Earnings call transcript Q2 2023

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Operator

Good afternoon, ladies and gentlemen. My name is Sarah, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International Second Quarter Fiscal 2023 Earnings Conference Call.

As with prior conference calls, today's call, February 2, 2023, 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 factors the forward-looking outcome can Risk Form XX-K.

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

may you begin. Juster,

Kristine Juster

Good this strong I'm our significant all afternoon, everyone, the marks margin and year-over-year quarter thank the gross drove you quarter XXX delivering expansion, in And for growth end improvement joining fourth consecutive markets, pleased basis today's share of call. points revenue we Workplace, to fiscal Health of year-over-year. XXXX, second Hospitality. in and

risks. a industry We environment and are outperform to especially the recessionary pleased ability by challenging macroeconomic continued International's despite Kimball heightened

from mid-December, After end earnings November in Workplace and we of softening our demand call, saw markets. Health a our last early through

of note in with experienced continued hybrid observed Workplace. a conversion bookings pull order a as geographic San across conversations comp dealer of December It and customers the our forward combined the an our a the New many important headwinds markets we more Through and slowdown as our major we from view in pricing taken to faced XXXX. we While actions was York regions, forming the such also with is partners, macroeconomic previous year Francisco. this pronounced in quarter this to slowdown metropolitan from strong can

be sales and activity strong. upstream funnel continues to Our

and projects several time with has increased month. many health by transaction systems weeks a to for close some average larger our cases by even that in However,

this patterns which the points. and second seen our a of markets, strategic resiliency XX% of and our and Order January December secondary believe Health XX% than during the And markets will Workplace degree, demand growth. improvement makes have well, XX to in orders outperforming throughout accelerate lesser approximately XX-month half proven to but sales by up with January provide down more downturn we year-over-year. market was up a as material return focus in has primary trailing to into Demand

turning and a up environment, a work, stay secondary wide format variety influence our to matters to year-over-year, hybrid largest XX% and second office In end market individual growth employee-centric to format. saw ancillary create require highly believe areas. markets. and categories This return is community but flexibility more community. and Turning beyond personalized the formats a on connection. workspace, filled in will ever longing to the space view and setting location, collaboration end than of offices, an place the a a increased here of and to The It a as quarter, a size highest change office office and markets hybrid servicing our will hybrid from consistent. place Workplace sales is our it is the We with

comfortable return as their office becoming to and into unique own highs, settling record work more with With new strategies. are companies hybrid defining

portfolio XX% largest comprehensive comprised to ancillary our As which trend. of is trailing this XX-month of of our from sales, manufacturers one products, benefit product the structured

X due BXB softer business performance major reliance core its markets a been model. to top has QX Poppin's heavy for metro on the

grew top than XX% and more sequentially with of offset comprise around overall more XX% incremental focus Pod this end continued than continue fourth than year-over-year. our initiatives. We our to quarter in new new for row. more sales revenue PoppinPro a XX% delivery growth And to and category

durability selling and functional Poppin both are and We this our now quarter, direct These full of provides our privacy, which through Pods ADA-compliant through Pods upgrades, array of second generation our accessibility a team. mobility, new available organization are X to sales excited Kimball also new our dealer including launch model. the Generation enhanced International

Poppin with the expand diversification brand business. and categories and Kimball to incremental at International the channels Workplace in they synergies and continue play We role Health of the and our the opportunities our within

continues XX% our HealthTrust, needs the largest and to United States, care. purchasing quality address In organizations flexibility of end facilities group in year-over-year health our key serves one maximize we Sales to which over efficiency the a Health second December, as product became the and hospitals. to market supplier of the the of of increased quarter in care adaptability effectively portfolio to X,XXX

anticipate seeing already this and with market further and traction are for significant share We to adoption results key customer gains.

key During a few and significant multi-branded specification activated and going brand-new initiatives X strategy. are industry-leading live days service portfolio excellence our and progress of operating We International customer designed made to a also go-to-market experiences, Harmony QX, capability new deliver Kimball our Workplace website. our model in on our with launched personalized full Health customer our for Perfect we ordering

insights users. shares infrastructure unified enablers our Our delivers go-to-market brands the power unleash and truly and These all experience Perfect for key new unified multi-branded distribution and Harmony a partners of across market trends our our seamless strategy. and our end

corporate company, one addition December. Indiana, in to principles the Platinum and aligns being of With guiding to is our employees create incredibly have We our our Jasper, And many for our that it our first. important our of and incredibly to safety our solutions with puts health focus certification in of advanced our people, an are headquarters we also us customers. proud well this products the in environment to status that showrooms,

both XX% and Hospitality. property and as leisure travel up drove improvement in Revenue decision-making. was increases year-over-year business to Turning

logistics quarters our very network streamlining customers. a by and our in our to in due travel. continued the We growth and belief renewed have previous end been approach and focusing demand took customer consistent the to pent-up We to in return this over driving measured market with partnering this interest on mix, rebound

of shows clear a stronger Our differentiator QX even we XX% of now further proof ramp, fiscal for into fiscal Kimball and XXXX, demand an and back anticipate in the International. XXXX bookings Hospitality increase making half of performance this year-over-year

With improvements approach, we and on position further will coming profit leadership and Kimball our drive and to focused the operational quarters margin exciting Hospitality. will the build of believe in expansion continue contribution our we

the commitment the X operational customer pre-pandemic years, our critical of Over returned improve all service and to optimize past we quarter, have end and quality in taken In lead business we reinforcing assurance, levels actions reliability, long-standing to our markets. times. to our second

model of ability expertise and is our environment. operating the grow as markets profitably quickly products changes our in strategy with ancillary combined in continue the adapt we International efficient positioned in Our XXXX. to to has second secondary multi-branded fiscal omnichannel well Kimball our continued into half to go-to-market to move proven

I Now T.J. discussion for of CFO, fiscal our of turn XXXX. remainder a the outlook a to over Wolfe, for of review call and financials will the our TJ? quarter our second

Timothy Wolfe

Thanks, afternoon, Kristie. Good everyone.

results offset profitability. quarter in was sales end Workplace, second by previous in reflect taken actions growth we line Net from the pressures. X growth inflationary over both all with top pricing of In verticals, performance Our previously the down execution decline XX% markets solid XX% partially of and Kimball the team government a year orders price. as declines International strong The benefited driven saw education partially sales particular price to were X%. and our overall offset offset increases strength approximately Workplace growth announced in volume to due was sales leading from commercial, the volume XX% by and growth. by strong

and performance health this end We Workplace Health previously orders longer attribute XX% with The are while projects X%, revenues XX% in were are grew the demand with Hospitality subject to complex volume market and XX%. revenue that Health than overall XX% offsetting more than return more up strong down health actions conversion business. volumes property in orders delays more large pricing announced of have order drove improvement declines therefore, and fact times generally of up the to year-over-year. our drop

As observed optimistic Kristie noted, during order into the already QX and that patterns nature. of cautiously a markets in end trends were late in all X make our January us temporary December

result facility excellence to combined further gross price quarter, on Throughout levels we our costs as previously and the pre-pandemic performance XX.X% reached profit as expedited operational achieved a realization optimization hard We basis XXX programs, announced running of points such expansion with and increases. overtime focus our of and of reliability. freight, year-over-year other of exceptional eliminating operational

disruptions are of chain the moderate We while certain commodities. and supply costs associated in an seeing inflation experiencing easing

successfully Our by lowered basis Driven manufacturing our adjusted operations lead are we spend products all operational SG&A of our running virtually efficiently XXX standard are SG&A and points improvements, by by points. excellence and basis XXX continued to back times.

bringing acquisition, not million charge prospects, environment are noncash As view areas, lower Poppin's our in This associated of action Kristie demand due mentioned, the does . onetime reflects X. recognized current primary carrying metropolitan a near-term major impairment goodwill $XX.X long-term the which and the with value Poppin's to markets, Poppin we have simply change it operating to

a restructuring and $X.XX $X As of $X.XX loss expenses, reported we this million million per excluding net Poppin diluted share. diluted GAAP of or we reported net of for per result $XX noncash adjusted a the income charge charge, share, or

our quarter. excellence programs with market, Our scale our our SG&A ability X.X% EBITDA performance revenues ability which operational compared higher the quarter. significantly X.X% than expanded to last million strong the is industry-leading to gross margin continue year-ago drive in year's quarter, well Xx combined totaling Adjusted $XX for the expenses to margins, comparable execute in as with to as EBITDA adjusted to also

comprised $XXX.X our now reduce in which and pre-pandemic quarter lead we backlog Workplace end of improve reliability total levels. X/X million as operational roughly is and expectations X/X our Our line to of at back Hospitality to continue with Health and times, are

ratio We we a to second covenant quarter and operating of $XX of compared levels. balance in the In the equating remain cash to sheet net below flow. debt-to-EBITDA our second end the Turning at fiscal quarter, statement. well with XXXX the in million and debt, ended X.Xx X.Xx flow to generated cash

is In our storage Indiana the an projects of improvements efficiency majority Claus, drive retrieval recently in represent our million, increase will capital that April opened addition production These capabilities metal our in our Santa warehouse investing also the automation slated system produces XXXX, which facility go totaling products. investments years. efficiency, to live at coming capacity facility, are to in X automated goods $XX case and in and approximately and which margin enhanced we to

to dividends million of the $X.X share of form capital returned We and shareowners repurchases. also in

initiatives, form in will our beginning of Working capital QX cash and in dividends return conversion have a further repurchases. impact business, reduce be needs of ease from improved an beneficial share cash Proceeds as during to shareowners are QX. additional used a the and result will and flattened reinvest to leverage have to and our which cycle

our maintain year our considering at EBITDA million, $XX Despite are to the approximately $XX demand outlook. current guidance order we of looking trends year-over-year XXXX to and January, our midpoint. the representing growth full adjusted million Now through XX% pleased environment at

to lowering to uncertain However, environment, guidance $XXX we approximately and due representing macroeconomic our are $XXX XX% growth million, to at million the the demand midpoint. revenue

gross the impressive ability deliver our give industry-leading to beginning continued clear along the adjusted you EBITDA the guided us with a margin to to fiscal at Our revenue, improvements, we of scale year. path with SG&A growth

seasonally specifically, decline a sequential as we in slowest quarter. QX expect For our revenue we enter

also market a adjusted We decline from however, contributions mix. a adverse quarter. QX of Health revenue our expect combined end modest Workplace as in in result EBITDA a anticipate the in recovery leverage do, with fourth lower and gross sequential an and of We operating strong margin impact

and capital expenditures be expect rate year for approximately range to of We million of our XX%. full XX% the full tax to year $XX are in effective planning

I remarks. call to back that, Kristie closing her turn the will With now for

Kristine Juster

you, Thank TJ.

ability over prove our and the X.X last quarters navigate Kimball strength strategy the well to to demand Our continues International and activated. short-term is and dynamics transformation Connect entrenched at X

day. employees very to care focused share we commitment operational on approach approach our expertise market our secondary a Kimball driving what and industry-leading X lead for gross International, and growing want and ancillary, end all thank I'm to focused to I our do markets, with our to optimization, at omnichannel domestic all and excellence pleased of their in gain. Our and and every margins capability meaningful progress our connected commitment

you, like today. open to the Thank us again, I joining And now call for to operator, questions. would

Operator

[Operator Instructions].

Company. Our first Benchmark question with comes from Reuben Garner

Reuben Garner

start could the to I [indiscernible] want correctly. to the sure I we it if Maybe changes understand with make

by on and of softness choppy from expectation outlook, a was that revenue in reason, experienced? much sounds a I what it that weaker things the lower is the like, that for November already kind you already is an will basis? you whatever the simply things explained fairly pullback that short-lived that outlook Because of saw So have change the already December versus be go-forward or how and in mean, recovered.

Timothy Wolfe

majority was slowest half about saw in you and up improved it so, It as Sure. the if were period December, the during I January mentioned, think of orders as significantly early noted, December. the November we we it, would quarter. And that XX% say we that back of year-over-year. the

experienced QX one what primarily QX little a bit that belief drivers maybe of biggest the corporate is more about be potentially also hold of thinking would will optimism So and I than what from the we that into that, season our think the around buying vertical. QX cautious education and resilient fact

Reuben Garner

to else? the able anticipated? the price/cost that Are you other there is range, are maintain coming manage or to spot? savings guidance And than the How you -- EBITDA to reason better same is going initiatives cost get anything you're to in

Timothy Wolfe

Reuben. Yes,

was belief faster making progress QX, expectations above that, on our as operational our initial back of higher volume leverage you realization we as think synergies. QX. coming QX into the our And then driving in is mentioned, delivery gross period the ramp you're in our in excellence initiatives, to price/cost, I really and margin faster facilities

those and that guidance margin combination in year. hold the of us gave but confidence really with performance gross to So it's we're X, EBITDA full I think QX, the the a for pleased

Kristine Juster

I'll of bit Reuben, color little a And there. add just

of we've just the changes that operational a through you lot to facility of cetera. margin. As optimization, And last gross made see et couple know, flow years, starting we're the over

margin some with that and to basis. were favorability that on pleased very of able deliver is that were we confident sustainable gross feel a So the we

Reuben Garner

side recovery helpful. of What of you Did Or exactly That's the kind very a on little went the the in than was the do And and Perfect. care Hospitality, then bit health all so surprising. kind same with January pattern think same? of care or in any was you at orders there? late see across Workplace? the in health I your all or, guess, different quarter units

Kristine Juster

Yes.

with start your Health Let vertical. me question the on

So a quarter. there's we saw lag the in doubt conversion no that in order

did activity The that very anticipated. So in right we differently activity the we delayed. and activity it closely, than that comfortable now, we feel -- operate -- that, a activity but funnel tracking some that the is little is still are of

Just pre-pandemic to Health remind you, achieve the for was first vertical to the levels vertical actually us.

our in time, that we change that are slow down to this at And perspective important seeing is have so of we no some vertical but point to on how us.

on on to of is seeing And are a Fed kind progress X both the our that I'll comment those for there to new the the the business new will just opened you be to in of we And just be to important maybe future. GPO critical things well TJ, us. as HealthTrust up of the One as Gov us. want we're Hospitality? pieces and like comment the we continues part business that really growth

Timothy Wolfe

Yes.

same its softness properties. of think the did this, Was recovery more can for Just investment what in investment is in at thereby, standpoint, in continuing but to concerns point and Feds anxiety I these But in recessionary we cumulative for think on we levels to about period a in that talk rates hikes, mentioned Workplace certainly cycle of the in our macro we occupancy commitment we and a during still more trying and different slower more allowing all and think the to improve by period that customers. the rate and some higher about Hospitality hospitality Hospitality, room a believe look decision-making from if Reuben, we period. QX, than back and did around that Health was you drove effect you but it see and Hospitality I

Operator

Company. with comes next Greg & from Our question Burns Sidoti

Gregory Burns

I the EBITDA were there just have than much start EPS of just EBITDA But like kind with wanted to me a like in bridge would lower going Can and tax strange the the earnings implied. between the EPS? like quarter. rate it you looks what just on. seemed was It

Timothy Wolfe

Greg. Sure,

the amount think same And similar an roughly we of we of had previous Poppin tax the the issues when the impairment about goodwill in mentioned, one rate. impact things one is of effect goodwill take out the in of impairment quarter the earnings we year. the So a that you that so is for have we goodwill, had When you not net purposes, that, positive have tax a and you deductible would negative item the income. have of

that's not purposes. However, reflected for tax

actually on you So expense a a have book loss. tax

you and number impairment, you look to which rate, we've numbers goodwill we XX% guidance when the case. -- adjusted is get will of tax effective what and out seen that normal year full full my year to in look how the you that When And the XX%. that's you strip heard back at at a

you was a we in Reuben, Also to, Greg, that year, -- the prior if year, the a Poppin. to in by when was you amount, reduction back the had earn-out look the prior sorry, impairment associated offset partially if with that although similar

prior things were in a year the versus couple current. there of different the So happening

Gregory Burns

volume of versus of about like is there to orders, Okay. but look And when of give could it, did like have trying but mix driven? I missed at how guidance is the what before, full a then XX% in in then -- for kind year up, you were was of much volume you don't terms for And revenue the we price? -- much terms growth, just the you volume of the kind I assumption how talking I keep metrics mention might

Timothy Wolfe

and -- the on volume the disaggregated Yes. We price. didn't we sales sales numbers,

a XX%. down sales decline X%, was do were in orders. volume for obviously didn't We down the that from price Workplace those orders And in numbers. there Health Health X%. benefit So was was XX%, Workplace

have we believe mentioned, we the inflation pricing with remainder you the market. those at year, that put in up when the I need as the all already of actions look to are we keep think we

half of So mathematically price the will the benefit over the back year. fade of

is you second we volume get will look about a flat year-over-year more what thought that have to half. the So into where your place

right? you year. versus very the think things depths Greg, of at think now, one the last wave this were of addressing, is If And prior in much variant the this we about, time the QX comps we're year, the to Omicron about quarter the

half easier And little so than half, the second volume when perspective, are half. the the in think second comps the in different. bit From our in you first a fiscal about they a year of

all into But price to that still but taking the we're certainly, account. and second half that over will unit So driven, stabilize. begin fade will levels volume

Gregory Burns

And if then because revenue Poppin. half of initiatives is Okay. terms you How of in business the more half or revenue is it bought when much below from new the revenues that the since you it. like it, sounds coming bought than like

much how core So that still business is down?

Timothy Wolfe

Yes.

directionally what entire I you I it's say business, would look kind the core markets think down. you if BXB on of down see unit volume a metro the industry at would or the major

you of Pods, growth the well say the the XX%, in those what major But is that's secondary sale as Poppin magnitude Pro, So market. are new, direct the metro point, your which but which markets is down. could to through in something Poppin a there

San more the footprint I secondary speaks I into our Francisco. Pro effect Poppin's through to is So think growth. and it into longer-term diversify additional that markets, feeling And It's just certainly, desire New path a think to I expansion. to product major But back the of that, Poppin's channel a belief our play. also think Poppin have the does York, metros,

Kristine Juster

it's market reliant overall it's in markets, just than seeing. Poppin And add metropolitan the more different I would is the but performance on no Greg, markets, metropolitan the what

Gregory Burns

Got Yes. it.

Okay.

down that can how might what that versus you initiatives? areas seeing you the initiatives? flat? BXB like considered new new Poppin I is when maybe growth Like So new from guess, growth I Poppins maybe legacy even the much with you revenue, bifurcate is the Or are legacy versus, core -- it be revenue. still And equaling guess,

Timothy Wolfe

to it is stagnation secondary near other more we're Greg, there, if areas, I which certainly Yes, believe have of at But think think but about grow I of is you investment think towards term, room pushed I office, at -- appreciate trying metros, Pro some what from we in the is, the that to hand, these offline. again, you a with of kind -- level to has our and there's to in we're back major Pod. to return don't split that if have I get

we So a or can I by don't have channel I the numbers look kind of product bifurcated can that. but category -- now, right at take

Kristine Juster

Greg, of struck things channel to kind where going agnostic we're Poppin the grow is of as see you'll one order that as the to forward, to. goes we

will KI the So they the they're the you user, make the ones the when it organization decision as is model. to who the whether Poppin to end through selling think buy direct dealer, about want which or

start And brand so channel now. doing that But right all work International. and integrated fully we're that become to will that opportunity throughout Kimball

Operator

Instructions]. [Operator

question from next Henderson with Our Research. Water comes Tower Rexford

Rexford Henderson

couple I had of questions. a

on all, of congratulations First gross really performance. the strong margin

You components margin of some gross gave improvement. that

into where understand you can of margin how components. we going some that's of the kind in on came out X goes kind X break us future. that Can improvement you kind the achieve the of color future? of you each gross where Can from of give much how So those that

Timothy Wolfe

Sure, Rex.

then in moderations year. savings. put in think of being of the this would you versus just specifics, an little order of in about like operational will third certainly bit I mix an to example, I being magnitude, think think and but first would I income after all really number a in for be was be on think then And overall -- product, LIFO think in the excellence the item kind other leverage, price, talk it if at I and how expense look list. things we actual inflation, X a comprised realization And prior I of whether price I can was BU be sort the it's quarter bucket

excellence and all of then way, price below say would there. I others a certainly operational leading the combination So

a think cost we So absent in the sustainability that of gap say about closed to. trajectory we the I would when the that price desired that, had you change have of think inflation, we

would we in further. to so And immediate actions pricing the the half, incremental but close price back see now no realization necessary gap

Rexford Henderson

looking the excellence, the couple of improvement there but next pricing juice operational can fade operational forward, Then to we excellence expect quarters, to there? Okay. is kind the to more due of in over Health

Timothy Wolfe

Rex, approximately Yes, commissioned would example we our investments, then automation these investment $X And of our April. to $X [indiscernible] is. there be million facility the mentioned when in capital metal million, even until that isn't

still we be Claus So And will storage before retrieval commissioned. that's our the automated in that year. following the have in X months and system facility, Santa fiscal commissioned

operational So have a we benefit lot of but excellence kind some still investments, more from can classic from manufacturing is also it lean ways of and of working. like these just a that capital of feel that things lot come we

Rexford Henderson

Okay.

me some extremely entail can the second -- naive is really that tax The still rate was very a given tax a -- but so Excuse topic little was give was little $X high, high, high. adjusted that understand bit million the accounting, high. write-off I the not address expense tax of seemed I about of my even the rate, a you was which wanted tax to tax deductible, why but number bit breakout

Timothy Wolfe

No, absolutely, Rex. Yes.

things lot that I for year, to the of item. the a or tax indicated tax rate than negative higher you well. impairment as was after these even a But an the do expense as GAAP effective rate. tax as was non-GAAP a discrete and that would be can be But rate like on with whether rate our adjustments the accounting treatment, mentioned, has tax you goodwill full topic this the a loss, as are nondiscrete treated off-line maybe mentioned, which a So

So And gets you'll what a that is over going the that tax quarter happens out is remainder that the of of or tax over the see effect, what the it impact of be is the year. X spread spread following months. impact to captured in

that year I of But XX% the into will XX%. And rate indicated our so talk to full [indiscernible]. to it about more roughly normalize offline happy non-GAAP

Rexford Henderson

the And from the How do that a helps. later. talk then of number we'll little tax That's course that where that I over rate was get XX% tax a going. you And to big more year? about

a your the and from continuing some to -- the I'm think you dividends return on holders last I the capital over me continued you congratulate of going Finally, of very important. equity, do year And buybacks couple give perspective is you from -- of environment Can years. the to in into color where over of next? a that's difficult remainder this and on

Timothy Wolfe

Sure. think that's and effective of to very an team Rex, talked and is before, we've management allocation capital. our I important diverse

we've want back in So we year. certainly shown this million that business, with CapEx to $XX invest in our

you at trailing XX throughout been is now As leverage the months level mentioned, net we've And we've entirety X.Xx, dividend our of decrease able maintained the sustainable debt-to-EBITDA. to our pandemic. more to what a much

the places investment our continued about I in going business. to allocate where it's think you future, think if we're in certainly So

continue it thinking for the , think about our expand the And I also our now like leverage where as is -- but where to in to at capabilities. us M&A. to share looking we opportunities look market be at repurchase, we'd

think best would the balanced return. is capital we I a consistent and talk what So to about allocation generate of

Operator

to concludes This question-and-answer now the session. remarks. to any Kristie our I would turn conference Juster for like over closing back

Kristine Juster

and for Have Thank evening, to Well, Thank Sarah. very a you. thank look joining our future. the wonderful progress much evening. you, sharing in our call this we you, forward everyone,

Operator

Thank has for attending conference concluded. now The today's presentation. you

disconnect. now may You

Kimball International (KBAL) 2 Feb 232023 Q2 Earnings call transcript