Good morning, and welcome to our fiscal 2023 first quarter earnings call. Joining us today are Mike Huseby, CEO; Tom Donohue, CFO; and Jonathan Shar, Executive Vice President, BNED Retail and President, Barnes & Noble College; 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. Good morning, everyone.

Our first quarter began with a solid start, benefiting from a strong graduation season as many schools return to in-person graduation ceremonies and, in some cases, held multiple ceremonies to provide opportunities for those who were not allowed to attend and celebrate in-person over the past two years. We experienced stronger general merchandise sales, especially within our logo and emblematic products as on-campus traffic grew from increased student recruitment events and other activities as compared to each of the two prior years.

Our first quarter is a seasonally slow academic period, which primarily consists of graduation activities, summer classes and preparing for to fall back to school rush. In addition to the strength of our general merchandise business, our first quarter results also benefited from the continued growth of our inclusive access programs, which drove a 1.5% increase in comparable course material sales.

Total first day sales grew 67% to $45 million. Currently, we are in the thick of our peak Fall Rush annual sales period.

As reported last quarter, we entered Fall Rush with strong year-over-year growth in our contracted First Day Complete or FDC Inclusive Access offerings. With FDC having achieved scale in fiscal year '22, we now have meaningful and objective proof points that FDC improved student outcomes through easier access, convenience and substantially enhanced affordability.

Our surveys have shown that students believe our FDC model better prepares them academically, helps them achieve better grades and is easier to use than an a la carte model. Many students cited real benefits from FDC, such as reduced financial stress and the ease of getting all required books and materials ahead of classes, benefits that students said increase their likelihood to continue their education at that school.

We have also received strong feedback from school faculty and administrators who have noted that the FDC model has made it easier to engage earlier in the term with their students who are getting their assignments completed earlier as almost all of their students have their course materials on or before the first day of classes. Further validating our internal research on FDC's benefits, a research scientist at the University of New Hampshire examined the impact of equitable access course material models on student outcomes at two-year public institutions.

The research explores the relationship between success rates as defined by course completion rates and a student's participation in an equitable access course materials program. Results of that study revealed a 16% increase in the course completion rate for participants compared to non-participants.

It also showed a 21% increase for black students, a 17% increase for Pell Grant students and a 16% increase for Hispanic students when comparing participants and non-participants. This independent research reveals powerful data that supports our proprietary research and positioning that First Day Complete, improve student outcomes and enhances a student's academic journey.

We believe this study should serve as a catalyst to accelerate demand for our FDC solution in the marketplace. 111 of our campus stores are utilizing the First Day Complete for this Fall term, representing undergraduate enrollment of approximately 545,000 students, representing an 85% growth rate over Fall 2021 based on undergraduate student enrollment.

Additionally, we expect our general merchandise business to benefit from increased on-campus traffic and an increase in the number of activities and events as schools approach a more traditional learning experience. We are seeing tremendous demand for both FDC and our all-digital offering for First Day by course across all types and sizes of institutions.

With a strong pipeline of institutions that are currently evaluating the FDC program, we expect this growth to continue to accelerate. For example, in the Spring term of this academic year, we are excited to begin offering First Day Complete at the University of Connecticut.

These results reinforce BNED's differentiated and collaborative approach to working with our partner institutions to provide innovative solutions to help drive improve learning outcomes for students nationwide. As Tom will discuss further, our retail non-GAAP adjusted EBITDA loss for this seasonally slower quarter was $25 million as compared to a loss of $19.6 million in the prior year period.

The adjusted EBITDA loss increased on higher selling and administrative expenses primarily related to the expanded staffing at stores in response to greater on-campus activity and to prepare for the peak Fall term, including support for the growth of our First Day programs, which offset the sales and gross margin improvements during the quarter. Our wholesale business continued to be impacted by supply constraints from the lack of used book inventory available for sales resulting from the disruption to the traditional on-campus buyback activity over the last few years as well as lower overall demand due to declining enrollments and the transition to digital course materials.

Wholesale revenue declined 16.6% during the quarter, while EBITDA declined by $3.6 million. DSS continued its growth trajectory in the quarter.

Total revenue grew 10.6% on a year-over-year basis. We are also continuing to see positive momentum in scaling our Bartleby institutional business.

In addition to Delgado Community College, which we piloted in Spring 2022. We are excited to announce Eastern Kentucky University, EKU, as our most recent institutional partner.

We are integrating the full suite of Bartleby products into the EKU's learning management systems, providing 24/7 access to a full suite of on-demand study and writing resources for undergraduate and graduate students starting this Fall. With that, I'll turn it over to Tom.

Thanks, Mike, and good morning, everyone. Please note that the first quarter of fiscal 2023 consists of 13 weeks ended on July 30, 2022.

All comparisons will be to the first quarter of fiscal 2022, unless otherwise noted. As Mike said earlier, the first quarter is typically a low revenue quarter for the Company, consisting primarily of summer courses.

We are encouraged by the rebound in our first quarter sales especially within our general merchandise business. Total sales for the quarter were $263.9 million compared with $240.8 million in the prior year.

This $23.1 million or 9.6% increase was comprised of a $26 million increase in the Retail segment, a $7.4 million decrease in the Wholesale segment with a $0.9 million increase in the DSS segment. Retail sales increased by $26 million or 12.4% as compared to the prior year period benefiting from a rebound in both our general merchandise and course material sales.

Sales grew on a strong graduation season, a continued growth of logo and emblematic products and higher demand for our cafe convenience offerings, which benefited from the increase of on-campus traffic as compared to the prior year period. Retail sales also benefited from the continued growth of our inclusive access programs, which drove a 1.5% increase in comparable gross material sales.

Total First Day sales grew by 67% to $45 million, with First Day by core sales growing 49.8% to $28.1 million and First Day Complete sales doubling to $16.9 million. As Mike noted, we have 111 stores that are utilizing our First Day Complete offering for the fall term.

While we previously expected to enter into the Fall term with 112 stores, as part of our ongoing efforts to operate more efficiently, we closed one store location within a larger school system that was essentially a rush pop-up shop. We are still serving the same student body population at this institution.

On a gross comparable store basis, in which logo and emblematic sales fulfilled by Fanatics and Lids are included on a gross revenue basis, retail sales increased 15% during the quarter, consisting of a 1.5% increase in textbook sales which is incremental to the 21.9% increase a year ago and a 34% increase in general merchandise sales, which is incremental to the 119.4% increase a year ago. Please note that beginning this quarter and going forward, we included trade books within our general merchandise business category.

Net sales for the Wholesale segment decreased $7.4 million or 16.6% to $37.1 million, primarily due to COVID-19-related supply constraints resulting from the lack of on-campus textbook buyback opportunities during the prior fiscal years and lower customer demand resulting from a shift in buying patterns from physical textbooks to digital products. DSS sales grew $0.9 million or 10.6% to $9.2 million benefiting from an increase in subscription sales.

The consolidated gross margin rate for the quarter was 24.1% compared to 24.9% in the prior year period. The rate decline was primarily due to lower sales within the Wholesale segment as well as a decline in the wholesale margin rate.

Our selling and administrative expenses increased by $12.3 million compared to the prior year period. Primarily due to expanded staffing in our stores in response to the resumption of greater on-campus activity and in the preparation for the upcoming Fall term, including support for the growth of our First Day programs.

We also continue to invest in our DSS business. At the end of the quarter, our cash balance was $9.1 million with outstanding borrowings of $260.3 million as compared to borrowings of $203.7 million in the prior year period.

This increase is due to the impact of COVID-19 has had on our business and cash flows over the last two years. CapEx of the quarter was $9.7 million as compared to $11.4 million in the prior year.

Currently, our Retail segment operates 1,406 college, university and K-12 school bookstores comprised of 793 physical bookstores in their e-commerce sites as well as 613 virtual bookstores. With that, we will open the call for questions.

Operator, please provide instructions for those interested in asking a question.

Congrats on a nice quarter here. Maybe just to start, obviously, there's a lot of questions around the enrollment outlook and sort of what the picture is going to look like for this Fall.

You made a couple of comments in the prepared remarks about sort of a strong Fall Rush or something that seems to be improving. We'll just be curious to see what you're seeing right now in terms of what the enrollment picture is looking like at the universities you work with and how that Fall Rush traffic is trending relative to last year?

Ryan, it's Jonathan Shar. Thank you for the question.

It's really too early to provide a specific view on enrollment in order to quantify the traffic, although really optimistic that there is increased sort of traffic and students on campus and fewer restrictions on those campuses that we'll welcome on additional visitors and such to campus. Say some of our optimism is based on the fact that our general merchandise inventory is in much better shape as compared to last year, which was a start-up year for FLC, on the emblematic side of our business and last year's supply chain challenges are much improved from an inventory and replenishment standpoint.

We also have, as we've noted, 111 campus stores that are utilizing First Day Complete as compared to 65% in the prior year and a significant 85% growth in the number of enrolled students. So we're really excited about that and the impact that will have on our course materials business, but we really won't know what the outlook for enrollment is going to be until after the ad drop period and when we get to sort of the national reporting on that.

Yes. Ryan, it's Mike.

I think that the fact that we grew courseware sales in the summer, we grew them in fiscal year '22 speaks to the strategy of First Day Complete and why it was put in for exactly that reason, we knew enrollments at least longer term, as you know, are going to be affected by the demographic shift where the traditional college-age student demographic is going to be dropping off fairly dramatically in a couple of years. And so, we're starting -- while there are enrollment decreases over the last two years, particularly in two-year schools, I think that the way we're addressing it is effective.

And as Jon said, we will have the enrollment data in a month or so, we just don't have it. We don't have it yet.

There's really no way to get it until it's gathered by the right authority, so to speak.

Helpful color, I appreciate that. Maybe shifting the First Day Complete.

So great to see the continued growth in a number of universities there. But in your, I guess, maybe second sort of big year in terms of adoption with First Day Complete in the Fall semester.

I'm curious as you're looking back at the 2021 cohort as that's maturing into this fall. Any trends that you'd call out in terms of student usage or what the opt-in rates are looking like sort of into your second year with those existing -- that 2021 cohort as you go into this year?

And then maybe a question on what you're seeing in terms of the mix of digital versus physical textbooks as a component of First Day Complete?

Yes. Ryan, it's Jonathan again.

I would say that -- and that again, a little too early to tell because we're not through the ad drop period is when we get the information on opt out rates at schools that make that an option. So, we don't have any data to quantify.

But through observation, and spent the last 2.5 weeks on campuses across the country who are entering Rush including many that are operating First Day Complete for both sort of an ongoing basis and for schools that are just transitioning to that model. I would say that the knowledge and acceptance of that is sort of significantly improved again, just from observation, and we've improved the process a lot through investment in technology, making things more seamless, clear.

So -- we're anxious to see what the cohort is going to look like, but I think that there's going to be some sort of positive gains in the participation rates and the impact First Day Complete will have, even in the schools that had that prior to your point. So I think that's going to be something that will continue to track.

But we are making investments and really focusing on improving the student experience as we learn. And I think the business will benefit and the First Day Complete schools will benefit from that.

And maybe just one more for me on DSS and Bartleby. Just curious what you're seeing in terms of pipeline for incremental opportunities to bundle Bartleby within First Day Complete?

And then maybe just a bit of housekeeping. Can you remind us what the gross subscriber number for Bartleby is now and how that compares to -- I think you're at 400,000 gross subs last quarter?

David Nenke, take that question.

Yes, certainly. Thanks.

The -- as we piloted the institutional package at Delgado in March of this year, I learned a lot. Really excited about the execution of both Delgado and EKU, as we get into Fall this year.

We're on campus, and it's in the LMS and we're talking to students and kind of faculty to show them how to use the product, and we're excited about the possibility of the semester ahead. As we are talking with the institutional customers, good interest in -- from other institutions.

So we'll continue to learn as much as we can and collect staff and talk to other institutions. So more to come on that.

But there's, I think, a good deal of excitement from the schools that we're on at the moment as well as internally and certainly a lot of interest from schools that we're talking to. So, that's exciting as we get into the Fall semester.

And as you mentioned, we were just over 400,000 subscribers last quarter. This quarter, another kind of general 11% increase on that for the quarter, so relatively consistent with the revenue number.

I wanted to ask about how your consumers have been feeling and spending over the past couple of months since we got the last update from you guys and you initially gave your guidance? We've obviously seen inflation getting a lot worse than a lot of other retailers talking about consumers pulling back on discretionary purchases.

You guys obviously have a very specific consumer and are much more differentiated. Are you seeing the same thing where your students are being a little bit more conservative on apparel and general merchandise purchases?

And curious, I know it's only been a week or so, but curious that there's maybe been any change in kind of spending behavior given the news about debt forgiveness that came out recently?

Yes. Alex, it's Mike.

I'll take an initial crack at that. But I think it's maybe obvious, as you just said, that it's too soon to determine whether or not that's forgiveness, which pretty much relates to those who have already graduated, I think, more so than those that are in school that we're servicing right now, although there is, I'm sure, crossover too soon to know whether that's going to fuel additional spending on campus.

We're certainly not counting on that. As it relates to consumer spending in general, I think we are geared up, I think, as Jon mentioned, and partnership with Fanatics and Lids and our stores for general merchandise, we have geared -- they have spent a lot of money with us, making sure that our stores are ready to satisfy the demand that we think is going to be there.

We saw a bounce back last year and we published the increases in spending last year. We talked about it in our earnings release this year for general merchandise continuing to see increased spending in general merchandise.

The impact of inflation has resulted in some price increases and what we sell in terms of general merchandise. We're trying to pass on as much of that.

We've also tried to be very smart about how we deal with our offers as it relates to freight and who pays what, how do we share that with consumers, not offering free shipping for certain orders that we use software for that type of thing. So your question has got a couple of elements to it.

I think in terms of consumer spending, we're certainly expecting, as we said in our release, a very robust, strong Fall Rush and we're geared up for that in the stores on general merchandise and also through our inclusive access and a la carte courseware programs. In terms of inflation and cost and how it impacts us, it is impacting us, but we're trying to anticipate that as much as we can and manage it by sharing those costs.

And in other ways, and just really over -- really, really strong focus on our own internal cost structure which we've had for a number of years, which was really, really exacerbated and emphasized by COVID and our need to contain costs as something campuses shut down that are now all open. Thank goodness.

We don't -- to answer your question directly, we don't have any data on consumer spending but we do expect a good Fall Rush number of activities, supporting activity. Keep in mind that last fall, we had Delta variance.

And in January, we had Omicron variance -- variant rather not variance. And those variants did have an impact on our store traffic and also on spending.

So we expect to see that -- we don't expect to see the repeat of those kinds of COVID impacts in this season. And so far, we are not seeing that.

Great. Thank you, and thank you all for joining today's call and your continued interest in BNED.

Please note that our next scheduled financial release will be our fiscal 2023 second quarter release in December. Have a good day, everyone.