Market Overview

School Specialty Provides Fiscal 2019 Results

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  • Fiscal 2019 Revenue of $626.3 million
  • Fiscal 2019 Adjusted EBITDA of $23.9 million
  • Fiscal 2019 Free Cash Flow of $1.0 million, an improvement of $20.4 million from 2018

GREENVILLE, Wis., April 06, 2020 (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 28, 2019.

Ryan Bohr, Executive Vice President and Chief Operating Officer, stated, "The core takeaways from our 2019 performance are that we delivered very effectively for our customers during the back-to-school season and successfully executed pricing and business strategies that had begun to steadily improve our margins in the second half of the year and position us for growth.  Success in these areas had contributed to an exceptionally strong start to 2020 however this was curtailed by the global COVID-19 pandemic."  Mr. Bohr further stated, "The health of our employees, suppliers and customers is a priority for us and we have focused on safeguarding and supporting their well-being during this challenging time by enabling substantially all of our team to work remotely and implementing additional sanitation and distancing measures in our fulfillment centers. As we adapt to this unprecedented and fluid situation, we have also taken important steps to scale back our cost structure.  We remain operational as an essential business and available to support the needs of our districts, educators and students across the country. When schools start to take the steps necessary to prepare for the 2020/21 school year and School Specialty fully intends to be there to support them."    

Mr. Bohr concluded, "With the additional complexities of the COVID-19 situation, our process to address our capital structure is exclusively focused on discussions with our current senior secured lenders.  We have recently executed amendments and forbearance extensions that enable those discussions to continue.  While we do not expect those discussions to result in a transaction that provides meaningful value to our shareholders, we do currently expect we will arrive a transaction that will improve our liquidity position and allow our Company to continue as a going concern."

Fiscal 2019 Results

  • Revenue was $626.3 million for the fiscal year ended December 28, 2019, as compared to $673.5 million in fiscal 2018, representing a decrease of 7.0%. Fiscal fourth quarter 2019 revenue of $91.0 million was down 20.6% compared to the prior year period; however, the impact of prior year fulfillment center issues resulted in delaying over $10.0 million of shipments from Q3 into Q4 2018.  With the strong operational performance in 2019, the fourth quarter of 2019 did not experience a shift in shipment timing.  Weaker orders in November and December also contributed to the year-over-year revenue decreases in Q4 2019 across all product categories.  A portion of the revenue decline experienced in the fiscal year and the fourth quarter can be attributed to decisions not to pursue certain large, low-margin Supply and Furniture revenue opportunities.     
     
  • The Company reported a gross profit margin for the year ended December 28, 2019 of 33.2% as compared to 33.9% reported in 2018. Fourth quarter 2019 gross profit margin was 32.5% compared to 31.5% in the prior year period. 


    • We have seen consistent improvement in year-over-year gross margin trends throughout fiscal 2019, particularly in our Supplies and Furniture product categories.  Supplies gross margin was up approximately 50 bps YOY for full year 2019 and up 350 bps YOY in the fourth quarter of 2019 compared to the prior year's fourth quarter.  Furniture gross margin was up approximately 110 bps for full year 2019 and up 230 bps in Q4 2019.    
       
  • Selling, general and administration ("SG&A") expenses were $217.9 million for the year ended December 28, 2019, which represents a $4.2 million decrease year-over-year.  Excluding incremental restructuring costs in SG&A, SG&A expenses declined by $14.3 million year-over-year, reflecting a continued focus on lowering fixed expenses throughout the Company. SG&A for the fiscal fourth quarter 2019 of $50.5 million was down $1.1 million, or 2.2% below the comparable prior year period. Excluding incremental fourth quarter restructuring costs in SG&A, SG&A expenses declined by $5.7 million, or 11.2%, compared to the fourth quarter of 2018.  
     
  • The Company reported adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") of approximately $23.9 million for the year ended December 28, 2019 compared to $35.1 million in the year ended December 29, 2018.  Approximately $7.3 million of the decrease related to our Agendas product category.  The Agendas product category generated negative EBITDA of approximately $5.3 million in 2019 and the Company exited the product line at the end of 2019.  Fourth quarter Adjusted EBITDA in 2019 was -$9.9 million as compared to -$8.4 million in the prior year fourth quarter.
     
  • Free cash flow in 2019 was $1.0 million as compared to -$19.4 million in 2018.  The successful normalization of working capital provided $18.0 million of positive cash flow impact in 2019 as compared to working capital providing a negative cash flow impact of $17.8 million in 2018. Reduced capital expenditures and product development expenditures contributed an additional $3.8 million free cash flow improvement.  These year-over-year improvements to free cash flow were partially offset by $11.2 million of lower EBITDA in 2019, $10.2 million of incremental restructuring and restructuring-related costs and $2.2 million of incremental cash interest in 2019.

School Specialty will be hosting a teleconference and webcast on Tuesday, April 7, 2019 at 9:00 a.m. ET to discuss its results and outlook. Speaking from management will be Michael C. Buenzow, Interim President and Chief Executive Officer; Ryan M. Bohr, Executive Vice President and Chief Operating Officer; and Kevin L. Baehler, Executive Vice President and Chief Financial Officer.

Conference Call Information

Toll-free number: 844-882-7832 / International number: 574-990-9706 / Conference ID: 3570768
Replay number: 855-859-2056 / International replay number: 404-537-3406 / Conference ID: 3570768

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 is a leading provider of educational products and services to the Pre-K- 12th grade market in the U.S. and Canada. The company designs, manufactures and distributes a broad assortment of furniture & equipment, educational technology, general and specialty classroom supplies, facility supplies, safety and security products, and core and supplemental curriculum for science, math and English language arts. These include trusted national brands, as well as well-recognized proprietary brands, like Sax art products, Childcraft furniture and FOSS Science Curriculum. School Specialty also provides expert guidance, design services and professional development within the categories we support. At its core, School Specialty is a purpose-driven organization. Everything offered, from crayons to curriculum to complete learning environments, is designed to support educators, raise student outcomes and ultimately, transform more than classrooms.

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 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 28, 2019, 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.

Company Contacts  
Ryan Bohr, EVP and Chief Operating Officer
Ryan.bohr@schoolspecialty.com
Tel: 920-882-5868 
Kevin Baehler, EVP
Kevin.baehler@sch
Tel: 920-882-5882
   
Investor and Media Relations Contact
Mark Barbalato – FTI Consulting
Mark.barbalato@fticonsulting.com
Tel: 212-850-5707
 
   


 
SCHOOL SPECIALTY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In Thousands, Except Share and Per Share Amounts)
         
    December 28, 2019   December 29, 2018
ASSETS        
Current assets:        
Cash and cash equivalents   $ 2,077     $ 1,030  
Accounts receivable, less allowance for doubtful accounts     61,718       77,888  
Inventories, net     71,424       90,061  
Prepaid expenses and other current assets      17,956       15,763  
Refundable income taxes      431       1,019  
Total current assets      153,606
      185,761
 
Property, plant and equipment, net      27,429       31,902  
Operating lease right-of-use asset      14,768       -  
Goodwill      -       4,580  
Intangible assets, net      24,733       33,306  
Development costs and other      13,740       14,807  
Deferred taxes long-term      466       320  
Total assets    $ 234,742
    $ 270,676
 
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Current maturities - long-term debt   $ 145,194     $ 30,352  
Current operating lease liability      4,886       -  
Accounts payable     24,011       41,277  
Accrued compensation     8,929       7,302  
Contract liabilities     7,006       5,641  
Accrued royalties     1,992       2,678  
Other accrued liabilities     13,439       11,379  
Total current liabilities   205,457       98,629  
Long-term debt - less current maturities     -       103,583  
Operating lease liability     10,008       -  
Other liabilities     493       1,101  
Total liabilities     215,958       203,313  
         
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; 7,025,219 and 7,000,000 shares issued and outstanding, respectively     7       7  
Capital in excess of par value     125,793       125,072  
Treasury stock, at cost 5,145; 0 and 0 shares, respectively     (34 )     -  
Accumulated other comprehensive loss     (1,797 )     (2,079 )
Accumulated deficit     (105,185 )     (55,637 )
Total stockholders' equity     18,784       67,363  
Total liabilities and stockholders' equity   $ 234,742     $ 270,676  
         



SCHOOL SPECIALTY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
                 
    For the Three Months Ended   For the Twelve Months Ended
    December 28,
2019
  December 29,
2018
  December 28,
2019
  December 29,
2018
                 
Revenues   $ 91,020     $ 114,613     $ 626,073     $ 673,452  
Cost of revenues     61,471       78,467       418,475       444,937  
Gross profit     29,549       36,146       207,598       228,515  
Selling, general and administrative expenses     50,505       51,615       217,921       222,168  
Impairment charge     -       22,262       4,863       22,262  
Facility exit costs and restructuring     391       1,314       2,681       2,463  
Loss on asset sold   4,089       -       4,089       -  
Operating income (loss)     (25,436 )     (39,045 )     (21,956 )     (18,378 )
Other expense:                
Interest expense     5,591       4,197       20,519       15,548  
Loss on early extinguishment of debt     8,032       -       8,032       -  
Change in fair value of derivatives     (1,238 )     -       82       -  
Income (loss) before benefit from income taxes     (37,821 )     (43,242 )     (50,589 )     (33,926 )
Provision for (benefit from) income taxes     (1,240 )     (4,605 )     (1,041 )     4,815  
Net income (loss)   $ (36,581 )   $ (38,637 )   $ (49,548 )   $ (38,741 )
                 
Weighted average shares outstanding:                
Basic     7,025       7,000       7,016       7,000  
Diluted      7,025       7,000       7,016       7,000  
                 
Net Loss per Share:                
Basic    $ (5.21 )   $ (5.52 )   $ (7.06 )   $ (5.53 )
Diluted   $ (5.21 )   $ (5.52 )   $ (7.06 )   $ (5.53 )
                 
    December 28,
2019
  December 29,
2018
  December 28,
2019
  December 29,
2018
Adjusted Earnings before interest, taxes, depreciation, amortization, change in value of derivatives, restructuring and impairment charges (EBITDA) reconciliation:                
Net income (loss)   $ (36,581 )   $ (38,637 )   $ (49,548 )   $ (38,741 )
Provision for (benefit from) income taxes     (1,240 )     (4,605 )     (1,041 )     4,815  
Purchase accounting deferred revenue adjustment     -       17       -       732  
Loss on early extinguishment of debt     8,032       -       8,032       -  
Loss on asset sold     4,089       -       4,089       -  
Impairment charge     -       22,262       4,863       22,262  
Restructuring costs     391       1,314       2,681       2,463  
Restructuring-related costs incl in SG&A     5,085       456       12,468       2,458  
Change in fair value of derivatives     (1,238 )     -       82       -  
Depreciation and amortization expense     4,797       4,310       17,915       17,917  
Amortization of development costs     994       1,412       4,465       5,602  
Net interest expense     5,591       4,197       20,519       15,548  
Stock-based compensation     182       842       (589 )     2,020  
      Adjusted EBITDA   $ (9,898 )   $ (8,432 )   $ 23,936     $ 35,076  
                 

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