Barnes & Noble Education Inc (BNED) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Barnes & Noble Education Fiscal 2021 First Quarter Earnings Conference Call. (Operator Instructions)

I would now like to hand the conference over to Mr. Andy Milevoj. Please go ahead.

Good morning, and welcome to our Fiscal 2021 First Quarter Earnings Call. Joining us today are Mike Huseby, CEO and Chairman; Tom Donohue, CFO; Jonathan Shar, Executive Vice President, BNED Retail and Client Solutions; Lisa Malat, President of Barnes & Noble College; Kanuj Malhotra, President of Digital Student Solutions; and David Henderson, President of MBS.

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 are the property of Barnes & Noble Education and are not for rebroadcast or use by any other party without prior written consent of Barnes & Noble Education.

During this call, we will 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 Huseby.

Thanks, Andy, and thank you, all, for joining us this morning.

I'd like to begin by providing a brief update on the conclusion of our strategic review process and then I'll provide our business review.

On August 24, our Board of Directors announced that it had concluded its review of strategic opportunities. After extensive evaluation and deliberation, and in consultation with its financial and legal advisers, the Board unanimously determined that the continued execution of BNED's current business plan is the best path forward for the company and its shareholders. Shortly after the strategic review commenced, the COVID-19 pandemic emerged, which gave rise to significant challenges to the company's business. At the same time, the company also made significant progress towards implementing and executing its digital transformation strategy, which further enhanced the company's importance and relevance to its customers, particularly after the post-COVID-19 shift to remote learning.

As I'll discuss in further detail, BNED has successfully grown its high-margin DSS business, improved its share of course material adoptions through BNC First Day, BNC First Day Complete and other new digital models, we've added revenue from new business wins, leveraged our MBS remote fulfillment and virtual capabilities and strengthened and improved our general merchandise business with the recent release of our new e-commerce platform. As we move forward, we are confident that we have the right strategy in place to deliver enhanced value for our shareholders. Importantly, we continue to believe that we have sufficient sources of liquidity to manage through the continued impact of COVID-19. We are very focused on preserving liquidity during this challenging time and are carefully balancing capital allocation and liquidity preservation while we continue to build our momentum and execute our strategic plan to drive long-term sustainable shareholder value creation.

Additionally, towards the end of July, we were pleased to have entered into a cooperation agreement with our largest shareholder, Outerbridge Capital. As part of that agreement, Lowell Robinson has joined our Board of Directors and the company agreed to nominate Zachary Levenick as a candidate for our 2020 Annual Meeting, which is now expected to be held on October 22. Outerbridge Capital agreed to abide by certain customary standstill provision and to vote in favor of the persons nominated by the Board.

And now let's turn to our first quarter performance. Schools continue to face unprecedented challenges as they navigate the ongoing COVID-19 environment. After having shut down many of their campuses and sending students home for remote learning in the spring, they've had to rethink how to provide an effective education while protecting the health of students, faculty and staff. Additionally, they are being impacted by the effect of lower enrollments due to students taking gap years and fewer international students plus the cancellation or postponement of intercollegiate fall sports that, at many institutions, are an important source of revenue.

While the challenges faced by these colleges are complex, the strength of our partnerships and our unique set of assets has allowed us to deliver flexible solutions to help our partners fulfill their missions. The strategic investments we have made in our digital offerings, e-commerce solutions, warehouse operations and campus stores have never been more crucial than they are today. These investments that have focused on improving access, affordability and achievement for students enable us to provide customizable solutions to support schools, whether they choose to bring students back to campus, implement remote learning or incorporate a hybrid model. This became very evident during the first quarter.

As many of you know, the first quarter is typically a low revenue quarter for the company, consisting primarily of summer courses, which was further exacerbated by the ongoing impact of the COVID-19 pandemic. Having said that, our first quarter results were in line with our expectations. As Tom will discuss in further detail during the financial review, we met both our top and bottom line expectations, which, coupled with our cost reduction efforts, enabled us to maintain our solid liquidity level. Additionally, we are encouraged by the early fall rush results we've experienced to date. We believe some of this may be due to timing as the number of schools returned students to campus earlier this year with plans to end the semester earlier as well, all in response to the current COVID-19 environment.

During the first quarter, we pivoted quickly to support our campus partners as they focus on the health and safety of their communities and transition their students and faculty to remote learning. In our recent research study, COVID Impact on Learning, 53% of students struggled with a sudden shift in learning environments. Our First Day and DSS offerings are perfectly suited for this type of environment and benefited as a result. Our First Day inclusive access program, which provides students significant savings on digital courseware and etextbooks and is charged IT institution as a course fee for the entire enrollment of a class, experienced significant increase in demand, with sales growing 156% during the quarter. DSS also experienced increases in revenue, usage and subscribers, which I will discuss further.

The sudden shift to online learning presented a challenge for course material delivery that our unique set of capabilities was able to solve. Leveraging MBS' advanced warehouse distribution capabilities, we quickly transitioned over 300 Barnes & Noble College stores to MBS' Custom Store Solutions, or CSS model. Through CSS, we were able to seamlessly fulfill orders that were placed on individual school websites through MBS' warehouse, shipping them directly to students wherever they were. At a high level, our BNC business model has become increasingly relevant to colleges and universities as they look for our shared revenue sources to offset losses due to the pandemic.

We continue to see a strong pipeline for new business, signing an estimated $70 million of new business in the quarter. Importantly, as colleges and universities struggle with the economic realities of this challenging year, we are ready and well positioned to deliver custom solutions for education and new revenue streams to help institutions and students through these challenging times and beyond.

As we look to the second quarter and the fall semester, many of our campus partners have adapted their learning models to continue to protect their students and campus communities in the wake of the ongoing pandemic. While some colleges and universities are returning their students to campus for in-person learning, typically on shortened schedules, others have chosen fully online or hybrid learning models. Regardless of the models our partners have put in place, BND is fully equipped to support their needs, thanks to the robust set of solutions offered across our different businesses.

When we launched our bartleby suite of solutions 2 years ago, we knew that we were doing something critical and important for students, adding critical on demand tools to our DSS offering that already included our Student Brands on demand writing help tools. We could not have predicted then just how relevant bartleby would come to be in today's learning environment. Bartleby subscribers for the quarter tripled as compared to the prior year, with revenue increasing 100%. Peak spring traffic increased over 10x year-over-year and almost 3x versus peak fall traffic. Clearly, students were actively seeking our support these past few months.

With many students beginning a virtual or hybrid semester this fall, we expect that the need for digital learning resources and support tools will continue to grow. Reduced access to tutoring services, writing centers and even office hours have left students with more limited resources to supplement their learning. Bartleby Learn, which continues to expand its Q&A library, and Bartleby Write, both provides students with 24/7 on demand digital support, available whenever and wherever they need it. That accessibility is incredibly important right now. While reduced traffic in our campus stores will negatively impact our PLS Bartleby sales, we are seeing increased web sales and are sourcing new distribution channels for bartleby outside of our store footprint.

Earlier this month, we announced an expanded partnership with VitalSource to further increase the distribution of our bartleby suite of services outside the BNED store footprint. We are now offering customers of the VitalSource direct-to-student access, a unique bundle of our Bartleby Learn and Write products. The Bartleby Study bundle is available to students with the purchase of a qualifying VitalSource e-book for only $19.99, an $80 value if purchased separately. We are very excited to excited to grow our long-term strategic partnership with VitalSource, combining Bartleby's highly relevant ecosystem of all digital solutions with VitalSource's distribution network and industry-leading e-book platform.

Additionally, we recently entered into a partnership with Blackboard, a leading edtech company, to support students in a unique and differentiated way that leverages the market-leading strength and reach of both companies. The partnership will center around supporting education for millions of students nationwide. Further details will be released in the fall.

We will continue to explore unique ways to expand distribution for our bartleby suite of solutions as we know these products deliver immense value and support to students, particularly in light of the current environment. And to make it easier for students to access our content, we recently rolled out the bartleby mobile app, making our Homework Help, Textbook Solutions and expert Q&A content available on students' mobile devices.

The vast majority of our on-campus stores have reopened and are welcoming customers back to campus. With a focus on the health and safety of our people and communities, we implemented a complete safe reopening plan, detailing mandatory safety measures, following local and CDC guidelines, including contactless payment, to protect the well-being of our employees and customers. We quickly implemented new digital strategies such as mobile curbside pickup and an option for customers and stores to schedule events and in advanced personal shopping services. We are proud of the ways which our store managers and field teams and those in our central offices supporting them have pivoted to ensure a continuous high level of service and support for our schools on a truly customized basis.

We continue to see strength in our e-commerce channel, which represented 73% of our total Q1 sales as compared to 31% a year ago. We're continuing the rollout of our new e-commerce platform, which officially launched in the first quarter of fiscal 2021. The investment we have made in our e-commerce platform provides a hyper personal, hyper local experience for our customers, who are depending on a seamless online shopping experience now more than ever. We expect the improved user interface and shopping experience to stimulate online growth of our high-margin general merchandise business. Our new sites have received extremely positive feedback from campus partners and shoppers alike. And we're excited to see this platform rolling out across our entire footprint throughout the next few months.

Importantly, we recognize that each campus we serve has different needs and our values lie in our ability to adapt for each individual campus partner. The combined strengths of BNC and MBS' people and assets allow us to do just that. Our store teams have done a phenomenal job customizing our programs to fit unique needs at each campus they serve, whether physical or virtual, and they, together with DSS' on-demand offerings, are now busy equipping students and faculty with all the tools they need for a successful semester. We're still very early in the fall rush season, but we are excited to welcome our campus communities back into our physical and online stores.

As we have noted previously, we expect COVID to continue to significantly impact our business this fiscal year. We remain highly focused on prudently managing costs and will continue to take actions to reduce costs and operate more efficiently in this environment. Our financial and operating teams have substantially adapted our cost structure to reflect the current and expected environment, which is, again, providing us with ample liquidity to continue the momentum of our key growth initiatives so critical to our long-term purpose and success. We remain grateful to every member of the BNED team for their continued hard work during this time and wish all our stores, campus partners and students a successful fall term ahead.

With that, I will turn it over to Tom for the financial review.

Thanks, Mike. Please note that the first quarter of fiscal 2021, consisting of 13 weeks, ended on August 1, 2020. All comparisons will be to the first quarter of fiscal 2020, unless otherwise noted.

The first quarter is historically a low revenue period and our results were significantly impacted by COVID-19-related campus closures. That being said, our sales came in line with our expectations. As Mike highlighted, our flexible offerings, which included a shift to our CSS model, virtual bookstores and digital offerings, including First Day and DSS, enabled us to partially mitigate the bookstore sales decline. Most importantly, we were able to provide uninterrupted service to our campus partners in what is a very fluid and continuously evolving situation.

Total sales for the quarter were $204 million compared with $319.7 million in the prior year. This decrease of $115.6 million or 36.2% was comprised of $115.9 million decrease from the Retail Segment, an $8 million increase from the Wholesale Segment and a $0.5 million increase from the DSS Segment.

The majority of our stores were closed during the first quarter as schools adopted a remote learning model leading to a 42.8% retail comparable sales decline. Our comparable course material sales fared better than our overall performance declining 10.1%; while our general merchandise business, which includes clothing and food, was far more impacted by store closures in the absence of students, declining 68.3%. This was somewhat mitigated by our e-commerce sales. We expect further improvement of online sales as we roll out our next-generation e-commerce platform.

BNC's First Day offering, which is adopted by faculty, and incorporates lower cost digital course materials into the tuition fee, grew 156% to $9.1 million during the quarter. Net sales for the Wholesale Segment increased $8 million or 11% to $80.3 million, benefiting from the shift to the CSS model and lower returns and allowances due to the sales mix. DSS sales grew $0.5 million or 9.3% to $5.9 million, benefiting from growth in bartleby subscriptions, somewhat offset by a decline in the Student Brands business. Bartleby subscriptions revenue doubled to $1.4 million, while Student Brands revenue declined 3.9% to $4.5 million.

We have now entered our fall rush period and have been encouraged by the results we've experienced over the first few weeks. As Mike stated, our sales benefited from many schools and students returning to campus earlier than normal. We do expect some headwinds later in the quarter as some of those benefit may be due to timing, coupled with canceled sporting events and diminished store traffic that will impact our general merchandise business.

Turning back to Q1. The consolidated gross margin rate for the quarter was 15.1%, down from 22.4% in the prior year period. This was primarily due to the shift to lower margin digital courseware and lower sales of our higher-margin general merchandise products as well as higher markdowns. This was partially offset by our efforts to renegotiate lower contract costs. To further offset the sales decline and preserve liquidity, we took immediate cost for production actions including the furlough of the majority of our retail workforce and the elimination of nonessential spend. These actions, coupled with cost reduction actions taken in fiscal '20, enabled us to reduce selling and administrative expenses by $27.7 million or 28.3% compared with the prior year period.

At the end of the quarter, our cash balance was $7.5 million as compared to $8.2 million in the prior year period. There were $234.6 million in outstanding borrowings, which was essentially our peak borrowing level, compared with $174.1 million in the prior year period.

In conjunction with our expense reduction efforts, our entire organization continues to be very disciplined on the use and preservation of cash. These efforts, coupled with the current rush period, have reduced our total borrowings to approximately $55 million as of August 31. Our current and projected liquidity remains strong despite the challenging climate. CapEx for the quarter was $7.1 million compared with $8.3 million in the prior year.

Due to all the uncertainty that COVID presents in the near and intermediate term, we are not providing fiscal '21 guidance. We do expect that COVID will continue to have a significant impact on our business during fiscal '21. Currently, our Retail Segment operates 1,442 college, university and K-12 school bookstores, comprised of 772 physical bookstores and their e-commerce sites as well as 670 virtual bookstores.

As of today, we have contracts to open an additional 11 stores in fiscal 2021, with 12 additional known closings, primarily of smaller unprofitable stores. This will bring our total physical and virtual store count to 1,441 locations net of the closed stores.

With that, we will open the call for questions. Operator, please provide instructions for those interested in asking a question.

(Operator Instructions) First question comes from Ryan MacDonald with Needham.

I guess I want to start with Tom and some of the comments you just talked about and made about sort of reaching peak borrowing and sort of surpassing that. Can you talk about sort of the confidence you have as you move towards through the fall here? And what your -- some of the assumptions you're making around sort of expectations for foot traffic versus the typical fall and how you're thinking about staffing to meet those needs and managing inventory optimization?

Yes. Thanks, Ryan. Sure. So I mentioned in the remarks, we're really laser-focused on liquidity. At the end of August, we're approximately $55 million in borrowings, down from that, what was essentially the peak for the summer of $234 million, which is approximately $60 million higher than we had at the end of fiscal -- last fiscal year-end.

We continue to adapt our retail model specifically as it relates to cost and as you know, we furloughed about 11,000 folks back in early April, and we brought a lot of them back as the stores have opened and we needed the staff to get through the summer and certainly through the beginning of the fall rush. But there's still about 1/3 of those folks that are remaining on furlough at this point in time. So we continue to adapt the store model to reduce the expenses.

And the other thing and you'll notice as you look at the balance sheet and certainly, when you get a chance to read the Q later today when it's filed, that our inventories are down dramatically year-over-year, approximately [$850 million]. So it's really -- the discipline that the -- specifically, the retail team, along with our book folks, are really not getting ahead of themselves in terms of the expenses, but also the spend. With the sales as down as much as they are, specifically -- especially with general merchandise, we really continue to not spend the money to build the inventories for the depressed sales that we've seen through this COVID environment.

So the liquidity mix remains very strong. We continue to pay down that debt, and we'll see where we get our next peak would probably be sometime in December, probably remains to be seen if it's higher than lower, but I wouldn't anticipate it being much different than the peak that we have now. But we are encouraged by the beginning of the rush in terms of sales and we've been able to pay back and pay down that debt and continue to do so.

Ryan, I want to ask -- this is Mike. I was going to ask Lisa Malat just to comment on the store traffic because what we're seeing is when we -- with reopening a lot of the stores. When we get the students and other customers in, they are buying, but I wanted Lisa to comment on that and some of the creative things that we're doing to try to drive store traffic.

Yes. No, absolutely, Mike. I mean, there's -- while the schools are still being very flexible as we read every day in the papers on how they're delivering learning, there are still plenty of campuses across the country that are fully opened with in-person classes and residential life in those stores. And in those schools, we are seeing robust traffic in our stores. And we have reset our physical space to be able to maximize sales while the students are within our footprint. We are offering, as Mike said, mobile pickup from a safety perspective, but also looking for ways to safely execute events and shopping experiences for the students through personal shopping services. We have also been successful in working very closely on a deeper level with our schools in getting more access to students, so we can communicate more frequently and more successfully with what the bookstore offerings are.

That's extremely helpful. I guess the next question is around some of the digital trends you're seeing. As you started the fall semester here, can you talk about what you're seeing in terms of usage of bartleby and how that compares to, say, earlier this spring once students went remote? Are you seeing sort of an increase in usage, given that they might not have the same type of resources on campus?

Ryan, this is Kanuj. Maybe I'll take that. I think we definitely saw a massive acceleration post COVID. Our traffic was about 18% of Cheggs. We were up 50% in traffic between March and April. So we definitely saw the usage spike. We think there's both increased TAM and increased market share that we're gaining relative to the competitive set. And as it relates to fall, it's very hard to say yet. It's very early in the semester. Typically, the use cases, as the assignments start to come on board a lot of the schools are still -- people are just buying their course materials. So homework assignments, studying, all that use case is still actually starting to actually accelerate right now. But the other measure of usage, as measured by questions and Q&A and other usage, has been -- have been very strong, as you know.

Excellent. And then just last one for me. Great to see sort of the continued adoption trends that are healthy with First Day and First Day Complete. Can you talk about how the conversations are evolving with your university partners for that solution? And then, what sort of additional steps do you need to take to sort of increase student awareness of the offering as well as we move through the fall and into next year?

I'll let Jon Shar answer that one.

Yes. Great. Thank you. Ryan, it's Jonathan. Yes, we're really excited about First Day as it drives down the cost of course materials for students and secures a higher sell-through rate for the company. In the first quarter, year-over-year revenue increased, as both Mike and Tom stated, by 156%, but benefiting from the accelerated move to digital courseware, which is driving the growth. But I think strategically and overall, the value proposition of access, affordability and achievement, which is supported by First Day, is more relevant than ever in today's environment. And the adoption and conversations and the acceleration of the implementation of that across campuses is very active and our expectations that we'll continue to see significant growth with our First Day program.

This is Mike. Just a couple of follow-up comments, Ryan, if you have any other questions. First off, on bartleby, as we said, we've just entered into partnerships with VitalSource and we just -- this is the first time we talked about the Blackboard partnership, which more detail will be coming out in about a month. But I think those are validations that substantial companies that are working directly with students and other institutions looked at the quality of the product and saw the quality of the product is good, it's competitive and it's also price disruptive. And the way it can be packaged to access those students that they have contact with is very compelling. So I think that's a significant thing that's coming out of today's call as it relates to bartleby as we do face challenges with point-of-sale versus prior year and that type of thing, given the store openings.

The second thing I would say is on First Day, First Day Complete, we're pushing on First Day Complete, not just externally and getting the message out. But we're doing a lot of things internally to make sure that we can scale that First Day Complete product as there's a substantial pipeline of schools that are interested in it come fall of '21, where we expect to have a multiple of what we have in this fall. We had 4 test schools last fall, we have 12. We expect it to be a higher multiple of that relationship going into fall of next year. So to make sure we can do that. So probably our key success metric together with Bartleby growth and general merchandise coming back and new business. We're doing a lot of things internally to make sure we're ready for that, both in terms of systems and people, very focused on the details operationally. And I think as a result of the business model we have, where we share the revenue, keeping the adoption so-called in the contract is important to schools now who are looking for every financial resource they can get to help them. So we share our revenues with them from First Day and First Day Complete. And to the extent we can drive our penetrations up from 30%, 35% to close to 100%, they benefit from that also. So -- so as the publishers. So we're really, really focused on it.

Next question comes from Alex Fuhrman with Craig-Hallum Capital.

Congratulations. I -- hard to think of a retailer that's been more impacted by everything going on this year than you guys. So quite an accomplishment that your stores are back up and running, and it seems like you guys haven't missed a beat here.

One thing I wanted to ask about because it seems like a big opportunity, just given everything going on here in 2020, is the First Day Complete package. Can you talk to us a little bit about what the sales cycle is for that? I imagine if these decisions were made on a moment's notice, you probably could have had even more schools this year, just with schools looking to limit traffic and a lot of schools going virtual. Can you talk about -- I know you said it's your hope to get more schools by spring. Can you talk about that opportunity? Is that something that could potentially be many schools? Or is it really more fall next year when the bulk of these schools are going to be making those decisions? It just seems like an offering that's so tailor-made for everything right now. I would love to get a sense of how quickly you think that could be scaled up in the spring and next fall.

This is Mike. I'll just make one comment and turn it over to Jon, who's leading that effort from a product and sales perspective together with Lisa, who's also doing distribution and sales, just direct conversations with our clients.

But to answer one of your questions that was embedded in that longer question. In terms of the attitude of schools to discuss it, it's cut both ways. Initially, when COVID hit, the mind share was all dedicated to what is this, how do we protect our students and faculty, do we really have time to deal with anything else? So there were a couple of schools. I would say a couple, there are probably a few more than that, where we had planned to implement First Day Complete in this fall. We said, let's wait until spring or let's possibly wait until next year because we just can't deal with having these kinds -- this many conversations at the same time, even though they still want to do it, then they'll have the benefit. On the other hand, there are schools that have flipped around and said, we need to do this as fast as we can. And we just added 1 recently within the last month.

So with that, I'll let Jon talk about the pacing and the scaling.

Yes. Thank you. Alex, it's Jonathan. Yes. So last -- as Mike stated, last fiscal year, we had 4 schools and First Day Complete. This fall, we have 12, and there are a few more we're looking to transition within this fiscal year, but starting with the spring term, as Mike said, that may have had to defer or there's renewed interest in that. And so we've been working with those institutions for a while.

A big opportunity, though, based on the amount of conversations that we're having is fall, where we're expecting a significant multiple over this fiscal year, really, from a lead time perspective. The critical timing and why there's some lead time in the sales cycle is when fees and/or tuition is published because it's a model where the course materials are either embedded into tuition and/or a course material fee. So when that is published along with the offerings of the course catalog for an upcoming term, that's really the point when the program gets implemented for an institution. The approval cycle is prior to that.

And that's why the focus for us is conversations today leading up to the fall '21 implementations that we're expecting. So -- but real significant momentum, value proposition of convenience for students, affordability and impact for the institution is really something that is quite active. We're making significant investment internally to ensure that we can operationalize and create the seamless experiences that are expected from our -- by our campus partners. And so we're prepared for that growth for next fall rush.

Okay. That makes a lot of sense. And then just from a big picture, a lot of your schools are either virtual or hybrid with a lot of your students not on campus. What are the things that you guys are doing this year to stay relevant with those students? So next year, sophomores who might not have had the opportunity to shop at the bookstore this year, know to go there and then visit for the rest of their college career when you're back up next year?

I'll let Lisa handle that question.

Sure, sure. Thanks. I think that one of the most important things we've done this year that I mentioned before is really get increased partnership and collaboration with the schools to be able to get the message in our offering out to students, even though they're not on campus. We're able to follow the student journey. We identify whether you're a new student sophomore or graduating senior, they're able to customize our messages and campaigns and offerings in that way. So we're able to get ahead of that and keep close and connected to the students following their journey. And you'll see by the growth of e-commerce, especially in the GM world, that we're getting traction there. The continued growth of our Vendor Direct program, which is allowing us to offer a much larger increased assortment at higher [access] at retail is really driving relevantly especially with seniors and alumni as parents. So we're able to keep that connection and relevancy with the students by working closely with the schools and being able to pivot effectively.

I think, also, rolling out the new e-commerce system that we talked about. It's much more personalized. It's a much better user experience, and it allows students to buy both general merchandise and their courseware in a fairly seamless way. And that's one of the reasons. We've always talked in the past about our general merchandise business, which is so important to us, as you can see in the first quarter. And you'll see that ongoing effect, although we're trying to counteract or mitigate it through e-commerce activity. But that 55% of our GM sales were online compared to 9% in the first quarter of last year. We've always thought that we need a new e-commerce system. We need new processes and everything has been invested to have that accomplished. And we started the rollout of a new e-commerce system in July. And now it will roll out to the rest of our schools over the rest of this year.

But getting that percentage up is partially an answer to your question in terms of creating the awareness. The bookstore is not just the physical bookstore. It's the online book store as well and the 2 of them tied together. The messaging that we can get to students through that new e-commerce system about the events and everything else we do in the physical book store is going to be important. So the timing of that, we would have liked to have obviously had that in place earlier. But it's working well now and the positive feedback we're getting from the schools where we've rolled it out is confirming that this will make a difference for us, a significant difference.

Next question comes from Rory Wallace with Outerbridge Capital.

Appreciate you providing all the breakouts and more granularity around the different segments. In particular, the First Day breakout already registering a pretty healthy percentage of courseware sales is good to see. So I was wondering, Mike and Jon, is it safe to assume that when you're talking about a multiple of new business that you're looking to sign in the fall of '21, is it fair to infer that based on your comments, you're looking to win some multiple, say, 3x or 5x the number of First Day schools next fall as compared to this fall? I just want to make sure that I was clear on that.

Yes. I'll clarify what I said. What I said was that we did 3x in this fall versus last fall. We expect the multiple to be higher in terms of number of schools next fall versus this fall, without getting into the number. And I think, Rory, another important point there is we're not so focused on the number of schools, but making sure we have the contribution in our margin, the substantial increase in revenue and margin. Some schools that go on First Day Complete, we can double their revenue and increase the margin. So it's really a function of getting the right schools on First Day Complete, not just the number of schools, but even with that, with -- and the number of schools we expect should be a multiple that's higher than the 3x. That's what I was trying to infer without getting specific in terms of what that number of school is.

Okay. That makes sense. And then, as far as the new business that you are winning, it's obviously a decent scale to post that type of number. But we've heard that you're starting to get into more high-profile institutions in certain cases. And I guess, when do you think you might be able to disclose some more of the names of the First Day accounts that you've either won or that are in the pipeline? Because I think there's certainly a good halo effect once you start to bring in some brand name institutions that everyone is familiar with.

Well I think you'll start to see some publicity in some of the -- as it was a natural last year where we had the pilot accounts and some of the accounts this year that we brought in, and that will grow in terms of the -- as you know, in this business that certain schools, once they're attracted into this type of a model, there is others that will follow. And so we are focused on some of the higher profile, as you call them, schools.

I think that the -- publishing their names and that type of thing is probably something that will occur more through media and attention given the enthusiasm that the schools and the students are going to have for the program. But that's something we can talk about. I don't know if, Jon, you have any other comments on that?

No, I think we'll start to see that throughout this fiscal year and really go by the positive feedback we'll get from the program and new schools being excited to talk about this as part of their offering for their students.

Great. And then on MBS, it's obviously providing a lot of strategic value during this time. How do you think your competitors are faring in this environment? It seems like you must be taking some market share on a combined basis in the Courseware segment, just given that it didn't really decline particularly much, honestly, in light of the overall environment that you're operating in. So do you think you are taking market share? And I guess, do you think that, more importantly, this might set you up to win a lot of new business, given that I think you said $70 million you'd won in the quarter, which seems like a pretty good number with everything being physically closed. And I guess you could parlay that into a pretty good year overall for new business.

Yes. I think there's 2 separate questions there. One is on new business, which we said an estimated $70 million. Obviously, with COVID, the $70 million is really the contract value that we talk about with the school when we come back on the wind, so to speak. That's a level of revenue that we should be able to get to and hopefully improve if we change these models over time with general merchandise and First Day Complete.

I will let Dave Henderson respond to the wholesale question, which is really a separate question, although the mix of assets that we have and MBS' capability to fulfill on a virtual basis as they've done -- they've been running 3 warehouses nonstop since March, to fulfill directly to students homes. That's a big competitive advantage when we do new business proposals and just dealing with our hybrid clients. So -- and our Custom Store Solutions.

So I'll let Dave talk more about wholesale competitive environment.

Thanks, Mike. Yes. And to that point, we have been running our 3 shifts without interruption since the shelter-in-place orders went back in March as we were designated an essential business serving higher ed and students learning online. The MBS facility, the distribution automation gives us a very unique competitive advantage over the market out there.

As was referred to in the script back in the summer term starts when the hard shutdown occurred, MBS was able to onboard over 300 Barnes & Noble College stores that were not able to open and serve their students for course materials for the summer term starts in May and June terms. This is a very unique advantage we have. What we're able to do, what this model has is rather than the course materials being in the store, they are acquired by the MBS team and warehoused in the MBS facility. However, the students' shopping experience is on the Barnes & Noble College e-commerce site, which is branded, of course, to the institution. So they're on a site that they're very familiar with. And more importantly, on a campus-by-campus basis, they're able to use the proprietary tenders that are unique to that campus to acquire the course materials. Those orders are seamlessly communicated to MBS, and we do the pick, pack, ship and deliver either to the students' residence, or going forward, if they so desire as stores open, we can deliver to the store for store pickup, whichever the student decides is more convenient to them. There's really no one else in the market that can do that. Obviously, we have our pure virtual business where there is no physical bookstore whatsoever. But this model allows us to support the Barnes & Noble College footprint out there offering campuses a very wide range of opportunities in how they want to serve their students, be it in this COVID environment or going forward with the most efficient means to get the course materials to the students prior to class start. I hope that answers your question, Rory.

Yes, Dave. That's a -- and congrats on pulling off that combination of the assets. So it sounds like it's definitely a better way to run that business.

With -- I guess with the bartleby business, I think you'd mentioned too that -- and I might have misheard, but did you say you've also -- Kanuj and Mike, book a Blackboard partnership in addition to Vital?

Yes, Rory, this is Kanuj. We entered into a strategic partnership for bartleby. Students in this COVID environment spend an enormous amount of time, as you'd expect, in the LMS, centering around all the activity. So both educators and students. And we think it's just a -- it's a really unique channel for us to go after and help students exactly where they are, when they are in the in situ moment of learning, they can access these tools. We can't really say much more, I think, for competitive reasons. But we're super excited about the partnership and the potential to really impact student outcomes and be right there.

Unlike our distribution channel, it's not necessarily in the stores. It's early when you purchase your course materials. But both through things like Blackboard and, increasingly, VitalSource, we'll be more in situ and in the moment. So we're super excited about it.

Yes. I think, generally speaking, one of our challenges with bartleby is just given that it's such a new product, is getting the brand awareness out there, while we're trying to manage our spend and keep, really, such as Tom said, a laser focus on liquidity. And that trade-off that exists between making sure we're using our brand awareness, marketing and other dollars as efficient as you can with bartleby, get the name out there and to get the adoptions and utilization up. And extending and leveraging these partnerships with VitalSource, which has been a tremendous partner, and now Blackboard, which we're very excited about. I think it's really important to help us, especially during these periods of time when -- so there's not quite as much store traffic as we're used to, and we rely on our store book sellers that have now become store bartleby sellers. And so it's a really, really important development for us.

I guess the only other thing I would add, Rory, is like coupled -- like the bookstores, obviously, were adapting to the COVID environment and POS, as Mike alluded to, had been traditionally a big portion of our acquisition. But in the background, I don't think it's as resonant, but you could see it when you see we're up about 3x in subscribers in the quarter. Really, underlying all that is the efficacy of the SEO strategy and the fact that Google is our biggest customer in Google is liking us a ton more. Students are finding it. The traffic is increasing. So it's getting out. Everything reinforces each other. So Vital, and Blackboard, the SEO strategy, obviously, we serve 6 million of the 20 million students in higher ed. So we're trying to make it fire on all cylinders, and it's really starting to come together. The notion of being as disruptively priced as we are in providing that value to students also is clearly resonating. It's just, as Mike said, creating the awareness to both the brand and the solution set.

Got it. I really appreciate that answer, Kanuj and Mike. And then just the last one, for Tom. You mentioned borrowings are down $55 million through the end of August, and I imagine you continue to generate cash for a while. And then you mentioned you'll rebuild inventory again going into December for spring rush. I guess how are you approaching that working capital build? First of all, how are you tracking, I guess, versus your prior liquidity plan? It sounds like at least August, you had those early reopenings, which is helpful. But just -- I guess, there's a lot of moving parts. I mean, we could have a much better potentially spring term. But I imagine you don't really want to get out ahead of that by building too much inventory. So how do you think you'll approach sort of walking that line between preparing for business potentially being improved in spring versus making sure that you're not overextending?

Yes. And that's a great point, Rory. It really comes down to that inventory management, and the mantra that we've adopted really is don't get out ahead of it. If you don't expect or anticipate the sales, there's no reason to start replenishing things or trying new things. So it's really not only managing to what we think it is, but it's probably in the degree or perhaps better said, managing below that. And the team is -- had anticipated intercollegiate sports being disrupted in fall, and that goes into the planning as well. So it really comes down to managing the inventory very conservatively and not getting ahead of it. And that's really -- if we don't see the sales, we're not going to get the inventory. And that will continue for the rest of the year. But at the same time, we have the ability to adapt. And I think that's the key word there, is the ability to adapt if things change and things improve, and we'll make sure that we have the inventory to meet the sales base.

And at this time, I will turn the call over to Mr. Milevoj.

Great. Thank you, and thank you, all, for joining us on today's call and for your continued interest in BNED. Please note that our next scheduled financial release will be our fiscal 2021 second quarter earnings on or about December 3, 2020. Have a great day, everyone.

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