Earnings call transcript Q3 2023

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Operator

Good afternoon. Thank you for attending today’s Barnes & Noble Education Fiscal 2023 Third Quarter Earnings Conference Call. My name is Hannah, and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call, with an opportunity for questions-and-answers at the end [Operator Instructions].

I would now like to pass the conference over to our host, Hunter Blankenbaker, Vice President of Investor Relations. ahead. go Please

Hunter Blankenbaker

welcome call. and fiscal third XXXX Good to earnings quarter morning, our

Joining Tom Barnes Huseby, Shar, Mike of us are today CEO; and Henderson, President, Retail MBS. College Executive BNED Donohue, and Noble President & David President Vice Jonathan CFO;

begin disclaimer to you Before documents. press and contained we in the that by covered I’d call public today’s our on are call, the statements like we remind make Safe Harbor release

are not of written & and Contents Noble call Noble any by property are consent & prior rebroadcast Barnes of for other this the Barnes Education. without use or Education party of

During in be public update to about during obligation statements, future or any the press forward-looking and filings risks this assumptions upon with company Commission. may statements contained statements These and to and are this uncertainties Exchange based including our other will and call, that with events. made we The statements current subject release and Securities predictions, disclaims call. are discussed make any expectations projections forward-looking those that

turn now, Mike over call And Huseby. to the I’ll

Michael Huseby

morning, and everyone. you us today. for good Hunter, Thanks, joining Thank

I over operating to last our members. consider When years, start journey or BNED by anything today’s I our want thanking the but been environment team has three predictable the call easy.

seeing While are still shoots, certainly green we well are levels. we some below pre-pandemic enrolment

them, taken in meet day we for and an students, headcount specific December. every rise array address, to the our deliver Despite to we with a of team the challenges to single to innovation and institutions to serve. teams the and actions our resolve Nonetheless, macro continues occasion educators environment and uncertain we adapted and to have responded have significant challenges our including reduction

market. and innovate adapt education and grateful of rapidly both to unique their Through tremendous their efforts, am changing our platform higher and we the continue people to efforts. our I proud

undertaking rush execution. in the operating As last see environment the to we our improvements not fall measures quarter, and period of the structure decisive cost take broad need our you did to and We expected set the swift discussed a began with improve manage and recognized in we actions.

some are deliver growth. be and implementing and the we we're won’t appropriate time consistent results linear, strategic to taking profitable of While will actions the initiatives take long-term

results early Our the adjusted third of margins and delivered expanded basis. quarter gross growth actions. top reflect of these line EBITDA We benefits year-over-year on our grew significantly a consolidated XX%,

First model. meaningful market partners Day our Complete grew the institutional accelerate progress discussions we’ve made to FDC the revenue of XX% with and in adoption

let’s first traditional The financial and ’XX at fueled albeit more on First by segment saw slower review rush. discussions, a level course we strong decline, Day Before model in carte the to la Retail continue our day results. XX.X% to providing material high those much merchandise rate general course million detail Total increased than Complete, a revenue by $XXX.X sales. fall

a to recognition enhanced teams MBS enhancements to in-store partnering more support, This Special includes, sales. better to collecting content on in-store our improve explore significant and X.X%. on First our momentum execution encouraging. gross sales Complete Results same-store store same-store comp Course Day faster. Total orders fulfil offering. increased continued of basis X.X% and grew receive goes drive ways adoptions, through to sourcing to the by sales providing that system were driven continue material retail

convenience. in general General logo increased aided merchandise cafe strong merchandise sales and performance same-store by X.X% and

increase. EBITDA $XX.X million year-over-year was million, retail quarter $X.X Third a

fall in taking to and staffing As we decisive trends we aggressive based rush. significantly last experienced related are the costs announced on quarter, the adjust and we actions

December. saw This began quarter, quarterly partial the we and we initiatives, in positive impact of these initial which savings cost implementing

and costs to operating We more reducing efficiently. continue focus on

executed while quickly approach lower development improved in we to with rigorous a optimize capabilities. costs, to on return team conversion on optimize and well drive initiatives existing our X.X% decreased DSS revenues much content and million SEO has our rates our investing to spend, more our shifted continued as our assets of the $X profitability. to priorities marketing The optimization

several subs, of months January declining and operations, Within was our positive. gross growth lower traffic subscriber U.S. Bartleby after

the learning market evolving recently, pace. of DSS, leveraging rapid capabilities building focused a Within on are well-publicized our As is at years experience. AI differentiated we

We and continue learners, the matter contextually to content to enrich at to results AI do subject to path provide use demand to our experts relevant teaching optimize curate for analysis and to scale.

questions help to API and OpenAI’s using lower are we answer a at faster our example, For experts cost.

we’re teach own of guide their a language large to substitute including will that in education student’s experience higher create that better but harnessing We for is power strongly to addition, the AI be learning the support In to believe and it. never them writing tools through future student a models journey, GPT-X writers. to of

of to Moving revenue increased quarter, the after years decline. on than wholesale, X.X% during more two

increasing quarter, at demand easing we constraints other an us During enabling saw opportunities, more and the BNC of textbook supply and fill bookstores. to purchasing

further consolidation a the the to believe wholesale larger in provide competitive we physical and demand market opportunity the recent unique the courseware BNED. that textbook differentiation meet capabilities to highlights wholesale MBS materials for provides of Additionally, continued MBS’

accelerate Now, at deeper schools we our In the to look subscription-like transition one a priority. First take model. December, we a Day number kicked-off let’s journey serve of our Complete, strategic FDC to the

to has FDC provide still The our I’d footprint. conversations. like this on and overall campuses across and urgency some on we created discussions are strategy prioritized our communication color relatively While process, early in plan

fall on in Day with of the dialogs Day hundreds our earnings release First with our to connection active June. Complete plan we’re in progress we’re are First institutional year-end and expected enrolment in more making. We by encouraged growth regarding XXXX partners We Complete provide specificity

FDC adoption of of but a their FDC launch fall to Some us defer to fall have due we and schools committed has XXXX constraints. primarily XXXX, where internal the require governance its process asked to until

make the we working transition to In year can with in an at acceptable these level, fall a cases store provide XXXX. profitability to a bridge where schools run we’re

with chose schools expected, As the to FDC transition certain not make us. to

to have for vision the FDC a are these their of down protect and institution. integrity our we conversion different approach schools with winding a the relationships accordingly We’re disciplined taking strategy that

our be lower XXXX, be for is positioned store better In platform today, than total fiscal future and but our growth. more store expected profitable will count to

Our to growing expect. commitment confident of remain our scaling our successfully students institutions financial ability that access serve to the our We and FDC growth sustainable strengthening and the equitable our in to to ability key of the deserve benefits model and model. is long-term profitability accelerate the a manner they and in

The benefits of higher health economic and and forward to the a confident is that BNED is much all growth critical students clear. institutional the The shared. after part more summary, institutions affordability our with predictable partners, revenue achievement, initial accelerating path In truly that shift conversations the assets, success successful FDC a are that mental round benefits whose and receive with schools, are move for we compelling parties. to are ours are margin of right

direction In positive closing, our third quarter the provides evidence and that regaining in we’re momentum. right moving

in improving highly to and challenges years view financial of our are several put operating the continue focused the operational We we as of performance rear last on significant mirror. our our most environmental

diligently such our manage. businesses headwinds have facing as to that issues broader need we today also the will We

confident much-improved on profitability. we However, are the a along sustainable right as ’XX, us that look more actions XXXX progress the put achieve we we were to finish with to fiscal taking last growth than the fiscal we position made I have predictable in and three and we’re ahead and the am years. trajectory

business and I’m a more build excited model resilient about more for and of stronger, the company, we us profitable unlocking in value at as front road long-term continue shareholders. to our aimed

over to call in to I’ll detail. more Tom the quarter the Now turn discuss

Thomas Donohue

Thanks, the XXXX. comparisons unless third the third ended quarter otherwise Mike. be Please to of note of fiscal weeks XXXX of fiscal that XX January on noted. will quarter XX, All consisting XXXX,

consolidated and comparable by wholesale DSS an X.X%. were offerings. for Gross sales quarter. quarter Total sales during and course were increased decreased gross X.X% the driven by while growth day retail material our increased The first sales $XXX.X up rapid segment segment of X.X% increase. sales respectively, the X.X% XX.X% Retail comparable-store the sales the XX% million,

programs FDC equitable general increased during to merchandise cafe General logo strength quarter sales prior X.X%. and $XX and from as by sales benefited convenience. the well merchandise increased comparable $XXX Gross revenue million. inclusive to compared as XX% in revenues million access in increased as XX% year this, BNCs Within to $XX.X and the sales million period. emblematic

The sales Net the a $XX.X to segment increased wholesale by increase X.X% continued digital easing as slight which demand. physical million. to textbooks improved to as for constraints, primarily was to the well offset higher in allowances was customer The meet due products. supply our from shift ability of returns increase

$X million decreased X.X%. by of $X.X sales million DSS or

a discussed, profitable more generation. DSS to the cash Mike taken As growth rigorous has and approach team

model flow made operating in reached the breakeven changes of January. a As December, DSS result in cash we

continue in and flow expect achieve We fiscal discipline to to free this cash XXXX. maintain breakeven

was Consolidated decreased in and expenses selling were to This primarily as increase XX.X% from rate was the million. year in $XXX.X revenue from an the Consolidated prior XX.X% due administrative FDC XX.X% Consolidated period. Third a increase down margin in to of higher XX.X% which quarter of million, an and higher sales. year. benefited consolidated merchandise to general gross $X gross was XX.X%. prior gross profit margins, retail percentage compared and margin selling expenses administrative

million December, in normal, plan, cost incentive awards operating third benefit a million higher and quarter actions savings approximately from for initiating in our Since a as a we The compared lower optimize long-term our $X our activities December. to of more $X to the quarter we to that structure return and operations achieved streamline to prior announced the decrease rate payroll to is which compensation assumed cost-reduction the expense as run volume partial environment. well in

in in retail, benefits, and $XX of annualized XXXX. the $XX which $X.X severance was in was $XX rate million the $X.X wholesale, million We was was million, to million corporate related $X charge million million $X.X primarily in once to to charge segment million of implemented, We to continue other includes XX recorded in in $X.X and fully termination a million restructuring FY services. DSS million savings expect run

our in quarter, for long-lived assets impairment. store-level the During the segment retail we evaluated

of this noncash a we result million impairment a As charge. testing, recognized $X

for $XXX.X balance borrowings prior date. the our growth first million, compared year. increase balance the Receivables generally million quarter of increased to that remit first year payment the cash was as with period. as the of million to the drop our end with student at to sheet, day This of $XXX.X offerings, borrowings timing schools million is in onto $XXX.X day $XX.X outstanding a mostly after associated increase prior of from receivables enrolled million significant the courses Moving $XX.X students the in of the due

has has third which a quarter. of a source fourth quarter, been As the the fiscal result, to cash shifted

$X.X to group ABL bank As for loan and was extended existing build-out was extended in existing million term of prior the through XXXX decrease amend noted was system CapEx from the December press with release, through store due $X.X and loan. decrease we worked and reduced maturity The term facility million, extend and our a the was period. to of product XXXX. development. our This our and asset-backed quarter August

end K-XX of retail school the and as X,XXX of bookstores comprised XXX segment their as and our quarter, university the bookstores. At well bookstores college, operated e-commerce physical virtual sites XXX

for As to to positioned efficient cost platform But today. more is our our a will our expected be on profitable count than structure to total and store model, store lower FDC future create operating we strategy simplify our continue and execute better growth. be more

our given continue for EBITDA and fourth results million. adjusted to to quarter, Moving guidance, our $XX $XX to FY we million XXXX of expect to-date the expectations

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

Operator

is the question with MacDonald Ryan of Certainly. [Operator first from Instructions] Needham. line The

You may proceed.

Ryan MacDonald

quarter questions. all Hey, on see Tom. being taking a for progress to Mike that's Thanks and made. the here. nice Great my And congrats

investor Day the sort students First the the And detail of great and a lot number presentation wanted terms on start of market potential of in I to of Complete. there. In opportunity

about expect sort that of the each you’ve move potential think to X can the transition? about we to do quickly be kind that for you then you the presentation of you First think in the you about million mentioned accelerating able adoption make in retain cohorts, this talk opportunity, students as sort how sort if you the strategy much to that's of of think the And cohorts that of Day you Complete? As can how of

Jonathan Shar

the strategy. about launch Ryan. on And acceleration Jonathan conversations of post for the progress Hey, excited we’ve Shar. the Complete, the question. our had and really It’s growth to-date Thanks then First making we’re all we’re of we’re Day having, the

we’re objectives to where how going we’re and I on convenience highlighting enhance access we’re from at on for broadly, First exciting think Complete, key having can their greater of it’s students. really with driving the their Day really of see the where conversations model hundreds and just like outcomes and alignment and substantive support affordability, student institutions

really we’re announced about So a we excited multi-year as that. It’s journey.

I for fall of against on majority driving confident institutions and ’XX, has term or strategy fiscal and of great that been our cohort the ’XX, progress think the is our focus model making to really we’re we’re effective. that

about So excited going. we’re that, where excited about we’re

governance the We’ve bridge required campus be community. for consensus seen able many launch, campus their assortment to approvals as support the marching we’re really we're and the happy for and the and providing store model, that get us to ask through and and bridge that the institutions really distribution. are and implement towards for we’ve able But then semester. in a the a building the following to material that’s with required level on allow running that mentioned, schools Mike ’XX an course of great move service profitability, a focused excited that of work for about and those and and fall to acceptable or model been acquisition profitable sort that’s model, do over with to to to move partnership via something of of the this sign And to subscription-like product

good to prospective all conversations have that day and really progress institutions making So about and our with the on model. every great institutions continuing of

Michael Huseby

just It’s Ryan. thing add Yeah, could I one though. Mike.

requiring we the the or the presentation, in to investor that illustrative many wasn’t of why frankly how them strategy Day explains just model quite we’re la at it more if million. for some X that’s the for And going question schools because area, First slide a to in a it’s accelerated launched about And we a go of Complete we basis, many and look used the kind knew to carte -- working schools. million. lose footnote of us X of those you when Your on ballpark

my But And so through much to in if that will be year, less can to by the it foot, that the speak. relationship comments, situations each very, to it’s the platform or or because have some are profitable we've for paying that’s not schools out more and for in a there there and get it positioning able that And schools is just And it but today, then to ourselves there we are where from targeted manage example, basis. that’s management they more one many go more up so in discussions is because fee us, evidence any of that's bridge for where a we’re as have can’t worked commission a profitable. year very is, year, said a we are different. whatever with we each down or to platform the not describing build different schools, a expect whether year I anticipate going students, shoot on back Jon’s of they

schools, not the we’re and their each that we’re them this this doing preferences. with And conversation, doing of one requires to

about can So sustainably a will X yeah, with be you ’XX more million confident be there or give we I in ’XX, how fall company but approach. profitable, of a many don’t to very this of profitable think number the

Ryan MacDonald

about, full fall interested in up is that reflected? know talked your XXXX, think pathway process, I we transition getting, are of fiscal are be ’XX. I getting of color. giving as terms sort them to of you at in transition until the for looking appreciate guess, helpful the I it. then say about we super to timeline And That’s the what schools which

of the a terms quickly a But of about there’s think schools next are on those bit you do start that runway as think that that. over we XX to months? model XX how the in come the unwilling, of to So out

Michael Huseby

Yes.

communication notified, with, there our that the that think exercised contracts. under I have out already to a coming that some we’ve model the are of as right we are

year part still fall we’re proposal anticipation have in a to and Many moved conversation under different are Jon’s going as So some talking stage. involved that this in of that proposal solution past already about, went the of of ’XX. in

Jonathan Shar

are And all the FDC priority stores of Ryan, our Yeah. or it’s not targeted is And conversation. Jonathan. that for

stores are convenience enrolment merchandise many a products, against driving have least sales, sell-through high cafe in portfolio really and performing general drivers on well showed our within as materials the We our driving that we and today sales GM grew were logo at or course of that. significant we --

cohort And is school in that conversion the so, for it’s portfolio a not FDC. to in every

majority clear, I but the that is our it So want make to institutions. of just

Michael Huseby

businesses, we company, an the into who from model are new then business And coming that’s FDC one. new have using day

spring. us that’s using that. a Memphis, that that’s First new they So Complete. one of the our of we Day picked from client example an in up, University are some happened and objective. They of was And with day started

Our manifest in really gives objective students, get it that model, the that and benefits for for and for And model to schools, And our for outcomes and that that level using model best it’s the be of model many financially, mission. doing. is what us allows service, be because we best best all the you the right is you the sustain fact schools improvement thing real the want, That’s about. students should it’s to us a really access the publishers. just this it’s a using as to us model that it’s

Ryan MacDonald

Bartleby ChatGPT broader seen amongst I’m the and the curious, shifting wide me, you what Curious of the using how then of perspective appreciate interesting ChatGPT. obviously What like that into seeing if utilizing integrating only competitive starting sort GPT that. a sort think the driving Thanks. you business to from pressure it’s any the students as there about about you’re we’ve and of segment you to seeing talk study DSS That's business, Bartleby tool adoption are as try Maybe very the pretty students weave tools? other clarification. sort DSS helpful study to offering. or a you’re segment, hear that that I or the usage from in more to of that’s and versus one business? just of

Michael Huseby

about media I every think can't of of on Well, any and kind OpenAI a ChatGPT-X. seeing obviously, some hour discussion without you form turn almost outlet

this in particular. competitor every so Brands And Bartleby in Student space, itself,

OpenAI been building So example, of product their that, has into lot some Student there’s application a Brands for for for time.

I last subscriber matter to Bartleby year pricing, ChatGPT the quickly type incorporate for models positive are reduces to is entering pivoting, helps It subscribers question partial DSS was drive cost And it your about efficiency. and a It how to subject of growth to would and we experts some when they basics have a more on January. say, did and for and of the back We is kind of proposition language and the Q&A. our into other questions Bartleby more, and also taking that thing. large a speed in that a mix. and Bartleby very sharp we efficiency on talked much lot focus direction getting pivoted profitability, answer

didn't helping uses some OpenAI. developed in some tools plagiarism information out that be some is [indiscernible] actually coming of will products the coming of identify process have maybe such we’ll detection important today. for We of week. that So about are it news want out, We There faculty Brands separate There let a Student discussion to we’ve the to an just releasing. announcement. go did next in

incorporating I the tremendous But use we’re for AI that’s is while, been phenomenon. got different what everybody’s than two feel that see websites in across some months, But been that just their users find in in of We we think product comfortable to time. going ChatGPT going value I yeah, and has think you’ll that and that. have technology proposition although confident affect value ChatGPT kind think around million has we It’s that a traffic a competitive to for do. for XXX that OpenAI, plain-vanilla in enough I case

Ryan MacDonald

the Thanks hop color. Excellent. into I’ll queue. back for

Michael Huseby

Thanks Ryan.

Operator

question next comes the with Fuhrman Thank from you, Mr. MacDonald. line Craig-Hallum. Alex of The

may You proceed.

Alex Fuhrman

Hey guys, taking thanks question. my for

relationship is scaled this best to from kind an model, just move And Complete many a away these As of opening perhaps as you with sense Day that you schools point of in to said that at not merchandise of have on schools, move us through all there down how opportunity maintain some walking a you’re selling and ones? kind these you they’re be direction? of this virtual First focusing really general whether it to relationships definitely going is this of, can profitable give means bookstore less or more, some a or the really going transition,

Michael Huseby

Alex, is Mike. this Hey,

what the efforts we’re in have tally a speak, answer have didn’t those of cetera. go Day think vision, have count, those schools different I in Complete, on to store that and et how fall many perhaps terms so way when we’ll question June, that going the to more of that for and specifically ’XX are we of real a First the

So it’s I because in going that don’t into to we’re process. today get really think

trying be not on still It’s that many there be have resolved. are to We’re that are so that. conversations true to in-process that evasive

And Quite on or relationship stores so manage to we of us to exited the stores some kind it’s relationship, of other there requiring try very consider stores to ways a in not going profitable. the out skin probably achieve make strongly profitability. It’s partial for yes, cat going ’XX Many in of the FDC to we it requiring that are making to try portfolio possible. carve hopes were those of them your fall in to where second sense business of of we question, to frankly, are speak other basis. part our of the different terms your question, to many

of here, And some profitable. go to in said, story, in First kind be go service to of but don’t bridge is are a through economic there model an agree ’XX. possibility go be going then will to fall as that where that ’XX, could But fall be exiting. these will not only, going ’XX, but to But some most be of and year are some going may go in are virtual allow or They think, which fall to they they’re Complete is different be of to there change will bridge the will Day I some Jon a that us of shifts. in

Jonathan Shar

It’s Yeah, Jonathan out we of campuses of a positives, Complete. be seems to help prioritization and those urgency is Day are in that. of to First the hundreds about acceleration the do we’re of marketplace pretty a from we’ve drive conversations universal is the that model. value access outcome further, perspective positive There implement the conversations and be to able drive there’s lot on I resistance trying and new alignment that’s it’s proposition to the prioritization had and of just not the think the in of campus what terms equitable

topic students a student And and campuses. solution It all institutions. supporting, so providing can more we an alignment on important for I’m impact affordable about make really encouraged outcomes on and is the

improved it’s really is that’s well-being, an academic that driving guide affordability have materials and helping greater whether day a really much supports So moving them institution. in institutions, or our about to solution materials discussion, a more access that just success that that’s one going ultimately to to convenient significant model a student impact, on partnering having with

where this goal think shift sort and value driving to model. proposition alignment the partnership, So about of really end people, there’s the lot ability of it’s a to getting on process mutual I supporting and

Alex Fuhrman

typically, of than most That’s could the that guiding part been you’re to years to, in really it QX, you. Okay. XX but which just then more, adjusted has you’ve out X, the looks reported kind you’re for like I always has be ask the one Thank more strip over last just QX helpful. for if it you looking EBITDA in what and And not case. if not what

maybe your this of are mean we to to carry-forward should where efforts post-COVID and that reopening period apply enhance of we or some into doesn’t maybe that are So maybe your still kind seasonality profitability year? next typical in working interpret can

Michael Huseby

revenue fourth off, some couple $XX of And the as the to it disclosed, the other $X the way quarter, that is, has to the million, sells way bit Alex. you of which that Yeah, it into gets Mike. and million year-over-year we be It’s first like the a program quite A management things, we it fall scaled $XX FDC and and quarter. earned said, does million in-year the of $X something to measures booked. part this was benefit estimate cost million that

will to that’s quarter So full in a continuing in the And fourth December we time what the for kicking-in beyond did quarter well. measures to quarter. the first we’re take for that help impact fourth as

so, you Tom, might to comment. And want

Thomas Donohue

end Mike, feel where And right. of Alex, still no Yeah, are the within that’s a we in think given confident the year, lower we we’re I we range, but it. might be towards

Alex Fuhrman

helpful. guys. you, really Thank That’s Okay.

Operator

are time. questions this There waiting Instructions] Fuhrman. additional you, Thank at no Mr. [Operator

Blankenbaker to pass back further I So remarks. for will the call Hunter any

Hunter Blankenbaker

thanks your for BNED. And Hanna, Okay. certainly, for Great. Thanks and continued interest everyone us in today. joining

thanks quarter be today. earnings will in reminder, a And fourth As again our for June. joining late

Barnes & Noble Education (BNED) 9 Mar 232023 Q3 Earnings call transcript