herman miller, inc....inspiring designs to help people do great things . 1923 traditional...
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Herman Miller, Inc. Investor Presentation Third Quarter FY2013
NASDAQ: MLHR
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, 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 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.
2
Forward Looking Statements
Inspiring designs to help people do great things
1923 Traditional Residential
1930’s – 40’s Modern Furniture
1950’s – 60’s Authored Design
1970’s – 80’s Systems Furniture
1990’s Ergonomic seating and storage
2000’s – Today Herman Miller Performance System
Future Shift Strategy
4
$1,214
$371
$168
Segment Sales Q3’13 YTD Annualized ($ millions)
North America
Non-North America
Specialty & Consumer
North American Furniture Solutions Non-N.A. Furniture Solutions Specialty & Consumer
5
Estimated Market Size ($ billions)
N.A. Contract
European Contract
Emerging Markets
Health/Educ/Hosp.
Consumer/SMB/Textiles
$7 - $9 (3)
$9 (2)
$4 (3)
$5 (3)
$9.5 (1)
Source: (1) The Business and Institutional Furniture Manufacturers Association; (2) 2012 CSIL Market Research; (3) Company estimate 6
Leading economic indicators include: – Corporate profitability – Service sector employment levels – Nonresidential construction activity – Office vacancy rates – Architectural billing activity (ABI) – CEO & small business confidence
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
North American Office Furniture Orders ($ millions)
100
105
110
115
120
Jan-
03Se
p-03
May
-04
Jan-
05Se
p-05
May
-06
Jan-
07Se
p-07
May
-08
Jan-
09Se
p-09
May
-10
Jan-
11Se
p-11
May
-12
Jan-
13
Service Sector Employment (million workers)
404244464850525456
Mar
-11
May
-11
Jul-1
1
Sep-
11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov
-12
Jan-
13
U.S. Architecture Billings Index
Category 2013 2014
Nonresidential Total +5.0% +7.2%
Commercial +8.6% +10.7%
Office +7.3% +11.4%
AIA Consensus Construction Forecast (% YOY Growth)
Source: U.S. Bureau of Labor Statistics Source: The American Institute of Architects Source: The American Institute of Architects
Source: The Business and Institutional Furniture Manufacturers Association
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2013
For
ecas
t
$1,630
$1,319
$1,649 $1,724 $1,753
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
1
Net Sales ($ millions)
$92 $99
$89 $90
$103
$0
$20
$40
$60
$80
$100
$120
Operating Cash Flow ($ millions)
9.3%
5.2%
6.7%
8.3% 8.0%
3%
4%
5%
6%
7%
8%
9%
10%
FY09 FY10 FY11 FY12 FY13(ann.)
Adj. Operating Margin(1)
% Net Sales
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation.
FY09 FY10 FY11 FY12 FY13 (ann.)
FY09 FY10 FY11 FY12 FY13 (ann.)
8
$193
$135 $142
$172
$198
$0
$50
$100
$150
$200
$250
Cash Position ($ millions)
$306
$281
$150
$107 $94
$0
$50
$100
$150
$200
$250
$300
$350
Net Debt (1)
($ millions)
$19
$5 $5 $5
$29
$0
$5
$10
$15
$20
$25
$30
$35
1
Dividends Paid ($ millions)
(1) Defined as interest bearing debt and GAAP unfunded pension liabilities less cash; (2) Represents the most recently announced quarterly dividend rate annualized
FY09 FY10 FY11 FY12 FY13 (Q3)
FY09 FY10 FY11 FY12 FY13 (Q3)
FY09 FY10 FY11 FY12 Curr. Rate
(2)
9
We are shifting our business model to focus on: 1. Increasing the size of our addressable market 2. Faster growing segments driven by demographics 3. Higher margin products
Office Everywhere
NA-centric Global
Industry Industry + Consumer
Contract Omni Channel
11
New Products
51.2 45.7 40.5 45.8 52.7
2.5%
2.8%
3.1%
2.8%
3.1%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
$0
$10
$20
$30
$40
$50
$60
2008 2009 2010 2011 2012
We consistently exceed our goal of deriving >20% of revenue from new products introduced within the past 4 years
Design & Research Expenditures ($ millions; % sales)
12
Customer Segments
New Products
13
Customer Segments
Specialty & Consumer
New Products
14
Customer Segments
New Products
Global Footprint
Specialty & Consumer
1. POSH Acquisition
3. Targeted Investments
15
2. Regional Product Development
New Products
Customer Segments
Global Footprint
Brand & Channel
Specialty & Consumer
16
Contract Magazine Brand Report 2012(1)
#1 Herman Miller #2 Knoll #3 Steelcase
(1) Contract Magazine Brand Report, December 2012,“When thinking about brands that inspire you to create your best commercial design solutions, what are the top three companies that come to mind?”
$990 $1,225 $1,219
$1,756
$1,430
$223
$290 $347
$540
$106
$134 $158
$220
$0
$500
$1,000
$1,500
$2,000
$2,500
FY10 Actual FY11 Actual FY12 Actual FY13 Consensus FY15 Target
S&CNon-NANorth America
Net Sales ($ millions)
FY12-FY15 CAGR GOALS BY SEGMENT:
N. America… 5% Non-N.A… 16% S&C… 12%
$1,319
$1,649 $1,724
$2,190
$1,756 (1)
(1) Average based on estimates reported by Raymond James & Associates (3/22/13),Sidoti & Company LLC (3/21/13), and Longbow Research (3/22/13) 17
$114
$154 $184
$272
$0
$50
$100
$150
$200
$250
$300
FY10 Actual FY11 Actual FY12 Actual FY15 Target
Adjusted EBITDA(1)
($ millions)
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation. 18
22%
29% 16%
18%
8%
7%
Key Investments (FY13-FY15) Estimated Total $240M – $260M (% Allocation)
Global Footprint
New Product Commercialization
Mfg. Capability and Upgrades
Brand Marketing
Channel and Sales Structure
Information Technology
19
Our strategy will require targeted investments through FY15
5.2%
6.7%
8.3% 8.0% (2)
10.0%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
FY10 Actual FY11 Actual FY12 Actual FY13 Consensus FY15 Target
Adjusted Consolidated Operating Income(1)
(% sales)
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation. (2) Average based on estimates reported by Raymond James & Associates (3/22/13), Sidoti & Company LLC (3/21/13), and Longbow Research (3/22/13)
Targeted Improvement Bridge
FY12 Actual 8.3%
FY15 Target 10%+
≈1%
≈0.4%
≈0.3%
Volume Leverage
Performance Improvements
Product Mix
20
$0
$100
$200
$300
$400
$500
Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13
$421 $450 $442
$424 $444 $452 $476
$382
Quarterly Net Sales & Orders ($ millions)
Net Sales
Orders
$115 $115
$130
$117
$105
$110
$115
$120
$125
$130
$135
Quarterly Operating Expenses ($ millions) Q4 FY12
Q1 FY13
Q2 FY13
Q3 FY13
35.7% 33.3% 33.6% 34.1%
8.4% 8.4% 8.4% 7.4%
0%
10%
20%
30%
40%
50%
Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13
Gross Margin and Adj. Operating Income % (1)
(% net sales) GrossMargin %
Adj.OperatingIncome %
Q3 net sales increased 6% from the prior year; orders also up 6%.
Favorable product & channel mix and strong labor management helped drive Q3 gross margin above Company expectations coming into the quarter. Gross margin in the third quarter reflects a 20 basis-point reduction from legacy pension expenses.
Operating expenses in Q3 and Q2 include $3 million and $18 million, respectively, of expenses relating to legacy domestic pension plans.
EPS in Q3 totaled $0.28 per share, or $0.32(1) adjusted for legacy pension expenses recognized in the period. This adjusted earnings performance represents a 23% increase over the same quarter in FY 2012.
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation. 22
Appendix
Recent Operating Performance
$8
$29
$19
$30
$0
$5
$10
$15
$20
$25
$30
$35
Quarterly Cash Flow from Operations ($ millions) Q4 FY12
Q1 FY13
Q2 FY13
Q3 FY13
1.4 1.4 1.5 1.4
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Rolling 4Qtr Leverage Ratio (Debt to EBITDA(1)) Q4 FY12
Q1 FY13
Q2 FY13
Q3 FY13
10.5 10.5 10.5 10.9
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
Rolling 4Qtr Coverage Ratio (EBITDA(1) to Interest) Q4 FY12
Q1 FY13
Q2 FY13
Q3 FY13
Q3 Ending Cash and Investments of $208 million.
LT Debt maturity schedule:
– PPN ($50M) due 2015 – PPN ($150M) due 2018 – PPN ($50M) due 2021
CAPEX totaled $10 million in Q3; $39 million YTD. Total FY13 CAPEX estimated to range between $50 million and $55 million.
Dividends paid in Q3 ($5 million); recently announced increase to $0.125 per share, per quarter.
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation. 23
Bank Covenant < 3.5
Bank Covenant > 4.0
Appendix
Debt & Liquidity Profile
Appendix
Reconciliation of Non-GAAP Measures
This presentation contains Adjusted Operating Earnings as a percentage of net sales (Adjusted Operating Earnings %), Adjusted EBITDA, Adjusted EBITDA ratios, and Adjusted Earnings per Share, all of which constitute non-GAAP financial measures. Each of these financial measures is calculated by excluding items the Company believes are not indicative of its ongoing operating performance. The Company presents these non-GAAP financial measures because it considers them to be important supplemental indicators of financial performance and believes them to be useful in analyzing ongoing results from operations. These non-GAAP financial measures are not measures of financial performance under GAAP and should not be considered alternatives to GAAP. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP. In addition, you should be aware that in the future the Company may incur expenses similar to the adjustments presented.
24
Appendix
Reconciliation of Non-GAAP Measures
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Table IHerman Miller, Inc.Reconciliation of Non-GAAP MeasuresAdjusted Operating Earnings %($ millions; percents represent % of net sales); (unaudited)
FY09 FY10 FY11 FY12YTD Q3'13
(ann.) Q4 FY12 Q1 FY13 Q2 FY13 Q3 FY13Net Sales 1,630.0$ 1,318.8$ 1,649.2$ 1,724.1$ 1,753.3$ 420.7$ 449.7$ 441.8$ 423.5$
Operating EarningsOperating Earnings (GAAP) 122.8$ 53.6$ 123.3$ 137.6$ 105.6$ 29.8$ 34.3$ 17.5$ 27.4$ Operating Earnings (%) 7.5% 4.1% 7.5% 8.0% 6.0% 7.1% 7.6% 4.0% 6.5%Add: Restructuring Expense 28.4 16.7 3.0 5.4 1.6 5.4 0.5 0.7 - Add: Debt Tender Offer Settlement Charges - 4.5 - - - - - - - Less: Adjustments to Nemschoff Contingent Consideration - (6.4) (15.1) - - - - - - Add: Post-Tranisition Pension NPBC/Settlements - - - - 32.7 - 3.1 18.8 4.0 Adj. Operating Earnings (non-GAAP) 151.2$ 68.4$ 111.2$ 143.0$ 139.9$ 35.2$ 37.9$ 37.0$ 31.4$ Adj. Operating Earnings (%) 9.3% 5.2% 6.7% 8.3% 8.0% 8.4% 8.4% 8.4% 7.4%
Appendix
Reconciliation of Non-GAAP Measures
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Table IIHerman Miller, Inc.Reconciliation of Non-GAAP MeasuresAdjusted EBITDA and Adjusted EBITDA Ratios($ in millions); (unaudited)
Adjusted EBITDA RatiosTrailing 4-Quarter Period EndedQ4 FY12 Q1 FY13 Q2 FY13 Q3 FY13 2010 2011 2012
Earnings Before Income Taxes (EBT) 119.5 112.7 90.2 91.8 34.8$ 102.5$ 119.5 Add: Depreciation 34.4 34.4 34.3 34.4 39.6 36.3 34.4 Amortization 2.9 2.9 3.0 3.1 3.0 2.8 2.9 Interest 17.5 17.3 16.9 17.0 21.7 19.9 17.5 Other Adjustments (1) 9.7 13.7 33.6 38.9 15.2 (7.3) 9.7 Adjusted EBITDA 184.0$ 181.0$ 178.0$ 185.2$ 114.3$ 154.2$ 184.0$
Total Debt, End of Trailing Period 259.8$ 257.7$ 260.1$ 257.7$
Rolling 4-Quarter Debt-to-Adj. EBITDA 1.4 1.4 1.5 1.4
Rolling 4-Quarter Adj. EBITDA-to-Interest 10.5 10.5 10.5 10.9
(1) "Other Adjustments" include, as applicable in the period, non-cash stock based compensation expenses, charges associated w ith business restructuring initiatives, changes in the value of the contingent consideration components of the Nemschoff purchase price, pro-forma income statement adjustments associated w ith Nemschoff, as permitted under lender covenant arrangements, and charges and credits associated w ith the company's planned termination of its domestic defined benefit pension programs.
Fiscal YearAdjusted EBITDA
Appendix
Reconciliation of Non-GAAP Measures
27
Table IIIHerman Miller, Inc.Reconciliation of Non-GAAP MeasuresAdjusted Earnings per Share($ per share); (unaudited)
Quarter Ended 3/2/13
Earnings per Share - Diluted 0.28$ Add: Legacy Pension Expenses 0.04 Adjusted Earnings per Share - Diluted 0.32$