Barnes & Noble Education, Inc. (NYSE:BNED) Q2 2019 Earnings Conference Call Transcript
Dec 04, 2018 • 10:00 am ET
Good morning. My name is Adam, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Barnes & Noble Education Second Quarter 2019 Earnings Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)
Thank you. Tom Donohue, Senior Vice President, Treasurer and Investor Relations, you may begin your conference.
Thank you, and good morning and welcome to our second quarter fiscal 2018 earnings call. Joining us today are Mike Huseby, Chairman and CEO; Patrick Maloney, President of Barnes & Noble College; Barry Brover, CFO; and Kanuj Malhotra, President of Digital Student Solutions, as well as other members of our senior management team.
(Forward-Looking Cautionary Statements)
At this time, I'll turn the call over to Mike Huseby.
Thanks, Tom. Good morning, everyone, and thanks for joining us today. In our second quarter, our seasonally largest sales quarter, we saw the pace of higher ed industry change accelerating. In order to maintain our position as a leader in serving our institutional customers, while simultaneously developing high value direct to student offerings, BNED's transformational pace is also accelerating as it must.
We have built a solid foundation for this transformation and we're adding to it each day. We acquired and are successfully integrating MBS to expand our capabilities and offerings including unique virtual distribution capabilities. Student Brands, LoudCloud and PaperRater, other important acquisitions provide us with a platform with people to deliver and develop advanced digital services and products.
These units, linked to BNC's unique distribution platform of millions of students, faculty and alumni, give us the unique opportunity to scale our new digital offerings. Evidence of our shift to digital offerings by all our segments is underscored by our results for the quarter. Despite declines in revenue, we're beginning to see increasing and broader acceptance of our digital and other new services and products in all of our segments.
The level of change our company has been through since just last year when we purchased MBS is truly profound. From the time of our spin-off from Barnes & Noble in 2015 through the end of fiscal year 2017, virtually a 100% of our revenue and adjusted EBITDA came from our BNC bookstore management contracts.
The impact of both our acquisitions and the development of DSS offerings has created a more diversified BNED with substantial growth opportunities. Before intercompany eliminations in corporate expenses, BNC currently accounts for approximately 78% of revenue and 51% of adjusted EBITDA, MBS accounts for approximately 21% of revenue and 44% of adjusted EBITDA, and DSS accounts for approximately 1% of revenue and 5% of adjusted EBITDA.
Two years from now, fiscal 2021, we expect those relative financial contributions to shift substantially. Assuming no incremental acquisition results in a relative stabilization of our core business, we expect our higher margin DSS business to generate approximately 25% of adjusted EBITDA, while still contributing only about 5% of