GREENVILLE, Wis., March 14, 2019 (GLOBE NEWSWIRE) -- 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 fourth quarter and fiscal year ended December 29, 2018 and its initial outlook for fiscal 2019.
Michael Buenzow, Interim Chief Executive Officer, stated, “After three years of solid performance, our 2018 financial results came in lower than anticipated. The reasons are clearly understood and we are confident that the actions we have taken to address these challenges will enable a strong recovery in 2019. The School Specialty team has made considerable changes over the course of the last year to improve our go-to-market strategy, operational effectiveness and the manner by which we bring our unique value-proposition to our customers. Since my arrival, I have been working very closely with the team to bolster existing initiatives, identify opportunities for improvement and ensure strong go-forward execution. Sales results in our key growth areas indicate that we continue to grow our market share, which will improve the long-term earnings potential of our business. As we move into 2019, a key focus is on driving sales growth of our proprietary offerings to improve margins, leveraging our industry leading position in learning environments and next generation science, executing initiatives to offset higher transportation costs and improving our fulfillment center operation. Most important, we are focused on assisting our leadership teams in sales, marketing and customer care to better serve and support our customers in new and innovative ways.”
Ryan Bohr, Executive Vice President and Chief Operating Officer, stated, “In 2018, we grew our top-line, despite a sharp, market-driven pull-back in the Science category. We took the necessary steps to entrench our position with key customers and purchasing cooperatives that position us to drive higher customer penetration and leverage the unique depth and breadth of our offering. We also made the necessary changes to our seasonal staffing process to respond to a tight labor market. Further, the transformation of our sales organization in the second half of 2018 will improve the execution of our team-sell model and squarely aligns with our strategic objectives. Our customer insights are improving, our customer touchpoints are increasing and becoming more effective, and you will see a relentless focus on improving our sales mix and driving penetration in higher margin categories and of higher margin products. Despite the challenges we faced in 2018, we enter 2019 with significant opportunities to enhance both the top and bottom-line, with a stronger coverage model and customer value proposition.”
Mr. Buenzow added, “Based on our current outlook for 2019, we expect to grow revenue by approximately 6% at the midpoint of our guidance and generate modest improvement in our gross profit margin. We expect considerable growth on a year-over-year basis in Science, with significant additional opportunities beyond 2019. We anticipate continuing to build on our market-leading position in learning environments within our Furniture category and have a strong pipeline moving into 2019. We anticipate modest growth in the Supplies category with an opportunity for upside related to continued growth with key channel partners. While we expect SG&A to increase year-over-year, it is expected to decline as a percentage of total revenue. Adjusted EBITDA is anticipated to be approximately $42 to $46 million, which represents a strong increase over our 2018 results. We anticipate working capital levels to normalize in 2019, which is expected to have a positive impact on free cash flow. 2018 was a challenging year, but our long-term outlook remains strong and we are confident in our ability to execute and deliver improved financial performance moving forward.”
Fiscal 2018 Results
Fiscal 2019 Outlook
The Company is providing the following financial outlook for fiscal 2019.
Mr. Buenzow concluded, “Our 2018 performance resulted in the need to address certain terms and conditions of our current debt facilities. We have successfully completed those discussions and have entered into the necessary amendments with our valued financing partners who continue to be very supportive of our business. We believe the amended terms and conditions will provide us with the flexibility needed to execute our plan for 2019 and meet our financial obligations, including the deferred cash payment obligations which come due in December.”
Board of Directors Appoint Justin C. Jacobs
The Company today also announced that its Board of Directors has appointed Justin C. Jacobs as a new independent Board member, effective March 15, 2019. This brings the total number of Board of Director seats to five.
“Justin brings to our Board a wealth of operational experience and is a true leader with a proven track record of success,” stated Gus Halas, Chairman of the Board. “His extensive Board experience and financial expertise is invaluable in guiding our company as we capitalize on the significant opportunities we see in the marketplace.”
Mr. Jacobs has served as Managing Director of Mill Road Capital, an investment firm, since 2005. Prior to joining Mill Road Capital, Mr. Jacobs worked at LiveWire Capital, an operationally-focused investment firm. Mr. Jacobs has held leadership positions in numerous portfolio companies including as interim Chief Operating Officer. Prior to LiveWire Capital, Mr. Jacobs was an investment professional in the private equity group at The Blackstone Group. Mr. Jacobs is a member of the Board of Directors of Galaxy Nutritional Foods Inc. and PRT Growing Services Ltd, and was formerly a member of the Board of Directors of National Technical Systems, Inc. (former ticker "NTSC"). Mr. Jacobs earned a B.S. with dual concentrations in finance and accounting from the McIntire School of Commerce at the University of Virginia where he graduated Beta Gamma Sigma.
Amendment to Senior Credit Facilities
The Company executed amendments to its senior credit facilities on March 13, 2019, with an effective date of December 28, 2018. These amendments provide, among other items, increased flexibility to certain financial covenants and expanded borrowing capacity. Description of the amendments will be found in our fiscal 2018 Form 10-K and in our separately filed Form 8-K.
Conference Call Information
Toll-free number: 844-882-7832 / International number: 574-990-9706 / Conference ID: 7689336
Replay number: 855-859-2056 / International replay number: 404-537-3406 / Conference ID: 7689336
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 future financial condition, results of operations, expectations, plans, or prospects, including information under the heading “Fiscal 2019 Outlook” and the information regarding our Fiscal 2019 financial performance and business objectives outlook, 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 30, 2017, 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.
Company Contacts
Ryan Bohr, EVP and Chief Operating Officer
Ryan.bohr@schoolspecialty.com
Tel: 920-882-5868
Kevin Baehler, EVP and Chief Financial Officer
Kevin.baehler@schoolspecialty.com
Tel: 920-882-5882
Investor and Media Relations Contact
Effie Veres – FTI Consulting
Effie.veres@fticonsulting.com
Tel: 212-850-5600
SCHOOL SPECIALTY, INC. | |||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | |||||||||
(In Thousands, Except Share and Per Share Amounts) | |||||||||
December 29, 2018 | December 30 ,2017 | ||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 1,030 | $ | 31,861 | |||||
Accounts receivable, less allowance for doubtful accounts | 77,888 | 69,297 | |||||||
Inventories, net | 90,061 | 77,162 | |||||||
Deferred catalog costs | - | 3,450 | |||||||
Prepaid expenses and other current assets | 15,763 | 14,121 | |||||||
Refundable income taxes | 1,019 | 547 | |||||||
Total current assets | 185,761 | 196,438 | |||||||
Property, plant and equipment, net | 31,902 | 33,579 | |||||||
Goodwill | 4,580 | 26,842 | |||||||
Intangible assets, net | 33,306 | 37,163 | |||||||
Development costs and other | 14,807 | 16,339 | |||||||
Deferred taxes long-term | 320 | 2,046 | |||||||
Total assets | $ | 270,676 | $ | 312,407 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current liabilities: | |||||||||
Current maturities - long-term debt | $ | 30,352 | $ | 10,989 | |||||
Accounts payable | 41,277 | 26,591 | |||||||
Accrued compensation | 7,302 | 11,995 | |||||||
Deferred revenue | 5,641 | 3,454 | |||||||
Accrued royalties | 2,678 | 5,699 | |||||||
Other accrued liabilities | 11,379 | 15,442 | |||||||
Total current liabilities | 98,629 | 74,170 | |||||||
Long-term debt - less current maturities | 103,583 | 130,574 | |||||||
Other liabilities | 1,101 | 172 | |||||||
Total liabilities | 203,313 | 204,916 | |||||||
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; 7,000,000 shares outstanding | 7 | 7 | |||||||
Capital in excess of par value | 125,072 | 123,083 | |||||||
Accumulated other comprehensive loss | (2,079 | ) | (1,425 | ) | |||||
Retained earnings (accumulated deficit) | (55,637 | ) | (14,174 | ) | |||||
Total stockholders' equity | 67,363 | 107,491 | |||||||
Total liabilities and stockholders' equity | $ | 270,676 | $ | 312,407 | |||||
SCHOOL SPECIALTY, INC. | ||||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||||
(In Thousands, Except Per Share Amounts) | ||||||||||||||||||
For the Three Months Ended | For the Twelve Months Ended | |||||||||||||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | |||||||||||||||
Revenues | $ | 114,613 | $ | 112,455 | $ | 673,452 | $ | 658,383 | ||||||||||
Cost of revenues | 78,467 | 71,362 | 444,937 | 415,144 | ||||||||||||||
Gross profit | 36,146 | 41,093 | 228,515 | 243,239 | ||||||||||||||
Selling, general and administrative expenses | 51,615 | 54,078 | 222,168 | 217,960 | ||||||||||||||
Facility exit costs and restructuring | 1,314 | 67 | 2,463 | 421 | ||||||||||||||
Impairment charges | 22,262 | - | 22,262 | - | ||||||||||||||
Operating income (loss) | (39,045 | ) | (13,052 | ) | (18,378 | ) | 24,858 | |||||||||||
Other expense: | ||||||||||||||||||
Interest expense | 4,197 | 3,407 | 15,548 | 15,190 | ||||||||||||||
Loss on early extinguishment of debt | - | - | - | 4,298 | ||||||||||||||
Loss before benefit from income taxes | (43,242 | ) | (16,459 | ) | (33,926 | ) | 5,370 | |||||||||||
Provision for (benefit from) income taxes | (4,605 | ) | (5,730 | ) | 4,815 | (1,409 | ) | |||||||||||
Net income (loss) | $ | (38,637 | ) | $ | (10,729 | ) | $ | (38,741 | ) | $ | 6,779 | |||||||
Weighted average shares outstanding: | ||||||||||||||||||
Basic | 7,000 | 7,000 | 7,000 | 7,000 | ||||||||||||||
Diluted | 7,000 | 7,000 | 7,000 | 7,024 | ||||||||||||||
Net income (loss) per Share: | ||||||||||||||||||
Basic | $ | (5.52 | ) | $ | (1.53 | ) | $ | (5.53 | ) | $ | 0.97 | |||||||
Diluted | $ | (5.52 | ) | $ | (1.53 | ) | $ | (5.53 | ) | $ | 0.97 | |||||||
December 29, 2018 | December 30, 2017 | December 29, 2018 | December 30, 2017 | |||||||||||||||
Adjusted EBITDA: | ||||||||||||||||||
Net income (loss) | $ | (38,637 | ) | $ | (10,729 | ) | $ | (38,741 | ) | $ | 6,779 | |||||||
Provision for (benefit from) income taxes | (4,605 | ) | (5,730 | ) | 4,815 | (1,409 | ) | |||||||||||
Restructuring costs | 1,314 | 67 | 2,463 | 421 | ||||||||||||||
Restructuring-related costs incl in SG&A | 456 | 2,280 | 2,458 | 5,211 | ||||||||||||||
Purchase accounting deferred revenue adjustment | 17 | 786 | 732 | 786 | ||||||||||||||
Loss on early extinguishment of debt | - | - | - | 4,298 | ||||||||||||||
Impairment charges | 22,262 | - | 22,262 | - | ||||||||||||||
Depreciation and amortization expense | 4,310 | 4,636 | 17,917 | 14,061 | ||||||||||||||
Amortization of development costs | 1,412 | 1,586 | 5,602 | 5,559 | ||||||||||||||
Net interest expense | 4,197 | 3,407 | 15,548 | 15,190 | ||||||||||||||
Stock-based compensation | 842 | 571 | 2,020 | 2,234 | ||||||||||||||
Adjusted EBITDA | $ | (8,432 | ) | $ | (3,126 | ) | $ | 35,076 | $ | 53,130 | ||||||||