Good day everyone and welcome to the Barnes & Noble Education Second Quarter Earnings 2018 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Thomas Donohue. Please go ahead, sir.

Good morning and thank you, and welcome to our second quarter 2018 earnings call. Joining us today are Mike Huseby, Chairman and CEO; Patrick Maloney, Chief Operating Officer of Barnes & Noble Education and President of Barnes & Noble College; Barry Brover, CFO; and Kanuj Malhotra, Senior Vice President of Strategy and Chief Operating Officer of Digital Education, as well as other members of our senior management team. Before we begin, I would remind you that the statements we will make on today's call are covered by our Safe Harbor disclaimer contained in our press release and public documents. The contents of this call are for the property of Barnes & Noble Education, and are not for rebroadcast or use by any other party without prior written consent of Barnes & Noble Education. During this call, we will be making forward-looking statements with predictions, projections and other statements about future events. These statements are based upon current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission. The Company disclaims any obligation to update any forward-looking statements that may be made or discussed during this call. At this time, I'll turn the call over to Mike Huseby.

Thanks, Tom, and good morning everyone. The higher education market continues to evolve rapidly. Enrollments particularly at two year colleges continue to decline and we are experiencing rapid competitive changes. This fall, we experienced lower average selling prices on course materials for the first time in many years driven by lower publisher prices and continued student migration to lower cost, course ware alternatives including digital offering. All factors that serve the higher education industry have market driven pressure change and adapt business models. This reality applies to the businesses that BNED operates with necessary changes in both a short-term and longer-term nature. Each of our businesses B&N College including LoudCloud and Student Brands digital services, MBS with its wholesale MBS Direct virtual stores and MBS systems customer base are all executing our plans to respond to these changes taking place in the markets we serve, including changes related to the following well publicized challenges. There is an increasing emphasis on affordability and measurable achievement by our college partners, students, faculty and many state governmental agencies. All are demanding higher value to cost ratio from providers of services and content. Declining enrollment trend particularly locally -- local and state-wide community colleges that has shown higher elastic negative demand correlated to very low unemployment rates in the U.S. An accelerating shift to digital and other less costly formats of developing and delivering education content including declining physical textbook volumes whether sold or rented, new or used, which we expect to continue to decline as a percentage of total learning formats used. For the first time, average sales prices as mentioned on educational units offered by publishers declined this past rush as a mix of formats resulted in overall low pricing. Importantly though despite these trends, we believe that the opportunity in our…

Thank you, Mike. Please note that the second quarter ended on October 28, 2017 and consisted of 13 weeks. All comparisons will be to the second quarter of fiscal 2017, which excludes MBS and Student Brands both of which were acquired after last year’s second quarter. Total sales for the quarter were 886.9 million compared with 770.7 million from the prior year. The increase of 116.2 million or 15.1% was primarily driven by revenue of 134.9 million from the MBS segment, partially offset by an 8.9 million decrease at the BNC segment and inter-company sales eliminations of 9.8 million. The sales at BNC decreased as the comparable store sales declined 33.8 million exceeded the sales increased related to net new stores of 21.1 million and increases of service revenue which includes Student Brands revenue of $4.5 million. Our service revenue includes high margin revenue from Student Brands, income from brand partnerships such as Target along with Promoversity and LoudCloud. All of these allow us to derive new sources of revenue in and out of our footprint and further monetize our customer base, a strategic priority of the Company as Mike had mentioned. Comparable store sales declined by 4.4%, as compared to a decline of 3.2% in the prior year period, comparable stores sales were impacted by lower student enrollment specifically in two-year community colleges, increased consumer purchases directly from the publishers and other online providers and other more general negative retail trend. Textbook sales for the second quarter declined 5% compared to a prior year declined of 3.7% impacted by the items previously mentioned and by lower average selling price of course materials driven by lower publisher prices resulting from the shift to lower cost and more affordable solutions including digital. Sales for MBS in the second quarter were 134.9…

Thank you. [Operator Instructions] We will take our first question. Caller, please go ahead.

This is Alex Fuhrman with Craig Hallum. Congratulations on a really nice looking quarter here. You know why to ask about some of the partnerships that you’ve mentioned throughout the quarter, The Princeton Review partnership that was recently announced. Can you give us a sense of what exactly you will be selling of The Princeton Review? Obviously, they have a lot of physical materials, but certainly a lot of interesting services as well curious which exactly services you could be selling-through through you BNED stores? And how that partnership could look? And then just more broadly thinking about the renewal of the Target partnership and just other efforts to leverage the really attractive position you guys are in technically on college campuses. Could there be a lot more kind of partnerships like this going forward in which you leverage your student base? Or are these kind of the big ones for now?

Alex, it’s Mike. Yes, definitely there could be more. I think that what we are trying to do and the objectives of what we are trying to do, what we are doing is we are building a suite of digital services in go direct-to-student, I am talking to your first point in first question this right now. The Princeton Review, highly respected source of test prep and other services, I'll let Kanuj hope to get into specifically what they are. But to be competitive, you have to either -- if you want to go direct-to-student and available comprehensive product suites of services you either have to build it yourself or you have to do with partnership. We determined that we are going to do a combination of those. Students Brands was the first kind of step in going direct-to-student gave us great capabilities and by adding different rates to the store, we will end up with the comprehensive suite of digital services, we can market both across our footprint as you point out and then also outside of our footprint. I'll let Kanuj talk about The Princeton Review. He did this deal, worked hard on it and understands it intimately.

Hey, Alex, it’s Kanuj. So in the test prep market, our thinking was that wasn’t something we wanted to try to replicate just with the brand value and depth of experience that The Princeton Review had as a company. We felt that was something that was a perfect opportunity for a partnership and also a perfect opportunity from their perspective to access students with both our store base and our commerce base. So we think we can bring to their very unique and compelling value proposition, jointly. I think it was basically due to leverage in-store events for things like [MPAS] and GREs and different modality online whether it’s synchronous or asynchronous learning. They are also a leader in the tutoring space, so we are talking and thinking through how to best increase some of those services. We felt in consuming those services and offering them to students those are ones that were ideally suited with the partnership. So, that’s in a nutshell.

Yes, regarding the brand partnership and ability to do more on leverage, Patrick is going to address that.

So, our partnership team has had an ongoing conversations with numerous either current partners such Target with renewals, which they were so happy with the results that we produced jointly through the back-to-school rush that they’ve already renewed their relationship for about a year. Our pipeline of new leads is very, very strong. We are having a lot of coverage out in that market space. So, we continue to grow this business. We see this is one of our key drivers in the future as we grow the BNED into a multi-faceted company.

Yes, I think one of the points to make about that too, and Joel is here, who runs our general merchandise business, but as you see some of -- there is a trade-off between some of these partnerships, what you do with the Target for example and some of the products like school supplies and those kinds of things that we sell inside the store. So, we look at that in terms of its impact on our stores where we operated, where we can I think leverage the brand partnership the best versus how it might affect our business internally and our general merchandise business, which complimentary and we're not going to allow total access to all of our stores. We are going to do it in a way that’s thoughtful and that balances the impact of the financial impact as well as the strategic impact and the impact on each of our campuses that are important to us with a brand partnership versus being ourselves.

And then if I could switch gears and ask a question about the accounting. It looks like the MBS intersegment elimination on the gross profit line from Q1 was more or less exactly reversed here in Q2. Is that basically the dynamic that we should expect to see going forward? Is that whatever elimination you have in the first and third quarter gets more or less equally reverse in the second and fourth quarter? And then specifically just thinking Q2, I imagine has the overwhelming majority of your fall rush incorporated within it; however, I'm sure you lose a little bit more of your spring rush into February which is Q4. So, is there anything about that kind of reversal that we saw between the first and second quarter that could look differently in the third and fourth quarter?

Hi, Alex, it's Barry. Yes, so as it relates to the elimination, as we have talked in Q1, clearing the first quarter MBS is selling inventory to the BNC stores that is the end of Q1 inventories at a high point. Therein Q2, we sell through that inventory and return the unsold. So in essence of the end of Q2, we are very little owned inventory from MBS in our stores. As we go into Q3 where we will be buying inventory again in November and December building that inventory, January we will sell it down a bit. So, the elimination will be less, as we move into the end of April and through Q4, again, we return unsold inventory and the only inventory that we have on hand that came from MBS at the end of the fiscal year is a small amount of the inventory that we've purchased through the summer season. That was essentially purchased in the last week or two of April. But otherwise, the seasonality and the increase and decrease of the gross profit elimination, we would expect to be very consistent year-over-year.

[Operator Instructions] We will move onto our next question. Caller, please go ahead.

It’s Greg Pendy of Sidoti. Thanks for taking my call. I just wanted to I guess dive into -- correct me if I'm wrong, but are we cycling all the stores right now were price matching this year versus maybe 50% last year? Is that correct?

Yes, this is Patrick, Greg. Yes, we are fully price matching at every one of our locations. And I think this is -- I think we were doing that also last year in the second half of the year, but it was the majority of our stores last year for some time.

And was that a factor in the gross margins? I know they were up 20 basis points and you called out some items, but did that have an offsetting impact at all?

It has a small impact on it, Greg. But when it's worked through us in the confidence of our student customers is far our way by any margin reduction. I think it was 40 basis points Barry. So it was a very small amount to pay for the amount of goodwill and confidence that you’ve generated amongst your core customer base.

And then I guess just one other question. This is probably the first time you guys have talked this much about, the digital side of things, and I know in the past you had sort of a concentrated effort. Can you kind of speak to us just how LoudCloud plays into that market? And is there anything out there? Is it may be the lowered price? Is it mainly price driven? Do you think that strong people towards the digital offerings out there in the market that they’re starting to see, it seems like accelerating a bit?

Yes, I will let, Kanuj -- this is Mike. I will let Kanuj answer that in more detail.

It’s important we talk about digital and kind of define what you need and dealing with the LoudCloud, get their services are Student Brands. Within LoudCloud, you have an analytics base product that as we said during the prepared remarks that we adapted for different things at -- and we talked about Eastern Gateway, I think last quarter and we talked Portland State this quarter. There is a different -- there is a platform that LoudCloud has built after the years to customize products for different needs institutionally. Within LoudCloud, you also have OER products just content. And the reason I'm mentioning this is because it’s important as you go to inclusive access to realize that these digital products could be followed into inclusive access product as well. We are working with our publishing partners, distributing their digital content and working hard to be probably more inclusive access integration and distribution. There are also things that need to do with LoudCloud’s products in First Day, but I'll let Kanuj talk more directly to your question about what you see in the market in terms and what -- where the demand is coming from, it’s really a question.

Yes, I think for LoudCloud especially on the OER content side and more broadly as Mike referred to in his earlier comment, there is a general demand fall for more affordable solutions. So we look at it as a filler to slot in LoudCloud products where there’s need. So specifically in and around of affordability and accessibility, there are some schools that OERs right work, where those schools have shown an interest in right work. We have been pretty much in the mix and really getting some nice traction, especially our partnership in Eastern Gateway has driven out very nicely. Otherwise, the broad need is in and around analytics which is less driven by affordability and price, but its more solution design to improve outcomes and ultimately retention. So, we are seeing built strong demand for OER content, courseware as well as the analytics product and solutions, both the existing LoudCloud, which is our retention solution as well as one that’s under development with Portland State. We’re probably seeing a lot of clients shown interest in those as broad suite of products so.

If you think about affordability, one of the interesting about this going on at PSU that could replicated elsewhere would be great planning, many students don’t graduate in four years. So we think about affordability and textbook and other forms of curriculum, so if you are spending an extra year of longer in school because you haven’t really focused in around that requirements or your major, how to get there as quickly as possible during four years, I mean there is a large affordability benefit in these products as well as benefits for outcome measurement. So, it's all coming together and these objectives in just ways, but it's very iterative in terms of what's going on in the market right now for digital. And I think Kanuj and his team, everybody at the table a lot of credit, everybody in our stores, we have a lot of feedback on what these analysts got 10,000 student every week, every talk to that what do you want, and we really listen or trying to tailor our products what will help both the students and the institutions. So, yes, there is increased emphasis in this earnings call and digital because digital is coming more rapidly than we have seen it in prior years and seasons and we are right in the middle of it. We have work to do, but we are going to -- one of the reasons our EBITDA guidance range just as wide it is, is because we want to make sure we have some flexibility to invest and the things we need to invest in to grow the Company in the future as opposed try to hit a EBITDA number that maybe within a $2 million here or there that sacrifices our long-term growth and long term value of the Company. And that’s kind of a long way to answer your questions trying to but we will start to figure out how to break out digital as we go forward and show more of a way on it. Obviously, it's important from a value perspective externally as well as internally.

[Operator Instructions] It appears to be no other questions at this time. At this time, I would like to turn it back to Mr. Thomas Donohue for any additional or closing remarks.

Thank you, Lynn, and thank you for joining today's call. Please not that our next scheduled financial release will be our fiscal 2018 third quarter earnings, which will be on or about March 6th. Thank you. Have a good day.

This concludes today's conference. Thank you for your participation. You may disconnect.