EX-99.1 2 d792652dex991.htm EX-99.1 EX-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 Second Quarter Financial Results



Second quarter revenue of $160.6 million



Second quarter operating income of $1.8 million



Second quarter Adjusted EBITDA of $10.3 million



Executes new 10-year exclusive licensing agreement for FOSS Science Curriculum



Lowering 2019 Revenue guidance to $640 million to $650 million



Confirming 2019 gross margin guidance of 50 bps improvement



With additional cost savings expected, guiding to lower end of adjusted EBITDA guidance range of $42 million to $46 million

GREENVILLE, Wis., August 12, 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 second quarter ended June 29, 2019.

Michael Buenzow, Interim Chief Executive Officer, stated, “Current bookings gross margin trends for late Q2 and early Q3 indicate solid gross margin improvement within the Distribution segment for the second half of 2019. Our variable and fixed cost savings initiatives are gaining traction as we continue to aggressively manage the SG&A expense structure, and we plan on accelerating those initiatives in the second half of 2019 to increase our profitability. With an emphasis and focus on higher margin revenue opportunities, we have taken a very disciplined and focused approach to our business, which in some cases includes walking away from certain large revenue opportunities with low margins. This, along with a delayed recovery in our Science Curriculum segment, has contributed to revenue softness in the first half of the year and our lower overall revenue outlook for 2019. Small district and non-district accounts have experienced some weakness and, as a result, we have engaged in a proactive direct marketing campaign to address these customer segments. Importantly, our business is trending favorably year-over-year within large school districts, major purchasing cooperatives, and state contracts. We remain committed to driving long term organic growth, focusing on cost efficiency, expanding margins, and generating strong free cash flow.”

Ryan M. Bohr, Executive Vice President and Chief Operating Officer, stated, “From an operations perspective, the challenges of 2018 are fully behind us. The performance in our fulfillment centers has been exceptional with respect to all customer-facing metrics, such as fill-rates, order lead-times, and order accuracy. We believe this solid execution will be a significant advantage as we look to drive follow-on orders and strengthen order trends after the peak ordering months of July and August. We remain focused on process improvement and cost reduction initiatives, which have contributed to a greater than 6% reduction in SG&A through the second quarter. We are confident this favorability will continue and will improve long-term profitability. Importantly, key process improvement efforts not only lower costs but position us to better serve our customers and drive organic revenue growth.”

Michael Buenzow added, “Taking this quarter’s revenue results into account, we are still tracking towards the lower end of our previously disclosed adjusted EBITDA guidance range as a result of our cost reduction and margin improvement efforts. As such, we are expecting a considerable increase in EBITDA performance on a year-over-year basis in the second half of 2019. In our Distribution segment, booked gross margins for June and July, two of the Company’s strongest order months, were up year-over-year by 250 basis points. This improvement stems primarily from the implementation of a more strategic approach to bids and contracts and effective management of discount programs. Furniture margins have also shown steady improvement and were favorable year-over-year for the first half of 2019. In our Science Curriculum business, we have seen more active competition, resulting in our win-rates coming in below historical levels. This said, with increasing demand for NGSS-aligned curriculum programs, we are confident our leadership and deep roots in the K-8 Science market will enable a strong recovery in the Science segment. Overall, we remain focused on further improvements and enhancing our products to better serve the needs of our customers.”

FOSS Science Curriculum Update

School Specialty, Inc. is also extremely pleased to announce that we have successfully executed a new 10-year agreement to continue as the exclusive publisher of the award-winning FOSS Science Curriculum program. The new long-term agreement provides us with an opportunity to work collaboratively with the Lawrence Hall of Science at the University of California, Berkeley to further improve the FOSS program and jointly pursue the very significant market opportunity for the FOSS program over the next several years.

Second Quarter of Fiscal 2019 Results



Revenue was $160.6 million for the quarter ended June 29, 2019, as compared to $169.2 million in the second quarter of fiscal 2018, representing a decrease of 5.1%. This decrease included declines of 3.6% in the Distribution segment and 22.2% in the Science Curriculum segment.



Our Supplies business with the largest school districts in the country is gaining momentum through major purchasing cooperatives and large state contracts.



Based on the current pipeline of opportunities, we expect Science Curriculum revenue to begin to accelerate as the second half progresses.



The Company reported a gross profit margin for the quarter ended June 29, 2019 of 32.7%, as compared to 34.7% reported in the second quarter of fiscal 2018. While gross margin contracted in the quarter, booking trends in Supplies and Furniture in June and July support gross margin expansion in the second half of 2019 as our pricing strategy gains traction.



Selling, general and administrative (“SG&A”) expenses were $50.5 million for the quarter ended June 29, 2019, which represents a 6.1% decrease year-over-year, driven primarily by lower variable costs related to volume, transportation cost reduction efforts, and lower compensation and benefits costs as well as marketing and catalog costs.



The Company reported adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) of $10.3 million for the quarter ended June 29, 2019, compared to $11.5 million in the quarter ended June 30, 2018. Factors impacting Adjusted EBITDA in the second quarter of fiscal 2019 compared to the prior year include lower revenue and gross profit, partially offset by lower SG&A costs.

Fiscal 2019 Outlook Update



Total revenue is expected to be approximately $640 million to $650 million, a 3% to 5% decrease year-over-year. The updated outlook is driven primarily by a movement away from low margin business in both Supplies and Furniture and a delayed recovery in the Science Curriculum segment.



Gross margin is forecasted to expand 50 basis points year-over-year, consistent with our original guidance, despite an unfavorable shift in expected revenue mix. Strong favorability in the second half of 2019 is expected to more than offset performance in the first half of 2019.



Favorable gross margin trends, which began to materially impact results late in the second quarter, are expected to continue and should offset the impact of lower top-line performance as we drive considerable year-over-year gross margin expansion in the second half of 2019.



Full year SG&A expense is forecasted to decline approximately 6% year-over-year. SG&A is being managed aggressively, and we expect year-over-year cost reductions to offset any softness in the top-line.



Full year 2019 EBITDA is forecasted to come in at the lower end of our previously disclosed guidance of $42 million to $46 million.



Free cash flow is anticipated to be in the range of $15 million to $20 million, down from the original guidance of $27 million to $33 million. Higher than anticipated year-end net working capital balances, driven primarily by lower accrued incentive compensation and increased restructuring costs associated with SG&A actions are contributing to the decline in free cash flow. This assumes capital expenditures of $10 million and product development investments of $5 million.



School Specialty is working with a leading investment banking firm to refinance its deferred cash payment obligations, which are payable at the end of fiscal 2019.

School Specialty will be hosting a teleconference and webcast on Tuesday, August 13, 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: 7179747



Replay number: 855-859-2056 / International replay number: 404-537-3406 / Conference ID: 7179747

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 other unique products and services that enable educators across North America to transform more than classrooms. The Company applies its unmatched team of subject-matter experts and customized planning, development and project management tools to deliver its 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 with 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.


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

Mark Barbalato – FTI Consulting


Tel: 212-850-5707

Tables to Follow



(In Thousands, Except Per Share Amounts)


     For the Three Months Ended      For the Six Months Ended  
     June 29, 2019     June 30, 2018      June 29, 2019     June 30, 2018  


   $ 160,609     $ 169,272      $ 256,541     $ 268,559  

Cost of revenues

     107,930       110,528        171,060       173,694  













Gross profit

     52,679       58,744        85,481       94,865  

Selling, general and administrative expenses

     50,532       53,808        102,980       110,946  

Impairment charge

     —         —          283       —    

Facility exit costs and restructuring

     334       171        1,210       482  













Operating income (loss)

     1,813       4,765        (18,992     (16,563

Other expense:


Interest expense

     4,960       3,688        9,586       7,194  

Change in fair value of derivatives

     1,082       —          1,082       —    













Income (loss) before benefit from income taxes

     (4,229     1,077        (29,660     (23,757

Provision for (benefit from) income taxes

     1,627       1,059        1,171       (5,097













Net income (loss)

   $ (5,856   $ 18      $ (30,831   $ (18,660













Weighted average shares outstanding:



     7,012       7,000        7,007       7,000  


     7,012       7,129        7,007       7,000  

Net Loss per Share:



   $ (0.84   $ 0.00      $ (4.40   $ (2.67


   $ (0.84   $ 0.00      $ (4.40   $ (2.67
     June 29, 2019     June 30, 2018      June 29, 2019     June 30, 2018  

Adjusted Earnings before interest, taxes, depreciation, amortization, change in value of derivatives, restructuring and impairment charges (EBITDA) reconciliation:


Net income (loss)

   $ (5,856   $ 18      $ (30,831   $ (18,660

Provision for (benefit from) income taxes

     1,627       1,059        1,171       (5,097

Purchase accounting deferred revenue adjustment

     —         266        —         639  

Impairment charge

     —         —          283       —    

Restructuring costs

     334       171        1,210       482  

Restructuring-related costs incl in SG&A

     2,179       390        3,930       1,688  

Change in fair value of derivatives

     1,082       —          1,082       —    

Depreciation and amortization expense

     4,342       3,935        8,514       9,393  

Amortization of development costs

     1,343       1,382        2,301       2,686  

Net interest expense

     4,960       3,688        9,586       7,194  

Stock-based compensation

     270       625        (890     1,197  













Adjusted EBITDA

   $ 10,281     $ 11,534      $ (3,644   $ (477















(In Thousands, Except Share and Per Share Amounts)


     June 29, 2019     December 29, 2018     June 30, 2018  



Current assets:


Cash and cash equivalents

   $ 7,236     $ 1,030     $ 8,640  

Accounts receivable, less allowance for doubtful accounts

     87,345       77,888       90,470  

Inventories, net

     122,308       90,061       131,761  

Prepaid expenses and other current assets

     22,535       15,763       21,154  

Refundable income taxes

     138       1,019       2,115  










Total current assets

     239,562       185,761       254,140  

Property, plant and equipment, net

     30,761       31,902       32,063  

Operating lease right-of-use asset

     12,528       —         —    


     4,580       4,580       26,842  

Intangible assets, net

     31,149       33,306       35,184  

Development costs and other

     14,489       14,807       16,191  

Deferred taxes long-term

     291       320       8,347  










Total assets

   $ 333,360     $ 270,676     $ 372,767  












Current liabilities:


Current maturities—long-term debt

   $ 94,971     $ 30,352     $ 64,600  

Current operating lease liability

     5,203       —         —    

Accounts payable

     62,060       41,277       61,894  

Accrued compensation

     7,161       7,302       8,209  

Contract liabilities

     5,414       5,641       5,804  

Accrued royalties

     1,591       2,678       1,998  

Other accrued liabilities

     13,908       11,379       12,265  










Total current liabilities

     190,308       98,629       154,770  

Long-term debt—less current maturities

     96,429       103,583       130,437  

Opearting lease liability

     7,403       —         —    

Other liabilities

     3,353       1,101       792  










Total liabilities

     297,493       203,313       285,999  










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; 7,000,000 and 7,000,000 shares issued and outstanding, respectively

     7       7       7  

Capital in excess of par value

     124,183       125,072       124,149  

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

     (34     —         —    

Accumulated other comprehensive loss

     (1,821     (2,079     (1,832

Accumulated deficit

     (86,468     (55,637     (35,556










Total stockholders’ equity

     35,867       67,363       86,768  










Total liabilities and stockholders’ equity

   $ 333,360     $ 270,676     $ 372,767