Barnes & Noble Education, Inc

Hello, everyone, and welcome to the Barnes & Noble Education Fiscal 2022 Second Quarter Earnings Conference Call. My name is Bethany, and I'll be your co-operator today. I would now like to hand the call over to your host, Andy Millivoy, Vice President of Investor Relations. Andy, please go ahead.

Good morning, and welcome to our Fiscal 2022 Second Quarter Earnings Call. Joining us today are Mike Huseby, CEO and Chairman, Tom Donoghue, CFO, Jonathan Scharr, Executive Vice President, BNED Retail, David Henderson, President of MBS, and David Menke, President of DSS. Before we begin the call, I'd like to remind you that the statements we make on today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. The contents of this call are the property of Barnes & Noble Education and are not for rebroadcast or use by any other party without prior written consent of Barnes & Noble Education. During this call, we will make forward-looking statements with predictions, projections, and other statements about future events. These statements are based upon current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The company disclaims any obligation to update any forward-looking statements that may be made or discussed during this call. And now, I'll turn the call over to Mike Huseby.

Thanks, Andy, and thank you all for joining us this morning. We were thrilled to welcome students back to campus this fall. Our second quarter results reflected their eagerness to return to an on-campus, in-person learning environment with a significantly increased resumption of on-campus events and sporting activities. This was further corroborated by an NRF report issued this summer that indicated that college students and their families had planned to spend an average of $1,200 on college or university items, 13% more than a year ago as students prepared to transition back to an in-person learning experience. The top three categories included electronics, dorm furnishings, and clothing. While many institutions implemented policies to return students to an on-campus learning experience, the volume of students, alumni, and tourists is not yet back to pre-pandemic levels. The operating environment continues to present a number of different challenges, including undergraduate enrollment declines of approximately 3%, according to the National Student Clearinghouse Research Center, fewer international students than pre-COVID levels, and many community colleges continuing to offer virtual classes. In addition to enrollment declines, we are also experiencing challenges with escalating freight costs, labor shortages and supply chain issues. While we expect these conditions to persist through fiscal 22, we're hopeful that they will begin to mitigate as we move into the next fiscal year. Despite these challenges, Our organization has proved resilient in providing best in class service to our campus partners and their students. The growth of our first day offerings helped to mitigate the macro pressures on our course materials business. And through our general merchandise partnership with Fanatics and LIDS, we were better positioned to address the global supply chain issues facing many retailers. As you look ahead, Our entire organization is excited by our company's momentum as we continue to execute on strategic initiatives that further distinguish our competitive offerings which, as a whole, cannot be replicated in the marketplace. Our innovative academic solutions offerings, unparalleled merchandise assortment, new best-in-class omni-channel customer experience, and strategic investments provide an unparalleled customer value proposition for the institutions and the customers that we serve, all of which we expect to accelerate our growth. The benefits of our inclusive access course material models are resonating with institutions across the country and delivering greater student access and better student outcomes. We are seeing tremendous demand for our first day complete equitable access program as schools have demonstrated the positive impact the solution has on improving student outcomes and reducing stress at the beginning of each academic term. Additionally, first day complete eliminates barriers to course material access, allowing students to engage with the course content from day one and achieve greater academic success. Equally important, the program also supports our school partners' missions of improving student academic achievement persistence, and retention. It's not surprising that based on these benefits, we experienced significant growth in the 2021 fall term when First Day Complete was offered through 65 campus bookstores, up from just 12 campus bookstores the prior year, representing approximately 295,000 total undergraduate student enrollment, up from 43,000 students last fall. and almost seven times year over year increase. With this growth, the program was available across a broad spectrum of schools from small private colleges to large public universities and multi-campus community college systems. Year over year, revenue for both our first day models increased 80%. For the 2022 spring term, we have 10 additional stores that have signed up for first day complete representing undergraduate enrollment of over 86,000 students. First day complete is disrupting the traditional course material delivery model in collaboration with leading institutions across the country. By delivering all course materials via one convenient service, first day complete ensures that students have access to all their learning materials across all of their courses before the first day of class. This allows them to engage with course content from day one to support their academic success. Also, first day complete offers full academic freedom for faculty, allowing them to select the best course materials for the term from BNED's expansive relationship with more than 6,000 publishers, creating a one-stop simplified experience. Data shows that course materials are still an optional purchase for many students, even though it's been well documented that students who have their course materials before the start of class perform better academically. First Day Complete helps to remove barriers and provides the same fundamental level of access across an entire institution for all students. Our survey showed that students who utilized the program felt that they had better experiences, were better prepared for the academic term, and ultimately achieved better academic results, confirming BNC's Equitable Access Program is making a positive impact on student success. First Day Complete is also proving to be a competitive advantage for the schools that have adopted it, which we believe will further help to accelerate the adoption by additional schools. Some BNC partner institutions have started to report that they have seen enrollment growth, which they, at least in part, attribute to the ability to market the benefits of first day complete to prospective students. Turning now to our general merchandise business, with the resumption of on-campus events and sporting activities, we experienced 78% gross comparable sales growth during the second quarter. Our partnership with Fanatics and Lids offers an unparalleled merchandise assortment and a best-in-class omni-channel customer experience for logo and emblematic products, allowing us to offer our schools a totally reimagined retail experience. This partnership expands the breadth and quality of our offerings in-store and online, including newer, more exciting brands such as Vineyard Vines, Lululemon, and Johnny O., that are highly relevant for our student, parent, and alumni demographic. Both partners are leaders in their space, which provides us with buying power and a partnership that schools will benefit from. We have already seen the impact on winning new business and are excited to see what this year will bring as the strategic partnership will ultimately benefit the students and schools that we serve. Specific to Fanatics, we will benefit from their powerful e-commerce systems and data insights to grow market share and add new customers. These sites are truly best in class, mobile-first experiences that leverage the Fnatic platform to provide an incredible user experience. We continued to transition additional school e-commerce websites to the new Fnatic experience, and through November, we now have over 540 sites live on the Fnatic platform. Turning to our DSS business, our Bartleby suite of solutions continues to exhibit its rapid growth. DSS revenue grew 39% to $8.3 million, with Bartleby revenue growing approximately 70% year-over-year. Bartleby generated 120,000 new growth subscribers during the quarter, representing a 33% year-over-year growth. We introduced Bartleby Plus during the quarter, which combines Bartleby Learn with Bartleby Write to provide a dynamic study bundle to help students tackle their assignments 24-7. This comprehensive offering includes over 5 million step-by-step textbook and homework solutions, a math solver with detailed solutions, expert Q&A in 30 subjects, essay templates that help students outline their papers with an interactive guide, plagiarism detection, and a citations generator, amongst other tools. Barnaby's products and services are designed to improve student success and outcomes, offering pathways for learning that fit the schedules and demand of today's student. We believe our bundle provides tremendous value to help improve student outcomes. In conclusion, while there continue to be various challenges operating our business in this COVID-affected environment, we remain focused on executing our strategic growth initiatives, which is already helping to mitigate the impact of such near-term challenges. Most importantly, we believe these initiatives position us well for longer-term sustainable growth. With that, I will turn it over to Tom for the financial review.