School Specialty's (SCOO) CEO Joseph Yorio on Q2 2017 Results - Earnings Call Transcript

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About: School Specialty, Inc. (SCOO)
by: SA Transcripts

School Specialty, Inc. (OTCQB:SCOO) Q2 2017 Earnings Conference Call August 10, 2017 9:00 AM ET

Executives

Glenn Wiener – Investor Relations

Joseph Yorio – President and Chief Executive Officer

Ryan Bohr – Executive Vice President and Chief Operating Officer

Kevin Baehler – Executive Vice President and Chief Financial Officer

Analysts

Patrick Retzer – Retzer Capital

Operator

Good day, ladies and gentlemen, and welcome to School Specialty’s Fiscal 2017 Second Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to hand the floor over to Glenn Wiener, Investor Relations. Please go ahead, sir.

Glenn Wiener

Thank you, Karen, and good morning, everyone. And welcome to School Specialty’s fiscal 2017 second quarter results conference call. Our call today is being webcast from our website, www.schoolspecialty.com and can be accessed in the Investor Relations section of the site. We also have a replay available – who are unable to join us today. We filed our Form 10-Q, issued our press release and posted the corresponding investor presentation on our website yesterday. All documents, again, can be found in the Investor Relations section. I’d also be more than happy to forward those to you if you need it. And should you have any follow-up questions, feel free to reach out to me after the call.

With us today are Joseph Yorio, School Specialty’s President and CEO; Ryan Bohr, Executive Vice President and Chief Operating Officer; and Kevin Baehler, Executive Vice President and Chief Financial Officer. All will have prepared remarks and will be available during the Q&A portion of the call.

Now before I turn the call over to management, I’d like to remind everyone that except for historical information contained herein, statements made on today’s call and webcast 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 specials.

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 those described in the company’s Form 10-K.

Any forward-looking statements on today’s call and webcast speaks only as of the date on which it’s made. Except to the extent required under the federal securities law, School Specialty does not intend to update or review the forward-looking statements. Greatly appreciate everybody’s support. We look forward to the second half of the year.

And at this time, I’d like to turn the call over to Joe.

Joseph Yorio

Thank you, Glenn, and good morning, everyone. Given that we have remarks from myself, Ryan and Kevin today, I’ll keep my statement brief and focus on the progress we’ve made through the first half of the year on our strategy to build sustainable shareholder value. Ryan will then provide additional color around key drivers of our business and Kevin will provide additional financial commentary before we open up the call for questions.

As our second quarter and first half of the year results demonstrate, we’re continuing to make progress toward our objective of achieving balanced growth. Through the first half of the year, Distribution segment revenues grew by almost $17 million or 8%. And within this, all categories were up, less Instruction & Intervention, which was essentially flat for the comparable period. Our Curriculum segment, which now includes only Science curriculum, also closed up 4% through the first half of the year, following a strong second quarter, which we grew by over 22%.

As you saw from our investor presentation, we reclassified categories to align more with how we operate our business. I’ve talked about this throughout our meetings with shareholders and on past calls, but we formally made the change this quarter. From a bottom line perspective, operating loss through the first half of year improved by $5.6 million. And adjusted EBITDA of $7.6 million, almost doubled.

Our focus for this call was on our strategy and our vision for key strategic initiatives that drive that strategy; the team-selling go-to-market strategy; 21st Century Save School value proposition; our Process Excellence Lean/Six Sigma process improvement strategy; and SM2P, our comprehensive sales, marketing, merchandising and procurement collaboration process.

For the past eight months or so, we’ve been transitioning and realigning our sales team toward the team-based selling model that we instituted last year. However, let me be very clear. Just like other key initiatives and sub-initiatives, this is not focused on only one area of the business, in this case, sales. It, like other initiatives, is systemic in nature and producing companywide change.

We’ve been focusing our resources around this model to ensure several things; one, that we have the proper geographic coverage; two, the new alignment of goals and objectives by geography for territory managers, specialists and inside sales; that we have the necessary breadth and depth of our product and service assortment; that we’re improving the accuracy of our business intelligence through the utilization of our OneForce business tools; and that we are recruiting and retaining the best people talent with the proper skill set.

And as a side note, let me make it clear. 27% of our entire sales and support organization has been with the company less than two years. And 40% of the field sales organization has less than three years with School Specialty. This is key as the structure, focus and profile of our sales organization is transitioning rapidly to support our strategies.

Finally, it’s imperative that we have the correct service and support structure in place to execute our strategy. And in line with this, the next group to be integrated into the team-sell model is our customer care organization. As a whole, this will enable us to more aggressively pursue and service our customers across all categories and to assist in creating a disruptive innovation in our industry.

Last quarter, we talked about Team Sell and the changes that were implemented. This quarter, we took it a step further. We aligned sales, marketing, merchandising and procurement under our SM2P initiative. We did this to ensure we have the right assortment with input from this field and the correct tools needed to promote both our proprietary product lines and third-party assortment.

This is a vital part of our strategy and I believe, over time, will provide us with greater coverage, better real-time service and an improved and more innovative assortment and a much stronger view of the customers’ needs. Whether it’s Art, Early Learning, Physical Education, Science, EdTech or Safety & Security, all categories have representatives from sales, inside sales and category managers, merchandising, marketing, procurement and customer service.

These leaders are now better aligned with operations so that we have real-time visibility into customer orders and requirements, and as such, can source, pick, pack and ship products accurately, on time and damage-free at a much higher level. It’s about having domain expertise that deepen our customer relationships and put us in a position to drive growth across the full set of solutions we sell.

As for Process Excellence, it is not a onetime event, but rather, a complete change in culture and integral to our vision in SSI. In the past, we talked about our Lean/Six Sigma and its primary focus on the fulfillment center level. Now Process Excellence is the mindset deployed throughout the company. We’re operating faster, smarter, more productive and more efficient and thinking collaboratively with our customers’ viewpoint and current and future needs at the center of our business.

We now have 12 green belts, four black belts and many more employees taking part in the training and we intend to expand these programs to more employees over the coming years, as we believe this will have a material impact on efficiencies and performance and result in significant decline in expenses in the years ahead.

We have also been investing aggressively in our systems and hardware, the latter of which was sorely needed. We updated our computers and phones, revamped technology within our call centers and we’re aligning our ERP systems companywide. We’ve also invested in CRM, which I’ve talked about previously. And this is being utilized by the sales teams and business leaders consistently, but holds even more potential. Data drives great businesses. And we have better data than ever before, but we are by no means done improving.

Lastly, on the IT front as it relates to Process Excellence. We’ve been working on several projects related to our product information management platform. This entails a redesign and rollout of new eCommerce features which will improve the ease of doing business with School Specialty and promote our innovative assortment better, speed up transaction processing as well. Everything we’re doing is about the customer experience.

Last quarter, we introduced 21st Century Safe School Initiative as well, our new value proposition. This was something we talked about publicly with investors. And over the past quarter, we have beta tested it with several select customers, discussed it the key influencer associations, agency and government representatives as the premise of how we want to go to market to differentiate SSI.

We have a very strong proprietary offering across all segments and relationships with hundreds, if not thousands, of companies where we distribute their products to end markets. Our vision is to leverage this offering and help schools create the safest learning environment possible to ensure the most successful and productive learning experience.

Our approach for fulfills aspects from the mental, emotional, physical and social perspective and brings together our offering and expertise across curriculum, collaborative furnishings, educational technology, project-based learning and professional development, Safety & Security, health and fitness, STEM, Early Learning and much more.

But it’s not just about safe school in terms of physical security, which is always a distinguishing and overlying factor. However, a 21st Century education cannot be achieved without a 21st Century safe learning environment. And our approach is designed to reach not only the key decision makers and influencers at the school, but also community leaders, parents, state and federal agencies, advocacy groups and much more. This will be a continuous theme in SSI and we will have more programs rolled out over the course of the year, with a bigger portion in 2018.

It’s an exciting time here at School Specialty, and we’re moving swiftly and boldly and our team is motivated and leading with action as we see exciting opportunities in times ahead.

With that, I’m going to turn the call over to Ryan to discuss some key trends and drivers of our business. Ryan?

Ryan Bohr

Thanks, Joe. First, I will comment on certain market dynamics that we believe are impacting current sales trend and which influence our outlook for the balance of 2017.

State budget delays and unanticipated budget cuts have, in certain circumstances, lowered purchase volumes, delayed purchases and created some uncertainty regarding near-term spending. According to a report issued by the National Association of State Budget Officers, 23 states executed midyear 2017 budget cuts. And in 20 of those states, K-12 education funding was impacted.

We have also seen delays in the approval of 2018 budgets impact our peak season. For example, in Connecticut, our year-to-date sales are down approximately 12%. And based on discussions with customers, we believe this is directly attributable to their state budget issues. And while we expect to recover this volume, the timing is uncertain.

In contrast to what otherwise appears to be a relatively strong economy, state budgets generally remain under pressure due to a combination of lower-than-forecasted receipts and pension and Medicaid spending increases that are outpacing revenue growth. We continue to monitor these trends closely as state aid represents just under half of school district revenue on average. Importantly, the desire to increase funding towards education at the state level is almost universal.

In updating our top line outlook, Supplies and Non-project Furniture are the primary categories within which we have lowered our expectations. We actually see an improvement in our 2017 outlook for project-related Furniture as well as Science Curriculum, and the balance of our product categories are performing consistent with expectations.

Generally speaking, budget cuts or delays initially impact areas least likely to have a direct impact on student instruction, such as basic supplies. And larger-ticket items, such as replacement Furniture, are also impacted. Furniture related to projects is generally procured through bonds or other forms of special funding, and thus, is not typically impacted by issues associated with the districts’ operating budgets.

As it relates to our overall market and our position, in a recent newsletter published by SMRI, a survey of marketers to the education market indicated sales of school supplies among the respondents were down 5% in the second quarter and furniture was up 10%. As our results show, we are performing much better than that and we still expect year-over-year growth in both the Supplies and Furniture categories. As we continue to evolve our go-to-market strategy and strengthen our value proposition, we are confident we can continue to take share and drive top line growth.

While I’ve referenced some of the headwinds we are facing in our primary end market, we see other trends and indicators that paint a more positive outlook for our business. Funding for Early Child continues to increase. 30 states increased funding in the 2016-2017 budget year, and overall funding increased 6.8% over the prior year. This bodes well for our Early Childhood Supplies and Furniture offerings as well as our Physical Education and Special Needs offerings.

A redesign of traditional learning spaces is another key trend supporting our business. While this clearly has a positive impact on our overall Furniture category, it is also squarely in line with our 21st Century Safe School value proposition which looks to holistically address customer needs across multiple areas, from design services, furnishing, supplies, technology and teaching aids and other classroom resources.

When you combine industry estimates that 53% of public schools need to make investments in repairs, renovations and modernization to be considered in good condition and with projected revenue – or excuse me, enrollment increases through 2026, we think demand for many of our products and services will be positively impacted by increased spending on new school construction and renovation projects in the coming years.

As reiterated in our materials and in Joe’s comments, the deployment of our team-based sales model is a core focus. Based on our year-to-date results, we see clear evidence of success and opportunities for refinement. Specifically, we believe that our strong year-to-date performance within the largest three tiers of school districts in the country, those with larger or more than 5,000 students, is a direct result of the improved focus and collaboration that is at the heart of our team-based selling model.

Sales to these 2,300 districts through early August are up 4.5% year-to-date. In addition, the fact that our value proposition is resonating with these districts bodes well for the balance of the market as we’ve continued to refine and improve our go-to-market strategy.

Our performance has not been as strong overall in the balance of the market, which is much more fragmented. To address this, we have launched a number of targeted marketing campaigns and identified ways to improve the manner in which outside sales managers collaborate with our inside sales team to better serve customers and increase share of wallet in their territories.

It will take some time before our team-based selling model is clicking on all cylinders. But we are very encouraged by the pace at which it is progressing and the positive impact it is having. Of critical importance, as part of this transition, we have brought many new talented people into our organization.

To conclude on sales, we have updated our revenue guidance to reflect not only what we see in our order trends year-to-date but also specific factors affecting our customers. However, this has done nothing but increase the intensity with which we are pursuing the white space or expansion opportunities within our customer base. We are encouraged by a strengthening of order trends in late July and early August and we will continue to work diligently to sustain this momentum.

As our year-to-date results indicate, we continue to manage both our fixed and variable SG&A effectively. Year-to-date, as a percentage of sales, variable SG&A declined from 8.4% of sales to 8.1%. Continuous improvement efforts to manage labor cost in our fulfillment centers and the impact of managing transportation costs through our new TMS system are key drivers of this improvement.

Additionally, we have driven approximately $2.4 million or a 3.3% reduction in fixed SG&A year-to-date. A number of Process Excellence projects have contributed to the ongoing improvements in SG&A and we are very encouraged by the number of opportunities that continue to emerge. Based on the scope and profile of current and future projects, we believe these efforts will not only allow us to continue to identify cost savings and build a more scalable operating model but also enable revenue growth and gross margin improvement.

For the full year, we see modest upside to our SG&A guidance and expect that this favorability will essentially offset the impact of the potential revenue softness we are anticipating. As such, we remain confident that we can deliver EBITDA within our original guidance range of $51 million to $54 million.

With that, I will turn the call over to my colleague, Kevin Baehler, who will provide additional perspective on our financial results and outlook. Kevin?

Kevin Baehler

Thanks, Ryan, and good morning. Similar to prior quarters, our release and investor presentation do provide significant detail into our results. Rather than repeating the details in those materials, my comments are intended to add additional context to our financial results, working capital trends and other balance sheet items. I will start with additional clarity on our calendar shift in 2017, which has contributed to some of the comparable period revenue increases, both in Q2 and in the first half of the year.

The first six months of the current year covered the period January 1, 2017, through July 1,2017; while the first six months of fiscal 2016 covered the period December 27, 2015, through June 25, 2016. While both periods include 26 weeks, a later start to the beginning of the fiscal year in 2017, a January 1 start date versus December 27 of the previous fiscal year of a start date, adds a week of revenue in late June to the current year first half results and removes the week of revenue from late December.

As our revenue in June is significantly higher than December revenue, our recorded increases in the first half is related to this shift. Now the impact of the calendar shift is simply timing within the year, and the benefit of the year-to-date timing shift through Q2 will reverse in Q3. So while the calendar shift does not impact the full year, please keep in mind though that fiscal 2017 is a 52-week year versus a 53-week year, which we had in 2016. Now our current and initial guidance does reflect the impact of transitioning from 52 to 53 weeks.

I also want to provide some insights into the realignment of our reporting segments. As noted in our Form 10-Q, we have realigned our product categories and segments, both internally and externally, to reflect recent changes we have made to our operating model. We believe these changes better align product categories and segments with our go-to-market strategy, particularly with the new Team Sell model.

To expand a bit on the specific changes referenced in our Form 10-Q and earnings release. Number one, we’ve changed our Curriculum segment by removing product lines that we do not consider as core Curriculum products. This includes reclassification of Science Supplies and the former Reading product category previously included in our Curriculum segment in past quarters, realigned or shifted in – are now shifted into our Distribution segment. Thus, the new Curriculum segment consists exclusively of FOSS and Delta Science module product lines.

Within the Distribution Segment, we have a new product category called Instruction & Intervention, which consists of supplemental learning materials, including our former Reading product category.

Finally, we have expanded the Supplies product category within our Distribution segment. Product lines associated with Early Learning, Special Needs and Science Supplies are now part of this broader Supplies product category. With these changes, the primary differences between our reporting segments include; the manner in which the products are sold, the decision makers involved at customer level, the manner in which we internally manage those product categories and the nature of product development investment required to support the product lines in each category.

Revenue, gross profit and SG&A have been covered in detail within our earnings release and the investor presentation. However, I would like to provide some details regarding restructuring, restructuring-related non-recurring costs, interest expense and taxes.

Our non-recurring restructuring related expenses were approximately $2.1 million for the first six months of the year. The primary components of these costs include; number one, expenses related to review of potential strategic alternatives for the company; two, expenses including severance associated with facility shutdowns, consolidations and other functional or operational consolidations; and third, expenses related to the termination of a pre-2014 contract associated with a discontinued product.

Looking through the remainder of the year, we anticipate restructuring related or non-recurring expenses to be less than $1 million for the second half of the year.

Moving on to interest expense. You’ll note that our overall interest expense for the first half of 2017 was down by $600,000 as compared to the first half of 2016. Cash interest expense though is down year-over-year by approximately $1.5 million due to a combination of lower outstanding debt balances and lower borrowing costs primarily associated with the refinancing which was completed in early April.

As we mentioned during our first quarter earnings call back in May, we completed the refinancing in early April – April 7, 2017, and we expect that for the – for 2017the partial year impact to interest expense associated with the refinancing will be a $2.2 million cash interest savings. And on an annualized basis, the cash interest savings will be approximately $3 million associated with that refinancing. You may have noted that non-cash interest in the second quarter increased by approximately $800,000. This increase was related to a change in our interest calculation on our deferred payment obligations.

Upon discussions with certain holders of these obligations and discussions with external advisers, we determined that interest needed to be calculated on a compounded versus a simple interest basis. The simple interest basis had been the original interpretation upon the emergence from bankruptcy in 2013. These deferred payment obligations have a scheduled maturity of December 2019.

Regarding income taxes, although our effective income tax rate for the first six months of 2017 was 1.7%, we project our full year cash income tax rate to remain consistent with previously communicated cash tax projections or approximately 5%. Beginning with fiscal 2018, our cash tax rate is expected to increase into the low to mid-20% range and further increase in 2019 to the low 30% range. Thereafter, our current projections estimate that cash taxes will approximate the statutory rate.

A few balance sheet comments. We continue to be pleased with improvements we’ve made in our efforts to better manage working capital. Although working capital at June month end is up $2.5 million as compared to the end of June 2016, the incremental volume we recognized in the second quarter and the impact of the shift in weeks talked about earlier impacts our working capital balance at the end of June, particularly in our accounts payable and our accounts receivables.

However, as indicated above, the impact of the shift in weeks is timing, and our outlook for overall working capital and the key elements of receivables, inventory and payables remain consistent with our internal plan.

On a trailing 12-month basis, our average working capital through June 2017 has declined by $1.8 million or 1.2% versus the average working capital on a trailing 12-month basis through June 2016. This improvement in the average working capital was achieved even as revenue over the comparable trailing 12-month periods increased by $29.5 million or 4.6%.

Our year-over-year overall debt reduction through June of 2017 was $19.1 million. Our average ABL balance on a trailing 12-month basis is down $7.5 million from $36.5 million as of June last year on – again, on a trailing 12-month basis to $29.0 million as of June 2017. And this is despite drawing $11.4 million on the ABL in April of this year to complete our debt refinancing.

In addition, our gross term loan debt has been reduced by $21 million over the past 12 months. ABL excess availability as of June 2017 was $75 million. Longer-term, we remain very comfortable with current debt facilities in terms of projected availability, cushion associated with required covenants and flexibility for potential future strategic investments.

In summary, balance sheet and cash flow expectations for the full year remain consistent with our original plan. With that, I will turn the call back over to Karen to open up the call for questions. Karen?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And our first question comes the line of Patrick Retzer with Retzer Capital.

Patrick Retzer

Good morning, guys.

Joseph Yorio

Good morning.

Patrick Retzer

So I wanted to start by saying I think you guys do a great job of giving clear and detailed results and guidance. I appreciate that. And secondly, I wanted to congratulate you on a great quarter as well as projected control on the SG&A line to be able to meet your previous EBITDA guidance. So thanks for that, too.

Joseph Yorio

Thank you.

Patrick Retzer

So your handout shows leveraged free cash $20 million after $19.4 million of cash used in investing. And granted, you’ve had a lot of heavy lifting to do with improving the systems, adding systems, et cetera, what do you think the cash used in investing will be next year?

Ryan Bohr

Thanks, Pat. This is Ryan. As we look ahead to next year, and we’ve made similar comments in the past, we see this year and next year being somewhat similar in spend without exactly knowing what our budget will be for next year. And one of the reasons for that is that we have elements of a few of our major projects that we expect will roll into the following year, as well as some of the remaining, and one example of that would be our eCommerce project that we are working on, and a complete, basically, reworking of our order-to-cash systems. So that is one project that will roll over to next year. And there are some other big items that need to be addressed still. And an example would be our warehouse management systems which are rather outdated.

And then another final major factor in our plan that we’re executing right now is some work we intend to do on our ERP upgrade. I think there could be some upside to that, my comments there. Because as we have made some rapid and aggressive improvements to our systems, we are largely reducing the complexity of our ERP platform. And therefore, we think that there could be some upside to what we’ve earmarked in our longer-term plans as it relates to that. I would say then after those years, we would expect to see a fairly decent and gradual decline in our overall capital expenditures.

Patrick Retzer

Okay, great. So you’ve got 92 territory sales managers. Do they pretty much cover the entire relevant market? Or do you have further to go there?

Joseph Yorio

No. We think, as we did our analysis – this is Joe, by the way, Pat. As we did our analysis of the geography, and this is focused primarily on the United States, not the Canadian market, we came up with what we thought were 92 geographies that these new managers would be responsible for, kind of the quarterback of those territories. So their responsibility is to understand all the business intelligence, all the key decision makers within that territory. They’re then supplemented by an inside partner. And that inside sales representative partner, their responsibility is to be the key touch point of the customer and the frequency of how they interact with the customer.

And they’re then supplemented or supported by various category managers. And those category matters could be in Early Childhood, Special Needs, Physical Education, Safety & Security, Furniture, so on and so forth. So you have pretty much a team of about eight to 10 people covering that geography. And then as I said in my comments, the next group to integrate into that will be the customer care team. So let’s say the customer care team for a specific geographic area’s four or five people, you will now have, potentially, anywhere up from a 13-to 15-person group-team that will be responsible for covering that geography and knowing all the opportunities, challenges, idiosyncrasies of that geographic territory.

So as we see it right now, that’s the right number of territory sales managers. You’ll continue to see the inside sales representative group grow as well as the category managers. But what it does, it gives us the ability to flex those quarterbacks up and down and then supplement the additional team players they need to support them to impress that market.

Patrick Retzer

Okay. Do you have any other competitors that even come close to you in terms of breadth and depth of product offerings?

Joseph Yorio

No. And quite frankly, I guess I would put it as, are you looking at the specific school product offering space or just offering in general? I mean, you could look at a Granger, who’s very broad and deep, but in a different category of business. You can look at Depot Max, which is primarily focused on office supplies, Jan/San, things like that. When you get into the products that cover the school space, I mean, we pretty much stand alone.

And that is why we really executed the value proposition of 21st Century Safe School as well as the team-selling model because we feel that we kind of sit in the middle between a Staple, Depot Max, which is your traditional distribution center type company, might sit off to the left; and then you get the individual specific category players to the right, a Dick Blick in Art, a Lakeshore in Early Childhood, companies like that, that are verily specific in their categories.

We sit right there in the middle. So with this new go-to-market strategy and value proposition as well as the next step that we talk about as we even pursue it further, is then being able to integrate our Process Excellence into the model for the customer as well. So once we fully bake out 21st Century Safe School, not only will we be providing products and services they use, but potentially consultative advice at how they can better improve their procurement cycles through our Process Excellence initiative.

Patrick Retzer

Okay. 21st Century Safe School initiative sounds like it could be a big deal, given the violence in schools and the school shootings we’ve seen. Have you seen a strong response from the market? I know it’s early days. But what has your initial response been?

Joseph Yorio

So the beta test we did got a very positive response as well as our interactions with the various agencies and government representatives. But let me be clear. The 21st Century Safe School, while physical Safety & Security is a key component to it, the bigger thing that really excites them is our ability to touch on the mental, the emotional and the social aspects of Safety & Security. So that’s when you’re talking about the mental or the emotional, how’s the classroom laid out? Is it laid out in the most productive manner so the student can learn properly? Is it modular? What’s the color of the paint? What’s the type of digital products they use? So it goes well beyond the physical side. The physical side is key.

And I think that we all see what’s going on in the world today that the physical side needs more emphasis. But what differentiates us is we take it beyond physical. And the mental and the emotional and social is what’s really resonating, particularly as the government decides on the new standards in education and how they’re going to pursue them, really coming from a common core to ESSA and how you’re going to be able to provide a good learning environment for students. So we’re really excited about it. It’s not fully baked yet. It’s continuing to evolve. But again, the beta test we did and our interaction with the various agencies and advocacy groups and representatives has been very positive.

Patrick Retzer

Okay, great. In the past, you’ve mentioned perhaps getting into other markets like preschool, higher education, assisted living, et cetera. Have you made any progress in any of those?

Joseph Yorio

Yes, I would say that the initial one we’re making progress and we’re early, too, preschool, which really ties in to our Early Childhood, and that’s always been a very strong market for us prior to the company going through bankruptcy and whatnot. So we brought a lot of that team back in place. The results over the last several quarters continue to show growth in the Early Childhood and Special Needs categories. We are pursuing, in addition to Early Childhood in schools, looking at other opportunities, such as day care, kinder centers and whatnot.

And then we’re still in the process of the health care and the non-acute care living facilities as we’re working with the GPOs to help identify those opportunities. We’re seeing a pickup in that. A little slower than I would have anticipated, but I think it’s a whole other area of opportunity for us. But it’s definitely gaining traction and we see that as an absolute opportunity for the future.

Patrick Retzer

Okay. I think the stock is way undervalued with market cap of 2.25 times EBITDA, 5.6 on an enterprise value basis. Has there been talk about buying back stock at these levels?

Ryan Bohr

At this point, no specific discussions have been had to draw any conclusions on repurchasing stock. And I think one of the reasons is as we completed our refinancing, we shown that we have the ability to do it. We may have some capacity to do it. However, we think there are also other opportunities that we can continue to look at that would also provide a very attractive use of capital. So we have to be cognizant of our access to capital to also fund other initiatives. So as we are currently weighing and balancing, we’re not taking anything off the table. But we believe that there are also a number of other areas to deploy capital that will have a good return for our shareholders.

Patrick Retzer

Okay. You’ve mentioned you’re targeting August for the stock split. Do you know – and then an uplisting once you get above 300 round lot holders? In terms of the number of holders, do you know where you are currently?

Kevin Baehler

Yes, Pat. This is Kevin. We currently have approximately 155 to 160 holders based on the most recent information we received at the time of completing the proxy mailing for the upcoming – asking for the approval for the upcoming split.

Patrick Retzer

Okay. And do you have anything in place or any plans yet for investor meetings, roadshows or research coverage?

Kevin Baehler

Yes. Well, that’s something that we have continuously looked into, Pat. We do, generally, through Glenn, arrange a number of meetings. We’ve typically done that in March and/or April of every year. We’re looking at this somewhat sequentially. And the next thing on the horizon, even the split done, as we’ve discussed, and then seeing what impact that has on a number of holders which will then enable us to take the next important step. And as we accomplish those steps, you’re going to see our intensity with respect to pursuing research and/or engaging in more investor meetings increase because it will – there will be more of an ability for people to take action based on those activities than we have with our current liquidity situation. So to the answer – the short answer is yes. However, where we are looking at this somewhat sequentially.

Patrick Retzer

Okay. Well, thanks for taking the questions and keep up the good work.

Kevin Baehler

Thank you, Pat.

Operator

[Operator Instructions] And that concludes our question-and-answer session for today. I’d like to turn floor back over to School Specialty for any closing remarks.

Joseph Yorio

This is Joe. I just want to thank everyone for their continued support throughout this year and the remainder of the year and to let you know that we’ll keep moving ahead to continue to grow the business and provide shareholder value. So thank you and have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone, have a great day.