Barnes & Noble Education, Inc

Welcome to the Barnes & Noble Education Fiscal 2022 Third Quarter Earnings Conference Call. My name is Juan, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star, followed by number one on your telephone keypad. I will now hand over to your host, Andy Milebok, to begin with. Please, Andy, go ahead.

Good morning. And welcome to our fiscal 2022 third quarter earnings call. Joining us today are Mike Huseby, CEO and Chairman, Tom Donahue, CFO, Jonathan Scharr, Executive Vice President, BNED Retail and President, Barnes & Noble College, David Henderson, President of MBS, and David Nenke, 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. As we entered the spring rush period, we, along with everyone else, continued to experience the ongoing effects of COVID. The Omicron variant began to spread rapidly in December and continued into January, just as schools had planned to welcome students back to campus for the start of the spring semester. Despite the continued positive momentum in our key strategic growth initiatives this quarter, COVID's Omicron surge just before our seasonally important spring rush period did negatively impact our results compared to the expectations we had prior to the surge. In early January, while a majority of our institutional partners brought students back to campus, over 100 campuses that we served chose to conduct classes remotely for the beginning of the semester, while others chose to delay their start dates, and some schools both delayed their start dates and started classes remotely in response to the surging Omicron virus. As we have been doing for the past two years, We work closely with our campus partners to adapt and respond to the safety first policy decision many of our schools were forced to make. To support student success, we were able to quickly pivot and shift textbooks and supplies for clients that moved to virtual learning where students weren't on campus as originally planned. The need to be flexible and adaptable is now a given. We're able to once again showcase the value we provide through our unique mix of digital and physical assets by customizing solutions to help both the schools and students that we serve adapt to changes with very short notice. While our teams did a great job responding nimbly to the impacts of this unwelcome Omicron surge, the reality is that this was a very suboptimal environment in which to operate efficiently, which negatively impacted our business results. Notwithstanding these and related environmental challenges during the quarter, we were able to continue the significant momentum of our key growth initiatives, First Day, First Day Complete, our FLC partnership and its impact on our general merchandise business, and growing our new store footprint by adding profitable new business during the quarter. Our third quarter results reflect the impacts of the Omicron curveball that COVID threw at us. primarily in lost or delayed sales for most of the services we provide and the products that we sell, including courseware, general merchandise, and school supplies. As a result of the necessary precautions taken by our institutional partners in response to Omicron, some of our rough sales were either delayed later in the quarter, pushed into the fourth quarter, or lost as store traffic underperformed expectations. As Tom will further discuss, While our third quarter gross comparable store sales increased 8.4%, when factoring in the full rush period that extended into the month of February, gross comparable store sales increased approximately 18.8% over last year's spring rush. Despite the tremendous amount of change that's occurred over the last two years, we can now say with confidence that much of the perceived value of a college education is still rooted in its basic elements. the in-person learning and social experience remains of extremely high value for students in schools. In the latest student voice survey conducted by Inside Higher Ed and College Pulse, when students were asked why the fall semester worked, 67% said in-person classes and 40% said social opportunities. Colleges are working hard and are motivated to bring vibrancy back to campus while simultaneously managing and responding to the vicissitudes of the COVID virus. In conversations with our partners, faculty, and students, it's clear that COVID has accelerated many of the changes occurring in higher education. The perspective is changing to a more flexible student-centric model that goes beyond solely a student's academic needs and ensures that they are equipped for success beyond the classroom. This is a paradigm change in higher ed, as schools transition from the traditional question of how prepared is the student to succeed in the school to a more current perspective of how prepared is the school to meet the broader needs of the student. This change in view is being driven by a more competitive environment as enrollment demographics change, the ROI value of an education is subject to greater scrutiny, and other needs like mental health and career placement move to the forefront in supporting student success. For the non-traditional student, who in greater numbers is changing the views of what defines a traditional student, the value proposition is in both providing flexibility and offering curriculum that provides an improved opportunity to elevate their lives. Understanding students' demands is critical to ensure that institutions are satisfying those demands in a more personalized way. Schools need to remain focused on developing flexible learning models and utilizing technology to achieve higher success rates, which includes retention and graduation rates, while making degrees more relevant for success post-graduation. The NAD's solutions and offerings are directly aligned with these key areas of focus and help institutions identify and address many of these issues. Linked to achieving the school's primary objectives of equitable access, affordability, and improving student outcomes, our First Day and First Day Complete inclusive access courseware delivering offerings are growing rapidly as institutions realize the benefits for their students and the school's ability to compete for students in this environment. In addition to the 65 campus stores that implemented First Day Complete in the fall term, an incremental 11 stores initiated First Day Complete for the spring term bring the total to 76 stores representing an estimated undergraduate enrollment of over 380,000 students at these institutions benefiting from the program. Our teams have already secured commitments to launch First Day Complete for additional campuses in the fall term of 2022 and continue to work with a significant number of additional campuses to launch First Day Complete in academic years 22, 23, and beyond. Given the timing of when first day complete contracts for the coming new fiscal year are finalized, we plan to provide more specificity on our expected fall 22 first day complete enrollment growth in connection with our year end earnings release in June. Beyond our current roster of institutional partners, our total value proposition, which includes our inclusive access offerings and ability to fulfill them using our MVF assets, our logo and emblematic partnership with Fanatics and LIDS and our DSS suite of supplemental learning and study tools is resonating with many new schools that have recently entered into agreements with us to manage their bookstores. For fiscal 22, which will end on April 30, 2022, we are currently on track to generate gross new business wins of approximately $130 million, just over $100 million on a net basis after considering expected store closings. These amounts, which are based on estimated sales using historical information, include our newly formed partnership with Notre Dame. We're excited to announce that we will begin to operate their campus bookstore system next week. Turning to our general merchandise business, we continue to experience the early benefits from our partnership with Fanatic and Liz, with gross general merchandise comparable sales growing 59% during the third quarter. The customer-facing benefits of this partnership include an unparalleled merchandise assortment, a best-in-class on-the-channel customer experience for logo and emblematic products, and powerful digital marketing tools to create awareness and improve access. In addition, this truly strategic partnership also provides BNED with additional sustainable benefits to our operating model that are important to recognize and to value, such as reduced direct investment in e-commerce system development costs, marketing spend, and payroll expenses as we leverage the tech expertise, investments, and general merchandise and workforce of Fanatics and LIDS. This leverage translates into both lower spend and accelerated time to market for innovation. Over $58 million in liquidity infused from the initial strategic investments paid by FLC the second half of our last fiscal year. working capital improvements as we no longer are purchasing and paying for the logo and emblematic product inventory, a unique partner to go to market with to win significant new business like Notre Dame, one of the largest NCAA brands for general merchandise sales. Finally, the supply chain benefits of scale enjoyed by FLC that we would not demand on a standalone basis. This was proven during the supply chain challenges of the past 12 months as Fanatic's and Lib's have undoubtedly been able to more effectively procure supply for our stores than we could have on our own in such a challenged environment. We expect our FLC partnership to grow our general merchandise comparable gross sales and gross profit dollars more substantially and faster than we would be able to on our own, given the benefits we just discussed and our experience today. We have already accomplished much together after only one year, but we believe together that we have significant upside as we apply our learnings and progress to date to further benefit our customers, the schools, students, faculty, alums, and fans that we serve with this unique and exclusive partnership. Turning to our DSS business, our Bartleby suite of solutions continue to exhibit its solid growth. DSS revenue grew 31%, to $9.4 million with Bartleby revenue growing approximately 36% year over year. Bartleby generated over 97,000 Bartleby Growth subscribers during the quarter and over 285,000 Bartleby Growth subscribers year to date, representing year over year growth of 34%. During the third quarter, we were excited to announce a new partnership with Delgado Community College in which they implemented both our first day complete offering and Bartleby's suite of digital services for their students. In addition to ensuring all students have convenient, affordable access to all their course materials, every student will also receive access to personalized support through Bartleby's 24-7 online study platform through the Delgado Course Complete offering. Many of these students are parents with busy lives, jobs, family obligations, and household responsibilities. When these students are ready to get their schoolwork done, morning, noon, or night, We want to be there to help them achieve the understanding that they need to to master the material. Bartleby will be integrated seamlessly into Delgado's learning management system. Providing students with convenient access to affordable course materials on their first day of class is a foundational step in preparing them for their best opportunity to achieve academic success. But that's just the important first step. Offering Bartleby's digital suite of services with our first day complete offering ensures that students have access to the learning support they need and demand whenever and wherever is most convenient for them, learning in a much more personalized way. We look forward to keeping you apprised of our efforts to ensure all students are equipped for success from their first day until they complete their finals through our First Day Complete and First Day Digital offerings. Another third quarter highlight is an important strategic partnership that we entered into with Billie Jean King Enterprises to enhance BNED's diversity, equity, and inclusion initiatives and programming. Our newly formed partnership with this sports icon and social justice champion will advance BNED's DEI initiatives and programming for the benefit of the employees, partner schools, students, and faculty that we serve. In addition to supporting our ongoing DEI efforts, this partnership will enable us to develop and launch new initiatives that emphasize respect, tolerance, and equity, and embrace diversity within our culture and daily business practices. These values are important to our people and our customers, and this partnership aligns us squarely with them on this critical element of BNED's core culture. While we continue to experience some ongoing COVID-related negative impacts during the third quarter, which is influencing our current outlook for fiscal 2023 that Tom will discuss in more detail, we have much to be positive about and to look forward to. All the current facts show that the impacts of COVID are being diluted by the proven efficacy of COVID vaccines and the response of protocols and regulatory policies that are aimed at returning us all to a more normal, or at least more transparent and predictable operating environment in the near term. We believe we will have some positive prompts benefiting from a return to in-person NCAA sporting events and activities, such as the Final Four as we have come to celebrate it pre-COVID, upcoming in-person graduation celebrations, and a positive momentum of our growth initiatives that are focused on as a key to completing the transformation of our business that we've been working hard on for the past several years. I'm extremely proud and grateful to our people, our customers, and our shareholders for their ongoing support during the choppy series we believe we have navigated through together into what most are projecting to be a much calmer horizon in front of us. And now I'll turn it over to Tom for the financial review.