Business Wire | Jul 22, 2020 04:30PM EDT

HNI Corporation Reports Earnings for Second Quarter Fiscal Year 2020

Jul. 22, 2020

MUSCATINE, Iowa--(BUSINESS WIRE)--Jul. 22, 2020--HNI Corporation (NYSE: HNI) today announced sales for the second quarter ended June 27, 2020 of $417.5 million and net income of $12.6 million. GAAP net income per diluted share was $0.29, compared to $0.36 in the prior year. Non-GAAP net income per diluted share was $0.20, compared to $0.38 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Second Quarter Highlights

* The Corporation delivered solid profits and increased second quarter operating cash flows by $20 million or 49 percent versus the prior year despite pandemic related top-line pressures. * Residential Building Products segment operating profit increased, and segment operating margin expanded on a year-over-year basis in the second quarter 2020. * Workplace Furnishings segment generated second quarter 2020 operating profit of nearly $8 million, despite a 25 percent year-over-year contraction on the top line. * Quarter-ending debt levels were $183 million, equal to a gross leverage ratio of approximately 0.8x. Liquidity, as measured by cash and borrowing availability, at the end of the second quarter was $392 million.

"Our members did a great job of managing through challenging second quarter conditions. We aggressively managed costs and drove productivity-offsetting much of the impact from lower volumes. Our teams stayed focused on our customers-generating and seizing market opportunities. The strength of our strategy, including our diverse revenue streams, price point breadth, channel reach, and lean operating model, along with the dedication of our members, helped demonstrate again what makes HNI unique," stated Jeff Lorenger, Chairman, President, and Chief Executive Officer.

Salary adjustments

Compensation for HNI members and Board of Directors are being restored to levels existing prior to the reductions announced on April 22, 2020.

"Our members responded in an outstanding manner to this environment, and I am pleased we are able to take this action 60-90 days earlier than we originally anticipated," continued Mr. Lorenger.

Debt Level Update

As of June 27, 2020, the Corporation's net debt totaled $157 million (as defined as gross debt of $183 million less cash and cash equivalents of $26 million). At the end of the quarter, the Corporation had $366 million of borrowing capacity under its existing $450 million credit facility. On a gross leverage basis, the quarter-ending level of 0.8x remains well below the Corporation's debt covenant of 3.5x.

"We generated strong free cash flow in the quarter and further enhanced our already strong balance sheet. We have the financial strength and cost structure to successfully weather this crisis for a prolonged period," said Mr. Lorenger.

HNI Corporation - Financial Performance

(Dollars in millions, except per share data)

Three Months Ended

June 27, June 29, Change 2020 2019

GAAP

Net Sales $ 417.5 $ 526.0 (20.6 %)

Gross Profit % 36.1 % 36.6 % -50 bps

SG&A % 32.6 % 32.0 % 60 bps

Restructuring Charges % - % 0.2 %

Operating Income $ 14.8 $ 23.2 (36.2 %)

Operating Income % 3.6 % 4.4 % -80 bps

Effective Tax Rate 2.7 % 23.9 %

Net Income % 3.0 % 3.0 % - bps

EPS - diluted $ 0.29 $ 0.36 (19.4 %)



Non-GAAP

Gross Profit % 36.1 % 36.6 % -50 bps

Operating Income $ 14.8 $ 24.2 (38.6 %)

Operating Income % 3.6 % 4.6 % -100 bps

EPS - diluted $ 0.20 $ 0.38 (47.4 %)

Second Quarter Summary Comments

* Consolidated net sales decreased 20.6 percent from the prior-year quarter to $417.5 million. On an organic basis, sales decreased 21.2 percent. The impact of acquiring residential building products distributors increased sales $2.9 million compared to the prior-year quarter. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release. * Gross profit margin decreased 50 basis points compared to the prior-year quarter. This decrease was primarily driven by lower volume, partially offset by price realization and net productivity. * Selling and administrative expenses as a percent of sales increased 60 basis points compared to prior-year quarter due to lower volume, partially offset by lower core SG&A spend and net productivity. * Non-GAAP net income per diluted share was $0.20 compared to $0.38 in the prior-year quarter. The $0.18 decrease was primarily due to lower volume, partially offset by lower core SG&A spend, net productivity, and price realization. * Non-GAAP EPS in the current quarter includes an effective tax rate of 32.5 percent, compared to a GAAP tax rate of 2.7 percent. The higher non-GAAP tax rate is related to timing of the tax impact from one-time charges recorded in first quarter 2020.

Workplace Furnishings - Financial Performance

(Dollars in millions)

Three Months Ended

June 27, June 29, Change 2020 2019

GAAP

Net Sales $ 308.1 $ 409.5 (24.8 %)

Operating Income $ 7.8 $ 18.7 (58.5 %)

Operating Income % 2.5 % 4.6 % -210 bps



Non-GAAP

Operating Profit $ 7.8 $ 19.7 (60.4 %)

Operating Profit % 2.5 % 4.8 % -230 bps

* Workplace Furnishings net sales decreased 24.8 percent from the prior-year quarter to $308.1 million. * Workplace Furnishings GAAP operating profit margin decreased 210 basis points versus the prior-year quarter. On a non-GAAP basis, segment operating margin decreased 230 basis points year-over-year driven by lower volume, partially offset by net productivity, lower core SG&A spend, and price realization.

Residential Building Products - Financial Performance

(Dollars in millions)

Three Months Ended

June 27, June 29, Change 2020 2019

GAAP

Net Sales $ 109.4 $ 116.5 (6.1 %)

Operating Profit $ 14.4 $ 13.4 7.5 %

Operating Profit % 13.1 % 11.5 % 160 bps



Non-GAAP

Operating Profit $ 14.4 $ 13.4 7.5 %

Operating Profit % 13.1 % 11.5 % 160 bps

* Residential Building Products net sales decreased 6.1 percent from the prior-year quarter to $109.4 million. On an organic basis, sales decreased 8.6 percent. The impact of acquiring building products distributors increased sales $2.9 million compared to the prior-year quarter. * Residential Building Products operating profit margin expanded 160 basis points, driven by price realization, lower variable compensation, lower core SG&A spend, and net productivity, partially offset by lower volume and unfavorable mix.

Concluding Remarks

"The HNI culture remains the foundation for our success. Together, our members, dealers, suppliers, and communities will continue to overcome the challenges presented by this crisis.

Pandemic-related uncertainty continues to limit visibility and our ability to provide guidance. However, we are seeing a seasonal uptick in sales and do expect third quarter sales and profit to track ahead of second quarter 2020 levels. We have demonstrated we can adapt our cost structure quickly, and our balance sheet is strong. More importantly, we have developed new and better ways to operate our businesses that will serve us well in the future," Mr. Lorenger concluded.

Conference Call

HNI Corporation will host a conference call on Thursday, July 23, 2020 at 10:00 a.m. (Central) to discuss second quarter fiscal year 2020 results. To participate, call 1-877-512-9166 - conference ID number 6232199. A live webcast of the call will be available on HNI Corporation's website at http://www.hnicorp.com (under Investors - News Releases & Events). A replay of the webcast will also be made available at that website address. An audio replay of the call will be available until Thursday, July 30, 2020, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 - Conference ID number 6232199.

About HNI Corporation

HNI Corporation (NYSE: HNI) is a manufacturer of workplace furnishings and building products, operating under two segments. The Workplace Furnishings segment is a leading global designer and provider of commercial furnishings, going to market under multiple unique brands. The Residential Building Products segment is the nation's leading manufacturer and marketer of hearth products, which include a full array of gas, electric, wood, and pellet-burning fireplaces, inserts, stoves, facings, and accessories. More information can be found on the Corporation's website at www.hnicorp.com.

Forward-Looking Statements

This release contains "forward-looking" statements based on current expectations regarding future plans, events, outlook, objectives, financial performance, expectations for sales growth, and earnings per diluted share (GAAP and non-GAAP), including statements regarding the expected effects on our business, financial condition and results of operations from the COVID-19 pandemic. Forward-looking statements can be identified by words including "expect," "believe," "anticipate," "estimate," "may," "will," "would," "could," "confident," or other similar words, phrases, or expressions. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Corporation's actual future results and performance to differ materially from expected results. These risks include but are not limited to: the duration and scope of the COVID-19 pandemic, and its effect on people and the economy; the levels of office furniture needs and housing starts; overall demand for the Corporation's products; general economic and market conditions in the United States and internationally; industry and competitive conditions; the consolidation and concentration of the Corporation's customers; the Corporation's reliance on its network of independent dealers; change in trade policy; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation's new products; changing legal, regulatory, environmental, and healthcare conditions; the risks associated with international operations; the potential impact of product defects; the various restrictions on the Corporation's financing activities; an inability to protect the Corporation's intellectual property; impacts of tax legislation; and force majeure events outside the Corporation's control. A description of these risks and additional risks can be found in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q. The Corporation assumes no obligation to update, amend, or clarify forward-looking statements, except as required by applicable law.

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(In thousands, except per share data)

(Unaudited)



Three Months Ended Six Months Ended June 27, June 29, June 27, June 29, 2020 2019 2020 2019

Net sales $ 417,456 $ 526,026 $ 886,161 $ 1,005,482

Cost of sales 266,551 333,437 559,238 643,279

Gross profit 150,905 192,589 326,923 362,203

Selling andadministrative 136,063 168,411 303,148 334,348 expenses

Impairment andrestructuring - 930 32,661 930 charges

Operating 14,842 23,248 (8,886 ) 26,925 income (loss)

Interest 1,943 2,480 3,754 4,591 expense, net

Income (loss)before income 12,899 20,768 (12,640 ) 22,334 taxes

Income taxes 345 4,957 (1,299 ) 5,503

Net income 12,554 15,811 (11,341 ) 16,831 (loss)

Less: Netincome (loss)attributable to (2 ) 1 (2 ) (1 ) non-controllinginterest

Net income(loss) $ 12,556 $ 15,810 $ (11,339 ) $ 16,832 attributable toHNI Corporation



Average numberof commonshares 42,640 43,218 42,634 43,376 outstanding -basic

Net income(loss)attributable to $ 0.29 $ 0.37 $ (0.27 ) $ 0.39 HNI Corporationper commonshare - basic

Average numberof commonshares 42,929 43,634 42,634 43,860 outstanding -diluted

Net income(loss)attributable to $ 0.29 $ 0.36 $ (0.27 ) $ 0.38 HNI Corporationper commonshare - diluted



Foreigncurrency $ 45 $ (333 ) $ (555 ) $ 630 translationadjustments

Change inunrealizedgains (losses) 244 126 302 216 on marketablesecurities, netof tax

Change inpension andpost-retirement - - - (1,185 ) liability, netof tax

Change inderivativefinancial (283 ) (1,327 ) (2,499 ) (1,636 ) instruments,net of tax

Othercomprehensive 6 (1,534 ) (2,752 ) (1,975 ) income (loss),net of tax

Comprehensive 12,560 14,277 (14,093 ) 14,856 income (loss)

Less:Comprehensiveincome (loss) (2 ) 1 (2 ) (1 ) attributable tonon-controllinginterest

Comprehensiveincome (loss) $ 12,562 $ 14,276 $ (14,091 ) $ 14,857 attributable toHNI Corporation



HNI Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)



June 27, December 28, 2020 2019

Assets

Current Assets:

Cash and cash equivalents $ 26,204 $ 52,073

Short-term investments 2,310 1,096

Receivables 208,795 278,124

Allowance for doubtful accounts (5,778 ) (3,559 )

Inventories 156,647 163,465

Prepaid expenses and other current assets 42,816 37,635

Total Current Assets 430,994 528,834

Property, Plant, and Equipment:

Land and land improvements 29,750 29,394

Buildings 294,238 295,517

Machinery and equipment 568,265 581,225

Construction in progress 22,630 20,881

914,883 927,017

Less accumulated depreciation 546,036 545,510

Net Property, Plant, and Equipment 368,847 381,507

Right-of-use Finance Leases 2,282 2,129

Right-of-use Operating Leases 76,614 72,883

Goodwill and Other Intangible Assets 416,317 445,709

Other Assets 20,309 21,450

Total Assets $ 1,315,363 $ 1,452,512

Liabilities and Equity

Current Liabilities:

Accounts payable and accrued expenses $ 334,719 $ 453,202

Current maturities of long-term debt - 790

Current maturities of other long-term 2,953 1,931 obligations

Current lease obligations - Finance 654 564

Current lease obligations - Operating 23,266 22,218

Total Current Liabilities 361,592 478,705

Long-Term Debt 183,481 174,439

Long-Term Lease Obligations - Finance 1,639 1,581

Long-Term Lease Obligations - Operating 60,761 58,233

Other Long-Term Liabilities 67,337 67,990

Deferred Income Taxes 87,484 87,196

Equity:

HNI Corporation shareholders' equity 552,747 584,044

Non-controlling interest 322 324

Total Equity 553,069 584,368

Total Liabilities and Equity $ 1,315,363 $ 1,452,512



HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)



Six Months Ended

June 27, June 29, 2020 2019

Net Cash Flows From (To) Operating Activities:

Net income (loss) $ (11,341 ) $ 16,831

Non-cash items included in net income:

Depreciation and amortization 38,605 38,450

Other post-retirement and post-employment benefits 736 738

Stock-based compensation 5,659 4,072

Reduction in carrying amount of right-of-use assets 11,342 11,617

Deferred income taxes 1,092 1,360

Impairment of goodwill and intangible assets 32,661 -

Other - net (284 ) 3,856

Net increase (decrease) in operating assets and (49,631 ) (56,281 ) liabilities, net of divestitures

Increase (decrease) in other liabilities (1,019 ) (7,876 )

Net cash flows from (to) operating activities 27,820 12,767



Net Cash Flows From (To) Investing Activities:

Capital expenditures (15,739 ) (34,659 )

Proceeds from sale of property, plant, and equipment 69 159

Acquisition spending, net of cash acquired (10,857 ) -

Capitalized software (5,037 ) (2,948 )

Purchase of investments (1,631 ) (2,459 )

Sales or maturities of investments 1,043 1,802

Other - net - 2,025

Net cash flows from (to) investing activities (32,152 ) (36,080 )



Net Cash Flows From (To) Financing Activities:

Payments of long-term debt (73,828 ) (40,272 )

Proceeds from long-term debt 82,129 76,677

Dividends paid (26,040 ) (26,075 )

Purchase of HNI Corporation common stock (6,764 ) (57,357 )

Proceeds from sales of HNI Corporation common stock 1,294 18,906

Other - net 1,672 3,397

Net cash flows from (to) financing activities (21,537 ) (24,724 )



Net increase (decrease) in cash and cash equivalents (25,869 ) (48,037 )

Cash and cash equivalents at beginning of period 52,073 76,819

Cash and cash equivalents at end of period $ 26,204 $ 28,782



HNI Corporation and Subsidiaries

Reportable Segment Data

(In thousands)

(Unaudited)



Three Months Ended Six Months Ended

June 27, June 29, June 27, June 29, 2020 2019 2020 2019

Net Sales:

Workplace $ 308,081 $ 409,512 $ 646,467 $ 763,023 furnishings

Residentialbuilding 109,375 116,514 239,694 242,459 products

Total $ 417,456 $ 526,026 $ 886,161 $ 1,005,482



Income (Loss)Before Income Taxes:

Workplace $ 7,785 $ 18,749 $ (25,446 ) $ 17,018 furnishings

Residentialbuilding 14,365 13,362 35,036 30,970 products

General (7,308 ) (8,863 ) (18,476 ) (21,063 ) corporate

Operating 14,842 23,248 (8,886 ) 26,925 Income (Loss)

Interest 1,943 2,480 3,754 4,591 expense, net

Total $ 12,899 $ 20,768 $ (12,640 ) $ 22,334



Depreciationand AmortizationExpense:

Workplace $ 10,782 $ 11,247 $ 22,113 $ 22,307 furnishings

Residentialbuilding 2,318 2,174 4,624 4,230 products

General 6,019 5,989 11,868 11,913 corporate

Total $ 19,119 $ 19,410 $ 38,605 $ 38,450



CapitalExpenditures(including capitalizedsoftware):

Workplace $ 4,293 $ 12,347 $ 11,394 $ 22,666 furnishings

Residentialbuilding 206 2,577 3,179 7,575 products

General 3,118 3,587 6,203 7,366 corporate

Total $ 7,617 $ 18,511 $ 20,776 $ 37,607



As of As of June 27, December 28, 2020 2019

Identifiable Assets:

Workplace $ 741,876 $ 874,913 furnishings

Residentialbuilding 383,642 364,653 products

General 189,845 212,946 corporate

Total $ 1,315,363 $ 1,452,512

Non-GAAP Financial Measures

This earnings release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to HNI's financial statements as prepared in accordance with GAAP are included below and throughout this earnings release. This information gives investors additional insights into HNI's financial performance and operations. While HNI's management believes the non-GAAP financial measures are useful in evaluating HNI's operations, this information should be considered supplemental and not in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

To supplement condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, this earnings release uses the following non-GAAP financial measures: organic sales, gross profit, operating income (loss), operating profit (loss), income taxes, net income (loss), and net income (loss) per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the impacts of the selected items as summarized in the table below. In the current period, the effective tax rate used to calculate non-GAAP EPS differs from the GAAP effective tax rate due to the timing of the tax impact of one-time charges recorded in first quarter 2020. Generally, non-GAAP EPS is calculated using HNI's overall effective tax rate for the period, as this rate is reflective of the tax applicable to most non-GAAP adjustments.

The sales adjustments to arrive at the non-GAAP organic sales information included in this earnings release excludes the impact of acquiring residential building products distributors. Restructuring charges incurred in the prior year period are primarily comprised of severance costs related to a structural realignment in the Workplace Furnishings segment.

HNI Corporation Reconciliation

(Dollars in millions)

Three Months Ended

June 27, 2020 June 29, 2019

Workplace Residential Workplace Residential Furnishings Building Total Furnishings Building Total Products Products

Sales asreported $ 308.1 $ 109.4 $ 417.5 $ 409.5 $ 116.5 $ 526.0 (GAAP)

% change (24.8 %) (6.1 %) (20.6 %) from PY



Less: - 2.9 2.9 - - - Acquisitions



OrganicSales $ 308.1 $ 106.5 $ 414.6 $ 409.5 $ 116.5 $ 526.0 (non-GAAP)

% change (24.8 %) (8.6 %) (21.2 %) from PY

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

Three Months Ended June 27, 2020

Gross Operating Tax Net Income EPS Profit Income

As reported (GAAP) $ 150.9 $ 14.8 $ 0.3 $ 12.6 $ 0.29

% of net sales 36.1 % 3.6 % 3.0 %

Tax % 2.7 %



Income tax - - 3.8 (3.8 ) (0.09 ) adjustment



Results (non-GAAP) $ 150.9 $ 14.8 $ 4.2 $ 8.7 $ 0.20

% of net sales 36.1 % 3.6 % 2.1 %

Tax % 32.5 %

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

Three Months Ended June 29, 2019

Gross Operating Tax Net EPS Profit Income Income

As reported (GAAP) $ 192.6 $ 23.2 $ 5.0 $ 15.8 $ 0.36

% of net sales 36.6 % 4.4 % 3.0 %

Tax % 23.9 %



Restructuring charges - 0.9 0.2 0.7 0.02



Results (non-GAAP) $ 192.6 $ 24.2 $ 5.2 $ 16.5 $ 0.38

% of net sales 36.6 % 4.6 % 3.1 %

Tax % 23.9 %

Workplace Furnishings Reconciliation

(Dollars in millions)

Three Months Ended

June 27, June 29, Percent 2020 2019 Change

Operating profit as reported (GAAP) $ 7.8 $ 18.7 (58.5 %)

% of net sales 2.5 % 4.6 %



Restructuring charges - 0.9



Operating profit (non-GAAP) $ 7.8 $ 19.7 (60.4 %)

% of net sales 2.5 % 4.8 %

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CONTACT: Marshall H. Bridges, Senior Vice President and Chief Financial Officer (563) 272-7400 Matthew S. McCall, Vice President, Investor Relations and Corporate Development (563) 275-8898