GlobeNewswire Inc | Aug 3, 2020 04:01PM EDT

August 03, 2020

--Fourth Quarter Results Demonstrate Resilience Within Current Market Conditions---Achieved $25.6 Million in Cost Savings in Fiscal 2020---Announced New Market Centric Organizational Structure to Drive Market Share Gains---Additional Cost Savings of $20 Million Expected in Fiscal 2021--

JASPER, Ind., Aug. 03, 2020 (GLOBE NEWSWIRE) -- Kimball International, Inc. (NASDAQ: KBAL) today announced results for the fourth quarter and fiscal year ended June30, 2020.

Selected Financial Highlights:

Fourth Quarter FY 2020

-- Net sales decreased 20% to $156.1 million -- Gross margin expanded by 70 basis points despite lower volume -- Operating income margin of 7.0%, or 9.4% on an adjusted basis -- Net income of $9.2 million, decreased 17% -- Adjusted EBITDA of $19.1 million, increased 1%, and adjusted EBITDA margin of 12.2% increased 260 basis points -- Diluted EPS of $0.25, or $0.29 on an adjusted basis, a decrease of 9% compared to adjusted EPS of $0.32 a year ago -- Return on Invested Capital (ROIC) of 30.0% -- Backlog of $151.1 million

CEO Kristie Juster commented, Fourth quarter results demonstrated the resilience of Kimball International in navigating a very difficult business and operating environment. Excellent execution across our organization enabled us to report stable adjusted operating income, along with modest growth in adjusted EBITDA, despite a significant COVID-19 impact on our revenues. This performance reflected the success of our ongoing transformation plan and Phase 1 of our restructuring program, which together have yielded significant cost savings while streamlining our operations and leveraging expertise across our brands.

Business conditions remained challenging throughout the fourth quarter as the health crisis and resultant economic decline caused postponements of projects and uncertainty around adapting to a post-COVID working environment. In early May, with our production facilities fully operational under strict safety and health protocols, we acted quickly to develop products and solutions that would assist clients in adhering to social distancing and workplace safety requirements, while providing comfortable and collaborative settings. These included retrofits and redesigns for existing products and spaces, as well as roadmaps to reimagine the new work environment.

We are pleased with the initial market response to our initiatives, but we recognize that the business environment is likely to remain difficult in the periods ahead. As a result, we have decided to accelerate the implementation of the next phase of our Kimball International Connect strategy, which we believe will drive continued market share gains for Kimball International during this period as well as yield additional cost savings that will enable us to effectively manage through the downturn and emerge as a leaner, more nimble company.

Specifically, the Connect 2.0 Strategy is comprised of four new market centric business units of Workplace, Health, Hospitality and eBusiness that will accelerate our ability to redesign and reimagine the new workplace, build a new work from home portfolio, continue assembling experts in health, and expand our hospitality business into other commercial direct sales environments. The dedicated eBusiness unit will take a leadership role in establishing all e-commerce across our brands and end markets. Each of these four business units will be supported by the agility and efficiency of Global Operations and the streamlined center-led structure that we implemented in year one of our strategy.

At the same time, we are initiating Phase 2 of our restructuring program, which will result in a restructuring charge of between $17.0 million and $18.0 million in total of which approximately $6.0 million will be recorded in the first quarter of fiscal 2021. Approximately 75% of the total charge will be cash charges. The workforce reductions and facility optimization that comprise this program, together with our ongoing operational excellence initiatives are expected to yield cost savings of approximately $20.0 million in fiscal 2021.

Overview

Fourth Quarter Fiscal 2020 Results

Consolidated net sales were $156.1 million, down 20% from $195.6 million in the year ago quarter. Gross margin expanded by 70 basis points to 35.0% due to cost savings, selected product price increases and efficient management of our manufacturing facilities through the revenue decline. Selling and administrative expenses of $41.6 million declined $11.3 million compared to the prior year, decreasing to 26.8% of net sales. Adjusted selling and administrative expenses were $39.9 million or 25.5% of net sales, compared to $52.4 million or 26.8% of net sales in last years fourth quarter. Net income decreased 17% to $9.2 million, and GAAP earnings per diluted share were $0.25, compared to $0.30 reported in the fiscal 2019 fourth quarter. Adjusted earnings per share, which excludes restructuring charges, decreased 9% to $0.29, compared to $0.32 last year. Adjusted EBITDA increased 1% to $19.1 million, and adjusted EBITDA margin expanded 260 basis points to 12.2%.

The current year fourth quarter benefited from approximately $3.1 million in one-time favorable adjustments to year-to-date annual incentive compensation accruals, which increased adjusted earnings per share by $0.06. In addition, this years fourth quarter was favorably impacted by lower incentive compensation costs, delayed spending across the Company and reduced employee healthcare costs, much of which was related to the COVID-19 pandemic.

The Company ended the fourth quarter in a strong financial position, with $97.1 million in cash and short-term investments, minimal debt and $73.4 million in available credit lines, providing the resources to weather the COVID-19 crisis and continue to invest to support future growth.

Fiscal Year 2020 Results

Fiscal year 2020 net sales of $727.9 million decreased 5% from fiscal year 2019 net sales of $768.1 million. Fiscal year 2020 operating income was $54.4 million, or 7.5% of net sales, compared to fiscal year 2019 operating income of $49.5 million, or 6.4% of net sales. Adjusted operating income was $64.2 million, 21% above the $53.1 million in fiscal 2019. Net income for fiscal year 2020 was $41.1 million, or $1.11 per diluted share, inclusive of $6.3 million restructuring expense ($0.17 per share) and $0.5 million CEO transition costs ($0.01 per share). Fiscal year 2019 net income was $39.3 million, or $1.06 per diluted share, inclusive of $0.7 million restructuring expense ($0.02 per share) and $1.5 million CEO transition costs ($0.04 per share). Fiscal year 2020 adjusted EBITDA was $81.3 million, or 11.2% of net sales, compared to fiscal year 2019 adjusted EBITDA of $69.5 million, or 9.0% of net sales.

Capital expenditures for fiscal 2020 were $21.1 million. The Company returned $15.9 million to shareholders in the form of dividends and share buybacks.

Net Sales by End Market Three Months Ended Fiscal Year Ended (Unaudited) June 30, June 30, (Amounts in 2020 2019 % Change 2020 2019 %Millions) ChangeWorkplace $ 91.0 $ 117.2 (22 %) $ 435.4 $ 462.7 (6 %)Health 21.6 28.8 (25 %) 108.9 110.4 (1 %)Hospitality 43.5 49.6 (12 %) 183.6 195.0 (6 %)Total Net Sales $ 156.1 $ 195.6 (20 %) $ 727.9 $ 768.1 (5 %)

Summary and Outlook

Fiscal 2020 results represented very respectable performance in light of the COVID-19 impact on our fiscal third and fourth quarter revenues. We succeeded in posting double-digit growth in operating income and adjusted operating income on a 5% decline in revenues, and we reported an industry-leading 37.5% return on invested capital, all indications of the significant efficiency gains that have been achieved by the Kimball International team.

Recent order rate trends within this period of economic uncertainty lead us to anticipate lower year-on-year comparisons over the next several quarters. Our fiscal year-end backlog was $151 million, of which $90 million is scheduled to ship in the first quarter of fiscal 2021. Recent order trends and the resurgence of COVID-19 in certain parts of the country lead us to expect that first quarter fiscal year 2021 revenue will be slightly below fourth quarter fiscal year 2020 levels.

Longer term, we are confident in our ability to grow our business organically and through opportunistic acquisitions that enable us to gain share in our selected vertical markets as well as build our e-commerce capabilities, Ms. Juster concluded.

Non-GAAP Financial MeasuresThis 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 statement of income, statement of comprehensive income, balance sheet, or statement of cash flows of the Company. The non-GAAP financial measures used within this release are (1) adjusted selling and administrative expense; (2) adjusted EBITDA; (3) adjusted operating income; (4) adjusted net income; and (5) adjusted diluted earnings per share. Adjusted operating income, adjusted net income, and adjusted diluted earnings per share each exclude restructuring expense and CEO transition costs from the GAAP income measure. Adjusted selling and administrative expense excludes market value adjustments related to the SERP liability and CEO transition costs from the GAAP income measure. Additionally, adjusted operating income excludes market value adjustments related to the SERP liability. Adjusted EBITDA is defined as net income before interest expense, income taxes, depreciation expense, amortization expense, restructuring expense, and CEO transition costs. 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, and market value adjustments related to the SERP liability 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.

Return on Invested Capital is a key performance indicator calculated as: [(Earnings Before Interest, Taxes, Amortization, Restructuring Expense, and CEO Transition Costs) multiplied by (1 minus Effective Tax Rate)] divided by (Total Shareholders Equity plus Net Debt). Net Debt is defined as current maturities of long-term debt plus long-term debt less cash, cash equivalents, and short-term investments.

Forward-Looking Statements

Certain statements contained within this release are considered forward-looking under 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 risk that any projections or guidance, including revenues, margins, earnings, or any other financial results are not realized, adverse changes in global economic conditions, successful execution of Phase 2 of our restructuring plan, the impact 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 and components, 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, 2019 and other filings with the Securities and Exchange Commission.

Conference Call / Webcast Date: August 3, 2020Time: 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, Kimball Hospitality, and Dstyle by Kimball Hospitality. 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 $728million in revenue and employed over 2,800 people. To learn more about Kimball International, Inc. (KBAL), visit www.kimballinternational.com.

Financial highlights for the fourth quarter ended June30, 2020 are as follows:

Condensed Consolidated Statements of Income(Unaudited) Three Months Ended(Amounts in Thousands, June 30, 2020 June 30, 2019except per share data)Net Sales $ 156,069 100.0 % $ 195,570 100.0 %Cost of Sales 101,513 65.0 % 128,441 65.7 %Gross Profit 54,556 35.0 % 67,129 34.3 %Selling and 41,646 26.8 % 52,962 27.0 %Administrative ExpensesRestructuring Expense 1,925 1.2 % 937 0.5 %Operating Income 10,985 7.0 % 13,230 6.8 %Other Income, net 1,686 1.1 % 931 0.4 %Income Before Taxes on 12,671 8.1 % 14,161 7.2 %IncomeProvision for Income 3,491 2.2 % 3,052 1.5 %TaxesNet Income $ 9,180 5.9 % $ 11,109 5.7 % Earnings Per Share of Common Stock:Basic $ 0.25 $ 0.30 Diluted $ 0.25 $ 0.30 Average Number of Total Shares Outstanding:Basic 36,861 36,753 Diluted 36,895 36,868

(Unaudited) Fiscal Year Ended(Amounts in Thousands, June 30, 2020 June 30, 2019except per share data)Net Sales $ 727,859 100.0 % $ 768,070 100.0 %Cost of Sales 477,098 65.5 % 513,518 66.9 %Gross Profit 250,761 34.5 % 254,552 33.1 %Selling and 187,885 25.8 % 204,140 26.6 %Administrative ExpensesRestructuring Expense 8,489 1.2 % 937 0.1 %Operating Income 54,387 7.5 % 49,475 6.4 %Other Income, net 1,743 0.2 % 2,195 0.3 %Income Before Taxes on 56,130 7.7 % 51,670 6.7 %IncomeProvision for Income 15,076 2.1 % 12,326 1.6 %TaxesNet Income $ 41,054 5.6 % $ 39,344 5.1 % Earnings Per Share of Common Stock:Basic $ 1.11 $ 1.07 Diluted $ 1.11 $ 1.06 Average Number of Total Shares Outstanding:Basic 36,883 36,842 Diluted 37,037 37,064

(Unaudited) Condensed Consolidated Balance Sheets June 30, June 30,(Amounts in Thousands) 2020 2019 ASSETS Cash and cash equivalents $ 91,798 $ 73,196 Short-term investments 5,294 33,071 Receivables, net 68,365 63,120 Inventories 49,857 46,812 Prepaid expenses and other current assets 16,869 13,105 Assets held for sale 215 281 Property and Equipment, net 92,041 90,671 Right of use operating lease assets 16,461 0 Goodwill 11,160 11,160 Intangible Assets, net 13,949 12,108 Deferred Tax Assets 7,485 8,722 Other Assets 12,773 12,420 Total Assets $ 386,267 $ 364,666 LIABILITIES AND SHAREHOLDERS? EQUITY Current maturities of long-term debt $ 27 $ 25 Accounts payable 40,229 47,916 Customer deposits 19,649 24,611 Current portion of operating lease liability 4,886 0 Dividends payable 3,454 3,038 Accrued expenses 41,076 57,494 Long-term debt, less current maturities 109 136 Long-term operating lease liability 16,610 0 Other 15,431 14,956 Shareholders? Equity 244,796 216,490 Total Liabilities and Shareholders? Equity $ 386,267 $ 364,666

Condensed Consolidated Statements of Cash Flows Fiscal Year Ended(Unaudited) June 30,(Amounts in Thousands) 2020 2019Net Cash Flow provided by Operating Activities $ 29,798 $ 64,967 Net Cash Flow provided by (used for) Investing 6,141 (22,186 )ActivitiesNet Cash Flow used for Financing Activities (17,332 ) (22,265 )Net Increase in Cash, Cash Equivalents, and 18,607 20,516 Restricted CashCash, Cash Equivalents, and Restricted Cash at 73,837 53,321 Beginning of PeriodCash, Cash Equivalents, and Restricted Cash at End of $ 92,444 $ 73,837 Period

Orders Received by End Market Three Months Ended Fiscal Year Ended (Unaudited) June 30, June 30, (Amounts in 2020 2019 % 2020 2019 %Millions) Change ChangeWorkplace * $ 88.4 $ 134.2 (34 %) $ 442.5 $ 479.8 (8 %)Health 18.2 32.1 (43 %) 109.9 118.3 (7 %)Hospitality 15.3 42.5 (64 %) 167.3 183.3 (9 %)Total $ 121.9 $ 208.8 (42 %) $ 719.7 $ 781.4 (8 %)Orders * Workplace end market includes education, government, commercial, andfinancial vertical markets

Supplementary InformationComponents of Other Three Months Ended Fiscal Year EndedIncome (Expense), net(Unaudited) June 30, June 30,(Amounts in 2020 2019 2020 2019Thousands)Interest Income $ 159 $ 592 $ 1,641 $ 1,931 Interest Expense (14 ) (28 ) (79 ) (174 )Gain on SupplementalEmployee Retirement 1,610 367 600 673 Plan InvestmentsOther Non-Operating (69 ) 0 (419 ) (235 )ExpenseOther Income, net $ 1,686 $ 931 $ 1,743 $ 2,195

Reconciliation of Non-GAAP Financial Measures(Unaudited)(Amounts in Thousands, except per share data)

Adjusted Selling and Administrative Expense Three Months Ended Fiscal Year Ended June 30, June 30, 2020 2019 2020 2019Selling andAdministrative $ 41,646 $ 52,962 $ 187,885 $ 204,140 Expense, asreportedLess: Pre-taxExpense (1,610 ) (367 ) (600 ) (673 ) Adjustment toSERP LiabilityLess: Pre-taxCEO Transition (173 ) (237 ) (698 ) (2,046 ) CostsAdjustedSelling and $ 39,863 $ 52,358 $ 186,587 $ 201,421 AdministrativeExpenseAdjustedSelling and 25.5 % 26.8 % 25.6 % 26.2 %AdministrativeExpense % AdjustedOperating Income Three Months Ended Fiscal Year Ended June 30, June 30, 2020 2019 2020 2019OperatingIncome, as $ 10,985 $ 13,230 $ 54,387 $ 49,475 reportedAdd: Pre-taxRestructuring 1,925 937 8,489 937 ExpenseAdd: Pre-taxExpense 1,610 367 600 673 Adjustment toSERP LiabilityAdd: Pre-taxCEO Transition 173 237 698 2,046 CostsAdjustedOperating $ 14,693 $ 14,771 $ 64,174 $ 53,131 IncomeAdjustedOperating 9.4 % 7.6 % 8.8 % 6.9 %Income % Adjusted Net Income Three Months Ended Fiscal Year Ended June 30, June 30, 2020 2019 2020 2019Net Income, as $ 9,180 $ 11,109 $ 41,054 $ 39,344 reportedPre-tax CEOTransition 173 237 698 2,046 CostsTax on CEOTransition (45 ) (61 ) (180 ) (527 ) CostsAdd: After-taxCEO Transition 128 176 518 1,519 CostsPre-taxRestructuring 1,925 937 8,489 937 ExpenseTax onRestructuring (495 ) (241 ) (2,185 ) (241 ) ExpenseAdd: After-taxRestructuring 1,430 696 6,304 696 ExpenseAdjusted Net $ 10,738 $ 11,981 $ 47,876 $ 41,559 Income Adjusted Diluted Earnings Per Share Three Months Ended Fiscal Year Ended June 30, June 30, 2020 2019 2020 2019DilutedEarnings Per $ 0.25 $ 0.30 $ 1.11 $ 1.06 Share, asreportedAdd: After-taxCEO Transition 0.00 0.00 0.01 0.04 CostsAdd: After-taxRestructuring 0.04 0.02 0.17 0.02 ExpenseAdjustedDiluted $ 0.29 $ 0.32 $ 1.29 $ 1.12 Earnings PerShare

Earnings Before Interest, Taxes, Depreciation, and Amortization excludingRestructuring Expense and CEO Transition Costs (?Adjusted EBITDA?)

Three Months Ended Fiscal Year Ended June 30, June 30, 2020 2019 2020 2019Net Income $ 9,180 $ 11,109 $ 41,054 $ 39,344 Provision for Income Taxes 3,491 3,052 15,076 12,326 Income Before Taxes on 12,671 14,161 56,130 51,670 IncomeInterest Expense 14 28 79 174 Interest Income (159 ) (592 ) (1,641 ) (1,931 ) Depreciation 3,770 3,726 15,107 14,803 Amortization 695 322 2,402 1,777 Pre-tax CEO Transition 173 237 698 2,046 CostsPre-tax Restructuring 1,925 937 8,489 937 ExpenseAdjusted EBITDA $ 19,089 $ 18,819 $ 81,264 $ 69,476 Adjusted EBITDA % 12.2 % 9.6 % 11.2 % 9.0 %

Contacts:Lynn Morgen - lynn.morgen@advisiry.com Eric Prouty - eric.prouty@advisiry.com