KNL - Earnings call transcript Q3 2017

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, everyone, and welcome to the Knoll Incorporated Third Quarter 2017 Conference Call. This call is being recorded. This call is also being webcast. Presentation slides accompanying the webcast.

In addition, this call may offer statements that are forward-looking, including without limitation statements regarding Knoll's future outlook for the industry and economy. Company's based a the uncertainties, number which beyond are are expectations certain statements are to subject of the forward-looking largely Company's on and of These control. risks and Exchange from its Actual results of factors, the other Report described filings the including on forward-looking and and as and identified Knoll's a with many risks the Commission. factors in may result statements Form materially differ Annual XX-K Securities and non-GAAP This call financial include to will today measures. also references most comparable in the financial Reconciliations measures that included of to these also GAAP the will are measures accompany slides presentation the webcast.

the over CEO turn me let President you. the Andrew and Now, Knoll. Thank call to Cogan, of

Andrew Cogan

Good morning everyone.

today's Chief Vice call on Rayfield, Charles President me Financial our and Senior Joining Officer. is

sales we of Our double-digit levels to stabilized and mark third point, quarter results profitability. returned an important as inflection

in the we time position of exceeded products Office our growth in us and our and to Office year of a to our Coupled continued well market segment growth. over those model workplace increase penetration our return sales, with initiatives first and specialty the have businesses, For taken newer the related past our for systems. legacy sales residential

initiatives are sales declined strength offering and of price That's marry into opportunity investments, where pursuing taken ramp sales in exactly sequentially and operating Unscripted the and QX, the to normal seating the ergonomic to the Heading would coverage work a the and case point feet we've margins increased products last of based commensurate with where to beyond individual tracking spaces our we on broad up product year about our double-digit Rockwell a of we slightly more with next, are street our talked performance. quarter award-winning reaching Office to X.X% market of adjustable like from significant our number and collection find the a we see dealers. end pleased operating the as doubled highest client up that the to in today. $X.X our with our opportunity of coverage core increased return volume in increase family profit profits million engagement new our Office million While $XX.X ourselves levels. this start broader improve in we increased are of points platform table We

a offering backlog higher on that and to increase as clients. in new rate funnel, versus combined of it While expenditure. into training at our market both convert further family single-digit validate us up In as coverage fewer warranted expect across expanded and momentum a products this does Unscripted, opportunities sales new than basis, and helping quarter, a year dollar continue we adjustable prior to we these projects, large than Investments enter mid-to-upper are to ago. translates with greater gaining case Knoll a market year is products our with Rockwell and acceptance tables XXXX our the like ended existing a

of We across showrooms next these early our completing of will designs into be year. rollout most the

is the manufacturing in in or amortize fully haven't newer from efficiency maximize time away our evolution challenges investment the legacy of newer to our products that to of One platforms mix these the the designs. same these had we

standpoint mix a from that So challenge. in short-term is a the

although the to Additionally, certain recede. strengthening in started headwinds weeks of commodities and we face has inflation accelerating dollar that a recent in Canadian

positive manufacturing competitive. our also macro will using demand we the are focused teams pricing on Our our becomes generally plants are more lines. improvement drivers, with and including see improvement need newest generating operation across aligned remain industry Until tools all what here very for lean as

year. greatest Both levels with Holly by exposure. expenses of sales accrual start growth the more our versus those and impact Studio like led segments normalized Lastly, full additions the to and Hunt our we prior up businesses Covering residential quarter incentive expect operating move in Office to delivered as the comp

As specialty approximately we our are mentioned last residential quarter our sales half a applications. in used and fifth total of sales of

segments and flat hospitality contract grew Within sales were upward single residential digits combined year-over-year. these where relatively applications

Our over including DatesWeiser experienced segment the acquisition. benefits the Studio of growth just of X%

our margin our bear were conference operating under are Although projects now the to nationally basis, margins stable as to in behind on of Coverings backlog in DatesWeiser just a at the bulk key sluggish with fruit the accounted Spinneybeck of see and a as in expect and percentage and divisional our we we Studio all XX% business strong. meeting table place, The acquisition virtually in segment, deterioration as results margin segment of have this investments DatesWeiser of our enrolling markets us margins for remained at offset result growth and performance Edelman team XXXX FilzFelt begin a already KnollTextiles. awarded sales in of the collaboration.

of quarter. performance site knoll.com particularly this our was I Lastly, Web with the pleased

visits. of workplace direct-to-consumer a double-digit increase we On September traffic. of record the side a we and half knoll.com combined million in a experienced alone, In strong set

around clients While believe the and relevance breadth in it workplace KnollStudio marketing for specialty expanded design our and of efforts sales, new generation and interest this our annual increasing reflected new specifiers. a newest of I also reflects

to over more you Now, detail. to our let call in take through me turn the results Charles

Charles Rayfield

ago. $X.X net Thank you, from third Andrew. decreased sales a year million Inc., X.X% or quarter Knoll

Our Office was were commercial government flat. Office year down in primarily or a while to X.X%. sales due in million was decrease compared Office sales sales, decline prior segment $X.X to The

expenses to declines sales declines product partially incremental ramp shipments up partially in was the related points were the lean in by continuous million contract DatesWeiser newer lower profitability. up These the mix $XX.X Our segment acquisitions. facility as as increase by addition offset the our The in Coverings to sales from our by in primarily ago primarily offset or increase volume on million offset Gross revolving million and higher by our from decrease the in Studio KnollTextiles. to FilzFelt increase commodity basis businesses exchange discretionary decrease a was due KnollStudio. X.X% a recent segment on from in driven to operating and XXXX quarter to in Kagan initiatives. by The quarter pension and DatesWeiser primarily an was our Edelman the outstanding resulting margin were XX.X%. Interest plan the outstanding incentive or million XXXX. foreign at facility well to sales from expense primarily at revolving X.X%, increased compared This credit headwinds interest compensation in volume million $X.X an $X.X improvement Hunt XXX were due a in were Spinneybeck $X.X unfavorable inflation decreased XX.X% of balance $XX.X rates. in up credit of driven decreased decrease increased an year accelerated contribution from in was third platforms. balance fourth ago Total Vladimir of sales Holly year

Our countries mix compared varying debt. tax tax jurisdiction. of of quarter our from cash in to of payment cash in affected foreign in QX XXXX. and the activities pretax related the million. the $XX.X decrease states and for investments. use tax and cash in sheet also activities assets for rate the The rate was against reversal was cash rate primarily by XX.X% in and reduce of balance which The rates the million during excess million. XX.X% the the quarter. information certain in deferred equivalents We down infrastructure by related was tax effective prior were expenditures a dividends tax and activities of income allowance cash Investing and $XX.X in $X.X the technology third and the activities in our that $X.XX of the revolving the third third credit income our the included invest benefit activities of million quarter third was was recognized Capital estimate approximately same million for year quarter We down expenditures Total XX% to flow, million earnings $XX.X to the for generated the from inclusive quarter million. was regards $XX.X million of Operating full repayments to of quarter for and share the The showroom in rate from quarter between consistent XXXX effective equipment, In XXXX. the XXXX $X.XX primary in and operate. and of we facility Net dividends operating to quarter. XXXX XX% capital Diluted with business, financing financing in our pay QX tax XXXX be used $XX.X tax the $X.X of of will uses period per of remain respectively. of the cash manufacturing to primarily $X.X provided XXXX. cash outstanding evaluation

quarter. ratio leverage We'll all reduction the increased at continues you. of to increased the strong remain now and Thank to our any year-end from covenants. modestly remain while Our outstanding comfortably balance We X.XX within sheet end third take of X.XX debt questions. EBITDA at and debt

Operator

[Operator from And question our from Instructions] Raymond first James. Bugatch Budd comes

is line open. Your now

Katherine West

West Andrew. Katherine Bugatch. Hi, Charles. This Hi, on the Budd line is for

quarter, larger is the the You we a mix? margins cited over think with new forward margin becoming new how should gross headwind about products, it the going part products of

Andrew Cogan

of to those better products I go we quarters into the momentum. are and of Thank to pleased have you. that manufacturing made cost efforts will and legacy rate absorb been products portfolio decades over that. we you. one think to -- kind kind Nice get very to of maximized the kind overhead are the we modernize the automated of Listen, start It meet we we the gained the to now traction. the to up news to really a or we take, that headwinds good The that they for legacy of are are as is, have now products have develop think those up, couple how build truly that to probably feel respond amortize of ramp people start products we margin where working to processes. for today that we two products the the going those making run to continue And

the the So, ramp But, think. to using drive improvement we will legacy in there the those will to skills start to it our couple see focused that technique products kits quarters of get of as I normalize over I that margins with volume, teams time, the take are all and products. took feel our and lean very the up, and those have on more we a

Katherine West

you. Thank

Operator

with McCall question Thank Seaport Matt from Global you. comes next our Securities. And

Your now open. line is

Matt McCall

guys. Thanks. morning, Good

Andrew Cogan

Matt. morning, Good

Matt McCall

So, maybe XXXX, ERP this some think year last start the year, bit, we expand of if question about just a maybe next hit. context in and that I had little

few in of think in behind I in you in was range that. mentioned you, you million sure think not QX it investment mentioned you kind But, mentioned then a lean DatesWeiser what QX. Charles, you about I and and maybe was times, number the $X the the think

visibility the around is So, put if what all absent of into kind earnings look any we line? next the assumption this year to top equation, one like

Charles Rayfield

with Let mind. me you start the Matt, if top don't line,

Matt McCall

Sure.

Charles Rayfield

number I and win seeing the we is, important look the dollarize the ability are pipeline thing the revenue. think those pipeline we and terms our again right are of pursuing translate we opportunities those when rates as to into actual opportunities you now in of that kind of that in factor then improved at potential

were are think I better we ago. a year we much in shape than

and And with year. now into up sense] more as of be with the [cost so, will backlog good we [ph] level head up that backlog next

to we the half volume more and performing time returning the under the now of levels from and I plants been think on first the well and chasing lower think metric margins are levels year at things absorption more and office service a our consistent one standpoint. running in we are are I was normalized have of

better next we are we as start much state year. think I in

to So that said, think point important make. I an

kind the there inflation back phenomenon and than the the so for a a half of has of more we been challenges headwinds a fight, of are gross phenomenon. terms definitely In that -- front those will us of variety half margin

the in we So, the exchange, probably The pretty pressures then, incremental first card, quarter, year. think some first. of dollar in half strong weakened fourth the a again, in wild see foreign bit was I inflation little and a next the of bit

be the what foreign margins over. there are, start are new plans up newer continue products some as [indiscernible] well. we levels to with we some at or them whether really for there think exchange those products of the see manufacturing So, commensurate that improve as Rockwell and kind our we should of And ramp then, still and carry

some the So, bag, pricing I pressure. but in a is maybe legacy little bit also think certainly some a think products definitely mixed ongoing I it's there pricing more pressure

factors So, it I couple just in I think I by for quarters, margin will think But, will the tempered next XXXX. the of be through. took improvement we make you

Matt McCall

That's true. Okay.

Charles Rayfield

year, to the normal see down other in hopefully now operating phenomenon normal was think start rate. next Let will to normalize more to so a through me come incentives, level. cost to certainly start in -- it of will do first start sales Obviously, quarter expenses operating this came those you just finish year. half in I the were some or more you commissions next return those count really whether a The head of in back the level have have fourth half year. some you in and fixed would additions a that

of on I do ahead I again, believe generate the and puts wouldn't So, this of I quite want ourselves variety we to margin get magnitude that there improvement. think are takes, yet. a at point of can But,

Matt McCall

Okay.

there. takes You are puts right. and Lots and

to hit, have you have QX QX? year, that maybe, any in the $X start hit impact number So, did hit that the million right, ERP what in was I that did and first ERP

Charles Rayfield

we revenue recall missed think $XX in passed to million exact we amount $XX the the that. two, kind about that on on of or out I million or talked I first don't of quarter of

Matt McCall

recall maybe was improvement. of think But, was on the was of also early surprising some this saves part what I year profitability overall I reference cost potentially impact line will Okay. -- the top back. the and

to quantified we coming have So, line we top improvement see obviously, kind consistent But, that ability we to that the the got part impact. now understand profit the of of have But, going go story of margin do some are these I the line past. remaining was the back, outside for cost incorporate top pretty into opportunities, of think these in from to the maybe save need that puts the part year? you the we lean, events, I those equation some pursue those and are next -- that

Charles Rayfield

on event return plants had our been there. aggressive lean $XXX,XXX, like work. XX very high average now We've something of all resources with the think deploying across I were that we saving, south very have different our on lean just on

And so, and strong continuous and just we ended, lean and that see even in quarter the ahead looking improvement. improvement

I pretty of have lock think of had in a back half the the in next nor year. year. on commodity do we incremental in the some of first have we cost have don't that do half good We our is, first those challenge inflation. half those the the We

this year aluminum, in steel, didn't see really those back kind I So, that of of of year. foreign that's year. coming commodities of over the are we first see which and I I exchange next definitely the the some back. see, of some anniversarying this inflation we have into carrying earlier half pressures now seeing half

half are improvements products back think the get next we normalized assuming you the that to think year, look by kind half the then, So, the this of year, margins the those in of will in rate year. see margins back margins run half the get next of I compressing at. particularly the a next up of business. effect of in side the think first think on half first all gross And I at ramp back new I at office of the the as they things Then, in growth more are the you And on those. of gross half I acceleration margin the the the time can the year, some and side of I

Matt McCall

operating XXXX, put compared Got come Okay. I more from all probably XXXX, back at kind we opportunity try potentially the where gross on when is we with flat it. were to to line you think and puts are that to When look we to of to back takes to understanding I margin, going all we -- is maybe can the larger essentially given out XXXX? it XXXX where XX.X get to level top one -- and way want these perspective, that XX.Xx going are margin, XXXX level, and in be get together.

Charles Rayfield

this that ambitious think Matt. factors some do have still more process. believe I that from the pricing, answer to of operating firm we are year mix little that foreign we newer margins exchange now year. then right inflation, evolution the as planning to lean than out the offset will we be continue where and improve -- are of mean I and ramp of give in should think that we you definitely offset we terms maybe this But, continuous solidly emit I we up. obviously margins. can But, a work through the our of double-digit can't on improvement I -- I will a to products

talk want expectations year more next points improvement little a on basis was We absolutely about to of margin back. the for kind step we XXX XX cautious margin every be I'd a year. So, year operating to of this

we'll next think year. points. where XX it we I year But, I this are from don't basis be whether trajectory that more get know on XXX would or

Matt McCall

Okay.

Andrew Cogan

fourth Matt, have to, I the we're made And the start of of those remember that think things additional again, we also a investments, show the you our and going run think quarter like so the that XXXX. the pipeline And going top-line normalization to have are up investments of as you'll that get have good to in operating growth start of course, in we those I the lot now I now forward. start our headcount, to will benefit do we've paying expenses and see think in seeing to rate in into all the

Matt McCall

as that this that's we Okay. to direction right is back next or one year question, All rate apologize quick that XX% for revert do the still higher the I Charles, year right. XX% number? to tax

Charles Rayfield

you're the year. next the correct I XX, XX in number for probably that's think think for back don't No. I range year, next

Andrew Cogan

even some in Matt. tax position get of and released a sort corporate we we're better Hopefully,

Matt McCall

guys. Thank right, all right. Right, you

Operator

question our Sidoti. from And Burns Greg you. next Thank with comes

Your now line is open.

Greg Burns

I quarter was for morning. maybe indication know you. give this quantified an if of the trending quarter? you backlog don't us items, and amount these could the the Good you were but up that bookings how Thank

Andrew Cogan

And on I single above mid that year positive and double end strength the with digits pipeline we that based low can backlog digits up to Yes. expect order don't the up but Sure, orders, specifically, Greg. quarter say do was backlog seeing. we and we're this the would

Greg Burns

you the street there And Okay. on feel the have you. need investment feet on now you is sales you investment on terms or in of front? do like room for further in Thank that the the coverage that the

Andrew Cogan

No. well say talent in I we've the feel street got a And markets around the we've that's in like we're that major people would identified. XX% our in feet from all up ago. year really to we were initiative I and XX% and is the positioned major, been a a where place somewhere

on people really maximizing it's those starting trained now So, that return a good are efficiency their to getting investment. but coverage, we and see and

Greg Burns

terms side that integration room And the share that for Okay. where do to in there front Knoll's improvement the of systems order and to feel or contracts network, on varied them it the of your businesses between for regaining and you studio be it order easier across is to the variants? with dealer needs the make

Andrew Cogan

platforms same all Our are our major dealer system. brands dealers and the

do that today. So they can

that of, on focused said of the particular room across brands full we range particular is think So there, the for are all client engagement there the is no client sales but maximizing opportunities that coordination full engagement. forces with account. our any set I covering very on varied there the about continued between Knoll better problem do And

Greg Burns

operational issues risk Coppola lastly, down, COO, change Okay. of lean in management? that your some the Joe And any hiccups given then, of terms stepped of

Andrew Cogan

is initiatives I in And of who been have hopeful his sites Joe strong absence planning didn't we for as and think and we But, of come all a for a of Joe don't it's back. of now. we a I leadership so the slightly in were is are doing planning And what going a VP to is say our Senior step for he very our lean on first drop beat and down, able long into believed been leave this, that, took tremendous while of we've will Operations and I encouraged, very any beat we'll here. are the lost prepared Well under is our medical place a something see he cycle, work got we've and experience work terms I time.

Greg Burns

you. Thank Okay.

Operator

Thank Thompson Research Kathryn you. from And Group. next comes question our Thompson,

Your line now is open.

Kathryn Thompson

my Hi. Thank for today. taking questions you

if sales spring Just legacy you you hear But, a increased of maybe new how more versus legacy Was how clarification there on indication about are that quarter. some product of much products the on performance, was -- driver and of of driven by side. realization look of any sales? a great because news office you in the could sales, to greater the product new bit at be systems would a give out little getting performed color Thank type you. if if

Andrew Cogan

Couple here.

all, look the in I the first out the have of some of seen platforms at platform. this we when some that newer was First of -- quarter the total exceeds legacy the mix again, dollars

a where talking the feel confident strong big then, a some some we I say in the some point part bigger that of now growth percent are But, digit start to will of at are see erosion you those -- this going all categories. digit whatever that of newer result And the office category newer of legacy products in low in of So those mix, XX%, we double business. high legacy growth net I forward, are products. double the the about single, know, you in XX%

working in inflection work people part and and at we areas private mean what point. will still are are do doing. stabilize. point, that some would So, see clients I are individual our still a I And to legacy people stations the expect areas, I definitely products are think, start to of we at

are some We nice doing that. very had people those like with lately platforms where have legacy whole buildings wins stuff actually and

benefit see to then of platform we starting we think get more stabilization start really still do the the there run. I can and to So, newer some

Kathryn Thompson

notable erosion stabilization, are that single, legacy high anything seeing in other there in the sales trends there, overall are seeing confidence you in that digit any saw are greater declines give smaller you you like quarter, you would that? double If words

Andrew Cogan

I Again, think products Rockwell is, to compare I it's pretty on platforms. mean an declines greater and $XXX the still are ramp seeing today in the antenna, and growth small of like it's is million ramping I over up in up, antenna smaller we legacy newer example. when right platform. pace

very we things encouraged So, are with clients. resonating the done that are have we

in it the seeing are funnel. We

in win We rate. are seeing it the

We are seeing it in the orders activities as we go into the fourth quarter here.

Kathryn Thompson

in just there that wanted basis I or that new that we questions outlined? other obviously things type -- things a is, a volume product is And but categories that the main three margins FX. determine some mix lot prepared Okay. clarification, your gross versus know driven so you much really ramp to it are and volume impact much in have trying But, point said have accelerated will pass, what of buckets, been you commodity also in cost, and how of XXX really was commentary by have decline how

Charles Rayfield

a relatively of in was Volume quarter. the terms the third in margin non-issue

Kathryn Thompson

right. All

a commodity the the commodities more ramp product decline which because little so, anticipate mark. are that new the FX And a product theoretically of quickly versus big should of that question new majority was

path could toward trying sure. I'm not is, so, that of yourself a to understanding something just where And get something you're see you [indiscernible] to an what's

Andrew Cogan

us. impacted Well, I think order of them we they kind that the gave in

of think FX. it mix inflation kind was So, commodity I

Kathryn Thompson

Okay.

Andrew Cogan

the And the think but again, issue half we assuming by real think I And I move few becomes you will back be XXXX, drag. more we again, have be commodities the in as of an kind fourth. the lot, through then, stabilize, for around mix non-issue, of change will exchange of moves start challenge quarters, think we and I the next see stability to some get other steel some of a a inflation to and one a less probably major I exchange quarter that should in time then, think the

us big two would borrowing we up. three the inflation change think margin or move will will as with XXXX for I of next gross quarters, you to exchange again, foreign be I in start the back back pressure see but the half get margin that and/or So, any expect in

Kathryn Thompson

Okay. segment could are have -- government little and laggard government And on they trying office to -- today noted you lead office seeing us government than has is is the could format for the a of that slower anything then of the newer in any been government you what a were the a really of itself? remind but this quarter, type be by embracing and for bit that weaker sales understand, percentage obvious also there to -- office other

Andrew Cogan

-- up actually were Well, shipments government orders quarter, were government orders were but so down, in the up.

be or ago. on relatively it's now it I maybe digits basis think years X total X flattish annual to that down humungous the way single this is revenue mid used an activity or right and not a factor our on

it's the and it's segment, now than actually state and larger split in I -- federal federal So, the between very is think state local a manageable both piece remember piece. much local

much it's more been diversified a So, base it's in the past. client than

driver way one or not see major a that's that another. we as So, something

Kathryn Thompson

Okay, much. very you great. Thank

Operator

time. now not turn the And any further would call back at over any showing I'm Andrew to this I questions further to Cogan like remarks. for

Andrew Cogan

Great. we some with of again Thank you you you all for and continued interest seeing talking to look your and forward early in upcoming conferences Knoll the XXXX. in at

take care everybody. Good So, bye.

Operator

for a you and does you may have Everyone program thank disconnect. in today's today's day. gentlemen, and conference. wonderful all conclude Ladies This participating

Knoll (KNL) 24 Oct 172017 Q3 Earnings call transcript