GREENVILLE, Wis., Nov. 08, 2017 (GLOBE NEWSWIRE) -- School Specialty, Inc. (OTCQB:SCOO) (“School Specialty”,
“SSI” or “the Company”), a leading distributor of supplies, furniture and both curriculum and supplemental learning resources to
the education, healthcare and other marketplaces, today announced financial results for its fiscal 2017 third quarter ended
September 30, 2017.
Joseph M. Yorio, President and Chief Executive Officer, stated, “Through the first nine months of fiscal 2017, our gross margins
and operating expenses are tracking better than our internal plan and we continue to take actions to improve our platform, lower
our cost structure, and grow the bottom-line. While we are experiencing modest revenue growth, customers in many states across the
U.S. have been impacted by budget uncertainty, delays and, in some cases, reductions. While 2017 has been particularly challenging
in that regard, our outlook for 2018 and the years ahead remains positive, especially as we continue to build out our team-selling
model, refine our unique 21st Century Safe School value proposition and expand our offering and market reach. For the
full year, we remain confident in our outlook and expect to perform at the high end of our Adjusted EBITDA range and deliver
another year of strong cash flow.”
Q3 Results (for the three months ended September 30, 2017 and September 24, 2016)
- Consolidated revenues were $288.6 million, a decrease of $12.9 million or 4.3%, as compared to revenues of $301.6 million.
Distribution segment revenues of $264.8 million decreased by $11.1 million or 4.0%, as compared to $275.9 million. The decline in
the segment, particularly within the Supplies and Agendas categories, was amplified by the one-week shift in the fiscal calendar.
While Supplies revenues during the quarter declined by $11.3 million as compared to the last year’s third quarter, approximately
$3.0 million of the decline was related to the one-week calendar shift. Weaker booking trends in the third quarter of fiscal
2017, due to education budget uncertainties, contributed to approximately $5.8 million of the decline in Supplies, with the
remaining decline related to a combination of order timing and the reclassification of certain items between Supplies and
Furniture. Furniture revenues increased by $3.9 million or 4.6% and Instruction & Intervention (“I&I”) revenues increased by
$3.3 million or 23.2%. The I&I category was favorably impacted by the Company’s acquisition of Triumph Learning, which
contributed $3.2 million of revenue in the fiscal 2017 third quarter. Agendas revenues declined by $7.4 million due to the
combination of the one-week calendar shift and continued decreasing demand for paper-based planners. Curriculum segment revenues
of $23.9 million decreased by $1.8 million or 6.9%. The year-over-year decline in the Curriculum segment was primarily
timing-related as bookings were up substantially in the quarter. Several large orders are expected to ship in the fourth quarter
of fiscal 2017, whereas the third quarter of fiscal 2016 included a number of large orders. The effect of the one-week calendar
shift is described in further detail in the Company’s investor presentation.
- Overall gross margin was 37.1% as compared to 37.0% in the third quarter of 2016, an improvement of 10 basis points (“bps”).
The impact of lower product development amortization expense in the quarter resulted in 30 bps of gross margin improvement,
partially offset by a shift in product mix, which resulted in a 20 bps gross margin decline for the comparable periods.
Distribution segment gross margin was 35.3% as compared to 35.5%. Lower rates in certain product line gross margins, primarily in
the Supplies and AV Tech lines, resulted in 20 bps of the gross margin decline for the comparable periods. Curriculum segment
gross margin was 57.5% as compared to 53.7%, an improvement of 380 bps. The impact of lower product development amortization
expense resulted in 250 bps of the gross margin improvement. Both Distribution and Curriculum gross margins were ahead of plan
and are expected to be modestly ahead of plan for the full year.
- Selling, General and Administrative (“SG&A”) expenses were $64.7 million as compared to $64.5 million in the third
quarter of 2016, an increase of $0.2 million. Variable SG&A costs (such as outbound transportation, fulfillment center and
commission expense) declined by $3.2 million when comparing the fiscal 2017 and fiscal 2016 third quarters, through a combination
of both lower volumes and more effective management of variable SG&A costs. These declines were partially offset by $2.4
million of incremental SG&A costs associated with the acquisition of Triumph Learning during the fiscal 2017 third quarter.
Timing-related increases in catalog and other selling and marketing costs of $1.2 million were partially offset by $0.5
million of lower costs for professional fees and outside services. SG&A as a percent of revenue increased from 21.4% for the
three months ended September 24, 2016 to 22.4% for the three months ended September 30, 2017.
- The Company reported operating income of $42.3 million as compared to operating income of $47.0 million in the fiscal 2017
and fiscal 2016 third quarter periods, respectively. Net income was $34.1 million for the three months ended September 30, 2017
as compared to net income of $42.9 million in the comparable year-ago period. The year-over-year variance in net income was
related to the lower operating income and the prior gain of $9.1 million from the sale of an unconsolidated affiliate, partially
offset by a $4.2 million reduction in the provision for income taxes. In addition, interest expense was down $1.0 million or
21.1% in the third quarter of fiscal 2017.
- Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) was $48.7 million, as compared to Adjusted
EBITDA of $52.9 million in the comparable 2016 period.
YTD Results (for the nine months ended September 30, 2017 and September 24, 2016)
- Consolidated revenues were $545.9 million, an increase of $4.7 million or 0.9%, as compared to consolidated revenues of
$541.2 million. Distribution segment revenues of $498.0 million increased by $5.6 million or 1.1%, as compared to $492.4 million.
Within the Distribution segment, the increase is related to a combination of the one-week calendar shift in fiscal 2017 in
addition to revenues in the current year from the fiscal 2017 third quarter asset acquisition of Triumph Learning. Furniture
category revenue increased by $13.6 million or 9.6% and I&I revenue increased by $3.3 million or 10.6%. These increases were
partially offset by a $4.3 million or 1.6% decline in Supply category revenue and a $7.0 million or 17.4% decline in Agendas
category revenue. AV Tech revenue for the comparable nine-month period was essentially flat (decline of $0.1 million or 0.5%).
Total Curriculum segment revenue of $47.9 million declined by $0.9 million or 1.8% when comparing the fiscal 2017 and fiscal 2016
nine-month periods. Despite fewer large state adoption opportunities, we are seeing strong interest in FOSS in other channels and
open territories.
- Overall gross margin was 37.0% as compared to 37.4% in the first nine months of 2016, a decline of 40 bps. A shift in product
mix and lower product rate gross margins contributed 30 bps each of gross margin decline when comparing the fiscal 2017 and
fiscal 2016 periods. These declines were partially offset by the impact of lower product development amortization expense.
Distribution segment gross margin was 35.4% as compared to 36.0%. Approximately 30 bps of the decrease in gross margin was
related to a combination of lower Supplies gross margins driven by strategic agreement pricing, increased channel partner rebates
and lower margins in the AV Tech product line. A shift in product mix resulted in the remaining 30 bps of gross margin decline.
Curriculum gross margin was 54.1% as compared to 51.9%, as the impact of lower product development amortization contributed 280
bps of gross margin improvement. Modest product cost increases in the current year have resulted in approximately 60 bps of
gross margin decline.
- SG&A expenses were $163.9 million as compared to $165.0 million, a decline of $1.1 million or 0.6%. While the
incremental volume resulted in approximately $0.1 million of variable SG&A costs (outbound transportation, fulfillment center
costs and commission expense) in the current year on a consistent variable SG&A rate basis with the prior year, the Company’s
variable SG&A expenses were down $3.6 million compared to the prior year. Other areas of lower SG&A in the current year
included a reduction in depreciation and amortization expense (down $1.4 million) and a reduction in catalog costs (down $1.2
million). These decreases were partially offset by $2.4 million of SG&A costs associated with the Triumph Learning
acquisition, stock-based compensation expense (up $0.5 million), and marketing and selling costs (up $1.5 million), among other
factors. Additionally, SG&A costs in the first nine months of fiscal 2016 included a $0.7 million foreign exchange gain;
whereas, in the comparable fiscal 2017 period, the Company realized a nominal foreign exchange gain of less than $0.1 million. As
a percent of revenue, SG&A decreased from 30.5% for the nine months ended September 24, 2016 to 30.0% for the nine months
ended September 30, 2017.
- The Company reported operating income of $37.9 million as compared to operating income of $37.0 million in the comparable
year-ago period, an improvement of $0.9 million. Net income was $17.5 million as compared to net income of $28.6 million. The
fiscal 2016 nine-month period included a gain on the sale of an unconsolidated affiliate of $9.1 million; whereas, the fiscal
2017 nine-month period included a $4.3 million loss on the early extinguishment of debt related to the Company’s refinancing of
its facilities. Interest expense in the fiscal 2017 nine-month period was $1.5 million lower than the comparable period for
fiscal 2016 due to a combination of lower average outstanding debt balances and lower effective borrowing rates associated with
the Company’s second quarter debt refinancing.
- Adjusted EBITDA was $56.3 million, as compared to Adjusted EBITDA of $56.7 million in the comparable nine-month period in
fiscal 2016.
Mr. Yorio continued, “Our balance sheet continues to strengthen and, with our debt refinancing completed earlier this fiscal
year, we have not only lowered our capital costs, but added flexibility to pursue accretive acquisitions, joint ventures and other
partnerships to enhance our customer value proposition. The recent acquisition of Triumph Learning is an example of this and that
integration is going well. Each day we uncover new opportunities to improve our business and there’s a lot of excitement building
at School Specialty. We’re investing with the future in mind and balancing a focus on delivering near-term results while
positioning our Company for long-term success.”
Additional information on the Company’s outlook for 2017 can be found in the investor presentation on pages 18-19, which will be
published shortly under the Investor Relations section of the Company’s website.
School Specialty will be hosting a teleconference and webcast on Thursday, November 9, 2017 at 9:00 a.m. ET to discuss its
results and outlook. Speaking from management will be Joseph M. Yorio, President and 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: 9877139
- Replay number: 855-859-2056 / International replay number: 404-537-3406 /
Conference ID: 9877139
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 distributor of innovative and proprietary products, programs and services to the education
marketplace. The Company designs, develops, and provides educators with the latest and very best school supplies, furniture
and both curriculum and supplemental learning resources. Working in collaboration with educators, School Specialty reaches beyond
the scope of textbooks to help teachers, guidance counselors and school administrators ensure that every student reaches his or her
full potential. Through its SSI Guardian subsidiary, the Company is also committed to school, healthcare and corporate workplace
safety by offering the highest quality curriculum, training and safety and security products. Through its recently launched SOAR
Life Products brand, the Company offers thousands of products that sharpen cognitive skills and build physical and mental strength
in fun and creative ways. From childhood through adulthood, they help individuals live life to the fullest – engaged, happy and
well. SOAR Life Products is a customized offering for hospitals, long-term care, therapeutic facilities, home care, surgery
centers, day care centers, physician offices, and clinics. For more information about School Specialty, visit
www.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 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 31, 2016, 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
adjusted for: provision for (benefit from) income taxes; restructuring costs; restructuring-related costs included in SG&A;
gain on sale of unconsolidated affiliate; change in fair value of interest rate swap; depreciation and amortization expense;
amortization of development costs; net interest expense; and stock-based compensation.
The Company considers Adjusted EBITDA a relevant supplemental measure of its financial performance. The Company believes this
non-GAAP financial result provides useful supplemental information for investors regarding trends and performance of our ongoing
operations and are useful for year-over-year comparisons of such results. We also use this non-GAAP financial measure in making
operational and financial decisions and in establishing operational goals.
In summary, we believe that providing this non-GAAP financial measure 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, and (iv) evaluate trends in our
business, all consistent with how management evaluates such performance and trends.
Adjusted EBITDA does not represent, and should not be considered, an alternative to net income or operating income 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 and Chief Financial Officer
Kevin.baehler@schoolspecialty.com
Tel: 920-882-5882
Investor and Media Relations Contact
Glenn Wiener
Gwiener@gwcco.com
Tel: 212-786-6011
SCHOOL SPECIALTY, INC. |
|
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) |
|
(In Thousands, Except Share and Per Share
Amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017 |
|
December 31,
2016 |
|
September 24,
2016 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,167 |
|
|
$ |
35,097 |
|
|
$ |
7,349 |
|
|
|
Accounts receivable, less allowance for doubtful accounts |
|
|
162,343 |
|
|
|
61,713 |
|
|
|
172,078 |
|
|
|
Inventories, net |
|
|
84,250 |
|
|
|
73,649 |
|
|
|
84,848 |
|
|
|
Deferred catalog costs |
|
|
2,924 |
|
|
|
5,235 |
|
|
|
2,563 |
|
|
|
Prepaid expenses and other current assets |
|
|
15,357 |
|
|
|
11,976 |
|
|
|
13,238 |
|
|
|
Refundable income taxes |
|
|
6 |
|
|
|
728 |
|
|
|
- |
|
|
|
|
Total current assets |
|
|
273,047 |
|
|
|
188,398 |
|
|
|
280,076 |
|
|
Property, plant and equipment, net |
|
|
33,884 |
|
|
|
28,684 |
|
|
|
28,722 |
|
|
Goodwill |
|
|
31,437 |
|
|
|
21,588 |
|
|
|
21,588 |
|
|
Intangible assets, net |
|
|
32,347 |
|
|
|
35,049 |
|
|
|
35,950 |
|
|
Development costs and other |
|
|
18,487 |
|
|
|
13,703 |
|
|
|
15,757 |
|
|
Deferred taxes long-term |
|
150 |
|
|
|
185 |
|
|
|
5 |
|
|
|
|
Total assets |
|
$ |
389,352 |
|
|
$ |
287,607 |
|
|
$ |
382,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities - long-term debt |
|
$ |
56,142 |
|
|
$ |
5,493 |
|
|
$ |
50,637 |
|
|
|
Accounts payable |
|
|
38,352 |
|
|
|
22,078 |
|
|
|
43,970 |
|
|
|
Accrued compensation |
|
|
9,199 |
|
|
|
12,008 |
|
|
|
13,266 |
|
|
|
Deferred revenue |
|
|
5,592 |
|
|
|
2,922 |
|
|
|
3,547 |
|
|
|
Accrued income tax payable |
|
|
3,367 |
|
|
|
- |
|
|
|
3,471 |
|
|
|
Other accrued liabilities |
|
|
20,019 |
|
|
|
14,909 |
|
|
|
18,801 |
|
|
|
|
Total current liabilities |
|
|
132,671 |
|
|
|
57,410 |
|
|
|
133,692 |
|
|
Long-term debt - less current maturities |
|
|
138,817 |
|
|
|
131,994 |
|
|
|
136,686 |
|
|
Other liabilities |
|
|
169 |
|
|
|
84 |
|
|
|
95 |
|
|
|
|
Total liabilities |
|
|
271,657 |
|
|
|
189,488 |
|
|
|
270,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
7 |
|
|
|
Capital in excess of par value |
|
|
122,512 |
|
|
|
120,849 |
|
|
|
120,399 |
|
|
|
Accumulated other comprehensive loss |
|
|
(1,379 |
) |
|
|
(1,784 |
) |
|
|
(1,669 |
) |
|
|
Retained earnings (accumulated deficit) |
|
|
(3,445 |
) |
|
|
(20,953 |
) |
|
|
(7,112 |
) |
|
|
|
Total stockholders' equity |
|
|
117,695 |
|
|
|
98,119 |
|
|
|
111,625 |
|
|
|
|
Total liabilities and stockholders' equity |
|
$ |
389,352 |
|
|
$ |
287,607 |
|
|
$ |
382,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHOOL SPECIALTY, INC. |
|
CONSOLIDATED STATEMENTS OF
OPERATIONS |
|
(In Thousands, Except Per Share Amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended |
|
For the Nine Months
Ended |
|
|
|
|
|
|
|
September 30,
2017 |
|
September 24,
2016 |
|
September 30,
2017 |
|
September 24,
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
288,641 |
|
$ |
301,569 |
|
|
$ |
545,928 |
|
$ |
541,152 |
|
|
|
Cost of revenues |
|
|
181,513 |
|
|
190,011 |
|
|
|
343,782 |
|
|
338,530 |
|
|
|
|
Gross profit |
|
|
107,128 |
|
|
111,558 |
|
|
|
202,146 |
|
|
202,622 |
|
|
|
Selling, general and administrative expenses |
|
|
64,694 |
|
|
64,454 |
|
|
|
163,882 |
|
|
164,977 |
|
|
|
Facility exit costs and restructuring |
|
138 |
|
|
93 |
|
|
|
354 |
|
|
642 |
|
|
|
|
Operating income |
|
|
42,296 |
|
|
47,011 |
|
|
|
37,910 |
|
|
37,003 |
|
|
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
3,537 |
|
|
4,488 |
|
|
|
11,783 |
|
|
13,333 |
|
|
|
|
(Gain) on sale of unconsolidated affiliate |
|
|
- |
|
|
(9,090 |
) |
|
|
- |
|
|
(9,090 |
) |
|
|
|
Loss on early extinguishment of debt |
|
|
- |
|
|
- |
|
|
|
4,298 |
|
|
- |
|
|
|
|
Change in fair value of interest rate swap |
|
|
- |
|
|
(95 |
) |
|
|
- |
|
|
(271 |
) |
|
|
Income before provision from income taxes |
|
|
38,759 |
|
|
51,708 |
|
|
|
21,829 |
|
|
33,031 |
|
|
|
Provision for income taxes |
|
|
4,614 |
|
|
8,813 |
|
|
|
4,321 |
|
|
4,425 |
|
|
|
|
Net income |
|
$ |
34,145 |
|
$ |
42,895 |
|
|
$ |
17,508 |
|
$ |
28,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
7,000 |
|
|
7,000 |
|
|
|
7,000 |
|
|
7,000 |
|
|
|
|
Diluted |
|
|
7,025 |
|
|
7,000 |
|
|
|
7,023 |
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per Share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.88 |
|
$ |
6.13 |
|
|
$ |
2.50 |
|
$ |
4.09 |
|
|
|
|
Diluted |
|
$ |
4.86 |
|
$ |
6.13 |
|
|
$ |
2.49 |
|
$ |
4.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017 |
|
September 24,
2016 |
|
September 30,
2017 |
|
September 24,
2016 |
|
|
|
|
|
Adjusted Earnings before interest, taxes,
depreciation, |
|
|
|
|
|
|
|
|
|
|
|
|
|
amortization, bankruptcy-related
costs, restructuring and impairment |
|
|
|
|
|
|
|
|
|
|
|
charges (EBITDA) reconciliation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
34,145 |
|
$ |
42,895 |
|
|
$ |
17,508 |
|
$ |
28,606 |
|
|
|
|
|
|
Provision for income taxes |
|
|
4,614 |
|
|
8,813 |
|
|
|
4,321 |
|
|
4,425 |
|
|
|
|
|
|
Restructuring costs (1) |
|
|
138 |
|
|
93 |
|
|
|
354 |
|
|
642 |
|
|
|
|
|
|
Restructuring-related costs incl in SG&A (2) |
|
|
1,039 |
|
|
564 |
|
|
|
2,931 |
|
|
2,143 |
|
|
|
|
|
|
Gain on sale of unconsolidated affiliate |
|
|
- |
|
|
(9,090 |
) |
|
|
- |
|
|
(9,090 |
) |
|
|
|
|
|
Change in fair value of interest rate swap |
|
|
- |
|
|
(95 |
) |
|
|
- |
|
|
(271 |
) |
|
|
|
|
|
Loss on early extinguishment of debt |
|
|
- |
|
|
- |
|
|
|
4,298 |
|
|
- |
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
2,952 |
|
|
2,793 |
|
|
|
9,425 |
|
|
10,714 |
|
|
|
|
|
|
Amortization of development costs |
|
|
1,691 |
|
|
1,954 |
|
|
|
3,973 |
|
|
5,029 |
|
|
|
|
|
|
Net interest expense |
|
|
3,537 |
|
|
4,488 |
|
|
|
11,783 |
|
|
13,333 |
|
|
|
|
|
|
Stock-based compensation |
|
|
572 |
|
|
449 |
|
|
|
1,663 |
|
|
1,166 |
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
48,688 |
|
$ |
52,864 |
|
|
$ |
56,256 |
|
$ |
56,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|