BNED - Earnings call transcript Q2 2020 | Barnes & Noble Education, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Barnes & Noble Education Fiscal 2020 Second Quarter Conference Call.

At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions]

I would now like to hand the conference call over to Tom Donohue, CFO. you. Thank ahead. go Please

Tom Donohue

morning call. to Good second fiscal quarter earnings and you. our welcome XXXX Thank

today Mike of us our of as Joining are as Senior Operations, Brover, Chairman; well Kanuj EVP Management Barry team. Malhotra, members President other Digital Solutions, Huseby, Student of CEO and

Before I'll and contained disclaimer in that & press release written remind the -- make Noble content rebroadcast Education. call we the Barnes will Harbor we for today's the not call Safe documents. any begin, public of The Barnes & and on are this for Education you of statements or other property covered by are party consent Noble by use without prior our of

and upon release about are filings uncertainties, other These Securities statements call risks expectations subject in current events. our statements press and forward-looking this During will projections be future based we assumptions those contained and making and to public that and including Exchange are Commission. the predictions statements with with

The time, Company discussed At obligation call. statements forward-looking call this during made any this may update be turn to that Mike or the over Huseby. disclaims I'll to any

Mike Huseby

and for all us today. thank Tom, you joining Thanks

morning's Board today, to the institutions we BNED shareholder help press students in all announced position immediate able that the we evaluation the BNED's enhance paths of with assist to for be the to will value. to review saw you of a This As opportunities. of and and strategic allow range of exploration more benefits serve for deliver strategic potential this approved has advisor Directors release engagement financial of a

focus and transformed retention a years, Digital, shift higher declining enrollments, increased ed rapid significantly issues, over past the few industry on including The serve we to student an affordability. has

achievement, growing stabilizing of digital FirstDay adoptions and to subscriptions, increasing scaling managed stores and and of strategic revenue are high-margin strengthening from and other our business our by merchandise wins general affordability, new and new our models, growing and and material footprint through centered on our BNC bartleby business. introducing DSS business include initiatives share growing access Our addressing course now grow

release, The our each provide evidence operational of today's in priorities. these on highlights progress press of

the Our strategy markets serve. being daily validated by we is

accelerate deliver to to strategic facilitate opportunities to and strategy to our need our exploring shareholder help in value believe aggressively we order execution acceleration more the that of this creation. value However, enhance of value. We rapidly more will customers

well quarter, to due sales time comp prior approximately the marketplace The of disruptive trends improvement on rate in seen basis price past evidenced the sales as publishers. those the Course year large material have as materials by as few years for in been in The declines. by to attributable a decline the a course of price disclosed declines, decrease own the business period. the X.X% our XX% and decline over was volume a slight with primarily declined

We are moving and delivery demands course market rapidly the as of materials digital as to allows. models

dramatically As delivered while digital to costs should mitigate our students to we to delivery, expect decrease able unit to we increase courseware ultimately share are impacts. fulfillment lower pricing scale of

now at while FirstDay financial accessible and improving to the the affordable BNED. same effectively address substantially our digital total able partners schools are for from For our example, our demands models courseware, to and to time campus very contribution

year-over-year. with adoption market increased see to revenues FirstDay continue from We increasing XX%

XXX% with complete who campus publishing and of BNED with certain in customers BNED pricing partners and provide result our is new FirstDay substantially pilot a while enjoy Students and adoptions, our this the economics. with packages saw we their and significant collaborate true partners institutional our win-win-win for will schools penetration us. students, courseware As fall, improved discounts approaching

with partnership accelerate will also we optimize on us give the platform detail technology are. important improvements allows more VitalSource's announced how to This summer, these strategic our technology platform. past now FirstDay to and enabling our which implementations. Transitioning will VitalSource, FirstDay a power strong Tom new

enhance This platform partnership it's rapidly our offerings. of drives will our new for and true us by the partners a to deliver which substantial efficiencies and pricing offering content functionality related strategic to value and expanded maintenance packages the customers. effectively and our allows partnership Most FirstDay development technology importantly, and long-term more of benefits to

a courseware delivery is persists appetite still the increasing, physical digital While, learn strong there evidence book. that using to is

received survey us they XX% students, pulse those student XXX,XXX annual helpful than find resource. of that students more be textbooks a responses told Our print from to

to both we chain have digital to of and full together by our the in that ability of FirstDay service complete as this past is that courseware and unmatched them competitors. is fall our physical Our any package strength the supply offerings did we

faculty monitor also and Adoption introduction products developed driving Insights adoptions. are further for institutions fall the our services BNC & We and and to or leadership as academic course for of value through this submit AIP, our internally such platform material new Portal

has had schools for been significant and interest platform very also business date using generated that AIP Our with have the has strong benefits new to pilot the opportunities.

leadership value clients by Our streamlining AIP support visibility much providing our process service faculty platform needed data It affordability and schools for significantly for submitted the that has material selections the to with of to other ensure enhanced affordability of and also adoptions serve. compliance, academic the success. and being the to of that objectives initiatives, accordance recommended student we in and are course provides

collected course where we them schools the implemented we've process. received AIP, in the submissions more earlier both and material In

example, content XX% we translate unit tool and the submission schools to XXX% the material ability one term. has date, institutions, helped As will these in to Spring we've stores, XXXX affordable four-year public other at already drive facilitate large greater almost for all the offer across courses. a course has institution AIP more students into increases sale rate This starting to which in where selections upcoming our expect submissions a been implemented, more received

footprint, critical asset and is the focus current seek grow our institutions provide we which that our we a important as future success. on value remains to in The store to

Our for is and million both channel students stores. and an access why managed businesses, retail on we unmatched which than to more sales focused expanding are our more through our e-commerce of is X even footprint our sites DSS

have months as fiscal made suite services. we million of were fiscal XXXX, in-store in business power new business in footprint our of sales million. gross Within comparison XX still winning the and remaining year-to-date periods DSS, business strides after online for net concentrated have on net with of $XX closings. new great XXXX, closings bartleby throughout saw this store after new to in year, the store approximately five rush we of XX.X past year We By contracts open we've gross sales two the our sales million

been we for gross this that, a over to continued gained year, compared than Fiscal 'XX footprint month the a of term. very XXX% and to including our momentum subscribers has in gain XX,XXX XXXX growth our by bartleby November, over representing of spring subscribers to-date, important teams Considering less encouraged bartleby during approximately we are XXX,XXX the goal. accomplish marketed focused effort the

more answers plan fall efficient learned how by have learning spring we on our With We move the sales efforts. providing and shortcuts Rush deal differentiation remain providing and or very even proud and offer a more process. focus to a great merely to behind learn, to the period forward of us, product with

products with and results a at Bartleby offered to disruptive price achieved commitment we've becoming thus our to far strong of points the our is student suite bartleby direct strategy. quickly confirms

quarters. significant becoming increasingly and this we of source seen channel an beyond physical channel we've throughout acquisition expect Additionally, the an increasingly to customer distribution our be the of acquisition coming important fall over semester, customer

direct addition we sales offerings. students look confident team, unique best ensuring in our on student continued you new general institutional exciting strengthening providing retail to forward to quarter anytime bartleby bundles offerings, with scale are to business to support, scale enhancements Within talent ability academic experience. added to our today's and merchandise bartleby, dedicated We opportunity we're and we our anywhere. to we've FirstDay providing them this and and including initiative. this a In enhancing stores, to our feel through ensure truly to make with the with updates We've serving

We than at continue to success now the nationwide. more are campuses our see concept which shops, of XX

as as as those concept brand Urban concept such Outfitters, of our trend-based those such well merchandise. day in shops, around featuring Game includes based graduation, or XX live stores centered Champion as shops, This or

developing e-commerce which NextGen Additionally, to our in we fiscal platform, to progress launch make we fully expect continue XXXX.

the hyper that us omnichannel and Our and personalized partners. new provide shopping we increased experience a communities will serve. for best-in-class local campus experience e-commerce sales platform resolve Which the customers a for we all for provide should our ensure

has been our at to In and publishers, service undergone for of time of to provider value us students, amount it creation institutions industry including accomplished has a a center as short change, best a as incredible high omnichannel and EBITDA faculty scale courseware service exists BNED results first the intersection of sales, declined period reverse margin that evolve, critical scaling our general more profitable years the their DSS stabilize merchandise operating increased more we digital has then helping packages, to trend to and affordable our sales courseware to contributions expect EBITDA, grow recent offerings, as and trends. with tremendous

for as the the is it's structure forth and very to in future. where as have market possible urgency. we we it the can efficiently confident and in cost where initiatives our serve prudently sense managing also ensure of are We set today, We're headed

of we and and access scale and value enhance such we're initiatives. as shareholder significantly offerings is value. We've on will seen the believe and these each we greater focus turn are serve, providing work in solutions every our important that, possible implement we drive We missions. to at proud our helping through to quickly our to Now customers affordability by all achievement, our to campus moving toward as impact

for our enhanced value and value. turn and will Tom to With are to review. financial made translate it over results great the in shareholder translate have for already operating institutions into strides we We've that poised I into that students now driving going both and forward

Tom Donohue

decrease the the partially $X.X year. $XXX.X million second quarter prior This $XXX.X for quarter offset was be Total the million compared by with segment from $X.X million Thank comprised wholesale of the million fiscal of of consist the $XX.X you, were ended of X.X% that XXXX decrease the in from will noted. increase $XX.X or second from segment. XXXX, note DSS segment million comparisons the All Mike. and weeks. million unless October on retail quarter XX Please and XX, in decrease sales the otherwise

prior for compared to Comparable material as the in year X.X% prior quarter of year quarter retail lower pricing. to segment the X.X%. store Course as decrease selling average due sales the be quarter of decrease of X.X% course continue approximately the the period. Comparable lower decrease decreased with compared prices, material by to sales in decreased X.X% to a impacted a the for XX% sales in

enrollment by publishers directly online student and impacted also providers. declines Course purchases were as material other sales as well from

continue ultimately we to access material course our change sales for stabilize. our inclusive model scale we As FirstDay programs, expect and the to

digital margin As course through to material we sold program FirstDay bookstore the move

This We years. will also in approximately decrease these will we'll slightly The but through will XX% sell-through material the commissions the sell-through to we schools in help but from declines will pay XXX%. to almost increase sell we've course volume experienced the recent -- increases stabilize decrease. believe in

demand, store $XX.X with essentially the segment X.X% customer decrease million, including sales the the comparable decreasing in year. Net were in segment. period. flat primarily the decrease increase merchandise the own X.X% decrease or X.X% General supply with at retail The sales year million is were compared quarter of for compared prior to our and a a decrease the due $X.X for in wholesale prior

to were X.X% quarter, in year period. prior sales increase to an sales of as compared subscription. is increase of The or due million the in increase primarily the the $X.X DSS million bartleby $X.X

helping DSS As factor Mike trend business, important we with declines courseware the then as of it years margin scale from stabilizing an sales. to contributions and this our of as growing EBITDA, our declined EBITDA in will recent stated, has be previously reverse high the

shift to well higher The consolidated attributable the prior decreases as related the as to margin products segment primarily from period. contracts. in costs gross and for year university from lower the the markdowns higher to margin This college down and digital is XX.X% retail in quarter XX.X% our the was

was million, by primarily X.X% store increases the the offset expenses. in compared development physical expenses Selling by quarter $X.X the or the expenses product Wholesale in decreased operating expenses infrastructure of the due $X associated for well to retail prior in and costs, increased by quarter due expenses of costs. costs decreases million, period. quarter $X.X primarily in corporate result and DSS second Selling with Partially The and million the lower primarily bartleby. the to and decreased million administrative and payroll. administrative second expenses of in development quarter segment payroll operating decrease ongoing as payroll as to year $X.X by in

as in Services result decreased quarter lower a lower Corporate and $X.X million expenses. of the by compensation-related operating expenses

cash million the in quarter was Our at There end prior of an the $XX year compared the increase $XX.X outstanding to the period. $X.X year. were the no million borrowings as balance in of the same million, as quarter, prior

Our trends in strong declining significant despite sales physical we current materials and projected are remained making the liquidity and in course investments

change Strategic initiatives.

year. continue million initiatives. we approximately debt In to $XXX prior to with excess expect the $XXX free fiscal in million, cash We expect compared to $XX be XXXX help million these flow to finance the average of in be

the million fall of peak $XXX approximately the repaid borrowings were and summer during during rush. hit Our fully

and guidance XXXX. with $XX.X $XX.X prior the year. borrowings additional the million year second a in for expect compared We CapEx similar quarter the fiscal was of fiscal the of million end until

our retail K-XX college segment sites, bookstores their bookstores, X,XXX XXX as as comprised XXX operates school Currently, in physical bookstores. e-commerce University virtual in well of

to additional count closings, loan to As XX this we X,XXX will stores and of open have today, additional virtual total our of with locations, in an physical stores. net XXXX, store fiscal closed four bring contracts

new comparative to the it our XX EBITDA mature typically While positive sign takes XX typically stores margin. approximately fully to when new a to a are reach months store, we EBITDA contracts,

range For million XX be $XX to cash cash of we flow and expect adjusted expenditures defines and fiscal $XX $XX consolidated free to the EBITDA expected cash year between million. free $XX capital $XX EBITDA to $XX to million XXXX, to between The be taxes. adjusted in million, are million and continue be -- million, less capital expect as Company cash to flow interest, expenditures, we

instructions will we the for provide interested for the open in Operator, call that, question. please asking With those questions.

Operator

Ryan with from [Operator Needham. instructions] comes Your first MacDonald question

is line Your open.

Ryan MacDonald

just business, I we three, least on morning changed your everyone Yeah, of really guess off, sort at talk review. what first guess the taking -- just you really, my for the pursuing, talking six good thanks change and touching I I today felt strategic maybe when questions. I of viewpoint in versus sort Can guess to about strategic the months guess, past on or look considering alternatives. out you

Mike Huseby

DSS, thing position that independent upside lot can and we see from see level in educate the something various potential the Yeah, the asset. whether value so the a together, handling a I on a how public main that are terms call have that and are That's think price, and various hi, that's as we Ryan. given has would contracts, to alluded companies changed, It's for stock are of inquiries lot get to partners level, we a financial thing available the our advice and the well had our of changed. probably of alternatives help that, put we're it we we've Mike to the with have financial improve and the of Obviously horizon in schools, we probably Because that advisor they lot that there’s I there the to that those – BNC that probably -- in the the has Huseby, to paths on work strategic is about, I increased, the board together based said the players two main and strategy upside accelerate strategic inquiries whom that's and strategic Board time under opportunities of, we've other assets of the terms that trying I operate main and we it's but unsolicited potential that MBS in partners think release. as relationships for in they're starting time those us the from putting partners, pursue as volume all well. at of the our the from of is talk been discussion the or some think or in thing sense competitive releases, strategic a commercial of

as about actually our we we've Complete in in work that FirstDay we These models, as we're has starting and here improved changed months other done have instead think instead more pricing like results done interesting contribute ago actually place are all they we potential bartleby like things financials, about, we've things place were strategy, that do, AIP the -- sitting them, them -- the to it's talking have been tools actually they of nine show, offerings great can piloted, results to we and and the the is to ago talking now, changed I well like our and have packages to specific now, and also how improvement and DSS things said, of we just things have partners. things haven't of how and and was financial -- six what actually tested as to we as term. we longer show months some of see scale We same it strategic that new can

interest So We and since let's let's in what be doing, based strategy. want Board going ask accelerate with there is this. the questions advisor, all a it's value to decision, not distracted, and what optimize shareholder management doing is I see it's place best way keep think so is to on your to structure and the -- deal much to put financial and

Ryan MacDonald

it's Can marketplace. business switching are XXX,XXX in great you're of you you. They are Bookstore helpful. or channels it gaining students platform, of -- terms super college sort over bartleby online traction heavily weighted talk some Thank of towards attracting is just the would you that you're you to about to the from that's more, what in see nice you a exceed footprint the I you're you obviously year-to-date. the guess it, say build. subscribers Got into now, mix the impact in-store seeing benefit or more seeing and how

Kanuj Malhotra

Hey, of of which to websites That our physical the the build behalf remains our source the -- our in institutional. are is the channel and strategy is primary primary still stores, and his and of store -- we starting still SCO the Mike speech. acquisition in college operate on we of in-store, , stores sold Ryan The both stores Kanuj. to is half partner student the sale comprised longer-term stores point footprint and this referred of primary acquisition. is a as at

we thing, right haven’t other in store. it's The to really now on, but started focus primarily

Ryan MacDonald

bartleby. very sort of Spring That's far and terms combination guess sort a you but helpful. maybe this still utilization seeing thus And average it's what in of of you're building obviously can seeing of I what as of or talk you're are Fall of early, very students in you're about seeing, terms with what business, in from semester, semester, sort usage and you

Kanuj Malhotra

I usage the mean, seeing for on really focusing people receive we're the on answer increased, the question increased active capabilities. platform and and users, time

So, continuing to seen we've periods, content you very so around is see continues is and and peak mid volumes increasing. increase, heading exam now season, to into peak question increase, can in on site usage the usage as time as leverage into final you the the Exam get peak, we're even terms,

of we thought. very KPIs would nicely and are ahead to So indications usage frankly have where all trending leading related and

Ryan MacDonald

it's of one macro here. announced broader more just increases Recently, then And was guess at I a some for me. question there just, more maybe price Excellent. Cengage. And

bookstores. McGraw-Hill? forward this have talk merger the I were impact pushing business this on sort in Barnes Noble they impacts viewpoint potentially of could for between of you about and and your moving early sort potential Cengage November, to Thanks. what the that & how on retail college Can think

Mike Huseby

that's a involves broad Cengage. than more Yeah, pretty question,

let, I this and that another is the the and chime been different their think lot Ryan, from I'll publishers, example over this There's past something they on different that providers think experienced think well. it, I haven't competition has all place. kind the I of is Barry lot pricing But a and this of of they a in And Mike. else. we tried to of as in things, and

publishers. know Ryan, McGraw-Hill, regulatory proposed on I you merger I think to we're it between under that, and want review that's the the comes relatively when don't agnostic Cengage to comment

hire Our are is which us we content. go procure the job really and the schools extension of out we an to that serve, they

we of we're So, the an agent operate school,

Contract.

can others because understand So merger and on looked at did that's things the engaging pricing others down I citing mean the go are maintain positions like prices number carte an and thing some prices to and come in press, when important of -- can but of different they that's on in ala those ways, out today, engaged and practices the pricing, be ultimately are the they're a taking can't forever. where the

the makes inclusive that's why, sense, by just penetrations the with. beautiful for so by XX% we on bundling that work access is partners -- say thing for getting inclusive much solution and thus access bundling end students an and who the publishing the revenue far. that we've So but curriculum on average, what not that is discounts FirstDay discounts, us net seen into And substantial schools up, go share up the

say going publishers. and collaborate very think really the everybody the they're try to which -- the Cengage don't the the bookstore, by is and publisher, price, that's so works we the a we share the set's let's of in with to for or best set share point set it solution someone from we're to not else, whether something focused publisher, at we the And, case. price it's that meet margin time, We the the how affordability for if so -- is but price, objectives some schools, the on,

including hearing with under faculty, they profiles, don't in all levels, have to curriculum them. customers they with gives with and affordability highest this but our our this is and kinds deal are point publishers of we all cases the pressures interact customers we're financial these under because pressures As better they and that schemes is are we're are own the important the to as and demanding, that substantial and faculty of also our clients really and the their students customers, our what confusing want, at trying different which our what the are and kinds to many many and deliver doing administration, students various throw want the in etcetera, of packages at that discounts schools pricing to cases want is

the it's work our of our work what footprint we're customer this with us. So and they of transformative make is challenge managed during kind to sure best in to them our environment representing to our publishers, customers understand changing customers to that stores want thing the and to with that the for and listen do

Operator

Greg comes Sidoti. next Pendy Your from with question

Your line is open.

Greg Pendy

guys, where are there, lower the tip on the mix. they just for taking my a at color, colleges Any probably color you us declines probably colleges. taking community versus course just merchandise brunt have with bigger that's assuming how and say thanks a portion. Can of , questions. share within are enrollment Hi the doing any portfolio The four-year

Mike Huseby

the portfolio. colleges, XX% our community This in to Greg, Yeah. low be is of be. continue to Brover, total Barry continue

a the well You that know on market improvements many and difference made really of materials share has to as we've programs far two community our more down implement as FirstDay -- increasing significant trends, we we've seen in than business. have been able colleges, actually -- our our course growing seen, in

Greg Pendy

our systems and our made meetings have our working our priority. and year and cost increased the solutions that to mean, believe publishers with people progress this be , is to will more I that. we Focus is FirstDay, the of the one drive one tremendous to their, that we introduction some of well. able number the tools, with with in program priority clients materials it for ultimately with said the our FirstDay realize Mike our number volume. developing and complete, wherewithal growth customers, think, And schools. affordable the We've and respond We I

As the of relative Tom, course talked to future materials. to

great. Okay,

Tom Donohue

just. Greg,

Tom. Sorry this is

total XX% of to college the XX% represent closer probably Community around the or revenue. Just, now. usually XX% It's

Greg Pendy

Okay. offerings. And bigger Correct? some the your been early of. just and I picture, terms adopters guess With they're of

then the in offerings just that's maybe it. writing that. on just you -- XXX,XXX. at Or peaked the textbook on the solutions, is that moving And where got to, Okay, on on Any XXX,XXX. when more, where I guess just included just, solutions said one subscriptions color are it

Tom Donohue

be it's included the gross activity. so clear of acquisition, any not XXX,XXX No, our is it's to not just in current XXX,XXX

the So, subscriber disclosed for the writings of sort gross we haven't overall activity business.

We also, be clear very bought semester assays we to and writing launched, Greg. disclosed number, business, expected solutions we of haven't one, soft that just brands part routing this the but as in aggressive business, push but we also, good the action student the of the had we but with reviews, an we spring, marketing

Operator

Your instructions] Fuhrman comes question [Operator next Alex from with Craig-Hallum Capital.

open. is line Your

Alex Fuhrman

to many to your you more bookstores just do of those Can of those of you here, be thinking Hi. you've about that what Thanks to Outfitters, for champion. candidates type are how up some taking partnership those scale talk portfolio the think. my how of might question. I and launched wanted potential college about recently, Urban that to the AT&T, are partnerships ask then about going, locations some locations have partnerships of

Barry Brover

merchandising our from our reviews foot programs take shops, as giving well Brover. a excitement Barry great stream our vendor into customers, through very great graduation clients partners. and traffic done back just at it's job floors increasing our I bringing as has Alex, us. visual us are and Hi will of which it, The merchandise other a as exciting for type shot concept well are those and champion as

a whole state probably -- resonates us in we not store, very college, to our how the the to look you again their having was showcase experience retail about old want other is most in have business traffic of sitting it's are impact opportunity, Outfitters to XX the community very school, to XX Urban private well we certainly the through product would in or today program, network in the that excited great and and imagine great online, stores great that, the for suppliers our it's it's excitement, expand continue media, year relevant so but to our stores. great a may that and in-store large transforming vendors in and XX both

Alex Fuhrman

available, mean, you stores. answer you directly. to -- I This Mike, saying Barry h I very is as is To saying themselves have different necessarily, the store each each is partnerships he to the thanks. think, the are implying that's each lend don't -- other as some there the cetera real said lend that Yeah, themselves completely, but question. different, school question answered another as and stores it larger Barry and estate et

that's in we all treat expectations them XX each terms the year, try that about of case we But in been things about we that, this met the as KPIs with as selling tried, are partnership every the has said to speech on stores the think targets so very clear stores. point, expectations and I in differently of

So that representation… good -- that's a pretty

Tom Donohue

Distribution.

more gather can we see the expand at a or not and data whether we into want stores that level. So to different

example, that for So thing. smaller, But, smaller yeah. type of footprint

Alex Fuhrman

different version on a more what also And our base. streamlined is to community college, just that piloting, customer for a Alex, that. taking we're has

going required over that's time of a decreases college more a So and more with with the things as digitally. concept customer, course materials, and more physical style footprint aligned presentation community

Tom Donohue

community. to really retail up the bring able certainly destination space It for be to this the us the more and concepts, products spot a opportunities opens for in to more make

Operator

to the back Donohue. Tom questions I'll queued time. over are call this further no at up There turn

Tom Donohue

Thank thank Have quarter about note for scheduled will call. March earnings you today's a third call, XXXX day. or next fiscal release our be Thank on you. you X, XXXX. and good our that Please joining

Operator

conference call. today's concludes This

may You now disconnect.

Barnes & Noble Education (BNED) 4 Dec 192020 Q2 Earnings call transcript