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HNI HNI

Participants
Matt McCall Vice President, Investor Relations and Corporate Development
Jeff Lorenger Chairman, President and CEO
Marshall Bridges Senior Vice President and CFO
Greg Burns Sidoti
Steven Ramsey Thompson Research Group
Reuben Garner Benchmark
Call transcript
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Operator

Good morning. My name is Sheryl, and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation First Quarter Fiscal 2020 Results Conference Call. [Operator Instructions].

As a reminder, today’s conference call is being recorded. you. Thank

may you your begin McCall, conference. Mr.

Matt McCall

discuss With news Chairman, and Sheryl. release, I'm posted Vice you, HNI Thank and reconciliations us Marshall Jeff earnings CEO, CFO. Copies on Lorenger, Good results. fiscal President are Corporate Senior presentation morning. McCall, Matt Corporation. Vice to joining and for are is name our of you me first President, and for quarter XXXX My Development Thank our Investor today President and Bridges, our website. financial non-GAAP Relations

factors historical statements made are to The results. call Statements made Actual The website forward-looking this that no that during assumes unknown Corporation additional posted and statements, are results to during subject could not are affect presentation update strictly differ call. any materially. the earnings facts actual which could the obligation risk. forward-looking on known includes

over Lorenger. to I'm Jeff Jeff? the to call Now turn pleased

Jeff Lorenger

Thanks, Matt. everyone. morning, Good

first, come and strong delivered with on health I members are assuming, members most Our pandemic. will want the points to experiencing, we are ongoing moment. What Upfront, an will first that start update what emphasize COVID-XX operating results, in pandemic. a would this are we I during and the we we are; back quarter the like we responding. prioritize well-being important of to HNI two and currently how to all

will And this second, we successfully pandemic. navigate

culture the first HNI my rising to respect With is occasion. to point, again the

have measures with necessary our support communities Our business to across teams, protect members and organization. help is aggressively consistent move To doing are the implemented coming guidelines what we forward. CDC our together to our

social provide production our to We have appropriate distancing. reorganized facilities

All to depth currently the of remotely We facility and are have members frequency able cleaning. doing so. work increased

our major these in in currently place, we facilities. measures operating With are

protective coverings personal face equipment. utilizing manufacture face the are in and mask washable in Carolina healthcare by efforts cloth of facilities for North masks, protective used include gowns These we professionals to and and New public our Iowa, York produce the general. Additionally,

to supplies first and in We hospitals our our systems healthcare responders, are critical donating communities. these

my navigate point, about talk second we Let's pandemic. this will how successfully

strong prolonged obligations sheet flow business cash and our a our for and We and have balance period. meet to have a liquidity maintain

number shock teams sudden the we sudden three we across staying and scenario on are this emerging been maintaining the environment on economic majority one, focused global businesses geographies, responding poised our vigilant running. three, shock we to -- two, of our Number global with focused our while accordingly With planning. operating current we focus. from period strategic felt economic the our our and are the are objectives. adjusting the short-term are and And in to are long-term ground Number hit has business

and to cost Let support some to we free actions of flow. me detail date have reduce taken our cash the

reduced First, XX%. months. Base measures and salaries all reduced exempt board. for by all plan these we across reduced the executives. salaried employees in salaries by salary was temporarily were My reevaluate for six by to We XX% XX%

the next reduce board months their both their award. six elected equity of by retainers for Second, our XX% and to directors annual cap

demand staffing and/or members furloughed. match activity, with been better to Third, have levels various groups

member We evolve. and during conditions both as are furloughs health premiums the furloughed reevaluated all portions. members continuously furloughed company insurance covering being supporting dental the our period, are and by These

our suspended activity. share we Fourth, repurchase

years, recent a As annually. point approximately buybacks $XX million in of averaged have reference,

for $XX capital $XX expenditure approximately our million million. budget from reduced XXXX we Finally, to

level investment Our maintained spending approximately a planned at XX%. being of is growth XXXX for reduced

million improvement million to $XX run anticipate expected during rate compared currently full XXXX $XX we total, of with XXXX as mid-QX. to In cost the by

CapEx our buyback buffer. savings reductions perspective, and to suspension flow cash add a our from addition, will with our In associated liquidity

members pandemic cash waters. and and our measures XXXX the as supporting our the impact of part aimed of our balanced to these flow we through Again, navigate free unchartered address are approach in at these are

the will share and currently are what picture, demand assuming. experiencing thoughts we on business and some I now

While points indicate slowdown businesses. will extent our near-term the in the of we the data believe uncertain, several pressure see still crisis from is we

orders recent The trending our first weeks order data activity. is Not point last surprisingly, the over our down. four are

Domestic XX% orders continues rate growth. down include show are strong does to e-commerce, period. year versus office not furniture prior That which

Orders orders huge levels, year In the due spike are home a in XX%. office fact, prior Hearth our versus during demand are down business the to large same part products. e-commerce up for in our for period XXX%

data second The to in China. consider point experience is our

faced in QX. from pressure pandemic Furniture in Our China the business

our market different very the a trend the volume to domestically. as reopen. counteract as U.S., to see pandemic were later, measures could began may to is provide eight Approximately compared the quickly there started Demand we see to China experience weeks implemented. Although businesses recover trends we insight into dropped

normal well has the While below levels, trend we are still improved.

The is third in recessions. data happened to point look markets to previous what our at

will downturn last downturns, is the XX%. same products and one housing at recession. to the over current the hard way, unique, two looking as this saying data but gives certainly commercial the volume Building last more furniture industry In little history not out a of are each were play the points hit in We consider. declined

homes borrowers. construction subprime there are this businesses. duration to We time. level overhang depth expecting good of buyers the these is held are are and not inventories points, tighter do on our slowdown by not and of are an lower, on have decline. we the recession, Based that seeing not the near-term Right anticipate in speculative levels now, Compared and severity visibility we of a data great we significant and

We variety prepared of a have are scenarios. for run and

the distancing. to pressures, home see our plates in segments likely In see accommodate our near-term to support couple trends, less different environment of addition better from for will to floor ways. demand change we to configurations business a post-crisis most segment, office the potential positively Furniture in these dense tied Despite work impact incremental that social

we seen have already weeks, companies few reconsider layouts. last plant the in fact, their In

for our separation this addition, well physical line-up can In platform The product diverse light. create also maintaining while time, minimal quickly construction architectural trend. products with positioned is natural

shift increasing toward Products Hearth from our demand we for segment. multifamily more positive In be away dense a Products will single-family segment, may construction This from Hearth a driver our homes. benefit see

we to remodel addition, as extended the shelter more place money where elevated spend time. look period consumers of are spending more drive in believe could In they spending

in turn framework. stress now Marshall? Marshall will the to the color and the over we our our I recent back of more key results, long-term to have quarter highlight weeks. I call current our position elements will on first then strategic and financial come test performed discuss

Marshall Bridges

Jeff. Thanks,

per substantial increase versus a $X.XX, $X.XX which a first diluted quarter Our Consolidated members reported quarter. represented was strong net delivered share the XXXX. first the in non-GAAP income of

benefit organic of profit sales First the in the versus quarter Office decreased were Including generated Furniture quarter million. million. We income growth Furniture consolidated improving sales Office $XXX non-GAAP again X.X%. segment, to In year-over-year. quarter with operating strong year acquisitions, first X.X% first sales X.X% prior down decreased the $X

segment Sales organically in our acquisitions. increased Product including X.X% X.X% when year-over-year or Hearth

Hearth revenue retrofit the organically grew segment, construction year-over-year. new sales and Within X.X% residential and X.X% products of increased remodel

non-GAAP the prior We XX% also Hearth improvement quarter. versus year operating segment. increased profit strong showed the Hearth profit in

XX.X%. gross to X% Non-GAAP For basis year. margin year-over-year the operating quarter XXX net margin points profit first in HNI first expanded of sales. And prior quarter points to the XXX% operating non-GAAP versus expanded overall, profit grew basis XXX

related the charges of crisis. to exclude related impairments to intangible one-time results non-GAAP and $XX.X COVID-XX Our million items

So overall, quarter platform. of results first strength our operating demonstrate our the

Our efforts drove productivity profitability. again saving annual cost and improved

times a our representing $XXX about end leverage agreements. gross talk million debt, X.X. is leverage At gross of our now of levels. quarter, we Let's in debt in liquidity well This existing total the had covenant and X.X the the below first loan ratio

flow first facilities, and totaled at capacity is by the quarter more measured our This equal levels. of free lending recent approximately not Our as debt Liquidity, two than until $XXX maturity of on end. is combination cash years to available XXXX. million cash

Okay.

scenario shift analysis to of the done. covering Let's we've some

emphasizing the Let's scenarios. start are not sheet various evaluated flow that and providing have we indicate with balance That sales scenarios under earnings The and guidance. earnings, cash following. said, our we

margin our to XX% actions. First, we to or a cost decremental with manage be would deleverage able

would flow above current Second, level. at our generate free we cash or dividend

last debt quarter. well would non-GAAP debt yearend expect profitable in and or indicate on we loss should year's would the balance. similar finally, remain Third, we scenarios, a our also accordingly. earnings basis In slightly remain our the second cost year, above They we sizable ending levels covenants. solidly within a for be manage And do we'll

these our current annual an test Please This million zero with debt part outlook note, and to scenarios, the $XX in the stress What thought million addition stress it structure. cash support depreciation is of we showed capital to In not due is $XXX in share scenario. can amortization or test of results we incur. in the is we the where our nearly limits we model we'd earnings.

circumstances It illustrate what this are drive We has around not flexibility business our the financial might model. of us color to been to providing solely condition.

I'll back that, the now Jeff. With Jeff? turn to over call

Jeff Lorenger

recently the Thanks, introduced letter my Marshall. to in HNI three annual priorities. report, our published strategic In I shareholders

remains member-owner are three on focus our efforts corporate-wide our the foundation, culture centered HNI's members unique forward pillars. While and following going

branding, will these take changes of we and investing the are new the the First, areas in tools capitalize e-commerce expanded changing dynamics, and laser-focused coverage. of change. markets are the on pandemic impacts will market be analytics, we and and and journeys create assets, of digital Customer on customer. in the new more advantage data our To in identify market capabilities

complicated are and manage. can numbers sort the simplifying and And through, There tight can we Furniture complicated timelines process. and configurations are Office Hearth the to time take multiple of interactions. Second, in-person coordinate options Products consuming. be buying and large to to installations Buying navigating process

less upping that willing their are through of kind expectations. they process are today Customers go and to

to experience are focused reduce transforming on effort. We their the

will HNI's that improvement long-standing leverage and our heritage. to of Third, continuous and results lean demonstrate well our established we culture rapid leverage lean capability our recent heritage.

framework just this are here improvements safety our support economic rollout of focus We flow, members' framework. we pillars plan our uncertainty referenced. tool health, on to will doubling help cash in to efforts two economy, first I unlock the year, moderates, the while set Later as of is our more drive our in near-term overall our that significant detailed a pandemic-driven over our and version our order Again, strategic our long-term.

the up your open questions. now We'll for call

Operator

[Operator Instructions].

Group. question The Steven of Please ahead. Research is first go Thompson from Ramsey

open. is line Your

Steven Ramsey

with could it to more started Maybe response bit bringing the we with guys that start can $X for COVID COVID or I the QX? the Hearth. done, were And deployed cash I the cash. that of million acquisitions or out in the will guess that be more all the will financial then net will morning. that Is share prior be guess were players on in? cash Was of there it, to up little that a side M&A shore I coming activity. were in Good was you laid

Jeff Lorenger

Yes. Marshall, side referenced COVID don't M&A on side Thanks. the we Hearth activity -- of were that pandemic. why before you And things, comment? the the The started cash you was on

Marshall Bridges

we what does is quarter. that of small anticipate in revenue Steven, add $X acquisition that. it the Yes. about -- added and of This to million distributors some

add to of in million to of the somewhere neighborhood expected full for year. We the million revenue $X $XX

Steven Ramsey

And on Hearth more share Excellent. strengthened maybe growth, on then quarter then the but the numbers review missed the along? as I why specific it went those. And

Marshall Bridges

Yes. construction move that X.X% and as quarter. up really did the the organically strengthen through Hearth in quarter, new was we

that the you think the indicates sort the orders was running the prior mid-March before strength to mid-February the were of of If in X%, it new hit, around the crisis. running look And there. high-single-digits, to construction at market I crisis

Steven Ramsey

shifting And dealers on sales? for any currently of first I then office. collections to recently I recent health fine receivables How dealers. -- completed guess our dealer from guess Great. on

Jeff Lorenger

been far so has health Dealer Yes. good.

fallout. And been we're have and dealer constant things engagement levels hearth really seen navigate past. able side. have our the partners, Obviously, any both the haven't we on these office to and We with in on the high contact in of side they

haven't And so but far, any their seen monitoring we we're real -- health, have yet. we stress

Steven Ramsey

early, change as later road? densified that orders guys formats, -- whatever -- they of as orders would discussed, QX you quickly go pondering maybe years to down up is density that format happen is, pick as we office less less you they QX is the or think speculative year, how that as two ahead And future early about would the we're the and guess, going timeline expect rollout? I fit Great. office those in this one to that do

Jeff Lorenger

Yes. It's a good question.

that then are there will projects. -- have, do hits of in people to think it from catch who quick have it planning probably more more go available reconfigurations. I it out want so. there [indiscernible] of them will I development a months impacts just then to screening some to to paradigm think on people XX more become in you quick and And options short-term continue and some then has little that people will be and what steam than as permanency a And short-term further who obviously of -- bit they or will probably be

Steven Ramsey

question growth you focusing And last for I well. investment plan, the percentage previous growth on in maybe I explain if near-term? the followed the with the that But know And are what of CapEx, Great. can if CapEx, de-emphasizing specifically again? don't me it areas you areas on or of

Jeff Lorenger

Yes.

to rest CapEx of a maybe terms is previously and growth. $XX maintenance growth capabilities. we speaking, was and quarter for and In that million the planned Roughly of spend for

is What million is there a single from it year. So roughly was large now million to item approximately it's cut reduced right? based, $XX this We've not broad half, there. $XX

Steven Ramsey

Thank great. you, guys. Okay,

Operator

Greg question next ahead. Please &Company. from Burns of go Sidoti is Your

Your open. line is

Greg Burns

So --

Jeff Lorenger

morning. Good

Greg Burns

mentioned I facilities your they capacities? running? percent that online, but capacity guess, are you manufacturing of major are currently What what your

Jeff Lorenger

Yes. I kind it's of all the board. over mean

taken right now, up quickly. pretty We We're to running response to capacity ramp capacity we but down the in Greg. can order XX% in XX% back incoming, anywhere have

Greg Burns

-- And and been you it's any I guess you mentioned, since the patterns, in like Okay. of I [indiscernible]? [indiscernible] the of a bit have to project little that call cancellations activity pipeline missed seen

Jeff Lorenger

has average hearth running you XX%. the really down it's had four four haven't haven't the quarter about push week missed on really out about We the instance We've into been for office of week XX%. into cancellation. seen the seen or it, funnel really push, Yes. average much fourth run the quarter -- second The cancellations. Greg, side, but on mentioned, seen third we have may And quarter, is down

Greg Burns

well, to last my then All right. going question. I I was ask, answers next recession. hearth guess the -- I obviously housing-led this guess was business recession And a

business indicative don't this hearth of the that's if office But less business of maybe versa? than time vice or kind know cyclical I generally, So what's more or around. the happening

Marshall Bridges

drives It just recession, depends on Greg. what greatly that

on during 'XX as in you to our the the minor And If to like business go last -- increased that actually just impact housing recession. had mentioned, very you housing Hearth that We recession, back recession. trough in XX% starts profitability declined we peak timeframe. from

or as know in there. but a noted a cyclical last it's -- his is has office. that range But this of wide So really we been office outcomes Jeff consistent I lot don't more comments. inherently less the more two recessions, in

Greg Burns

you you know from? don't some you cost savings I do initiatives. number then savings you expect? of What kind And a outlined put Did what expect behind

Marshall Bridges

is did. points probably there. We There two

response of to to pandemic. expect The in number the to first reiterate, is, improvement cost generate just $XX about that one we $XX million is to million the

The the and XX%. to second at we point of it is expect to deleverage actions about offset that can find those pressures, because whatever else we

profit operating $X.XX. sales, $X drop So lose we if about we

Greg Burns

timeframe And $XX a that million? achieve $XX when to might million you Okay. did maybe you on mention

Marshall Bridges

up It's quickly. ramping pretty Yes.

a to full quarter. at second rate expect We mid run be

Greg Burns

you. Thank

Operator

Garner Your go Please next question of from comes Benchmark ahead. Reuben Company.

Your line is open.

Reuben Garner

I Apologies minutes. Thank repeat I you. Good for everybody. a got kicked few morning, if off anything,

you So to said more than I down start what at The that a the one last those with was maybe that's standpoint I'll scenario? of a markets? that follow-up business into different that of know baked decremental your that little a end assume from Is mix assumption does margin of bit kind office from ones. hearth. XX%,

Jeff Lorenger

It is --

Marshall Bridges

of It's rates that with commensurate It sort seeing of average is, currently. basically an the we're blend Reuben. that. It's order

Reuben Garner

home in in in on opportunities e-commerce? spike or are business office years. then recent the update what guys you or here office have on office in home been getting know longer And us Is capabilities the spike I products, with Can as near-term recently is Okay. commercial you ramping the it just that you saw e-commerce term world and referenced boosting a well? in it you

Marshall Bridges

The good it's home that's and platform the office, we're question. out. small targets business, office Yes, building it

on seen what office to that's it. be used of been can the office, and investing a in nice commercial. office additive is it spike We're before business really hit we think top home that to and out experiencing. platform, ramp kind we've we've the in We're of up. to long So, growth continue this building small home It's

Reuben Garner

Okay.

in a of and referenced layout it times couple furniture, your for the potentially business? way does post-COVID of broadly office for future question have of are of the industry not? the to going at be -- more how up You Can net Just world was the that about from positive office post-COVID. a this? the look a offices reconfiguration out and you kind you guess, there more I home working to than the coming leads a already, this is a there about do set that is world of to of minds, headwind Is in kind

Jeff Lorenger

there That's Yes. think going it's event. say question. event. you I a days, a it's how is to conversations net means but Anytime It's to be be And people -- activity. good days. your they furniture as it it's positive, a there and because early a would furniture I people may clients means out distancing floor required, figure want space, It content early there on to discuss that bring that. We're the the real-time is in But with back plate. it's touch

this, is candidly, the office think a of And well. as positive home I piece

think office. go that our in has brands this business assets service been pretty and home For well, on us, that really our for a the in forced I mean, won't that people. of I full particular, given can some March people

fact think somewhat be fact of things to that done. but to I going people And emotional. -- like the work also can you effective to And together efficient It's get the and been it's at home. point pretty it's dramatic, that and pretty point

So opportunity as think forward. upside from real going fronts perspective. some that our you're going And to I see both get on a we

Reuben Garner

substantial used think there in to a service these that existing offering kind changes is of different you to maybe that kind of forward? it investments any make your or way Are is you'd have going just

Jeff Lorenger

Good question.

be I think it's of going some both. to

that we'll be things materials, think different looking product finished at different of types, some I probably nature.

utilized well. -- And pull there said, going products us think lot which seen to going So that think to our front a going will the forward making architectural asset will be as of to but I an that's invest group be right easier, And heavily now. has they will the I in be going continue continued, process as well. we is office we're home on help to as

Reuben Garner

then they Have And of to stabilize? great. think and one of me. last whole are worse Were those XX%. they one it I trend starting has described down is week for hearth and What's kind kind since that been you being -- lower? trending the at just down way ago? office The four been month XX% a started in range this point relatively or Okay,

Marshall Bridges

crisis volatility has referenced to more trend year, Jeff first in it, orders versus eight but we lower, trend might in really to China, and Reuben. trending after trend they've is and started weeks as general, favorably. Still saw some did this bottomed But they There lower, been you better. there, What expect. for down we the been see the started then prior that,

seeing far with that's so here. we're what consistent And

Reuben Garner

good Okay, this. through great. luck and navigating safe Stay Thanks, guys.

Jeff Lorenger

Great, thanks. it. Appreciate

Jeff Lorenger

our Again, and members Okay. entered support our -- unexpected strength. position company's and cash safety the period priorities again of a of are flow. health near-term We the of this So from the

in speaking to focus the our We navigate balancing vigilant stay of front and achieve in successfully abilities next us. you in Thanks. with quarter. stay near-term We a confident and look day our approach I'm to to pandemic disciplined opportunities will goals. forward again and to the HNI our Have our safe. members good their on this long-term and

Operator

your This you concludes today’s for conference call. Thank participation.

You may now disconnect.