Q3 2022 Barnes & Noble Education Inc Earnings Call
Welcome to the Barnes <unk> Noble education fiscal 2022 third quarter earnings Conference call. My name is one and I will be coordinating your call today, if you would like to ask a question within the presentation.
To do so by pressing the star followed by number one on your telephone keypad.
I will now hand over to your host Andy Miller bulk beginning with please Andy go.
Go ahead.
Good morning, and welcome to our fiscal 2022 third quarter earnings call.
Joining us today are Mike <unk>, CEO and chairman.
Tom Donohue CFO .
Jonathan Shar Executive Vice President.
Retail and President Barnes <unk> Noble College.
David Henderson, President of MBS, and David <unk> <unk> President of DSS.
Before we begin the call I'd like to remind you that the statements. We make on today's call are covered by the safe Harbor disclaimer contained in our press release and public documents.
The contents of this call or the property of Barnes <unk> noble education and are not for rebroadcast or use by any other party without prior written consent of Barnes <unk> Noble education.
During this call we will make forward looking statements with predictions projections and other statements about future events.
These statements are based upon current expectations and assumptions that are subject to risks and uncertainties, including those contained in our press release and public filings with the Securities and Exchange Commission.
The company disclaims any obligation to update any forward looking statements that may be made or discussed during this call.
And now I'll turn the call over to Mike <unk>.
Thanks, Andy and thank you all for joining us this morning.
We entered the spring rush period, we along with everyone else continue to experience the ongoing impact from Covid.
The omicron variant began to spread rapidly in December and continued into January just the schools will plan to welcome students back to campus for the start of the spring semester. Despite.
Despite the continued positive momentum in our key strategic growth initiatives this quarter.
Colgate's Omicron, Serge just before our seasonally important spring rush period did negatively impact our results compared to the expectations, we had prior to the surge.
In early January while the majority of our institutional partners broad statements back to campus over 100 campuses that we chose to conduct classes remotely for the beginning of the semester, while others chose to delay their start dates and some schools.
Their start dates and started classes remotely in response to the surging omicron virus.
As we have been doing for the past two years, we worked closely with our campus partners to adapt and respond to the safety first policy decisions. Many of our schools were forced to make.
To support student success, we were able to quickly pivot.
And ship textbooks and supplies for clients that move to virtual learning.
It's worth on campus as originally planned.
The need to be flexible and adaptable is now given.
We were able to once again showcased the value we provide through our unique.
A unique mix of digital and physical assets by customizing solutions to help both the schools and students we serve adapt to changes with very short notice.
While our teams did a great job responding nimbly and impacts of this unwelcome omicron Serge reality is.
This was a very suboptimal environment.
Which to operate efficiently, which negatively impacted our business results.
Notwithstanding these and related environmental challenges during the quarter, we were able to continue the significant momentum of our key growth initiatives first day first day complete our <unk> partnership and its impact on our general merchandise business and growing our new store footprint by adding profitable new business.
During the quarter.
Our third quarter results reflect the impacts of the omicron curve ball that Covid threw us primarily in lost or delayed sales for most of the services, we provide and the products as we sell including Courseware general merchandise and school supplies.
As a result of the necessary precautions taken by our institutional partners in response to harm across.
Some of our rough sales were either delayed later into the quarter pushed into the fourth quarter or loss of store traffic underperformed expectations.
As Tom will further discuss.
While our third quarter gross comparable store sales increased eight 4%.
When factoring in the fall rush period that extended into the month of February gross comparable store sales increased approximately 18, 8% over last year's spring rush.
Despite the tremendous amount of change that's occurred over the last few years, we can now say with confidence that much of the perceived value of a college education is still rooted in its basic elements.
The in person learning and social experience remains of extremely high value for students and schools.
And the latest student voice survey conducted by inside higher Ed and College pulse.
When students were asked why the fall semester work, 67% said in person classes.
And 40% said social opportunities.
Colleges are working hard and are motivated to bring vibrancy back to campus, while simultaneously managing and responding to the vicissitudes of the Covid virus.
In conversations with our partners faculty and students, it's clear that Covid has accelerated many of the changes occurring in higher education.
The perspective is changing to a more flexible student centric model that goes beyond solely a student's academic needs and insurers.
We are equipped for success beyond the classroom.
This is a paradigm change in higher Ed as schools transition from the traditional question, though.
How prepared is the students succeed in school to a more current perspective.
Ill prepared as a school to meet the broader needs of the students.
This change in view is being driven by a more competitive environment.
Enrollment demographics change.
Roy value of an education is subject to greater scrutiny and other needs like mental health and career placement moved to the forefront and supporting students success.
For the non traditional students with greater numbers is changing the views of what defines a traditional student.
<unk> proposition is in both providing flexibility and offering curriculum that provides an improved opportunity to elevate their lives.
I wish that students demand is critical to ensure that institutions are satisfying those demands a more personalized way.
Schools need to remain focused on developing flexible learning models and utilizing technology to achieve higher success rates, which includes retention and graduation rates, while making degrees more relevant.
Success post graduation.
<unk> solutions and offerings are directly aligned with these key areas of focus and help institutions identify and address many of these issues.
Linked to achieving schools primary objectives of equitable access affordability and improve student outcomes.
Our first day and first day complete inclusive access courseware delivery offerings are growing rapidly as institutions realize the benefits for their students and the school's ability to compete for students in this environment.
In addition to the 65 campus stores that implemented first day complete in the fall term an incremental 11 stores initiated first day complete for the spring term, bringing the total to 76 stores.
Representing an estimated undergraduate enrollment of over 380000 students at these institutions benefited from the program.
Our teams have already secured commitments to launch first day complete for additional campuses in the fall term of 2022 and continue to work with a significant number of additional campuses to launch first day complete and academic years 'twenty to 'twenty three and beyond.
Given the timing of when first day complete contracts coming new fiscal year are finalized we plan to provide more specificity on our expected fall 'twenty two first day complete enrollment growth in connection with our year end earnings release in June .
Beyond our current roster of institutional partners.
Our total value proposition, which includes our inclusive access offerings and ability to fulfill them using our MBS assets, our logo and emblematic partnership with fanatics in lids.
And our DSS suite of supplemental learning and study tools.
It is resonating with many new schools that have recently entered into agreements with us to manage their bookstores.
For fiscal 'twenty, two which will end on April 32022, we are currently on track to generate gross new business wins of approximately $130 million.
Over $100 million on a net basis after considering expected store closings.
These amounts which are based on estimated sales using historical information include our newly formed partnership with Notre Dame.
We're excited to announce that we will begin to operate their campus bookstore system next week.
Turning to our general merchandise business, we continued to experience the early benefits from our partnership with fanatics and lids with gross general merchandise comparable sales growing 59% during the third quarter.
The customer facing benefits of this partnership include an unparalleled merchandise assortment.
Best in class Omnichannel customer experience for logo in our metal products.
And powerful digital marketing tools to create awareness and improve access.
In addition, this truly strategic partnership also provides <unk> with additional sustainable benefits to our operating model that are important to recognize and to value.
Such as.
Reduced direct investment in E Commerce system development costs marketing spend and payroll expenses as we leverage the tech expertise investments and general merchandise.
And workforce.
AG to lids.
This leverage translates into both lower spend and accelerated time to market for renovation.
Over $58 million in liquidity infused from the initial strategic investments made by <unk> in the second half of our last fiscal year.
Working capital improvements as we no longer are purchasing and paying for the logo and emblematic product inventory.
A unique part of the go to market with the win significant new business like Notre Dame one of the largest <unk> brands for general merchandise sales.
Finally, the supply chain benefits of scale enjoyed by SLC that we would not demand on a standalone basis.
This was proven during the supply chain challenges over the past 12 months <unk> and lids have undoubtedly been able to more effectively procure supply for our stores and we could have on our own in such a challenging environment.
We expect RFC partnership to grow our general merchandise comparable gross sales and gross profit dollars more substantially and faster than we would be able to on our own given the benefits, we just discussed and our experience to date.
We have already accomplished much together after only one year.
But we believe together that we have significant upside as we apply our learnings and progress to date to further benefit our customers the schools students.
Equity alumni and fans that we serve with this unique and exclusive partnership.
Turning to our DSS business, our Bartleby suite of solutions continued to exhibit solid growth.
DSS revenue grew 31% to $9 $4 million with Bartleby revenue growing approximately 36% year over year.
Probably generated over 97000 barrels gross subscribers during the quarter and over 285000 gross subscribers year to date, representing year over year growth of 34%.
During the third quarter, we were excited to announce a new partnership with Delgado community College, and which they implemented both our first day complete offerings and Bartleby suite of digital services for their students.
In addition to ensuring all seem to have convenient affordable access to all of their course materials.
Students will also receive access to personalized support to <unk> 27 online study platform through the Delgado of course complete offering.
Many of these themes are parents with busy lives jobs family obligations at household responsibilities.
When these students are ready to get their schoolwork done morning noon or night.
We want to be there to help them achieve the understanding that they need to master the material.
<unk> will be integrated seamlessly into Delgado learning management system.
Providing students with convenient access to affordable course materials on their first day of class is a foundational step and preparing them for their best opportunity to achieve academic success.
But thats just the important first step.
Offering bartleby digital suite of services with our first day complete offering ensures that students have access to the learning support they need and demand whenever and wherever is most convenient for them.
Turning in a much more personalized way.
We look forward to keeping you apprised of our efforts to ensure all students are equipped for success from their first day until they complete their finals through our first day complete and first day digital offerings.
Another third quarter highlight as an important strategic partnership that we entered into Billie Jean King enterprises to enhance b, any dis diversity equity and inclusion initiatives and programming.
Our newly formed partnership with the sports icon and social Justice champion will advance.
These <unk> initiatives and programming for the benefit of the employees.
Partner schools students and faculty that we serve.
In addition to supporting our ongoing <unk> efforts. This partnership will enable us to develop and launch new initiatives that emphasize respect tolerance and equity and embrace diversity within our culture and daily business practices.
These values are important to our people and our customers.
This partnership aligns us squarely with them on this critical element of <unk> core culture.
While we continue to experience some ongoing COVID-19 related negative impacts during the third quarter, which is influencing our current outlook for fiscal 2023 that Tom will discuss in more detail.
We have much these positive about and look forward to.
All the current facts show that the impacts of Covid are being diluted by the proven efficacy of Covid vaccines and responsive protocols and regulatory policies that are aimed at returning us all to a more normal or at least more transparent and predictable operating environment in the near term.
We believe we will have some positive comps benefiting from a return to in person NCWA sporting events and activities such as the final four as we have pumped a celebrated pre COVID-19 .
Upcoming in person Gratulation celebrations, and the positive momentum of our growth initiatives that we're focused on is the key to completing the transformation of our business that we have been working hard on for the past several years.
I am extremely proud and grateful to our people our customers and our shareholders for their ongoing support during the choppy seas. We believe we have navigated through together into what most are projected to be a much calmer horizon in front of us.
And now I'll turn it over to Tom for the financial review.
Thanks, Mike.
Please note that the third quarter of fiscal 2022 consists of 13 weeks ended on January 29 2022.
All comparisons will be to the third quarter of fiscal 2021, unless otherwise noted.
As Mike highlighted earlier, Alright third quarter results, which include the start of our spring Rush period were impacted by the ongoing effects of Covid and the Omnicom surge that began justice schools were preparing to welcome students back to campus for the start of the spring semester.
This had an effect of delaying some rush sales into latter part of the third quarter and into the fourth quarter.
We also believe that sales within certain categories that rely on a vibrant campus atmosphere, such as school supplies and food and convenience where loss with the disruption that at the beginning of the spring semester.
Total sales for the quarter were $402 8 million compared with $411 6 million in the prior year. This decrease of $8 8 million or two 1% was comprised of a $12 9 million decrease from the retail segment.
<unk> 4 million decrease in the wholesale segment and a $2 2 million increase from the DSS segment.
Retail sales decreased $12 9 million or three 3% as compared to the prior year period due to lower of course material sales and lower logo emblematic revenue recognition, which are now reflected on our net revenue commission basis as compared to the gross revenue basis in the prior year period.
Growing our merchandising partnership agreement with fanatics and lids.
On a gross comparable store basis, and which logo emblematic sales fulfilled by fanatics and lids.
<unk> on a gross revenue basis retail sales increased eight 4% during the quarter consisting of a 4% decline in textbook sales and a 59, 1% increase in general merchandise sales.
Textbook sales declined on lower enrollments fewer international students and the decision of some schools delay their spring semester start date.
This was partially offset by the growth of our first day complete and first day by course offerings with revenue, increasing 64% to $76 1 million during the quarter as compared to $46 4 million in the prior year period.
As the spring term extends to April and May.
Rental income related to first day complete and first day rental course materials are recognized over the term and therefore, a portion of the revenue is deferred into our fiscal fourth quarter.
Our general merchandise business benefited from a greater number of students returning to campus reopening of most of our campus stores in the current period as compared to a year ago on the majority of our stores were closed in response to Covid safety protocols, coupled with an improved selection and e-commerce experience for our customers benefiting from our partnership.
Fanatics and lids.
With prior years, the spring rush period, typically extends beyond the quarter due to later school openings and students buying course materials later in the semester factoring in the fiscal month of February into the third quarter comparable store sales for the retail segment for spring Rush increased by approximately 18, 8%.
Net sales for the wholesale segment decreased $2 4 million or six 1% to $37 million.
Primarily due to COVID-19 related supply constraints.
Also from the lack of on campus textbook buyback opportunities during the prior fiscal year and lower customer demand.
From a shift in buying patterns from physical textbooks to digital products, which was partially offset by lower returns and allowances.
Additionally, during the prior year period, Wholesales CSS model fulfill direct to student course material orders for retail campus bookstores that were not fully operational due to COVID-19 campus store closures.
As those sales shifted back to the campus bookstores in the current period.
DSS sales grew $2 2 million or 39% to $9 4 million benefiting from an increase in subscription sales.
The consolidated gross margin rate for the quarter was 21, 6% compared to 17, 2% in the prior year period, and our gross profit increased 23, 2% to $87 million.
This was primarily due to the favorable sales mix of higher general merchandise products and higher margin rates benefiting from lower inventory reserves and lower markdowns.
Got offset by higher contract costs.
Our selling and administrative expenses increased by $8 8 million or nine 4% compared with the prior year period, primarily due to the reopening of most stores.
And bringing employees back to serve the greater number of students on campus as compared to the prior year when we furloughed many employees' response.
Sure.
During the third quarter, we evaluated our store level long lived assets in the retail segment for impairment.
As a result of the impairment testing, we recognized a $6 $4 million noncash.
The noncash charge.
At the end of the quarter, our cash balance was $10 million of outstanding borrowings of $200 4 million as compared to borrowings of $158 million in the prior year period.
Much like our second quarter. This increase is mostly due to the timing of receivables associated with the significant growth of our first day offerings schools generally remit payments for students enrolled in courses after their student drop add dates which occurred after the third quarter ended.
Capex for the quarter was $12 1 million as compared to $9 7 million in the prior year.
As we look for the balance of the fiscal year and our next fiscal year, our COVID-19, and its variance have had a greater than expected impact on our business in fiscal 2022 based on our current views which include an improved outlook for campus events and activities starting spring. The company continues to expect to generate positive non-GAAP adjusted.
EBITDA in fiscal year 2022.
While we currently believe that the non-GAAP adjusted EBITA will significantly improve in fiscal year 2023, we now expect non-GAAP adjusted EBITDA in fiscal year 2023 to be lower than our pre COVID-19 levels as opposed to direct and ancillary impacts of the pandemic, including wholesale supply issues and inflationary pressures.
Are expected to continue.
Expect to be in a position to provide additional insights on our fiscal year 2023 outlook. When we report our year end earnings in June .
Currently our retail segment operates 1441 College University, and K 12 School bookstores.
Comprised of 799, physical bookstores and their e-commerce sites as well as 642 virtual bookstores.
With that we will open the call for questions. Operator, please provide instructions for those interested in asking a question.
If you would like to ask a question at this point. Please press star followed by number one on your telephone keypad. If you turn your mind. Please press star followed by number two when preparing to ask a question. Please <unk> your phone is on mute locally.
Our next question comes from the line of Ryan Macdonald from midterm. Please Ryan Your line is now open.
Hi, Mike and Brian Thanks for taking my questions, maybe starting with fanatics lids. It was great to see a 59% growth in comp store sales there.
Starting to see some of the positive impact.
I'm curious as you continue to rollout additional or get additional sites live on a policy.
What sort of uplift are you seeing sort of as those go lives sort of hit.
And the impact on E Commerce sales just generally.
Yes, John I'll, let John charge offs that thanks, Brian Yes, Brian .
Really excited about the initial results that we're seeing.
And in the quarter and since we launched the site.
As you mentioned the 59% increase in our.
Comp store general merchandise sales.
Contributing both contributing factors include our in store assortment and experience as well as on.
<unk> benefits we're transitioning.
More sites this.
In the fourth quarter over and we expect it to have a really significant impact.
On.
On driving increased sales going forward. So very excited about the experience the assortment and offering that we can bring to our smalls and the customers that we serve.
One general comment on the partnership itself Brian .
Is that.
Wasn't even a year ago, when we really started this by selling our inventory too.
So they could take.
Take over the romantic logo clothing and goods business.
And the upside that we have really is also resident and the improvements that we're making and just the day to day operation in order and if you think back to the supply issues that were really prevalent in all businesses last year.
The timing when we have to put orders in for the fall and that type of thing there was a lot done very very quickly.
<unk> established its leadership.
Which is now being much much more refined in terms of representing each store their brand in the Assortments and how we go to market. So just.
The evolution of the partnership going into its second.
Year soon will provide I think substantial upside to what we saw in the in the last 12 months.
That's really helpful.
Maybe then as we look out at the progress Youre, making on the initiatives now.
Great great traction with that cell C. Firstly complete continuing to grow rapidly and increase as a percent of the course materials spans bartleby initiatives strong here.
Can you talk about that in the context of some of the preliminary comments you gave around the fiscal 'twenty three margin profile on why we might not be seeing.
Some of those margin accretive sort of business is growing as a percent of the mix not sort of translating as much to the to the profitability and adjusted EBITDA outlook as we look into next year.
Well I think our guidance related to the EBITDA.
Margins specifically.
We're concerned about inflation.
In terms of how it flows through our spend.
The need to be competitive in a digital environment by retaining and attracting talent as part of that.
The other pieces of that inflation go to fuel cost and what that does to our freight and shipping and we're spending a lot of time looking at pricing how much of that can be passed through in our various pricing models for our inclusive access in all of our offerings.
So the.
The adjustment in the guidance, whereas we said we would approach pre COVID-19 levels for 'twenty, three and beyond and now we're saying.
It's going to grow substantially beyond 'twenty two but.
Probably not to the level we thought.
That guidance I think back to June of last year. When we gave that guidance. What we did not know at that time as we did not know.
Some of the things that we're going to be happening, obviously in the world could affect inflation as well as the.
The Delta variant omicron et cetera, which.
Does affect our jump off point, so to speak through 'twenty two to 'twenty three since.
We just we're just we're just going to end the fiscal year in April and the other big thing is wholesale.
Wholesale if you look back at our pre Covid.
Contributions to EBITDA by segment was fairly substantial.
And that business has as we've disclosed and challenged by lack of supply because of buyer.
Buyback and also because of inability to really source books from international sources, given the very expensive freight costs associated that makes it prohibitive. So.
We're working hard and Dave Henderson is online and we're working very hard to get wholesale.
More profitable next year than it was this year and we're not giving guidance by segment, but wholesales. Another piece of that so this is not all around margin. This is this is really.
It's got a lot to do with spend and growing growing our digital business.
And during a time of scale.
Really helpful. And then maybe just one more for me and I'll hop back in the queue, but.
Bartleby it was really great to see.
First deal announced with Delgado community College, and sort of your ability to start bundling that with RBC can you just talk about sort of what got delgado comfortable with sort of having the digital starting to integrate it into <unk> and maybe how that effects.
The strategy around pricing for Bartleby moving forward is it still going to be charged on a monthly basis and in these contracts.
Contracts or relationships or how thats being sort of role then thanks.
Yes, I'll make one general comment and then David <unk> President of DSS can answer your questions in further depth.
But just in general as we found out we're selling first day complete key to selling any new or.
Revolutionary model was making sure your lineup with a more progressive.
Open minded leadership on the campus I think retirement at El Dorado. So that was that's one of the keys were very much in sync with them.
We're excited about what the potential benefits to their students.
Incorporating the.
The digital Bartleby digital switch study self-study suite of tools and with the first day complete program. So.
That's a big part of it but David David can answer your other questions.
Yes, absolutely.
Got.
Absolutely.
Focused on providing a bit that comes to the students.
They have.
Percentage of the student population is part time or non traditional students.
Need help and support outside of core University outs.
So.
As we had discussions with.
Really focused on trying to provide.
Support to those students to kind of help ultimately the student success, which absolutely lines up with our focus on what where.
What we're trying to do it our objective remains enhancing educational outcomes.
Complement to what happens in the classroom so.
Within that we're very open and as we talk through our opportunities and the feature set.
Still very focused on making sure that they could provide.
As many features as they are students I think one of the interesting things, particularly with Ocado is.
They're also interested in.
Reporting that comes with it and making sure that students who engage with the tools and really draw that trying to support what level of product.
Next integration et cetera.
We're in the process now exciting this equity and debt.
It is through the products Thats exciting times for <unk>.
Yes.
Very customer focused and making sure that students.
The benefits from a charging perspective, which I think was the second part of your question.
Yes.
Charging is more around opportunities.
Your line or students.
Aligned with the amount of students that they have on campus at the time. This is how we're kind of working through judging it rather than that.
I guess the direct to consumer.
Business, which is the monthly subscriptions.
Thanks for taking my question jump back in queue.
Thanks Arne.
The next question comes from the line of Alex Fuhrman from Craig Hallum Capital Group. Please Alex Your line is now open.
Great. Thank you very much for taking my question.
Wanted to talk a little bit more about the fiscal 'twenty three EBIT guidance can you unpack a little bit more about where that's coming from I think you mentioned, Michael this year notion of starting at kind of a lower jumping off point in the month of May still being part of.
This school year.
How much is that going to be a headwind versus pre COVID-19 versus how much of it and supply chain issues that youre seeing.
Versus just inflation pressures and then kind of putting it all together I mean is it.
The company's goal to get back to pre Covid profitability in the long run to just trying to kind of size up.
These different aspects of it if you could.
Yes, let me just start off by saying.
Alex that we'll be able to I think provide more precision around.
Fiscal year 'twenty three after we close fiscal year, 'twenty, two which won't happen until the end of May and we in terms of the jumping off point.
One thing I will say is that I mean.
Influenced by I think the fact that Colgate has lingered.
And that that has that has an impact.
On a lot of different things psychologically in terms of the people, we do business and the operating environment in terms of our ability to get their attention et cetera et cetera, but.
Having said that.
There are impacts from jumping off but we're also pretty optimistic about how we're going to start fiscal year 'twenty three with the.
<unk>.
The FTC growth that we've had in the LLC partnership improvements and opening new schools like Notre Dame and going to market to capture other new big business like that so unpacking that yes, I think first off we are definitely on a longer term basis, not only intend to get back to that level, but.
Surpass it.
The pacing of everything that we've intended.
If you look back at the last two years has been slower than we expected we expected it to accelerate financially a little bit more quickly this coming year than it's going to and Theres a lot of different factors that kind.
We're into that I'm trying to highlight some of them I think we can be more specific about it as we get our year end results closed.
Really really start to get into fiscal year 'twenty three.
There are more surgical basis, I mean, right now we know we're in the middle of.
Finalizing our budget cycle for for 'twenty three so I think one thing that Covid has taught us that are not setting this as any kind of a signal but.
We do need to be.
So we are cautious about our outlook <unk> given.
Uncertainty that it creates.
And the impact that is having I mean, this thing in Ukraine and its impact has a.
A lot of ripple impacts.
On how we do business both in retail and wholesale both of those in particular, because we have a lot of volume still in physical shipments and in German merchandise physical shipments and $130 a barrel oil I haven't seen the price today, but after it was yesterday has a big impact on.
On our cost structure. So we're doing a lot of different things to try to mitigate that with commissions and.
And labor and everything else, but labor is another big concern because we've been we've been able to really.
Retain our quality workforce and in fact add a lot of good people.
David in DSS has done a tremendous job of attracting and retaining new digital talent, which is very very competitive in this environment and we've been able to keep the great team we have together.
But to do that and be competitive you have to assume that youre going to have some some increases which puts pressure on us to move technology spend faster so that.
We're replacing more of our R. R.
Our human spend with technology spend over time, so anyway, I guess the other thing I would say is that the enrolled.
The enrollment status that came out is something we didn't know that.
We anticipate and quite frankly, that's a projection you start to see some optimism recently through applications that are coming through but as you know enrollments were hit.
Undergraduate enrollment declined 3%.
This fall from a year ago, and six 5% from two years ago, which is really what we're measuring and when we talk about pre COVID-19 .
So even more prevalent the two year institution enrollments declined by.
Three four and down 13% since 2019 so.
Some of that enrollment.
Information that came to light that wasn't neuro last June has had an impact on looking at our our outlook for.
This coming year, we're doing a lot to combat the enrollment declines.
And how do you do that well the enrollment decline as a big issue for the schools. We serve so our job is to help make them more competitive in terms of getting their message not just against how they compete with other schools, but just the value of an education, what the ROI is on an education.
<unk>.
So that's our mission is to try to support that.
Their mission to get the value proposition clearly commute communicated so why a higher Ed.
Why are higher education.
Experience and credentials is still important.
So those are those are kind of the big things in enrollments inflation.
As I mentioned already wholesale.
<unk>.
A lot of that we're offsetting by the growth in the first day complete and what we expect to happen in general merchandise.
Great that's really helpful. Thanks.
Then if I could just ask a little bit more about first day complete and it sounds like that is progressing very nicely and probably the most important growth vehicle for you over the next couple of years are there mechanisms in place to start to recoup some of those higher freight rates.
You were mentioning.
In your prepared remarks, you noted this change kind of how you go after the next 50 or 104.
In terms of how you how you talk about pricing and the ultimate bottom line.
Just wondering how youre going to be able to scale that in an environment, where where youre freight rates and other costs are a lot higher.
Yes, that's a great question, it's something we talk about daily.
Daily had big meetings going into.
This current slate of discussions around.
<unk> first day complete contractual pricing.
Thing is that.
There is a couple of elements that go into analyzing your cost. So you don't get upside down and locking into rates.
The pricing that youre paying for content as well as freight and some other cost elements that factor into the commissions and the other structured in that type of thing, but we do have an annual pricing review, we are spending a lot of time and John charges team.
Working with Tom <unk>, our CFO .
They actually started doing that already.
Last semester in anticipation of what we saw in terms of freight increases in the fall.
And this spring so I'll, let John talk about about that but one thing I would say too just to support your comment is keep in mind that.
This first day complete product, which is no doubt our.
Our focus in terms of reversing a secular trend.
In textbook courseware, whether it's digital or physical declines over the last 10 12 years with only 14 campuses to 40 40000 students.
In the fall of <unk>.
<unk> then it went to 65 campuses about 290000 students this last fall.
<unk>.
We expect to see that continue to scale and the point I want to make is that all of that growth occurred during a really tough sales period very.
Very difficult to convince people to change models.
<unk>.
And focus on the benefits of these kinds of new revolutionary courseware pricing models, while they are so focused on.
On Covid safety, tracing testing et cetera, and just getting their test yourself.
Our people in retail and supported by everyone else have done a great job selling FCC I think that as I closed my remarks in the script I said I think we've been through these choppy seas and navigated and we have a kind of a horizon I really believe that barring something.
What we can't control that's going on in the World.
That really gives me a lot of enthusiasm for what we're going to do with FTC and continuing to scale going forward I'll turn I'll turn it to John to talk about.
The questions you have on pricing considerations.
This is Greg great question.
Just building I'll, let Mike is saying too.
Two.
There is the percent of digital content that that is growing each term and as a percent of the mix overall and within FCC and obviously digital content offsets any increases in inbound freights or other expenses that go into that.
The cost of the content. So that we have a balance of some costs going up but favorable mix shifting to digital which has allowed us to continue to provide great value to our campuses.
And overall, we're currently optimistic about the growth of first day complete because what we're seeing is that it's really making a significant impact on student outcomes through <unk> through three key pillars, having equitable access to content on day, one through having a concierge like highly convenient service.
That's really eliminating.
A period of stress for many for many students at the beginning of the term as Jim mental health becomes more and more significant an issue on campuses across the country, and then affordability, which we're able to hit through the higher sell through rates and the discounts we can drive to students through that so we're making a <unk>.
Significant impact and very optimistic that we're going to continue to grow.
Model, where more and more institutions going forward.
Great that's really helpful. Thank you.
Our next question comes from the line of ROI with Us from <unk> capital. Please Rory your line is now open.
Hi, Mike Tamas, China, I'm curious and David curious on the revenue deferrals that you mentioned in this quarter I think from the comp being up 18% when including February it implies that that was a pretty big month for you, but specifically from first day complete and first state revenue.
What would that have looked like had had the 100 schools not gone remote and had not seen any sort of push out to the right.
Yes. This is Tom and you are correct that.
The pacing of school openings and the pushing to February .
There was approximately $25 million of revenue that gets deferred into the fourth quarter.
And Thats implicit in the 18, 8% comp set.
And that doesn't include.
It doesn't include Activations for first day first day complete.
That may occur.
Even beyond then, but we've tried to pick up as much of the information we had in February which should be fairly inclusive that 19, 88% growth rate.
Should be a pretty good estimate of.
So the impact of planned spring, Russia first day first day complete.
Got it okay.
So that was really a large part of <unk>.
Of this quarter and kind of a delta versus what we thought going in a couple of years ago and then.
I guess with the new business at a $100 million of net new I know Notre Dame is probably meaningful double digit millions part of that but.
Thinking about kind of how the company looks structurally coming into a normal operating environment. It seems like if you can win whether it's 50 or $100 million of net new business <unk> got sort of an embedded.
Single digit tailwind to your revenue growth and then on top of that you should be getting the comp benefit first day complete and DSS and fanatics. So it would seem like the company is going to structurally become a <unk>.
More rapid sort of topline growth as opposed to what it's been in the past that you think.
It's kind of work, maybe stating that or do I have that that vision of the company correct.
Yes, I think a couple of things.
Good observations.
In terms of top line growth, but also depends over what time horizon, you are talking about but as we enter this year with the new business. We've disclosed the one thing also to keep in mind is that we are if you look at gross comparable store sales for general merchandise, where you have to look at that pro forma number not the GAAP number in terms of top line growth right.
So that's what I assume you're talking about that's what we would that's how we look at it.
But I think the one important point to make about the new business.
And I think we're being very disciplined about not just new business that we take on to make sure that it's profitable.
Not be day, one, but as soon as possible from day, one hopefully no later than two but in most cases immediately.
And insisting in many cases, we don't take the business on let's say they take on our first day complete model or willing to take on in year two.
We're doing the same thing with renewals for any types of accounts that have marginal profitability.
We hate to part ways with long term customers, but.
If they can and this gets back to my point, we're going to do with.
The progressive leadership, new thinking people that are willing to change.
It is a big part of our.
Our success I think is having the discipline to make sure that.
We're not hoping that someone changes 234 years from now that they are willing to do it now.
For renewables that are marginal so I think we're we're very excited about.
The momentum we have slowed down a little bit this quarter by <unk> in January .
But I think the revision of our guidance for 2003, it should be viewed as anything other than there were a lot of things that happened between when we gave that guidance in June and today, many of which are very very recent.
Yes.
It gives us some pause to be.
A little cautious about about that but we will update that at the end of the year will be more specific.
Yes, I think.
Sure sure.
Shareholders will be able to appreciate that.
Reasons for for resetting the bar I think.
As far as the the other thing I wanted to ask on with Bartleby in DSS. So the growth rate. There has stayed very strong I think shape, it's guiding too.
8% to 10% organic growth for their to their study product and it seems like that business is really hanging in and not seeing the same sort of macro impact.
Some of your competitors that have decelerated a lot so I guess my.
My question is what are you doing better than the competition.
In your view, David and then also with the still Dino partnership is that something thats going to be easy to scale. Once you sort of have this this use case.
Better better and better understood. It sounds like the LMS integration part of it should be pretty seamless. So it's kind of around making sure that that you have the satisfaction with that customer and that you have something that you can really scale out to future customers.
Okay.
Yes, David.
The second part of the question first.
The certainly with the debt.
Execution and what we have.
<unk>.
<unk> is.
Although the mechanics of that being able to.
Churn on a rough features based on.
<unk>.
On what the institution wants to open.
We have built in a lot of functionality in regards to being able to do that with and I'm going to be.
It's scalable.
And.
So we are kind of at the moment.
The links to kind of build a playbook titles that are kind of looking at being able to.
Yes.
Implement this.
Relatively seamless way.
So that's what we're focused on.
So let it yet, but that's what we have.
That's what we're working on so we feel pretty good about.
What we've done.
On the kind of framework of the business to be able to kind of do that.
The second part of the.
Just out of your question in regards to the competitive.
I won't comment on other competitors, who will comment on <unk>.
We're continuing to focus on.
The educational outcomes and student success and that's what we're trying to build and focus on building a robust business that.
Ultimately gets to student success.
I think that we are having.
We are resonating well with customers I think we'll trusted phone.
Students and institutions. So we're just going to continue to focus on that.
But really focus on the long term success.
And how much of the subscriber acquisition. It is linked to retail Pos at this point I know it used to be very intensive on that front and kind of went through very little and I'm not sure what the current state.
Of the channels.
What gave you the numbers per se.
One of the.
One of the challenges we saw at our spring Rush, obviously with the delays at all.
Off campus was.
Yes.
I guess most people in the store.
And so it changed a little bit now there is a mix between.
And when in the guidance too so each of those ones that I don't know that we have a good run rate yet I think.
The macros.
Because it is still makes it difficult to get a good bead on what exactly the entitlement number is.
It was.
I guess as a percentage it was it was less than.
In spring than it wasn't so primarily due to that.
The environment that we're in.
So I'm not sure that I can provide.
Good framework.
I'll give you a percentage to help you with that.
We're trying to do is.
<unk>.
The students and continue to.
Get our product in front of them and the awareness.
Take advantage of new in the store and help them win.
The online.
Yes, yes.
Understood and it sounds like that that channel still has some upside as things get back to normal.
That's mainly qualitatively would have been interested in so yes. Thank you. Thank you very much for taking my questions.
And good luck.
Thanks, Greg appreciate it.
We currently have no further question on the line I'll hand over back to Andy Murray the bulk for any final remarks.
Great. Thanks, Ron and thank you all for joining us on today's call and your continued interest in <unk>.
Please note that our next scheduled financial release will be our fiscal 2022 fourth quarter earnings in late June . Thank you.
This concludes today's call. Thank you so much for joining you may now disconnect your lines.
Alright.