Good morning. My name is Simon and I will be your conference operator today. At this time, I would like to welcome everyone to the Barnes & Noble Education Fiscal 2019 Year End Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you.Mr. Tom Donahue, you may begin your conference.

Thank you. Good morning and welcome to our fourth quarter and full fiscal year end 2019 earnings call. Joining us today are Mike Huseby, Chairman and CEO; Barry Brover, EVP of Operations; Kanuj Malhotra, President of Digital Students Solutions; Lisa Malat, Chief Operating Officer, Barnes & Noble College; as well as other members of our senior management team.Before we begin, 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 for 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'll turn the call over to Mike Huseby.

Thanks, Tom. Good morning everyone and thank you for joining us. Fiscal 2019 was truly a transformative year for BNED. I’m proud of all that our people accomplished as we continue to pivot our platforms and offerings to digital delivery.Fiscal year 2019 results were in line with our expectations as we continue to generate significant EBITDA and as a result strong free cash flow. We’re making important changes throughout our organization as we continue our digital pivot.We are very encouraged by our significant progress including the development of our first internally developed digital study product initially introduced as bartleby textbook solutions and now branded as bartleby learn.Unification of the BNC and MBS sales teams are creating an expanded and incentivized new business sales team with a revitalized go-to-market strategy. The continued growth of our FirstDay inclusive access program would substantially increase courseware sales penetration volumes when adopted.The upcoming launch of our BNC adoption and insights portal, a new courseware adoption and insights platform for faculty and academic leadership leapfrogs our prior adoption platform, an important enhancement to our institutional sales capabilities, and the introduction and completion of a pilot of four highly curated concept shops focused on elevating our in-store experience. Each concept shops drove very meaningful improvement in sales trends in our pilot stores during the test period.Additionally, this fiscal year we have begun to make important investments to drive growth for our general merchandize business in fiscal '20 and '21, including drop-ship capabilities this fall and the next generation digital commerce platform expected to be live in fiscal '21.As disclosed in this morning’s press release, we have realigned our reporting segments to reflect our new go-to-market approach. We now have the following three reportable segments; retail, wholesale and DSS. The new retail and wholesale segments reflect changes we…

Thank you, Mike. Please note that the fourth quarter ended on April 27, 2019 consisting of 13 weeks. All comparisons will be to the fourth quarter of fiscal 2018, unless otherwise noted.As Mike stated and as disclosed in this morning’s press release, we realigned our business and sales organization into the following three reportable segments; retail, wholesale and DSS. The retail segment combines the operations of the former BNC segment with the MBS direct virtual bookstore operations. The wholesale segment is comprised of MBS wholesale business and the DSS segment remains unchanged.Total sales for the quarter were 334.4 million compared with 357.7 million in the prior period. This decrease of 23.3 million or 6.5% was comprised of a 15.2 million decrease from the retail segment, a 5.8 million decrease from the wholesale segment and a 0.2 million decrease from the DSS segment.Comparable store sales in the retail segment increased by 0.9% in the quarter as compared to a 2.0% increase in the prior year period. Comparable store sales for the full year declined 5.1% consistent with our expectations.Comparable textbook sales for the quarter increased 0.9% as compared to the prior year increase of 1.8%. Comparable textbook sales for the full year declined 8% also consistent with our expectations.Textbook sales continued to be impacted by lower average selling prices of course materials, enrollment declines and student’s purchases from publishers directly as well as other online providers.Net sales for the wholesale segment for the quarter were 14.1 million, a decrease of 5.8. Net sales for the full fiscal year were 223.4 million, a decline of 35 million or 13.5%. Wholesale sales were down primarily due to lower demand.DSS sales were 5.5 in the quarter compared to 5.6 in the prior year period. Sales for the full year were 21.3 million as compared…

Certainly. [Operator Instructions]. Your first question comes from the line of Alex Fuhrman with Craig-Hallum Capital. Your line is open.

Great. Thanks very much for taking my question. I wanted to ask about the outlook for next year. I apologize if I missed this maybe in the prepared remarks but didn’t see a revenue guidance in the press release. So just curious as you’re thinking about your EBITDA and free cash flow guidance for the year, just what type of revenue trends are baked into that? And specifically looking at the new reportable segments, is there anything major to call out in terms of trends you’re seeing so far this year on the top line?

Hi, Alex. This is Mike. We decided not to give revenue guidance. There’s so much change in business model around – here’s an example like publisher consignment rental where we don’t take titles of books, we only book the fees and the margin that we receive off those transactions. We want to get away from comp store sales because we get thrown into the retail bucket. While it’s important information, we’ll continue to disclose it. We really are trying to focus managing the business on margin and cash flow as we move to more and more digital, the deals that we’re cutting with publishers and other partners are really more focused that way. So in terms of revenue trends, I think the one thing that we have alluded to is the new business. We’re really happy with – we’re pleased thus far with the new sales force and what they’re doing and just our approach to go-to-market approach. So we’ve given some information on what we expect or at least have experienced thus far in net new store sales. I think there’s no reason to believe that the trends that we’ve been seeing are going to change markedly as it relates to physical books in the coming year. Trying to forecast average prices and what publishers are doing in the mix has proved to be very difficult. For example, we sold a lot of lower margin looseleafs types of publications to schools last year instead of following through on the publisher consignment rental. So the revenue forecast to us just aren’t as germane as trying to give the market a sense of what EBITDA and free cash flow look like in CapEx.CapEx is really important because of the investments that we’re making and how they’re driving the expansion of the products and accelerating the time of digital. One thing I talked about during the comments is the adoption and insights portal that we’re rolling out. That’s been invested in. We’ll see the benefits of that. But the important thing there also is that it’s really a tool that’s needed by colleges and ones that we’re showing it to in proposals and other current situations really want these tools now to manage what’s increasingly complex business for them. So the answer to your question simply, we’re not giving revenue guidance. We’re not going to talk about forecasting the specific trends unless something we have fairly high degree of confidence on, but I don’t think that on the physical side the trends directionally will change from where they’ve been in the last few years. We don’t tend to get value based on revenue and revenue movements. All our conversations and our valuation in the public market seem to be more based around EBITDA and what we’re doing with pivoting to digital such as we’re emphasizing this, we’re managing to.

Sure. That’s helpful. Thanks. And then if I could ask just about the digital segment specifically I guess the bartleby piece. It sounds like you’ve got some nice early signs of subscriber growth there. Just wondering what it’s really going to take for you to get that business and turn it into a growth engine? Obviously there’s a big competitor out there with a similar product that’s been doing very, very well over the last couple of years. Do you feel that you have the content is as robust as you need it to be to really be able to put the foot on the gas in terms of marketing or is there maybe some lifting still there to happen, just curious where you feel that product is heading into the new school year?

Alex, this is Kanuj. I think by Fall we feel very good about where the content will be in terms of coverage of most important, most frequently used titles. So we think we’ll have very good coverage in area of increased investment and focus is the Q&A and we’re very focused on being able to grow the library. So I guess in short we feel very good about sort of the headroom that exist in the market, having a new freshman class, as Mike alluded earlier, for students that aren’t in ecosystem yet, there’s really big opportunity leveraging our titles in footprint as well as out of footprint increasingly. So we feel very good about being able to really start to drive this given where the content will be relative to where it was in the Spring.

Great. That’s really helpful.

25% of the titles in the Spring that we have, in the Fall 20% to 25%. So in other words very - yes, it’s more than double or triple in terms of the titles that we’ve got available for textbook solutions and gain 50,000 subscribers with primarily most of those coming from in-store support. So to answer your question and expand on it a little bit, if we had – didn’t have to worry so much about managing EBITDA, we’d probably step on the gas a little harder. But I think that we’ll know more as we get into the fall season and we may do some of that. That’s one of the reasons that our free cash flow estimates are somewhat variable. We want to be able to take advantage of opportunities as we see them happening during the course of the year.

The last point I’d just add, Alex, is that relative to where competitors were priced very disruptively, roughly a 30% discount. So we think once we get into the consideration set and create that awareness, students will naturally move towards a product that has comparable if not better features.

Great. That’s really helpful. Thank you very much.

Your next question comes from the line of Ryan MacDonald with Needham. Your line is open.

Good morning, everyone. I guess just following up on sort of the bartleby question and as you’re sort of looking at the growth trajectory there, now we’re at the end of June you’ve had sort of a full semester to sort of monitor the usage and sort of habits of the 50,000 subscribers you’ve added in the Spring, just talk about maybe what you learned about retention and utilization from the students from what you’ve seen thus far with that 50,000 number?

Hi, Ryan. It’s Kanuj. We’ve seen sort of typical patterns emerge for a user sort of what you would suspect in terms of Q&A usage becoming more [peaked] [ph] during midterms and final periods. And so it’s consistent with what we thought in terms of churn behavior, likewise the seasonal fall off that’s associated with the summer. So it’s pretty much according to pattern now. We are trying to get more nuanced on how we can drive more engagement and more usage and I’d say it’s early stages there, but we remain focused on being able to as the previous question alluded to, to get the content library expanded so we can cover students and all [indiscernible], all subject disciplines. So I think the Fall will be more positive in learning more, but right now it’s probably according to where we thought it would be.

Thanks. And then I guess following up sort of on the new retail operating segment sort of combining the MBS and the BNC sales teams there, it sounds like there’s a lot of interesting developments in innovation going around in terms of the adoption and insights in some of these concept stores. Can you talk about sort of what the go-to-market or how you’re sort of positioning that competitively with your sales teams to try and win more retail business through sort of those two initiatives?

I’ll give a quick answer and then I’ll let Lisa Malat who’s our COO of College who’s heading up the sales effort expand on it. But in essence what we’ve done is expanded that sales team using internal resources. We’ve promoted people from within the BNC field manager ranks – regional manager ranks as well as combined the formally MBS direct sales team quite effectively so that we more than double the number of sales people we have in the market and really taken a much more what I would call proactive approach about targeting potential new business in a very intelligent way and emphasis on those that have bigger general merchandize portfolios in some cases. And it’s a very disciplined approach that emphasizes all the new things we’re doing as well as what we’ve done in the past and have a great tradition of service, et cetera. I’ll let Lisa talk about the competitive positioning a little bit more.

Yes, I think we all know what – understand the transformation that’s happening with the industry and as much as we’re feeling it, higher education is experiencing at an even greater level. So we feel that we are in a very, very unique position right now to really be able to offer innovative really state-of-the-art solutions for our higher education partners, ones that really are differentiating us in the marketplace, such as Mike talked about with AIP or some of our new retail concepts. And we’re finding that these solutions are really resonating with our partners because we do a really good job listening and understanding the different needs of all of our constituencies. We understand the pain points for academic leadership, we understand that higher education is looking to create these community centers or cultural hubs and points of engagement with the retail footprints wanting to bring students together. So we take these learnings from our campus partners and we create these innovative solutions that are really helping us win contracts and grow top line for the business.

It’s really important for us to continue to grow our store contracts footprint because as you saw in January just as it relates to bartleby, the engagement we have from our in-store personnel was critical to growing that business. 70% or so of the subscriptions came from the physical in-store sales and while we expect that distribution between in-store and online to probably change as scale occurs to a certain extent, growing the in-store – the store managed footprint is essential not just in terms of selling digital but also it leverages all the skills we have within Barnes & Noble College across a broader footprint which makes our – obviously helps make our cost structure in the way we run the business more effective. So from a competitive perspective I think we’re doing very well versus where we were about a year and a half ago, a year ago. As you looked at the exhibits to the earnings release, you can see that we ended up losing that business from store closures over store openings had a very significant impact on our financials. And so that’s another reason why it’s important. It’s not for the revenue growth per se, it’s for the opportunity that we have in margin expansion with general merchandize, with digital and also to leverage our organization across a broader footprint.

Thank you very much.

Thanks, Ryan.

[Operator Instructions]. Your next question comes from the line of Greg Pendy with Sidoti. Your line is open.

Hi, guys. Thanks for taking my questions. I wanted to I guess understand – the 50,000 subs that was last quarter and I just want to understand that was with one month free, correct? And I know there will be some serious seasonality to the bartleby textbook subscriptions, but it wasn’t at 50,000 during this quarter, was it?

50,000 was the number of subs required during the Spring Rush which is what we disclosed. There was an initial introduction of the product, Greg, and we discussed it fairly thoroughly I think in the last quarter call. And as Kanuj said, it’s fairly early days and analysis and learnings on retention and engagement and that type of thing. But no, it’s not this quarter, it’s the same information we disclosed from last quarter. As we go forward we’ll decide what detail we want to disclose on subscribers and that type of thing. That was just an initial roll off to see if we could be successful which we deemed it would be a successful launch especially with the relatively disadvantaged number of titles, et cetera, we had versus the competition and the fact that it was a Spring Rush where we were coming in with many students having already selected their online supplemental provider in the fall period. As you pointed out, we have a new cohort coming in. So we’ll disclose more information on subscribers going forward, but to answer your question, no, it’s not another 50,000 this quarter. It’s the same 50,000 from the first quarter when we had the initial push.

Understood. And then just one more question, the bundle offering with FirstDay, it sounds exciting given where you stand having the college short footprint. But just kind of wondering I think a competitor of yours in this space is trying to bundle sort of the writing – has at least talked about bundling their textbook solutions and writing solutions. Is that something you guys would be thinking about as well?

Well, I alluded to in my comments actually that we do have some schools that are interested in it and from our personal perspective our homerun would be in addition to selling direct students, if you put yourself in the place of a student or a parent that’s looking at a bill for inclusive access and that bill includes tuition, it includes your courseware. In other words, your books, your digital access codes or your access to digital content, it also includes some digital products; could be bartleby learn, could be bartleby writing which we’re just releasing, self tutoring, self study aids and it’s all included in one inclusive access package whether it’s billed in one amount all students or whether it’s in a different which we call FirstDay complete or a different model, I think you can see that these students – these schools rather that are competing with each other, if we can offer them a lot of value in an inclusive access package, not all schools want to have bartleby in their lineup to offer. Many do if you look at those that are specially community colleges and others [indiscernible] public schools, they’re looking to package much value into these packages as they can get to get the most value to the student which equates to affordability win. So that’s something we’re exploring with schools. If you think about selling subscriptions on à la carte basis, then you think about bundling in thousands of subscriptions at a time and institutionalizing them and the cost of that and what the churn would be going forward, relatively flat, relatively zero, that’s a discussion we’re having but we don’t have that in place. As I said we’re exploring it. And I think that it gives us an interesting conversation that we can have with schools that really want to provide as much possible value and inclusive access package as possible. As it relates to the illusion to the competitor, I don’t think – I think that we’re designing bartleby under Kanuj’s supervision to be much more institutional friendly than maybe some of the other products that are out there that aren’t really viewed that way by the institutions. So that’s a different – we can sell it out of footprint, à la carte as well. But in footprint every school we serve has a different way of looking at how they want to teach their students and we respect that and therefore we’re customizing what we do with our institutional partners and it gives us the ability to customize all these different tools we have.

Okay, that’s helpful. And then just one final one if I could get one more question in. You mentioned 78 store openings. Can you just talk a little bit, is that wins or is that company – are you seeing colleges kind of move to the outsourcing model? I think roughly 50% of college bookstores are still managed internally. Can you just kind of give us a sense on just the overall environment? Are you seeing that shift continuing or is it just a less competitive environment than last year from winning new campuses?

This is Lisa. So as I was mentioning before, definitely the complexity in the market is creating a lot of opportunity for us to grow the top line. So it’s really a combination of both, but we’re continuing to see a shift of self-operated bookstores looking for solutions, looking for experts, looking for innovation which is why the products and services we’re bringing to the market are resonating.

Okay.

Yes, we’re also competing head-to-head with our primary competitor that deals and feel like we’re doing well in that regard as well. So as Lisa said, it’s a combination of both.

Yes.

Okay, great. Thanks a lot, guys.

Thanks, Greg.

And there are no further questions at this time. I’ll turn it back over to Mr. Donohue.

Thank you for joining today’s call. Please note that our next scheduled financial release will be our fiscal 2020 first quarter earnings call on or about August 27th. Thank you and have a good day.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.