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Third Quarter Financial Results (compares three months ended
$77.8 million, an increase of 4.1% or $3.1 millionas compared to revenues of $74.7 million. Distribution segment revenues increased 5.2% or $3.4 million, driven by strong year-over-year increases in order rates for the furniture and technology product categories. We expect continued growth in the Distribution segment in the fiscal fourth quarter. Curriculum segment revenues decreased 2.7% or $0.3 million, with Science revenues down approximately $0.4 millionand Reading revenues up approximately $0.1 million. While Curriculum segment revenues declined slightly for the comparable periods, the sales pipeline supports year-over-year growth in the fiscal fourth quarter.
Gross margin was 34.5% as compared to 35.4%. Distribution segment gross margin was 33.2% as compared to 33.9%, and the Curriculum segment gross margin was 43.0% as compared to 45.3%. The decrease in gross margin in the Distribution segment was primarily related to the mix of furniture revenue in the comparable quarters as it represented a higher percentage of total Distribution revenues (impact of 70 basis points). Higher product development amortization (in total and as a percentage of revenue) had a negative impact in the Curriculum Science business of 490 basis points. This was partially offset by a mix shift towards higher margin products. Finally, the Distribution segment, which carries lower overall gross margins, represented a greater portion of sales in the quarter as compared to the prior year (87.1% vs. 86.2%).
Selling, general and administrative (SG&A) expenses were
$50.9 millionas compared to $48.7 million, an increase of 4.5% or $2.2 million. SG&A attributable to the Distribution and Curriculum segments increased $0.9 millionin total, and Corporate SG&A increased $1.3 million. Within the Distribution segment, the Company experienced higher costs associated with transportation due to higher freight rates and an increase in online marketing costs as it continues to focus on digital marketing campaigns to increase customer interaction. Additionally, as compared to last year's third quarter, compensation and benefit costs increased by $0.2 million; however, last year's third quarter included approximately $1.0 millionrelated to a furlough, which has since ceased. There were no material changes in the Curriculum segment. Corporate SG&A increased by $1.3 millionand is primarily related to the write-down of $0.6 millionof the Company's Salina, KSdistribution center to net realizable value based on a pending sale transaction. This property has been classified as an asset held for sale since the end of last year's second quarter and the Company has an accepted offer to sell this property with net proceeds totaling $1.6 million. This sale is expected to close in the Company's fiscal 2015 fourth quarter. During the third quarter and early portion of the fourth quarter, the Company executed on a number of initiatives that will materially lower personnel and other SG&A costs going forward. The total number of associates has been reduced by approximately 180, or 13%, in recent weeks as the Company has moved to a more integrated operating model.
During the fiscal 2015 third quarter, the Company recorded
$2.2 millionof charges related primarily to severance. In the comparable year-ago period, the Company recorded $2.4 millionof bankruptcy-related restructuring charges consisting of costs associated with facility closures and consulting fees associated with the process improvement initiatives.
Operating loss was
$26.3 millionas compared to an operating loss of $24.7 million. Net loss was $30.7 millionor net income per diluted share of $30.65compared with a net loss of $30.1 millionand a net loss per diluted share of $30.14.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was a loss of
$14.5 millionas compared to a loss of $14.6 million.
Mr. Yorio continued, "During the third quarter, our Furniture business increased as expected, as some of the delayed orders at the beginning of our fiscal year were realized and this should continue in our fourth quarter and into next year. Transactional products for supplies and furniture, Projects by Design and Technology were the key drivers to our growth, with PBD our biggest contributor and posting year-over-year double digit gains in order bookings. We completed our sales force realignment and made significant progress in staffing our inside sales team, as we're continuing to invest in an inside-outside model to increase customer touch points and gain more market knowledge regarding future needs. The steps we took in recent weeks to integrate departmental functions are designed to support and drive sales while resulting in better collaboration, service and performance."
Nine Month Financial Results (compares nine months ended
As a result of the emergence from bankruptcy occurring six weeks into fiscal 2014, management believes that the presentation of Non-GAAP Financial Information – Combined Results for the first nine months of fiscal 2014 offers a useful non-GAAP normalized comparison to GAAP results of the
$515.9 million, a decline of $6.6 millionor 1.3% as compared to $522.5 million, which includes $4.3 millionof revenues from printing plants that were divested in fiscal 2014. Distribution segment revenues decreased 2.3% or $10.4 million, including the divestiture of printing plants. The student planner and agenda products accounted for $8.7 millionof the decline, offset by a $4.4 millionincrease in Furniture revenues. Other product categories declined by approximately $1.8 million. Curriculum segment revenues increased 5.5%, or $3.8 million, primarily related to the adoption of a state science curriculum in Texasduring the first quarter of fiscal 2015.
Gross margin was 37.3% as compared to 38.8%. Distribution segment gross margin was 35.1% as compared to 36.7%, and Curriculum segment gross margin was 50.0% as compared to 52.6%. The decrease in Distribution segment gross margin was primarily related to lower sales of agenda products and a shift in product mix and the decline in Curriculum segment gross margin was primarily related to increased product development amortization, which contributed to a decrease of 330 basis points of gross margin, offset by a favorable product mix as
Texasadoption revenue had a higher curriculum content.
Selling, general and administrative (SG&A) expenses were
$180.7 millionas compared to $184.9 million, a decrease of $4.1 millionor 2.3%. SG&A attributable to the Distribution and Curriculum segments decreased $7.3 millionin total, and Corporate SG&A increased $3.2 million. Distribution segment SG&A declined by 3.3% due to lower marketing costs, a decline in depreciation and amortization expense and lower compensation and benefit costs, partially offset by an increase in transportation costs. Curriculum segment SG&A decreased by 7.1% due to lower marketing costs and compensation and benefit costs. The increase in Corporate SG&A was primarily related to costs associated with the process improvement implementation costs, as well as a $0.6 millionwrite down of the Company's Salina, KSfacility which is classified as an asset held for sale.
The Company recorded
$4.3 millionof restructuring charges related primarily to severance and adjustments to estimated lease termination costs associated with a prior year closure of a distribution center as compared to $6.0 millionof bankruptcy-related facility exit costs and restructuring charges.
Operating income was
$7.2 millionas compared to operating income of $12.0 million. Net loss was $7.7 millionor a net loss per diluted share of $7.71compared with net income of $77.6 millionand net income per diluted share of $5.53. The combined fiscal 2014 nine month period included $79.3 millionof reorganization items, net as compared to $0.3 millionin the comparable fiscal 2015 period.
Adjusted EBITDA was
$42.9 millionas compared to Adjusted EBITDA of $46.6 million.
The Company had previously anticipated revenues of
$625 million - $640 millionfor fiscal 2015 and today, reiterated that revenues should come in at the lower to mid-point of the range taking into account $4.3 millionof revenues from printing plants that were divested. Adjusted EBITDA for fiscal 2015, previously guided to $48 million - $54 million, is now expected to be between $45 million - $47 million. The lowered Adjusted EBITDA guidance is driven primarily by higher than expected employee healthcare and other benefit costs, and higher expenses associated with supply chain management as the Company continues to realign its infrastructure to lower its fixed overhead and generate better efficiencies and performance on a go-forward basis. The Company further noted that it has already taken steps to address the higher than expected healthcare costs through a new relationship with an outsourced provider that included the conversion to a fully-insured health care plan on January 1st. Similarly, initiatives are underway to lower transportation and other supply chain costs in the future. The Company expects that its realignment initiatives will have a more meaningful impact on year-over-year performance beginning in the fiscal fourth quarter and into fiscal 2016. Capital expenditures are still anticipated to be approximately $17 million - $19 million.
Mr. Yorio concluded, "We have and will continue to implement a number of material changes throughout our organization that should not only lower our cost structure, but also drive growth and improve customer satisfaction. We continue to make smart investments in our DC's, systems, supply chain, sourcing and procurement, merchandising and marketing functions. I am confident the benefits of these investments and impact of our new leadership team will emerge in the weeks and months ahead. We are clearly on a mission to grow our business in the next fiscal year and we believe this and changes to our operating structure will drive bottom-line improvements in the years ahead and as a result, enhance shareholder value."
Conference Call Information
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For those who will be unable to participate, a teleconference replay will be available approximately two hours after the completion of the call and will last for one week (
Statement Concerning Forward-Looking Information
Any statements made in this press release about
|SCHOOL SPECIALTY, INC.|
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)|
|(In Thousands, Except Per Share Amounts)|
|Successor Company||Successor Company||
January 24, 2015
January 25, 2014
January 24, 2015
January 25, 2014
June 11, 2013
January 25, 2014
|Revenues||$ 77,754||$ 74,664||$ 515,893||$ 463,792||$ 58,697||$ 522,489|
|Cost of revenues||50,946||48,216||323,697||284,494||35,079||319,573|
|Selling, general and administrative expenses||50,882||48,672||180,717||157,378||27,473||184,851|
|Facility exit costs and restructuring||2,218||2,429||4,280||6,034||--||6,034|
|Operating income (loss)||(26,292)||(24,653)||7,200||15,886||(3,855)||12,031|
|Other expense (income):|
|Change in fair value of interest rate swap||(47)||(134)||(18)||488||--||488|
|Refund of early termination fee||--||--||--||(4,054)||--||(4,054)|
|Reorganization items, net||--||901||271||5,548||(84,799)||(79,251)|
|Income before provision for (benefit from) income taxes||(30,551)||(30,135)||(7,841)||1,763||77,709||79,472|
|Provision for (benefit from) income taxes||100||--||(127)||258||1,641||1,899|
|Net income (loss)||$ (30,651)||$ (30,135)||$ (7,714)||$ 1,505||$ 76,068||$ 77,573|
|Weighted average shares outstanding:|
|Net Income (loss) per Share:|
|Basic||$ (30.65)||$ (30.14)||$ (7.71)||$ 1.51||$ 4.02||$ 5.53|
|Diluted||$ (30.65)||$ (30.14)||$ (7.71)||$ 1.51||$ 4.02||$ 5.53|
|Adjusted Earnings before interest, taxes, depreciation, amortization, bankruptcy-related costs, restructuring and impairment charges (EBITDA) reconciliation:|
|Net income (loss)||$ (30,651)||$ (30,135)||$ (7,714)||$ 77,573|
|Provision for (benefit from) income taxes||100||--||(127)||1,899|
|Reorganization items, net||--||901||271||(79,251)|
|Restructuring-related costs incl in SG&A||2,864||1,562||8,570||5,369|
|Change in fair value of interest rate swap||(47)||(134)||(18)||488|
|Early termination fee||--||--||--||(4,054)|
|Depreciation and amortization expense||4,820||4,810||13,872||17,273|
|Amortization of development costs||1,695||1,258||8,644||5,854|
|Net interest expense||4,306||4,715||14,787||15,376|
|Adjusted EBITDA||$ (14,516)||$ (14,594)||$ 42,886||$ 46,561|
|SCHOOL SPECIALTY, INC.|
|CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)|
|(In Thousands, Except Share Data)|
|January 24, 2015||April 26, 2014||January 25, 2014|
|Cash and cash equivalents||$ 11,861||$ 9,008||$ 17,888|
|Accounts receivable, less allowance for doubtful accounts of $925, $984 and $1,267, respectively||56,819||62,631||56,017|
|Deferred catalog costs||9,380||8,057||9,933|
|Prepaid expenses and other current assets||18,899||18,043||13,655|
|Refundable income taxes||569||--||5,432|
|Assets held for sale||1,598||2,200||2,200|
|Total current assets||180,424||193,326||178,349|
|Property, plant and equipment, net||34,938||39,045||36,036|
|Intangible assets, net||44,888||48,251||49,371|
|Development costs and other||32,387||36,646||36,413|
|Deferred taxes long-term||12||48||47|
|Investment in unconsolidated affiliate||715||715||715|
|Total assets||$ 314,952||$ 339,619||$ 322,519|
|LIABILITIES AND STOCKHOLDERS' EQUITY|
|Current maturities - long-term debt||$ 14,904||$ 12,388||$ 1,434|
|Other accrued liabilities||12,498||14,460||14,555|
|Total current liabilities||65,821||81,404||46,491|
|Long-term debt - less current maturities||156,468||153,987||152,581|
|Commitments and contingencies - Note 19|
|Preferred stock, $0.001 par value per share, 500,000 shares authorized; none outstanding||--||--||--|
|Common stock, $0.001 par value per share, 2,000,000 shares authorized; 1,000,004 shares outstanding||1||1||1|
|Capital in excess of par value||118,283||120,955||120,955|
|Accumulated other comprehensive loss||(1,266)||(414)||(436)|
|Retained earnings (accumulated deficit)||(25,198)||(17,485)||1,505|
|Total stockholders' equity||91,820||103,057||122,025|
|Total liabilities and stockholders' equity||$ 314,952||$ 339,619||$ 322,519|
CONTACT: Company Contact
Ryan BohrRyan.Bohr@SchoolSpecialty.com Tel: 920-882-5868 Investor and Media Relations Contact Glenn WienerIR@SchoolSpecialty.com Tel: 212-786-6011