Lakeshore Learning Materials LLC

Overview Key strengths Key risks Leader in early childhood and K-5 educational products. Lower spending by school districts due to tighter federal, state, and local government budgets. Well-established customer base with majority of revenue derived from repeat customer orders. High working capital requirements and long cash conversion cycles. Asset-light business model with moderate maintenance capital expenditure needs. Heightened leverage risk given financial sponsor majority ownership. Lakeshore reported revenue declines in the first and second quarters of fiscal year 2024. Lakeshore?s direct sales channel, comprised of public and private institutions, contributed most of the year-over-year decline in the first half of fiscal 2024, given lower spending by states and school districts on its product categories and a return to seasonal ordering

...We believe Lakeshore's S&P Global Ratings-adjusted leverage could approach 5x in fiscal 2025 (ending December 2025) after the American Rescue Plan's Elementary and Secondary School Emergency Relief Fund (ESSER) expires. Lakeshore reported revenue declines in the first and second quarters of fiscal year 2024. Lakeshore's direct sales channel, comprised of public and private institutions, contributed most of the year-over-year decline in the first half of fiscal 2024, given lower spending by states and school districts on its product categories and a return to seasonal ordering patterns. The company's retail segment has also experienced revenue decline due to lower funding for early childhood education, pressured consumer spending, and a more promotional environment. Lower input and freight costs partially offset this decline. We estimate the company's S&P Global Ratings-adjusted EBITDA declined about...

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