herman miller investor relations presentation - q1 … miller investor relations presentation - q1...
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Herman Miller, Inc.
NASDAQ: MLHR
Investor PresentationFirst Quarter FY2016
1
Forward Looking Statements
This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management’s beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and the company itself. Words like “anticipates,” “believes,” “confident,” “estimates,” “expects,” “forecasts,” likely,” “plans,” “projects,” “should,” variations of such words, and similar expressions identify such forward-looking statements.
These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks include, without limitation, the success of our growth strategy, employment and general economic conditions, the pace of economic recovery in the U.S, and in our International markets, the increase in white-collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitive-pricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, our ability to expand globally given the risks associated with regulatory and legal compliance challenges and accompanying currency fluctuations, the ability to increase prices to absorb the additional costs of raw materials, the financial strength of our dealers and the financial strength of our customers, the mix of our products purchased by customers, our ability to locate new DWR studios, negotiate favorable lease terms for new and existing locations and the implementation of our studio portfolio transformation, our ability to attract and retain key executives and other qualified employees, our ability to continue to make product innovations, the success of newly introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances, the pace and level of government procurement, the outcome of pending litigation or governmental audits or investigations, political risk in the markets we serve, and other risks identified in our filings with the Securities and Exchange Commission.
Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc., undertakes no obligation to update, amend or clarify forward-looking statements.
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Presentation Overview
3
Our Ambition
5
Work Home
Learning Healing
Focus on Expanding Market Opportunity Priorities to Drive Shareholder Value
Source: (1) The Business and Institutional Furniture Manufacturers Association; (2) 2013 CSIL Market Research; (3) Company estimate (4) ACT Financial Survey (5) Parthenon Group 6
N.A. Contract
European Contract
Emerging Markets
Consumer Lifestyle
Health/Education/Hosp.
Small/Medium Business
Textiles
Estimated Market Size($ billions)
North American Furniture Solutions Value Drivers
Solution Based Selling Problem Solving Innovation
Targeted Acquisitions Branding and Marketing
8
North America Contract Industry Drivers
9
100
105
110
115
120
125
Aug
-05
Apr
-06
Dec
-06
Aug
-07
Apr
-08
Dec
-08
Aug
-09
Apr
-10
Dec
-10
Aug
-11
Apr
-12
Dec
-12
Aug
-13
Apr
-14
Dec
-14
Aug
-15
Category 2015 2016
Nonresidential Total +8.9% +8.2%
Commercial +12.3% +10.6%
Office +14.7% +11.7%4446485052545658
Jan-
13M
ar-1
3M
ay-1
3Ju
l-13
Sep
-13
Nov
-13
Jan-
14M
ar-1
4M
ay-1
4Ju
l-14
Sep
-14
Nov
-14
Jan-
15M
ar-1
5M
ay-1
5Ju
l-15
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
1978
1980
1982
1984
1986
1988
1990
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1994
1996
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2000
2002
2004
2006
2008
2010
2012
2014
2015
For
ecas
tLeading economic indicators include:Corporate profitabilityService sector employment levelsNonresidential construction activityOffice vacancy ratesArchitectural billing activity (ABI)CEO & small business confidence
North American Office Furniture Orders($ millions)
Source: The Business Institutional Furniture Manufacturers Association
Service Sector(million workers)Source: U.S. Bureau of Labor Statistics
AIA Consensus Construction Forecast(%YOY Growth)Source: The American Institute of Architects, June 2015
U.S. Architecture Billings Index
Source: The American Institute of Architects
10
Global R+D Capability Product Innovation
Regional Manufacturing Footprint Expanded Distribution
EMEA, Latin America, Asia-Pacific (ELA) Furniture Solutions Value Drivers
Specialty
11
Geiger Collection Maharam
Consumer
12
Retail Studios and eCommerce
1212
Design Within Reach
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Value Drivers: Studio Transformation and Exclusive Products
Consumer
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Studio Transformation
Studio SalesNumber of Studios Sq Footage Sales/Sq Foot
(1) Represents goal outlined by the Company in July 2014
20
30
40
FY14 Q1 FY16 FY17 Goal
38
32 32
FY17 (1)
210
220
230
240
250
260
270
FY14 Q1 FY16 FY17 Goal
228K
246K
260K
FY17 (1)
$550
$600
$650
$700
$750
$800
FY14 Q1 FY16TTM
FY17 Goal
$660
$697
$790
FY17 (1)
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation;15
8.3%8.1%
8.7% 8.7%
9.7%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
FY12 FY13 FY14 FY15 FY16 Q1
Net Sales($ millions)
Adj Operating Margin (1)
(% Net Sales)
Operating Performance Highlights
23%
Return on Invested Capital
(FY12 – FY16 Q1)
FY12 FY13 FY14 FY15
6.8%FY11 - 15 CAGR
-
100.0
200.0
300.0
400.0
500.0
600.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
FY16
$5
$19
$30
$33 $35
$0
$5
$10
$15
$20
$25
$30
$35
$40
$250 $250 $250
$290
$268
$200
$210
$220
$230
$240
$250
$260
$270
$280
$290
$300
Debt and Dividend Trends
(1) Represents the most recently announced quarterly dividend rate annualized16
Total Debt($ millions)
Dividends Paid(% Net Sales)
FY12 FY13 FY14 FY15 FY16 Q1 FY12 FY13 FY14 FY15 Current Rate
Operating Performance Highlights
1
Operating Performance Highlights Recent Operating Performance
37.2% 36.9% 38.1% 38.3%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0% (2)
Q1 net sales increased 11% from the prior year; orders were up 9%; on an organic basis, sales increased 8% and orders increased 7% over prior year
Adjusted gross margin in Q1 improved 130 bps from the prior year due to improved product and channel mix, including the DWR acquisition, favorable commodity costs, operational improvements and net pricing realization.
EPS in Q1 totaled $0.56 per share.
$159$151
$162 $162
$50
$70
$90
$110
$130
$150
$170
Q2 FY15
Q3 FY15
Q4 FY15
Q1 FY16
$200
$300
$400
$500
$600
Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16
$565
$516$551 $565$572
$501
$557 $563
Gross Margin %Adjusted Operating Income %
Gross Margin and Adjusted Operating Margin (1)
(% net sales)Quarterly Net Sales + Orders($ millions)
Quarterly Operating Expenses (Adjusted)(1)
($ millions)
Net Sales Orders
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation; (2) Amount noted is adjusted to exclude the impact of acquisition-related adjustments in the period. The reported GAAP gross margin in the second quarter of fiscal 2015 was 36.4%.
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9.1% 7.6% 8.7% 9.7%
Q2 FY15 Q1 FY16Q4 FY15Q3 FY15
Operating Performance Highlights Debt + Liquidity Profile
Q1 ending cash and equivalents totaled $52.0 million, down $12 million from Q4. LT Debt maturity schedule:
– PPN ($150M) due 2018– Revolver ($68M) due 2019– PPN ($50M) due 2021
Availability of $171 million on the revolving line of credit stands at the end of Q1.
CAPEX totaled $17 million in Q1. Expecting $70 - $80 million for fiscal 2016.
Dividends paid in Q1 totaled $8.3 million
Q2 FY15
Q3 FY15
Q4 FY15
Q1 FY16
Rolling 4 Qtr Coverage Ratio(EBITDA(1) to Interest)
Quarterly Cash Flow from Operations($ millions)
Rolling 4 Qtr Leverage Ratio(Debt to EBITDA)(1)
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation.
12.6 12.9 13.415.0
0.02.04.06.08.0
10.012.014.016.0
Bank Covenant > 4.0
1.5 1.4 1.3 1.1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0 Bank Covenant < 3.5
Q2 FY15
Q3 FY15
Q4 FY15
Q1 FY16
Q2 FY15
Q3 FY15
Q4 FY15
Q1 FY16
18
$39
$29
$58
$33
$0
$10
$20
$30
$40
$50
$60
Herman Miller, Inc. Guidance – Upcoming Quarter
Q2 Fiscal 2016
Net Sales $570 to $590 million
Gross Margin % 37.5% to 38%
Operating Expenses $164 to $168 million
Effective Tax Rate 32% to 34%
Earnings Per Share, Diluted $0.52 to $0.56
Guidance as provided in September 16, 2015 earnings press release
Appendix
21
Appendix Reconciliation of Non-GAAP Measures
This presentation contains Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA ratios, Adjusted Operating Expenses, Organic Sales and Order Growth and Adjusted Earnings per Share, all of which constitute non-GAAP financial measures. Each of these financial measures is calculated by excluding items the Company believes are not indicative of its ongoing operating performance. The Company presents these non-GAAP financial measures because it considers them to be important supplemental indicators of financial performance and believes them to be useful in analyzing ongoing results from operations.
These non-GAAP financial measures are not measures of financial performance under GAAP and should not be considered alternatives to GAAP. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, you should be aware that in the future the Company may incur expenses similar to the adjustments presented.
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Appendix
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Table IHerman Miller, Inc.Reconciliation of Non-GAAP MeasuresAdjusted Operating Earnings %($ millions; percents represent % of net sales); (unaudited)
FY12 FY13 FY14 FY15 Q1 FY16Net Sales 1,724.1$ 1,774.9$ 1,882.0$ 2,142.2$ 565.4$
Operating EarningsOperating Earnings (GAAP) 137.6$ 114.9$ (25.8)$ 163.4$ 55.1$ Operating Earnings (%) 8.0% 6.5% -1.4% 7.6% 9.7%Add: Restructuring and Impairment Expenses 5.4 1.2 26.5 12.7 - Add: Acquisition-related Expenses - - - 10.0 - Add: Debt Tender Offer Settlement Charges - - - - - Less: Adjustments to Nemschoff / POSH Contingent Consideration - - (2.6) - - Add: Maharam Inventory "Step Up" Expenses - - 1.4 - - Add: Legacy Pension Expenses - 28.2 164.4 - - Adj. Operating Earnings (non-GAAP) 143.0$ 144.3$ 163.9$ 186.1$ 55.1$ Adj. Operating Earnings (%) 8.3% 8.1% 8.7% 8.7% 9.7%
Appendix
24
Table IIHerman Miller, Inc.Reconciliation of Non-GAAP MeasuresAdjusted EBITDA and Adjusted EBITDA Ratios - Bank($ in millions); (unaudited)
Adjusted EBITDA (Bank) RatiosTrailing 4-Quarter Period EndedQ2 FY15 Q3 FY15 Q4 FY15 Q1 FY16
Earnings Before Income Taxes (EBT) 130.9$ 133.6$ 145.2 158.5 Add: Depreciation 41.1 43.5 44.2 45.6 Amortization 4.9 5.2 5.6 5.9 Interest 18.1 18.1 17.5 16.7 Other Adjustments (1) 33.3 33.8 22.7 23.7 Adjusted EBITDA - Bank 228.3$ 234.2$ 235.2$ 250.4$
Total Debt, End of Trailing Period (includes outstanding LC's) 337.6$ 334.3$ 298.3$ 279.1$
Rolling 4-Quarter Debt-to-Adj. EBITDA 1.5 1.4 1.3 1.1
Rolling 4-Quarter Adj. EBITDA-to-Interest 12.6 12.9 13.4 15.0
(1) "Other Adjustments" include, as applicable in the period, charges associated w ith business restructuring actions, non-cash stock-based compensation, credits and expenses associated w ith the company's planned termination of its domestic defined benefit pension programs, as defined in lending agreements.
Appendix
25
Table IIIHerman Miller, Inc.Reconciliation of Non-GAAP MeasuresOperating Expenses - Adjusted($ millions); (unaudited)
Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16Operating Expenses (GAAP) 159.0$ 151.2$ 161.7$ 161.7$ Less: Acquisition-Related Expenses (0.2)$ Operating Expenses - Adjusted 158.8$ 151.2$ 161.7$ 161.7$