FORM 8-K






UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 8-K


CURRENT REPORT


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)






           Delaware              


    000-24385    


      39-0971239      


(State or other jurisdiction


of incorporation)


(Commission


File Number)


(IRS Employer


Identification No.)






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


Trading


Symbol(s)


Name of each exchange on which registered


None


None


None











Item 7.01.


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.















Item 9.01.


Financial Statements and Exhibits.


 

(d) Exhibits


 

 

 

 

 

Exhibit No.


Description


 

 

 

 

99.1


Press Release dated May 8, 2019


 

 

 

 

99.2


2019 Q1 Investor Update dated May 8, 2019


 

 

 

Forward-Looking Statements


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.








2





SIGNATURES


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








3









EXHIBIT 99.1



EXHIBIT 99.1



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.


o


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 years 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 Specialtys 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 Specialtys 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 Companys 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.




Company Contacts


Ryan Bohr, EVP and Chief Operating Officer


Kevin Baehler, EVP and Chief Financial Officer


Ryan.bohr@schoolspecialty.com


Kevin.baehler@schoolspecialty.com


Tel: 920-882-5868


Tel: 920-882-5882




Investor and Media Relations Contact


Effie Veres FTI Consulting


Effie.veres@fticonsulting.com


Tel: 212-850-5600
















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


 


 


 


 


Revenues


$  95,932


 


$  99,287


Cost of revenues


63,129


 


63,166


   Gross profit


32,803


 


36,121


Selling, general and administrative expenses


52,448


 


57,138


Facility exit costs and restructuring


876


 


311


Impairment charges


283


 


 -   


   Operating loss


(20,804)


 


(21,328)


Other expense:


 


 


 


   Interest expense


4,626


 


3,506


Loss before benefit from income taxes


(25,430)


 


(24,834)


Provision for (benefit from) income taxes


(455)


 


(6,156)


   Net loss


 $  (24,975)


 


$ (18,678)


 


 


 




Weighted average shares outstanding:


 


 




   Basic


7,002


 


7,000


   Diluted


7,002


 


7,000


 




 




Net Loss per Share:




 




   Basic


$  (3.57)


 


$  (2.67)


   Diluted


$  (3.57)


 


$  (2.67)


 


 


 




 


March 30, 2019


 


March 31, 2018


    Adjusted EBITDA:


 


 




       Net income (loss)


$  (24,975)


 


$  (18,678)


       Provision for (benefit from) income taxes


(455)


 


(6,156)


       Restructuring costs  


876


 


311


       Restructuring-related costs incl in SG&A  


1,751


 


1,298


       Purchase accounting deferred revenue adjustment


 -  


 


373


       Impairment charges


283


 


-  


       Depreciation and amortization expense


4,171


 


5,458


       Amortization of development costs


958


 


1,304


       Net interest expense


4,626


 


3,506


       Stock-based compensation


(1,160)


 


572


               Adjusted EBITDA


$  (13,925)


 


$  (12,012)


 


 


 


 


 


 


 


 


 


 


 


 


     Reconciliation of Free Cash Flow for 2019:


 


 




 


 


 


 


       Cash used in operations


$  (26,582)


 


 


       Additions to property and equipment


(2,562)


 


 


       Investment in development costs


(1,051)


 


 


       Leveraged free cash flow


$  (30,195)


 


 









School Specialty, Inc.


CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)


(In Thousands, Except per Share Amounts)





















































March 30, 2019




December 29, 2018




March 31, 2018


ASSETS














Current assets:


 












  Cash and cash equivalents


 


$    6,435


 


$    1,030


 


$    10,276


  Accounts receivable, less allowance for doubtful accounts


 


62,516


 


77,888


 


54,300


  Inventories, net


 


108,929


 


90,061


 


102,232


  Prepaid expenses and other current assets


 


12,552


 


15,763


 


15,425


  Refundable income taxes


 


1,530


 


1,019


 


958


     Total current assets


 


191,962


 


185,761


 


183,191


Property, plant and equipment, net


 


31,232


 


31,902


 


32,465


Operating lease right-of-use asset




13,043


 


-  


 


-  


Goodwill


 


4,580


 


4,580


 


26,842


Intangible assets, net


 


32,084


 


33,306


 


36,164


Development costs and other


 


14,895


 


14,807


 


16,158


Deferred taxes long-term




290


 


320


 


9,355


     Total assets


 


$   288,086


 


$    270,676


 


$    304,175








 


 


 


 


LIABILITIES AND STOCKHOLDERS' EQUITY


 




 


 


 


 


Current liabilities:


 




 


 


 


 


  Current maturities - long-term debt


 


$   70,508


 


$   30,352


 


$  30,400


  Current operating lease liability




5,133


 


-  


 


-  


  Accounts payable


 


42,442


 


41,277


 


34,544


  Accrued compensation


 


4,707


 


7,302


 


4,423


  Contract liabilities


 


5,166


 


5,641


 


5,113


  Accrued royalties


 


557


 


2,678


 


1,946


  Other accrued liabilities


 


9,603


 


11,379


 


10,048


     Total current liabilities


 


138,116


 


98,629


 


86,474


Long-term debt - less current maturities


 


99,656


 


103,583


 


130,489


Operating lease liability




7,910


 


-  


 


-  


Other liabilities


 


1,043


 


1,101


 


785


     Total liabilities


 


246,725


 


203,313


 


217,748








 


 


 


 


Stockholders' equity:


 




 


 


 


 


  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


 


7


 


7


 


7


  Capital in excess of par value


 


123,912


 


125,072


 


123,655


  Treasury stock, at cost 5,145; 0 and 0 shares, respectively




-  




-  




-  


  Accumulated other comprehensive loss


 


(1,946)


 


(2,079)


 


(1,661)


  Retained earnings (accumulated deficit)


 


(80,612)


 


(55,637)


 


(35,574)


     Total stockholders' equity


 


41,361


 


67,363


 


86,427


     Total liabilities and stockholders' equity


 


$  288,086


 


$  270,676


 


$  304,175













EXHIBIT 99.2

EXHIBIT 99.2


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