Ladies and gentlemen, thank you for standing by, and welcome to the Barnes & Noble Education Fiscal 2020 Second Quarter Conference Call.At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions]I would now like to hand the conference call over to Tom Donohue, CFO. Thank you. Please go ahead.

Thank you. Good morning and welcome to our fiscal 2020 second quarter earnings call. Joining us today are Mike Huseby, CEO and Chairman; Barry Brover, EVP of Operations, Kanuj Malhotra, President of Digital Student Solutions, as well as other members of our Senior Management team.Before we begin, I'll remind you that the statements we will make on today's call are covered by the Safe Harbor disclaimer contained in our press release and public documents. The content of this call -- 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 thank you all for joining us today. As you saw in this morning's press release today, we announced that BNED's Board of Directors has approved the engagement of a financial advisor to assist with the evaluation of a range of potential strategic opportunities. This review will help position BNED to be able to deliver more immediate benefits for the institutions and students we serve and allow for the exploration of all strategic paths to enhance shareholder value.The higher ed industry we serve has significantly transformed over the past few years, including a rapid shift to Digital, declining enrollments, student retention issues, and an increased focus on affordability. Our strategic initiatives are centered on addressing affordability, access and achievement, and include growing our high-margin DSS business by introducing and scaling bartleby subscriptions, growing our share of course material adoptions through BNC FirstDay and other new digital models, stabilizing and now increasing revenue from new business wins to grow our footprint of managed stores and strengthening and growing our general merchandise business.The operational highlights in today's press release, provide evidence of our progress on each of these priorities. Our strategy is being validated daily by the markets we serve. However, we need to accelerate the execution of our strategy in order to more rapidly deliver value to our customers and to enhance shareholder value. We believe that more aggressively exploring strategic opportunities will help facilitate this acceleration of value creation.The past few years have been a disruptive time in the course materials marketplace as evidenced by trends seen in our own business as well as those disclosed by the large publishers. Course material sales declined 7.7% on a comp basis for the quarter, a slight improvement over the rate of decline in the prior year period. The sales decrease…

Thank you, Mike. Please note that the second quarter ended on October 26, 2019 and consist of 13 weeks. All comparisons will be in the second quarter of fiscal 2019, unless otherwise noted. Total sales for the quarter were $772.2 million compared with $814.8 million in the prior year. This decrease of $42.5 million or 5.2% was comprised of $42.1 million decrease from the retail segment and $0.6 million decrease from the wholesale segment partially offset by the $0.3 million increase from the DSS segment.Comparable store sales in the retail segment decreased 5.9% for the quarter as compared to a decrease of 5.8% in the prior year period. Comparable course material sales for the quarter decreased 7.7% as compared to a prior year decrease of 8.0%. Course material sales continue to be impacted by lower average selling prices, with approximately 40% of the decrease in the quarter due to lower pricing.Course material sales were also impacted by enrollment declines and student purchases from publishers directly as well as other online providers. As we continue to scale our FirstDay inclusive access programs, we expect the model for our course material sales to change and ultimately stabilize. As we move to digital course material sold through the FirstDay program bookstore marginThis will slightly decrease but we'll sell through -- but the sell-through will increase from approximately 35% to almost 100%. The commissions we pay to the schools will also decrease. We believe these increases in sell-through in volume will help stabilize the course material declines we've experienced in recent years.General merchandise comparable store sales for the quarter were essentially flat decreasing at 0.1% compared with a 1.8% increase in the prior year. Net sales for the wholesale segment were $40.2 million, a decrease of $0.6 million or 1.5% compared with the prior…

[Operator instructions] Your first question comes from Ryan MacDonald with Needham. Your line is open.

Yeah, good morning everyone and thanks for taking my questions. I guess just first off, talking -- touching on the strategic review. Can you just maybe talk about sort of what you felt really changed in the business, I guess, when we look out the past three, six months versus today to really, I guess change your viewpoint on sort of pursuing, I guess or at least considering strategic alternatives.

Yeah, hi, Ryan. It's Mike Huseby, I think probably the main thing and I alluded to it in the call that we've put in the various releases, the level of unsolicited inquiries we've had from potential strategic partners, whether they're strategic partners from a commercial sense that would improve our competitive position or financial players I think all of whom see that there is – based on public stock price, there’s a lot of value in the assets that we have given the relationships we have with schools, the contracts, and the terms we operate under as well as how MBS and BNC are starting to work together, and we're putting those two companies together and the upside of DSS, so they see a lot of, a lot of upside in the asset. Obviously the time horizon for that is something we talk about, but that's the main thing I think that changed, and the volume of those inquiries that we are handling in terms of trying to educate potential strategic partners that can help us accelerate our strategy or pursue other strategic paths has increased, and at the board level, our discussion has been well. Because of that, it's probably time to -- for the Board to get some independent advice from a financial advisor on the various opportunities and alternatives that are available as we said in the release. That's probably the main thing that's changed.We haven't changed our strategy, it's the same as it was six months ago as we said, -- what also has changed now, I think is that we actually have things that are done instead of just things we're talking about, we've actually -- we have tools in place like AIP and offerings in place like FirstDay Complete that have been piloted, and we see how they work and how they can contribute to the financials, improved results and improvement of our financial results longer term. These new packages and pricing models, as well as some of the other DSS bartleby starting to scale and instead of sitting here like we were nine months ago talking about all the great things we can do, we've actually done them now, and tested them, and we have -- more interesting things to actually show, specific things to show to potential strategic partners.So I think the financial advisor, to ask your questions is Board decision, and it's based on -- let's put a structure in place to deal with all this. We want management to keep going and doing what it's doing, not be distracted, and since there is so much interest let's see what the best way is to optimize shareholder value and accelerate strategy.

Got it, that's super helpful. Thank you. I guess just switching over into the bartleby business now, great to see you exceed 100,000 subscribers year-to-date. They are obviously -- you're gaining some nice traction in the marketplace. Can you talk about sort of what you're seeing in terms of mix of how you're attracting students to the platform, is it more, would you say it's more heavily weighted towards online channels or are you seeing a benefit or impact from the in-store and the college Bookstore footprint that you build.

Hey, -- Ryan this is Kanuj. The primary acquisition channel still remains the college stores, which is comprised both of our physical store footprint we sold at point of sale in the stores and websites we operate on behalf of our student partner , and the half of our stores and the stores are still the primary -- in-store, the primary source of acquisition. SCO is starting to build as Mike referred to in his speech. That is a longer-term strategy and institutional. The other thing, we haven’t really started to focus on, but right now it's primarily in store.

That's very helpful. And in terms of what you're seeing, I guess obviously it's still very early, and sort of as you're building this business, but maybe you can talk about sort of a combination of Spring semester, and what you're seeing thus far in Fall semester, what are you seeing in terms of sort of usage or average utilization from students with bartleby.

I mean, we're seeing increased usage and time on the platform for the active users, receive increased, people really focusing on the question and answer capabilities. So, as you get into Exam peak periods, we've seen very peak usage in and around mid terms, even now as we're heading into final exam season, you can see the question volumes peak, so the usage is continuing to increase, the content leverage continues to increase, and time on site is increasing. So all leading indications and KPIs related to usage are trending very nicely and frankly ahead of where we would have thought.

Excellent. And then just one more for me. And just, I guess maybe it's more of a broader macro question here. Recently, there was some announced price increases at Cengage. I think in early November, that they were sort of pushing to college bookstores. Can you talk about what sort of impact this could have on the retail business for Barnes & Noble and how this potentially impacts your viewpoint moving forward on the potential merger between Cengage and McGraw-Hill? Thanks.

Yeah, that's a pretty broad question, involves more than Cengage. I think it, Ryan, this is Mike. And I'll let, Barry to chime in on this as well. But the publishers, and their pricing has been kind of all over the place. There's a lot of competition from different providers that they and we haven't experienced in the past and I think they tried a lot of different things, and I think that this is another example of something else.Ryan, I think that, you know I don't want to comment on the proposed merger that's under regulatory review between Cengage and McGraw-Hill, we're relatively agnostic when it comes to the publishers. Our job really is we are an extension of the schools that we serve, which they hire us to go out and procure the content. So, we're an agent of the school, we operateContract. So that's an important thing to understand and when things come out in the press, like they did today, where and others are taking positions on the merger because they're citing some of the practices that's engaged and others are engaging on pricing, I mean those can be looked at in a number of different ways, but ultimately the prices can't -- the prices can go down and maintain ala carte pricing forever. So that's why, FirstDay inclusive access makes so much sense, is that by bundling -- and by bundling curriculum into an inclusive access solution the penetrations go up, not just for us but for the publishing partners that we work with. And the schools who share net revenue and the beautiful thing is that the students end up getting substantial discounts, say 30% discounts on average, on what we've seen thus far.And, so it works for everybody so for a publisher, whether…

Your next question comes from Greg Pendy with Sidoti. Your line is open.

Hi guys, thanks for taking my questions. Can you share with us any color, just where community colleges are at within the portfolio just assuming they are probably taking a bigger portion. The brunt of the enrollment declines and probably have a lower merchandise mix. Any color there, on how that's doing versus the tip course , say four-year colleges.

Yeah. Greg, community colleges, continue to be. This is Barry Brover, continue to be in the low 20% of our total portfolio. You know -- we actually seen, well more than two down in many of our community colleges, we've seen improvements in the trends, on -- has we've been able to implement significant FirstDay programs that have really made a difference as far as increasing our market share and growing our course materials business.

I think, Mike said it well. I mean, our number one priority is Focus is developing more affordable solutions for cost materials , working with the publishers and with our schools. We've made some tremendous progress this year with the growth of our FirstDay, program and the introduction of our FirstDay complete, in meetings with our clients and our customers, we realize that their, number one priority. We believe we have the tools, the systems and the people and wherewithal to be able to respond to that. And ultimately that will drive increased volume. As Tom, talked to relative to the future of course materials. Okay, great.

Greg, just. Sorry this is Tom. Just, the Community college represent usually around 25% of the total revenue. It's probably closer to 20% or 21% now.

Okay. And I guess just bigger picture, they're been early adopters and some of your offerings. Correct? With the terms of. Okay, got it. And then just, I guess just moving on to, just one more, just on the textbook solutions, when you said it peaked at 100,000. Any color on maybe writing solutions offerings where that's -- where the subscriptions are on that. Or is that included in the 100,000.

No, it's not included in 100,000 just to be clear the 100,000 is our gross acquisition, so it's not of any current activity. So, we haven't disclosed sort of the gross subscriber activity for the overall writings business. We also, just to be clear the routing solutions business, the assays business, we bought with student brands as one, but we also, this semester soft launched, part of the writing and we had very good reviews, but an aggressive marketing push of action we expected in the spring, but we haven't disclosed that number, Greg.

[Operator instructions] Your next question comes from Alex Fuhrman with Craig-Hallum Capital. Your line is open.

Hi. Thanks for taking my question. I wanted to ask about some of the partnerships that you've launched recently, Urban Outfitters, AT&T, champion. Can you talk about how some of those partnerships are going, what the potential might be to scale those up to more locations and then just thinking about your portfolio of college bookstores here, how many of those locations are candidates to have that type of partnership do you think.

Hi Alex, it's Barry Brover. I will take a shot at it, those programs are very exciting for us. The concept shops, which are champion as well as just graduation and other stream type merchandise has done a great job of bringing back excitement through visual merchandising into our floors increasing foot traffic and giving us great reviews from our clients and our customers, as well as our vendor partners.Urban Outfitters was a great opportunity, it's sitting in 10 stores today again great excitement, great media, great for us traffic in the store, certainly you would imagine that, that is -- resonates very well in a large state or private school, probably not the most relevant in the community college, but we may have other program, so we continue to look to expand our network of vendors and suppliers that want to showcase their product to the 18 to 24 year old both in-store and online, and are very excited about the impact it's having through our business and how it's transforming the whole retail experience in our stores.

Yeah, thanks. To answer the question. h the question directly. This is Mike, I mean, the each -- as Barry saying he answered it very completely, I think, but each store is different, each school is different and there -- as you are saying and implying some larger stores lend themselves to the real estate that's available, et cetera lend themselves to partnerships that you don't necessarily, as Barry said have another other stores.But that's the point, as we try to treat each partnership differently in terms of selling very clear targets with them and expectations in KPIs as about so the expectations I think has been met in every case this year, of all the things that we tried, we said on the speech that, stores are about 70 stores. So that -- that's a pretty good representation…

Distribution. So we can gather the data and see whether or not we want to expand that into more stores at a different level. So for example, smaller, smaller footprint that type of thing. But, yeah.

And just taking on to that. Alex, what we're also piloting, is a more streamlined version for our community college, that has a different customer base. So more of a concept and presentation style that's more aligned with a community college customer, and over time as course materials, the physical footprint required decreases with more things going digitally.

It certainly opens up the opportunities to the space for us to be able to bring in more concepts, more products and really make this a retail destination spot for the community.

There are no further questions queued up at this time. I'll turn the call back over to Tom Donohue.

Thank you and thank you for joining today's call. Please note that our next scheduled release will be our fiscal 2020 third quarter earnings call, on or about March 3, 2020. Thank you. Have a good day.

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