GlobeNewswire Inc | Feb 4, 2021 04:05PM EST

February 04, 2021

--Completed Poppin Acquisition on December 9, 2020 and Integration Progressing on Schedule---Port Congestion Delays Reduced Second Quarter Revenue by $6 million---Sequential Improvement in Both Health and Workplace Order Rates---Continued Channel and New Product Development to Position for the New Work Environment---On Track to Achieve $20 Million in Cost Savings in Fiscal 2021--

JASPER, Ind., Feb. 04, 2021 (GLOBE NEWSWIRE) -- Kimball International, Inc. (NASDAQ: KBAL) today announced results for the quarter ended December31, 2020.

Selected Financial Highlights:

Second Quarter FY 2021

-- Net sales of $136.2 million -- Gross margin was 33.4% -- Net loss of $0.8 million includes $4.1 million of acquisition and restructuring charges -- Diluted EPS of $(0.02), or $0.09 when adjusted for $0.11 of acquisition and restructuring charges -- Adjusted EBITDA of $9.1 million -- Backlog of $144.9 million

Management Commentary

CEO Kristie Juster commented, In the second quarter, we made significant progress on our strategy to emerge from the COVID health crisis as a stronger company highlighted by our acquisition of Poppin. We continued to execute on our Connect 2.0 strategy, which has created additional opportunities to gain share in our target end markets and accelerate our long-term growth. Additionally, Poppin, which brings us a digitally native platform that we can leverage across our portfolio of brands, has greatly advanced Kimball Internationals eBusiness strategy.

Business trends unfolded in line with our expectations in the second quarter. Our Health business posted double-digit sequential growth in revenue and order rates, supporting our thesis that this market would be the first to recover from the impact of COVID-19. Our Workplace business also showed sequential improvement in order rates, although at a more modest rate, benefiting in part from Kimball Internationals significant presence in secondary markets, which are rebounding more quickly than large metropolitan areas.

Second quarter revenue was reduced by approximately $6 million due to port congestion delays that pushed out shipments in our Hospitality end market. Additionally, we managed through considerable gross margin headwinds in the second quarter with transformation cost savings of $6.1 million and price realization offsetting part of the impact of lower volumes and significantly higher ocean and domestic freight costs. We announced price increases within our Workplace and Health product lines, effective March 1, 2021 to help offset a portion of the higher freight and commodity costs that we expect to continue for the remainder of this fiscal year.

Kimball Internationals first half fiscal 2021 performance demonstrated continued resilience while operating under difficult business conditions. The resurgence of COVID-19 has extended the timing of a recovery in the Workplace end market, and higher logistics expenses and inflationary impacts have pressured margins. We continue to effectively navigate this challenging business environment by making significant progress in reducing our long-term cost structure while focusing on building our growth initiatives around brands and products across our new omnichannel platform.

Overview

Second Quarter Fiscal 2021 Results

Consolidated net sales were $136.2 million, down 29% from $192.2 million in the year ago quarter. Organic net sales were down 31% compared to the prior year. Gross margin declined by 60 basis points to 33.4%, mainly resulting from higher domestic and ocean freight costs and loss of leverage on the lower revenue, which more than offset transformation plan benefits. Selling and administrative expenses (S&A) of $46.0 million declined $3.8 million compared to the prior year; however, as a percentage of net sales, S&A expenses were 33.7%, compared to 25.9% in the same quarter a year ago. Adjusted selling and administrative expenses were $40.7 million or 29.9% of net sales, compared to $48.8 million or 25.4% of net sales in last years second quarter. The net loss was $0.8 million, or ($0.02) per diluted share, compared to earnings per diluted share of $0.30 reported in the fiscal 2020 second quarter. Adjusted earnings per share, which excludes acquisition- and restructuring-related charges of $0.08 and $0.03, respectively, was $0.09, compared to $0.33 last year. Adjusted EBITDA decreased 56% to $9.1 million, and adjusted EBITDA margin declined 420 basis points to 6.7%.

The Company ended the second quarter in a strong financial position, with $41.2 million in cash and short-term investments and a net debt to adjusted EBITDA ratio of approximately 0.7, inclusive of the recorded liability for the earn-out payments related to the Poppin acquisition.

Net Sales by End Market Three Months Ended Six Months Ended (Unaudited) December 31, December 31, (Amounts in 2020 2019 % 2020 2019 %Millions) Change ChangeWorkplace $ 87.4 $ 114.4 (24 %) $ 182.7 $ 240.1 (24 %)Health 27.0 28.2 (4 %) 47.6 57.1 (17 %)Hospitality 21.8 49.6 (56 %) 53.8 96.4 (44 %)Total Net $ 136.2 $ 192.2 (29 %) $ 284.1 $ 393.6 (28 %)Sales

Summary and Outlook

With the acquisition of Poppin complete, we are moving forward with our stage one priorities, notably scaling Poppin in secondary markets where Kimball International is well-established, launching Poppin privacy pods into our existing dealer network, building work from home and corporate partnerships for Poppin and our Etc. brand, and developing a complementary Poppin Pro Dealer Program.

At the same time, we are making investments in our Health business, where we have expanded our expertise with strategic hires and plan to launch six new clinical products by the end of fiscal 2021. In Hospitality, we continue to partner closely with our customers in navigating both the impact of the pandemic and the temporary impact of higher freight costs.

Post pandemic, what we knew as the office will change into an exciting hybrid workplace. The office will be the center for collaboration, community and culture; the home will be an extension of work; and new, smaller office formats will emerge in satellite offices in secondary markets. Our deep knowledge in residential design, our multi-brand portfolio and new omnichannel capabilities will enable us to access each end market in the broader new workplace.

Looking ahead, we expect third quarter organic revenue to be similar to second quarter levels based on our backlog of $144.9 million, of which approximately $80 million is expected to ship in the third quarter. While freight costs are expected to further pressure fiscal third quarter gross margin, we anticipate a sequential increase in gross margin in the fourth quarter as price increases materialize and clarity around the new forming workplace begins to take shape, Ms. Juster concluded.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a companys financial performance that excludes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP) in the United States in the statements of income, statements of comprehensive income, balance sheets, or statements of cash flows of the Company. The non-GAAP financial measures used within this release are (1) organic net sales, defined as net sales excluding acquisition-related net sales; (2) adjusted selling and administrative expense; (3) adjusted EBITDA; (4) adjusted operating income; (5) adjusted net income; and (6) adjusted diluted earnings per share. Adjusted operating income, adjusted net income, and adjusted diluted earnings per share each exclude restructuring expense, CEO transition costs, acquisition-related amortization and inventory valuation adjustments, and costs of the acquisition from the GAAP income measure. Adjusted selling and administrative expense excludes market value adjustments related to the SERP liability, CEO transition costs, acquisition-related amortization, and costs of acquisition from the GAAP income measure. Additionally, adjusted operating income excludes market value adjustments related to the SERP liability. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation expense, amortization expense, restructuring expense, CEO transition costs, acquisition-related inventory valuation adjustments, and costs of acquisition. A reconciliation of the reported GAAP numbers to the non-GAAP financial measures is included in the Reconciliation of Non-GAAP Financial Measures table below. Management believes that Adjusted EBITDA and other metrics excluding restructuring expense, CEO transition expenses, market value adjustments related to the SERP liability, and acquisition-related adjustments are useful measurements to assist investors in comparing our performance over various reporting periods on a consistent basis by removing from operating results the impact of items that do not reflect our core operating performance.

The orders received metric is a key performance indicator used to evaluate general sales trends and develop future operating plans. Orders received represent firm orders placed by our customers during the current quarter which are expected to be recognized as revenue during current or future quarters. The orders received metric is not intended to be presented as an alternative measure of revenue recognized in accordance with GAAP.

Forward-Looking Statements

This document may contain certain forward-looking statements about the Company, such as discussions of Companys pricing trends, liquidity, new business results, expansion plans, anticipated expenses and planned schedules. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These statements generally can be identified by the use of words or phrases, including, but not limited to, intend, anticipate, believe, estimate, project, target, plan, expect, setting up, beginning to, will, should, would, resume or similar statements. We caution that forward-looking statements are subject to known and unknown risks and uncertainties that may cause the Companys actual future results and performance to differ materially from expected results including, but not limited to, the possibility that any of the anticipated benefits of the transaction between the Company and Poppin will not be realized or will not be realized within the expected time period; the risk that integration of the operations of Poppin with the Company will be materially delayed or will be more costly or difficult than expected; the effect of the announcement of the Poppin transaction, including on customer relationships and operating results; the risk that any projections or guidance by the Company, including revenues, margins, earnings, or any other financial results are not realized; adverse changes in global economic conditions; successful execution of Phase 2 of the Company restructuring plan; the impact on the Company of changes in tariffs; increased global competition; significant reduction in customer order patterns; loss of key suppliers; loss of or significant volume reductions from key contract customers; financial stability of key customers and suppliers; relationships with strategic customers and product distributors; availability or cost of raw materials, components and freight; changes in the regulatory environment; global health concerns (including the impact of the COVID-19 outbreak); or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of the Company are contained in the Companys Form 10-K filing for the fiscal year ended June30, 2020 and other filings with the Securities and Exchange Commission.

Conference Call / Webcast Date: February 4, 2021Time: 5:00 PM Eastern TimeDial-In #: 844-602-5643 (International Calls - 574-990-3014)Pass Code: Kimball

A webcast of the live conference call may be accessed by visiting Kimball Internationals Investor Relations website at www.ir.kimballinternational.com.

For those unable to participate in the live webcast, the call will be archived at www.ir.kimballinternational.com within two hours of the conclusion of the live call.

About Kimball International, Inc.

For 70 years, Kimball International has created design driven furnishings that have helped our customers shape spaces into places, bringing possibility to life by enabling collaboration, discovery, wellness and relaxation. We go to market through our family of brands: Kimball, National, Interwoven, Etc., Kimball Hospitality, Dstyle by Kimball Hospitality and Poppin. Our values and high integrity are demonstrated daily by living our Purpose and Guiding Principles that establish us as an employer of choice. We build success by growing long-term relationships with customers, employees, suppliers, shareholders, and the communities in which we operate. In fiscal year 2020, the company generated $728 million in revenue and employed over 2,800 people. To learn more about Kimball International, Inc. (KBAL), visit www.kimballinternational.com.

Financial highlights for the second quarter ended December31, 2020 are as follows:

Condensed Consolidated Statements of Income(Unaudited) Three Months Ended(Amounts in Thousands, December 31, 2020 December 31, 2019except per share data)Net Sales $ 136,197 100.0 % $ 192,164 100.0 %Cost of Sales 90,648 66.6 % 126,823 66.0 %Gross Profit 45,549 33.4 % 65,341 34.0 %Selling and 45,967 33.7 % 49,719 25.9 %Administrative ExpensesRestructuring Expense 1,616 1.2 % 1,396 0.7 %Operating Income (Loss) (2,034 ) (1.5 %) 14,226 7.4 %Other Income, net 1,409 1.0 % 1,185 0.6 %Income (Loss) Before (625 ) (0.5 %) 15,411 8.0 %Taxes on IncomeProvision for Income 213 0.1 % 4,372 2.3 %TaxesNet Income (Loss) $ (838 ) (0.6 %) $ 11,039 5.7 % Earnings (Loss) Per Share of Common Stock:Basic $ (0.02 ) $ 0.30 Diluted $ (0.02 ) $ 0.30 Average Number of Total Shares Outstanding:Basic 36,962 36,921 Diluted 36,962 37,221

(Unaudited) Six Months Ended(Amounts in Thousands, December 31, 2020 December 31, 2019except per share data)Net Sales $ 284,141 100.0 % $ 393,616 100.0 %Cost of Sales 186,236 65.5 % 257,905 65.5 %Gross Profit 97,905 34.5 % 135,711 34.5 %Selling and Administrative 87,654 30.9 % 100,633 25.5 %ExpensesRestructuring Expense 5,856 2.1 % 5,746 1.5 %Operating Income 4,395 1.5 % 29,332 7.5 %Other Income, net 2,226 0.8 % 1,770 0.4 %Income Before Taxes on 6,621 2.3 % 31,102 7.9 %IncomeProvision for Income Taxes 2,073 0.7 % 8,679 2.2 %Net Income $ 4,548 1.6 % $ 22,423 5.7 % Earnings Per Share of Common Stock:Basic $ 0.12 $ 0.61 Diluted $ 0.12 $ 0.60 Average Number of Total Shares Outstanding:Basic 36,968 36,929 Diluted 37,465 37,274

(Unaudited) Condensed Consolidated Balance Sheets December 31, June 30, (Amounts in Thousands) 2020 2020 ASSETS Cash and cash equivalents $ 39,720 $ 91,798 Short-term investments 1,505 5,294 Receivables, net 54,759 68,365 Inventories 60,199 49,857 Prepaid expenses and other current assets 17,504 16,869 Assets held for sale 0 215 Property and Equipment, net 90,028 92,041 Right of use operating lease assets 18,072 16,461 Goodwill 82,958 11,160 Other Intangible Assets, net 68,041 13,949 Deferred Tax Assets 12,854 7,485 Other Assets 18,460 12,773 Total Assets $ 464,100 $ 386,267 LIABILITIES AND SHAREHOLDERS? EQUITY Short-term debt $ 40,000 $ 0 Current maturities of long-term debt 1,282 27 Accounts payable 42,268 40,229 Customer deposits 28,965 19,649 Current portion of operating lease liability 6,601 4,886 Dividends payable 3,580 3,454 Accrued expenses 31,726 41,076 Long-term debt, less current maturities 1,331 109 Long-term operating lease liability 15,527 16,610 Contingent earn-out liability 31,790 0 Other 17,018 15,431 Shareholders? Equity 244,012 244,796 Total Liabilities and Shareholders? Equity $ 464,100 $ 386,267

Condensed Consolidated Statements of Cash Flows Six Months Ended(Unaudited) December 31,(Amounts in Thousands) 2020 2019Net Cash Flow provided by Operating Activities $ 24,521 $ 13,402 Net Cash Flow used for Investing Activities (105,774 ) (6,747 )Net Cash Flow provided by (used for) Financing 32,456 (8,419 )ActivitiesNet Decrease in Cash, Cash Equivalents, and (48,797 ) (1,764 )Restricted CashCash, Cash Equivalents, and Restricted Cash at 92,444 73,837 Beginning of PeriodCash, Cash Equivalents, and Restricted Cash at End $ 43,647 $ 72,073 of Period

Orders Received by End Market Three Months Ended Six Months Ended (Unaudited) December 31, December 31, (Amounts in 2020 2019 % 2020 2019 %Millions) Change ChangeWorkplace * $ 87.1 $ 123.2 (29 %) $ 166.6 $ 240.9 (31 %)Health 27.4 32.8 (16 %) 49.7 62.4 (20 %)Hospitality 20.4 58.9 (65 %) 58.5 101.9 (43 %)Total $ 134.9 $ 214.9 (37 %) $ 274.8 $ 405.2 (32 %)Orders

* Workplace end market includes education, government, commercial, and financial vertical markets

Reconciliation of Non-GAAP Financial Measures(Unaudited) (Amounts in Thousands, except per share data) Organic Net Sales Three Months Six Months Ended Ended December 31, December 31, 2020 2020Net Sales, as reported $ 136,197 $ 284,141 Less: Poppin acquisition net sales 2,678 2,678 Organic Net Sales $ 133,519 $ 281,463

Adjusted Selling and Administrative Expense Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019Selling andAdministrative $ 45,967 $ 49,719 $ 87,654 $ 100,633 Expense, asreportedLess: Pre-taxExpense Adjustment (1,381 ) (716 ) (2,139 ) (774 ) to SERP LiabilityLess: Pre-tax CEO (141 ) (175 ) (282 ) (350 ) Transition CostsLess: Pre-taxAcquisition-related (395 ) 0 (395 ) 0 AmortizationLess: Pre-tax Costs (3,388 ) 0 (3,388 ) 0 of AcquisitionAdjusted Sellingand Administrative $ 40,662 $ 48,828 $ 81,450 $ 99,509 ExpenseAdjusted Sellingand Administrative 29.9 % 25.4 % 28.7 % 25.3 %Expense % Adjusted Operating Income Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019Operating Income $ (2,034 ) $ 14,226 $ 4,395 $ 29,332 (Loss), as reportedAdd: Pre-taxRestructuring 1,616 1,396 5,856 5,746 ExpenseAdd: Pre-taxExpense Adjustment 1,381 716 2,139 774 to SERP LiabilityAdd: Pre-tax CEO 141 175 282 350 Transition CostsAdd: Pre-taxAcquisition-related 395 0 395 0 AmortizationAdd: Pre-taxAcquisition-related 42 0 42 0 Inventory ValuationAdjustmentAdd: Pre-tax Costs 3,388 0 3,388 0 of AcquisitionAdjusted Operating $ 4,929 $ 16,513 $ 16,497 $ 36,202 IncomeAdjusted Operating 3.6 % 8.6 % 5.8 % 9.2 %Income % Adjusted Net Income Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019Net Income (Loss), $ (838 ) $ 11,039 $ 4,548 $ 22,423 as reported Pre-taxRestructuring 1,616 1,396 5,856 5,746 ExpenseTax onRestructuring (416 ) (359 ) (1,508 ) (1,479 ) ExpenseAdd: After-taxRestructuring 1,200 1,037 4,348 4,267 ExpensePre-tax CEO 141 175 282 350 Transition CostsTax on CEO (36 ) (45 ) (72 ) (90 ) Transition CostsAdd: After-tax CEO 105 130 210 260 Transition CostsPre-taxAcquisition-related 395 0 395 0 AmortizationTax onAcquisition-related (102 ) 0 (102 ) 0 AmortizationAdd: After-taxAcquisition-related 293 0 293 0 AmortizationPre-taxAcquisition-related 42 0 42 0 Inventory ValuationAdjustmentTax onAcquisition-related (11 ) 0 (11 ) 0 Inventory ValuationAdjustmentAdd: After-taxAcquisition-related 31 0 31 0 InventoryAdjustmentPre-tax Costs of 3,388 0 3,388 0 AcquisitionTax on Costs of (872 ) 0 (872 ) 0 AcquisitionAdd: After-taxCosts of 2,516 0 2,516 0 AcquisitionAdjusted Net Income $ 3,307 $ 12,206 $ 11,946 $ 26,950 Adjusted Diluted Earnings Per Share Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019Diluted Earnings(Loss) Per Share, $ (0.02 ) $ 0.30 $ 0.12 $ 0.60 as reportedAdd: After-taxRestructuring 0.03 0.03 0.12 0.11 ExpenseAdd: After-tax CEO 0.00 0.00 0.00 0.01 Transition CostsAdd: After-taxAcquisition-related 0.01 0.00 0.01 0.00 AmortizationAdd: After-taxAcquisition-related 0.00 0.00 0.00 0.00 Inventory ValuationAdjustmentAdd: After-taxCosts of 0.07 0.00 0.07 0.00 AcquisitionAdjusted Diluted $ 0.09 $ 0.33 $ 0.32 $ 0.72 Earnings Per Share

Adjusted EBITDA Three Months Ended Six Months Ended December 31, December 31, 2020 2019 2020 2019Net Income (Loss) $ (838 ) $ 11,039 $ 4,548 $ 22,423 Provision for 213 4,372 2,073 8,679 Income TaxesIncome (Loss)Before Taxes on (625 ) 15,411 6,621 31,102 IncomeInterest Expense 58 21 86 44 Interest Income (87 ) (489 ) (189 ) (1,096 ) Depreciation 3,536 3,866 7,128 7,476 Amortization 1,049 547 1,702 1,068 Pre-taxRestructuring 1,616 1,396 5,856 5,746 ExpensePre-tax CEO 141 175 282 350 Transition CostsPre-taxAcquisition-related 42 0 42 0 Inventory ValuationAdjustmentPre-tax Costs of 3,388 0 3,388 0 AcquisitionAdjusted EBITDA $ 9,118 $ 20,927 $ 24,916 $ 44,690 Adjusted EBITDA % 6.7 % 10.9 % 8.8 % 11.4 %

Supplementary InformationComponents ofOther Income Three Months Ended Six Months Ended(Expense),net(Unaudited) December 31, December 31,(Amounts in 2020 2019 2020 2019Thousands)Interest $ 87 $ 489 $ 189 $ 1,096 IncomeInterest (58 ) (21 ) (86 ) (44 ) ExpenseGain onSupplementalEmployee 1,381 716 2,139 774 RetirementPlanInvestmentsOtherNon-Operating (1 ) 1 (16 ) (56 ) Income(Expense)Other Income, $ 1,409 $ 1,185 $ 2,226 $ 1,770 net

Investor Contacts:Lynn Morgenlynn.morgen@advisiry.comEric Proutyeric.prouty@advisiry.com