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Good day, ladies and gentlemen, and welcome to the School Specialty's First Quarter Fiscal 2019 Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Jake Candler with FTI Consulting. Sir, you may begin.
Thank you, Joelle. Good morning, everyone, and welcome to School Specialty's Fiscal 2019 First Quarter Conference Call. On our website, under the Investor Relations section, you'll see our press release and the updated investor presentation.
Joining us today are Michael Buenzow, School Specialty's Interim President and Chief Executive Officer; Ryan Bohr, Executive Vice President and Chief Operating Officer; and Kevin Baehler, Executive Vice President and Chief Financial Officer. Following their prepared remarks, they will be available for Q&A.
Additionally, our call today is being webcasted on the website, again, in the Investor Relations section, and we have a replay available for those who are unable to join. Before I turn the call over to Michael, 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 target 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 could 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 speak only as of the date on which it's made. Except to the extent required under federal securities law, School Specialty does not intend to update or review the forward-looking statements. With these formalities out of the way, I'd like to turn the call over to Michael Buenzow. Please go ahead, Michael.
Thank you, Jake. First, I am pleased that we are making meaningful progress on many of our key internal initiatives and believe we are on track to achieve our financial targets. As noted in our press release, 2019 revenue is currently expected to approximate $695 million to $705 million, which represents a 3% to 5% increase over 2018. We continue to expect 2019 adjusted EBITDA in the range of $42 million to $46 million, a 20% to 30% increase over 2018. Aside from our performance-related targets, it's worth noting the fundamental importance of School Specialty's mission, which is to empower teachers to better create and educate the next generation of an increasingly global workforce. To provide some context, in 2018, we sold products to approximately 67% of the 133,000 schools in the United States, and we reached a majority of the 3.6 million teachers in those schools. Our renewed focus on efficiency, particularly around our Team Sell model, will continue to improve our reach and customer penetration. To provide some context on the high-level strategy behind our Team Sell model improvements, the key difference is the way we segment and service our customers. We've done so in a way that has resulted in the field-based organization being more focused on larger districts in the country. This lessens the number of districts each individual salesperson needs to focus on while enabling them to focus on strategically important districts with much larger budgets and greater opportunity for School Specialty. Importantly, we are very excited and pleased to see a positive impact through early May that bookings within the top 1,000 school districts in the country are up by 10.7%. In addition, we've also improved our coverage and efficiency in small to medium-sized districts as we have improved the focus and expanded our growing team of inside sellers focused on covering that part of the market. Finally, we've increased the number of product specialists whom both the field base and inside sales teams can leverage as they identify opportunities within their customer base. Now I would like to comment on our key priorities and objectives in 2019. First and foremost, our primary goal is to improve our school district penetration to drive organic growth within our existing customers. We've spent the necessary time enhancing our Team Sell model to improve the effectiveness of our go-to-market strategies and streamline the flow of information to advance our product development efforts. This helps us to better leverage our key supplier relationships. We're increasing our customer touch points and having more informed and meaningful conversations with key decision-makers. This will help drive organic revenue growth and improve our long-term profitability and market share. At the same time, we're strengthening our existing relationships at the school district management level and are focusing appropriate resources on the growing market share in our Science Curriculum segment. We continue to position ourselves to capitalize on expected upcoming curriculum changes related to Next Generation Science Standards and increased funding directed towards Early Childhood education and STEM and STEAM initiatives. Our second priority is to concentrate on cost containment and operational process excellence. As we pursue growth opportunities, minimizing cost is imperative, and we continue to focus aggressively on reducing costs, particularly related to transportation and labor. On the transportation front, we're frequently in talks with our providers to determine potential savings opportunities. With regards to labor, the overall strength of the U.S. economy has tightened the labor market, which has limited the pool of available employees and placed upward pressure on wages. However, we successfully secured partnerships with professional staffing firms, which will provide us with cost-effective access to more experienced seasonal employees when we flex up staffing levels to meet peak season demand. Additionally, we continue to focus on improving our efficiency and our customer experience by driving order cycle times lower, improving our key metrics relating to on-time, accurate, complete and damage-free orders. Our third priority, which is certainly a function of the first 2 priorities, is to continue to build top line momentum, which translates into strong bottom line improvement. As it relates to science, School Specialty is well positioned to capitalize on the increasing demand trends that we expect to materialize in 2019 and 2020. As a result, we remain confident that the demand environment will become more favorable as we progress through 2019. Further, coming out of 2018, our current Learning Environment pipeline was robust and in line with our expectations for strong growth in this business. This momentum has been supported by new opportunities to create customized furniture and supplies bundles that allow customers to upgrade, outfit and stock complete classrooms. This positions School Specialty very well as major school districts, such as New York City and Chicago, pursue significant expansions of their universal pre-K programs. Most
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of Supplies and Furniture bookings in March and into April supports our growth expectations in these key areas. Our updated 2019 guidance reflects lower growth outlook for Science Curriculum and a calculated decision to move away from pursuing certain lower margin Learning Environment projects. Given the robust Learning Environment project pipeline, we are focusing our efforts and resources on more profitable opportunities. Fourth, the School Specialty team is focused on boosting free cash flow, which will provide us with the proper resources to further invest in our business and drive sustainable long-term growth. Finally, with respect to Science Curriculum, we expect to achieve our overall objectives associated with the California adoption. However, while we expect to achieve strong growth in California in 2019, we are seeing more districts push their decisions and implementations later into 2019 and into 2020. Outside of California, there are a few important dynamics at play. Given their large student populations, Texas, Florida and California are key adoption states whose curriculum-related decisions are closely watched by other states and school districts throughout the United States. Typical adoption cycles follow a 5- to 7-year pattern. However, the last major science adoption in California was more than 10 years ago, and the current adoption has seen many publishers refresh curriculum content, and competitive new programs have emerged. As a result, this provides districts and states with an opportunity to evaluate the success of those programs. And so while we're confident in increased Science Curriculum opportunities and spend in -- as 2019 develops and as we move into 2020, we are gradually emerging from a relative lull in purchasing activity stimulated by the California adoption and more states looking to address the Next Generation Science Standards. Finally, we expect activity to not only build, but sustain with a more robust state adoption schedule on the horizon for 2021 and 2022. Regarding Next Generation Science Standards, the School Specialty curriculum team was one of the first leaders in this space, but we have seen an increasing amount of competition entering the market. However, we believe the true effectiveness and quality of the dozen or so competitive programs is simply not on par with the highly regarded and highly respected FOSS program, which we proudly published. And increasingly so, we are encountering many situations of buyers' remorse, customers who recognize the disparity and effectiveness that we have been acting -- and we have been acting on those opportunities accordingly. We not only intend to successfully withstand and address the increased competition, but we are addressing this in our marketing and sales positioning with some relatively minor product enhancements. Separate from FOSS, we are gaining traction with our new Science FLEX program, which is a topic-based modular supplementary science solution that blends flexible classroom-vetted activities with informational text readings. This represents a growth opportunity for us and allows us to participate more broadly in the increasing demand for STEAM products. These are supplemental to our current offerings and have allowed us to enter the market with a modular lower-cost way for schools to expand or enhance their science programs. Now that I've discussed 2019 from a strategic view, I'd like to turn the call over to our COO, Ryan Bohr, to discuss the first quarter financial performance. Ryan?
Thank you, Mike. In 2019, we're focused on organic growth, cost optimization and boosting free cash flow. We have made significant changes over the last few months and are just beginning to see the positive effects materialize in our business. We exited March with positive momentum, which extended through April, and we're optimistic we can carry that momentum through the rest of 2019. Moving to the financial results. Revenue in the first quarter of 2019 decreased by $3.4 million or 3.4% to $95.9 million. This was driven by a 3% year-over-year revenue decline in our Distribution segment and a 12% year-over-year decline in our Science Curriculum segment. First quarter Supplies revenue of $53.7 million was up 0.5% year-over-year. Bookings in our core U.S. education market improved gradually in Q1 and early Q2 and are currently up 3.1% year-to-date. This is being partially offset by weakness in the Canadian market and a shift in the timing of programs being executed in 2019 with key channel sales partners. Overall, we continue to expect to report solid growth in the Supplies category. Furniture revenue was $23.3 million, down 2.9% year-over-year. Increases in transactional Furniture billings in Q1 were offset by lower project Furniture billings. Transactional Furniture bookings continue to strengthen and are currently up just over 6% year-over-year. The project Furniture opportunity pipeline remains strong as well, up 6%. As Michael just noted, we have consciously deemphasized certain types of Learning Environment projects based on their low margin profile. As a result, we have lowered our internal Furniture revenue outlook by approximately 2.5%, but have raised our internal gross profit outlook for the category. Instruction & Intervention revenue was $11.1 million, down 11.5% year-over-year. Year-to-date bookings are down approximately 13% year-over-year. This area of our business, and particularly the Coach product line, continues to be negatively impacted by a lack of clarity around ESSA and its impact on states' plans to assess student growth and achievement. That said, bookings within our proprietary reading comprehension and vocabulary building products are strengthening and showing year-over-year growth. The pipeline is improving, and we expect the year-over-year gap to close as we move into the back half of 2019. Importantly, we expect the launch of Success Coach in the fall to improve momentum in the Instruction & Intervention category. AV Tech was down -- AV Tech revenue, excuse me, of $4 million was down 7.3% as compared to the previous year. Year-to-date bookings are down 7.7% year-over-year. However, the booking trend has improved modestly in Q2, and the product category is performing consistent with our internal expectations. Regarding our Distribution segment, overall revenues and bookings were slightly below our internal plans in a seasonally slow first quarter. However, we exited the first quarter with improving momentum. The Supplies category trends are consistent with expectations. Furniture revenue is expected to be slightly lower than our initial outlook, but this will be offset by gross margin favorability in this product category. I&I is trending lower year-over-year, but we expect momentum to build as new products launch as planned in the second half of 2019 and the impact of ESSA plans adopted at the state level become clearer. Moving on to Science Curriculum. We had revenue of $4.1 million in the first quarter, down 12% year-over-year. The first quarter is generally quiet and subject to year-over-year variations. Our overall outlook for the California adoption remains in line with expectations. And while we expect strong California-related revenues in 2019, we now project greater than 50% of the adoption spend will occur in 2020. More broadly speaking, we continue to pursue several opportunities outside of California in open territory states and expect this will build as states address the Next Generation Science Standards. For reference, so far, approximately 2/3 of the states have adopted Next Gen Science Standards. We continue to anticipate a solid rebound in 2019 and 2020 as opportunities both within and outside of California continue to progress, though we are also seeing additional competition and experiencing timing shifts, particularly in large urban districts. These factors are combining to temper our 2019 growth expectations in the science segment. I will now discuss the drivers behind our gross profit performance and margin in the first quarter. First quarter gross profit of $32.8 million was down 9.2% as compared to the previous year, representing a gross margin of 34.2%. Gross margin contracted 220 basis points as compared to the first quarter of 2018. However, on a sequential basis, as compared to the fourth quarter of 2018, gross margin expanded 260 basis points as we begin to realize the positive effects of net price increases and other margin improvement effort. While we generally do not discuss our business on a sequential basis, sequential comparisons are relevant as they can be indicative of product pricing trends driving gross profit and margin. More specifically, the main drivers of gross profit in the first quarter are as follows: Distribution segment gross profit of $30.8 million, down $3.1 million or 9.1% as compared to the previous year, representing a gross margin of 33.6%, 230 basis points below prior year. Q1 gross margin of 33.6% expanded 300 basis points sequentially, reflecting the impact of price increases and other efforts to improve margin. Gross margin is improving in line with expectations. Q1 Supplies product category margins, a key area of focus, showed a 20 basis point improvement sequentially and has continued to improve through early Q2. The balance of Distribution segment sequential gross margin improvement was driven by stronger Furniture category margins due to favorable pricing and mix, particularly in the project furniture area. Science Curriculum gross profit of $2 million, down $0.2 million or 10% as compared to the previous year, representing a gross margin of 47.7%, expanding 100 basis points year-over-year. Science gross margin is modestly ahead of internal expectations. In short, while gross profit and gross margins were down year-over-year in the first quarter, we are pleased with the material improvement on a sequential basis. Looking ahead, a lower Science and I&I revenue outlook will have a negative impact on our gross margin due to mix. Our expectations at the product line level in all other areas are tracking according to plan with the expectation for favorability in the Furniture product line. Moving to the cost side of our business. We have been very effective in managing SG&A costs so far in 2019. First quarter SG&A expense was $52.4 million, decreasing 8.2% year-over-year, with the key driver being a decrease in fixed compensation and benefit cost. First quarter total compensation and benefit cost declined $1.9 million or 8% year-over-year. Fixed labor expense decreased $1.4 million or 6.7% year-over-year, reflecting cost savings associated with our sales force improvement initiatives and other process improvement efforts. This is net of an increase in fixed fulfillment center labor of $200,000 as we have adjusted our staffing plans to ensure strong peak season performance. Seasonal labor expenses were flat year-over-year in the quarter as the majority of our fulfillment centers' seasonal labor expense is incurred in the second and third quarters. We had anticipated some increases in compensation and benefits in the first quarter as we have been filling more open positions to enhance our sales force post reorganization and our capabilities in marketing, merchandising and sales operations. We've also restored some incentive programs and commission programs aligned with achieving stronger results in 2019. However, our results were favorable to these -- to those expectations as we continue to realize benefits from our efficiency initiatives, which essentially consist of doing more with current staffing levels and prudently managing investments. Future quarter personnel costs favorability is expected to be less as we entered 2019 with a leaner cost structure and staffing levels than with which we entered 2018.
Transportation costs increased $200,000 or 3% year-over-year, reflecting market-driven rate increases, which went into effect gradually throughout 2018. We have renegotiated key transportation agreements, which are delivering meaningful cost savings and largely offsetting the impact of rate increases. We expect to drive continued favorability from a cost perspective throughout 2019 as we continue to find ways to drive process improvement and efficiencies. Thus far, in 2019, we have shown an ability to mitigate market-driven increases in transportation and wage rates, and we are confident that will continue. Our current expectation is that we can keep overall SG&A expense flat to modestly favorable year-over-year despite making key investments in the business, funding incentive compensation plans and delivering solid revenue growth. I'd like to end with some comments on operating profit and adjusted EBITDA. We generated an operating loss of $20.8 million in the first quarter, an improvement of $500,000 as compared to the first quarter of 2018. Our first quarter loss also reflects a $600,000 increase in facility exit costs, a $500,000 increase in restructuring expenses included in SG&A. First quarter adjusted EBITDA was negative $13.9 million compared to an adjusted EBITDA loss of $12 million in the first quarter of 2018. The year-over-year decline in adjusted EBITDA can be attributed to reduced gross profit due to lower revenue in conjunction with a 220 basis point decline in gross margin and the anticipated shift in catalog expense from Q4 2018 to Q1 2019. Offsetting negative effects flowing through lower revenue and gross profit was the realization of savings and efficiencies from our sales force transformation initiative and other cost reduction programs that contributed to stronger-than-expected head count and labor-related savings. In addition, we are benefiting from the impact of more efficient marketing spend. And with that, I'd like to pass the call over to our CFO, Kevin Baehler, who will provide us with further insights around School Specialty's financial performance in the first quarter. Kevin?
Thank you, Ryan, and good morning. My comments will focus on free cash flow, working capital, taxes and debt. I'll conclude with some comments regarding our full year 2019 guidance. More detail can be found in the appendix to our investor presentation in addition to the first quarter 10-Q, which was filed yesterday. First quarter 2019 free cash flow was negative $30.2 million, an improvement of $9.5 million as compared to the first quarter of 2018. The year-over-year delta largely reflects working capital improvements realized during Q1 of fiscal 2019. As I discussed during the 2018 year-end earnings call, our working capital balances at the end of 2018 were higher than historical norms due to our 2018 performance. However, those higher year-end balances were largely timing related, and the incremental free cash flow generated in Q1 of fiscal 2019 as compared to last year's Q1 reflect the positive timing-related impact. Q1 is a quarter in which our working capital historically builds as we begin to prepare for the upcoming season. In Q1 2018, working capital increased in the quarter by approximately $19.1 million as compared to year-end 2017 working capital balances. In Q1 2019, working capital increased by $6.6 million as compared to year-end 2018 working capital. Overall, working capital build in this year's first quarter was approximately $12.5 million less than the Q1 2018 working capital build, which positively impacted the first quarter free cash flow. A few comments on specific areas of working capital. Accounts receivable were up year-over-year by $8.2 million, and resulting days sales outstanding were up year-over-year by approximately 9 days. As previously discussed, the increased accounts receivable is related to the shipping challenges and increased number of split shipments we had in 2018. While the collection of these 2018 receivables is taking longer than we expected, our collection rate accelerated in March and has continued to accelerate in Q2. Q2 accounts receivable collections through early May are up approximately $5.5 million as compared to the same period last year, and the majority of the incremental collections were the aged balances dating back to last fall. Based on the stronger collections, we now expect AR balances to return to normal levels by the end of the second quarter. Moving to inventory. Balances were up $7.2 million. As discussed at year-end, the increase is related primarily to a couple of large specific early buys from December 2018. We executed these early buys of higher velocity items in order to lock in lower inventory costs ahead of 2019 cost increases. As we look forward to the remainder of 2019, we expect working capital balances to return to its historic levels during the season and at fiscal year-end. Moving on to capital expenditures and product development spend. First quarter spend was $2.6 million and $1.1 million, respectively, which was in line with expectations and down $900,000 year-over-year. On a trailing 12-month basis, our capital expenditures are $11.6 million. As discussed on our fourth quarter call, we expect fiscal 2019 capital expenditures as compared to 2018 to decline by $2.5 million or down to $10 million in total and total product development spend in 2019 to increase by $0.5 million to $5 million in total. These changes reflect in spend -- excuse me, these changes in spend reflect several dynamics. First, we are entering the later stages of completion on some of our key business application upgrades and implementation of sales enablement and analytics tools. As we near completion on many of these larger products, our future spend requirements are less. Second, as a percentage of total CapEx and product development spend, product development spend will increase as we continue to strengthen and build our strong Furniture pipeline. Our opportunity pipeline is attractive, and we believe increased product development will enable Furniture growth and reinvigorate supplemental ELA and math offerings with our Success Coach product. A few comments on taxes. We continue to expect cash taxes to be less than $1 million, resulting in a full year 2019 cash tax rate of approximately 24%. Looking beyond 2019, the cash tax rates are expected to be lower than statutory rates as we have approximately $17 million of net operating losses with an indefinite carryover period. On to our debt. Average outstanding debt increased by $6.8 million in the first quarter with our cash interest rate up 170 basis points year-over-year. The increase in the cash interest rate was related to a combination of year-over-year LIBOR increases of approximately 80 basis points and higher applicable margins based on our 2018 performance. The excess availability on our revolving credit facility entering Q2 was $43.5 million. Total availability, inclusive of cash balances, was $49.9 million. We remain in compliance with all financial covenants. And based on our expected 2019 performance, we expect to maintain a strong liquidity position throughout the year. I'd also like to quickly note the impact of the new leasing standard. While there's no impact to the P&L and EBITDA, our balance sheet will now reflect an asset and an offsetting liability split between current and long term associated with the present value of the current remaining lease payments. And before we conclude our prepared remarks, I'd like to touch on previously communicated full year 2019 guidance. As we mentioned earlier, we expect our full year 2019 revenue to now be in the range of $695 million to $705 million, reflecting some softness in the Science Curriculum and I&I revenues in addition to some strategic decisions to forgo lower margin Furniture projects. Although this is certainly below our expectations, we do want to point out that this revision in revenue does not affect our outlook on EBITDA for 2019 as cost savings are expected to more than offset the lower revenue outlook. As we approach the midpoint of the 2019 fiscal year, we are reiterating our adjusted EBITDA target of $42 million to $46 million, which represents a 20% to 30% increase year-over-year. Gross profit margin is expected to remain consistent with prior year, and SG&A expenses will be flat to modestly favorable versus last year. Finally, we expect free cash flow to be in the range of $27 million to $33 million, including approximately $13 million of one-time working capital benefits.
As we eye the second half of 2019, we remain optimistic in the growth prospects of our company. With the sequential improvement in margin and robust Science Curriculum pipeline highlighting the potential for our business, we are optimistic that this progress will continue as we seek to deliver improved financial performance in the quarters ahead. With that, I'll turn the call back to Joelle to open up the Q&A.
[Operator Instructions] And our first question comes from Kevin Tracey with Oberon Asset Management.
All right, so if I assume 2% growth for the Distribution segment for the year, your new guidance suggests science revenue that's actually below what it was in 2017 despite what I understand to be much larger market opportunities. And you talked about more competition. Can you put some numbers around how your market share or win rate has changed over the last 2 or 3 years in that market?
Yes. Well, thanks, Kevin. Your assumptions that you are making certainly aren't -- we didn't provide a direct estimate for the growth this year in the Distribution segment, so I'm not going to comment specifically on your modeling. But we have seen, as we've noted, a difference in some of our win rates. And also it's not only the win rates, but it's also getting the opportunities in the market. And we have seen some increased competition, and that has had an impact on the number of opportunities we get to get deeper into as well as some of our win rates. That said, we're taking some pretty good action against that. We still are achieving some very nice wins, and we still are expecting growth in the Science Curriculum category.
Okay. And then in the I&I business, just to be clear on that, do you expect that revenue to grow in 2019 for the full year?
Well, we had previously discussed I&I being relatively flat in the current year as we kind of entered this year. And as we noted, we're seeing some weakness in that category. Long term, the answer is absolutely yes. And as you can see, we mentioned, and you can read about it, we have information out there about our Success Coach line, which is really the first major publishing event that we've done in that piece of our business in many years, and we're very excited about that. And it really represents kind of the next evolution of that Coach product line, which was a very significant player in the test prep market. This program has much broader market appeal. It can be used for supplemental instruction as well as assessment preparation, so we believe it's a very robust and strong program. So we think that will fuel longer-term growth. And we also -- we noted in our comments, Kevin, that we've seen a nice pickup in some of our -- kind of our existing proprietary vocabulary building and reading comprehension programs. That's the Spire and Wordly Wise programs. So those are areas that we've been looking to reinvigorate growth as we've kind of -- and after the Triumph acquisition, really bolstered the size of that selling organization, some of our product development resources and really integrating it into the Team Sell model. And while in 2018, we mentioned not seeing a lot of great results from some of that cross-selling and those synergies, we are beginning to see that in some of those core anchor products, which we're very pleased with.
Okay. And what would 25% tariffs mean for the business or even an expansion of tariffs on more Chinese imports? And then what assumptions are embedded in your guidance for the year?
Yes. Well, most of our -- the amount of our cost of goods sold that are really directly impacted by that is relatively minor. Most of our prices are locked in for the current year, and we've built in some cushion in our pricing assumptions for some of that uncertainty. So the net-net is we don't see it kind of having any material impact on 2019, but we'll continue to monitor it very closely.
[Operator Instructions] Our next question comes from Patrick Retzer with Retzer Capital.
In Mike's initial comments, he said something to the effect of orders with the largest school districts are up 10% in early May or something to that effect. Could you repeat them?
Yes. I will repeat it. We are -- through our bookings through early May, within the top 1,000 school districts, which we categorize based on student population size, are up 10.7% over the previous year.
So that's for the second quarter through early May?
Q1 as well as April and early May.
Okay. And do you have any comment or update on the CEO search? Is that on hold while you finish your assignment? Or what is the status of that?
Yes. The company has existing relationship with a leading search firm. We've commenced discussions with those firms. And in addition, we have a working group within the Board of Directors that will be spearheading that process.
Okay. So there is no time line in mind as of this point?
That's one of the key aspects of the discussions with the search firm regarding their views on timing based on the potential candidates that they've identified. Typically -- I mean there is no typical time line, but typically I would expect this process takes somewhere in the 6- to 9-month range from start to fully onboarding.
Okay. And some time ago, the company started an effort to get a listing. Is that on hold? Or does that continue to move forward?
Yes, we're continuing to push that forward, Pat. We're just continuing to work with our Board in trying to find the right timing on getting that accomplished. We don't have a specific update right now, but we're continuing to work with the Board on that.
[Operator Instructions] And our next question comes from Walter Morris with Baraboo Growth.
Could you reconcile the 10.7% increase in May bookings year-to-date for the top 1,000 accounts to the data? I thought I heard you talk about on Supplies bookings which, of course, is most of the Distribution segment. What was the Supplies bookings year-to-date? And how does that flip with this 10.7% number?
Yes, what you're -- Walter, what you're combining is Mike's comments on the strength that we're seeing in the top 1,000. And then my comment that when you look at our core public school education market customer overall, we're seeing bookings growth of about 3.1%, which just means that certain parts of the market that we break it down into 8 tiers are having lower growth or some -- we have some segments of the market where we're down. I think the core reason that we make those comments, particularly around the top 1,000, is because, as we've mentioned, we've made a concerted effort to improve the effectiveness of our market coverage model so that we can cover those large accounts more strategically, more in-depth to drive growth, and we are seeing some good benefit from that. We're seeing growth rates in that part of the end market stronger than other parts of that market. So the goal is to get them all clicking on all cylinders, Walter. But at this point, we are seeing good strength at the -- in the largest districts, which only represent a portion of our business as we service essentially the entire market.
Is the supply bookings year-to-date, up 3.1%, consistent with your earlier expectations? Or is that number below expectations and part of the reduction in revenue guidance?
No, as we mentioned, our Supplies business is building in line with expectations.
Okay. And what are you doing to improve the orders and bookings from the sub-1,000 districts? What have you identified as the cause of the decline there? And what is the remedial plan?
Well -- and so first of all, in many segments of the market, we're showing growth, Walter. It's not all of the others are declining by any means. So exactly what we're doing, we've built out our inside team to provide better coverage in context with those customers. Our inside sales team has grown dramatically over the past 2 years, and so we feel that we can touch that piece of the market more effectively. We have -- as you know, we made some leadership changes within our marketing organization, and our new marketing leadership is doing some very good things to reach the rest of the market very effectively through digital media campaigns, et cetera. And so that's a key part of addressing that market. And the continued improvements to our e-commerce platform, we also believe are important to addressing that piece of the market as well. So it's on a number of fronts.
Yes, and I'd just like to add, in terms of your question regarding reconciling the new revenue guidance, the reduction in revenue is focused primarily within the I&I and Science businesses which we talked about, I think, in depth as well as the decision to forgo some higher -- high revenue but very low-margin Furniture business, which affects top line, but enables us to still meet or exceed our internal estimates for the Furniture business from a profitability standpoint. The Supplies business is not contributing any of the -- anything to the revised downward guidance on the revenue front.
And our next question comes from Chris Sansone with Sansone Advisors.
Could you just talk about how much debt that you're going to pay down this year and maybe give a sense for what your expectations are for maybe 2020 as an out-year projections?
Can you repeat your question? You were a little muffled there at the end of your question, Chris.
Yes, sure. Just how much debt do you think you're going to pay down this year and if you have a forecast for 2020, maybe as an out-year projection for debt pay-down.
Well, we have not commented on anything beyond 2019. But as it relates to 2019, basically, you can take our free cash flow estimate of $27 million to $33 million and, at this point, consider that as being what our reduction in debt would be for the year.
I'm not showing any further questions at this time. I would now like to turn the call back over to Jake Candler for any closing remarks.
Thank you. That concludes today's call. We appreciate you taking the time to join and hope that you have a great rest of the week. Thanks so much.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.