© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, ladies and gentlemen, and welcome to the School Specialty's Fiscal 2018 Second Quarter 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, Glenn Wiener, Investor Relations. Sir, you may begin.
Thank you, Ashley. Good morning, everyone, and welcome to School Specialty's Fiscal 2018 Second Quarter Results Conference Call. On our website under the Investor Relations section, you'll see our Form 10-Q, our press release and the updated investor presentation. All documents can be downloaded, but if you need a copy, please feel free to reach out to my office.
Joining us today are Joe Yorio, School Specialty's President and Chief Executive Officer; 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. Additionally, our call today is being webcast 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 Joe, 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 included those preceded or followed by the words anticipates, believes, could, estimates, expects, intends, may, plans, projects, should, targets and/or similar expressions. These forward-looking statements are based on School Specialty's current estimates and assumptions and, as such, involve uncertainty and risk. Forward-looking statements are not guarantees of future performance, and actual results 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 the federal securities law, School Specialty does not intend to update or review the forward-looking statements.
As a reminder, management will be presenting today at the Canaccord Genuity Growth Conference in Boston, and our presentation is at 5:00 p.m. Eastern. You can listen to the webcast live or via replay by visiting the Investor Relations section of our website. I want to thank you all for your support.
And at this time, I'd like to turn the call over to Joe Yorio. Joe?
Thank you, Glenn, and good morning, everyone. As you saw from our announcement yesterday, future revenues were up $9.1 million year-over-year to 5.7%. And we posted $11.5 million in adjusted EBITDA, a $3.1 million decrease. On the top line, I'm pleased to report that our Supplies business grew $3.5 million, our Furniture business grew by $9.6 million and our Instruction & Intervention business grew by $4.1 million. We have modest declines in the AV Tech and Agenda categories, and our Science Curriculum business was down $5.3 million, which was expected given the lack of state-wide adoption and large territory opportunities in the current year. While we expect Science to be down this year our early outlook for 2019 is that Science Curriculum will rebound and show a minimum growth of $10 million, with potential for upside.
I continue to encouraged by our increased penetration in the marketplace and our opportunities for growth in the years ahead look even stronger now than as we entered the year. Overall book sales excluding Triumph were up over 5% in Q2. And Supplies and Furniture, which made up over 80% of the Q2 sales were up 12% and 16.5%, respectively. If you look at our number of our competitors, revenues were flat to decline. So we believe that we are taking and growing market share.
Both Ryan and Kevin will walk you through more of the numbers, but given our success year-to-date and the opportunities on the horizon, we feel confident that revenue for the year will come in, at, or above the high-end of our original guidance. Our goal coming into the year was to achieve organic revenue growth, and we are accomplishing that. Our 21st Century Safe School value proposition continues to be received well, as I've personally been out on the road meeting with principles, superintendents and district administrators working with them to understand their challenges and opportunities while addressing many of their pain points as they look to advance in outcomes. We are truly moving beyond our legacy transactional sales strategy, and with our new team sales model, School Specialty is becoming more and more a consultative partner to many of our customers across the country.
Our Safety & Security product offering is also boding momentum and should show strong growth next year and into the years beyond.
Year-to-date bookings are up 87%, and the pipeline of opportunities is building. In the first five weeks of Q3, book sales were up nearly $1 million. Furthermore, SSI Guardian is establishing itself as a strong brand in the marketplace. And our team continues to expand its reach, and is gaining more, more visibility nationwide. Executives have been featured on Fox News, ABC, CBS and NBC as well as in the New York Times and in Reuters. We're also being featured in trade journals focused on Safety & Security such as American School and University and Campus Safety.
Over the past several months, we have held numerous advanced training workshops. Some particularly of note are the Boys and Girls Clubs of America. We also presented at the Campus Safety Conferences 2018 in Pasadena, California, Herndon, Virginia and Dallas, Texas and all the events were sold out. We also spoke at the Teacher's Summit in Atlanta, Georgia as well as the University of Southern California. I could name several others but you can go to our Guardian website as well as look at the activity on the social media for more information.
This year more than $3 billion of federal and state funding specifically directed to school Safety & Security has been announced. And there is additional funding on the rise. While our business will grow this year it's still small in the grand scheme of things, but the increased funding and attention on Safety & Security bodes well for the next several years.
A few other updates on our business. Furniture continues to be an area of growth for us. And we expect this segment to grow in 2018, with more and more classroom makeover projects scheduled throughout the balance of this year. Our breadth and depth of our offering, combined with our projects by design consultation is leading to significant opportunities for this segment, and for other products lines, as we are focused on the overall learning environment that advances our 21st Century value proposition.
The Supplies category, while up in sales, has experienced margin pressure as we anticipated and I've spoken about this for several quarters. We just weren't competitively priced on many of the products, and thus we were missing many opportunities. We took steps last year to get our pricing on commoditized products more in line with the industry and we got much more active on bid participation, which is helping drive our sales, but leading to lower gross margins, again, as anticipated. On the other hand, we believe that over time it will help us as we continue to penetrate more wallet share, introduce our higher margin proprietary brands and expand into more categories. These are areas we are getting better at, but we did not execute well enough to offset the margin degradation.
However, our teams remain focused on driving the demand for our portfolio of products and categories, and they are executing our value proposition. We're seeing nice traction with our e-tail channel partners as well. And bookings were up over 35% year-to-date. Our relationship with Amazon continues to expand, and bookings with them are up over $4.6 million or 54% year-to-date, which should continue to grow even further given our recent expansion of our product offering on Amazon.com. Sales of other SSI brands within the brands Life category includes, School Smart, Sax, Sport Time, Abilitatons and Frey and they're also growing and driving balanced growth within our portfolio.
Operationally, Triumph Learning integration was completed at the end of the 1st quarter, and we successfully transitioned with product fulfillment to our fulfillment center in Nashua, New Hampshire. Systems conversion is complete, and the sales team is fully integrated. Overall, our labor costs are in line with our expectations, and we are favorable to plan perspective overall in SG&A. But I have to say that the labor market is tight with low unemployment and the fact is some of our locations had difficulty staffing. So we've had to find ways to be creative. We've launched remediation plans to be back on track, but unfortunately, staffing issues limited some of the positive momentum of our results in this quarter.
Lastly, we are making progress with respect to our shareholder liquidity initiatives. Through an active first and second quarter, we believe we've achieved the requirements for our NASDAQ up list, and we've submitted our application and are currently responding to requests for additional information. That remains our goal, to up list to the NASDAQ this year, and we remain active on the M&A front as well, looking for opportunistic and synergistic transition opportunities that can strengthen our offering, market position and financial performance, and we'll provide update as they materialize. Overall, with our performance, I'm pretty pleased year-to-date and I'm encouraged that we'll continue to make progress in the second half of the year. 2019 and the years that follow should be very strong years for School Specialty. And I believe we will deliver the results we are capable of achieving and our share price will be more in line and reflective of our true valuation and future prospects.
I will now turn the call over to Ryan to give you some more color on our business and our outlook. Ryan?
Thanks, Joe. On our first quarter call, we noted that order momentum was building early in Q2 after soft bookings in the first quarter. We sustained solid booking trends throughout the quarter, and bookings finished up 5.3%. Third quarter to date booking trends have remained strong, which is encouraging. Through early August, Q2 - excuse me, Q3 Supplies and Furniture bookings are up 7.8% and 21.4%, respectively. This has driven overall Distribution segment bookings to 5.6%, ahead of last year, excluding Triumph Learning for comparability purposes. While peak season orders started building later this year, the sustained year-over-year growth in book sales indicates that we are on track to achieve overall organic growth in excess of 3.5% and overall growth approximating 6%. Broadly speaking, we attribute the timing shift in peak season orders partly to changing customer expectations. And much of this has to do with our performance as we have consistently reduced order cycle times over the past few years, and customer credibility remains strong. Because of our improved delivery times, many customers do not feel the need to place peak season orders weeks in advance, as they have in the past, to get them in time for the new school year. There are still opportunities for us to improve, both operational performance and the overall customer experience. And this remains a key part of our focus.
Taking our full year revenue outlook in the context of our revenue performance through Q2, you can see that we are setting for a bold growth objective for the second half of the year, approximately 7% or $30 million. This expectation is supported by current trends and opportunity pipelines where applicable. Importantly, the substantial majority of this growth is organic, as we expect the inclusion of Triumph Learning to contribute approximately $3.7 million of this increase. We recognize this as a tall task and are aligning the organization to make it happen.
As of August 6, our billed plus booked orders for the second half of the year were already up approximately $17 million year-over-year. When you take into consideration, market-driven declines in the Agenda category and a temporary lull in our Science Curriculum business and you exclude Triumph Learning for comparability purposes, the balance of our product categories are expected to deliver 7% organic growth for the year.
In our two largest areas, Supplies and Furniture, we believe our growth rates outpaced the general market, and we are encouraged that we are seeing gains not only in general or basic supply categories, but in specialty areas as well. Our Early Childhood and Safety & Security are showing strong gains. In addition, we see strength broadly across the country and within both large and small districts. All bodes well for building the foundation for long-term sustainable growth, moving beyond solely a transactional business model and bringing our 21st Century Safe School value proposition to the market.
We have and continue to take many steps to better reach and serve our customers. From the Team Sell model to improvements in our offering to more effective marketing and better delivery and customer support. But in addition, we've commented in these calls and in recent calls on adjustments to our pricing strategy. As we looked very closely at our business, engaged with our customers and selling organization and gathered significant amounts of competitive pricing intelligence, we concluded that everyday pricing on core elements of our offering created a sales challenge or turned off new customers prior to engagement.
We had become too dependent on business obtained through bids, quotes and strategic agreements. The adjustments we made were across substantially all distribution product categories and impacted essentially all customers and transaction types. We executed a reset of our base or everyday pricing. And due to the nature of our business, a pricing reset such as this cannot pinpoint only new customers or incremental revenue. In conjunction with this, we have also begun actively resetting our discount structures with customers to ensure they are appropriate in light of the new pricing and strategic value of their relationship with us.
Simply put, we have an opportunity to scale back discounts in certain areas due to better everyday pricing. But this will take 6 to 12 months to address. But we believe will contribute to margin stabilization and improvements over the coming quarters.
Finally, our strategy is focused on driving sales in higher margin areas and within our proprietary brands, as Joe referenced, and effectively utilizing our broad and very competitive School Smart brand. Progress in these areas is lagging our expectations for the year, but certainly moving in the right direction. In addition, with Science and the Instruction & Intervention category being below expectation and Furniture outperforming, we have and will continue to see some level of mix related pressure and gross margins for the balance for 2018.
To put our performance and outlook in perspective, most of our suppliers in the general Supplies category are reporting flat to slightly increased volume in their education market business, whereas, our general Supplies bookings are up approximately 6% year-to-date. Early Childhood Suppliers are more upbeat, referencing mid-single-digit year-over-year growth. They have specifically noted, however, that their business has shifted away from smaller dealers and distribution partners to e-Commerce partners or national partners, such as School Specialty. Book sales in our Early Childhood business, including both Supplies and Furniture is up nearly 8% year-to-date.
Furniture partners are reporting mixed results, but with Furniture bookings up in excess of 14% year-to-date overall, we feel we are outpacing our competition thus far in 2018. A few quick comments on the topic of tariffs. Of the initial Section 301 tariff action that went into effect in early July, we had limited exposure with items involved in the known HTF codes. When steel and aluminum tariffs were first introduced, several manufacturers swiftly put out 5% to 7% cost increases. However, after about a month, most of that retracted and replaced the increases with more of a wait-and-see approach. Classroom and cafeteria furniture is a key area for us, where we are monitoring the potential impact.
In the Supplies area, we have certain products that would be impacted by tariffs, specifically, those utilizing laminating film. As we have products manufactured under the School Smart brand, we are actively investigating opportunities to move manufacturing away from China to mitigate tariffs altogether. Overall Supplies - excuse me, overall suppliers are slow to report 2019 cost adjustments, but we continue to monitor this topic closely.
With that, I will turn the call over to my colleague, Kevin Baehler. Kevin?
Thank you, Ryan, and good morning. As Joe and Ryan provided additional insights into our revenue and gross margin performance, I would like to start by providing some additional color on our SG&A. You will notice in our revised 2018 outlook, which is detailed on Page 17 of the investor presentation, our full year SG&A costs are expected to increase by approximately $6 million to $7 million year-over-year. Year-to-date SG&A costs were up $11.7 million, and we expect the second half to show year-over-year improvements with revenue growth of nearly 7% anticipated as well. The main contributors to the first half SG&A year-over-year increases were, number one, the inclusion of a full six month period of Triumph Learning operating costs and integration-related costs, which accounted for approximately $7.2 million of the increase; number two, the adoption of ASC 606, which changed the timing of our catalog expense recognition within the year, but should not impact the full year. This resulted in $2.5 million of incremental catalog expense. Number three, incremental outbound transportation costs of approximately $2.5 million, associated primarily with a combination of industry-wide freight rate increases as well as incremental volume. And number four, increased depreciation and amortization of $2.9 million associated primarily with the implementation of our phone systems and new e-Commerce platform.
All other SG&A costs were down in the first half of 2018 as compared to the first half of 2017 by approximately $3.4 million. These reductions reflect savings associated with specific process-improvement initiatives as well as ongoing overall cost management actions. Looking forward to the second half of 2018, we expect overall second half SG&A to be down year-over-year by approximately $5 million to $6 million. This is despite the estimated increases in both transportation cost and fulfillment center wages resulting from the anticipated volume increases and continuing market-driven cost pressures as well as increases in depreciation and amortization.
The key drivers of the expected second half SG&A decrease include, number one, reduced catalog expense associated with the reversal of the timing-related impact of ASC 606, which was realized in the first half of 2018; second, lower SG&A associated with Triumph Learning. Although the second half of 2017 contained 4.5 months of Triumph SG&A costs, we do expect a year-over-year second half decline. This is based primarily on the fact that we had over $3 million of acquisition- and integration-related charges, which were included in last year's second half SG&A, and we expect lower overall cost associated with Triumph Learning resulting from the synergies and integration-related improvements. And as we've discussed and as Joe mentioned earlier on the call, that integration was completed at the end of our first quarter of this year. Lastly, we expect continued savings from our process-improvement initiatives and actions related to more efficient management of personnel, staffing costs and our total marketing spend. As a result, full year SG&A for 2018 is expected to be near the midpoint of our original guidance despite revenue being at or above the high-end of the original outlook.
An update on taxes. Our year-to-date effective income tax rate in the first half of 2018 was 21.5%. We expect our full year effective income tax rate to be in the mid-30% range. This estimate is higher than both the combined statutory federal and state tax rates and our prior guidance, due to the impact of some discrete tax adjustments related to a combination of realized built-in losses, interest expense limitations and foreign tax adjustments. The increase in the effective tax rate as compared to the rate for the first six months of 2017, which was 1.7%, was related primarily to the reversal of valuation allowances in the fourth quarter of 2017.
We continue to expect our full year cash tax rate for 2018 to be significantly lower than our effective tax rate. For 2018, we expect our cash tax rate to be in the mid- to upper single digits, a modest increase from previous expectations of low single digits. As mentioned in previous quarters, this lower cash tax rate reflects the recognition of a portion of - the recognition of a portion of certain deferred tax assets, such as our estimated 2017 NOL, AMT credits, intangible amortization as well as the impact of immediate deduction of certain capital investments. We project cash taxes to increase to the high-teens in 2019 and to approximate the new statutory rate of the mid-20% range by 2020.
The one-time transition tax related to un-repatriated foreign earnings and taxes, is still being assessed and our estimated impact continues to be between zero and $1 million. And this range is based on the extent to which we are able to utilize any portion of foreign tax credits to offset the tax.
We will finalize this determination in the third quarter. However, the finalization of the transition tax is not expected to have a material impact on our cash tax rate, as the final tax determined due to this onetime transition item can be paid over an eight year period as provided in the new Tax Act.
Briefly on interest expense, year-to-date interest expense is down versus 2017 by $1 million. This decrease is related to lower noncash interest associated with our deferred vendor obligations. Cash interest was essentially flat, as a lower effective interest rate associated with last year's Q2 debt refinancing was offset by higher average borrowing costs in the current year.
For the remainder of 2018, we expect cash interest to be up modestly year-over-year due to increases in LIBOR over the past year, plus a higher debt level entering the third quarter.
As for the balance sheet, the comments in the presentation are generally self-explanatory, but I'll add a few additional comments. While our net investment and working capital increased by $7.5 million or 5.1% end of Q2 this year versus end of Q2 last year, approximately 45% of the increase relates to the combination of an incremental $5 million of working capital associated with Triumph Learning and the impact of ASC 606, which decreased working capital by $1.7 million, particularly on deferred catalogs. The increase in working capital is in-line with our expectation, as increased in inventory levels are in support of the incremental open order position and incoming order momentum.
Overall, our working capital levels and key working capital metrics, such as day sales outstanding and days inventory on hand, are favorable to both our expectations and with prior year. Despite the incremental volume in the second half, we continue to expect year-end working capital to be modestly lower versus year-end 2017, as we believe improvement opportunities exist in areas such as improved inventory turns.
As for debt levels, our net debt is up $20.9 million at the end of second quarter '18 versus second quarter 2017. The drivers of the incremental debt are the $19.6 million paid with respect to the Triumph Learning acquisition and also noncash interest accretion of $2.1 million, which increased the debt associated with the deferred payment obligations.
The shift in the peak order billed to later in the season also pushes our cash conversion period to later in the year, thus while year-to-date free cash flow trails the prior year by approximately $19 million, the updated revenue, gross profit and SG&A outlook as detailed in the investor presentation, combined with continued working capital management support the generation of approximately $20 million to $22 million of free cash flow for the full year.
This will result in lower year-over-year net debt of approximately $18 million to $20 million by the end of December.
Finally, to wrap our discussion on debt and overall liquidity, we are beginning to evaluate potential options to improve our current finance - financing structure to reduce interest expense, address the deferred vendor obligations, which mature in December 2019, and potentially provide the company with more resources to continue the implementation of our strategy.
With that, Ashley, we can open up the call for questions.
[Operator Instructions]. And your first question comes from the line of Kevin Tracey with Oberon Asset Management.
On the gross margin, in the presentation, you disclosed that 75% of the margin decline relates to kind of new contracts assigned 2017 and the price adjustments you've made, but you've taken - I assume that must have been included in the original guidance for the year, but now today you've taken down the gross margin guidance by 170 basis points. So can you talk a little bit more about what has come in different than expectations?
Kevin, this is Ryan. I'll start and my colleagues can chime in. I think the key thing is - and we stated this in our comments - that we expected to do better on our other higher-margin categories and also the use of our School Smart brand and other proprietary brands to offset some of the expected margin pressure that we would [indiscernible] for some of these agreements. And so our - the fact is that our performance in the - those kind of more commoditized areas has outpaced our growth in those areas. And that's what led to some of the pressure. So that's why we remain very focused on utilizing our brands and driving sales in kind of higher-margin areas of the business. Also, I am sorry, just want to reiterate. I did mention that, our science business, although we expected it to be down, is down a little more than we had expected. And our I&I business, although performing, is not performing as strong as we expected. And those two things also as we consider the outlook for the balance of the year, Kevin, that places a fair amount of mix-related pressure on our margins.
Okay. And on Triumph, what level sales do you expect this year? I think when you bought it, you disclosed that it had sales of about $25 million. But the sales have gone down in the few years leading up to the acquisition. And then when do you expect that business to return to growth?
Well, the - we are not disclosing the overall sales for that business line for the year. But if you kind of weave together the information we've provided, it's down slightly in 2018 year-over-year. Although obviously, we did not own it prior to August. So but it's - just looking at its historical sales, it's down slightly. We do expect that business to return to growth in 2019. And in fact, we have a number of product development actions in process to help that as well as, as we mentioned in the materials, we had some coverage gaps as we worked through the sales integration, all of which have been addressed at this point. So we should enter 2019 on much more stable footing. And then I think a final point is the adoption of the ESSA plans at the state level do provide benefit to that product line, the more stability and certainty around those plans. And that has - kind of begins to take shape in 2018 as there's been some uncertainty about the adoption of those plans. So that's also a positive contributor to 2019.
Okay. And then lastly, two on science. First, how is the process going in California to get cost adopted as one of the options that districts can buy next year? And then looking ahead to next year, if you kind of - if you exclude California, how does the opportunity set compare to this year in Science?
So first of all, we know that our FOSS product aligns with the California - their adoption criteria, okay. So this is different from the prior adoption and we've stated this in the past. The districts in California need to show that they are complying with the state standards. Our product does comply with the state standards. So it's a matter of working with the district to implement our solution. So we feel very good about how things are stacking up for California. In addition to California, we have many very interesting and in some cases, quite significant opportunities in other areas. And so even without California, we would expect to see an opportunity for organic growth in [indiscernible]. So there are many opportunities coming together, when we look forward in 2019, and that's why we provided an early view of kind of what we're expecting with an attempt to be conservative at this point until we move closer to the beginning of the year.
[Operator Instructions]. And our next question comes from the line of Patrick Retzer with Retzer Capital.
Well, first of all, I wanted to compliment you. I think the repricing you did was strategically the right time to do to maintain market leadership. And it seems like everybody is starting to see wage and transportation cost pressures. So the fact that you're guiding towards the high-end or even above your previous guidance for revenue for the year and still EBITDA in the range of $55 million to $60 million, I think is impressive. So thank you for that. In your press release, you said there is tangible progress in all areas, but we're going now accelerate the pace of change, is there anything in particular you can point to there? Or is it just creating a higher sense of urgency with the troops? Or what does that mean exactly?
So, Pat, this is Joe. I would take that. As we've talked about the evolution of our sales strategy moving from a transactional sales model to more of a team sales, sales model, that was initially launched in November of '16. As we went through '17, we did some further kind of restructuring. And as we got into '18, that restructuring is not continuing at the pace that we would have liked. And so when we talked about the acceleration, that's what we're talking about. We've got different ideas on how we want to penetrate and impact the market, particularly at the high-end and dealing with the superintendents, school board members. And so you're going to see an acceleration there, us getting much more involved at that level. And our sales structures will complement that. So that's really - as we talked about and we're going to do that quickly. We think that because of the success we've seen where we've implemented the Team Sell model and because of the ability to utilize the more competitive price product, now we can actually touch more transactional customers on a much more frequent basis, it almost separates our business into two segments.
You've got the transactional customers that we'll touch more frequently with our inside sales model - and you'll continue to see that grow - and then you've got the customers that we want to engage at the higher end and maybe those of the top 69 urban school districts in the country or schools with large bonds or even large districts that we should be engaging at a much more higher consultative level. So that's what we're talking about. It's basically focused on sales structure and how we go to market. And we plan on having that done here before the end of the year. So we're not going to let it drag out any further. We're going to execute it quickly and continue to take advantage of - with the more effective pricing. I did want to mention one thing about the pricing as well, it was actually for Kevin's question.
When we lowered the pricing - and again it was very strategic because we knew that we weren't competitively priced and quite frankly, we were missing opportunities. And one of the things that I mentioned in my comments that we haven't achieved to my level of liking this year, but I know we will get there, is that the bottom line is we want to get more wallet share. We know with this pricing opens up more doors to get more wallet share and get more of our proprietary brand as well as our categories in there and at the end of the day, it's going to drive more gross profit dollars to the bottom line. So while we weren't able to do as good a job in the first two quarters in getting them in there, we absolutely are seeing evidence that this is opening more opportunities and as we execute more of our Team Sell model, we're going to get into talk about in more of more and more of our high-value categories, which will gain more wallet share from the customer.
Okay, great. I wonder if your later slides in today's presentation shows leveraged free cash flow in the $20 million to $22 million range after $21.1 million of cash used in investing this year. Next year that number - that cash used in investing should decrease unless you make some acquisitions. Is that right?
[Indiscernible] 2019, Pat, you're referring to 2019.
Yes.
We would - Kevin, were you going to comment? I cut you off, I apologize.
That's okay Ryan. I was just about to say that, yes, for 2019, as we have communicated previously, we do expect our investment in - some of the capital investment associated with, for example, the phone system, the e-Commerce platform - we believe 2018 was the peak of our acquisitions. We expect it to decline in 2019.
Okay. And that sounds like from your comments, Joe, we - even though it's August - - we shouldn't be surprised perhaps if we see a modest bolt-on acquisition this year?
Well, as we said, we are always looking for targets of opportunity, and we continue to look at those. And we just say, what we are continuing to look and if something comes up that we can execute quickly we'll absolutely be on it.
Okay. And then you touched on the Safety & Security area, and in your presentation, you talk about $3 billion of funding there. I think you have brought $2.4 million in the first half of business in that area. It seems like the company has been a leader in that area almost nationwide. Should we expect to see some sizable growth there going forward?
So I would say as you look at the end of '18, but particularly the '19, you should see some good growth opportunity. I think the biggest challenge right now we deal with is that there is no established best practices nationwide. So you've got this $3 billion out there. And we don't participate in that entire opportunity, but a portion of it. But we're still - schools are still having a hard time making decisions on what products should they buy. And so the thing that bodes well for us is we sit working with both state and federal legislators and government to talk about Best Practice. If we can continue to work with them to establish them, I think that bodes really well for us. Right now it's really a state-by-state issue. So yes, you see an opportunity absolutely for upside, but I see even more in '19, because even though those dollars have been announced, most of them won't come to fruition until '19.
Okay, great. And then finally, on the up listing, you said your goal was to get there by the end of the year. Do you have any more color on that? Do you think that will happen sooner rather than later or?
Pat, this is Kevin again. As we indicated in the presentation and as Joe commented earlier on the call, the application is submitted, we did receive late last week, the first round of questions and additional information request from NASDAQ. Those requests are relatively straightforward. We are in the process of completing those and sending to NASDAQ those items of additional information. So we will work that as quickly as we can, it certainly is a priority for us. As far as the timing, as far as turnaround and review and if there's follow-up questions from NASDAQ, that we'll have to see as we proceed through the rest of this quarter. But certainly, we will be - it will be a high priority to continue to provide this information to NASDAQ and keep working the up listing process.
And I'm not showing any further questions at this time.
Right. Thank you, Ashley. Well, thanks everyone. We continue to appreciate your support as we continue to evolve School Specialty. And as we get into the third quarter, we hope we continue to give you good results and perform at expectation or greater. So thanks, and have a great day.
Thank you. 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.