Good morning and welcome to the Barnes & Noble Education Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the call over to Andy Milevoj, Vice President, Corporate Finance and Investor Relations. Please go ahead.

Good morning and welcome to our Fiscal 2022 First Quarter Earnings Call. Joining us today are Mike Huseby, CEO and Chairman; Tom Donohue, CFO; Jonathan Shar, Executive Vice President, BNED Retail; David Henderson, President of MBS; and David Nenke, President of DSS. Before we begin the 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 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 make 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. And now, I'll turn the call over to Mike Huseby.

Thanks Andy and thank you all for joining us this morning. As many of you know, the first quarter, consisting primarily of summer courses, is typically a low revenue quarter for the company relative to other more seasonally active quarters. As Tom will discuss in further detail during the financial review, we were encouraged by the sales rebounds during the first quarter, especially within our general merchandise business. And while the COVID pandemic continues to evolve, we believe this performance is a positive harbinger for the upcoming fall semester as in-person classes are expected to prevail and other on-campus social activities and sporting events begin to resume at greater volumes. While the COVID-19 pandemic has had a profound and unprecedented impact on higher education and our business, as we navigated through the pandemic, we've been successful in accelerating the execution of our strategic initiatives, improving our offerings for our campus partners and managing our liquidity position, so that we entered fiscal 2022 in a position of strength. Our inclusive access courseware offerings First Day and First Day Complete are becoming widely recognized with an increasing velocity of adoption as programs that provide improved student outcomes through equitable access, enhanced convenience, and improved course material affordability. Our partnership with Fanatics and Lids combines our innovative academic offerings with an unparalleled merchandise assortment and best-in-class omnichannel customer experience. We expect this greatly enhanced experience and expanded offering to increase sales of our higher margin logo and emblematic products as we continue to roll it out over our store footprint in the coming months. Our direct to student digital bartleby offering continues to gain market share as we add new features and functionality and better understand our customers' needs to continue to build this extremely valuable resource for students as they navigate new…

Thanks Mike. Please note that the first quarter of fiscal 2022 consisting of 13 weeks ended on July 31st, 2021. All comparisons will be to the first quarter of fiscal 2021, unless otherwise noted. As Mike highlighted, the first quarter is a low revenue quarter for the company, consisting primarily of summer courses. We are encouraged by our first quarter results as sales rebounded, especially within our general merchandise business as the majority of our campus stores were open as compared to the prior year where students were primarily learning remotely and the majority of our stores were closed in response to COVID. Total sales for the quarter were $240.8 million compared with $204 million in the prior year. This increase of $36.8 million or 18% was comprised of $51.7 million increase in the Retail segment; a $35.8 million decrease from the Wholesale segment; and a $2.4 million increase in the DSS segment. Retail comparable store sales increased 49.8% during the quarter, comprised of a 21.9% increase in textbook sales and 118.4% increase in our general merchandise business, which benefited significantly from the reopening of most of our campus stores. These results were further bolstered by BNC's rapidly growing First Day offerings, where a student is charged for course materials by the institution through a fee or included in tuition with sales nearly tripling to $27 million during the quarter. As a reminder, per our agreement with Fanatics and Lids, logo and emblematic product sales are now accounted for under the agency accounting method, in which BNED receives a percent of sales for the logo and emblematic sales online and in-store. Each sales channel, in-store and online, has its own commission rate which will change as the relationship matures. Our comparable sales reflect the actual retail selling price or tend…

Your first question comes from the line of Ryan MacDonald with Needham.

Yes, good morning. Congrats on a great quarter and thanks for taking my questions. I wanted to ask about what you're seeing thus far in terms of First Day Complete take rates from the students that are starting to return to campus. Presumably, you're starting to see those orders come in for the upcoming fall semester and I know you talked about expectations about an 80% take rate at the Investor Day, but it was much higher last fall. So, just would be curious to hear any commentary around those opt-in rate thus far.

Yes. Ryan, this is Mike. I'll let Jon Shar handle that one.

Yes thanks. Thanks Ryan. It's Jonathan. Yes. First Day Complete and our execution to-date has been really strong. We're seeing across the 65 campus stores that are supporting First Day Complete, strong student adoption and really strong fulfillment and execution from our stores, both across the physical materials that they're picking up as well as digital. We have a lot of institutions that have now included the fees within their tuition. And therefore, it would be 100% adoption across the board and then certain institutions that included as a course charge, where students can opt out. So, we don't have all the data as of yet, but it looks really strong, and really excited by the execution, the feedback we're getting from students, as well as the campuses that we serve and really proud of the execution of our teams to get the materials in the hands of students on or before the first day of class, which is ultimately allowing them to enhance student outcomes and really improving the overall student experience.

And Ryan it's Mike. I think the only thing I would add to that and as Jon said it's early in the rush to get validated this close, but we have situations with large community college state systems where they've decided to go ahead and completely fund the cost of courseware through the CARES Act funding, which means 100% of the students will be getting the books for free with no opt-out and in some cases they're doing this for two years. It's an interesting thing that we are analyzing on a very specific basis to make sure we help those schools that need help to spend that money that they receive from the government. There is a lot of money that's flowed into certain schools and they have to spend it within a certain timeframe and courseware is one of the allowed expenditures for them. So, that's working out really well for many of the schools that have received the government funding is to use that funding to go ahead and pay for the cost of courseware for all their students and in those situations, there is no opt-out. So, I can't say enough about First Day Complete and the team -- Jon and his entire team, the whole company that's gotten behind this and the level of execution. And another interesting thing about this, Ryan, is that in that same community college system I was just citing, 76% of the adoptions are digital, which is great in terms of convenience for the students and also for us because it reduces the fulfillment effort that goes into our satisfying the demand. So, it's really served as a competitive advantage for many schools and that's accelerating the demand because other schools are seeing that and they're actually seeing growth in enrollment in some of the schools that are pitching Books are Free and those types of programs. So, they're using it as a competitive response so that they can put themselves on an equal footing with those business that are -- those schools that are using it as a competitive advantage.

That's really helpful color. I think an interesting dynamic for sure on the state funding aspect. I'd be curious as you're looking to the spring semester, I know you've been working on additional universities to start -- or launch with First Day Complete in January. Can you provide an update on sort of how that's trending in terms of additional schools coming on to First Day Complete?

Jon, you want to address that?

Yes, absolutely. We actually already have schools that are committed to launch First Day Complete within this academic year for the spring term and so that's really exciting and having, I would say, conversations across our footprint and with prospective clients on launching First Day Complete next academic year already. So, I'd say the impact of what we're seeing and the number of key studies and relevant institutions across four-year private, four-year public, two-year community college systems is allowing for really relevant examples of other -- for other schools and we're seeing great impact on student outcomes and it's leading to other discussions. So, yes, we have -- we will grow within this fiscal year, the number of campus stores running First Day Complete. I'm truly excited about the prospects for the future just based on the number of conversations we're having and the demand for this offering.

Excellent. And then just maybe perhaps one more for me. Great to see the strength in DSS both across Student Brands and bartleby. You talked about the new Math Solver tool launching this summer, just curious as you're thinking about the fall semester, in terms of marketing and packaging that solution. Are you offering the Math Solver as a bundled-in to core bartleby and does pricing change on that solution at all? Thanks.

Yes. David Nenke is our President of DSS. He will address that.

Yes, that's all included in subscriptions. So, we launched it, as you mentioned, in June. We had a sort of controlled rollout and, as it went through to buy them and it's now available to all customers and adoption and usage is coming around the levels that we expected, but, yes, it was included.

Excellent. Thank you very much.

Your next question comes from the line of Alex Fuhrman.

Great. Thanks very much for taking my question. Nice to see -- seeing finally -- looking like they're opening up here. Wanted to ask a couple of things. First of all, I'll start with the Fanatics and Lids partnership. Can you talk a little bit about now that the fall semester is getting into the rush period here? What is different about the in-store merchandising experience today than it would have been a few years ago before this partnership? Is it more about the quality and breadth of the assortment? Can you help us understand that a little bit better? And similarly, if you can address the e-commerce experience, how is it different today than it would have been a few years ago? And I know it's really early, obviously, in the rush here, but are you starting to see a response to the new assortment?

I'll just make some general comments, this is Mike, on your questions, Alex, and I'll turn it over to Jonathan to get more specific. But with respect to your first question on the FLC partnership and the merchandising and the appearance in the stores, your question is versus a few years ago. Well, I think, it came a long way even prior to the partnership with Fanatics and Lids in terms of our focus on really retailing on a very specific kind of local basis within each school's store. So, the incremental benefit of Finance and Lids merchandising comes, obviously, with the segment of that merchandising in emblematic and logo apparel that they specialize in. It's the quality, it's more of the breadth of the assortment and, especially in COVID, their ability to access directly through manufacturers and, in some cases, in their own brands. We've used the inventory that we probably wouldn't have been able to access as readily or at least not in the quantities as we can with them as a partner. So, when you walk into the stores, you're going to see a different assortment, a wider assortment and I think trending toward, in some of the larger schools, more of a high end assortment, a larger percentage of apparel that's higher end in nature than what we've had and different brands, a much wider assortment of brands, newer brands, more exciting brands from a demographic perspective for students. So, that's one thing. And in terms of the details behind that, I'll let Jon talk about it, but it's really been a huge exciting benefit for us thus far.

Yes, I just want to echo what Mike said that it's really about the quality and breadth, Alex, of the product assortment in the stores that we're really excited about and will only be enhanced and become better from a retail experience standpoint for our customers. And then on the e-commerce side and the integration of the Fanatics platforms seamlessly into our bookstore websites, we're incredibly excited about that. I'm very optimistic and on the impact that is going to have and the early results are really encouraging for the 14 sites where we've integrated that experience, already having an impact. And post-rush, we'll be transitioning, within this calendar year the balance of our sites to that experience. And it's -- I'd say, the build out of what we're calling our spirit shops for logo and emblematic products on the web is truly best-in-class, leveraging the Fanatics platform, mobile-first incredible, sort of, user experience that we just can't wait to get to -- rolled out to all of our schools and have an impact on all of our customers.

Great. That's really helpful. Thank you for that. And then if we could just think about your return to profitability here and I can appreciate the fact that there is still -- we're still early in the recovery and there's a lot of unknowns ahead, but you talked about being EBITDA profitable this year. Obviously, Q1 of this year certainly reflected pandemic conditions that -- as we enter the fall semester. Can you give us a sense of how close here are your campus partners to being what you would fully consider to be back up and running? And what does that mean for your profitability this year or at least the run rate that you're going to be on as the year starts to wind down?

Yes, I'll talk about that in general terms and then maybe Tom and Jonathan can jump in with some of their insight. But it's a great question. It's what we think about every day. It's what we've been thinking about for the last few months, getting ready for the rush. And as you might expect, it's different in different situations. But in general, we are seeing widespread, almost ubiquitous, not quite, but return to in-person learning with students on campus. I think the big keys are going to be, if you look at what's going to happen in the fall, it's first off, is everyone coming back on campus? Under what conditions? And really important for us as it relates to general merchandise sales, which as you know, Alex, was it really hurt us last year is having fans attend the sporting events, because we sell a lot of general merchandise on game day or in anticipation of game day and the days leading up to those games. So, having the fans in the seats and on-campus, having alumni come back to campus to attend the games, that's going to be important. So, that's -- so far we -- our information is that it's moving forward at or near full capacity. Obviously, we're concerned about the impacts of the delta variant and whether that's going to gate any of that thus far. I think as you can see that it hasn't had a huge impact. But we're obviously keeping an eye on it and we think about it, we don't have blinders on. And then I think the other thing I would say, we just talk about the impact of the fans -- Fanatics Lids partnership. So, making sure that the supply chain disruptions, we continue to work on that…

Hey, it's Jonathan. No, just building on what Mike is saying, we're really encouraged with the sort of return to campus and the vast majority, as Mike said, of our schools welcoming students back, having residential life, in-person classes and visitors and traffic on campuses so far. And the key will really be -- and it's to be determined, but we're optimistic on the sporting events, football weekends at many of our campuses and then having that continue through the fall. So, as of now, things look really good and we're ready to satisfy that demand and that traffic when people return to campus for events throughout the fall.

Yes

Yes, one thing I would add is that, Alex, nothing really slowed down much. In fact, a lot of things accelerated in the last 12 months in anticipation of the ongoing need and demand for students who want to be on campus and a perfect example of that is, Harvard is opening up a beautiful new bookstore this coming week and we have co-invested alongside Harvard and Harvard Coop and that's just an example of the fact that nobody is really pulling back. To the contrary, we're making the investments very wisely, but everybody is doing everything they can to attract students on a very responsible basis, keeping safety as the first priority, obviously, because we all have to do that to make sure that students are coming back on campus and feel welcome and that they -- we really have almost two freshman classes this year because the freshman classes from last year really didn't get to experience this. So, that's creating a higher level of demand than perhaps we've seen in a while.

Great. That's good to hear. Thanks very much everyone.

And there are no further questions at this time. I will now turn the call back over to Andy Milevoj for closing remarks.

Great. Thank you and thank you all for joining us on today's call and your continued interest in BNED. Please note, our next scheduled financial release will be our fiscal 2022 second quarter earnings release in early December. We hope everyone has a great day. Thank you.

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