Barnes & Noble Education, Inc

Thank you for standing by. My name is Maria, and I will be your conference operator today. At this time, I would like to welcome everyone to the Barnes & Noble Education Fiscal 2023 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Mr. Hunter Blakenbaker, Vice President of Investor Relations. Mr. Blakenbaker, please go ahead.

Okay, great. Thanks, Maria. And good morning, everyone. and welcome to our fiscal 2023 fourth quarter earnings conference call. Joining us today are Jonathan Schaar, Executive Vice President, B&ED Retail and President, Barnes & Noble College, Mike Miller, our EVP of Corporate Development and Affairs and our Chief Legal Officer, and Jason Snoguski, our SVP and Treasurer. Mike Hughesby, our Chief Executive Officer, will not be on the call today due to a family emergency. Before we begin the call, I'd like to remind you that 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 property of Barnes & Noble Education and are not for rebroadcast or used 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 on 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 so with that, I'll now turn the call over to Mike Miller.

Thanks, Hunter, and good morning, everyone. We appreciate you joining us today. While the operating environment remained challenging in fiscal 2023 and our results did not meet our expectations, we made significant progress to transform and strengthen the business for sustained profitable growth. In the second half of fiscal 23, we took decisive action to reduce our cost structure and increase operating efficiency across all aspects of our business. We appropriately aligned our costs with revenue in what we believe is the new normal of the post-pandemic operating environment. We also accelerated the transition of the schools we serve to our more profitable, subscription-like, first day complete, or FDC, equitable access model. The equitable access model is rapidly becoming the industry standard for institutions, faculty, publishers, and most importantly, students. In fiscal 23, FTC grew 88%, and we added a record number of schools for the fall 23 term. Through this innovative equitable access program, we've changed the momentum of the course material business and have grown course material revenue for two consecutive years. Additionally, we divested our digital student solutions business to deepen our focus and capital allocation on our continued transition to first day complete and growing our general merchandise business. And lastly, as it was last week, we strengthened our liquidity and financial position to accelerate the execution of our strategy for the benefit of B&ED's students, educators, faculty, alumni, fans, employees, and shareholders. Under the terms of the agreement, we've extended the maturity of our debt facilities, amended certain covenants, and modified certain other agreements that restricted our ability to operate efficiently. We are pleased to have worked constructively to reach a resolution with our financial stakeholders and strategic partners that preserves value for investors today. and enables us to evaluate the best long-term opportunities for the company. Given the significant changes we made to our business in fiscal 23, we are entering fiscal 24 a more efficient company with a clear focus on our greatest strengths and opportunities and will position for profitable growth over the next several years. With that as a backdrop, I'll provide a review of our fourth quarter and fiscal 23 financial results before turning it over to Jonathan Schaar to review our fiscal 24 strategic initiatives. Following that, I'll discuss our fiscal 24 guidance and closing remarks. Now let's turn to our results. Consolidated fiscal 23 revenue from continuing operations of $1.5 billion grew by 3.2%. Consolidated adjusted EBITDA grew by $2.2 million to negative $8.1 million. Moving on to our retail segment, fiscal 23 total retail revenue increased by $52.1 million, or 3.6%, to $1.5 billion, driven by strong first day complete, first day bay course, and general merchandise sales. Total course materials revenue increased 1.8%, driven by a 48% increase in first day and first day complete revenues, offset by a 9.4% decline in the traditional a la carte model. The higher growth, first day and first day complete revenues comprise approximately 33% of course material revenue in fiscal 23. In fiscal 24, first day and first day complete will approach the majority of course material revenue, which provides enhanced predictability in the course material business. Total retail gross comp store sales in fiscal 23 increased 3.2%. Retail gross comparable course material sales grew 0.4%. And general merchandise gross comparable store sales increased 8.6%, aided by a strong performance in emblematic general merchandise and cafe and convenience. Fiscal 23 retail non-GAAP adjusted EBITDA of 10.6 million increased $2 million, primarily due to a $52 million revenue increase offset by higher cost of sales and selling at administrative costs. For the fourth quarter, retail sales of $235.4 million decreased 4.1%, due primarily to a 3.1% decline in course material and a 6.5% decrease in general merchandise. Within course materials, A 60% increase in FTC revenue was offset by a 9.9% decrease in a la carte sales. 116 campus stores utilized BNC's first day complete courseware delivery program during the spring 23 term at institutions representing 580,000 in total enrollment. Within general merchandise, growth in cafe and convenience was offset by declines in supply products and emblematic sales. The year-over-year decline in emblematic sales was driven by a decrease in the commission rate as part of the Fanatics and LIDS agreement, which called for an adjustment in commission rates as the relationship matured. Fourth quarter retail selling at administrative expenses decreased 3.8 million, or 5.2%, compared to the prior year period due to the company's initiatives to drive efficiencies, simplify organizational structure, and reduce non-essential costs and lower incentive compensation expense. Fourth quarter retail non-GAAP adjusted EBITDA was negative $10 million, as compared to $4.2 million in the prior year period. Retail non-GAAP adjusted EBITDA declined due to lower fourth quarter revenue and lower fourth quarter gross profit. which included a shift in the mix of buying patterns from physical textbooks to lower margin digital course materials within the company's a la carte course and serial model. Additionally, higher inventory reserves, an increase in shrink and higher markdowns impacted gross margin by approximately 6.5 million versus the fourth quarter of last year. Moving on to wholesale, fiscal 23 revenue decreased 5.2%. to $106.4 million. In the first half of the year, supply constraints from the lack of used book inventory and the shift to digital course materials caused revenue to decline on a year-over-year basis. In the back half of the year, we saw an easing of supply constraints and more textbook purchasing opportunities, enabling us to fill increasing demand at BNC and other bookstores. This enabled wholesale revenue growth in the third and fourth quarters. Fiscal 23 wholesale non-GAAP adjusted EBITDA declined slightly to $3.2 million from $3.8 million in the prior year. Turning to fiscal 24, we're confident in our ability to grow the top line through our primary growth initiatives, general merchandise, and first aid complete. We are also fully committed to disciplined expense management and we will continue to optimize our cost structure to drive increased revenue and adjusted EBITDA. I'd now like to turn the call over to Jonathan to take a deeper look at our 2024 growth initiatives.