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PRESS RELEASE: Paid content from Globe Newswire
Press release content from Globe Newswire. The AP news staff was not involved in its creation.

School Specialty Announces Fiscal Year 2019 First Quarter Financial Results

May 8, 2019

-- 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 08, 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 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 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 InformationAny 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 InformationThis 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 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, March 31, 2019 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, March 31, 2019 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 Share and Per Share Amounts) March 30, December March 31, 2019 29, 2018 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 7 7 7 outstanding, respectively 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 - ------- - - ------- - - ------- -