KBAL Kimball International

Kristie Juster CEO
T.J. Wolfe EVP & CFO
Greg Burns Sidoti & Company
Tom Maher Hilton Capital
Call transcript
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Good morning, ladies and gentlemen. My name is Valerie, and I'll be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International Second Quarter Fiscal Year 2021 Earnings Conference Call.

As with prior conference calls, today's call, February 4, 2021, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from the forward-looking statements. influence the of Kimball may be statements that in seen International's factors the forward-looking outcome can Risk Form XX-K.

Kristie the call deck Vice Chief will available CEO, Kimball call, an President On today's of and today's presenters and over Kristie making website. turn Juster. be now During Juster, are references Kimball earnings Ms. International's slide I Investor T.J. presentation Financial on is International; to Officer. call that the Relations section will to Wolfe, Executive

Juster, you may begin.

Kristie Juster

you, Valerie, to that for X key welcome reviewing business and discuss four our today's Slide results to Thank outlook. I'd conference like second the our and are on call quarter, to there quarter share. results takeaways In

difficult expertise combination our in are proving and First, than the Kimball end health International in our organization share that continues for environment. a ability focus of operating workplace and to operate markets secondary within the and markets demonstrate gain is overall industry. faster to The emerging resilience

Second, revenue we our to the priorities X December one stage quickly on capture are acquisition moving and on closed synergies. Poppin on

unfolded seeing but Third, are setting third million we the investing orders, horizon. in hospitality by areas possibilities optimization business in too this to as were some balance, with that we and forming spiking backlog we port There bidding X.X when our be expectations. we and quarter closing workplace. on our second on strategy quarter, $X our activity of health the Poppin. see quarter materials. meeting from quarter new in revenues us in expect costs firm levels, is but to are on we encouraged the know order we the rates, our delayed up in to in activity second On raw a Fourth, the due congestion. work however, current It inflation based similar and home, freight due that around second impacted to increased were the step plan such headwinds line to eBusiness trends namely with the on the pressure experienced in targets, made Margin facility progress will strategy meaningful quarter, translate early and impact into shipments Connect change

as Now target let's Kimball X, about markets of end our than a wellness, market stages and with market International's specialty administrative Health to their the quickly behavior talk markets, other recovery. and academic medical path return as health different end rapid this public ramping workers, we more more COVID areas the out Slide hospitals, increased is in of health reflecting centers, on such end expected, expansion on Beginning funding.

new and Six in in just sequential the to momentum under home the the We of The sales are the have the of business, have in company-wide team we launch XX% launching a sequentially double-digit gotten facility XX% quarter, brand be of full The In were to accounted access will for of and encouraging. to been sign order platforms team just Interwoven. unparalleled our for with up is total This dedicated Health strong clinical understanding of growth second coming have health a announce and sales. full initial and XX% product is extensive will started. portfolios, rates us the new solutions. months. allowing official offer expertise Kimball clinical results International industry health specialized pleased our This the products.

long-term forward Kimball partnerships are community more important represents as health for federal the to sustaining XX increasingly environments Our Administration focus program for details resulted of both on and health innovative and research we developing an growth Health expansion. solutions. look systems we such in Veterans has and and design the large our project which COVID significant XX% total market sharing the provides X through from top significant be awards end year, accounted And International, for expect quarter an growth sales, XX% on update second the the post-COVID. in down will see of our impact. market, we of reflecting In Hospitality Hospitality recover Slide markets the this revenue performing we the to quarter, potential market decline. last as the sequential first of our from a

focused projects both to highly our time and been ocean on the freights. has customers team with disruption lines their fluid Our on navigate of partnering

much as of design provide are to At productive QX. see same We and periods in expect a custom leisure dynamics see time travel the starting time, challenging develop lower opportunity for the occupancy we renovate. to the product same funnel to

term, longer can Kimball luxury capabilities product our custom the and are and progress Hospitality living portfolio development living look of student we making new expertise be and sub-brand believe senior unique We management for housing. market. selling and development on a to product As broader program reach direct we our expanded

of Workplace, resurgence choices The virus environment, extended you are we seeing we on impact post-COVID find but signs. of are right we workplace which spend, Now the slide move making merge and stronger as a a its the let's can in review the furniture or some believe to has positive to X. competitor

up note subsectors. the While an to uptick has is a finance second commercial, International Also, the strong Kimball presence quarter name markets. secondary were that government down it from important and end sequentially, QX sales recognition levels, in to order market and in were workplace rates showing

larger density. areas. and geographies indicates the quickly than metropolitan X% to appeal many rebounding and own markets growing secondary people's is more This reflect Our due Workplace combined markets, a of Health a these recovery the less both markets. bodies business for that XX% improvement in of order larger desire more comfort space, are in and to secondary rates climate of Sequential research highlighting with consistent compared data the rate

changing looking model analyzing a with speaking seamless work and a and businesses hybrid The environments. clients, clearly will office, experience model, comprised from be to location, every provide facilities and for health home. contemplating critically work satellite, we're co-working, the guidelines, home, real planning, of Employers headquarters, to from is satellite in engaged are and work long-term office strategies. As structures our estate new majority their workplace

the Our capabilities solutions our broader deliver continues design, the the provide through for workplace. a delivered and changing assortment address both of the office products, environment for and enable products the multi-brand Workplace new from portfolio to to In sales even deep new of focus new brand knowledge new omni-channel our quarter, Etc. will home. on XX% expanded team and residential were work under The current important new us in to success us to and new thinking Please from office they environments. move research the Kimball work of for in move to the new continued to International. X. set International market design critical the up Poppin will returns. Meeting where as Kimball up to forming, market work work investment for and broad is conditions. is The and be want an employee This address acquisition to from our setting work Slide home second exciting

plan growth opportunities designed the the accelerated within work both support growth Poppin International. on across synergies and is for the opportunities Kimball brand to and drive Our opportunities to

when identified announced Poppin one You acquisition. priorities stage the several may recall, we we

to scale these and playbook Poppin The are first markets, underway. fully activities is into secondary marketing

The approachable customer these long-standing all where International's that and each lead Kimball being to look details. first built perfect plans addition price confirm selection in-stock locations specific is are the new secondary Poppin We in set for points. at our announcing showrooms market. underway generation believe the forward site brand markets, In experience, our the and our the assortment presence solution these geographies and are we process we simplified of to for is as relationships for

work our our home is priority business Etc. Poppin second accelerate partnerships to and for corporate from The brand. in

good our clients, meaningful term, plan well priority direct-to-consumer as by to work build from number a of demand work-from-home to is resellers business we a relationships growing with where While traction. as utilize the to corporate limited we reach home long see expanding

in quarter launches products products Our to the distribution community. The our quarter, through our third the offer first fiscal Poppin to in put in we've immediate program poppinpod Poppin poppinpro to facilitate international's for I'm of interim is interest full-scale be existing dealers report network that in priority dealer XXXX. our and already have completed access distribution Kimball place substantial We A&D gives an sales. will Poppin network. pleased plan to that already seen this market from with

capabilities validate time, workplace. drop-ship Slide in new in across continue to the comes in marketing, with expense these provides We X respect the and pod privacy Over we interest experiences Kimball capabilities design. unique look us what be the to category application leveraged we Poppin. and and revenue digital synergies markets. to related end international at the of industrial the a with the horizon additional on see to broader can expertise Poppin believe

very projects. Kimball and logistics manufacturing practices experts also motivated pleased have welcome begun share synergy Poppin are connecting International. the We am to to and to team best in sourcing, formally our and very I

the that confident over a Kimball the leadership share International make the and are significant gain great that time. result in accelerate will We in growth combination business, Poppin team market Poppin

over of the T.J.? second to financial T.J. CFO, a quarter Wolfe I our our call turn will Now, review results. for

T.J. Wolfe

expectations. fiscal good Thanks, and afternoon, forward financial International's our performance during Kristie, second quarter the and I'll XXXX of everyone. discuss Kimball

during turn the market due $XXX.X to port congestion And hospitality impact that crisis. Slide the order in Net sales end our Kristie also X%. sequential revenue were release. impacted were shows million, that to declined million decreased reduced our by also reflecting to in financial and end net XX% mentioned quarter primarily delays by of the highlights moment. health $X market, discuss Let's Sequentially, noted earlier. which year-over-year approximately X, shipments as the dynamics a Sales in I'll key sales the ongoing COVID-XX

total products products to Health mentioned, market XX% were of are fit in internal having needs This innovative and and Kristie workplace developing the As target success sales new our of of end both Workplace quarter health of new compared XX%. second each reflects of the forming the environments. for the the we sales that respective

as plan to margin a operational $X.X that of gross lower mainly ago revenue excellence XXX defined three and those to quarter, program costs the our products After helped reduced slightly along to were Transformation in years. by margin year-over-year margin introduced of ocean XX.X% gross impact XX% the quarters margin points. that pressure. declined domestic related and margin successive savings freight higher are our the basis in due mitigate negative New million improvement, gross base the our eight with from to were last year

will to aware, X, are help We levels lines unprecedented and have offset March As effective market taken at price in fiscal the believe the capacity. and selective outpacing remainder increases many product of industry are Health XXXX, you impact. year volumes remain the tight for freight this our Workplace of

were the net margin basis Sequentially, XX% quarter approximately for Our same in second XXX of gross sales. declined freight reasons. points costs the our

and savings to selling administrative to and selling in by expense million reduce administrative $X $X.X additional our helped $XX million an yielded program million. transformation Our and

a revenue, prior as However, in amounted of to year. to percentage administrative expense the XX.X% selling XX.X% compared and

acquisition-related $XX.X Excluding or charges, and year. primarily adjusted or XX.X% XX.X% non-GAAP selling million of million to amounted costs $XX.X to sales administrative prior the compared in items,

costs non-GAAP pretax to will For in quarter the of is reference, quarter. repeat in third million included in the not second items that those $X.X acquisition related the completing

track second Our in million the were million. on program $XX to achieve transformational total in savings $X.X quarter by year-end. transformation We savings remain

in including of related. net share $X.X $X.XX million income net of and $X.XX per share, and which restructuring earnings or $X.XX acquisition to XXXX. in loss are $X.X quarter $XX charges, primarily compared after-tax the Our special negative million was of fiscal or per million diluted second This diluted

year-over-year EPS and due quarter EBITDA declined Adjusted given $X.X to to volumes. operating decreased compared EBITDA ago acquisition leverage margin the lower XXX XX% charges, negative in Adjusted $X.XX fiscal million year to quarter. related to second in of $X.XX points XXXX. the Excluding X.X% basis restructuring was

more was tax and Our the small costs effective the acquisition tax quarter XX.X% offset second for loss pretax as a benefit quarter. compensation related to tax than the rate of the during rate Poppin from nondeductible the negative nondeductible

tax We to rate XXXX XX%. the full approximately be expect our for will XX% effective year fiscal

sequentially Health XX% our XX. had reported improvement under this total key sequential of we of increased quarter. a revenue we accounted XX% one as our just for and shown markets, on year-over-year revenue end sales in Slide decline, Although

sequential While and revenue Workplace QX we total XX% improvement from commercial with of vertical a revenue pleased decline our as from declined see XX% revenues, Workplace, X% impact Hospitality XX% in saw sequentially. COVID. the sales, XXXX. the which represented of two declined while continued our momentum shows our represented sequential sales a XX%, Within XX first orders markets. Workplace in Health sequential Slide large the increased Orders quarter positive in in in to first new received largest we XX% sequentially. XXXX, XX% due from order orders quarter. of Hospitality grew partially end we're orders

Slide Moving to XX.

we our we closed On Poppin, on the X. and announced acquisition December call, of earnings last

contributed to has investments owned EBITDA. net we other the that to development, sales. $X.X Company have period Similar made in Poppin industry negative Poppin, the channel aggressive For resulting disruptors, fast-growing million in

However, to Poppin by we still half positive second be of XXXX. the expect EBITDA fiscal

amortized result Kimball historical in file a remainder of the we XXXX. which be of acquisition, additional $X.X forma million There intangibles this financials As and will X-K, pro later fiscal of Poppin will this year over month. the

switch Now the cash let Slide to sheet me XX. flows balance and on

During manufacturing specification the quarter, and tools majority upgrades spend the compared million of increase of we simplify expenditures our directed cash were quarter. automation. $X to technology compared operating capital ordering product flow second from of in investments to the in million toward Capital $X.X in second million comparable process and consumed to year was million the The cash ago $X.X generated fiscal operations to period $X.X XXXX.

We to be expect approximately million. CapEx full $XX year our

returned quarter, to million $X.X in the of we shareholders This capital of dividends. form

$X.X reinstated since program we share we program additional total repurchased for repurchased XX,XXX shares an In November. of we a million $XXX,XXX buyback Additionally, quarter. our $XXX,XXX reinstated the share second in January, and repurchase our in for

shares repurchase and quarter FY for cash to remainder of continue $XX.X in the 'XX. million equivalents. ended will the opportunistically We cash We with

the acquisition to closing, X.Xx, liability debt-to-EBITDA was including our the payments the earn-out Following Poppin. ratio net for

X.X% Our $XXX.X million, backlog of at the December was end up sequentially.

be quarter to $XX second We XXXX. will revenue this, to in levels. shipped the third backlog expect this quarter on million third of similar organic quarter fiscal expect we of Based be

We decline will to temporary short negatively term, in sequential also resulting quarter. margins the in third freight expect continue gross the costs a impact in

quarter, sequential now fourth to gross will the the the back on in call Kristie to fourth closing more turn in remarks. the I As her in we clarity start a with increase see expect our benefit increases of forming workplace, along new price for quarter. margin the we Kristie?

Kristie Juster

a see total the that sales, our are navigating markets To difficult and business the we horizon sum environment, to close but two for of accounts up, we in improvement Health on currently Workplace. XX%

Our embrace markets. change as in one Poppin Connect making our and target a are we X.X That the our to exemplary against acquisition weeks the tremendous gain lies is closed combined only as to our ago, potential stage strengthened ability testament The in eight diversity. which has already priorities. strategy share ways well that progress ahead our organizations in

I'd well are the like open motivated questions. ahead. We for path call and to to Operator, the now positioned


[Operator with Greg Instructions] Our first question comes from Burns Sidoti & Company.

open. Your line is now

Greg Burns

talked But -- the your pretty margins. lot freight [indiscernible] the Can about your the quarters You impacting lag recently. a about been price there? in that see increase? price talk just has exposure as gross you what actually steel increased costs it of And Does before we the on a is the typically the realization of couple of terms benefit? take increase, significantly

T.J. Wolfe

T.J. Greg, is this Yes,

in as to metals, well. And around input pressure for two inflationary first think also But going yes, of seeing steel calendar or next half about steel, persist point the year. this so that's probably so the quarters On I the first and freight. we we're talked costs, aluminum

increase, starts so is, X. talk I price kind the effect what just again, costs. on we normalizes after next similar we're at goes the the hopefully about price increase we'd two normalize, as think quarters, like freight to input the those you we're see into in hoping something, to looking When the of as March said market market

then fourth fiscal our would in QX And quarter. our of of a quarter impact amount the see realization very next so We that year. we'll very, see little significant in full and in third

into to the evolution but margin the we margins, that's ease how where the benefits is we QX realize price QX. we we see beginning about significant in that it and temporary comes QX, as lag, talk in And So see compression begin a in to effect. increase

Greg Burns

quarter. cumulatively? million get And left Where to getting Okay. total million? that $XX savings about you by $X.X end you What's this year to $XX of you the to the had talked and cost of are then million the

T.J. Wolfe


half, So a the continue And about see of there, we're on the similar amounts. XXXX. beyond trajectory halfway the projects at fiscal quarter-on-quarter and kind year, delivery pipeline of we we do what of in focused second to when similar I think can I again, for deliver look is thinking roughly will so, tracking now just think this we where what

Greg Burns

Okay. And understand want the the gave then I just for revenue quarter. to for guidance next you

whatever help next Poppin. So out organic contribution we Can was $XXX.X that million assume this expect from quarter Poppin next to quarter. plus contribute you for like us with what quarter? you the get We

T.J. Wolfe

Greg. absolutely, Yes,

right. that's So

guidance would So revenue similar at be levels. the organic

for quoted million, talked QX. there, little a revenue Hospitality delay We quarter, ship will million that. this $XXX.X the from about you on to in just organic $X in is bit That So QX. and shipments

network However, again, and logistics still tight. is the

the risk end in January, quarter when again, wrapped so previous there. what you some order of We're at we the as Health, look there's Workplace trends seeing, saw we So and into up. volumes to there. quarter order the similar basically at we've just move

two things revenue organic those to us So, picture. that combined lead

As revenue period million XXst. $X.X during far X the to through contributed Poppin, our Poppin as December the

So we this directionally to run period as would owned see continue for through we the well. that quarter them, rate

I we've as would and challenges would continue similar are appointment, in are run that order about into say their their by they the again, from rates talked we're seeing showrooms open pressure QX. rate while seeing, So December but

Greg Burns

great. Okay,

conversations maybe just Just any we kind -- you your your they Hospitality, your Or seeing are about we Like there markets, are in is with end of are pattern? of Can what like some Okay. [indiscernible]. are the talk holding what a customers? shoots? green on

Kristie Juster

Sure. Greg, it's Kristie.

we is the from a would impact and those lot on to sure this that One we're freight Hospitality kind the is say and getting significant, and of work those our on is talking themes customers order ocean organized. about. taking and congestion fairly orders two bringing in teams it that in think make I are of time there's customers

So, in to significant the we would luxury business toward that of the what would there's than that. are amount green geared custom say that market. a under seeing the the being is we back no is that shoots call in more regards work traveler. faster done There that, coming -- business The that's I is doubt is program

Greg Burns

housing, guess, and similar you market? natural as why could and compare And how from Like into senior those TAM in do just are the like expand living incremental to, markets look I that student of Hospitality you kind maybe to that Hospitality? that by Okay. is brands moving with I guess direction? the extension living And get what you a

Kristie Juster

that it two a So, similar. dynamics One is there's very sale. make direct

So, our work designers goes organization a portfolio is or to selling the them. direct that developers and unique to the create to

So are what and market. sale, it's there direct end And products our to hospitality they a markets, which would luxury organized create in then that does, student living. that's senior to and -- student housing be for dedicated custom group is housing,

each their properties of a amount products by environment. put significant the custom to of So in

that those things Hospitality in environment. that living two is I the group business. will in expertise that our hospitality have our the sitting our So, are helping Health you tell senior

luxury matter opportunities is that our in that opening And environment. Workplace in expertise group So does student housing. up

that expertise. the there's that business there share So opportunities lot. crossover to within think, we units, and like that occurs a We is


you. Thank

with question from Hilton Maher Capital. Tom next Our comes

now is line Your open.

Thomas Maher

million Poppin. had million clarify one-month $XX if rate it's does or seasonality to Just on you I of sort in extrapolate run it. that guess, business? right trying I don't So just know now $XX the there's from to the mean

T.J. Wolfe

Yes, T.J. Tom, this is

you with December, up what that based range. from that out, saw we something So in come on if you'd extrapolated

and at is market at market I What And how think we that December. as how work-from-home think we're I scale the dealer is focused opportunities quickly the possible. from we implied again, upon general this really as that what looking conditions recovery, priorities but poppinpod. it can and network, the again, can depends for ramp Poppin and that's again, on rate looking the our outlined we we're run

trajectory push priorities So, at degree really beyond which think those we quarter. can forward just will the dictate next -- we the I revenue the

Thomas Maher

capability? I the here Do on marketing in than other product of that? more an they Or there capabilities. you're e-commerce reference with I'm some the more fully then sort marketing to kind effectively bring what more Poppin. And you just ability of exploit sort guys digital of channels? their it's line, to of kind of expand referring terms of just And there's think those curious could

Kristie Juster


for me great a So, just a model. moment. let explain the business model It's Poppin

at digitally I'll XX% into includes then funnel the is they XX% that start sales product occurs That pushed get online. those those dedicated enabled very development, they're model about and opportunities leads to repeat And converted convert exec, of are account some conversion the we is leads that this and in-stock and give XX% leads of do generation couple and When So, of through. customers, services to account showrooms, of you digital are sales. they because that over executives it the quite when a -- offer. very, nice lead sophisticated simplified that leads the of look so customer a experience actually facts. can their business just

that lead Poppin Poppin funnel. was have purchased volume, in for was that the markets. series conversion secondary So, mentioning when gen markets, the about better capability T.J. because we the market. opportunities it's conversion taking They through We lot knew about Poppin. at native digitally the Poppin knew a five a And We're showrooms is machine that that excited as of local in creating metropolitan market. has opportunity a metropolitan a into we of

Thomas Maher

And Kimball those I I guess? presence they existing, markets, guess, the in Yes. could leverage

Kristie Juster

that consumers. already different. shift community more in very secondary with assortment. Yes, and It's simplified opportunities. a product. to kind it are the different the markets. into then A bringing the of larger direct there's Poppin dealer has looking Numbers It's a end we're at product. also, methods It's a were they sophisticated where direct two that stock two One is expand -- capabilities work

doing brand. those both of be Poppin the with we'll activities So

Thomas Maher

it. Got

I other see lot in know bit different, Okay. about do in sort Workplace people working terms out a more hoteling, the don't a three there's or but conversation visibility have And it. on little business. and but your you -- you'd ordering have my of sort of reconfiguration, office this, if of two days whatever people then question, of you

seeing those specifically the sort of you of the in the tied sort are orders of of of its are it to their still kind cycle or of of configured? more -- space So, or layout replacement changes as Or terms needs normal office? sort just is furniture the existing office

Kristie Juster


of practical So I'll that either funnel works tell they've looking some kind are the new you, they the that definitely are kind we're of deliver into are landscape, One, off had corporations coming really want their based now in based kind small projects into. of to and already. environment off two of or major new experience a the tweaks that just changes themes employees. that projects are right the And of projects the

no kind that that's varying project work we're thinking getting in And the feel the are in about that doubt seeing activity to now is is regards But so, done. of some where we happening funnel. there workplace corporations

headquarters, it's work and it's satellite home. environment, So, offices from it's it's co-working

service tick be really we're Kimball of market. you making as that things, kind to much the International, to down able so and the all broader it's places the And of choices that one at

markets new for so, represent does think And us, those it perform. for significant as forward we us that opportunity going


showing and would Kristie any with the And Gianniotis time. for further a showing Spiro -- further I call turn to I'm question Alphatec. from questions [Operator not not over closing I remarks. Instructions] see like at I'm Juster now to back any this

Kristie Juster

joining Again, maximize we're like on opportunities thank to for order doing. set and you early excited we're up think informed seeing forward in certainly we and call Thank you ahead. about, the look we're to I'd everybody we're very much. today, to Well, that the that how indicators we keeping

So thank and very nice have you a much, evening.


today's this you conference gentlemen, call. and Thank for concludes participating. Ladies

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