Good morning. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Barnes & Noble Education Fiscal 2020 First Quarter 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.Tom Donahue, CFO, you may begin your conference.

Good morning. And welcome to our fiscal 2020 first quarter earnings call. Joining us today are Mike Huseby, CEO and Chairman; 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 used by any other party without the 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 today. Our fiscal 2020 first quarter results were consistent with our expectations for this quarter, a seasonally low sales activity for BNED. We continue to make important strides in our areas of strategic focus for the company. For example, we are investing and growing our bartleby learn digital study product. We're driving net new business wins in retail and we're strengthening our retail segment through important initiatives in both our general merchandise and course materials business.First, I will discuss the performance of bartleby in our DSS segment, which continue to build momentum as we improve and refine our offerings, invest in new solutions and leverage our unmatched insights in the student preferences and course materials consumption. It's been barely a year since our new digital study product bartleby learn soft launched, and we've accomplished a great deal in that time.Our product team has made continued enhancements to bartleby learn to ensure it is best serving students by providing them with academic assistance available anytime and anywhere. We continue to grow the number of titles and subjects covered on bartleby learn, and to increase the number of step-by-step solutions available in our content library. In this fall semester, we are approaching approximately 2 million solutions available for students, up from more than 1 million solutions we offered at the end of our last fiscal year just in April.With our first in footprint bartleby sales push in the spring, we acquired approximately 50,000 subscribers. Leveraging what we learned during the spring rush, we have now improved our sales strategies, enhanced bookseller training, increased in-store marketing and continue to incentivize our field sales force. Our thousands of student booksellers are hard at work offering this product to students to supplement their classroom…

Thank you, Mike. Please note that the first quarter ended on July 27, 2019 consisted of 13 weeks. All comparisons will be for the first quarter of fiscal 2019 unless otherwise noted. During the fourth quarter of fiscal 2019, 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 the MBS wholesale business, and the DSS segment remains unchanged.On April 28, 2019, the first day of the first quarter of fiscal 2020. We adopted ASC 842 leases. In connection with the adoption of this accounting guidance, we recorded $277 million of operating lease right of use assets and a $294.7 million operating lease liability. As of the end of this fiscal first quarter, our balance sheet includes $314.4 million operating lease right of use asset and $337.7 million operating lease liability.Total sales for the quarter were $319.7 million compared with $337.5 million in the prior year. This decrease of $17.8 million or 5.3% was comprised of $12.4 million decrease from the retail segment, a $17.6 million decrease from the wholesale segment and $0.3 million decrease from the DSS segment, partially offset by lower sales eliminations of $12.5 million.Comparable store sales in the retail segment decreased 3.5% for the quarter as compared to a decrease of 2.5% in the prior year period. Comparable course material sales for the quarter decreased 11% as compared to a prior year decrease of 4.7%. Course material sales continued to be impacted by lower average selling prices of course materials, enrollment declines and student purchases from publishers directly and other online providers.General merchandise comparable store sales for the quarter increased by 4.9% compared with 1%…

Certainly [Operator Instructions]. And our first question comes from the line of Ryan McDonald of Needham. Please go ahead, your line is open.

Just wanted to start out, I guess on the bartleby business and the bartleby write product that you're soft launching. Can you talk about plans for the pricing strategy around that? And then you called it a companion product to bartleby learn. Is there any chance to bundle this at all, moving forward?

Ryan, it's Kanuj. I'll start with the bundling concept. It's too early to tell. We first want to get a better understanding of the student demand, student reaction to the product experience and what is solving from a need state. But it certainly does present opportunities to bundle it, as you suggest, with the Learn product. So we're early days -- we'll be able to better understand once we get through some of those initial demand with the Fall Rush period.

Got it. And I guess just follow up...

It's priced, just to be clear, it's priced at $9.99 like Learn. There's no bundles currently.

And then in terms of the back to school season, obviously, we're very early days in it. But can you kind of talk about some of the strategies or any promotional activity you put in place to sort of continue to drive adoption for bartleby among students and maybe how you are feeling just at the beginning of this Fall Rush?

This is Kanuj again. I guess the first thing I'd say is we're very excited because it's the first time we've really been in a position to promote the product during a fall season with as much content as we have. And we're excited about what we think we can do with this new cohort of freshmen and incoming first year students. So we've continued to take the lessons that we learned from last spring and refine what we do in terms of training for our booksellers. The entire store is oriented around the booksellers and the aisle as well point of sale. So it's really just learning from where we are and ascending that hierarchy in getting more efficient in the selling and marketing techniques.If we go to any of the stores, I think we've improved our signage, our communication of the product benefits and there's a ton more content in the products. Outside the four walls of the campus, we're also expanding our social influencer strategy and brand ambassadors on the campuses we serve, as well as campuses that we don't have actual physical footprint as well. So we're very excited about where we may be at the end of the fall. It's too early to comment we’re smack dab in the middle of back-to-school rush. So we'll know more in a few weeks.

And shifting to the BNC business. Great to see some additional net new store openings expected for this year. Can you talk about the impact that adoption and insight is really having on driving net new store wins, and perhaps how it's impacting discussions around renewals with existing university partners?

This is Lisa Malat. I mean certainly course material affordability is number one on the minds of many of the -- many or most of the schools we are speaking with. So just the visibility into the savings for the students to be able to get the faculty that transparency into what the options are and to be able to give the administration visibility into how they're succeeding against their own affordability goals has been -- had been very, very well received by the colleges and universities we are speaking with.

One other comment on that. This is Mike, Ryan. You may have seen the press recently, Onondaga College -- Community College up in upstate New York. The AIP, that portal and what it can do for administrations really get, as Lisa says, better transparency into curriculum and adoptions and the timing of adoptions and then managing adoptions is really important for managing that kind of a program. And Onondaga, which we call first day complete, which is the first institution where we really delivered courseware completely through tuition one price that's the same for all students, basically. We can talk more about that. But the AIP will give a tool to the administration so that we can intelligently cost out and price at the right time the courseware, so that we're able to offer and get those reduced discounts to students making it transparent through tuition, et cetera. So it's important for a lot of reasons but it's really important to our digital packaging and pricing strategy and being able to implement it.

And then just last one from me is around the FirstDay and VitalSource announcement. How long do you expect this transition to take for FirstDay on to VitalSource and any expected disruption to, I guess, existing FirstDay users at all? Thanks.

We've already started the teams working together, that agreement was announced I think last week, but that -- efforts started early. They have an ongoing relationship. For example, we have a new sizable state college system, Ivy Tech that we took on that was already VitalSource customer. And so we're working on that to keep VitalSource in and insert us at the right points because under this agreement, we will own the customer, we will own the building, what we're -- as we said taking advantage of is VitalSource's technology.This makes it a lot more seamless for us to sell inclusive access interacting with the publishers, basically have now Red Shelf and in VitalSouce two primary inclusive access systems that publishers want to interact with. So it's kind of a standard technology of sorts for the publishers to use, making it easier and faster to ingest digital content. Timing is, as you said, we're doing it already. We'll start rolling it out within this fiscal year in the next fiscal year, it'll scale. The teams know each other well. We already have a relationship. We buy our e-book content from VitalSource. They've been a great partner. So we expect the integration to go well. We don't expect them to disrupt any of our current inclusive access programs.

The next question comes from the line of Alex Fuhrman of Craig-Hallum Capital. Please go ahead, your line is open.

I wanted to ask just a little bit more on the digital services and bartleby in particular. Sounds like you're having some good success marketing that on campuses and signing students up. What is your expectation that this could really start to become a revenue grower for the company? Just looking obviously you've got other assets in that DSS segment, but it has been down revenue year-over-year for a couple of quarters, with the strong rush year? Is it your expectation that the tide is starting to turn there? Just wondering how we should think about that product and services as part of your go forward here?

Without giving any specific guidance on revenue from bartleby subscribers, I think we're expecting the results to exceed what we did in spring. Obvious -- maybe not, obviously, but we are. And so it gets to your definition of what you think is meaningful. Obviously, it's a very high margin product. So we expect it to start having an impact on the margin of DSS this year and the revenue of DSS this year. But really, really growing with the scale of the product as the product improves, introducing bartleby write will help it. We don't really want to forecast what impact on revenue and margin means at this point in time. We're really, as Kanuj said at the first point where we're able to market bartleby to get with a really good, strong competitive product bartleby ;earn. And we're encouraged by the initial results, but we'll hold off on calling the ball on that one, Alex. So we get through the rush in the next -- as Kanuj said, several weeks to six weeks, really.

I mean, the reason we're putting this kind of money and effort into it is, we do expect it to scale and we do expect in our next two to three year plan, let alone our long term plans, this would be a huge contributor to the actual growth of the cash flow of the company.

Now, that is definitely helpful. And then also wanted to ask about some of these new partnerships that you're doing in your bookstore locations. You mentioned some partnerships you're testing out with AT&T and Urban Outfitters. Certainly, that sounds like a huge opportunity just given your strategic locations right on college campuses. It seems like there'd certainly be a lot of opportunities for partnerships like this. My questions here are, I'm trying to understand, is the initial agreements with AT&T and Urban Outfitters one that you would initially expect these stores to become more profitable or is it really more of a test and learn? And then curious what the reaction has been from your university partners as you think about maybe doing more of these partnerships? And do you specifically need universities to approve these? Or is it more or less within your contractual rights to bring in someone like that into your store?

Now, there's a lot of questions in there, Alex. We can just try to unbundle that a little bit, I'll take. This as Mike, I'll do a general answer and then Lisa Malat, who's done a great job of driving this -- these kinds of relationships can give more detail. First off, yes, we do discuss these kinds of arrangements with our university partners in advance. We do share the benefits with them. Our mutual objective with our university partners is to bring services to students that benefit them. And clearly, brands like Urban Outfitters, AT&T who are trying to reach this demographic offer the outstanding services that they offer, in some cases at discounted prices, in some cases just bringing, for example, Urban Outfitters, as we've done into the 10 stores to -- as an initial, as you call it, expanded test really generates a lot of buzz, associates best with a hot brand for our students and drives more traffic into our stores. So that's a big advantage. Lisa and I were just on at one of the stores in Delaware last week with Urban Outfitters founder and CEO. And I think they're very excited about it as well.With respect to the deals themselves and how they're structured, they're individually structured and they're different in terms of the expectations of what they will bring to both parties. They obviously bring exposure to coveted demographic of 6 million students, 5 million in the physical stores that we serve are very sought after demographic by these organizations. And we're a very effective way to reach them. We've talked about target in the past and Urban Outfitters is a great example of how we can also utilize our store space in a different way. Lisa and her team have done a great job of doing with the concept stores is now expanded, as we said to 200 shops, I'll let you fill in.

I mean, just going back to your question about, how do we discuss this with partner, with these colleges, universities? I will tell you that, a lot of the conversations we're having right now with colleges and universities, as we have to talk about new business opportunities is around relevancy. So many of the schools out there, even those that have really well done in retail spaces are asking the question, we're educators, we're not retailers. How can you help us drive traffic? How can you help us be more relevant to our students? How can you create these community hubs on campus, that's going to really add value and energy to our mission.

Well, thanks everyone. That's really helpful and I wish you all the best of luck with the rest of the Fall Rush season.

[Operator Instructions] Your next question comes from the line of Greg Pendy of Sidoti. Please go ahead, your line is open.

Can you just give us a little bit of color on the trends you saw, I guess, in summer classes where they're down year-over-year. I know we're starting to anniversary some pretty weak trends. And then what we should be thinking about in Fall Rush as just enrollment trends go?

Hi Greg, it's Barry Brover. The summer has consistently been slower year-over-year as far as course offerings by colleges and universities, as they cut back and better manage. So obviously, textbook is a smaller part of the summer session. During the summer, it's a lot about prep football and our GM sales, which is a high percentage of the summer business and you can see the strong comp growth there. As we go into the fall semester at this point, we're excited about where we're positioned, our FirstDay products, our FirstDay adoptions and a lot of the major initiatives to grow our textbook business, as well as our GM business are in place. We're in the middle of the season right now. So hard to comment on where the fall will end up, but we're certainly excited about how well we are positioned.

And then can you just give us a little bit of color on just the bump up in the SG&A cost for the digital business? Some of that head count that's going to continue throughout the year or is that -- was that a lot of, I guess just spend, that should fall back down throughout the year?

No, it's definitely headcount related as well. We will expect to add moderately to that. But it's really building out product, marketing and development competency in terms of the digital team related to bartleby principally. Some of it is bartleby write product, but it's principally bartleby learn.

And then just one final one, I guess, just with the FirstDay initiative. Is that going to replace a lot of the -- I guess, communicating the message of price matching? Are you going to be talking about sort of both fronts going forward into the Fall Rush?

Yes. Our objective is to present all affordable solutions, solutions that help with the affordability objective. Price matching is one. It's not mutually exclusive from inclusive access or any other program that we put in to help individual schools or more broadly achieve that affordability option. One of the things about inclusive access is that you do have substantial discounts to the students that are realized primarily digital for how the courseware is bundled. Price matching is really a competitive response to various other -- to competitors we have such as Amazon, where we'll match their prices and that type of thing. So they're a little different in their orientation. They're all aimed at trying to provide the most affordable courseware to students, but inclusive access is something we're driving towards with publishers and schools to try to change a model for delivery, primarily digital, whereas price matching is primarily related to the physical.

Are you price match on the virtual stores as well, or is that just in the physical stores?

We price match on all of our stores where we decide that it makes sense to do so, physical or virtual.

And there are no further questions at this time. I turn the call back over to Tom Donohue for closing remarks.

Thank you. And thanks for joining today's call. Please note that our next scheduled financial release will be our fiscal 2020 second quarter earnings on or about December 5th. Thank you.

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