School Speciality Inc · OTC:SCOO
School Speciality — School Specialty — Q3 2019 Earnings Presentation
24 slides from School Speciality's earnings presentation, Nov 13, 2019
Slide 1: Q3 2019 Investor Presentation
ad | ti School ec | | aD oe § —— Q3 2019 eo oo November 12, 2019
Slide 2: Safe Harbor Statement
NA School Specialty. Safe Harbor Statement This presentation contains statements about School Specialty’s future liquidity and financial condition, results of operations, equity value, expectations, plans, or prospects, including information under the heading “Outlook for Q4 2019 & Beyond,” “Fiscal
Slide 3: 2019 Year-to-Date Performance: Key Takeaways
2019 Year-to-Date Performance: Key Takeaways + Exceptional peak season fulfillment center performance; all customer-facing metrics (lead times, fill rates, etc.) exceeded target levels. + Successful customer retention post 2018's operational challenges. Analysis of Q3 Supplies bookings indicates 96.
Slide 4: Outlook for Q4 2019 & Beyond
Outlook for Q4 2019 & Beyond Organic Revenue Growth Cost Containment & Operational Process Excellence Strategic Investments to Support Growth Improving Bottom-line and Free Cash Flow Modest growth in Supplies as team-sell model and customer segmentation strategy matures and enables deeper penetratio
Slide 5: Q3 2019 Revenue Overview
Q3 2019 Revenue Overview Q3 2019 revenue was $278.5M, a decline of 4.1% as compared to the previous year. The main drivers were as follows: Distribution segment revenue of $265.4M, a decline of 2.1% as compared to the previous year. Excluding the Agenda business, which is being discontinued, Distrib
Slide 6: Q3 2019 Gross Profit Overview
Q3 2019 Gross Profit Overview Q3 2019 gross profit was $92.6M, down $4.9M or 5.1% as compared to the previous year, representing a gross margin of 33.2%, 40 bps lower than Q3 2018. Q3 2019 gross margin improved 40 bps as compared to Q2 2019. YoY spread in gross margin narrowed significantly from a 1
Slide 7: Structural Improvements Leading to Improved YoY Gross Margin Profile
Structural Improvements Leading to Improved YoY Gross Margin Profile ing actions and improved approach to bids / contracts gradually Supplies Weekly Booked GM materialized through Q3. + The most pronounced impact of pricing changes became evidentin g3. Booked Gh Me ‘+ Lower gross margins are expecte
Slide 8: Q3 2019 SG&A Review
Q3 2019 SG&A Review (amountsin thousands) a3 YTD 2019 2018 2019 2018 Total SG&A costs $ 64436 $ 59,607 $ 167,416 $ 170,553 Less: D&A 4554 4,164 12,963 13,479 Stock-based compensation 118 (29) (72) 4,178 FX (gain) loss (20) (67) 19 3 Custom Planner SG&A (1) 5,282 3,495 8,973 7,791 Restructuring-relat
Slide 9: Q3 2019 Operating Income, Adj. EBITDA and Cash Flow Overview
Q3 2019 Operating Income, Adj. EBITDA and Cash Flow Overview * Q3 2019 operating income of $22.5M vs. operating income of $37.2M in Q3 2018. Operating income reduced by $7.2M, or 49.0%, as a result of the custom agenda business due to challenges associated with transitioning to a new platform. In pr
Slide 10: Strategic Alternatives and Financing Update
Strategic Alternatives and Financing Update » In active discussions with multiple parties across a range of alternatives, including sale transactions and junior capital investments. » Proposals have been requested to be submitted in November. » The Company recently reached agreement in principle on
Slide 11: Financial Update
Slide 12: Q3 2019 and YTD Financial Performance Summary
Q3 2019 and YTD Financial Performance Summary 2019 YTD Income Statement Summary FY 19 FY18 Actual Actual (S's in millions) Revenue Gross Profit Gross Margin % [Operating income ‘Adjusted EBITDA 2019 3rd Quarter Income Statement Summary ree frig) FYB 's inmillions) duel Actua Variance Revenue [Gross
Slide 13: Working Capital Analytics / Other Cash Flow Drivers
Of scrco. Working Capital Analytics / Other Cash Flow Drivers BES Actu ‘Accounts Receivable $162.1 [ Inventories $82.0 $96.0 $843 $84.8 Deferred Catalog Costs $0.00 $0.00 $2.9 $26 Prepaid Expense and Other Current Assets $192 $177 $154 $13.2 ‘Accounts Payable $493 $43.2 $38.4 $440 Other Current Liab
Slide 14: Capitalization Summary
Capitalization Summary 3 2019 03.2018 03 2017 03.2016 Actual Actual Actual Actual ‘Cash and Cash Equivalents $5.88 $7.92 S847 $7.35 BL Facility, maturing in 2022 369.00 $85.80 $53.39 $50.64 Tem Loan, maturing in 2022 $108.42 $1173 $122.83 $12.28 Total 1" Lien Debt $17.82 $197.53 $176.02 $172.88 Defe
Slide 15: Guidance Update
Slide 16: Fiscal 2019 Full Year Guidance
Fiscal 2019 Full Year Guidance Guidance Announced on Updated Guidance Announced on Q2 2019 Earnings Call Revenue $640 — 650 million Approximately $638M_ Approximately 33.2%; YoY decrease of 70 Gross Margin YoY Increase of 50 bps bps driven primarily by Agendas and lower Science revenues Total SG&A i
Slide 17: Bridge from FY 2018 to FY 2019 Outlook
Bridge from FY 2018 to FY 2019 Outlook Supplies (10.6) -3.4% Restructuring-related Fumiture (2.0) -09% D&A Instruction & intervention (45) -78% Stock-Based Comp AV Tech (0.3) -18% ‘Agendas Related (b) Agendas (7.1) -238% Variable SG&A (b) Science (9.0) -203% Fixed SGBA (b) Freight / Allowances (Net)
Slide 18: Appendix
Slide 19: Consolidated Statement of Operations
Consolidated Statement of Operations Revenues Cost of revenues, Gross profit. Selling. general and administrative expenses. Impairment charge Facility exit costs and restructuring Operating income (loss), Other expense: Interest expense. Chanze in fair value of derivatives. Income (loss) before bene
Slide 20: Condensed Consolidated Balance Sheet
NA School Specialty. Condensed Consolidated Balance Sheet ‘SCHOOLSPECIALTY, INC. ‘CONDENSED CONSOLIDATED BALANCESHEETS (INAUDIED) (laTtousands rept Shar and PerStae Anouts) September 282019 29,2018 Sepenber 28,2019 September 22018 ASSES LABILITES AND STOCKHOLDERS’ EQTY Ours ast: rent ities Ceshand c
Slide 21: Cash flows from operating activities
Cash flows from operating activities: Net income ‘Adjustments to reconcile net income to net cash used in operating activities: Depreciation and intangible asset amortization expense. Amortization of development costs. Impairment of goodwill and intangibles Amortization of debt fees and other. Unrea
Slide 22: Direct Cash Flow Calculations
Direct Cash Flow Calculations onths Ended Adjusted EBITDA. 43,508 Capex (7,904) (8.921) Prod Dev (2,623) (3.581) Proceeds from sales - 100 Unrealized FX (gain) loss aL (18) Other (9,672) (2,929) Change in WC (excl. tax) (61,869) (116,314) Unleveraged fiee CF (48.234) $ (88.155) Cash Interest (10,833
Slide 23: Fiscal 2019 Outlook: Reconciliation to Non-GAAP
NA School Specialty. Fiscal 2019 Outlook: Reconciliation to Non-GAAP The Company's Adjusted EBITDA and Leveraged Free Cash Flow outlook for FY19 are non-GAAP measures. Reconciliations of these non-GAAP measures to the nearest GAAP financial measures are presented in the following tables: Low End of
Slide 24: Non-GAAP Financial Information
@ School wa Non-GAAP Financial Information Specialty. Non-GAAP Financial Information This update includes references to Adjusted EBITDA, Leveraged/Unleveraged Free Cash Flow, and Total Debt, each of which isa non-GAAP financial measure. Adjusted EBITDA represents net income (loss) adjusted for: prov