KBAL Kimball International

Kristie Juster Chief Executive Officer
Michelle Schroeder Executive Vice President and Chief Financial Officer
Call transcript
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Good morning, ladies and gentlemen. My name is Crystal, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International Second Quarter Earnings Conference Call. Currently all participants are in a listen-only mode. [Operator Instructions] As with prior conference calls, today's call, February 5, 2020, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. materially forward-looking differ could results from statements. the Actual the forward-looking Kimball statements factors Form that be of influence may the Risk can outcome seen XX-K. International in

International. making slide During and to Relations Michelle Kimball President are section website. Vice available will Kristie the International's today's Investor and be Schroeder, Kimball Officer today's call, on the Executive an presentation of deck Chief International; On earnings of that Juster, is presenters of Kimball references Financial call CEO

now turn to to would Kristie Juster. over I today's call like the Ms.

Juster, you may begin.

Kristie Juster

everyone. and good to Crystal, quarter Thanks second earnings call. morning Welcome Kimball International’s conference

increasing We delivery our of move Kimball call, execution paves exceeding today's This In is million. cost are and increased our growth am estimated our fueling to strategy Connect that fiscal investment report and both our profit I expectations. savings is performance million into $XX XXXX six improved International forward. our months in we we pleased are financial transformation in from $XX the for ways the for as to plan implementation

walk then material our performance provide the call on on color I and before open International Q&A. progress ahead wrap specifics we will Michelle indicators performance, through market the of for our In QX around highlights of and strategy. Connect up with Kimball provide comment on details today, will our leading I'll financial our path

Please turn to Slide QX X for our highlights.

year-over-year the difficult three-year revenues that for objectives. XX% our in a the in quarter, quarter ended guidance included our with Our short were X% million, X% long-term the a of expectations the to of we've line net with financial year. decrease $XXX X% in sales against our We comparison growth growth prior overall but to of

of time, continued up prior the year. three reduction Kimball verticals we with year our At in first revenues realignment XX%, experienced strong business the healthcare XX%. very half commercial in hospitality for the the up as and from the planned of our focus XX%, brand same Comps were unexpected our

as Now XX% we the encouraged turning to year up against investment XX% into all across growth market. by up this continues. XX% brand We in Las XX% as particularly Kimball within our assisted in broad-based verticals. experienced up was growth growth Healthcare hospitality, the prior strategic focus orders, orders were by by strength Vegas strong, vertical were the in

the the finished over at backlog prior for million, well quarter XX% us Our to year up back $XXX a strong positioning half. start

category. brand be hospitality with market, ancillary the growth product performance led provide more later continued commentary vertical on in by healthcare and Michelle coupled a of the the Our will national will traction call. in market

At X.X% adjusted margin. basis points in income even of while or same investments on gross points. XX% our increased International Gross XXX sustaining Connect. basis costs in our XX selling XXX improvement funding profit Kimball X.X% in points an administrative and giving adjusted of confidence us strategic Operating basis time, decreased increased the basis

investments our expect order half in in will continue longer-term second to growth. ramp strategic to our fiscal of the We accelerate year

million, up ago. $XX.X representing And to XX.X%, $X.XX, We $X.XX points. XXX are up XX%, increased compared basis to year EPS of adjusted adjusted EBITDA margin the very a with XX% performance a pleased of finally,

in for from X.X% forecast furniture is the Slide in office in of we in from call. forecast to a prior the X U.S. calendar for and indicators of year December last unchanged the U.S. XXXX. The for XXXX. Turning XXXX macro-economic the This the This October GDP view track forecast attributed reviewed industry. X.X% to the I X.X% to X.X% deceleration of XXXX month's forecast XXXX is is deceleration

last spring with serves period of throughout summer. which three improvement in months. XX.X the activity indicator December, of is up non-residential softness to XX.X rose indexed by a September from to a the much from the of billing business rebounding and leading conditions AIA, Improvement architecture in of The as in attributed construction each

We construction improvement are to encouraged with the non-residential activity. indicator in leading this XX X month of

revenue our is for hospitality a per indicator room available or business. leading RevPar

Forecast X.X%, growth which X.X% XXXX is of forecasted calendar growth in for with estimate XXXX. line in

to continue activity, market. to as in especially it of half We relates strong our strength the driven by Vegas the fiscal year, see second the

were in outbreak All recent released these coronavirus forecasted the metrics prior China. to

We priority situation. well-being in contact small employees base fluid employee are The keeping and of managing safety X is our this close with and China. are very our our diligently we in Number

America, We China us have and of area North supply from spend minimal China. our outside imports total With our is implemented XX% a our base. sales of ban China. furniture from supply material business XX% XX% for hospitality to our for from is approximately impacted and sourced in partners the office to travel Approximately

difficult this of New We Chinese The fluid so is the have inventory some planning Year. buffer to at level impact what because and on our may determine are anticipation business. of of it our in time, this circumstances have very

are suppliers keeping plans. in contact We with employees, our building while customers our contingency actively close and

unique transformation three-year improving our in and work foundation gives Kimball available transformation pursue very volatility. driven by plan healthy solid time capital setting margins landscape International the opportunities and situation, a related take manage supported we same we of believe up Connect at the by financial Setting strategy us and aside execution this advantage us We for place are both to our as our a the our objectives. of this

brand our depiction our our Connect size we’re more strategy. and Moving introduced the through driving of call, today, of progress X differentiation last brands positioning, of International Slide Connect and on the to relative path importantly, is and in our we deployment strategy, the our update Kimball which a

a continuum standard reminder, horizontal commercial from the the product custom reflects access environment. is a and hospitality vertical to As type to from access

the continue will our of see brands. to to the relate taking are we directly how You actions repositioning

our such into business our an an and units growth Our portfolio platforms with hospitality in our is across brands evolution. this of of markets important intersection in expansion strategy higher play expertise product maximizing grounded Each custom. role resimercial in the and as

four each X of Connect to Slide the pillars focus Kimball during where our made on quarter. the Turn we International the progress will of strategy in

First executive is creation new positions we XX, International. inspire January people. at Kimball announced the On of our two

with has newly Executive Greg been promoted consolidation manufacturing of International the First, our President, Meunier Operations. to global operations, Kimball Vice declared Global

will Greg’s and the deep have experience people of the XX-year tenure ahead. him gained with an of be asset his company incredible with immediate our Greg's over impact relationship the the to we significant an course transition. our will opportunity see business on allow knowledge in

company-wide publically will company be Environmental, Mark Corporate to Mark Secretary. Legal as Governance Governance Johnson joining (BATS:ESG). we approach Officer and has implementing corporate including Chief business a all team at deep Counsel about with the experience practices, compliance, and served and fresh in our Second, blending I’m are Social and the these experience deep legal, ideas. both of that to excited traded Deputy company. XXX as both bring Fortune areas, executive these value General a individuals

to Continuing with our high on program. talent, our development touch want on focus I potential elevate

our may action launched in our you a new ago development, with one recall, the to executive actualize was proprietary talent this engaged team level focused executive of As year initiative learning strategy. and and program selected direct The engagement top on talent. XX

have that our team and It that the impactful was already executing our program, promoted will both successfully participant’s value be organization. success roles brought highly the development an been this overwhelming the in critical this four From for to strategy. participants of

as last team expectations working our has redesigned we showroom of a while for call, our a opening it During announced It newly corporate regards to leveraging certainly our our creating the headquarters. customers. exceeded environment for with collaborative

our with Jasper from Just sharing our the tours with working Top strategic is in sales the domestic week, their interactions an meeting our and conference feedback home. and and in representatives from last house are hosted of and The swing communities have the holding our shared positive. we Kimball quarter, facility XX dealer open suppliers. full national employees surrounding and new this all customer have held our our families, been And the supply those summit in vision state-of-the-art new extremely select brand global for

know investment that provide this We are of ongoing will new return. home our so proud and

The build of capabilities. our our second pillar strategy is

mentioned servicing align our Repositioning and operations brands group. the brands will global a our all capabilities engineering, As environmental. needs January manufacturing, chain, and supply we for XX, us the world-class our this enable manufacturing cost-efficient global include one center-led function evolving safety most operations to the on organization with in will streamlining of strength across R&D, our of team the into the portfolio logistics manufacturing The announced leverage into our product way.

Kimball brand brand a a seating first past week. What step Kimball to the International the We hospitality. upholstered for acquisition is of now Kimball XX announced both Edward being manufacturing the facility for months the ago, high-end optimization into was this David organization Kimball developed and our

Lion have production of consolidating part that Baltimore we we are Red facility As the into facility. production announced this plan, the

in Our Kimball delivering accelerating the hospitality a known portfolio layout that lead all capacity is in Expanding focus well times, high-design, allow will while seating. increase reduce is us healthcare products Edward so to brand redesigned Kimball high-quality and equipment the our on substantially investing in David that for. new our Baltimore expansion and of

change approach has to understanding transformation ways consistency, training and program working. these over operating brings parts formal invested management across key broad of various expertise XX management One rigorous through external in capability. rigor, This of in roll-outs of organization. cornerstones the formal of our efficiency, been in build of and the We've our us capabilities our the the the

program our the We build in ongoing accelerated will our of pleased it management are area serve very capability transformation with efforts. and

International pillar our Connect future. The our Kimball third strategy of is

excellence not and today. target, enables those to are our fiscal fiscal funnel plan our approach XXXX taking Our gives enterprise-wide adoption to shape increase us we confidence The and processes has company-wide new of actively on working. projects some adoption of early operational to also working delivery but commitment us to XXXX is our only see proven

provide program The saving to consolidation center-led fuel savings, ongoing capability announced confidence management, cost future build and and of cost combination operations newly the of our through process to global efforts. ability our in approach

this our more as we share year. specifics progress will through fiscal We on

our All fourth of pillar, these the actions accelerate enable growth.

been to has for with and sales. products combined last primary displayed product XX% the pleased our of brand growth Our metrics fuel new new quarter we ongoing are the organic commitment driving

new back organic with the the agenda start our will As to you see we half, two categories. growth enter entrance into product broaden

the match brand, is but times, lead Etc. still for the of the true spec we forward that it product designers and in the the seating our complexity, perfect in answer Etc. with largest to December collection shorter delivered task for be needs new to the new in believe is assortment reduced National lighter by Both design, consistently new offer National. a in a North our seating and business. new one launched furniture platforms opportunities January. for sub-brand ancillary of volume incremental office categories of these of is America National Task assurance

acquisition. comprised brand, working team For the this the sales our reps through both additions model we website, week. and Kimball be meeting Kimball Edward products has collection at ongoing of organization. David launch on supported plus announced the since been new of our our signature a Kimball marketing The by materials new selling a by the blended Edward selling David The collection will this independent in own

David reinvigoration brand the play the role the portfolio. We of are excited in about can it Kimball the brand and Edward

business like turn to growth you update focused brand driven moment sustaining take into to Kimball initiatives a I'd the on Finally, a the to model.

in of quarter, XXXX we revenue these anticipate a last our second wholesale and drag changes growth half progress on As would cause the for half. show stated first the we

We on business Kimball initiatives performance three level have for a same sustaining different brand. of very the drive attentive to been the

selling see first showing of The initiative traction reallocation is This back to markets. of the we half higher orders to this resources resources is fiscal higher ramping year. realignment the in growth as markets growth of

The improvement intense correct category. second to the initiative issues focus within systems an is continuous margin

half, solid the benefit. made While front global do our expect brand the newly established best drive and the we practices ops Kimball progress team commitment additional to in

healthcare last initiative is The vertical. a within our talent development commitment and training, to

hired leader to we strategy a on quarter, Kimball sales focus plan sales healthcare within growth its the and drive vertical. brand During

as to sales our field trying approach increase are related we to camp sales training what to products. the knowledge out boot rolled have we and Additionally, to

Healthcare sales basis stack up are expect on continued and forward. we growth XX% in vertical going two-year a this

the portfolio. with on Kimball and realignment know our it brand a critical pleased in are We the role progress plays

summarize on savings I'd target full-year And to in and our up, to our QX transformation new Slide X. like wrap

example, cost our excellence engineering seating equipment in-sourcing operational strong million in of of facilities, execution our platform, through value delivered material of one and projects, savings optimization for Our through top $X.X casegoods priority optimization. performing a Kimball focused automation

delivered ways track $X.X of reduction markets low dedicated In $XX.X savings to at our Fiscal the on year-to-date savings closures cost of previously through was million. new selling a showroom working growth $XXX,XXX and were savings quarter. Our center-lead expected in of million. resources disclosed

are the As you savings pace we our see, year. initially cost of can $XX we million ahead targeted in

That million savings bit in see us cost do year. savings decelerating $XX the half of the led said, as the the to we savings million. prior increase anniversary a way This we expected generated I a second entire million Again, of target portion am proud the this of model. to we cost-efficient $XX as our original working exciting new an operating new in organization approximately resulting $XX from embrace in very

will over quarterly Michelle the Michelle? financial results. dive into to will where I the do call that, a With turn she deeper

Michelle Schroeder

the We sales, attention was Thanks to as morning turn Kristie I with like Slide $XXX.X to million in of ended and performance. discussed X good a everyone. second decrease which your X.X%. our financial quarter quarter I'd

increased to net income million. Our $XX XX%

XX.X% adjusted XX.X%, EPS to a year year was a basis increased in which million of XX.X% to resulted margin Our compared up EBITDA points $XX.X ago. increased $X.XX XXX and a ago. versus $X.XX of Adjusted

improvement. XXX you million key Gross of the improved margin last Turning margin of in XXX XX, of basis three which basis our our gross plan a made to through I'll Slide details improvement progress $X.X that Savings point XX%. to achieving the quarters a quarter, resulted have financial we margin. the We’ve as this year-over-year a from in in in over savings performance sustaining realized quarter. been transformation improvement points contributor take

the improvement year tune of over gross We during offsetting margin quarter. the loss the the of improvement improvement the second Partially the coming really good is about leverage basis million last $X.X that to the revenue line. employee quarter with to lower healthcare claims real. an and from on XXX realization was improvement contributed increase the this of high also where points Pricing unusually this on is feel and

basis basis, XX.X%. CEO in Selling to Adjusted our and XX.X%. On selling decreased exclude expenses and to SERP, to $X.X and administrative administrative XX adjusted improved Connect million, investing points growth an strategy. points Kimball transition XX expenses increased costs initiatives we tied selling $X.X where million international and expenses administrative despite basis

remainder We of expect year. investments growth to the increase the fiscal during

For by commissions earlier the $X.X $XXX,XXX, the the the partially I addition quarter, higher healthcare benefits sales of gross expense margin of $X plan $X.X million mentioned is and in that's were which from increase offset line. of transformation to in reduced included million million

expected We the improvement were with the in modest happy level of earnings decline over prior year considering the sales.

the deliver Las Kimball our to anticipate experienced We believe order of the We continue as the we in variability the during and up actions our brand the fiscal within growth revenue Vegas our sets for growth. invest market opportunity in Kimball quarter, the taken execute to in well the some realign to and results strategy hospitality growth second us year. half the brand

investments based pullback ability delivery the benefits plan on from plan. growth of the upon our our performance and to the transformation transformation top gives accelerate Our us line

assumes coronavirus, due as now. disruption the which major is this Kristie right mentioned, very no of fluid to All

our product performance to the will Moving Kimball you and XX, chart Slide new National see sales indicating brands. for

ancillary product at of XX% from new the strong of National The product mix growth and New XX% over grew new Kimball remained experienced a brand X% and of sales product National brand resulting prior combined sales year. level introductions.

key development New growth of remains product our a aspect plan.

hospitality. discuss XX% six decline Four and education of Both XX% respectively. declines, by reported delivered X% decline Slide XX% to growth to commercial vertical. at XX and a and Let's led in government turn verticals, sales sales product the by in

and vertical than in declines prior-year XX% of driven concentration prior in were the In projects As comparison XX% higher growth growth. the in hospitality. to a healthcare by quarter, contributing that commercial, year had Kristie sales commercial XX% difficult mentioned, of normal

XX% by a our market. to with growth the XX, grew As The us two-year on we in basis in investment a Las stacked with continued vertical and strong or verticals The solid within XX% vertical. QX you turn growth driven reported strength this Slide Vegas backlog along to the in brand’s strategic Kimball the quarter all shift year. growth hospitality the finish strength to a see well orders XX% healthcare will from and that order higher for coming positions with next fiscal XX% leading

we performance our quarter at the change one-time final $X.X by to Slide of Turning payout timing and on was timing the our million flow. XX, December. accounts of cash the operations of generated incentive payable the flow million in plan cash end run flow in in from negatively in free used impacted flow $X.X annual cash cash our a and Cash

We continue capital quarter, for million of which headquarters shareholders $X.X $X.X in the CapEx $X.X remodel. to focus dividends in the completion million million quarter, $X.X of at repurchases. during management. included returned capital on the including and working finished million We to share

balance sheet invested performance over Our have to the on the impressive remains years relative XX.X%. office in our our contributed in our capital at debt. and public finished furniture Return the to minimal among strong investing and capital with discipline for rank peers. earnings Growth quarter best we this

On completed both you few years. Slide the we acquisitions last have XX will framework acquisition our and over see

and is that align We our a and our acquisition As look Connect business, targets through Kimball International for the to key acquisitions. both we takeaway grow organically intend with reminder, strategy. here our that purpose

new that within our that These consideration cost exceeds products would of our expected close channels product existing and/or transaction. targets a categories return financial distribution. important post growth of capital is portfolio, average three years new weighted complement have higher An the of

quarter. last we which Slide XXXX unchanged XXXX fiscal through our to Turning three-year recap from are XX, targets, financial

organic line, to are top growth. X% expecting we the On X%

adjusted XX%. growth XX% and basis targeting of margin EBITDA points forecasting XXX of by points basis to to XXXX XXX improvement in We’re EPS

X.X% GDP of X.X%, count any assumptions is a acquisitions. share growth based and the excludes outlook impact of on Our flat to potential for

the our color now over Kristie? call will forward. I path back turn Kristie provide to to on

Kristie Juster

Thanks, Michelle.

short-term Kimball not as think International Connect provide some insight execute plan do I our the patchiness strategy. given in and important transformation our provide we guidance, expect we to we Although it is invest

We expect strong XXXX saw forecast QX. growth all growth by growth in of verticals full our orders this in calendar X.X% fiscal XXXX month’s across outpace supported we the year to year

installation growth hospitality Kimball to half Our loaded due the the be Vegas of will projects. back timing

up savings XXXX, for $XX now on cost $XX from track million are We million. fiscal of estimate to the the original deliver

growth shape a have to efficient to proof strong cost ability organic take as in agenda model. start Our our operating we will drive more

investment Our future growth to growth. million accelerate ramp year-to-date of $X.X will

We expect XXXX. to million a our new Connect be to Fiscal for XXXX approximately fiscal $XX deliver strong in International invest our in up is the confirmation CapEx Kimball to shaping ability strategy. full on year

And call and I’ll to happy with your turn we’ll to over the that, Crystal questions. take be

Kristie Juster

Kimball Thank you, we to appreciate look for Crystal, and today, International a and thank us and your we informed continued in on our progress. you day. interest forward keeping you Have joining nice


and participating thank conference. the you conclude Ladies does in program. gentlemen, for This today's

have disconnect. wonderful You Everyone may all a day.