Barnes & Noble Education, Inc

Good morning, and welcome to the Barnes & Noble Education Earnings Call. At this time, for opening remarks and introductions, I'd like to turn the call over to Andy Millivoy, Vice President, Corporate Finance and Investor Relations. Please go ahead.

Good morning, and welcome to our fiscal 2022 fourth quarter and year-end earnings call. Joining us today are Mike Hughesby, CEO, Tom Donahue, CFO, Jonathan Scharr, Executive Vice President, B&ED Retail, and President, Barnes & Noble College, David Henderson, President of MBS, and David Nenke, President of DSS. Before we begin the call, I would 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 the call. Please note that we will be referring to slides during Tom's financial review portion of the earnings call. For those of you joining via webcast, you should see the slides as part of the webcast. For those joining via phone, you can access the slides on our corporate website at investor.bned.com. under the events and presentations section. And now I'll turn the call over to Mike Huseby.

Thanks, Andy. And good morning, everyone. As we entered into fiscal 2022, we were relatively optimistic that high vaccination rates coupled with strong vaccine efficacy would help curb the spread of COVID and return most schools to a traditional on-campus environment for learning, social activities, and events. Unfortunately, both the fall and spring semesters were disrupted by different variants of the virus. Further affecting our performance, higher education continued to experience enrollment declines. According to the National Student Clearinghouse Research Center, undergraduate enrollment declined 4.7 percent this spring as compared to a year ago, and even more startling, the undergraduate student body is now 9.4% or nearly 1.4 million students smaller than before the pandemic. Further exacerbating these trends, based on a recent NACS faculty watch report, course material sales have also been diminished due to faculty assigning fewer course materials for their classes. On average, faculty adopted 4.1 materials for 3.8 courses versus 6.0 materials in 2020. Despite these headwinds, we are highly encouraged by the progress that we've made against our key strategic initiatives in fiscal 22 that include expanding the footprint of our inclusive access offerings, growing our general merchandise business through our partnership with Fanatics and LIDS, and growing our subscriber base for our digital student solutions offerings. As we continue to focus on supporting student success via our institutional partnerships, we're constantly examining the best ways to meet students where they are on their academic journey. Our key initiatives are directly aligned with improving student outcomes through access, affordability, and achievement, which is why they are resonating as strongly as they are in the marketplace. Additionally, first day by course and first day complete provide schools with a solution to reverse the long-term declines in course material sales. In fiscal 22, our inclusive access offerings contributed to a 2.3 percent increase in comparable course material sales, completely offsetting the significant industry headwinds and representing the first time course material sales through an over five years. We believe this is a significant inflection point and validation of our strategic transformation. PNCs, the first day by course and first day complete, are innovative course material delivery models that ensure students have access to all of their course materials on or before the first day of class, ensuring that there are no gaps in learning while providing the time-saving convenience of having all of their course materials bundled and delivered to them through a concierge-style service. Based on theories that we've conducted, 83% of students felt the program had helped them be better prepared academically and that it had a positive impact on their classroom success. And over 73% felt it helped them achieve better grades. With these perspectives in mind, it's not surprising that our inclusive access offerings are very attractive to our campus partners. During fiscal 22, Our first day complete program grew to 76 stores representing approximately 380,000 undergraduate students with revenue growing more than five times over the prior year to $106 million. For the upcoming fall term, 112 of our campus stores are committed to utilize first day complete representing undergraduate enrollment of approximately 547,000 students. As Tom will highlight further, when we look at our first-day complete schools that utilized the program during fiscal 22, they experienced a 67% increase in total course material sales as compared to less than 1% for non-first-day complete schools and an 83% increase in year-over-year total course material gross margin dollars versus 6% for non-FDC schools. Beyond our inclusive access offerings, we also see a great opportunity to grow our logo and emblematic sales through our partnership with Fanatics and Lids. We made significant progress with this new partnership throughout fiscal 22. As students return to campus for the fall term of the 2021 to 2022 academic year, they experience an expanded and enhanced logo and emblematic product assortment within our stores, benefiting from our partnership with Lids. For those shopping online, we integrated the Fanatics experience on our websites throughout fiscal 22, significantly enhancing the online user experience for logo and emblematic products. As a result of these initiatives, during fiscal 22, our gross comparable general merchandise sales increased 76%, which included an 85% increase of our logo and emblematic product sales. With our enhanced product offerings, fiscal 22 was another outstanding year in both gross and net new business wins, and the third year in a row of over $100 million in gross sales and new business wins. Furthermore, we have been intensely focused on enhancing our store-level economics, which encompasses both winning profitable new business and increasing profitability within the existing store footprint through our inclusive access offerings. We believe that VNC's offerings and compelling value proposition facilitates the student academic journey and drives improved student outcomes, while also supporting and enhancing the brand of the institutions that we serve. Our wholesale business continue to be impacted by supply constraints from the lack of used book inventory available for sales, resulting from the disruption to the traditional on-campus buyback activity over the last two years, as well as lower overall demand due to declining enrollments, and the transition to digital course materials. Fiscal 22 wholesale revenue declined 32%, while EBITDA declined by $14.8 million to $3.8 million. ESS continued its growth trajectory in fiscal 2022. Revenue grew over 30% on a year-on-year basis, with Bartleby revenue growing 40% to $13 million, and student brands revenue growing 25% to 22 million. We are continuing to strengthen our offerings and make investments to provide a hyper-personalized and differentiated user experience driven by data insights that further support and enable students' academic success. In the spring of fiscal year 22, we launched our institutional product and signed Delgado Community College as our first institutional partner. We're continuing to develop institutional capabilities and are leveraging our relationships with institutions or programs that want to provide targeted academic support for their students. We're very encouraged by the early feedback we are hearing and are laser-focused on unlocking the opportunity to scale the Bartleby institutional business. As we look out to fiscal 2023, while we do expect certain challenges to persist, we expect a significant improvement in our business over the last few years. As Tom will discuss in greater detail, our results within the retail segment are expected to improve significantly over fiscal 2022. Our wholesale business will continue to be pressured by inventory constraints and inflationary pressures, and DSS is expected to continue to grow revenue while simultaneously investing in its future growth. Despite the tremendous amount of change that's occurred over the last two years, we can say with confidence that that much of the value of a college education is still rooted in its core elements where in-person learning and social experiences remain extremely valuable for students and schools. We're excited by the progress we've made to date on our key initiatives and see substantial upside ahead. As we look to fiscal 23 and beyond, we expect our key strategic initiatives centered on growing course material sales through our exclusive access offerings growing our general merchandise business through our partnership with Fanatics and LIDS, and scaling our digital business to drive earnings growth and shareholder returns. And now I'll turn it over to Tom, who will provide a financial review as well as a comprehensive discussion on the changes that we've experienced within our retail business and the performance of our inclusive access offerings.