Barnes & Noble Education - Earnings Call - Q2 2021

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Barnes and Noble Educational Fiscal twenty twenty one Second Quarter Earnings Conference Call. I would now like to hand the conference over to your speaker today, Andy Mugdoy. Thank you. Please go ahead, sir.

Speaker 1

Good morning, and welcome to our fiscal twenty twenty one second quarter earnings call. Joining us today are Mike Huseby, CEO and Chairman Tom Donahue, CFO Jonathan Schar, Executive Vice President, BNED Retail and Client Solutions Lisa Mallett, President of Barnes and Noble College, and David Henderson, President of MBS. 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 and Noble Education and are not for rebroadcast or use by any other party without prior written consent of Barnes and 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.

Speaker 2

Thanks, Andy, and thank you all for joining us this morning. During the past few months, we've seen a vastly different college experience take place nationwide. Our campus partners have adapted to a fall semester that looked very different than in years past. Between navigating delayed start dates, introducing blended learning format, implementing widespread student testing, more, colleges and universities adjusted as best they could to the ongoing challenges that COVID nineteen pandemic continues to present. Through all of this, BNED has been able to pivot accordingly, ensuring that our customers receive uninterrupted service no matter where, when, or how their learning took place this fall.

As we have highlighted since the onset of this pandemic, the strategic investments we have made in our digital offerings, ecommerce solutions, warehouse operations, and campus stores have uniquely positioned us to offer flexible and adaptable solutions that institutions, students, and faculty need. Over the past few years, we have introduced solutions such as our BNC First Aid model and the BNC adoption and insights portal to drive convenience for students and administrators and respond to institutions, increased emphasis on affordability, access, and achievement. We've also developed a new digital offerings such as our Bartleby suite of services to ensure students have access to twenty four seven academic support. Coupled with our virtual bookstores, drop ship offerings, and fulfillment capabilities powered by our MBS subsidiary, BNED has created an unmatched value proposition, which we believe has become only more relevant in light of the challenges this pandemic has presented for institutions. It is because of this that we have continued to attract new clients and generate new business growth, signing $93,000,000 in new business to date this fiscal year or $71,000,000 on a net basis.

With that being said, we are continuing to experience the impacts of the pandemic in other areas of our business and are adjusting and adapting accordingly. As anticipated, we experienced substantially lower general merchandise sales this quarter, which significantly impacted our profitability given high margins of our GM business. Our second quarter traditionally sees higher general merchandise sales due to athletic events, many of which were either completely canceled or took place in a reduced capacity this fall. Our field team has done a tremendous job managing expenses to help mitigate these declines, which Tom will discuss in further detail. Compared to our expectations, textbooks performed relatively well, particularly considering many students did not have the traditional on campus experience or did not attend on campus classes at all.

Textbook sales declined 19% for the quarter as compared to 7.7% decline in the prior year period. Because of substantially reduced foot traffic on campus and in our campus stores due to pandemic restrictions, e commerce remains an important and accelerating sales channel for us. We continue to see a large percentage of shoppers purchasing their textbooks and general merchandise on our bookstore website. E commerce sales represented 66% of our total Q2 sales as compared to just 36% in the prior year. We have made continued progress in the development of our new e commerce platform this quarter.

This exciting platform will provide a hyper personal, hyper local shopping experience for customers. We continue to see growth and momentum of our First Day and First Day Complete inclusive access programs, which have become even more relevant institutions in light of the current learning environment. At a time when many things remain uncertain, our first day offerings enable schools to provide a more affordable and highly convenient model that ensure students receive their course materials and are ready to learn by the first day of class. This is more critical now than ever. At the start of the fall semester, we successfully launched First Day Complete at 12 campuses, and we expect to implement the program at additional campuses for the start of the spring semester.

As we look ahead to next fall, we are in deep discussions with a significant number of our campus partners about transitioning to First Day Complete as they look to take advantage of the benefits of our all inclusive model to enhance access, affordability, and student academic achievement. As we continue to support our campus partners to our bookstore operations and course material offerings, we also continue to serve students directly through our DSS segment. The demand for Bartleby's homework help solutions has recently exploded. October 2020 was our highest traffic month ever with approximately 4,000,000 unique visitors in the month, up 378% versus last year and up almost 80% versus spring peak traffic. We are focused on scaling this business in a quality manner that will lead to sustainable subscriber growth.

Bartleby's potential to add significant shareholder value to BNED is truly exciting. The rapid emergence and persistence of online and blended learning format only strengthens the need for this digital solution. This past quarter, we saw continued demand for our bartleby products from the students we serve. Bartleby gross subscribers grew to over 120,000 with revenue increasing 53%. On a year to date basis, subscriber growth is up over 40%.

Because fewer students are on campus right now, we have seen a smaller percentage of Bartleby sales taking place through our in store channel. And while our store teams are still putting great effort into selling to their customers, we've also increased our focus on other sales and marketing channels to ensure that Bartleby is available to as many students as possible. This includes SEO, which has continued to exceed our expectations in driving users to Bartleby and remains a core aspect of our growth strategy. Additionally, during the second quarter, we entered into a partnership with Blackboard, a leading ed tech company, to offer our Bartleby suite of solutions in their newly launched Blackboard Assist feature. Blackboard Assist is a feature within Blackboard's learning management system that enables higher ed students to search and access academic support services from their institutions as well as from curated third party tutoring and homework tools such as bartleby right within their LMS.

Bartleby will offer two products through Blackboard Assist in The United States, bartleby health and bartleby write. Bartleby health is the institutionally branded version of our bartleby learn product, which provides asynchronous online tutoring from experts who are available twenty four seven. We are very excited about this new partnership and expanded distribution it provides for our Bartleby suite of services in The United States. Blackboard Learn is a leading global learning management system in The US and serves millions of students, many of whom are outside of the BNED footprint. We believe that partnerships such as this one and VitalSource will allow us to grow brand awareness for Bartleby, in turn, driving increased subscriptions and revenue.

As we look to further scale our Bartleby suite of solutions, we will continue to explore additional partnerships such as this one, which will allow us to scale at faster rates. This was obviously a very unique fall rush for our stores, for students, for faculty, and for our campus partners. With a focus on the health and safety of our people and communities, our stores resumed operations on campuses where it was deemed safe to do so this fall. Supporting customers with safety measures such as mobile curbside pickup, contactless payments, and socially distant store layouts. We are immensely proud of our teams for the ways in which they have adapted to change these past few months.

One of our biggest strengths as a company lies in the relationships we have on campuses nationwide. Our partners, students, and faculty rely upon us for best in class service. And even in the midst of a global pandemic, we have been able to continue delivering just that. As we've noted previously, we continue to expect COVID-nineteen to impact our business throughout fiscal twenty twenty one. In response, we have substantially adapted our cost structure and continue to take actions to reduce costs and operate more efficiently in this environment.

We'll remain vigilant and highly focused on managing expenses and liquidity prudently. I would like to take this opportunity to once again thank all of our campus partners and our people at BNED for their tireless efforts throughout these challenging times. Even as we have had to adapt to difficult circumstances, our teams have continued to make significant progress on our goals, and I'm very proud of the ways in which they have all continued to innovate and move forward. With that, I will turn it over to Tom for the financial review.

Speaker 3

Thanks, Mike. Please note that our fiscal twenty twenty one second quarter ended on 10/31/2020, and consisted of thirteen weeks. All comparisons will be for the prior year period, unless otherwise Total sales for the quarter were $595,500,000 compared with 772,200,000 in the prior year. This decrease of $176,700,000 or 22.9% was comprised of $165,200,000 decrease from the Retail segment, a 3,800,000 decrease from the Wholesale segment, and a $700,000 increase from the DSS segment. BNED's fiscal twenty twenty one second quarter results were significantly impacted by the ongoing COVID nineteen pandemic as many schools continue to adjust their learning model and significantly reduce their on campus activities in response to the pandemic.

While many big conferences resumed their sporting activities, fan attendance was either eliminated or severely restricted, which had a substantial impact on the company's high margin general merchandise business. Sales were also affected by overall enrollment declines, which were further exacerbated by the decline of international students who either studied online or deferred their studies as

Speaker 2

a result of the pandemic.

Speaker 0

Retail comparable store sales declined 28.1% during the quarter, comprised of a 19% decline in textbook sales and a 52% decline in our general merchandise business.

Speaker 3

Either Our general merchandise business, which includes clothing and food and relies on store traffic throughout the semester, was far more impacted by the reduction of students on campus and the elimination of the campus social events and sporting events. These declines were partially mitigated by BNC's rapidly growing First Day offerings, which incorporate course material fees into students' tuition fees and grew 77% to 53,400,000.0 during the quarter. Net sales for the Wholesale segment decreased $3,800,000 or 9.5% to $36,400,000 primarily due to decreased gross sales, partially offset by lower returns allowances. DSS sales grew $700,000 or 14% to $5,900,000 benefiting from the growth in Bartleby subscriptions and our Student Brands business. Bartleby subscriptions revenue increased 53% to $1,700,000 while Student Brands revenue increased 3.8% to $4,300,000 The consolidated gross margin rate for the quarter was 19.4% compared to 24.2% in the prior year period.

This decrease was primarily due to the shift to lower margin digital courseware and lower sales of our higher margin general merchandise products, coupled with higher markdowns. This was partially offset by our efforts to renegotiate lower contract costs. In anticipation of the challenging sales environment, we continue to prudently manage payroll and store operating expenses. These actions, coupled with the cost reduction actions taken in fiscal 'twenty, enabled us to reduce selling and administrative expenses by 21,400,000.0 or 18.9% compared with the prior year period. As we look ahead to the spring rush period, we anticipate that schools will continue to prioritize the health and safety of their faculty and students and continue to adjust their learning models in response to the pandemic.

We expect that they will continue to restrict on campus social events, sporting events, to reduce crowds and follow COVID-nineteen safety protocols. We remain committed to serving our partners however they choose to resume learning and will continue to prudently manage expenses and liquidity in light of the lower sales environment. Due to all the uncertainty that COVID presents in the near and intermediate term, we are not providing fiscal 'twenty one guidance. We do expect that COVID will continue to have a significant impact on our business during fiscal 'twenty one. At the end of the quarter, our cash balance was $7,400,000 with outstanding borrowings of $99,500,000 as compared to twenty four point six million dollars of cash and no borrowings in the prior year period.

This difference is directly the result of the lower sales environment we are experiencing, but better than our own expectations. Our current liquidity position remains strong despite the challenging climate. CapEx for the second quarter was 9,100,000 compared with $10,900,000 in the prior year. Currently, our Retail segment operates fourteen thirty nine college, university and K-twelve school bookstores comprised of seven sixty eight physical bookstores and their e commerce sites as well as six seventy one virtual bookstores. As of today, we have contracts to open an additional nine stores in fiscal twenty twenty one with one additional known closing primarily of a smaller unprofitable store.

This will bring our total physical and virtual store count to fourteen forty seven locations net of closed doors. With that, we open the call for questions. Operator, please provide instructions for those interested in asking a question.

Speaker 0

Great. Thank you. And your first question here comes from the line of Ryan MacDonald from Needham. Please go ahead. Your line is now open.

Speaker 4

Yes. Good morning, everyone. Thanks for taking my questions. Congrats on a nice quarter here during challenging times. As you're starting to look towards the spring semester, I think there's a recent New York Times article that discussed that a number of universities are expecting more students on campus this coming spring.

Just would be curious to hear sort of how that compares to the conversations you're having with your university partners and and how you're approaching sort of inventory building, as we get to the to the spring semester here.

Speaker 2

Hey, Ryan. It's Mike. I'll I'll give a general answer, then I'll let, Ravi Samala, who's president of our BM College operations, jump in. You know, obviously, it's it's very hard to predict what's gonna happen because as we saw in the fall, depending on how COVID moves and how well it gets controlled, you know, we saw today the first vaccines are starting, but how how fast will they get rolled out, etcetera. You know, we still have we have a number of schools that is different by geography.

You saw in California, that, many of the schools, the state schools decided to go full full remote. That was fairly unusual. Many other schools went hybrid in the fall. And, those that didn't go hybrid and went full on campus, some ended up having to change their plans. I think the same thing as the risk of happening in the spring, Although now that the schools have been through a full semester of this adaptation, and there's going to be a a relatively long break for most schools between Thanksgiving when many schools, dismiss students, other than to have finals taken virtually.

For the winter break, it's gonna be a fairly long break there. So, you know, I'll let Lisa talk about what we're what we're actually actually hearing from our our campus partners so we can address the rest of your question.

Speaker 5

Sure. Good morning, Ryan. It's, I saw that article as well and immediately, you know, reached out to our field vice presidents just to, you know, make sure that we had the latest insights on what's happening on campus. I mean, Mike's right. It is very, geography driven.

You know, the trend we are seeing is that, you know, schools are pushing their openings. Right? They're not opening till till mid January or late January. We heard that yesterday as an example for Yale and Kentucky. Pretty universally, they're canceling spring breaks.

Obviously, they don't want students leaving campus, come back to campus, etcetera. So, you know, there are many universities that are that are not, making a definitive decision in terms of what's gonna happen later on in the spring, but the the trend is definitely the later openings, and the cancellation of the spring breaks. Our expectation is that learning will continue to be driven mostly, remotely at this time.

Speaker 2

Maybe Tom, can you ask me a question on the on the spend, the inventory spend?

Speaker 6

Yes, thanks. This is Tom Ryan. Brian, our intention and plan has always been to not be ahead of what we see in sales. So to the extent that the sales aren't coming, we're not going to be ahead of ourselves on the inventory, and we'll continue to manage that prudently and and and really manage to the to the campus activities that we see in terms of the activities and the events that, to this point in time, have really been nonexistent.

Speaker 2

You can see from the the the comments in the scripts, the comments in the script that, you know, we have an increasing percentage of sales, going to ecommerce, which is, you know, fairly obvious as to why. And not only ecommerce, you know, from our own fulfillment, but we instituted drop ship capabilities, you know, general merchandise, many of our general merchandise partners, and that's increasing. So that that helps us in the context of, you know, being able to fulfill and also the breadth of the selection that our our customers can get. These are orders that are being filled directly by manufacturers through the commerce drop drop ship system.

Speaker 4

Excellent. That actually leads right into my next question nicely around e commerce. It's good to see sort of the materially increasing percentage of merchandise sales coming from e commerce. Can you talk about what your expectations for this phased rollout of the new platform are as we get into calendar twenty twenty one? And perhaps what's really potentially constraining or preventing universities from really pulling that out and implementing it more quickly?

Speaker 2

John Schar could address that question.

Speaker 7

Hey, Ryan, it's Jonathan Schar. Yes, we're our plan is to, continue our development and have a phased rollout of our new e commerce platform, starting after the spring rush and then have that phased throughout and have that implemented prior to fall rush for our next fiscal year.

Speaker 4

Excellent. And then I guess answering

Speaker 2

your question about what's preventing, know, anytime you put in a new e commerce system, particularly under these circumstances, we wanna make sure that, you know, we do things on a very customized basis for each school. So this isn't flipping the switch. We have, you know, 770 or so microsites. And so that, you know, we have we have begun to roll it out. It's it's not a flipping a switch type of a of an exercise.

It's very customized. So I think it's, you know, it's it's a it's very cooperative process between us and the school. So answer your question directly, some of it will depend on the resources that the schools devote, and some of it depends on on us making sure that, you know, as we're scaling this, we're doing it in a way that optimizes, you know, the transition from the old system to the new system.

Speaker 4

Alright. Excellent. Just one last one from me. I'll jump back in the queue. On first day and first day complete, you know, great to see 12, 12 implementations during this semester.

As you look at sort of expectations for additional rollouts in the spring, what are your expectations in terms of number of universities or maybe a comparison order of magnitude compared to the fall? And how's the pipeline looking for fall twenty twenty one? Thanks.

Speaker 7

Yes. Hey, it's Jonathan again. Yes, for spring, we are and we've announced publicly that Sam Houston State University launching for spring term, which from an enrollment standpoint will be our largest campus implementing First Day Complete. And then we haven't publicly communicated what the other, schools would be for spring. But looking ahead, the pipeline, as noted in the script, is really robust.

We are in deep discussions with a significant number of campus partners about transitioning to the model. And the benefits of the whole inclusive, model and the access affordability and achievement and overall convenience is even more relevant today. So we're really excited about the number of conversations and the opportunity to really show significant growth in First Day Complete for next fiscal year and really starting with fall term '21.

Speaker 2

The other thing, this is Mike. The other thing I would add to that is that as we, you know, as we as we said, we added $93,000,000 of new business thus far this year in fiscal twenty one. And as we're doing that, we're having these conversations with the new schools on on First Complete. We're trying to, you know, target our efforts towards those schools that have an open mind towards inclusive access and and First Day Complete. That doesn't mean all the schools will do that, that we're we're picking up as new schools.

But, that's an important point because it it validates the new business that we're selling validates the overall model, which is things are more complicated for schools. They have more of an emphasis on managing the fiscal aspects of their business. And because they share in every dollar that we produce under our contracts with them, they're very incentivized to, you know, to outsource to us. So the model the overall business model within Barnes and Noble College is being validated by the new business as well as the move to, First Day and First Day Complete. And by the way, we've had very recent conversations with the, the top management of large publishers.

And, you know, in general, they're very committed to, you know, inclusive access as a way to grow their digital their digital businesses, which is important to us.

Speaker 4

Excellent. Thanks for taking my questions.

Speaker 2

Thanks, Ryan.

Speaker 0

Your next question comes from the line of Alex Berman with Craig Hallum Capital. Please go ahead. Your line is now open.

Speaker 8

Great. Thanks very much for taking my questions. I'd love

Speaker 3

to just if we could take

Speaker 8

a step back for a second as you think about planning for next year and years to come, you know, as you engage with your partner schools and look at potential new contracts, you know, do you feel that universities are still envisioning the campus bookstore as a central community space? Can you talk about maybe how how that might look different after the pandemic or or the same as it as it has for you before 2020?

Speaker 2

Yeah. I'll let Lisa handle that. I think my my overall comment would be that, as I just said, you know, many of the reasons that we're growing our new business have to do with the complexities of not just content procurement, but also retailing. And I think one of the things we really bring to the table, through Lisa and her team, is the strength in in the retail experience within the stores, and we expect that to we expect that to continue. As and and as I've said in the past, I I personally believe, and this is necessarily a corporate view, this is not necessarily supportable, by facts, but, you know, there's gonna be a quite a pendulum swing back to students and others who are interested in learning, getting back to social social, you know, lack of social distance.

While still they'll still be careful in certain respects, I think that there's gonna be a a real urge to get back together and spend time physically, you know, we're not necessarily planning our business, Alex. Just it's gonna return to physical store traffic levels of fiscal year nineteen and the fall of next year. I don't think that would be smart, but we are expecting, you know, the overall community hub feel of our schools to continue and be maybe even more important than ever given what's transpired over the course of last year. But do you see anything?

Speaker 5

Yeah. No, Mike. You know? Yeah. What you said is exactly right.

I mean, Alex, as we go to market, you know, it's really two key, you know, really value props for us. It's obviously affordability and what we're able to do to, drive that through digital and First Day Complete, etcetera. But the other is really our expertise and prowess as a retailer and our ability to build community, to drive traffic, to celebrate the school brand, and to drive revenue. Right? And we recently did a debrief, Alex, of around 12 of of our schools recently signed schools to understand what drove their decision and how did we differentiate in the marketplace.

And what came through so loud and clear in all of those responses was our ability to drive community and to create that dynamic community space, you know, not just for the students, but obviously for parents, alumni, but also in, you know, in more of the, you know, retail community locations to bring in the outside community into the store. So universities are very, very focused on making sure that the student experience continues to evolve and and and that we remain really a central hub on campus.

Speaker 2

Great. That's that's really helpful.

Speaker 8

And then, yeah, just thinking about the the numbers for a little bit, what what are some of the things that you're gonna be looking towards over the next few months and quarters as as you make, the the decisions to start bringing some expenses back and personnel back? Are there are there kind of signposts that you're gonna be looking for over the next semester or two as you start to make those decisions?

Speaker 2

Well, all that's tied into our our planning for for spring and beyond, obviously, as you're referring. And, you know, we've we've done a very painful, I I would say, great job of of managing costs and costs related to to payroll and other costs and other capital spend. And that started as soon as the pandemic hit, you know, for, like, almost 11,000 people. And then we've been bringing people back into stores. Primarily, we're talking about Barnes and Noble College in terms of this question because MBS has been running, you know, three shifts twenty four seven since since COVID hit given their their assets and their ability to satisfy virtual and remote learning requirements.

And and bartleby, same thing. I mean, they're they're exploding in terms of their growth right now. So the Barnes and Noble College is really the the focal point in in terms of expense management because that's where most of the costs are and that's where most of the the challenge is. And so if you what we're planning excuse me. What we're planning on is is doing the same thing that we've done, which is being very flexible in changing our cost structure so that much more of it is is variable as opposed to fixed.

You know, we have changed the mix of our full time employees with the mix of our seasonal and temporary employees, And we've changed, you know, comp and get into this maybe in a little more detail. But, you know, our objective is to is to maintain that that that change in our cost structure, which allows us to be much more nimble and and reactive, quite frankly, on a on a short term basis, you know, which is, you know, once we get news from from various schools, how are we able to staff and accommodate, and at the same time, you know, use technology to try to to to reduce, you know, payroll costs. Tom, you may want to comment further on that.

Speaker 6

Yes. No. Thanks, Mike. Alex, I think

Speaker 2

some of the the guideposts

Speaker 6

that we're thinking of generally revolve around the activities or what what we've been hearing is with the lack of activities on campus with the severely restricted or nonexistent fans at football games and the likes, you know, we're heading into, obviously, basketball season. What does an NCAA tournament look like? So as these events and social events start returning more than normal, I

Speaker 3

think that's some of the guideposts we're thinking of as we consider, you know, some of the expense items that you're referring to.

Speaker 6

But Mike hit it pretty well in terms of how we've adjusted the model, and this is really attributable to the college team and the field staff on how we switched, you know, from the longer standing full time employees to more temporary seasonal, and

Speaker 3

and that's helped reduce costs significantly.

Speaker 2

I think the other unknown, and I wouldn't call it a guidepost necessarily, but it's the vaccine progress, which I don't think we have enough information on yet. You can you can form your own speculation based on all the information that that's out there. I mean, but, you know, we are starting to see the the actual rollout of the vaccine. And, you know, that's not just how does it impact students, but how does it impact faculty, who are concerned? Will they get the vaccines earlier?

You know, that that we don't know the answers to those questions. But what it does look like from the early reports, you know, even listening to them this morning from, from the health care experts, experts is that the vaccines do look like they're effective. And, you know, thus far, I mean, clinical trials, I mean, etcetera. So that's that's a big thing that we'll keep our eye on, and every school is keeping their eye on. And I'm sure it's going to be, you know, pushing to get their faculty and their administration, you know, involved in in that in being vaccinated as soon as they can.

Speaker 8

Terrific. Well well, you guys have done

Speaker 2

a great job managing, through this this year,

Speaker 8

and I I appreciate all the answers. Thanks.

Speaker 2

Thank you, Alex.

Speaker 0

Once again, if you would like to ask a question, please Your next question comes from Rory Wallace from Attlebridge Capital. Congrats

Speaker 4

on the strong results. I just wanted to follow-up on bartleby where I think you mentioned, like, 378% increase in your monthly uniques and up 80% in spring. And I was just trying to square that with the growth in revenues, which I assume that maybe you were getting higher conversion rates on the in store traffic last year, and that's why the revenue is not growing quite as fast. But I just love a higher level sense of how you think the product is performing in the marketplace and also any ways that you you see to enhance the product and distribute it more broadly?

Speaker 2

Yeah. Thanks, Roy. That's that's a question I could spend a lot of time on because I was spending a lot of time personally with the DSS team. As you know, Kanuj, the whole job, who did a wonderful job getting us to this point, and he's built a really strong team within DSS. And lots further opportunities at the November.

So I've been spending a lot of time with that team. And to give you a short answer, I guess, first off, in terms of how does it square with revenue and how does it relate to to to the in store? Really, what you're asking is what does the sub look like, you know, that is is is sold through our POS system in store versus, you know, the great growth we've had, much of which has come from, you know, our our long tail SEO strategy. And, you know, in q and a, in particular, we have flexible solutions in q and a in terms of homework help. And q and a is just literally exploding.

I mean, we're we're spending spending a lot of time right now just working on the quality of our responses, the, the turnaround time in our responses, and all those things that we need to do from a competitive perspective and also a client service perspective to make sure we have a sustainable, business and great customer experience. So what you'll what you'll start to see is you'll start to see, you know, because of the technology that the team has put in place, you'll start to see, you know, a sortation, so to speak, of of the volume of activity we get in. We're prioritizing those questions and, that we're getting in daily to to make sure we're answering our paid subscribers first. Okay? So this this product has been been built largely, as you know, on a on a model where, it's largely promotional.

And, our focus hadn't been on on really, you know, the financials. It's really getting the product built, the content put in place, and, getting everything put in place that we need to offer. That's changing. We're now focusing more so on, as you're asking, building the quality of the product to differentiate it. So when we bought Student Brands in 02/2017, one of the main reasons we brought that, company into our family is because they have a tremendous team of people that are are ahead of what we think the comp where we think competition is on on artificial intelligence and machine learning.

That's enabling us to sort through volumes of questions that are about three times what we were expecting on a daily basis as of right now in our plans And to prioritize them using what we call bartleby connect. It's basically a router that takes using artificial intelligence and and, and really being able to analyze the source of the question. It it allows us to sort huge amounts of, large amounts of questions so that we're focusing on, on paying subscribers and our strong you know, our strongest prospects for converting questions and answers to, you know, more sustainable subscribers. The LTV associated historically, the LTV associated with an in store sale has been substantially higher than, you know, one that we get from a an FCO or, you know, out of footprint, we call it, sale. And we we have ways that we're working on to close that gap by enhancing the product.

I don't really wanna get into our specific product road map on this kind of a call for competitive reasons. But we have a tremendous team that's working on a lot of things that, you know, are not distant objectives. They're being worked on and rolled out as we speak, whether it's expanding subjects, you know, doing a lot more with, with video in various contexts and that type of thing. So you'll see a much more, I think, robust product in the very near term from bartleby even though it's it's performing very well right now in terms of improving its its performance on on on q and a and and technical solutions. So we're very excited about it.

I'm I'm personally very excited about it because I'm getting to be much more involved personally with the team and seeing what a strong team we have in in DSS and what a great job they're doing.

Speaker 4

Yeah. Thanks, Mike, and and I appreciate that. And I guess dovetailing on that just since you you did bring it up. I mean, I know that you you obviously have a great handle on how that's performing and and what you're working on. But do you think that there's is there an organizational strategy, I guess, as far as eventually consolidating that under someone else who's currently with the company?

Or would you look to potentially make an external hire at some point around managing DSS and Bartleby?

Speaker 2

Objectives with Bartleby are to take it to the next level as a business. And how we do that and who we do it with, we'll announce when we're ready to do it. So I think, you know, we we have a plan. I just don't I don't think it makes sense to to talk about that until we we have specifics.

Speaker 4

Understood. And and then as far as first day, I I thought the, the revenue number was was pretty high compared to what I was expecting at 53,000,000. And I I assume a lot of that is the bulk of it is still a la carte versus complete. But is there any sense that you can give us as far as as how much of it might be First Day Complete at this stage?

Speaker 7

He wrote I don't know, John.

Speaker 2

We're those gonna we're not gonna break those numbers out today. I mean, at the end of this fiscal year, we may so we can provide some context on the growth potential. I think what's really exciting about it is the margin expansion. Right? And, you know, we have to be a little careful about, about disclosing those those numbers, given how how new the the product is.

We wanna make, you know, from a competitive perspective and also just, you know, I think that I think that inclusive access as a as an offering and a concept incorporates both First Day and First Day Complete. And until we scale First Day Complete, which we expect to do based on the pipeline discussion you just heard, you know, in a much more substantial way in the fall of next year, well, I don't think we can look towards breaking those numbers out. I don't think it it benefits us right now to do that other than the context of, like, John's John's metrics around enrollments. For example, the enrollments that, you know, we talked about Sam Houston State and, you know, the size of that relative to other other First Day Complete clients. We're pushing for First Day Complete metrics that really revolve around the remote enrollment increase and and margin contribution.

So I think that, yes, you'll start to see those numbers, you know, highlighted that it'll probably be you know, probably won't be, you know, done on a done this year. I just don't think it makes sense to do that yet.

Speaker 4

Sure. Yeah. That that makes sense. And and I guess with the sales motion there being tied strongly to new business, which I know Lisa's running. But then as far as what, John, you've been specifically doing there, have you been able to, I guess, sort of staff

And are you experimenting with anything new around go to market? Or is what you have in place working pretty well?

Speaker 7

Yes. We've actually have a significant dedicated focus to First Day Complete and communicating the value proposition to both current clients and prospects alike. And we have implemented a number of new marketing and, you know, sales and marketing programs that are doing a really effective job of getting the attention of our campuses to have detailed and substantive conversations on First Day Complete and if the value proposition is, that it delivers is a priority on many campuses. And the good news is the answer is yes. And so we're thriving those conversations.

We're on, the pipeline is really, really robust and sort of aligned for significant growth from a number of institutions. And as Mike said, also the overall enrollment of students within our campuses that will be participating in First Complete, as well as margin contribution.

Speaker 2

Yeah. I think, you know, John and his his team as well as Lisa in the field have done a tremendous job focusing on on First Day Complete. And the the marketing and creativity, I don't wanna get into that over the phone in terms of what we're doing specifically, given the given some of the competitive issues. But, they've been very creative. We even have, you know, certain board members that are getting directly involved because of their backgrounds and their expertise and endorsements of of this product, which has been effective as well.

So we're we're pulling out all stops, I guess, I would say, in a very, thoughtful but an aggressive way to market that that pipeline that we have. And, you know, the good news about it is that a lot of the things have been put in place such as the, the integration with the student information system, which is is basically a very simple thing to do, AIP, the Adoption Insights portal. A lot of these these these tools that we produced under John's leadership have been put in place in many of these schools already so that going to First Day Complete is the next step in the sequence and if not difficult to do. It's it's a heavy lift anytime you go from from, you know, a conventional a la carte model to a first day complete for a campus the first time you do it. But having these tools in place makes it much much simpler and, you know, much more much more productive for the school as well as for us.

So there's been a there's been a strategy behind this, as you know, Rory, for the last couple of years in terms of what we've been developing and putting into schools in terms of tools to make this to make this the first day complete implementation sequentially, you know, fairly fairly easy to do. It's a logical next step for many of the schools.

Speaker 4

Great. Thanks a lot to both of you. And then I guess for Lisa, just on the new business side, the $72,000,000 of net new business year to date is a great number. I guess how are you feeling about the pipeline heading into 2021 and even, or I guess calendar 'twenty one and the back half of fiscal 'twenty one?

Speaker 5

Yes. We're feeling very, very bullish about it. I mean, the numbers prove that out. Our type is up, I don't know, around a 100,000,000 than where it was last year, Rory. So, you know, as everyone has talked about, I mean, the complexity of the industry and the pressure that the schools are under, having to make those really tough decisions about cutting academic programs or tenure track faculty, is really driving schools to wake up and recognize that they need to operate more like a business.

And we are in such a position of strength because of our ability to really customize and break apart our models and rebuild them in any way that the schools need. So I am very, very bullish about, the strength of the opportunities in the pipe going into next year.

Speaker 4

Great. Well, thanks thanks a lot, everyone, and and, good luck going forward.

Speaker 2

Thank you, Laurie.

Speaker 0

And there are no further questions in the queue at this time. I'll turn the call back over to Andy Melvoye for any closing comments.

Speaker 1

Great. Thank you. And thank you all for joining us on today's call and your continued support and interest in BNED. Please note that our next scheduled financial release will be our fiscal twenty twenty third quarter earnings on or about 03/04/2021. Have a great day, everybody.

Bye bye.

Speaker 0

And ladies and gentlemen, this concludes today's conference call. Thank you for participating.