Ladies and gentlemen, thank you for standing by and welcome to Barnes & Noble Education’s Third Quarter Fiscal 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]I would now like to turn the call over to your first speaker today, Tom Donohue, Chief Financial Officer. Please go ahead, sir.

Thank you. Good morning and welcome to our fiscal 2020 third quarter earnings call. Joining us today are Mike Huseby, CEO and Chairman; Lisa Malat, President of Barnes & Noble College; Jonathan Shar, Executive Vice President, BNED Retail and Client Solutions; Kanuj Malhotra, President of Digital Student Solutions as well as other members of our senior management team. Also joining us today is Andy Milevoj, our newly appointed Vice President of Corporate Finance and Investor Relations. Andy will be taking over this portion of the call moving forward. Andy?

Thanks, Tom and good morning, everybody. Before we begin today’s call, I’d like to remind you that the statements we make on today’s call are covered by the Safe Harbor disclaimer contained in our press release and public document. The contents of this call are the property of Barnes & Noble Education, and are not for rebroadcast or use 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 the call.And now, I’ll turn the call over to Mike Huseby.

Thanks, Andy. Thanks, Tom. Good morning, everyone and thanks for joining us today. As evidenced by our third quarter results, the higher ed industry continues to evolve at a rapid pace and we continue to adapt our offerings to ensure that both BNED and our customers are on a path for mutual success.We have a sound strategy in place to meet the demands of this changing industry and we are adding significant proof points weekly that confirm we are on the right path. In our third quarter we continue to execute on our strategic priorities which include: growing our high margin DSS business by leveraging our resource-based to scale Bartleby subscriptions; growing our share of course material adoptions through BNC First Day, BNC First Day Complete and other new digital models; stabilizing and now increasing revenue from new business wins to grow our footprint and manage stores; and strengthening and improving our important general merchandise business.As part of our ongoing focus on accelerating execution of our strategic imperatives, we’ve also made some important changes to our leadership team that will allow us to best leverage the specific skills each of our senior leaders have and better align our cost structure with current business trends.Lisa Malat has been promoted from her COO position to President of Barnes & Noble College, in this role, she will have overall responsibility for the profitability and growth of Barnes & Noble College. Jonathan Shar, who previously served as Senior Vice President, Revenue and Product Development will now serve as Executive Vice President, BNED Retail and Client Services. Jonathan will have overall responsibility for the profitability growth of our retail segment.Jonathan and Lisa, working closely with our outstanding field leadership have demonstrated that they understand how to deliver what our campus partners need to be successful.…

Thank you, Mike. Please note that the third quarter ended on January 25th, 2020, consists of 13 weeks. All comparisons will be for the third quarter of fiscal 2019, unless otherwise noted. Total sales for the quarter were $502.3 million, compared with $548 million in the prior year. This decrease of $45.7 million or 8.3% was comprised of $40.1 million decrease from the retail segment and $11.5 million decrease from the wholesale segment, partially offset by a $1.2 million increase from the DSS segment.Comparable store sales in the retail segment decreased 7.3% for the quarter, as compared to a decrease of 8.3% in the prior year period. Consistent with prior years, the Spring Rush period expanded beyond the quarter due to later school openings and the continued pattern of students’ buying course materials later in the semester. Factoring in the fiscal month of February, comparable store sales of BNC decreased 5.7% on a year-to-date basis.Comparable course material sales for the quarter decreased 9.3% as compared to a prior year decrease of 11.7%. Course material sales continue to be impacted by lower average selling prices, with approximately 16% of the decrease in the quarter due to lower pricing.General merchandise comparable store sales for the quarter decreased 0.7% compared with a 1.6% increase in the prior year. Net sales for the wholesale segment were $67 million, a decrease of $11.5 million or 14.7% as compared to the prior year period. The decrease is primarily due to the shift from physical textbooks to digital products, resulting in a decrease in customer demand.DSS sales were $6.4 million in the quarter, an increase of $1.2 million or 22.9% as compared to the prior year periods, the increase is primarily due to the increased sales in the Bartleby subscriptions.The consolidated gross margin for the quarter was…

Thank you. [Operator Instructions] Your first question comes from Ryan MacDonald from Needham. Your line is open.

Yes. Good morning, everyone. Thanks for taking my questions. I guess to start out when we follow-up on the cost reduction program, you mentioned that you’ve already implemented a few changes. Can you talk about what some of those changes were? And then as we’re going forward into the end of the fiscal year here, maybe in specific areas of the business where you think that you can sort of optimize some of the spend? Thanks.

Hey, Ryan it’s Mike I’ll start off then Tom can elaborate. But we’ve been involved in reducing costs over the course of the last 12 months to 18 months. This is a more focused program that involves different elements. It involves you know, involves our people and involves, you know, looking at the way we’re doing business in terms of various vendor relationships we have, it’s very comprehensive. So, I would say first off, we have brought our costs down already, but this is a much more significant kind of programmatic action that we’re – we’ve already started taking and we’ll continue to ramp up.

You know, Ryan, this is Tom. I would just add that you know, the initial focus obviously is what we announced this morning is really on the streamlining of operations and maximizing our productivity.And, you know, right now it’s really focused in the retail segment and the core business as we look to rationalize how the business is done and really adjusted for, you know, the digital changes that have been happening as it relates to the course materials and how that will impact going forward. What the business looks like, what stores look like and how we really operate the business –

That we’ll be giving more details in the next quarter.

Sounds good. Okay and then switching over to the digital segment of the business. Great to see that the gross subscribers continue to increase into the spring semester. Can you talk about though, given that the quarter fell within sort of a busy time with mid-terms and finals from last semester, what you saw in terms of usage trends during that time for Bartleby? And then perhaps what sort of retention rates you’re seeing from students after sort of the first month of signup with the promotional month there? Thanks.

So Ryan, this is Kanuj. The usage rates as measured by Q&A activity, content views, time on sites of all sort have been peeking their highs they’ve ever been. That’s also a reflection of having more people sort of retained and stay on the site, but even on an individual basis, we see much more productivity in terms of question usage, textbook solution views and other. So the metrics are all very healthy and it’s pointed to by the surveys and other work we do that students are finding value in it.You know they still resonate. We think we’re very disruptively priced in the market relative to the competitive set. So we think the value proposition is holding strong and we continue – we’ll continue to iterate in terms of product development and content and service development. We’re very, very focused on the Q&A experience getting down response times and that sort of thing.I’m sorry, your second question was on the retention. In terms of retention, I mean, we haven’t – what we’ve said sort of publicly disclosed is that, the overall retention is around 20%, that’s consistent with what we see in our Student Brands business – I’m sorry, churn is 20% I beg your pardon. And that’s the free to paid month, we haven’t really talked about that. But that’s not dramatically different than the monthly turn average.

Okay, got it. So declined by so it’s about 20% churn and then retentions remained relatively consistent just from sort of the free month to the months after that.

Yeah, it’s slightly higher, but it’s not dramatically so.

Okay, excellent. Okay and then just one more for me. You know, within the retail business and as you’re speaking to, you know, bookstore managers in the current semester, have you started to see any changes related to foot traffic at all obviously, given sort of the fear and concern around coronavirus at all and does that have a potential impact to sort of same-store sales, particularly in the general merchandise area moving forward? Thanks.

I’ll take this is Mike. Lisa could answer this more specific. But I think it’s just too early to, you know, we – our Spring Rush was basically completed by the time that the coronavirus really became public in a big way and started to infiltrate the United States.So I don’t think, you know, if you’re looking at – it’s all real time, we’re all learning every day. There’s nothing that, you know, we see right now, Ryan that’s having, you know, significant impact on the business, but obviously that could change over time if this thing takes off. We’re in kind of the same boat and lot of other businesses are in that.So we are domestic, so we don’t cross border other than, you know, some of our Student Brands’ activity is cross border over the internet, but over the web, but we don’t, as a malware, we’re thinking through doing contingency planning et cetera, you know, hope for the best, prepare for the worst and on supply chain for general merchandise and things like that. But as of now, Lisa, can update this, but I don’t think there’s anything that has affected this fiscal quarter. We would expect to really materially affect the rest of the fiscal year.

I would – this is Lisa, I would agree with that. We’ve been working closely with the supply chain to monitor any impact. And the good news is, we’re not seeing any material impact for the balance of the fiscal year.

Excellent. Thanks for taking my questions.

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

Great, thanks for taking my question. And, Andy nice to speak with you again.

Likewise, thanks so much, Alex.

So, you know, wanted to ask about this First Day Complete offering. Can you give us a sense of, you know, the uptick you’ve seen in the schools where it’s been rolled out? You know, what percentage of students do you have a sense have been taking advantage of it and specifically, you know, do you have a sense of who has been using it, whether that’s been by year of school or domestic versus international? Just curious how we should think about that as that gets rolled out to more schools?

Yeah. Hey, it’s Jonathan Shar. So First Day Complete is a new course material model that as we said in the remarks that addresses affordability and access and really convenience by bundling course material across all courses for all students at an institution as part of tuition and/or fees. So it really touches everyone at the schools that we serve.Then we – as we said, we launched that in a handful of schools and with really incredible results in terms of savings for students and convenience and access and based on that the demand for the product on those proof points has been really significant and, you know, the scaling for fiscal ‘21, we expect to see about 4 times to 5 times the number of institutions and that continue to grow in a really significant way in FY ’22.

Okay, that’s helpful. Thanks. And –

The thing that, Alex – this is Mike. The thing about First Day Complete also is that, it makes sense not just for us and schools, it makes sense for the publishers. And, you know, the publishers as you can see from their results that they put out, are challenged on adoptions and even digital sales. This provides a model that allows penetration rates to go from, you know, in our case, you know, 30%, 35% up to close to 100%.And, you know, our approach to that is, because of the benefits that this is giving to the schools, you know, we – our economics improve substantially. We’re an open book with the schools, we talked to them about to protect our downside risk, their downside risk and also share some of the upside, so they can have flexibility. That’s why it’s so appealing to the schools that we serve is, it gives them more flexibility, while passing through substantial 30% to 40% cost savings to students.And so what we’re really – this is really coming from our customers, which makes the conversation with the publishers, you know, easier in a way, because this is not something that we’re necessarily pushing, although we’ve got tools developed to make it easy to use and easy to implement. But this is what customers want. This is satisfying all their objectives and it’s helpful that it also works for the publishers, because they’re obviously providing a lot of the content. So content comes from other sources, but a lot of it comes from the publisher still.

And just to clarify, it’s across both digital and physical content. So this is not just a, you know, a digital content solution. This is across all course materials and requires no change in faculty behavior, which is why one of the reasons other drivers why it’s being embraced by so many institutions.

Yeah, that’s an important point. That’s an important point. It does, you know, our First Day program is more of a course-by-course digital-only program. First Day Complete is ALL courseware, physical and digital together. It’s just an example of how we can use all of our assets together we have a unique set of assets including MBS which can do fulfillment of the physical side. And this will help MBS’s business as it scales as well.

Great, that’s really helpful. Thank you.

[Operator Instructions] We have no further questions. I would now like to turn the call over to Andy Milevoj for closing remarks.

Great, thank you. And thank you everyone for joining us on today’s call. Please note, that our next scheduled financial release will be our fiscal 2020 fourth quarter and fiscal yearend earnings call on or about June 25th, 2020. Have a great day, everyone.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.