Thank you for joining us for the Barnes & Noble Education Fiscal 2020 Fourth Quarter Earnings Conference Call. I will now turn it over to your speaker today, Michael Huseby. You may begin.

Good morning and welcome to our fiscal 2020 fourth quarter and year end earnings call. Joining us today are Mike Huseby, CEO and Chairman; Tom Donohue, CFO; Jonathan Shar, our Executive Vice President, BNED Retail and Client Solutions; Lisa Malat, President of Barnes & Noble College; Kanuj Malhotra, President of Digital Student Solutions; and David Henderson, President of MBS. Before we begin today’s call, I would remind you that the statements we will 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 be making 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. At this time, I will turn the call over to Mike Huseby.

Thanks, Andy, and thank you everyone for joining us today. I hope that you and those close to you are all doing well and staying safe. I will begin today’s call with a quick update on the strategic review process and then turn to our fiscal 2020 performance. With the assistance of its financial and legal advisers, our Board of Directors continues with its previously announced review of strategic opportunities. As I will discuss further in a few moments, we have made great progress on many of our strategic initiatives throughout fiscal 2020 and this review process is designed to accelerate the execution of our strategic initiatives and enhance value for BNED’s shareholders. We have not set a timetable for the conclusion of the review and do not intend to comment further unless and until the Board has approved a specific course of action or otherwise determine that further disclosure is appropriate. And now, I will provide our business overview. As with most businesses, COVID-19 has had an unprecedented and profound impact on our industry and our company. During the onset of the pandemic, our priority was to ensure the safety of our employees and customers. I am extremely proud of our entire organization’s efforts and dedication to serve our campus partners throughout this challenging time, while also focusing on their personal safety and work and life adjustments. In the middle of a pandemic, we adapted quickly to continue serving our students and faculty while simultaneously closing our campus stores as our clients sent students home to shelter-in-place with their families. Our response was only possible due to the strategic investments that we have made in our e-commerce platform, virtual fulfillment capabilities, and digital solutions that have enabled us to offer customizable and increasingly valuable solutions to our campus partners during a period of significant disruption to the traditional learning model. We have developed customer solutions that can be quickly customized, helping our schools to adapt. We have also reconfigured our cost structure and organization to be more nimble. These changes will allow us to adapt to the profound environmental change accompanying COVID and we currently believe we manage our liquidity to weather this storm. As Tom will discuss further this morning, he led the organization’s efforts to reduce our cost structure and to preserve liquidity and the strength of our balance sheet through quick and decisive actions to ensure we get through this crisis and emerge from it with a solid foundation...

Thanks, Mike. Please note that fiscal 2020 was a 53-week year for us consisting of 14 weeks for the quarter and 53 weeks for the year as compared to 13 weeks and 52 weeks in the prior year. All comparisons will be to the fourth quarter of fiscal 2019 unless otherwise noted. Comparable sales comparisons exclude the impact of the additional week. As Mike discussed, entering the fourth quarter in addition to executing on our strategic initiatives, we are also on plan to achieve our financial targets, including EBITDA of $80 million to $85 million for the year. As I will review in our financials momentarily, our fourth quarter sales were significantly impacted by COVID-19 and we took immediate actions to mitigate the impact of the sales declines and preserve liquidity through expense reductions. As a result of our immediate actions, we believe we have sufficient liquidity to operate our business without a need to raise additional capital. Total sales for the quarter were $256.9 million compared with $334.4 million in the prior year. This decrease of $77.5 million or 23.2% was comprised of an $81.4 million decrease from the retail segment somewhat offset by a $4.7 million increase in the wholesale segment and a $1.1 million increase from the DSS segment. Comparable store sales in the retail segment decreased 34.7% in the quarter as compared to a 0.9% increase a year ago. Comparable store sales declined 9.9% for the full year. Schools began to close their campuses and send students home beginning in mid-March...

Hey, good morning, Mike, Tom, and team. Thanks for taking my questions. I guess as we are thinking about the fall semester, how should we think about one, the actual impact from perhaps reduced store foot traffic with fewer students on campus? And then I guess on the expense side, how are you sort of looking to optimize to sort of run that maybe at a breakeven level perhaps and adjust accordingly? Thanks.

Ryan, this is Mike. I will take the first part of that question, maybe Tom can take the second part. In the first part, Lisa Malat wants to jump in if she can, but in terms of the impact of reduced store traffic is something that we are very focused on, obviously, we are talking about it a lot. We have a pre-opening plan that we discussed – we will discuss in more detail in the 10-K, but we have a pre-opening plan for those stores where our campus partners have said they are opening stores and we expect to comply with all the local regulations. So yes, we do expect in those situations even when there is a store opened, because the campus is open, which is probably going to be the case in the majority of the campuses we serve. We will have some capacity restrictions and that type of thing. What we are doing is working very creatively with the schools try to reach students, alumni, and faculty that normally would be in the stores on a virtual basis...

No, I mean, I think you said it. I mean, we are having very productive conversations with our campus partners based on what Mike just said, on how do we work together to mitigate the traffic losses and make sure that we are providing all the creative solutions we can for continuity of sales. Certainly, even the existing e-commerce site has been really a workhorse for us, and we are continuing to drive a lot of business through that. The expansion of our direct-to-consumer drop-ship program is really helping us now mitigate the sales loss on general merchandise as well. And we will continue to work with campus partners to think creatively working on putting together bulk purchasing opportunities for incoming freshmen, etc., where we can sell general merchandise in new and creative ways.

Got it. That’s helpful. And in terms of the Bartleby usage and sort of the DSS business, obviously, it’s great to see some of the increased usage throughout the spring here. Can you talk a little bit about what you saw in terms of spikes in usage following campus closures into April and May? And then perhaps what you learned from that and how you are using that for preparing for the fall launch for Bartleby as well?

Hey Ryan, this is Kanuj. We saw – there were very positive trends, as we have noted, pre-COVID really related to our SEO strategy and things we were doing to get outside the footprint as well as executing in the footprint. But post-COVID, in particular, call it, April to March, there was a dramatic rise in traffic and usage on the order of 50% increase in traffic just for the month of April. So the trends – it’s a very seasonally low period, as you know, in the summer, but they are still vastly above what we saw the previous year. And I think it’s a combination of just Bartleby getting out there more and being recognized and the value proposition being used by more students, as well as the obvious impact from learning at distance. So what we are doing in terms of getting ready for the fall, we continue to sharpen the SEO strategy and optimization of our content libraries as well as thinking about expanding new content partnerships, other avenues for distribution, and just getting the value proposition, which we think is competitive and leading-edge relative to the competitive set, which you know well. So it’s an enormous value to use Bartleby for these students, almost half to a third less depending on the platform you’re using. So we continue just to really get it out there and create the awareness and the usage. We have continued with free offers as well. The free offers have not impacted the paid subscriptions, and we are seeing general strength across all metrics, whether it’s traffic, usage, and conversion.

Alright. Then just one final one for me, it’s great to see the momentum with First Day and First Day Complete. Can you just talk about how the conversations with universities are beginning to change now that we are sort of moving more of a shift to digital and online with universities? And perhaps how this new deal you signed with the division to schools creates an additional opportunity for First Day over time? Thanks.

Hey Ryan, it’s Jonathan Shar. Yes, the value proposition as Mike said, of affordability, access, and convenience was extremely relevant for our customers pre-COVID, but is now even more critical. And I think that the conversations have definitely accelerated as that access and immediate access in driving down the cost of course materials becomes even more important. So we are having lots of discussions. We think there’s lots of potential to continue the growth, which as we stated was approximately 91% year-over-year in fiscal ‘20, and we expect significant growth in fiscal ‘21 and beyond.

Yes. And First Day Complete, Ryan, I think that the other important thing is we have really, I think, gotten through to the publishers on both First Day and First Day Complete in terms of a common voice – from the customer, our institutions is really saying, this is – these are models we want, and because of that, we are able to go to the publishers and convince them that when they are dealing with us in our footprint, their sell-throughs as publishers for digital and First Day and then in total for First Day Complete, are going to be much higher if we cooperate together and work together on that. And I think this environment, as Jon is saying, has also improved that cooperation, which is important because, as you know, there’s opportunity for us to be disintermediated by direct pub sales. And so that’s another important point. I think First Day Complete we have very aggressive goals for calendar fall ‘21, which is in fiscal ‘22. The goals that we have this year, I think what we saw is that when COVID first hit on First Day Complete and some of the new things we are doing, the initial reaction by some schools was to pull back because they didn’t think they had the mind share to make all the changes that needed to be made. I think then they quickly transitioned into, hey, wait, these are changes that we need to make in this new environment. So it’s been gaining quite a bit of momentum in the form of school signing up for both this fall and committing, recommitting for the spring of this fiscal year and then especially for fall of next year when we really expect to see First Day Complete take off.

Your first question comes from the line of Ryan McDonald from Needham. You may begin.

Hey, good morning, Mike, Tom, and team. Thanks for taking my questions. I guess as we are thinking about the fall semester, how should we think about one, the actual impact from perhaps reduced store foot traffic with fewer students on campus? And then I guess on the expense side, how are you sort of looking to optimize to sort of run that maybe at a breakeven level perhaps and adjust accordingly? Thanks.

Ryan, this is Mike. I will take the first part of that question, maybe Tom can take the second part. In the first part, Lisa Malat wants to jump in if she can, but in terms of the impact of reduced store traffic is something that we are very focused on, obviously, we are talking about it a lot. We have a pre-opening plan that we discussed – we will discuss in more detail in the 10-K, but we have a pre-opening plan for those stores where our campus partners have said they are opening stores and we expect to comply with all the local regulations. So yes, we do expect in those situations even when there is a store opened, because the campus is open, which is probably going to be the case in the majority of the campuses we serve. We will have some capacity restrictions and that type of thing. What we are doing is working very creatively with the schools try to reach students, alumni, and faculty that normally would be in the stores on a virtual basis.

No, I mean, I think you said it. I mean, we are having very productive conversations with our campus partners based on what Mike just said, on how do we work together to mitigate the traffic losses and make sure that we are providing all the creative solutions we can for continuity of sales. Certainly, even the existing e-commerce site has been really a workhorse for us, and we are continuing to drive a lot of business through that. The expansion of our direct-to-consumer drop-ship program is really helping us now mitigate the sales loss on general merchandise as well. And we will continue to work with campus partners to think creatively working on putting together bulk purchasing opportunities for incoming freshmen, etc., where we can sell general merchandise in new and creative ways.

Hey Ryan, this is Kanuj. We saw – there were very positive trends, as we have noted, pre-COVID really related to our SEO strategy and things we were doing to get outside the footprint as well as executing in the footprint. But post-COVID, in particular, call it, April to March, there was a dramatic rise in traffic and usage on the order of 50% increase in traffic just for the month of April. So the trends – it’s a very seasonally low period, as you know, in the summer, but they are still vastly above what we saw the previous year. And I think it’s a combination of just Bartleby getting out there more and being recognized and the value proposition being used by more students, as well as the obvious impact from learning at distance. So what we are doing in terms of getting ready for the fall, we continue to sharpen the SEO strategy and optimization of our content libraries as well as thinking about expanding new content partnerships, other avenues for distribution, and just getting the value proposition, which we think is competitive and leading-edge relative to the competitive set, which you know well. So it’s an enormous value to use Bartleby for these students, almost half to a third less depending on the platform you’re using. So we continue just to really get it out there and create the awareness and the usage. We have continued with free offers as well. The free offers have not impacted the paid subscriptions, and we are seeing general strength across all metrics, whether it’s traffic, usage, and conversion.

Hey Ryan, it’s Jonathan Shar. Yes, the value proposition as Mike said, of affordability, access, and convenience was extremely relevant for our customers pre-COVID, but is now even more critical. And I think that the conversations have definitely accelerated as that access and immediate access in driving down the cost of course materials becomes even more important. So we are having lots of discussions. We think there’s lots of potential to continue the growth, which as we stated was approximately 91% year-over-year in fiscal ‘20, and we expect significant growth in fiscal ‘21 and beyond.

Yes. And First Day Complete, Ryan, I think that the other important thing is we have really, I think, gotten through to the publishers on both First Day and First Day Complete in terms of a common voice – from the customer, our institutions is really saying, this is – these are models we want, and because of that, we are able to go to the publishers and convince them that when they are dealing with us in our footprint, their sell-throughs as publishers for digital and First Day and then in total for First Day Complete, are going to be much higher if we cooperate together and work together on that. And I think this environment, as Jon is saying, has also improved that cooperation, which is important because, as you know, there’s opportunity for us to be disintermediated by direct pub sales. And so that’s another important point. I think First Day Complete we have very aggressive goals for calendar fall ‘21, which is in fiscal ‘22. The goals that we have this year, I think what we saw is that when COVID first hit on First Day Complete and some of the new things we are doing, the initial reaction by some schools was to pull back because they didn’t think they had the mind share to make all the changes that needed to be made. I think then they quickly transitioned into, hey, wait, these are changes that we need to make in this new environment. So it’s been gaining quite a bit of momentum in the form of school signing up for both this fall and committing, recommitting for the spring of this fiscal year and then especially for fall of next year when we really expect to see First Day Complete take off.

Your next question comes from Alex Fuhrman from Craig-Hallum. Your line is open.

Great. Thanks for taking my question. I wanted to ask about Bartleby. It seems like you are continuing to see good momentum there. What’s your outlook there for this year and your strategy for marketing that product when it might be harder to market it in-store. Do you feel confident that it’s reached a critical mass that you can continue that momentum into the upcoming school year?

So the strategy really remains, Alex. This is Kanuj. Obviously, there is an impact from not having sort of that physical nexus as optimized as it was pre-COVID. We don’t know how much the web sales pick up for that within the footprint. But the footprint – there are some headwinds in the footprint. But the SEO and the paid acquisition outside the footprint has been far outpacing what it was. It’s outpacing our results. It’s really firing on all cylinders. So we overall, where I sit now, I would still expect growth. We are trying to figure out how best to get after the students in our footprint in the COVID environment. And we have some ideas. There’s also some – there’s a lot of work being done on figuring out what I would call alternate and strategic points of distribution above and beyond. It’s very clear from the traffic trends. If you look at what we got in April that we are either taking share or expanding the TAM, likely, we are taking share from the competitive set, and people are recognizing Bartleby. So what the SEO strategy, which has always been in the long-run view we think is going to be the predominant acquisition channel. That’s certainly making up for some of the weakness that we may have with COVID, with not having the stores fully operational.

Yes, I’ll answer. This is Mike. I’ll answer that initially, and then Lisa can jump in, who heads up our new business sales group, they report to her. But I think in this environment, as we said, our interests are totally aligned with the increased need for schools to help out their own financial position. If you think of these 5,000 or so higher ed institutions that are out there and how they’ve historically operated and the impact that COVID has had on their financial picture, many of them are taking very creative steps to solve it, but also the complexity that is being introduced by this environment with a much more heavy reliance on virtual and digital, that is driving more – I think, more schools to move to an outsourced model like ours. And specifically to your question, we are not seeing a slowdown of any magnitude in terms of being able to meet on a virtual basis, and in some cases, in-person now. Our team has done very well so far in fiscal year ‘21, adding new business and has a very healthy pipeline. So I think that maybe contrary to intuitive conclusion that schools might want to slow down in this environment, they’re doing just the opposite because they have an increased sense of urgency to outfit themselves with the tools and the partners that they need and also the financial benefit that we bring through our contracts. I don’t know, Lisa, if you want to add to that?

No, I think you nailed it. We are still having very productive conversations even for schools’ re-openings, where we are waiting for a couple of decisions to be made. I personally have been on four or five Zoom presentations with schools. And as Mike said, it’s the alignment of the revenue model, but just our ability to pivot and adapt and support whatever might come this year, right? Because we all know it’s very fluid. Has been a really, really important conversation as we meet with different schools.

Hey everyone. Thanks for being on the call, and taking my question. I understand very unprecedented times and appreciate everything you have been doing to help the company navigate them. My first question I want to ask is, in your earnings release, you talk about having 11 campuses signed up for fall compared to four for First Day Complete in the past year. And as you know, we really share your enthusiasm about the opportunity and understand that a lot of the software work in terms of getting those SIS integrations with AIP has been done. We think there might be a longer-term opportunity around even plugging Bartleby into that and certain LMS platforms into that as well. But you are looking at 800 physical stores, 1,500 total school relationships. So I think given the total market size and the product value proposition, especially as you have mentioned how COVID has actually only increased that value proposition. I think us and all shareholders would like to see what the road map looks like as far as how you scale this product to reach hundreds of schools over time as opposed to a dozen today. And so I guess my question is, what are some of those specific steps that you and Jon, Mike, are taking around really accelerating the go-to-market for First Day so that this can start to really transform the company from a revenue and EBITDA standpoint?

Yes, I think it’s a great question. It’s something that we obviously are very focused on. You have to keep in mind that when we did the four schools in the fall of 2019 last year, those were pilots. And they were very relatively small schools, although Onondaga, which is a SUNY school, was fairly sizable with about 5,000 or 6,000 students. But this is still being done quite manually and the processes and systems required to support it weren’t in place. As you just indicated, there are different tie-ins. And what Jon and his team have been doing and the whole retail organization have been doing is getting schools signed up to our adoption and insights portal and the necessary SIS and also LMS tie-ins with the SIS, in particular, is basically just an export file of daily information that allows us to personalize the experience the way we need to and understand the courseware flow. That’s being rolled out now. And as you know, it’s a very seasonal business. And to your point of – I made the comment that we really expect to see this take off. We are not disclosing the exact number of institutions or the amount of revenue in fall of next year, fall of calendar ‘21, fiscal year ‘22 that we expect to see, but we have a very aggressive target. We are not even giving guidance on this year. I don’t think we are going to look out in this kind of an environment and start providing a road map or guidance in this – at least in this call. We may do it later in the year, Rory, depending on how things go. We have got to get through a little bit more time further to the fall to see what actually happens with our business before we start providing road maps and targets that are – we are trying to provide as much general guidance as we can about what we think is going to happen. But I think the context I would give you to your question, which I said is a great question, is that a year – a little over a year ago, none of this really existed. A lot of these things didn’t exist. Bartleby really started up and was launched in January of ‘19. As you know, the new sales initiatives took off last year, the First Day Complete and First Day, which, as Jon said, grew 91% year-over-year, First Day by course, which is another important element of inclusive access. Getting schools to switch to a concept like First Day Complete requires examples in a market of how it’s working. We started to provide those proof points and examples in our pilots last fall, and we are adding to that. It may not sound like going from four to 11 is much, but you have to also look at the size of the schools, and the impact that’s going to have on being able to point to different kinds of schools that are larger than the ones that we accomplish this in, in our pilots. So yes, we expect to see substantial growth, a multiple of 11, fairly high multiple of 11 mid-to-high level of 11 next fall. It’s a key priority for the company. It’s what we are all pushing on. And Jon, to your question, has actually brought in some very great outside help on the go-to-market strategy and execution, very detailed operational execution to make sure that we are driving this internally as quickly as we can. I don’t know, Jon, if you want to add anything to that?

Yes. And also – yes, it’s a great question, Rory. And we actually have schools within this fiscal year that are targeting spring term launches. So it’s not just 11 for this fiscal year. There are schools that are very interested and with what’s going on with the reopening plan had to defer to a spring release as well. So we will have more this fiscal year. And then as Mike said, a high multiple going out, we have really put a disciplined sales and marketing structure, go-to-market approach and resources against driving the pipeline and converting a lot of interest into signed amendments for this new model, which, as we have talked about during the call, the value proposition of affordability, immediate access, and then – and really incredible convenience for students is more impactful and important than ever.

Your next question comes from the line of Nick Dempsey from Barclays. Your line is open.

Yes, good morning guys. We are seeing publishers’ pricing of e-books and digital content coming down year after year as they try to boost up their units and win something back from the secondhand market and the rental market. I have got two questions in relation to that. As the mix shifts toward digital, is there a risk that publishers could push students to their own sites to avoid the percentage stake from retail in a larger way? And the second one is, as the price of e-books in particular starts to come in a little bit closer to print rental pricing, is there a risk that you guys could be stuck with quite a lot of print books in the system, and could you have to start lowering your price on print rental in response to that?

Hey Nick. This is Mike Huseby. I’ll take the first question, and I’ll probably ask Dave Henderson to take the second question, which ties into our relationship with VitalSource and a couple of other points. In terms of publisher disintermediation, that’s something – for digital, it’s something we’ve been dealing with for a long time. We have contracts with the three largest publishers to ingest their digital content through First Day. Importantly, our contracts with the schools provide us with exclusivity rights for courses that are posted in the LMS whether they are digital and also for physical sales of courseware. The way our business is structured, is not like a typical retailer, we have contracts that we enter into that in exchange for us providing a percentage of the revenue we earn to the schools. And as I mentioned, that’s becoming more and more important as they deal with their financial – increased financial issues in COVID and beyond. But those contracts in exchange for the percentage of revenue we get, we also get, generally, and in many cases, exclusivity, which we enforce with the publishers. So well, our discussion with the publishers is not an antagonistic one. Sometimes it is, but most of the time, we are enforcing our contracts. But more lately, as I mentioned earlier, Nick, if you were on the call, I think the cooperation with the publishers around First Day and First Day Complete win schools give us the mandate to go to inclusive access models, our cooperation with them has been overtly very good because what happens is the publishers are losing adoptions, just like we have been losing adoptions to competition such as other digital sources, or OER, or an Amazon, or other marketplace, even though we match those prices. And this gives the publishers a vehicle to increase their sell-through in a First Day Complete scenario, for example, to work almost 100% from wherever they are. And the pricing is discounted, but the volumes are so much higher that it makes sense for the publishers to go in with us in terms of packaging their digital content, because it’s what the universities want too. The schools are trying to achieve affordability objectives and accessibility objectives, especially now with all the focus on socioeconomic parity. And they can’t do that by allowing the faculty to just direct the purchase of courseware. It has to be managed. So we are giving them the tools to manage it so they can achieve cost-savings rates on their First Day Complete of 40% to 50%, while we and the publishers actually do much better because of the increased sell-through. We also share those economics with the school, which allows them to benefit. So this is, as we’ve described before, really a win-win-win. That doesn’t mean we are not going to see especially in the current environment, you have publishers out developing virtual courses with schools. But the agreements we have with the publishers we deal with thousands of them, not just the top three. But in those – in the footprint that we serve, let’s listen to the customer, let’s work together, let’s give them the benefits that they are asking because it benefits all of us. Otherwise, we are doing business through lawyers, enforcing our rights and which we do, if we have to. But that level of activity has really subsided quite a bit since we’ve been able to have a much better conversation with the new leadership of a couple of the publishers and then the existing leadership of one of the other ones. So that’s a risk, no doubt, but I think we are finally using a model that brings us all together for the benefit of our mutual customer. On e-book pricing, Dave, why don’t – maybe I will let Dave handle that one.

And Mike, to build on our inclusive access branded First Day, with our campus partners, what they are, in essence, looking for is a single and elegant service solution for their students, which we provide with our platform, which is powered by VitalSource. And with that new arrangement that we came into last summer, we have seen much more cooperation with the publishers and participating with us. Again, coming to that campus desire of a single experience for the student rather than differentiated and multiple routes that they would have to take to get their product. You had asked about the physical side and the risk of being stuck with inventory. So I’ll break that into two components. Obviously, when we are buying to our retail divisions, physical stores and virtual, any new product that we are buying from publishers, we are obviously buying to our anticipated demand on what we’ve seen over the course of the history with that client. And of course, product purchase from the publishers is returnable. So the risk on that product is quite low. From a wholesaling standpoint, which is dealing with off-priced used product, a product that is able to be acquired and sold for less than publisher net pricing that of course is a speculative business. And to Tom’s point earlier, we have been very – we review this day in and day out as to the demand and what we are anticipating with the impact of COVID and enrollments and what’s going on this fall. So we’ve been very watching our acquisition of that product very closely and have scaled it to where we believe we are going to see things move, not only for the fall, but of course, for the rush period that occurs in January and February of ‘21. I hope that answers your question.

There are no further questions at this time. I will turn the call over to Andy for closing remarks.

Great, thank you. And thank you all for joining us on today’s call. Please note that our next scheduled earnings release will be our fiscal 2021 first quarter release on or about September 4. We hope everyone remains healthy and safe. Operator, this will conclude today’s call.

This concludes today’s conference call. You may now disconnect.