Q4 2020 Barnes & Noble Education Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Barnes and Noble education fiscal 2024th quarter earnings Conference call.
At this time, all participants are in listen only mode.
After the speakers presentation will be a question and answer session. If you'd like to ask a question during the session you'll need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today.
Michael Helsby you may begin.
Good morning, welcome to our fiscal 2024th quarter and yearend earnings fall.
Joining us today are my kids be CEO and chairman.
Tom do you see AFFO.
Jonathan show, our executive Vice President XI NAD retailing quite solution.
Lisa Mallet President of Barnes <unk> Noble College.
Good news for hold true President of digital students solution and David Henderson President of MBS.
Before we begin today's call I would 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 document.
Contents of this call or the property of Barnes <unk> noble education and are not for a rebroadcast or use by any other party without prior written consent of Barnes <unk> 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 my Kids B.
Thanks, Andy and thank you everyone for joining us today.
I hope that you and those close to you are all doing well and stay safe.
I'll begin today's call with a quick update on the strategic review process, then turn to our fiscal 2020 performance.
With the assistance of its financial and legal advisors. Our board of Directors continues with its previously announced redo a strategic opportunities.
That's helpful. Skus further in a few moments we've made great progress on many of our strategic initiatives throughout fiscal 2020, and just review process is designed to accelerate the execution of our strategic initiatives and enhance value for be any de shareholders.
We have lots of the timetable for the conclusion up a review and do not intend to comment further unless and until the board has approved a specific course of action or otherwise determine that further disclosure is appropriate.
And now I'll provide our business overview.
As with most businesses covert 19 has had an unprecedented and profound impact on our industry and our company.
During the outside of the pandemic, our priority was to ensure the safety of our employees and customers.
Extremely proud of our entire organization separates and dedication to serve our campus partners throughout this challenging time, while also focusing on their personal safety and work life adjustments.
And the middle of a pandemic, we adapted quickly to continue serving our students and faculty while simultaneously closing our campus stores as our clients sent students home to shelter in place with their families.
Our response was only possible due to the strategic investments that we have made in our E commerce platform.
Virtual fulfillment capabilities and digital solutions that have enabled us to offer customizable and increasingly valuable solutions to our campus partners doing it hurt period, a significant disruption to the traditional learning model.
We have developed customer solutions that can be quickly customized help our schools to adapt.
We've also reconfigured our cost structure and organization to be more nimble.
These changes will allow us to adapt the profound environmental change a company called it and we currently believe manage our liquidity to weather the storm.
As Tom will discuss further this morning. He led the organizations efforts reduce our cost structure and to preserve liquidity and the strength of our balance sheet, two quick and decisive actions to ensure we get through this crisis any emerge from it with a solid foundation.
Yeah education industry continues to evolve rapidly that has never been more true that right now.
Throughout the past few years, we have seen the evolution of this industry to digital products services and delivery and the increased emphasis on affordability access at achievement at colleges and universities nationwide.
We have continued to grow and adapt our solutions with this in mind, ensuring that we are evolving alongside this industry that we serve.
During fiscal 2020.
Any D. Other what a great deal of growth and transformation as we continue to focus on the rapid execution of our strategic initiatives, which include.
Growing our high margin DSS business by leveraging our store base to scale part will be subscriptions.
Growing our share of course material adoptions through BNC first day Bfc first they complete and other new digital bottles.
Stabilizing and now increasing revenue from new business wins to grow our footprint a banner stores.
Great putting in improving our important general merchandise business and the ongoing optimization of MBS is virtual and wholesale assets with retail business.
We have made tremendous progress each of these areas and as we entered the fourth quarter leaves we are on target to meet our objectives, including our fiscal 2020 guidance.
The outside of the Covance 19 pandemic presents unforeseen challenges for us all including the institutions we serve.
In March as stay at home orders were implemented nationwide. We saw the majority of our college campuses close down.
Students were sent home to finish the remainder of their spring semester virtually.
In mid March we closed the majority of our campus bookstores nationwide in line with the actions of our partners add to protect the safety of both our employees and our customers.
Our business experienced significant impacts of the results of these store closures.
So the fourth quarter is a relatively low revenue quarter for be Eddie D.
Our high margin general merchandise business was severely impacted as a result of capsule and or deferred events, such as March madness, and formal graduation ceremonies that traditionally drive significant merchandise sales in the quarter.
Despite the significant challenges.
Any continues to effectively and creatively serve our customers.
He any d. as acquired and built a unique set of assets, allowing us to adaptive to rapidly to respond to our customers needs.
Sure the combined strengths of our different businesses, we possess the ability to offer unique solutions for the many challenges covert 19%.
Within DFS for example, our bar will be suite of solutions continues to provide students with the means the S to assess access academic support whenever and wherever they need it.
This became increasingly valuable as students were sent home for the semester and less with limited resources for support.
EPS tutoring and writing centers close and traditional office hours and no longer available to them.
Through Barbie, we were able to support students for the remainder of their spring semester, including vinyls with free access to barbies learn Q and a service and Partovi right.
As a result.
RVP spring traffic was 10 times greater than the prior year.
Even prior to the pandemic part of the continues to prove its value as a tool to supplement and then classroom learning and has seen significant improvements across all relevant metrics.
Recall that spring traffic was over nine times higher than the prior year.
We continue to grow and scale this offering throughout fiscal 2020 870000 subscribers.
This represents over 200% growth over fiscal 2019, new subscribers.
Additionally, post co bid we've seen traffic consistently increased driving significant organic web acquisition growth validating our resi all strategy, which we expect to become an increasingly greater contributor of user acquisition.
The need and increasing the they ask for on demand learning platforms like Barbie is out of it.
We continue to actively pursue new avenues to scale and accelerate awareness and distribution of barbies platform to ensure that all students have access to the support they need whenever and wherever they need it.
Within our retail segment, we have continued to provide unmatched service for our clients. These past few months.
An important factor in our ability to do so is because of the synergies achieved with our retail and wholesale wholesale segments.
When we closed our stores in March they start dedicated store managers and members of their teams. We continued to fulfill both courseware and merchandise orders placed on our schools E Commerce sites.
Traditionally orders from our ecommerce sites are fulfilled by individual stores. For example in order placed on the records bookstore website will be filled and ship by an employee other rockers bookstore.
While we continue to utilize this fulfillment method, we needed a different solution that would allow us to fill larger upcoming summer term courseware orders at our schools without the risk of delays.
The solution came from our Missouri base MBS team, which has continued to operate with three shifts of dedicated team members as an essential business throughout this pandemic.
Together VNC and MBS responded very quickly.
Turning to switch it a few short weeks the transition more than 300 of our stores as compared to only four stores last year.
To a custom store solution for C.S.S. model.
We developed the technology to seamlessly deploy the CSS model just last August in anticipation of fulfilling more student orders directly.
Through the CFS model, a customer places there courseware order out of bookstore web site and that order is then directed CMBS warehouse, which fills and shifts the order directly to the customer.
This fact that solutions unnoticed by the customer, but it sure Theres No service delay.
No competitor can replicate the solution.
It underscores the strength of the virtual and fulfillment capabilities that MBS provides for the company and allows us to support customers through a difficult in uncertain time.
We're also able to support our partners course material needs throughout this pandemic with our BNC first day inclusive access model.
The benefits of first day, including lower costs of digital courseware higher sell through increased student readiness and seamless digital delivery.
We're incredibly relevant prior to the pandemic.
Following campus closures in the spring with many schools uncertain, if they would be reopening in time for the summer term.
These benefits became even more critical for faculty and students.
We saw a sizable increase in adoptions of first day by course for the summer as it allow faculty to ensure their students would have seamless.
And timely access to their course materials, regardless of where they work.
Fiscal 2021st day revenue increased 91% on a year over year basis.
We're also very focused on growing our new and very promising first day complete solution.
While for campuses utilized to complete access model in fiscal 2020, we already have 11 cap is partners planning to utilize complete in the upcoming fall term with many more plan for calendar 2021.
The complete model is adopted by entire institution, which drives substantially greater adoption rates for the bookstore enhances revenue for the schools and ensure students have access to all of their materials.
At a substantially reduce costs by the first in class.
In addition, publishers to supply the content has significantly higher sell through rates.
This is truly a winning solution for all who participate which is why first day simply is getting so much market traction.
When our current team established be entities current strategy not quite three years ago. We identified exclusive access courseware sales models like first day at first say complete as one of our foundational must have for long term success.
Both per se and first they complete are proving to be the right strategic path for us to have invested in and follow as they allow us to attack and we believe eventually reverse historical long term trends in courseware revenue declines.
Importantly, the very sticky software and process is necessary to implement these exciting new models have already been developed and our rapidly being deployed into our existing clients and our major selling points with new business clients.
Our AC software, our ability to personalize, our marketing and sales with each student by seamlessly relating to each schools student information system and.
Or just released.
New E Commerce system for both courseware merchandise have all been designed to work together seamlessly.
With an emphasis on easy to use and high value experiences.
Despite the coven curve ball, we have all been thrown we remain very encouraged about the value. These new inclusive access miles drive to our campus partners.
Faculty and students.
And we expect to see accelerated growth of these myles.
As schools are forced to deal with the financial fall out of the pandemic.
Our contractual model sharing revenue and providing once useful now necessary management tools and information for schools to better run their businesses will increase the value we bring to our relationship with them.
Looking to the upcoming fall term.
Great deal of uncertainty still remains.
Some campuses will extend their virtual learning for another semesters, others are introducing short term shorter terms and or hybrid learning models.
With this in mind the launch of our new ecommerce platform is incredibly timely.
As we have seen these past few months the importance of a seamless ecommerce experience is critical and retail right now.
We have spent this fiscal year building out the new E Commerce platform, which will provide a superior hyper personal hyper local shopping experience for our customers.
In the first quarter, we're excited to get Lockamy sites on schedule.
We will continue to implement the new sites for our customers on a rolling basis throughout fiscal year.
Many 21.
We are confident these sites will deliver increased high margin general merchandise sales for BTD in addition to providing even greater value.
Our partner institutions and their students alumni and fans.
Our ability to quickly adapt to our clients most pressing concerns both throughout this year and in the midst of a global pandemic is the reason we continue to win new business.
In fiscal 2020, we signed a $110 million and new business, but new physical and virtual bookstores opening in a diverse range of campuses, including.
Western Kentucky University front range community College in the City College is for Chicago.
We're pleased to join these campus communities and many others and look forward to further expanding our store footprint to serve an even greater number of students faculty and alumni nationwide.
On a net basis, we generated approximately $45 million in new business as we look to prune, some underperforming stores and less profitable contracts.
So were awarded to competitors.
I'm very proud of all that being the accomplish this year and executing our plan initiatives and in pivoting. These past few months to ensure service to our customers went relatively uninterrupted.
The implications of its pandemic still remained very uncertain, but we believe we are well positioned to continue serving our campus partners and students with an ability to adapt to the changes that covert 19 may bring to the education landscape.
As we prepare for the safe reopening of our campus stores. Our operations team has developed a comprehensive reentry programs that incorporates social distancing guidelines for the CDC and the Whr show to best promote the safety and well being of staff and customers at each of our campus store locations.
This includes frequent sanitizing of high touch surfaces, implementing social distancing measures, including reduced occupancy and incorporating other preventative measures such as these guard contact with payment and curbside pickup areas.
We plan to reopen arc after stores based on National State and local guideline and of course in partnership with school administrations and the protocols that they implement.
As it relates to our financial position.
We expect cobot.
It continues to significantly impact our business during fiscal 2021.
As Tom will review in just a moment, we took a number of actions throughout the fourth quarter reduce expenses and preserve liquidity.
These are incredibly difficult decisions to make.
But were necessary to ensure sufficient liquidity given the impacts of the pandemic.
Before I turn it over to Tom I would like to take a moment to thank each and every one of our clients.
We have all shown tremendous fortitude throughout this pandemic and help to ensure that students station why.
Our continuing their learning uninterrupted.
I would like to express my unlimited appreciation to our be any de teams.
From those who quickly transition to remote working so those are the warehouse and field that continued showing up to work each day.
I'm sincerely grateful for all of your hard work and commitment to be any D.
With that I will turn it over to Tom for the financial review.
Thanks, Mike.
Please note that fiscal 2020 was a 53 week year for US consisting of 14 weeks for the quarter and 53 weeks for the year as compared to 13 weeks and 52 weeks in the prior year.
All comparisons will be to the fourth quarter of fiscal 2019, unless otherwise noted.
Comparable sales comparisons exclude the impact of the additional week.
As Mike discussed entering the fourth quarter. In addition to executing on our strategic initiatives. We were also on plan to achieve our financial targets, including EBITDA of 80 to 85 million for the year.
As all review in our financials momentarily, our fourth quarter sales were significantly impacted by Cobot 19, and we took immediate actions to mitigate the impact of the sales declines and preserve liquidity through expense reductions.
As a result of our immediate actions. We believe we have sufficient liquidity to operate our business without a need to raise additional capital.
Total sales for the quarter were 256.9 million compared with 334.4 million in the prior year.
This decrease of 77.5 million or 23.2% was comprised of an 81.4 million decrease from the retail segment.
Somewhat offset by 4.7 million increase from the wholesale segment.
And a 1.1 million increase from the DSS segment.
Comparable store sales in the retail segment decreased 34.7% in the quarter.
As compared to a 0.9% increase a year ago.
Comparable store sales declined 9.9% for the full year.
Schools began to close their campuses and since students home beginning in mid March.
In coordination with the schools, we closed our campus stores in schools shut their campuses. This had an impact on our ancillary textbook sales that occur post rush season.
And a far greater impact on our general merchandise business as many sporting events and graduations were cancelled.
Two significant contributors to the business during the fourth quarter.
Comparable textbook sales decreased 8.3% for the quarter has compared to the prior year increase of 0.9%.
For the full year comparable textbook sales declined 8.4%.
On a full year basis textbook sales continued to be impacted by lower unit sales and lower average selling prices.
General merchandise sales decreased 52.4% for the quarter and 11.9% for the full year.
The wholesale segment sales were 18.8 million for the quarter, increasing 4.7 million.
Net sales for the full fiscal year 198.4 million declining 25 million or 11.2%.
For the full year wholesale sales were down primarily due to lower demand.
Yes, ESS sales were 6.6 million in the quarter compared to 5.5 million in the prior year period.
Sales for the full year were 23.7 million as compared to 21.3 million in the prior year.
The consolidated gross margin rate for the quarter was 25.5% down from 35.1% in the prior year period.
This was primarily attributable to the loss of our higher margin general merchandise sales and occupancy de leveraging.
Consolidated gross margin rate for the full fiscal year was 23.9% as compared to 25.9% in the prior year period.
Selling and administrative expenses in the fourth quarter decreased by 11.3 million or 11.5% compared with the prior year period, and decreased 19.4 million or 4.6% for the full fiscal year.
This decrease was primarily due to lower store payroll and operating expenses, partially offset by the ongoing investments, we're making in developing barnaby.
We recognized 15.3, and 18.6 million of restructuring and other charges during the fourth quarter in fiscal 2000, respectively.
Oh, the 18.6 million 12.7 million was related to severance and other termination and benefit cost associated with several management changes and the elimination of various positions as part of our cost reduction initiatives.
2.8 million was for professional service costs and 2.7 was for a noncash actuarial loss related to a frozen retirement plan the balance related to stores in facilities.
As I mentioned earlier as we began to fully understand the unprecedented impact to cope with would have in our business preserving cash and liquidity became paramount.
We immediately reduce cost.
Furloughed the majority of the retail workforce.
Cut capex spend and deferred I T projects, along with a number of other initiatives to preserve liquidity.
We will maintain are laser focused on managing costs throughout fiscal 21, as we continue to manage and a cobot environment.
We plan to take additional actions to reduce cost and operate more efficiently. Additionally, fiscal 21 will benefit from the cost reduction initiatives that were implemented in the back half of fiscal 20.
Due to all the uncertainty that cobot presents in the near and intermediate intermediate term, we're not providing fiscal 21 EBITDA guidance. We do expect that koby will continue to have a significant impact on our business during fiscal 21.
Based on our current assumptions and as a result of our cost reduction actions. We believe we have sufficient liquidity to operate our business without a need to raise additional capital.
Our cash balance at the end of the fiscal year was 8.2 million as compared to $14 million in the prior year period.
There was 174.7 million in outstanding borrowings compared with 133.5 million an outstanding borrowings in the prior year period.
This increase is primarily attributable to loss sales, resulting from coated.
Coupled with the purchase of certain general merchandise that did not materialize as a result of canceled athletic events.
We expect to have a net working capital benefit in fiscal 21, as we cycle the through these events and sell through the merchandise.
Hi, Thanks for the fourth quarter was 9.4 million compared with 14.7 million in the prior year.
Capex for the full fiscal year was 36.2 million as compared to 46.4 million in the prior year.
Decreases in Capex were due to reduce store systems and DSS segments spend.
Currently our retail segment operates 1419 College University in K through 12 school bookstores comprised of 772, physical bookstores and 647 virtual bookstores.
As of today, we've contracted to open an additional 68 stores in fiscal 2021 with 42 known closings. This would bring our total physical and virtual store count to 1445 locations.
With that we'll open the call for questions. Operator, please provide instructions for those interested in asking a question.
[laughter], Tom I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad.
Your first question comes from the might have Ryan Macdonald from Needham.
They begin.
Hey, good morning, My time and team. Thanks for taking my questions I guess as we're thinking about a the fall semester.
How should we think about won the potential impact from perhaps reduced store foot traffic you know with fewer students on campus and then I guess on the expense side, how are you sort of looking to.
Optimized to sort of run that maybe had a breakeven level perhaps.
And adjust accordingly thanks.
Yeah, Ryan this is Mike I'll take the.
First part of their question, maybe Tom can take the second part.
As part of lease a metal at wants to jump and she can but in terms of the impact on the impact to reduce store traffic is something that we're very focused on obviously, we're talking about a lot.
You know we have a pre opening plan that we just we discuss no one will discuss in more can discuss in more detail in the in the 10-K, but they have a pre opening plan for those stores, where our campus partnership said they are opening Oh stores and we expect to comply with all the local regulations. So yes, we do.
Specked in those situations, even when there is a store open because the campus is open which is probably going to be the case, a majority of all of that campuses. We serve but we'll have we'll have some capacity restrictions or that type of thing. What we're doing is working very creatively with the schools.
Try to reach students alumni.
And and faculty.
That normally would be in the stores.
The virtual basis as we discussed we just are on the process will just we just recently in fact subs in the last two weeks launched the first of the new websites.
In ecommerce platform.
Will help us as we continue to roll it out, but we're doing a lot of and things are to be more specifics in terms of reaching out to the.
The administration of the school I think the main one of the main points is that this whole bid a crisis is really affected the financial status of our campus partners.
And one of the things that we bring with the business model, we have in terms of.
Sharing a percentage of the revenue from our sales whether it's in a physical or virtual sense E commerce or in the stores, we share a percentage of our revenue.
Each of the schools.
So our our interests are very very aligned with working together with the schools very creative when you drive as much revenue through our contracts as we can because those schools all need to that that funding as well.
So at least I don't know if you want to comment any further on that.
No I mean, I think you said it I mean, we're having very productive conversations with our campus partner States and what might just said on how do we work together to mitigate the.
The traffic losses, and make sure that we're providing all the creative solutions, we can but you know continuity of sales.
Certainly you know they even the existing E commerce sites. It didn't really a workforce for us and we're continuing to drive a lot of business through that the expansion of our direct to consumer Dropship program.
It is really helping us now mitigate the south loss on general merchandise as well and we'll continue to work with campus partners to think creatively I'm working on I'm, putting together and bulk purchasing opportunities for incoming freshmen, except around what we can tell general merchandise and you and creative ways.
Hi, Good point [noise], that's a good point Lisa made on dropship, because that's a capability. We didn't have a last fall. So I'm on a comp basis looking like capabilities that are new there's lot of new things that have been done that's a really important one that we put in place last.
Well one.
Got it that's helpful and in terms of the bartel be usage and sort of DSS business. Obviously, it's great to see some of the increased usage throughout the spring here is can you talk a little bit about what you saw in terms of spikes in usage you know followings campus closures go into April and May and.
Then, perhaps what you learned from that and how you are using that for preparing for the fall launch for bar will be as well.
So oh he Ryan this is knute. We saw you know there were very positive trends as we've noted pre Kobe did a really related to our FCO strategy and things we were doing a good outside the footprint as well as executing in the footprint, but post coated in particular.
<unk>.
April to March there was a dramatic rise and traffic and usage on the order or 50% a increase in traffic just for the month of April so the trends I mean, it's a very seasonally low period as you know in the summer, but there's still a vastly above what we saw the previous year.
And I think it's a combination of just part will be getting out there and warrant being recognized the value proposition being used by more students.
As well as obvious impact from warning a distance so what we're doing in terms of getting ready for the fall you know we continue to sharpen the FCO strategy and optimization.
Of our content libraries, and as well as thinking about expanding new content partnerships. Other avenues for distribution and just getting the value proposition, which we think is competitive in leading edge relative to the competitive set which you know well so to an enormous value to use part will be for these students almost half.
Off to a third less depending on the platform you're using so we continue just to really get it out there to create the awareness in the usage a we've continued with free offers as well the free offer so if not impacted the paid subscriptions and where she general strength across all metrics, whether its traffic a usage and convert.
<unk>.
Hi, So and then just one final one from me, it's great to see the momentum with first things first day complete can you just talk about how the conversations with universities I'll be taking did change now that we are sort of moving more of a shift to digital and online with universities and and perhaps how this uh huh.
New deal you signed with with the division to schools.
It's an additional opportunity for first day overtime. Thanks.
[noise] John you find itself, Yeah, Hey, its Jonathan not show our yeah the value proposition.
As Mike said affordability access and convenience was extremely relevant for our customers pre co bid. What is now. He then more critical and I think that the conversations have definitely accelerated as is as that access an immediate access in driving down the curve.
Cost of course materials becomes even more important so we're having lots of discussions we think theres lots of potential to continue the growth, which which as we say did was approximately 91% year over year in fiscal 20, and we expect a significant growth.
In fiscal 21 and beyond.
Yeah first they complete Ryan I mean, I think that you know the other important thing is we'd really I think and got through to the publishers.
On both first day and first a complete.
In terms of a common.
Voice from the customer our institutions is really saying. This is these are models we want.
And because of that we're able to go go to the publishers and.
[noise] convince them that when they're dealing with us in our footprint or sell throughs as publishers for for digital and first day in and per in total for first say complete we're going to be much higher if we cooperate together and work together on that and I think this environment as John saying is that this is also improve that that cold.
Operation, which is important because as you know there's opportunity across to be but disintermediated, but if I direct pub sales.
So that's another important 0.6, I think first they complete we have very aggressive goals for.
You know calendar, all 21, which is in fiscal 2002 goals that we have this year I think.
What we saw is that when coal that first hit.
On first day complete and some of the new things we're doing the initial reaction by some schools was to pull back because I didn't think they had the mind share to make all the changes that needed to be made but they've done a quickly transition into a weight. These are these are changes that we need to make in these new environments to new environment. So it's been a it's been gaining.
Quite a bit of momentum in the form of school signing up for.
This fall and committing recommitting and that for the spring of this fiscal year, and then especially for a for a follow up next year, one really expect to see first a complete take off.
Your next question comes from the line of how they experimental from Craig Hallum. Your line is open.
Great. Thanks for taking my question I, you know why the asked about bartel be it seems like you're continuing to be good momentum there. What's your outlook. There for this year in your strategy for marketing that product when when it might be harder to marketed in store do you feel confident that it's reached a critical math.
You can continue that momentum into the the upcoming school year.
So the strategy really remains Alex this was knute, obviously, there's an impact from not having I'm sort of that physical nexus be as optimize does it was pretty coated we don't know how much the web sales pick up for that within the footprint, but.
The footprint you know there. So there are some headwinds in the footprint, but the actually show and the page acquisition outside the footprint, it's been far outpacing what it was its outpacing our results it's really firing on all cylinders. So it's up multiples for what it is so we overall, whereas where I sit.
Now I would still expect growth, we're trying to figure out how best to get after their students in our footprint I'm in the cobot environment and we have some ideas. There's also some there's a lot of work being done on figuring out what I would call alternate and strategic points of distribution above and beyond its very clear from the traffic.
Trends if you look at what we got in April that work, where either taking share or we're expanding the town likely we're taking share from the competitive set and people are recognizing bar will be so what the FCO strategy, which has always been in the longhorn view, we think is gonna be the predominant acquisition channel that's certainly making.
For some of the weakness that we may have with Covanta would not having storage fully operational.
Okay, Great. That's really helpful. Thanks, and then can you just talked about the than normal pace of business for you in terms of winning New school agreement here I would have to imagine the willingness for school certainly the economics of outsourcing.
Are you know no no less appealing perhaps a lot more appealing given me given the pandemic I mean, just in terms of the actual logistics of you know getting the right people to gather getting these view these agreements kind of signed and move forward. You know do you feel that the environment is conducive to moving forward with these kind of agreement the into use.
Still think that that you're going to be heading towards kind of net store growth year over the next few years.
Yeah I'll answer this is Mike I'll answer that initially and then Lisa can jump in who heads up our new business sales group for the port to her but I think in this environment as we set our interests are totally aligned with the increased need for schools to help out their own financial position.
You think of these 5000 or so higher Ed institutions that are out there and how they've historically operated and the impact that cobot has had on their financial picture. There are many of our taking very creative steps to solve it but also the complexity that is being introduced bye bye.
Hi, this environment because it much more heavy reliance on virtual digital that is driving more I think more schools, who.
The move to an outsourced model like ours and specifically to your question, we're not seeing a slowdown.
Of any magnitude in terms of being able to meet on a virtual basis and in some cases in person now our team has done very well so far in fiscal year.
21, adding new business and has a very healthy pipeline. So I think that maybe contrary to intuitive.
Oh conclusion that schools might want to slow down in this environment, they're doing just the opposite because they have an increase sense of urgency.
To outfit themselves with the tools into partners that they need and then also the financial benefit that we bring to our contracts.
Leases you want to add to that.
No I mean, I think you I think you now that we're still having very productive conversations either for fault Reopenings, where we're waiting for a couple of decisions to be made I personally have been on four or five deals presentations with schools and as Mike said, it's the alignment of the revenue model, but just the you know our ability to pivot.
Adapt and supports what ever might communists here right. It's we all know it's very fluid has been a really really important conversation, it's we meet with different schools.
Great that's really not even what sorry, even with some of our X even with some of our existing clients that are.
Well you called top tier.
Tools I think you know I think that who are used to having heavy heavy store traffic not just from students but form from outside.
From a with either within the community or in some cases tourists. This just shines a light on the need to have so really outstanding ecommerce and digital capabilities. So this this conversation has really been expanded took our entire client base.
Yeah.
That's terrific thank God.
Operator are there any other questions.
Your next question comes from the line have worry wireless from outer branch capital. Your line is open.
Hey, everyone. Thanks for being on the call taking my question and I understand very unprecedented times and appreciate everything you've been doing to help the company navigate on my first question I wanted to ask is.
And your earnings release, you talked about having 11 campus is signed up for fall compared to four for first they complete.
In the past year and as you know, we really share your enthusiasm about the opportunity and understand that.
A lot of the software work in terms of getting those S. I guess integrations with eight IP has been done we think there might be a longer term opportunity around keepin plugging borrow be into that and certain LMS platforms into that as well.
You are looking at 800 physical stores 1500 total score relationships. So I think given that the total market size the product value proposition, especially as you've mentioned how cold it has actually.
Only increase that value proposition I think.
And all shareholders would like to see what the road map looks like as far as how you scale. This product to reach hundreds of schools over time as opposed to a dozen today and so I guess my question is what are some of those specific steps that.
You in China, Mike are taking around really accelerating the go to market for first day. So that this can start to really transformed the company from a revenue and EBITDA standpoint.
Yeah, I think it's a great question, it's something that you. Obviously are very focused on you have to keep in mind that we did the for schools in the fall 2019 last year.
Those were pilots.
And they were very relatively small schools, although onondaga, which is the Sunni school was fairly sizable with about five or 6000 students.
But this is this was still being done quite manually and the processes and systems required to support it where it in place.
As you just indicated there are different tie ins and what John and his team to doing.
And the whole retail organization have been doing is getting getting school signed up to our adoption insights portal and the necessary a S.A.S.
It also LMS tie ins for the S. I guess in particular is basically just an export file daily information that allows us to ship to personalize.
The experienced away, we need to and understand the courseware flow that's that's.
Being rolled out now and as you know, it's a very seasonal business.
And you know just because the your to your point of I made the comment that we really expect to see this take off we're not disclosing the exact number of institutions or the amount of revenue.
In fall it next year followed calendar.
21, because they were 22 that we expect to see but we have a very aggressive target.
No we're not even given guidance on this year I don't think we're going to look out in this kind of an environment start providing a roadmap or guidance in this at least in this call. We may do it later in the year Rory.
And again, how things go we've got to get through a little bit a little bit more time further into the fall to see what actually happens with our business before we start providing roadmaps and targets that are.
We're trying to provide as much general guidance as we can about what we think it's going to happen, but you know I think to the context I would give you. That's your question, which I said as a great question is that no you're a little over a year ago. None of this really existed.
Lot of these things didn't exist Bobbi Brown will be really started up was launched in January of 19 as you though.
Oh.
You know the the new sales initiatives took off last year. The first a complete and first day, which as John said grew.
No 91% year over year first day by course, which is another important element inclusive access.
Getting schools to switch to a concept like first state complete requires examples in a market of how it's working you started to provide those proof points of examples in our pilots last fall and we're adding to that.
It may not sound like going from four to 11.
But the Jets also look at the size of the schools and the impact that's gonna have on being able to point to different kinds of schools that are larger than the ones that we know we accomplish isn't in our pilots so.
So yeah, we expect to see substantial growth a multiple.
Oh of of 11 fairly high multiple of 11, but mid mid to high level of 11 next next fall. It's a it's a key priority for the company footwear all pushing on.
And John to your question has.
It's actually brought in some some very great outside help on the go to market.
Strategy and execution very detailed operational execution make sure that we're driving us internally as quickly as we can.
No John if you want to add anything to that.
Yes, I don't see it yeah. It's a great question, Rory and we actually have schools, which in this fiscal year that are targeting spring term launches. So it's not just a lemon for this fiscal year. There. So their schools that are very interested and with what's going on with their reopening.
Plan had to defer or to a spring release.
As well so we'll have more this fiscal year and then as Mike said, a high multiple going out and we've really put a disciplined sales and marketing structure go to market approach in resources against driving the pipeline and converting a lot of interest into signed amendments afford.
This new model, which as we've talked about a during the call the value proposition of affordability immediate access and then and really incredible convenience for students is more impactful and important than ever.
Yeah, it to be clear as to be clear. If you know we obviously are very focused on our our short term plan as Tom said in terms of managing liquidity being responsible getting through this year, adding new business continuing to all the things that will join the first paper, they complete and not to mention what Dave and his team are doing with MBS and.
The fulfilling virtually.
At full capacity you having run three shifts since March out in Columbia, Missouri to do that but if you look out in our out years, we'd arkady give specific.
But it's to be very clear, we're highly relying on these initiatives first day complete and the impact on our general merchandise business of our new ecommerce system.
To provide to provide growth into the case of.
Courseware actually reverse the trend of a decline in courseware revenues over time, but getting specific as to what's yours, but that's a trend that is good in place for many many years over a decade, finding you know revenue up units and then average prices more recently, but first they complete.
Model as you know provides.
A substantial.
The increase in sell through from something like 35% to 95% or so.
And with it at the same time substantial cost savings to students, but provide substantial increases to our margins, which were also going to share with the schools, but that's that's scale plant first a complete and first day is absolutely critical to our long term future and Oh, we probably set as much as we can say on those.
Paul about the road map at this point in time.
And we'll see what happens with everything that's going on with the company.
In terms of a strategic process and also this fall and if it's appropriate we can be more specific about a road bass once we get a better footing.
Round, all the uncertainty that's affecting all of us so.
Over the next six months or so.
Yes, thanks, Thank you, Mike and ER, and John and I guess.
Following on that with the uncertainty you are 10 weeks into your July quarter at this point and we saw basically a 40 million dollar negative EBITDA impact from.
What expectations were pre coated in your April quarter. So I guess as things stand now what color can you share with investors, you're not particularly back end loaded business. Typically so what are you able to disclose as far as the EBITDA trends for this current quarter and understand.
It's always a light quarter because it's some.
Yeah, I'll ask Tom to answer that I don't think wisdom, we'll disclose much but maybe you can provide some color.
Yeah, Thanks for <unk>.
It's difficult at this point to say you know the trends that we saw in the back half of the fourth quarter continues for the summer we were able to transition for summer classes.
The the fulfillment out of MBS advisory.
That will help mitigate some of the sales all fall off that we saw the fourth quarter for the summer, but it is a light quarter and really quite honestly, it's going to be more about managing expenses. I think has done a what we would consider pretty good job at this point with you know the furloughs that took place in early April.
And then we're only bringing people back you know as needed to support the stores. If there is ongoing tasks and and fulfillment that anything done out of stores, but more importantly, the sales aren't there. This is the people aren't coming back.
I think it remains to be seeing now we haven't closed the books for June yet so I wouldn't use may as much of an indicator for the quarter just like that.
Okay, and I understand your consistent commentary around liquidity and I see on your balance sheet that you do indeed seem to have adequate liquidity, but I guess have you I guess have you explored sort of different scenarios around.
How things shake out around fall I think the reason your shares seems to be trading at 100 million market cap with some.
Normal EBITDA of above 80 million in high free cash flow is that I think there is imported market concerning your ability to [noise].
To maintain liquidity, so I guess, what more kind of color can you share around.
Your level of confidence there and maybe any discussions that you had that way it would lend themselves to supporting our view.
Oh, Yeah, I mean, I think as it relates to liquidity ROI, we you know.
We're planning and it's really focused on the expense side of the equation for US is really making sure that we have the right adaptive model as it relates to.
The stores in the retail segment as to make sure that we have enough people there, but make sure. We don't have too many and don't be ahead of head of the sales if you think they're coming.
And really it's that maniacal focus on not spending like we normally would spend not.
No not hearing up in terms of getting inventory and that we might normally get in on on the textbook side as well as the jam side. So it's it's a very maniacal approach as we look at the expense side not only as of what we spend on people what we spend on contracts, but it really comes down to managing inventory as well and we've looked at it from that perspective and.
Got comfortable with you know the outlook that we see I mean, it's very difficult this environment and I don't know.
Care, who yard nobody's going to be able to forecast that the calls like even at this point in time, it's a very fluid situation as it relates to enrollments that very fluid situation as it relates to how school is going to adapt and operate so.
We think we've we've done a lot and we'll continue to do more in terms on the expense cutting and and that's really the focus of behalf.
Okay. Appreciate that Tom and then I guess lastly, as we think about the future.
Of the business in the first the opportunity in borrow the mature and also the merchandise ecommerce initiatives, which are sort of the three ways that I think about the growth pillars of the company.
I think you would be very helpful. If you would consider providing more granular information for investors quarterly. So for example, with first day, you're basically moving from transactional b to C retail to institutional subscription sales, obviously those types of revenues come in at much higher.
Multiples in the public markets. So we think over time, creating a breakout at first day revenue and EBITDA.
It's very logical if you've looked at companies that has done this.
Internationally, it's led to significant.
Inflection in their multiple moving from single digits into the teams.
And then around the general merchandise segment, we saw in this quarter our along.
Extremely high margin business for you, which cuts both ways I'm when it's stronger when it's not.
But with the next generation E Commerce initiatives that you cited as being very important for that business.
We think it would be appropriate start breaking out E commerce revenues each quarter as compared to the revenues generated in store and then finally on Bartow B. I think.
Obviously, the subscriber number on a gross basis. It is a nice to have.
Gross acquisition basis, and then the usage, we were able to track as well that it's gone significantly higher but overtime. I think you know Chegg does report their total subscribers and subscription revenues each quarter, which has allowed investors to sort of gauge the traction there in value the business overtime. So we think obviously, it's very much.
Makes sense, but.
To the extent, you're able to break out anymore granular metrics, whether it's you know even even efficiency metrics around LTV to CAC or gross churn those types of things can can help the market to sign your higher because you're currently trading I'm like a distressed retailer and you actually have to transformational opportunities that.
I think.
You are yourself in the shareholders to short lateral.
Yeah I think those are good those are good points will take them under consideration.
We've we've done a lot to actually changed the structure of the company within the last 12 months and going back and though as you know we.
He actually created DSS as a separate segment to start to do that as the product started to develop so it's a step in the evolution to become more granular and the disclosure S.
Those kinds of metrics that you're citing start to scale.
Breaking them out before there's there scaling there's some there's different considerations, obviously, they're not material what doesn't it gives you a baseline but as they start to scale would agree with you that those are those are.
Helpful things to consider.
So I appreciate the comments.
Okay, Yeah, well I appreciate it guys. Thank you.
Thanks Roy.
Your next question comes from the line of Nick Dempsey from Barclays. Your line is open.
Hi, Good morning guides, Yeah, we're seeing publishes hi thing as E books, and Thats still come Patty coming down yeah, Yeah, I try to and stuff that units and wins coming back from the second hand market the rental market well take questions in relation to that.
The mix shift towards digital.
With the publishes could push students to their onsite to avoid the a sentence types of retail in in a larger like and the second one it's not as the price of Eagle in particular.
Oh, the comment a little bit close a pretty rental pricing now instead of the list that you guys could be stuck with quite a lot of print books in the system and could you have to stall lowering your price on frame and so.
It's from that.
Your next this is my kids, we I'll take the first question, though.
Yes.
Dave Henderson to take the second question this ties into our relationship with vital sourcing a couple of other points in terms of publisher Disintermediation, that's something for digital is something we've been dealing with for a long time, we have contracts with the three largest publishers.
To ingest third digital content through first day, and importantly, our contracts with the schools provide us with exclusivity rights.
Four of courses that are posted in the LMS, whether their digital and also for physical sales of courseware.
The way our business is structured is not like a typical retailer we have contracts that we enter into that in exchange for us providing a percentage of the revenue we are to the schools and as I mentioned, that's becoming more and more important that they deal with their financial.
<unk> increased financial issues cobot and beyond but those contracts in exchange for the percentage of revenue. We get we also get generally and in many cases exclusivity.
Which we enforce with the publisher so well our discussion with the publishers is not an antagonistic one sometimes it's sometimes it is but most of the time to enforcing our contracts but.
More lately as I mentioned earlier, Nick if you were on the call I'd like to the.
Cooperation with the publishers around first day in first a complete when schools give us the mandate to go to inclusive access models, our cooperation with Amazon and you know overtly very good because what happens is the publishers are losing adoptions, just like we've been losing adoptions to competition.
No such as other digital sources or are we are or.
An amazon or other marketplace, even though we matched those prices.
And you know this gives the publishers of vehicle to increase their sell through in the first say complete scenario for example, divert almost 100% from wherever they are.
And.
You know the pricing the pricing is discounted with the volumes are so much higher.
Got it makes sense for the publishers to.
Go in with Us and in terms of packaging their digital content.
Because it's what I think that's what the university's want to the schools are trying to achieve affordability objectives.
And accessibility objectives, especially now with all the focus on socioeconomic parity.
And they can't do that by allowing the faculty just direct the.
The purchase of of of Courseware. It has to be managed so we're giving them the tools to manage it. So they can achieve cost savings rates are first they complete a 40% to 50%, while we and the publishers actually do much better because of the increase sell through.
We also share those economics with the school, which allows them to benefit. So this is as we've described before really a win win win that doesn't mean, we're not going to see especially in the current environment publishers out developing you know virtual courses with the schools, but the agreements we have with the with the publishers, we deal with thousands of them.
Not just the top three but in those in the footprint that we serve.
You know, what's listen to the customer.
Let's work together, let's give them the benefits that they're asking because it benefits all of us.
Otherwise, where you know her sending a we're doing business through lawyers enforcing our rights and and which we do if we have too but that that level of activity is really subsided quite a bit.
Since we've been able to have a much better conversation with the.
You know the new leadership of though a couple publishers and then the existing leadership from one of the other ones.
So that's that's a risk no doubt, but I think we're we're finally at using a bottle that brings us altogether for the benefit of our mutual customer Eva pricing, Dave why don't maybe.
What they've handle that one.
Well I and my to build on your on are inclusive assets brand that sort of say with our campus partners, but what they are in essence I'm looking for as a single an elegant.
Service solution for their for their students, which we provide with our with our platform, which is powered by a vital source and with that new that new arrangements that we came into last summer.
We've seen a much more cooperation with publishers and participating with us again coming to that campus desire of a single experience for the student rather than a differentiated and multiple routes. If they would have to take to get their product.
You would you had asked about the physical side and the rest of being stuck with inventory.
But that in the two two components, obviously, when we're we're buying to our retail.
Divisions.
Physical stores in virtual.
Any new product that we're buying from published as we're obviously bonds were anticipated demand than what we've seen.
Over the course of the history, but that client.
And of course product purchase from them from the publishers is returnable. So the risk on that product is quite low from a wholesaling standpoint, which is dealing with off price.
Use product product that is able to the acquired and sold for less than published from that pricing that of course is is a speculative business.
To put Tom's point earlier, we have been Bernie.
We we view this team and doing out as to the demand and what we're anticipating.
With the impact of of Covance and enrollments and.
What's going on this fall so we've been very watching our acquisition of that product very closely and upscale that too where we believe we're going to see things move not only for the fall.
But of course for the rest period that occurs.
In January and February at 21.
I hope that hope that answers your question.
That's great thanks very much.
Okay, I think I think one of you know one of the questions that was asked earlier that we didn't really but I think maybe Ryan asked it up on.
Division to conferences and some of the things we're doing what we're going after and tire.
Conferences athletic conferences in the context of trying to offer them.
You know package deal so to speak of represent that that'll obviously help us.
I think in terms of aggregation and Rory went through I think did a good job what kind of giving his view of just consistent with ours or what our growth pillars are we've talked about on them because of access models for courseware general merchandise and E Commerce and.
Our it'll be double the one he left out was new business, which is really the platform for all of that and someone else asked about that earlier, but those are really the for growth platforms and the reason I bring that up as this business that we're running it's nothing like the business. We were running three years ago. Since then we've acquired MBS, we've acquired digital capabilities.
We've we've converted from a service space to a product based company and you know we're just at that point I think as Roy, suggesting where we can start to present ourselves differently as they start to scale. All these things we've been working on but I mean, I was hoping I've never have to use the word transformation again, but we are still in the transformation.
But I'm just I think were work. So we're baseball game I would say, we're probably in the the seventh inning of that maybe we would have been a little later had not been for cold it but I think it's also helped us accelerate it so either way.
We're getting through this transformation, but.
Investors should not look at who we were two years ago three years ago, and the trends and think that's where we're going to be in 12 18 months, it's going to be it very different company based on the capabilities, we built in for digital.
As some of the questions have pointed out in some of the.
So the other new products that we've described.
Cover and we're very confident in that so.
If you look at as canoes calls them our key competitors.
In the multiples in the values they enjoy I think worries comments about how weak.
Display information once we start to scale are very valid will look at that.
And I think that.
If you're looking at the company you should look at it through a lenzo of what has been done and just the last 12 month last 18 months to position us as we come out of coated which which Tom and his team and others are doing very good job managing this through from a liquidity perspective.
So I wanted to make that point really Mr. <unk> with response in response to Nicks question about publisher disintermediation, because it's always there, but it's been there for a long time, but I would say that we're dealing with that I'm not losing sleep over that the way I was even 12 months ago.
It should we still keep our eye on it it's still a concern so competitive threat, but we've come a long way in a lot of respects dealing with all those kind of fundamental issues.
Your last question comes from a line of Ryan's I'm finding <unk>. Your line is open.
Hi, Thank you try to be quick here just to give just a follow up it's encouraging to hear you have sufficient liquidity you don't need to raise capital ill just following up on a question a couple of callers ago. So can you just tell us what the revolver availability is today and any sort of covenants that we need to.
Monitoring over the next few quarters and that just the second part of that you know the increase at the call. It the $40 million swing you had mentioned lots of sales totally understandable, but also you repurchased a bunch of though that product that we should get back in 2021 can you give us some sort of idea what that net working capital benefit looks like.
5 million 20 million, just something along those lines. Thanks, so much.
Yeah. Ryan this is Tom so the deals in place it matures in 2024 400 million dollar facilities and asset based lending facility.
The covenants are more driven towards the the the inventory or the assets that are available for the lending so thats.
Really all it's not it's.
Like your typical cash flow facility, where you have EBITDA on things of that you have to me thats not the case here.
All based upon availability.
And we probably have a slightly higher borrowing as we peak with always peaked in July in early August in terms of borrowings from where we were at year end probably.
$30 million to $40 million higher than where we were at 175 level at this point in time, so approximately half the facility still available.
Or use.
And my point about the working capital as you know we <unk>, we were geared up for these events in the spring and these graduations that didnt take place.
In terms of our readiness and preparedness at the retail level and you know nice thing for the most part didn't get delayed they were just really cancel.
So assuming we cycle those next spring, which which is really the point I was trying to make on the working capital assuming we cycle. Those next spring and they happened and a lot of networking capital benefit.
And it's a little difficult to quantify at this point in time given the.
Uncertainty that existed level, but that's really all I was trying to point out is that not only to be missed the sales, but when we were prepared for them and they just didnt happen. So assuming those events cycle next year, we will have networking capital.
There are no further questions at this time I'll turn the call over to handy for closing remarks.
Great. Thank you and thank you all for joining us on today's call.
Please note that our next scheduled earnings release will be our fiscal 2021 first quarter relief on or about September 4th.
We hope everyone remains healthy and say operator, this will conclude todays call.
This concludes today's conference call you may now disconnect.
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