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

Thank you. Good afternoon, and welcome to our fourth quarter and full fiscal year 2018 earnings call. Joining us today are Mike Huseby, Chairman and CEO; Patrick Maloney, President of Barnes & Noble College; Barry Brover, CFO; and Kanuj Malhotra, President of Digital Student Solutions; 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 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. Good afternoon, everyone, and thank you for joining us. Fiscal 2018 was truly a transformative year for Barnes & Noble Education. Thanks to the agility and dedication of our talented people, we delivered solid results against the backdrop of significant change. Higher education is both evolving and highly fragmented industry. We continue to act decisively and strategically to ensure that we're offering the content, products and services this changing market is demanding. Barnes & Noble Education has always been and continues to be a company serving all who work to elevate their lives through education. We've done this for many years through our book stores which provides students and faculty across hundreds of unique campuses nationwide with the support and tools they need for success. Our position as a campus hub together with our longstanding institutional relationships have provided us with incredible expertise in the service business. We have unparalleled understanding of the student, from how they like to study to how long they engage their course materials to the additional help they seek to supplement their learning. This understanding of student habits and needs informed our acquisition of Student Brands in the second quarter of fiscal 2018 which has enabled us to serve students directly with it's leading subscription based writing services business. Students frequently arrive on campus lacking basic writing skills. Our Student Brands offering helps to fill that learning gap. Our acquisition of Student Brands was an important step in establishing the foundation for continued innovation and the development of scalable digital solutions from students. This leads me to our new reporting segment, Digital Student Solutions, or DSS. As noted in our press release, we will now be reporting in three segments; BNC, MBS and DSS along with a corporate services category. Our intention is…

Thank you, Mike. Please note that the fourth quarter ended on April 28, 2018, and consisted of 13 weeks. All comparisons will be to the fourth quarter of fiscal 2017, unless otherwise noted. As disclosed in our press release, effective with the fourth quarter, we have commenced reporting for three segments; BNC, MBS and DSS. In addition, unallocated shared service costs will be reported in corporate services which includes corporate level expenses and other governance and executive functions including areas such as accounting, treasury and legal. We have provided historical quarterly data for each segment for fiscal year '18 and fiscal year '17. Total sales for the quarter were $357.7 million, compared with $342.8 million from the prior period. This increase of $14.8 million or 4.3% was primarily driven by revenue of $11.8 million from the MBS segment, and $5.7 million from the DSS segment, partially offset by a $6.1 million decrease at the BNC segment. Sales for the full fiscal year were $2.2 billion, compared with $1.9 billion in the prior year. This increase of $329.3 million or 17.6% was primarily driven by the sales increase of $425.4 million at MBS, $15.8 million at DSS, partially offset by declining sales at BNC of $29.5 million and an increase in the intercompany eliminations of $82.4 million reflecting the full year activity between BNC and MBS. The comparable store sales at BNC increased by 0.1% in the quarter compared to a decrease of 0.2% in the prior year period. Comparable store sales for the full year decreased 4.1% compared with a decrease of 3.5% in the prior year. Textbook sales for the fiscal year decreased by 5.9% compared to a prior year decrease of 4.9%. The continued decline in community college enrollments along with the lower average selling prices of course…

[Operator Instructions] Our first question will come from Alex Fuhrman with Craig-Hallum Capital Group.

Couple of things I wanted to ask about here; one is, just given that -- I know that the fourth quarter for you is a seasonally small quarter, typically after the big textbook selling months in January, and it certainly sounds like you're telling us last quarter that we should expect a little bit of -- kind of extra sales bleeding and you referred to the fourth quarter. So certainly not suggesting that we should extrapolate the comp store sales trend from the fourth quarter into next year but I'm just a little curious to the expectation of a mid-single digit comp store sales decline for next year because given that it's currently summer vacation, so I would imagine you have probably very little indication to what the actual fall rush for you is going to look like. And it sounds like general merchandise has been doing pretty well, or at least did pretty well in the fourth quarter. So just trying to get a sense of where that expectation is coming from? Is it trying to just be a little bit conservative? Is there some type of expectation that enrollments are going to be under more pressure next year than what you've seen in the past; so just love to unpack your thinking around the comp store sales guidance a little more?

At this point of the year, as we look into the schools and the upcoming semester, we expect enrollment patterns from what we see to be similar to what we experienced in fiscal year '18. We are excited about our general merchandise sales trends, we had a great fourth quarter with GM sales increasing roughly 3.6% with strong emblematic clothing, gift and graduation product sales. We're excited about the opportunities and the trends as we look ahead to fiscal year '19, really driving the sales both in-store and on the web. In addition, with our First Day and inclusive access programs and the way we're working with our schools, we're excited about the opportunities to really improve the textbook sales trends that we've experienced over the last couple of years.

Last year in the fall was the first year we saw -- however, sales prices from publishers declined which at that time was not expected, at least not to the extent that they did because of the sales mix. While we're starting to get visibility into the adoptions for fall, we don't have the visibility really into their pricing strategy and how that's going to pan out, Alex. And I'm not saying that to imply that we're being conservative, I think there is a lot of moving parts and despite some of these fourth quarter positive -- relatively positive signs and GM etcetera, we still have a long way to go before get through fall rush.

And then, I have a couple of questions on the new DSS segment, I think that's great that we're getting a little bit more granularity, particularly given now we can see how high the gross margins are in that segment. So couple of things that would be helpful for us to sort of frame up DSS as we think about the next couple of years. First and foremost, I'd be curious if you can give us an indication of how quickly that segment has been growing? Obviously, you didn't have it a year ago but if you look at their organic results, can you give us a sense of how quickly the Student Brands properties have been growing? And then, as we look at the different assets within Student Brands, are there one or two properties that are the most important? I'd be curious, as we look at each of those properties, if there is one or two that really standout that we should be focusing on that are the most important to the Company here?

Well, they are important, obviously. But I think that if you look at the traffic on the various websites, there are a few that standout; Bartle Bee [ph] being one of the key ones, it's really come on lately, 123 Help Me [ph] and then Study Mode [ph], those three -- in addition, Student Brands made an acquisition in Brazil in December, it's little early to tell; we're also excited about the international possibilities, so both English and Spanish speaking writing health and the way we've -- the way that management team is positioned, like -- the Company to be international in 15 countries. So I think more broadly, you're talking about the next couple of years, I just picked up on that in your comment -- that's -- we kind of look at the business given the level of change and one year out obviously, but really two years -- you can tell from our CapEx that as we said and we're planning to expand this segment aggressively, internally by the CapEx but I think our track record on acquisitions in the last year or so with MBS and Student Brands has been good and you can see what it's done for the -- not just the financial profile of the Company but also how these businesses are really working effectively together, not just BNC and MBS but the inventory optimization, both really starting to cook now with getting Student Brands, entire e-commerce platform, etcetera; and you will see a lot more on that as we go forward. We get more volume but we're looking at lot of things for the summer that we can test -- more test in soft role that we can do more aggressively, we'll have more volume in the fall and the spring.

Just similarly, following-up on that; the three quarters that you have in the press release here -- the second, third and fourth quarter of fiscal '18; it looks like the DSS segment was showing nice growth through those three quarters. Would it be reasonable that we should expect Q1 revenue for that segment to take a step down given that it's the summer months? I'm curious, how those properties have typically looked in terms of the seasonality throughout the year; is that something that we should expect to see?

There is not as much of the exacerbated seasonality as in the textbook business but there is some seasonality to your point.

Just thinking about the assets that you're looking to add into that segment without trying to scoop the specifics of what you guys are working on; just trying to get a sense of -- are these things that -- the Company had been working on for some time, even prior to the Student Brands acquisition or was it after the Student Brands acquisition it appeared that there was an opportunity to add more to that? And part of what I'm asking is, it just seems for right now DSS looks like it's pretty close to about 1% of sales but I would imagine you probably weren't looking to strip that out into it's own segment unless you were looking to grow that somewhat significantly. So curious just what -- how we should think about the additional properties that you're working on for that segment?

I tried to address that in my speech but somewhat general -- I think we'll probably stay that way but would the I would say, the supplement -- what I said in the speech Alex is that; we're going to focus on growing the segment as rapidly as we can, that's both internally through the development activities that you're alluding to. And to answer that question; I think I said in the speech, we really began that in earnest in terms of the spend, more towards the back half -- fourth quarter of 2018 and we have a proprietary content that we're developing for digital offerings which is really what the increased CapEx are about that we alluded to -- and that Barry alluded to. So you can infer from that what we might be developing but we're not going to really talk about specific offerings to already -- to introduce them to the market because it doesn't make sense for us to do that from a competitive standpoint. And we don't want to front-run -- we're not in the -- our style is not to try to get too much speculation and hype out there, we want to make sure we're able to deliver what we're talking about, what we say we can do. So growing this is a high priority, that's why we created the segment; it is 1% of revenues but it's more like 9% of EBITDA, adjusted EBITDA. I think it's -- you saw the margin at 97%; so yes, we will try to grow it through acquisitions and create what we envision to be a student hub of services that we can offer. Student Brands being the first in that hub which will not only help direct-to-student but the way we package and price it should exploit the current platform we have in our core business as well.

Our next question comes from Greg Pendy with Sidoti.

Just a couple of quick questions, I guess. One, the rental segment was down again, I guess, for pretty high single-digits for the second quarter in a row. Is this the segment -- and I understand the ASP pressure out there but is this the segment that you know, is probably seeing a bigger impact from First Day?

Yes, it's partially that, it's partially also the drop in the ASPs as it's getting closer to the rental price. It's also books that are being produced by various publishing houses that are very hard to rent at a deep discount because they are -- what we refer to as a consumable book; all that goes together towards the deceleration of the growth and -- but it's still a very, very healthy business for us. So it's not going away anytime soon.

And then, when you mentioned just -- I guess the competitive environment for renewals, is that sort of the bidding side of it or is it the outsourcing? Are you seeing less campuses looking to outsource in this -- in say the upcoming year or is it just kind of -- you're seeing more people bidding on the contracts?

More people bidding, there are new players that have popped up, but also just more aggressive bidding is what we've been experiencing in this past year, it's happened before in cycles and we're reevaluating everything that we do to explain ourselves and to sell our business to various clients and present ourselves, we evaluate every one of our losses very carefully, and we're working on correcting this trend very seriously.

Can you kind of help me understand that -- and it's very helpful that you're breaking out the digital segment; but just that we kind of understand because it is direct-to-student, what type of synergies or cross-selling are you guys planning on or are you seeing anything -- given the fact that you have a digital offering but also manage college book stores directly which positions you guys rather unique with the digital offering. Can you just talk about the cross-selling efforts, if any?

This is Lisa [ph]. We're going to be leveraging all of the Barnes Noble College and MBS properties to really accelerate the awareness and adoption of the direct-to-student services, so that's going to include everything from integration and to our e-commerce sites, positioning it as a recommended add-on when the student purchases a textbook or when they are going to purchase their text materials, as well as really driving the awareness and adoption in our stores. So when we have students back on campus and in our stores for fall rush and they are choosing their textbooks, we are going to be marketing these new services that are really meant to help drive student success.

[Operator Instructions]

Well, thank you so much for the support and joining the call and your great questions. We look forward to keeping you informed and giving you more details as we develop these new products and services. Take care.

Thank you.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.