales and marketing expenses 26.8 % 29.2 % (240 ) bps
Net credit expense 7.4 % 5.4 % 200 bps
Contribution margin (d) $ 53,967 $ 45,832 17.7 %
As a percentage of net sales 13.5 % 10.3 % 320 bps
Adjusted general and administrative expenses (d) $ 42,420 $ 47,976 (11.6 )%
As a percentage of net sales 10.6 % 10.8 % (20 ) bps
Adjusted EBITDA (d) $ 10,979 $ (920 ) n/m
As a percentage of net sales 2.7 % (0.2 )% 290 bps
Selected Financial Data:
Lender net liquidity (d) $ 70,476 $ 109,591 (35.7 )%
Availability on inventory line of credit $ 65,238 $ 106,195 (38.6 )%
Adjusted free cash flow (d) $ (19,163 ) $ 9,279 (306.5 )%
Lender leverage ratio (d) 3.84 4.18
Lender leverage ratio requirement 4.50 4.75
Program agreement leverage ratio (d) 4.13 4.18
Program agreement leverage ratio requirement 5.00 5.00
Selected Operating Data:
Northstar Portfolio revolving new customer credit accounts (e) 104 144 (27.8 )%
Fingerhut FreshStart new customer credit accounts (e) 46 51 (9.8 )%
Orchard Portfolio new gross customers (f) 494 594 (16.8 )%
Northstar Portfolio active accounts (g) 1,500 1,594 (5.9 )%
Orchard Portfolio gross active customers (h) 7,533 7,624 (1.2 )%

(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 November 3, 2017 and October 28, 2016, were 167 thousand and 195 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 Orchard Portfolio during 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 November 3, 2017 and October 28, 2016, were 4.6 million and 4.9 million, respectively.

BLUESTEM BRANDS, INC.

Condensed Consolidated Statements of Loss and Selected Operating Data

(unaudited - in thousands)

39-Weeks Ended

November 3,
2017

October 28,
2016

Change (a)
Net sales $ 1,266,314 $ 1,341,703 (5.6 )%
Cost of goods sold 661,530 702,338 (5.8 )%
Gross profit 604,784 639,365 (5.4 )%
Sales and marketing expenses 343,636 394,302 (12.8 )%
Net credit expense 91,737 59,719 53.6 %
General and administrative expenses 163,181 167,929 (2.8 )%
Amortization and depreciation not included in cost of goods sold (b) 42,797 51,838 (17.4 )%
Loss on impairment 230 430 (46.5 )%
Interest expense, net (c) 38,401 40,637 (5.5 )%
Loss before income taxes (75,198 ) (75,490 ) (0.4 )%
Income tax benefit (27,174 ) (27,957 ) (2.8 )%
Net loss $ (48,024 ) $ (47,533 ) 1.0 %
Margins and Expenses as a Percentage of Net Sales:
Gross profit 47.8 % 47.7 % 10 bps
Sales and marketing expenses 27.1 % 29.4 % (230 ) bps
Net credit expense 7.2 % 4.5 % 270 bps
Contribution margin (d) $ 169,411 $ 185,344 (8.6 )%
As a percentage of net sales 13.4 % 13.8 % (40 ) bps
Adjusted general and administrative expenses (d) $ 139,977 $ 158,597 (11.7 )%
As a percentage of net sales 11.1 % 11.8 % (70 ) bps
Adjusted EBITDA (d) $ 37,830 $ 30,432 24.3 %
As a percentage of net sales 3.0 % 2.3 % 70 bps
Selected Financial Data:
Lender net liquidity (d) $ 70,476 $ 109,591 (35.7 )%
Availability on inventory line of credit $ 65,238 $ 106,195 (38.6 )%
Adjusted free cash flow (d) $ (2,051 ) $ 4,031 (150.9 )%
Lender leverage ratio (d) 3.84 4.18
Lender leverage ratio requirement 4.50 4.75
Program agreement leverage ratio (d) 4.13 4.18
Program agreement leverage ratio requirement 5.00 5.00
Selected Operating Data:
Northstar Portfolio revolving new customer credit accounts (e) 302 396 (23.7 )%
Fingerhut FreshStart new customer credit accounts (e) 142 146 (2.7 )%
Orchard Portfolio new gross customers (f) 1,603 1,844 (13.1 )%
Northstar Portfolio active accounts (g) 1,500 1,594 (5.9 )%
Orchard Portfolio gross active customers (h) 7,533 7,624 (1.2 )%

(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 39-weeks ended November 3, 2017 and October 28, 2016, were 530 thousand and 611 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 Orchard Portfolio during 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 November 3, 2017 and October 28, 2016, were 4.6 million and 4.9 million, respectively.

BLUESTEM BRANDS, INC.

Condensed Consolidated Balance Sheets

(unaudited - in thousands)

November 3,
2017

February 3,
2017

October 28,
2016

ASSETS
Current assets:
Cash and cash equivalents $ 13,011 $ 7,916 $ 11,310
Restricted cash 27,024 15,713 17,852
Customer accounts receivable, net of allowance of $4,923, $17,041 and $10,566 6,619 50,053 34,792
Merchandise inventories 234,856 229,970 294,111
Promotional material inventories 64,034 49,730 83,432
Prepaid expenses and other assets 29,694 27,896 31,802
Total current assets 375,238 381,278 473,299
Property and equipment, net 93,836 130,065 134,762
Intangible assets, net 195,565 208,563 432,679
Goodwill 202,556 202,556 367,481
Other assets 2,635 3,514 3,476
Total Assets $ 869,830 $ 925,976 $ 1,411,697
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 209,769 $ 221,539 $ 266,835
Current income taxes payable 14,090 34,059 6,639
Accrued costs and other liabilities 99,362 83,055 109,316
Short-term debt 75,411 47,500 83,791
Total current liabilities 398,632 386,153 466,581
Long-term debt 426,398 445,736 471,585
Deferred income taxes 51,025 56,758 153,956
Other long-term liabilities 34,643 29,870 8,308
Total liabilities 910,698 918,517 1,100,430
Stockholders' equity:
Common stock
Additional paid-in capital 369,602 369,602 369,602
Retained earnings (410,935 ) (362,764 ) (57,825 )
Accumulated other comprehensive (loss) income, net of tax 465 621 (510 )
Total stockholders' equity (40,868 ) 7,459 311,267
Total Liabilities and Stockholders’ Equity $ 869,830 $ 925,976 $ 1,411,697

BLUESTEM BRANDS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

39-Weeks Ended

November 3,
2017

October 28,
2016

Operating Activities
Net loss $ (48,024 ) $ (47,533 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization and depreciation expense 46,337 55,141
Loss on impairment 230 430
Provision for doubtful accounts 65,206 24,792
Provision for deferred income taxes (5,733 ) (472 )
Gain on servicing right (968 )
Stock-based compensation expense 2,670 3,628
Other, net 2,537 4,248
Net change in assets and liabilities:
Customer accounts receivable (117 ) (15,220 )
Merchandise inventories (4,886 ) (30,532 )
Promotional material inventories (14,304 ) (30,179 )
Prepaid expenses and other assets 294 366
Current income taxes payable (19,969 ) (27,944 )
Accounts payable and other liabilities 1,789 83,624
Net cash provided by operating activities 25,062 20,349
Investing Activities
Purchase of customer accounts receivable (652,326 ) (666,034 )
Proceeds from sale of customer accounts receivable 630,671 666,116
Acquisitions, net of cash on hand 24,295
Net purchase of property and equipment (14,604 ) (36,456 )
Net (increase) decrease in restricted cash (11,311 ) 4,633
Net cash used in investing activities (23,275 ) (31,741 )
Financing Activities
Repayments of debt (21,601 ) (22,532 )
Borrowings on asset backed line of credit 339,603 730,413
Repayments on asset backed line of credit (314,694 ) (697,049 )
Net cash provided by financing activities 3,308 10,832
Net Increase (Decrease) in Cash and Cash Equivalents 5,095 (560 )
Cash and Cash Equivalents, Beginning of Period 7,916 11,870
Cash and Cash Equivalents, End of Period $ 13,011 $ 11,310

BLUESTEM BRANDS, INC.

Supplemental Financial Information - Segment Net Sales

(unaudited - in thousands, except average order size)

13-Weeks Ended
November 3, 2017 October 28, 2016 Change
$ % of Sales $ % of Sales %
Total sales by merchandise category:
Home $ 102,661 23.5 % $ 119,771 25.6 % (14.3 )%
Entertainment 89,453 20.5 % 90,646 19.3 % (1.3 )%
Fashion 244,202 56.0 % 257,993 55.1 % (5.3 )%
Total merchandise sales(a) 436,316 100.0 % 468,410 100.0 % (6.9 )%
Corporate and other(b) (12,020 ) 8,056
Returns and allowances (42,808 ) (48,699 ) (12.1 )%
Commissions and other revenues 18,310 17,318 5.7 %
Net sales $ 399,798 $ 445,085 (10.2 )%
Gross profit rate 47.7 % 44.9 % 280 bps
Sales and marketing expense rate 26.8 % 29.2 % (240 ) bps
Contribution margin rate(c) 13.5 % 10.3 % 320 bps
Average order size(d) $ 105 $ 107
Northstar Portfolio sales by merchandise category:
Home $ 90,395 41.3 % $ 100,028 43.6 % (9.6 )%
Entertainment 89,453 40.8 % 90,646 39.6 % (1.3 )%
Fashion 39,113 17.9 % 38,591 16.8 % 1.4 %
Total merchandise sales(a) 218,961 100.0 % 229,265 100.0 % (4.5 )%
Returns and allowances (13,178 ) (15,926 ) (17.3 )%
Commissions and other revenues 4,332 4,994 (13.3 )%
Net sales $ 210,115 $ 218,333 (3.8 )%
Gross profit rate 43.1 % 38.4 % 470 bps
Sales and marketing expense rate 14.0 % 18.0 % (400 ) bps
Contribution margin rate(c) 14.8 % 10.5 % 430 bps
Average order size(d) $ 232 $ 224
Orchard Portfolio sales by merchandise category:
Home $ 12,266 5.6 % $ 19,743 8.3 % (37.9 )%
Fashion 205,089 94.4 % 219,402 91.7 % (6.5 )%
Total merchandise sales(a) 217,355 100.0 % 239,145 100.0 % (9.1 )%
Returns and allowances (29,630 ) (32,773 ) (9.6 )%
Commissions and other revenues 13,978 12,324 13.4 %
Net sales $ 201,703 $ 218,696 (7.8 )%
Gross profit rate 52.3 % 52.3 % bps
Sales and marketing expense rate 40.1 % 40.0 % 10 bps
Contribution margin rate(c) 12.2 % 12.3 % (10 ) bps
Average order size(d) $ 67 $ 70

(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)

39-Weeks Ended
November 3, 2017 October 28, 2016 Change
$ % of Sales $ % of Sales %
Total sales by merchandise category:
Home $ 333,537 24.7 % $ 368,510 25.9 % (9.5 )%
Entertainment 251,260 18.6 % 247,822 17.4 % 1.4 %
Fashion 763,507 56.7 % 804,732 56.7 % (5.1 )%
Total merchandise sales(a) 1,348,304 100.0 % 1,421,064 100.0 % (5.1 )%
Corporate and other(b) (4,311 ) 23,047
Returns and allowances (135,189 ) (155,451 ) (13.0 )%
Commissions and other revenues 57,510 53,043 8.4 %
Net sales $ 1,266,314 $ 1,341,703 (5.6 )%
Gross profit rate 47.8 % 47.7 % 10 bps
Sales and marketing expense rate 27.1 % 29.4 % (230 ) bps
Contribution margin rate(c) 13.4 % 13.8 % (40 ) bps
Average order size(d) $ 106 $ 107
Northstar Portfolio sales by merchandise category:
Home $ 284,831 44.4 % $ 303,269 46.3 % (6.1 )%
Entertainment 251,260 39.2 % 247,822 37.9 % 1.4 %
Fashion 105,056 16.4 % 103,462 15.8 % 1.5 %
Total merchandise sales(a) 641,147 100.0 % 654,553 100.0 % (2.0 )%
Returns and allowances (36,558 ) (44,722 ) (18.3 )%
Commissions and other revenues 13,628 14,335 (4.9 )%
Net sales $ 618,217 $ 624,166 (1.0 )%
Gross profit rate 42.8 % 41.3 % 150 bps
Sales and marketing expense rate 15.0 % 19.0 % (400 ) bps
Contribution margin rate(c) 14.0 % 13.7 % 30 bps
Average order size(d) $ 232 $ 230
Orchard Portfolio sales by merchandise category:
Home $ 48,706 6.9 % $ 65,241 8.5 % (25.3 )%
Fashion 658,451 93.1 % 701,270 91.5 % (6.1 )%
Total merchandise sales(a) 707,157 100.0 % 766,511 100.0 % (7.7 )%
Returns and allowances (98,631 ) (110,729 ) (10.9 )%
Commissions and other revenues 43,882 38,708 13.4 %
Net sales $ 652,408 $ 694,490 (6.1 )%
Gross profit rate 52.5 % 54.0 % (150 ) bps
Sales and marketing expense rate 38.7 % 38.4 % 30 bps
Contribution margin rate(c) 13.7 % 15.7 % (200 ) bps
Average order size(d) $ 71 $ 73

(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

November 3,
2017

October 28,
2016

Change %
Net credit expense:
Credit management costs $ 16,151 $ 18,919 (14.6 )%
Provision for doubtful accounts - company-owned customer accounts receivable 1,839 4,073 (54.8 )%
Provision for doubtful accounts - loss on sale of Northstar customer accounts receivable to SCUSA 20,950 7,462 180.8 %
Provision for doubtful accounts 22,789 11,535 97.6 %
Finance charge and fee income, net (361 ) 2 n/m
Servicing fee income and portfolio profit sharing (7,385 ) (6,558 ) 12.6 %
Gain on servicing right (1,558 ) n/m
Net credit expense $ 29,636 $ 23,898 24.0 %
13-Weeks Ended
November 3, 2017 October 28, 2016
Serviced Portfolio Selected Credit Data: Revolving(a) FreshStart(b) Revolving(a) FreshStart(b)
Balance active accounts 1,695 100 1,805 106
Average balance outstanding $ 775 $ 97 $ 726 $ 98
Customer accounts receivable $ 1,313,206 $ 9,684 $ 1,311,610 $ 10,322
Balances 30+ days delinquent(c) $ 260,070 $ 3,117 $ 251,046 $ 3,318
Balances 30+ days delinquent as a percentage of total customer accounts receivable(d) 19.8 % 32.2 % 19.1 % 32.1 %
Average customer accounts receivable $ 1,351,508 $ 10,377 $ 1,342,888 $ 11,034
Finance charge and fee income $ 83,475 $ 360 $ 84,957 $ (73 )
Finance charge and fee income rate(e) 24.7 % 4.1 % 25.3 % (0.9 )%
Net principal charge-offs $ 71,758 $ 2,975 $ 67,964 $ 2,872
Net principal charge-off rate(f) 21.2 % 33.8 % 20.2 % 33.9 %

(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 November 3, 2017 and October 28, 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 November 3, 2017 and October 28, 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 November 3, 2017 and October 28, 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 November 3, 2017 and October 28, 2016, respectively.

BLUESTEM BRANDS, INC.

Supplemental Financial Information - Credit Portfolio

(unaudited - in thousands, except average balance outstanding)

39-Weeks Ended

November 3,
2017

October 28,
2016

Change %
Net credit expense:
Credit management costs $ 51,721 $ 56,520 (8.5 )%
Provision for doubtful accounts - company-owned customer accounts receivable(a) 9,275 12,199 (24.0 )%
Provision for doubtful accounts - loss on sale of Northstar customer accounts receivable to SCUSA 52,145 12,593 314.1 %
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 65,206 24,792 163.0 %
Finance charge and fee income (1,763 ) (1,425 ) 23.7 %
Servicing fee income and portfolio profit sharing (22,459 ) (20,168 ) 11.4 %
Gain on servicing right (968 ) n/m
Net credit expense $ 91,737 $ 59,719 53.6 %
39-Weeks Ended
November 3, 2017 October 28, 2016
Serviced Portfolio Selected Credit Data: Revolving(b) FreshStart(c) Revolving(b) FreshStart(c)
Balance active accounts 1,740 112 1,805 106
Average balance outstanding $ 755 $ 87 $ 726 $ 98
Customer accounts receivable $ 1,313,206 $ 9,684 $ 1,311,610 $ 10,322
Balances 30+ days delinquent(d) $ 260,070 $ 3,117 $ 251,046 $ 3,318
Balances 30+ days delinquent as a percentage of total customer accounts receivable(e) 19.8 % 32.2 % 19.1 % 32.1 %
Average customer accounts receivable $ 1,398,761 $ 12,764 $ 1,376,102 $ 13,967
Finance charge and fee income $ 267,568 $ 1,722 $ 275,773 $ 1,182
Finance charge and fee income rate(f) 25.5 % 5.1 % 26.7 % 3.5 %
Net principal charge-offs $ 218,580 $ 10,356 $ 198,168 $ 10,823
Net principal charge-off rate(g) 20.8 % 29.5 % 19.2 % 31.7 %

(a) Includes $2.0 million additional provision during the 13-weeks ended May 5, 2017 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 39-weeks ended November 3, 2017 and October 28, 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 39-weeks ended November 3, 2017 and October 28, 2016.

(g) Revolving net principal charge-off rate represents net principal charge-offs as a percentage of average customer accounts receivable for the 39-weeks ended November 3, 2017 and October 28, 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 39 weeks of FreshStart related sales five months prior to the 39-weeks ended November 3, 2017 and October 28, 2016, respectively.

BLUESTEM BRANDS, INC.
Non-GAAP Financial Measures
(unaudited - in thousands except % of net sales and ratios)

To supplement the consolidated financial information of Bluestem Brands, Inc. and its subsidiaries for the 13- and 39-weeks ended November 3, 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 on servicing right, stock-based compensation expense, integration costs, restructuring costs, Orchard Portfolio segmentation & positioning research and other.

Adjusted free cash flow, as presented, represents net cash provided by operating activities, plus proceeds from the sale of customer accounts receivable, less purchase of customer accounts receivable and 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 the inter-company portion of current income taxes payable and inter-company payable due to stock compensation.

Program agreement net liquidity, as presented, is defined as cash and cash equivalents less third party 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, adjusted 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 39-Weeks Ended

November 3,
2017

October 28,
2016

November 3,
2017

October 28,
2016

Contribution margin:
Net loss $ (10,803 ) $ (20,891 ) $ (48,024 ) $ (47,533 )
Income tax benefit (5,318 ) (14,595 ) (27,174 ) (27,957 )
Interest expense, net 12,785 13,432 38,401 40,637
Loss on impairment 230 430
Amortization and depreciation not included in cost of sales 13,471 17,347 42,797 51,838
General and administrative expenses 43,832 50,539 163,181 167,929
Contribution margin $ 53,967 $ 45,832 $ 169,411 $ 185,344
Contribution margin % of net sales 13.5 % 10.3 % 13.4 % 13.8 %

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

13-Weeks Ended 39-Weeks Ended

November 3,
2017

October 28,
2016

November 3,
2017

October 28,
2016

Adjusted general and administrative expenses:
General and administrative expenses $ 43,832 $ 50,539 $ 163,181 $ 167,929
Less:
Stock-based compensation expense 271 1,101 2,671 3,628
Integration costs 655 3,921
Restructuring costs (207 ) 13,651
Orchard Portfolio segmentation and positioning research 815 3,679
Other 533 807 3,203 1,783
Adjusted general and administrative expenses $ 42,420 $ 47,976 $ 139,977 $ 158,597
Adjusted general and administrative expenses % of net sales 10.6 % 10.8 % 11.1 % 11.8 %

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

13-Weeks Ended 39-Weeks Ended

November 3,
2017

October 28,
2016

November 3,
2017

October 28,
2016

Adjusted EBITDA:
Net loss $ (10,803 ) $ (20,891 ) $ (48,024 ) $ (47,533 )
Income tax benefit (5,318 ) (14,595 ) (27,174 ) (27,957 )
Interest expense 12,787 13,432 38,404 40,638
Amortization and depreciation expense 14,459 18,444 46,337 55,141
Loss on impairment 230 430
EBITDA 11,125 (3,610 ) 9,773 20,719
Gain on servicing right (1,558 ) (968 )
Stock-based compensation expense 271 1,101 2,671 3,628
Integration costs 655 3,921
Restructuring costs (207 ) 19,472
Orchard Portfolio segmentation and positioning research 815 3,679
Other 533 934 3,203 2,164
Adjusted EBITDA $ 10,979 $ (920 ) $ 37,830 $ 30,432
Adjusted EBITDA % of net sales 2.7 % (0.2 )% 3.0 % 2.3 %

The following table reconciles adjusted free cash flow from net cash provided by operating activities:

13-Weeks Ended 39-Weeks Ended

November 3,
2017

October 28,
2016

November 3,
2017

October 28,
2016

Adjusted free cash flow:
Net cash provided by operating activities $ 3,640 $ 14,254 $ 25,062 $ 20,349
Plus: Proceeds from sale of customer accounts receivable 199,268 233,426 630,671 666,116
Less: Purchase of customer accounts receivable (219,635 ) (233,409 ) (652,326 ) (666,034 )
Less: Maintenance capital expenditures (2,436 ) (4,992 ) (5,458 ) (16,400 )
Adjusted free cash flow $ (19,163 ) $ 9,279 $ (2,051 ) $ 4,031
Adjusted free cash flow % of net sales (4.8 )% 2.1 % (0.2 )% 0.3 %

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

Trailing Twelve Fiscal Months

November 3,
2017

October 28,
2016

Adjusted EBITDA $ 98,257 $ 106,827
Expected cost savings (a) 18,281 18,971
Non-cash charges (103 ) 961
One-time charges (1,142 ) 2,000
Other (b) 6,728 5,869
Program agreement adjusted EBITDA 122,021 134,628
Unrestricted subsidiary (c) 7,655
Incremental expected cost savings (a,d) 1,531
Lender adjusted EBITDA $ 131,207 $ 134,628
Leverage ratio debt:
Short-term debt
Current portion of term loan, net of discount $ 25,404 $ 24,877
Asset backed line of credit 48,346 56,286
Capital lease obligation and other 1,661 2,629
Total short-term debt 75,411 83,792
Term loan, net of discount 425,531 468,829
Capital lease obligation 868 2,755
Total long-term debt 426,399 471,584
Total debt 501,810 555,376
Plus: Deferred charges 7,515 10,483
Less: Cash and cash equivalents (e) (5,268 ) (3,397 )
Leverage ratio debt $ 504,057 $ 562,462
Program agreement leverage ratio 4.13 4.18
Program agreement leverage ratio requirement < 5.00 < 5.00
Lender leverage ratio 3.84 4.18
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.

(e) Excludes third party credit card receivables.

The following table presents adjusted working capital and net liquidity:

November 3,
2017

October 28,
2016

Adjusted working capital:
Total current assets $ 375,238 $ 473,299
Total current liabilities 398,632 466,581
Working capital $ (23,394 ) $ 6,718
Plus: Inter-company portion of current income taxes payable 7,974 8,240
Plus: Inter-company payable due to stock compensation 13,818 9,029
Adjusted working capital $ (1,602 ) $ 23,987
Cash and cash equivalents $ 13,011 $ 11,310
Less: Third party credit card receivables (7,743 ) (7,914 )
Lender cash and cash equivalents 5,268 3,396
Plus: Asset backed line availability 65,238 106,195
Program agreement net liquidity $ 70,506 $ 109,591
Less: Unrestricted subsidiary cash (30 )
Lender net liquidity $ 70,476 $ 109,591
Program agreement and lender net liquidity requirement > $40,000 > $40,000

View source version on businesswire.com: http://www.businesswire.com/news/home/20171220006134/en/

Investor Relations:
ICR
Jean Fontana
IR@bluestembrands.com

Source: Bluestem Group Inc.