KNL - Earnings call transcript Q2 2018

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Operator

Good morning, everyone, and welcome to the Knoll Incorporated Second Quarter 2018 Conference Call. This call is being recorded. This call is also being webcast. Presentation slides accompany 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 the economy and the speculations for prospective future leverage. 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 The call financial include to will today measures. also references most comparable the the financial Reconciliations measures will in of to these included GAAP presentation accompany are measures the that slides webcast.

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

Andrew Cogan

brands within ancillary actions morning, driven now line are our from profitability. growing durable our respond acquisition like earnings competitive and building very and Rockwell report top and launch very, Muuto, we've high Thank derive to our reorganization expansion trends our concurrent revenue constellation year margin of categories Coupled high bold we selling the lifestyle have to platforms businesses, us design to of changing of represent workplace, with global of now over everybody the design, XX% from with capacity share superior accelerate the taken call. you. to growth. allocation penetrates initiatives our and we of which of revenues, past increase space the recent I'm Unscripted second faster quarter of a advantages to and unique new pleased enabled the Good the design and welcome that

$X.XX. inflationary of XX% EPS EBITDA XX% chain our with combined XXX margin expansion to XX% basis initiatives adjusted team points these by adjusted of benefit to the to and of $X.XX continued offset led quarter, from supply pressures growth to from This efforts

our platforms of height options introduction NeoCon, a in both based, half well accretion quarter margins, by growth Growth adjusted increasingly In XX%, with margin office broad grew growth. organic digit our comps, faster In reported investments the strong delivered new America quarter EPS metrics clear Muuto by coverage Excluding our on these tables offerings we This our newer and year we adjustable was expanded from up North as from too. segments improved, double in prior it of of seatings. organic above the Growth expanded mix sales shipping year-over-year EBITDA these North flattered the unit products rate in past and of level the wins. in and our are products of volumes ago. year such ergonomic office These we our over both strong and product with and XX% than begin price category less Unscripted entry competitors Rockwell platforms our newer expanded margins now sales, platforms on our at comprise fourth efficiencies by by as adjusted the benefit in and sales product climbed. introduction. mimic showed our opportunities newer our are the both as is quarter. favorable visibility driving continues to up The growth and of driven as this in still positioning America, in easier segment, manufacturing in are that improvement the more expanded its will ramp Europe. industry benefiting [indiscernible], was while and attempts even market

all-out For one success. introduction legacy our demand efforts formal of to the clientele first the and on Muuto's we clients breadth The thing to talk It's new about month platform quality at these corporate design, NeoCon it's design in to our saw quite but was stabilize Scandinavian quarter our another allow an hand. dealers, perspective designs to see and in Muuto Succeed. last row, second of a

its friend, Danish did in-stock position it that NeoCon warranty quality, While seem extended custom had ancillary differentiates sourcing, saw to to the capability not on and and new that at Muuto Muuto offers contract is on designs. the everyone And set all not European alike see we it's realizing and proves particular the Muuto well the potential complementary with what way a is modern brand. taking truly long our like

from Dollar While far Muuto faster of government. in to since banking, to as strong its retail, continues to post home and the number acquired Muuto Every organic NeoCon, even the project in growth that standards are tech, Knoll seen month its we're transacting clip in accelerate entertainment, we corporate millions we've an in with ranging continue and move we verticals needle grown America. Muuto, deliver clients starting volume and grows. and has worth securing markets, wins dealers hospitality North

we was have in thing or to the make much There of there. too a is NeoCon sense ancillary. way other it's The no a to out of partnerships or saw possible relationships salesperson dealer for multitude

few and deeply brand owned platforms, opportunity. more meaningful we the ancillary a much can Our growing penetrate belief with XXX% is that

together resources has auspices the our another less and and brought penetration. change and coordination sales a As place. sized projects, under funnel pursuing This North with medium data DatesWeiser our track and here. whole million small between opportunities double a important us Muuto one fewer in digit audiences driver to tend double be effectively end ancillary we There increase but the standpoint, leaders our deeply in it allowed discounted. me, January, user we're that show our dealer count single lesser different From of the orders sales plus Muuto, more a sales continue the of dollar we to recently put and we're in regional - and digit dollar our growth an sales extent as high of the is office the more value the to our In to Knoll improved our that to track local increase deploy funnel. against number Studio AND accelerated This is Rockwell managers. of market sales America consistent to team

office offer sales expanded benefit absorption headwinds segment, basis improvement QX fixed the capacity continuous commodity last in deliver were higher EBITDA and from of in year's challenging volumes in FX the accelerating X% leverage and from margin to margins investment as to cost favorable inflation able points here X.X% quarter. XXX and improvement initiatives expanded Within adjusted to this

resources transformational profitability. is later sales as While We'll our lifestyle margin will threatened kicked second these XX% or come we why chain. are the on minimum million and our for as build we study the also also initiative our X% to plus aware one through heartened us It's XX% footprint supply of that grew reductions lean we have each variable external picture EBITDA and uncertainty margin a are of production. initiatives accelerating the both internal and continued put of goals help the on it redesign by through has lifestyle the by this that end reason our increase XXXX and of $XX progress, growth impact our supply real inflationary opportunity price this our why rationalizing a greater longer a segment, fixed re-envision you this the further plans the coupled It's mix may this our Muuto. off with become plant more the our quarter keep with This and cost favorable of targeted updated month. has organically XXXX and rethinking mix focus clear That's enterprise. into entire past optimization that other there achieve chain outside we entire term Within of excluding year. segment from around

Strong businesses, which back in the was growth. from outpaced performance quarter HUNT, all-time orders the including basis, which in segment, acceleration a XX.X%. contract set lifestyle encouraging growth. half side. performance the Europe our XX DatesWeiser very KnollTextiles increased sequential from the points a orders for organic the to businesses an lifestyle by positions of residential Spinneybeck, adjusted contribute of On margins across KnollStudio, KnollStudio them and Within our to strong in the plus FilzFelt HOLLY solid and EBITDA More the preponderance and basis facing growth record well

prior is show in We FX half should Inc. growth this mix that accelerate. back organic margins XX ramp a Knoll, costs new On expand. points overall Muuto some improvement expect down from held lifestyle the rollout, to the basis, basis While unfavorable up as our our do year LA and year-over-year shop will margins help from margins. also

ahead Looking our expect expand of the balance year, and margins to we to leverage. our grow the continue business, our reduce to

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

Charles Rayfield

of Muuto, quarter its operationally the XXXX dividend diluted operating the expenses for cash higher as acquisition agreements our affected to up and Adjusted Muuto tax activities as quarter in accrued to countries was second tax related income activities in an and the Muuto first million. pretax end the result US to XX.X in intangible related of as million year of Adjusted the Consistent operating Capital second and both and XX% of million expenses restructuring gross use Interest expects Inc.'s earnings the due was to our incremental to acquisition margin XXXX. The XXXX Muuto related the up of three period The down was and were of of million at fiscal well million acquisition of year primarily XXXX result X.X income of earnings is related costs. financing varying second assets in for and in Adjusted ago. effective cash million include of expenses, cash of was of million on X.X in pension or Thank $X.XX in inventory favorable quarter vested to acquisitions were tax debt adjustment, we rate between margin XX.X compensation from for the annuitize Jobs and during The net Total related expenses past million was X.X sales increase expenses in equivalents quarter million XX% net Act of the decision rate to dividends The the employees quarter. with adjusted related of purchase and manufacturing debt, effective from as well lifestyle quarter versus to of income and or and in due income XX.X%. greater rate from inventory states pay and the to pay and to discussed, in share XXXX. supply the XX.X%. related million. previously from In Muuto settlement XXXX and XX.X second for key quarter included tax tax the to charges. remain EBITDA settlement XX%, Acquisition of rate year-over-year as acquisition the our The chain related quarter EBITDA liability, activities financing that and during shares the down mix in Cuts the quarters, second of was reduce profitability increased XX.X charge. the exclusive XX.X our HUNT is charges expense inclusion the in of information X.X The quarter Adjusted related XXXX. million restructuring in cash related incentive Operating EBITDA a XX.X XX% optimization is to a at Adjusted second year operations an fourth adjusted businesses XX.X affected to in million for adjustments be sheet and net organizational the of approximately from amortization million for the of passage the XXXX. cash higher adjusted primarily prior XX.X% were balance were quarter XXXX a due realignment million X.X the service XX.X million, XXXX. XX.X company pension the interest in charge The and other million margin $X.X Capital increased in XXXX. rates. tax for was XX.X% portion used customer per expenditures was X.X to compared acquisition million compared million, of acquisition. provided for the regard XX.X of year. equipment operate. effective Edelman second to ago, the QX, Knoll cash up and HOLLY due for which excluded excess exclude the to flow, the our XXXX. our a of full The quarter well levels infrastructure, operating Adjusted you, net rate that volume expenses outstanding by office prior settlement from Tax of from year second million quarter from increased triggered operating consistent retention effective restructuring in the pension customary sales will accounting. gross X.X invest XXXX expenses XX% cash and were expenditures acquisition adjustment Total debt. Adjusted $X.XX primarily due of from as for XX.X same to in which sales increased pay efficiency. also of pay dividends months quarter operations. we primarily segments The showroom compared million charges year. Muuto as of generated the related to X business, increase to accounting X.X XXXX activities and investments. to technology and million Andrew. to We used respectively. quarterly was quarter the is XX.X million

was the end to X.X second reduced in debt of basis from the was annualized ratio experienced XXX.X approximately to outstanding margin and our EBITDA X of million summary, million, the basis. of benefit acquisition at margin Muuto. million very have times ratio the leverage and of XX XXX leverage our over points, we borrowing reduction below As by rate growth just organic the quarter, on The that pleased growth saving our below times. and we're improvement In solid an X.X addition balance

in For X.X quarter also second lifestyle QX total is the was by experienced XX X.X% XXXX, QX, the same Muuto of compared EBITDA was million EPS. XXXX, XXXX increases organic in XX.X volume of Muuto. $X.XX the in adjusted Consolidated segment organic office Muuto contributed to and the the about million quarter our of segment excluding while increase in the growth to sales for quarter XXXX. contributed XX.X% led over and QX of growth XXXX, million this

it EBITDA as in purposes. related from quarter acquisition release, comparative As operations performance such you. of believe be costs of these excluded more and costs acquisition and of we've intangible are ongoing that clearly quarters business acquired adjusted bonuses and recaps our calculations we've related this We results our assets of EPS exclusive Thank retention amortization and not noted could prior indicative adjusted for evaluated, costs.

take We will now any questions.

Operator

line our Burns And Instructions] Greg [Operator of first question comes from the from Sidoti.

Greg Burns

morning. Good

gains you improved versus a you margin In by? of much EBITDA the business margin of maybe adding was us the Muuto could the terms talked from what this give organic how just growth mix to of the quarter, sense

Andrew Cogan

This the improvement, is basis Andrew. points contributed margin Muuto of across about the right board. basically XX

So margins from operating EBITDA. gross margins to to

by on improvement about improvement probably you saw of a, office led the basis is that year. believe, EBITDA had year that was I organic improvement to XXX a whereas gross operating we points So margin I important think what's margin solid over everything you that with see from business

Greg Burns

can then dealers, reception with hearing the trajectory the in And dealers? initial you of terms talk where your Muuto maybe you're or you saw Rockwell reception versus the Muuto, Muuto growth of seeing the of your Unscripted, uptake how early is about with

Andrew Cogan

dealers, Muuto and since are America, we is We're value right day day more there Unscripted with our exceeding strongly. on the is of purchasing interacting dollar Muuto, Muuto to in Rockwell growing. up ramping month and it owned each of Yes. from is It Muuto very, very more ramping up is a basis expectations. our in North and terms through than faster our seeing dealers

we warranty business, it's and we DatesWeiser, breadth up up product running that's and that Muuto ramping capability. out we're Danish in XX% what's to network, but Muuto the delivery got of is both can even it up, the when kind exciting its DatesWeiser dealer the that starting with service now And full it's sales take faster, move over other just of is through from a not can year a second product a year. proven ramp now and there brands about corporate because very, portfolio, and quickly. or very have year from of standards we that can leverage and never corporate mean, is to ever plus portfolio. kind differentiated been of opportunities would as up distribution you our accounts tell core dollars awarded our have So our we previous ramp we've seen introduce of very millions we are absolutely in with I

super kind in home continuing. that just going of and continues of is their the were top disrupted that, well been exciting what's really do organic they on it's market, in to So at on growth hasn't and experiencing Muuto terms of all so

Greg Burns

Okay. know North Muuto give through seeing for Could maybe channel XX quantify you your maybe of just year, that can the you last in a amount million that had of? America you're in us bookings North all, dealer sense America revenue of but at I or you

Andrew Cogan

mean want breaking North I in I stuff we've about will our begun. mean running think I in September. just XX%, through down, we're fully general, I we're it we think take America, of even up I XX% sampled year-over-year. say, throughout don't And isn't Yeah. network, which dealer overly kind only, would but Greg,

acquired think I incremental I of $XX believe expectation. intact - that to is Muuto that the is this to was years. to So to much that that we had very listen, which upside over and million going there's about business, generate goal revenue we double our when three probably means

Operator

the question of McCall next Global. Seaport our from comes Matt from And line

Matt McCall

supply supply you savings. so Can talked step $XX quarter, dots, maybe Andrew, you've about just now about just I'm re-envisioning all through trying is the - last Sorry. from these are footprint apologize, savings the me - more it's chain, you these all that I So, of and the - you back entire the time? had is that mentioned just $XX it one million efforts, related connect chain, walk and to expected these talked million but

Charles Rayfield

take Sure, stab is This this. I'll at Charles. a Yeah. Matt.

of office network So North the realm it review distribution and as study XX focused Obviously, cost you savings reduction we're and in of core gross as is savings The of includes our to about targeting a American noted, is around logistics primarily well margin. million activities. that competencies, as operations. annualized

related. yeah, all So it's

are that, on noted that savings of top an yes, independent be expected to are that this but CI basis. activities on have, these We annualized ongoing study, we've of

Andrew Cogan

And Matt, I would just add.

one I we're done square seeing we've all this for opportunity our and in the is all lean level ultimately started step individual freeing think costs. creating of things work, consolidation we're do is of in footage the to this lot up that more a plants. What improvement - a each the is of

some our competencies doing be robust of more we're combined, this versus ground upside retained kind we a we've what relook up inside of past quarter of all thorough what operations of taking very our can review what are, could and a done So be what could help doing what that's of really do of outside we're where, that core platform. at

all points above potential. of up XXXX XXX by about million which the took of a office of beyond to an have ground basis This of at. minimum kind of about really That's we the - that And margin generate of initiative, XXX initial we're feel is million and $XX launched, But we a of we're gross of a incremental day-to-day can at kind study, the of where based it points on year end $XX margin, good basis improvements, ongoing continuous kind very improvement So looks million $XX XXX initiative. believe incremental continuous work. talking we improvement just and which the to ongoing. improvement

Matt McCall

is XX at the a outset that the evaluation you. So gave result help the million of

Andrew Cogan

fixed little Yes. that's but things the take and by managed I a initial of our, think chunk mean, reasonable we've to we've believe kind a we've we out end a infrastructure. - out the bit of what million within we and looked $XX goal chain supply cost our annual as our reduce actually target XXXX of more, there, at assumptions

Matt McCall

of investments should how XX that, look offset million these I XX as the should way maybe it's that merely that some phased and in at to you're an then some or And improvement, guess related some think we million facing? to the - inflation of of I Go to continuous ahead.

Andrew Cogan

Yes.

of - don't think that kick should I really in and half inflation kind where no you'll of of pressures about improvement effort supply I view see 'XX 'XX, we in I not a think - personally continuous really lot the in. of the an would I I to is in as offset incremental purely think imagine back impact a in those ongoing impact as lot have 'XX, a chain would transformation and - probably changes 'XX you'll initiative.

Matt McCall

any as impact study? profitability expensive, out? the calling imagine I there but wasn't result Was on I that anything it mean of a quarter this worth

Charles Rayfield

Yeah.

that of part Matt, what restructuring was charges. So was in the

had to we so million restructuring. About related X.X that half was or So the of of study.

Andrew Cogan

will there in And QX. more be

Matt McCall

segment Okay. North Can in the ago year office in me, and comp of because what was Got the tell it. just American you lifestyle? realignment,

Andrew Cogan

comp? Which

Matt McCall

Just line growth year ago the comp, year growth? the are still having so number, we a ago top

Andrew Cogan

to Charles provide this. all happy will be

all million quarter this were office was year think in versus XXX.X but second the versus not million there I'm put XXX.X I ago this sales XXX.X we've if quarter. and lifestyle a it out mistaken, XXX.X quarter

Matt McCall

just looking at wondering got was a what We've Just that. the the ago? - year growth growth I was

Andrew Cogan

the second What and I quarter I shrunk can year tell you now. business in clearly, a of lapping the don't easiest lifestyle the comps mean, our was. ago the I year office what business we're recall is

we what little of good kind got orders more momentum bit I a So think was, done, we've challenging, but shipped. news the the exceeded it's

a actually we've the than industry backlog. quarter and solid shipment also built we better So, good had

good the news. at of think I look year, you if So the balance that's

in of KnollStudio. what probably of really Now, more is little growth, HOLLY think particularly orders, the and pop than you'll there, saw QX the but we an I see acceleration in is because a organic HUNT some in a QX, backlog office QX lifestyle

Matt McCall

for you've the margin margins me, this how just indication And given the one in for your some on of gross year? your update year expectations past, can then you thoughts last progress will

Andrew Cogan

I is I over We of would good the least basis XXX margin we gross profit we'll pleased say generate EBITDA flat. that think what feel held full that at year. Well, points relatively improvements were

the do were this margins to one environment. which that half, gross about points actually of think said with of that, a mix frankly in the we're will And in the everything, but of to we that that as EBITDA margin trend year basis think our and kind back be a line Muuto few they generate obviously, that's - will and full of of the we Muuto improvement kind is initiatives. of our and year basis were of from XX% we least we'll Knoll I organic continue helped XX% at the we beginning and - bottom at the Muuto's XX mixture up of made from where belief commitment about year points kind XXX ago

Charles Rayfield

sequential gross so Matt, CI add for been but margin this year. prior relatively inflation partially. continuing price some specifically, has compared in to see only Yeah. of to to just year offset commodities. We're has that, quarterly that, to flat

help metal we'd of and especially into we us hit January managed into have put of place half pressures as put back the some will into that CI, and forward expect the we price increases the we to July the place move some QX. the So year, we've pricing inflationary head in

Operator

from Research. next question the Thompson Kathryn [Operator Instructions] Thompson line from of comes And our

Steven Ramsey

being describe Steven if months? few and discounting in the Ramsey for on decreased increased space in that I is can This Kathryn. guess, more seeing you you last are the contract pressures or

Andrew Cogan

there. much see don't change We

Steven Ramsey

on in Okay. and only product of And they office already? full salesforce, then they Muuto taken are enlarged set selling the have the

Andrew Cogan

training full office our under product - range brought capabilities. and they're and managing obviously our as office KnollStudio, cross The to full purview extent of full then remember, and DatesWeiser, we that a our been the mentioned business large in regional managers full as set, the have sales capability of Muuto our reps I on that remarks, we

Operator

Thank at any call you. for back now to the further time, Cogan questions. And will showing I Andrew I'm remarks. this closing over no turn

Andrew Cogan

to on thank joining morning to for third forward you of end the us you look we'll speaking Well, this at quarter. and the summer

So Bye. care, everybody. take

Operator

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

Knoll (KNL) 31 Jul 182018 Q2 Earnings call transcript