SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): May 8, 2019
SCHOOL SPECIALTY, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction
W6316 Design Drive
Greenville, Wisconsin 54942
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (920) 734-5712
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Regulation FD Disclosure.
On May 8, 2019, School Specialty, Inc. issued a 2019 Q1 Investor Update and a press release reporting its financial results for the Fiscal Year 2019 First Quarter. A copy of the press release is attached as Exhibit 99.1, and a copy of the 2019 Q1 Investor Update is attached as Exhibit 99.2. Both exhibits are incorporated by reference herein.
This information is not deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section. Further, the information in this Form 8-K, including the exhibits, shall not be deemed to be incorporated by reference into the filings of the registrant under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such a filing.
Financial Statements and Exhibits.
Press Release dated May 8, 2019
2019 Q1 Investor Update dated May 8, 2019
This report and the information furnished herewith may contain statements concerning School Specialty’s future financial condition, results of operations, expectations, plans or prospects. Such statements are forward-looking statements. Forward-looking statements also include those preceded by or followed by words like “anticipate,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plan,” “projects,” “should,” “targets” and/or similar expressions. These forward-looking statements are based on School Specialty’s estimates and assumptions as of the date of the information presented, and as such involve uncertainty and risk. Forward-looking statements are not guarantees of future performance and actual results may differ materially from those contemplated by the forward-looking statements due to a number of factors, including those described in Item 1A. of School Specialty’s Annual Report on Form 10-K for the year ended December 29, 2018, which factors are incorporated herein by reference. Any forward-looking statement in this report and the information furnished herewith speaks only as of the date on which it is made. Except as required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SCHOOL SPECIALTY, INC.
Dated: May 8, 2019
By: /s/ Kevin L. Baehler
Kevin L. Baehler
Executive Vice President and
Chief Financial Officer
W6316 Design Drive, Greenville, WI 54942
P.O. Box 1579, Appleton, WI 54912-1579
School Specialty Announces Fiscal Year 2019 First Quarter Financial Results
Revenue of $95.9 million
Operating Loss of $20.8 million
Adjusted EBITDA loss of $13.9 million
Reiterating Fiscal 2019 EBITDA guidance
GREENVILLE, Wis., May 8, 2019 – School Specialty, Inc. (OTCQB: SCOO) (“School Specialty”, “SSI” or “the Company”), a leading provider of innovative products and solutions that support integrated learning environments for improved student social, emotional, mental and physical well-being, today provided results for its fiscal first quarter ended March 30, 2019 and reiterated fiscal 2019 EBITDA guidance.
Michael Buenzow, Interim Chief Executive Officer, stated, “While early first quarter bookings were lower-than-expected, we exited March with solid momentum. Our year-to-date orders are now showing growth as we seek to maximize our realigned market coverage model combined with a favorable industry backdrop. Based on strong booking trends and the traction we are making with key large districts across the country as we begin to realize leverage
from our team-sell model, we are expecting a strong peak season and remain on track to meet our full-year EBITDA guidance. We are committed to our 2019 objectives including driving organic growth, focusing on cost efficiency and process excellence, boosting free cash flow, and continuing the strong momentum we experienced exiting the first quarter.”
Ryan M. Bohr, Executive Vice President and Chief Operating Officer, stated, “We continued to take the necessary steps in the first quarter to entrench our position with key customers and purchasing cooperatives. We have continued to enhance our team-sell model to improve the effectiveness of our go-to-market strategies and to better streamline the flow of information to advance our product development efforts. In conjunction with an increased use of analytics, these actions have helped us better leverage our deep supplier relationships and increase our customer touchpoints. As a result, we are having more informed and meaningful conversations. We are confident this will help drive organic revenue growth and improve long-term profitability. We are aggressively focused on cost-optimization, particularly as it relates to variable labor and transportation costs, and we remain determined to improve our rates and terms as we continue working with our providers. While there is certainly work left to be done, we began to realize the benefits of our recent efforts in the first quarter and believe they will continue to provide favorable tailwinds throughout 2019 and beyond.”
Michael Buenzow added, “Our March results were largely in-line with our expectations and we are tracking towards our full-year EBITDA target. We exited the first quarter with strong bookings in our Distribution segment and our Science Curriculum pipeline has expanded, now containing more medium-to-large-sized opportunities than it did at the end of 2018. While we see modestly lower growth in our Science Curriculum and movement away from certain lower-margin project furniture opportunities, we expect 2019 revenue challenges to be offset by our cost savings initiatives, which will keep us on track to achieve our 2019 EBITDA target. More specifically, as we have begun to focus on higher-margin opportunities while electing not to pursue lower-margin projects in our Furniture segment, we have improved gross margin and will continue to bolster our bottom-line. In the near term,
this strategy coupled with a slightly slower-than-expected start of the year for Science Curriculum has weighed on revenue. As a result, we are lowering our 2019 revenue outlook. Our long-term outlook remains strong and we are confident in our ability to deliver improved financial performance moving forward.”
First Quarter of Fiscal 2019 Results
Revenue was $95.9 million for the quarter ended March 30, 2019, as compared to $99.3 million in the first quarter of fiscal 2018, representing a decrease of 3.4%. This decrease included declines of 3.0% and 12.0% in the Distribution segment and Science Curriculum segment, respectively.
Despite the declines in the first quarter, the Company entered the second quarter with improving order momentum in the Supplies and Furniture product lines as well as a growing pipeline in Science Curriculum. The combination of these recent order trends and pipeline visibility point to 2019 revenue growth.
The Company reported a gross profit margin for the quarter ended March 30, 2019 of 34.2%, as compared to 36.4% reported in the first quarter of fiscal 2018. Although gross profit margin was down as compared to last year’s first quarter, current quarter gross margin was up 260 basis points as compared to fourth quarter 2018. The sequential quarter-over-quarter improvement in gross margin is indicative of the traction we are beginning to realize in our pricing and margin management initiatives.
Selling, general and administrative (“SG&A”) expenses were $52.4 million for the quarter ended March 30, 2019, which represents an 8.2% decrease year-over-year. Excluding decreased depreciation and amortization expense, stock-based compensation expense and restructuring-related expenses in SG&A, our overall remaining SG&A expenses declined by $2.1 million, or 4.3%, year-over-year, reflecting a continued focus on lowering Company-wide fixed expenses. The remaining SG&A improvement was mostly a result of a decrease in fixed compensation and benefit costs.
The Company reported an adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) loss of approximately $13.9 million for the quarter ended March 30, 2019 compared to a loss of $12.0 million in the quarter ended March 31, 2018. The year-over-year decline was primarily related to a $1.8 million shift in catalog production from late 2018 into the first quarter of 2019. Other factors impacting Adjusted EBITDA in first quarter fiscal 2019 compared to the prior year include lower gross profit due to a combination of lower revenue and lower gross margin, partially offset by lower SG&A costs.
Fiscal 2019 Outlook Update
The Company updates its fiscal 2019 outlook below:
Total revenue is currently expected to be in approximately $695 to $705 million, a 3% to 5% increase year-over-year.
Gross profit margin is anticipated to be consistent with prior year. This lower outlook is due to the mix of lower Science Curriculum and Instruction &Intervention revenues, partially offset by favorable outlook for Furniture margins.
Total SG&A expenses are expected to be favorable to the original outlook. Projected SG&A is expected to be consistent with or modestly favorable versus prior year.
Achievement of this plan would result in operating income of approximately $14 to $18 million and Adjusted EBITDA in the range of $42 to $46 million, representing a 20% to 30% increase year-over-year.
Free cash flow is anticipated to be in the range of $27 to $33 million, with approximately $13 million of one-time working capital benefits. This assumes capital expenditures of $10 million and product development investments of $5 million.
School Specialty will be hosting a teleconference and webcast on Thursday, May 9, 2019 at 9:00 a.m. ET to discuss its results and outlook. Speaking from management will be Michael C. Buenzow, Interim Chief Executive Officer; Ryan M. Bohr, Executive Vice President and Chief Operating Officer; and Kevin Baehler, Executive Vice President and Chief Financial Officer.
Conference Call Information:
Toll-free number: 844-882-7832 / International number: 574-990-9706 / Conference ID: 1991748
Replay number: 855-859-2056 / International replay number: 404-537-3406 / Conference ID: 1991748
Interested parties can also participate on the webcast by visiting the Investor Relations section of School Specialty’s website at http://investors.schoolspecialty.com. For those who are unable to participate on the live conference call and webcast, a replay will be available approximately one hour after the completion of the call.
About School Specialty, Inc.
School Specialty designs, develops and delivers the broadest assortment of innovative and proprietary products, programs and services to the education marketplace, including essential classroom supplies, furniture, educational technology, supplemental learning resources, science-based curriculum, and evidence-based safety training & security. The Company applies its unmatched team of subject-matter experts and customized planning, development and project management tools to deliver it unique value proposition, which supports the social, emotional, mental, and physical safety of students – improving both their learning outcomes and school district performance.
School Specialty serves the U.S. and Canada through a comprehensive network of distribution centers powered by a multi-channel approach. For more information, visit https://corporate.schoolspecialty.com/ or connect with us on Facebook, Twitter, Instagram, and Pinterest. Find ideas, resources and inspiration by visiting our blog: https://blog.schoolspecialty.com/.
Statement Concerning Forward-Looking Information
Any statements made in this press release about School Specialty’s expected financial results, future financial condition, results of operations, expectations, plans, or prospects, including but not limited to those statements relating to its expected results for 2019 under the heading “Fiscal 2019 Outlook Update” and elsewhere in this press release, constitute forward-looking statements. Forward-looking statements also include those preceded or followed by the words "anticipates," "believes," "could," "estimates," "expects," "intends," "may," "plans," “projects,” “should,” "targets" and/or similar expressions. These forward-looking statements are based on School Specialty's current estimates and assumptions and, as such, involve uncertainty and risk. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those contemplated by the forward-looking statements because of a number of factors, including the risk factors described in Item 1A of School Specialty's Form 10-K for the fiscal year ended December 29, 2018, which risk factors are incorporated herein by reference. Any forward-looking statement in this release speaks only as of the date on which it is made. Except to the extent required under the federal securities laws, School Specialty does not intend to update or revise the forward-looking statements.
Non-GAAP Financial Information
This press release includes references to Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA represents net income (loss) adjusted for: provision for (benefit from) income taxes; purchase accounting deferred revenue adjustments; restructuring costs; restructuring-related costs included in SG&A; impairment charges; depreciation and amortization expense; amortization of development costs; net interest expense; and stock-based compensation. Free Cash Flow represents Adjusted EBITDA adjusted for: capital expenditures; product development expenditures; proceeds from asset sales; unrealized foreign exchange gains and losses; other; changes in working capital; Cash Interest and Cash Taxes.
The Company considers Adjusted EBITDA a relevant supplemental measure of its financial performance and Free Cash Flow a relevant supplemental measure of liquidity. The Company believes these non-GAAP financial measures provide useful supplemental information for investors regarding trends and performance of our ongoing operations and is useful for year-over-year comparisons of such results. We also use these non-GAAP financial measures in making operational and financial decisions and in establishing operational goals.
In summary, we believe that providing these non-GAAP financial measures to investors, as a supplement to GAAP financial measures, helps investors to (i) evaluate our operating and financial performance and future prospects, (ii) compare financial results across accounting periods, (iii) better understand the long-term performance of our core business, (iv) evaluate trends in our business, (v) evaluate our ability to generate cash and improve liquidity, and (vi) assess the Company’s ability to fund both its operating activities and reinvestments into the business, as well as service its debt, including debt repayments, all consistent with how management evaluates such performance and trends.
Adjusted EBITDA and Free Cash Flow do not represent, and should not be considered, an alternative to net income or operating income, or an alternative to cashflow from operations, as determined by GAAP, and our calculation may not be comparable to similarly titled measures reported by other companies.
Ryan Bohr, EVP and Chief Operating Officer
Kevin Baehler, EVP and Chief Financial Officer
Investor and Media Relations Contact
Effie Veres – FTI Consulting
Tables to Follow
School Specialty, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except per Share Amounts)
For the Three Months Ended
March 30, 2019
March 31, 2018
Cost of revenues
Selling, general and administrative expenses
Facility exit costs and restructuring
Loss before benefit from income taxes
Provision for (benefit from) income taxes
Weighted average shares outstanding:
Net Loss per Share:
March 30, 2019
March 31, 2018
Net income (loss)
Provision for (benefit from) income taxes
Restructuring-related costs incl in SG&A
Purchase accounting deferred revenue adjustment
Depreciation and amortization expense
Amortization of development costs
Net interest expense
Reconciliation of Free Cash Flow for 2019:
Cash used in operations
Additions to property and equipment
Investment in development costs
Leveraged free cash flow
School Specialty, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands, Except per Share Amounts)
March 30, 2019
December 29, 2018
March 31, 2018
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
Prepaid expenses and other current assets
Refundable income taxes
Total current assets
Property, plant and equipment, net
Operating lease right-of-use asset
Intangible assets, net
Development costs and other
Deferred taxes long-term
LIABILITIES AND STOCKHOLDERS' EQUITY
Current maturities - long-term debt
Current operating lease liability
Other accrued liabilities
Total current liabilities
Long-term debt - less current maturities
Operating lease liability
Preferred stock, $0.001 par value per share, 500,000
shares authorized; none outstanding
Common stock, $0.001 par value per share, 50,000,000 shares
authorized; 7,009,739; 7,000,000 and 7,000,000 shares
issued and outstanding, respectively
Capital in excess of par value
Treasury stock, at cost 5,145; 0 and 0 shares, respectively
Accumulated other comprehensive loss
Retained earnings (accumulated deficit)
Total stockholders' equity
Total liabilities and stockholders' equity