Barnes & Noble Education Inc (BNED) 2022 Q3 法說會逐字稿

Welcome to the Barnes & Noble Education Fiscal 2022 Third Quarter Earnings Conference Call. My name is Juan, and I will be coordinating your call today. (Operator Instructions) I will now hand over to your host, Andy Milevoj to begin with. Please, Andy, go ahead.

Good morning, and welcome to our fiscal 2022 third quarter earnings call. Joining us today are Mike Huseby, CEO and Chairman; Tom Donohue, CFO; and Jonathan Shar, Executive Vice President, BNED Retail and President, Barnes Noble College; David Henderson, President of MBS; and David Nenke, 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 are the property of Barnes & Noble Education and are not for rebroadcast or used 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. As we entered the Spring Rush period, we, along with everyone else, continue to experience the ongoing effects of COVID. The Omicron variant began to spread rapidly in December and continued into January, just as schools had planned to welcome students back to campus for the start of the spring semester. Despite the continued positive momentum in our key strategic growth initiatives this quarter, COVID Omicron served 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 a majority of our institutional partners brought students back to campus, over 100 campuses that we serve chose to conduct classes remotely for the beginning of the semester, while others chose to delay their start dates and some schools both delayed their start dates and started classes remotely in response to the surging Omicron virus. As we have been doing for the past 2 years, we work closely with our campus partners to adapt and respond to the safety-first policy decision many of our schools were forced to make.

To support student success, we were able to quickly pivot and shift textbooks and supplies for clients and move to virtual learning where students work on-campus as originally planned. The need to be flexible and adaptable is now a given. We were able to once again showcase the value we provide through our unique mix of digital and physical assets by customizing solutions to help both the schools and students that we serve adapt to changes with very short notice. While our teams did a great job responding nimbly to the impacts of this unwelcomed Omicron surge, the reality is that this was a very suboptimal environment in 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 FLC 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 curveball that COVID threw at 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 Omicron, some of our Rush sales were either delayed later in the quarter, pushed into the fourth quarter or lost as store traffic underperformed expectations.

As Tom will further discuss, while our third quarter gross comparable store sales increased 8.4% when factoring in the full 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 2 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.

In the latest student voice survey conducted by Inside Higher Ed and College Pulse, when students were asked why the fall semester worked, 67% said in-person classes and 40% said social opportunities. Colleges are working hard and are motivated to bring vibrancy back at 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 ensures that they are equipped for success beyond the classroom.

This is a paradigm change in higher ed as schools transition from the traditional question of how prepared is the student [that sit] in the school to a more current perspective of how prepared is a school to meet the broader needs of the student. This change in view is being driven by a more competitive environment as enrollment demographics change, the ROI value of an education is subject to greater scrutiny and other needs like mental health and career placement move to the forefront and supporting student success. For the nontraditional student, when greater numbers is changing the views of what defines a traditional student. The value proposition is involved providing flexibility and offering curriculum that provides an improved opportunity to elevate their lives. Understanding students' demand is critical to ensure that institutions are satisfying those demands in 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 for success post graduation. BNED 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 the school's primary objectives of equitable access, affordability and improving student outcomes, our First Day and First Day Complete inclusive access courseware delivering 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 a total to 76 stores, representing an estimated undergraduate enrollment of over 380,000 students as 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 in academic years '22, '23 and beyond.

Given the timing of when First Day Complete contracts for the coming new fiscal year are finalized, we plan to provide more specificity on our expected fall '22 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 asset, our logo and emblematic partnership with Fanatics and Lids and our DSS suite of supplemental learning and study tools is resonating with many new schools that have recently entered into agreements with us to manage their bookstores.

For fiscal '22, which will end on April 30, 2022, we are currently on track to generate gross new business wins of approximately $130 million, just 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 continue to experience the early benefits from our partnership with Fanatics and Lids with gross general merchandise profitable sales growing 59% during the third quarter. The customer-facing benefits of this partnership include an unparalleled merchandise assortment, a best-in-class omnichannel customer experience for logo and emblematic products and powerful digital marketing tools to create awareness and improve access.

In addition, this truly strategic partnership also provides BNED 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 of Fanatic and Lids. This leverage translates into both lower spend and accelerated time-to-market for innovation.

Over $58 million in liquidity infused from the initial strategic investments made by FLC 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, the unique partner to go to market with to win significant new business like Notre Dame, one of the largest NCAA brands for general merchandise sales.

Finally, the supply chain benefits of scale enjoyed by FLC that we would not demand on a stand-alone basis. This was proven during the supply chain challenges of the past 12 months as Fanatics and Lids have undoubtedly been able to more effectively procure supply for our stores than we could have on our own in such a challenged environment. We expect our FLC 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 1 year, but we believe together that we have significant upside as we apply our learnings and progress to date to further benefit our customers, to schools, students, faculty, alums and fans that we serve with the [SEC] and exclusive partnership.

Turning to our DSS business. our Bartleby suite of solutions continue to exhibit a solid growth. DSS revenue grew 31% to $9.4 million with Bartleby revenue growing approximately 36% year-over-year. Bartleby generated over 97,000 Bartleby gross subscribers during the quarter and over 285,000 Bartleby 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 in which they implemented both our First Day Complete offering and Bartleby suite of digital services for their students. In addition to ensuring all students have convenient, affordable access to all their course materials, every student will also receive access to personalized support through Bartleby's 24/7 online study platform through the Delgado course complete offering. Many of these students are parents with busy lives, jobs, family obligations and household responsibilities. When these students are ready to get their school work done morning, noon or night, we want to be there to help them achieve the understanding that they need to master the material. Bartleby will be integrated seamlessly into Delgado's learning management system.

Providing students with convenient access to affordable course materials on their first day of class is a foundational step in preparing them for their best opportunity to achieve academic success. But that's just the important first step. Offering Bartleby's 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, learning 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 is an important strategic partnership that we entered into with Billie Jean King Enterprises to enhance BNED's diversity, equity and inclusion initiatives and programming. Our newly formed partnership with this sports icon and social justice champion will advance the BNED's DEI initiatives and programming for the benefit of the employees, partner schools, students and faculty that we serve.

In addition to supporting our ongoing DEI 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, and this partnership aligns us squarely with them on this critical element of BNED's core culture.

While we continue to experience some ongoing COVID-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 to be positive about and to look forward to. All the current facts show that the impacts of COVID are being diluted by the proven efficacy of COVID vaccines and response to 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 NCAA sporting events and activities, such as the final 4 as we have come to celebrate it pre-COVID upcoming in-person graduation celebrations and a positive momentum of our growth initiatives that are focused on as a key to completing the transformation of our business that we have been working hard on over the past several years.

I'm 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 projecting 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, our third quarter results, which include the start of our Spring Rush period were impacted by the ongoing effects of COVID and the Omicron surge that began just as 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 the 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 were lost with the disruption 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 2.1% was comprised of a $12.9 million decrease from the Retail segment, a $2.4 million decrease in the Wholesale segment and $2.2 million increase from the DSS segment. Retail sales decreased $12.9 million or 3.3% as compared to the prior year period due to lower course material sales and lower logo and emblematic revenue recognition, which are now reflected on a net revenue commission basis as compared to the gross revenue basis in the prior year period, following our merchandising partnership agreement with Fanatics and Lids. On a gross comparable store basis in which logo and emblematic sales fulfilled by Fanatics and Lids are included on a gross revenue basis, Retail sales increased 8.4% 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 to delay their spring semester start dates. 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, the reopening of most of our campus stores in the current period as compared to a year ago when 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 with Fanatics and Lids.

Consistent 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 6.1% to $37 million, primarily due to COVID-19-related supply constraints resulting from the lack of on-campus textbook buyback opportunities during the prior fiscal year and lower customer demand resulting 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, wholesale CSS model fulfilled direct to student course material orders for retail campus bookstores that were not fully operational due to COVID-19 campus store closures, whereas those sales shifted back to the campus bookstores in the current period.

DSS sales grew $2.2 million or 30.9% 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, somewhat offset by higher contract costs.

Our selling and administrative expenses increased by $8.8 million or 9.4% 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 in response to our COVID-related temporary store closures. 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 charge. At the end of the quarter.

Our cash balance was $10 million with outstanding borrowings of $200.4 million as compared to bonds of $150.8 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 to the balance of the fiscal year and our next fiscal year, while COVID-19 and its variants 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 during the 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 EBITDA will significantly improve in fiscal year 2023, we now expect non-GAAP adjusted EBITDA in fiscal year 2023 to be lower than the pre-COVID levels as the direct and ancillary impacts of the pandemic, including wholesale supply issues and inflationary pressures are expected to continue.

We 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 1,441 college, university and K through 12 school bookstores comprised of 799 physical bookstores and their e-commerce sites as well as 642 virtual book stores.

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

(Operator Instructions)

The first question comes from the line of Ryan MacDonald from Needham.

Maybe starting with Fanatics and Lids, it was great to see 59% growth in comp store sales there and starting to see some of the positive impact. I'm curious, as you've continued to roll out additional -- or get additional sites live on FLC, what sort of uplift are you seeing as those go live hit and the impact on e-commerce sales just generally?

Yes. I'll let Jon share address that. Thanks, Ryan.

Yes, Ryan, we're really excited about the initial results that we're seeing in the quarter. And since we launched the sites with, as you mentioned, a 59% increase in our comp store general merchandise sales. I think that both contributing, both contributing factors include our in-store assortment and experience as well as online benefits. We're transitioning more sites this in the fourth quarter over and we expect it to have a really significant impact on driving increased sales going forward. So very excited about the experience, the assortment and the offering that we can bring to our schools and the customers that we serve.

Yes. Just one general comment on the partnership itself, Ryan, is that it wasn't even a year ago when we really started this by selling our inventory to FLC, so they could take over the emblematic and logo in clothing and goods business. And the upside that we have really is also resident in the improvements that we're making in just the day-to-day operation and ordering. If you think back to the supply issues that were really prevalent in all businesses last year, the timing of when we have to put orders in for the fall and that type of thing, there was a lot done very, very quickly when FLC established its leadership, which is now being much, much more refined in terms of representing each store, their brand and 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 last 12 months.

It's really helpful. And maybe then as we look at the progress you're making on the initiatives, great traction with FLC. First, they complete continuing to grow rapidly and increase as a percent of the course material spend, Bartleby initiatives being really strong here. Can you talk about that in the context of some of the preliminary comments you gave around the fiscal '23 margin profile and maybe why we might not be seeing some of those margin accretive sort of businesses growing as a percent of the mix, not sort of translating as much to the profitability or adjusted EBITDA outlook as we look into next year?

Well, I think guidance relates to the EBITDA, not margins specifically, but we're concerned about inflation in terms of how it flows through our spend and 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 costs 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 and alacarte offerings.

So the adjustment in the guidance where as we said we would approach pre-COVID levels for '23 and beyond. And now we're saying it's going to grow substantially beyond '22, but probably not to the level we thought. When we gave that guidance -- think back to June of last year, when we gave that guidance. What we did not know at that time is we did not know some of the things that were going to be happening, obviously, in the world to affect inflation as well as the Delta variant, Omicron, et cetera, which does affect our jump-off point, so to speak, from '22 to '23 since we just -- we're just going to end the fiscal year in April.

The other big thing is wholesale. Wholesale, if you look back at our pre-COVID contributions in EBITDA by segment was fairly substantial. And that business has, as we've disclosed, been challenged by lack of supply because of 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 on the line, 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 wholesale is another piece of that. So this is not all around margin. This is really -- it's got a lot to do with spend and growing our digital business during a time of scale.

Really helpful. And then maybe just one more for me and then I'll hop back in the queue. But on Bartleby, it was really great to see the first deal announced with Delgado Community College and sort of your ability to start bundling that with FDC. Can you just talk about sort of what got Delgado comfortable with, with sort of having the digital study to integrate it in? And maybe how that affects the strategy around pricing for Bartleby moving forward? Is it still going to be charged on a monthly basis in these huge contractual relationships or how that's being sort of rolled in?

Yes. I'll make one general comment and then David Nenke, who's President of DSS can answer your questions in further depth. But just in general, as we found out with selling First Day Complete, the key to selling any new kind of revolutionary model was making sure you line up with a more progressive, open-minded leadership on the campus. I think we found that at Delgado. So that was -- that's one of the keys. We're very much in sync with them and they're very excited about what the potential benefits to their students are of incorporating the digital -- Bartleby digital suite -- self-study suite of tools and with the First Day Complete program. So that's a big part of it. But David can answer your other questions.

Yes, absolutely, Mike. Delgado were absolutely focused on providing the best outcomes to their students. They have -- a large percentage of their student population is part time or nontraditional students need help and support outside of core university hours. And so they -- as we had discussions with them, they were very focused on trying to provide support to their students to kind of help ultimately student success, which absolutely lines up with our focus on what we're trying to do. And our objective kind of remains enhancing educational outcomes and complement the work that happens in a classroom. So with them, they were very open. And as we talked through our opportunities and the feature set, they were very focused on making sure that they could provide as many features as their students.

I think one of the interesting things, particularly with Delgado is they're also interested in the reporting that comes with it and making sure that students are engaged with the tools and really trying to support it. It's a white label product and LMS integration, et cetera. So we're in the process now of explaining the faculty and taking them through the products that's an exciting time for us. And as I say, they were very customer-focused on making sure their students got the benefits. From a charging perspective, which I think was the second part of your question. The charging is more around opportunity of seats, if you like, or student hours, so aligned with the amount of students that they have on campus at the time is how we're kind of working through changing at (inaudible), I guess the direct-to-consumer business, which is the monthly subscriptions.

The next question comes from the line of Alex Fuhrman from Craig-Hallum Capital Group.

Great. I wanted to talk a little bit more about the fiscal '23 EBITDA guidance. Can you unpack a little bit more about where that's coming from? I think you mentioned, Michael, just the sheer 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 and versus how much of this is supply chain issues that you're seeing versus just inflation pressures? And then kind of putting it all together, I mean, is it still the company's goal to get back to pre-COVID profitability in the long run? 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 '23 after we close fiscal year '22, 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, it's influenced by, I think, the fact that COVID has lingered and that has an impact on a lot of different things psychologically in terms of the people we do business in 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 '23 with the FDC growth that we've had and the FLC 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 definitely, on a longer-term basis, not only intend to get back to that level, but surpass it. So the pacing of everything that we've intended, if you look back at the last 2 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 there's a lot of different factors that enter into that.

I've tried to highlight some of them. I think we can be more specific about it as we get our year-end results closed and really start to get into fiscal year '23 in a more surgical basis. I mean, right now, we're in the middle of finalizing our budget cycle for '23. So I think one thing this COVID has taught us, and I'm not saying this as any kind of a signal, but that we do need to be cautious about our outlooks given the uncertainty that it creates and the impact it's having.

I mean, this thing in Ukraine and its impact has 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 general merchandise physical shipments and $130 a barrel oil, I haven't seen the price today, that's what it was yesterday, has a big impact on our cost structure. So we're doing a lot of different things to try to mitigate that with commissions and in labor and everything else. But labor is another big concern because we've been able to really retain our quality workforce and, in fact, add a lot of good people. David at 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 you're going to have some increases, which puts pressure on us to move technology spend faster so that -- we're replacing more of our human spend with technology spend over time. So anyway, I guess the other thing I would say is that the enrollment status that came out is something we didn't know and didn't really anticipate. And quite frankly, it's a projection.

We started 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 6.5% from 2 years ago, which is really what we're measuring when we talk about pre-COVID. So even more prevalent, the 2-year institution enrollments declined by 3.4 and down 13% since 2019. So some of that enrollment information that came to light that wasn't known last June. It's had an impact on looking at 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 is a big issue for the schools we serve. So our job is to help make them more competitive in terms of getting out 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. And so that's our mission, is to try to support their mission to get the value proposition, clearly communicate clearly communicate as to why Higher Ed. Why our higher education experience and credentials is still important. So those are kind of the big things. Enrollments, inflation, as I mentioned already, wholesale and a lot of that, we're offsetting by the growth in First Day Complete and what we expect to happen in general merchandise.

Great. That's really helpful. And then if I could just ask a little bit more about First Day Complete, it sounds like that is progressing very nicely and it's 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 that you were mentioning in your prepared remarks? Does this change kind of how you go after the next 50 or 100 schools in terms of how you talk about pricing and the ultimate bottom line. Just wondering how you're going to be able to scale that in an environment where your freight rates and other costs are a lot higher.

Yes, it's a great question. It's something we talk about daily, had big meetings going into this current slate of discussions around First Day Complete contractual pricing. And the thing is that there's a couple of elements that go into analyzing your cost, so you don't get upside down and locking into rates. It's the pricing that you're paying for content as well as freight and some other cost elements that factor into commissions and other structures and that type of thing. But we do have an annual pricing review. We are spending a lot of time and Jon Shar and his team working with Tom, 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 Jon talk about that.

The 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 focus in terms of reversing a secular trend in Textbook courseware, where there's digital or physical declines over the last 10, 12 years. There was only 14 campuses supporting 40,000 students in the fall of '20, then it went to 65 campuses about 290,000 students this last fall. And we expect to see that continue to scale. And the point I want to make is that all that growth occurred during a really tough sales period, very difficult to convince people to change models, and focus on the benefits of these kinds of new revolutionary courseware pricing models while they're so focused on COVID safety, tracing, testing, et cetera, and just getting their attention.

So our people in retail and supported by everyone else have done a great job selling FDC. I think that as I close my remarks in the script, I said I think we've been through these choppy seas and navigated and we have common horizon. I really believe that barring something that we can't control that's going on in the world. But that really gives me a lot of enthusiasm for what we're going to do with FDC and continuing to scale it going forward.

I'll turn it to Jon to talk about the questions you have on pricing consideration.

Yes. Alex, it's a great question. The other thing just building on what Mike is saying to -- that's a factor is the percent of digital content that is growing each term as a percent of a mix overall and within FDC. And obviously, digital content offsets any increases in inbound freight or other expenses that go into the cost of the content. So that -- we have a balance of some costs going up, but favorable mix shifting to digital, which is allowing us to continue to provide great value to our campuses.

And overall, we're really 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 three sort of key pillars: having equitable access to content on day 1; through having a concierge like highly convenient service, it's really eliminating a period of stress for many students at the beginning of the term as mental health becomes more and more significant of 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 really making a significant impact and very optimistic that we're going to continue to grow the model for more and more institutions going forward.

Our next question comes from the line of Rory Wallace from Outerbridge Capital.

Mike, it's Rory Don. 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 for First Day Complete and First Day revenues, what would that have looked like had the 100 schools not gone remote and have you not seen any sort of push outs to the right?

Yes, Roy, this is Tom. And you are correct that with 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 that's implicit in the 18.8% comp set. And that doesn't include -- and it doesn't include activations for First Day, First Day Complete that may occur some -- even beyond then. But we're trying to pick up as much of the information we had in February, which should be fairly inclusive at 18.8% growth rate, should be a pretty good estimate of the impact on Spring Rush at First Day, First Day Complete.

Got it. Okay. And so that was really a large part of this quarter and kind of the delta versus what we thought going in a couple of periods ago. And then I guess with the new business at $100 million that we had, 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 million or $100 million of net new business, you've 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 of First Day Complete and DSS and Fanatics. So it would seem like the company is going to structurally become a much more rapid sort of top line grower as opposed to what it's been in the past. I just think it's kind of worth maybe stating that? Or do I have that vision of the company, correct?

Yes. I think a couple of things, Rory. Good observations. In terms of top line growth, it also depends over what time horizon you're 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, then we 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 we'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 is that I think we're being very disciplined about not just new business that we take on to make sure that it's profitable. It may not be day 1, but as soon as possible from day 1, hopefully, no later than year 2.

But in most cases, immediately and insisting in many cases, we don't take the business on unless they take on a First Day Complete model or willing to take it on in year 2. 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't, and this gets back to my point about dealing with the progressive leadership, the new thinking, people that are willing to change is a big part of our success, I think, is having the discipline to make sure that we're not hoping that someone changes 2, 3, 4 years from now that they're willing to do it now for renewals that are marginal.

So yes, I think we're very excited about the momentum we have. We slowed down a little bit this quarter by Omicron in January. But I think the revision of our guidance for '23 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 that give us some cause to be a little cautious about that. But we'll update that at the end of the year and we'll be more specific.

Yes. No, I think I'm sure most shareholders will be able to appreciate the reasons for resetting the bar. I think as far as -- the other thing I want to ask on with Bartleby and DSS, so the growth rate there has stayed very strong, and I think Chegg is guiding to like 8% to 10% organic growth for their study product. And it seems like that business is really hanging in and not seeing the same sort of macro impact as some of your competitors have decelerated a lot. So I guess -- my question is, what are you doing better than the competition in your view, David? And then also with this Delgado partnership, is that something that's going to be easy to scale once you sort of have this use case sort of better in hand 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 you have the satisfaction with that customer and that you have something that you can really scale out to future customers?

Yes, let me just get the second part of the question first. The -- certainly, with the Delgado execution, what we have worked through is a lot of the mechanics about being able to turn on or off features based on what the institution wants to offer, so we have built in a lot of functionality in regards to being able to do that with an aim to be scalable. And so we're kind of at the moment, continuing to kind of build our playbook, but also kind of looking at being able to implement this relatively seamless way. So that's what we're focused on. I won't say we're successful at it yet, but that's what we're working on. So we feel pretty good about the work that we've done on the current framework of the business to be able to kind of do that?

The second part of the -- or the first part of your question in regards to competitors. I won't comment on other competitors. I'll comment and say is -- we're continuing to focus on the educational outcomes and student success, and that's what we're trying to build and focus on and build a robust business that ultimately gets to student success. So I think that we are having -- we're resonating well with customers. I think we're well-trusted from both students and institutions. So we're just going to continue to focus on that and hopefully focus on the long term and show success.

And how much of the subscriber acquisition is linked to retail POS at this point? I know it used to be very intensive on that front and then kind of went through very little, and I'm not sure what the current state of the channel is?

I won't give you the numbers per se, one of the challenges we saw out of Spring Rush, obviously, with the delays and off-campus was, I guess, less people in the store. And so we've changed a little bit. Now there's a mix between POS and web in regards to each of those ones, but I don't know that we have a good run rate yet. I think the macro -- COVID is still making difficult to get a good beat on what exactly the entitlement number is. It was -- I guess as a percentage, it was less in spring than it was fall, primarily due to the environment that we're in. So yes, I'm not sure that I can provide a good framework for you to give you a percentage to help you with your -- and that we're trying to do is be there for students and continuing to get our product in front of them and build awareness and take advantage when they're in the store and help them when they are online.

Yes. Yes. Understood. I mean it sounds like that channel still has some upside as things get back to normal. So that's mainly qualitatively what I was interested in. So yes, good luck.

We have no further questions on the line. I will hand over back to Andy Milevoj for any final remarks.

Great. Thanks, Juan, and thank you all for joining us on today's call and your continued interest in BNED. 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.