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Kimball International, Inc. Reports Second Quarter Results

/EIN News/ -- Sales decreased 4%, in line with expectations
Strong order growth of 13% driven by both Office and Hospitality
Transformation Plan cost savings of $7.1 million exceeded expectations in the quarter
Operating Income margin of 7.4%, or 8.6% on an adjusted basis, increased 220 basis points

JASPER, Ind., Feb. 04, 2020 (GLOBE NEWSWIRE) -- Kimball International, Inc. (NASDAQ: KBAL) today announced results for the quarter ended December 31, 2019.

Highlights (Performance is based upon year-over-year comparison):

Second Quarter FY 2020

  • Net sales decreased 4% as expected due to both the Kimball brand realignment plan and lapping strong comps
  • Orders increased 13% driven by growth in all verticals
  • Operating income margin of 7.4%, or 8.6% on an adjusted basis, increased 220 basis points driven by a 170 basis points improvement in gross margin and a 50 basis point reduction in adjusted selling and administrative expenses
  • Transformation savings of $7.1 million realized during the quarter, exceeded expectations
  • Net income of $11.0 million, increased 17%
  • Adjusted EBITDA of $20.9 million, increased 23%, and adjusted EBITDA margin of 10.9%, increased 240 basis points
  • Diluted EPS of $0.30, or $0.33 on an adjusted basis, an increase of 27% compared to $0.26 a year ago

Kimball International CEO Kristie Juster commented, “We continued to exceed expectations in delivery of our transformation savings, resulting in a significant improvement in earnings again this quarter. This delivery of savings increases our confidence in our plan enabling us to increase to our projected full-year savings from $16.0 million to $21.0 million for fiscal year 2020. I am very proud of the organization’s flexibility in embracing this new way of working. The execution of this transformation plan and our recently announced plans to centralize our manufacturing operations pave the way forward for both improved profit and increased investment for growth.”

Ms. Juster continued, “Our sales performance this quarter was in line with our expectations but below our overall expected organic growth rate of 4% to 7%. I am very encouraged by our 13% order growth in the quarter across all verticals. The increase in our order backlog positions us very well for a strong second half of our fiscal year.”

Overview

Financial Highlights      
(Amounts in Thousands, Except Per Share Data) Three Months Ended    
  December 31,   December 31,   Percent
  2019   2018   Change
Net Sales $ 192,164     $ 201,008     (4 %)
Gross Profit $ 65,341     $ 64,989     1 %
Gross Profit % 34.0 %   32.3 %    
Selling and Administrative Expenses $ 49,719     $ 51,491     (3 %)
Selling and Administrative Expenses % 25.9 %   25.6 %    
Restructuring Expense $ 1,396     $ 0      
Operating Income $ 14,226     $ 13,498     5 %
Operating Income % 7.4 %   6.7 %    
Adjusted Operating Income * $ 16,513     $ 12,903     28 %
Adjusted Operating Income % 8.6 %   6.4 %    
Net Income $ 11,039     $ 9,405     17 %
Adjusted Net Income * $ 12,206     $ 9,777     25 %
Diluted Earnings Per Share $ 0.30     $ 0.25     20 %
Adjusted Diluted Earnings Per Share * $ 0.33     $ 0.26     27 %
Return on Invested Capital 38.4 %   33.6 %    
Adjusted EBITDA * $ 20,927     $ 16,987     23 %
Adjusted EBITDA % 10.9 %   8.5 %    

*  The items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.

  • Consolidated net sales decreased 4% due to the impact of Kimball brand realignment to higher growth markets and extremely strong comps from our three focused verticals which had growth in the prior year of: Commercial +29%, Hospitality +16%, and Healthcare +20%.

  • Orders during the quarter increased a strong 13%. All verticals reported orders growth in the quarter with hospitality leading at 31%. The growth within the hospitality vertical was attributable to the strong Las Vegas market.  The healthcare vertical grew 10% following 22% growth in the prior year driven by the Kimball brand’s continued investment and strategic shift to this higher growth vertical.

  • Sales of new office products, defined as those introduced in the last three years, continued to excel representing approximately 29% of total office sales compared to 27% in the prior year period and an increase of 2%. The National brand had new product growth of 28% with much of this focused on ancillary products.

  • Gross profit margin of 34.0% increased 170 basis points from the prior year. Increases in product pricing and the savings realized from our transformation plan were partially offset by the loss of operating leverage on lower sales volumes and higher employee healthcare expenses.

  • Selling and administrative expenses of $49.7 million declined $1.8 million compared to the prior year, but increased 30 basis points to 25.9% of net sales. Lower costs during the quarter compared to the prior year included the benefit from the transformation plan of $3.3 million and lower sales commissions of $1.0 million, partially offset by higher Supplemental Employee Retirement Plan expense of $1.8 million and higher healthcare expenses of $0.7 million. On an adjusted basis, selling and administrative dollars were down 50 basis points year over year. The reduction in selling and administrative expenses was achieved while investing $1.8 million in growth initiatives related to our Kimball International Connect strategy. As we gain more confidence in the execution of our transformation savings, we will continue to ramp our growth investments.

  • Restructuring expenses of $1.4 million were incurred related to the continuing execution of our transformation plan, primarily for employee transition costs and lease-related charges. Total estimated restructuring expenses for the transformation plan are expected to be between $9.0 to $10.0 million for the fiscal year.

  • Our effective tax rate was 28.4% for the quarter compared to 25.6% in the prior year period. The increase was primarily driven by nondeductible expenses. We continue to expect our fiscal year tax rate to be within a range of 25% to 28%.

  • Net cash flow provided by operating activities totaled $2.3 million compared to $16.8 million in the prior year. The decrease was driven by a change in payment schedule in the annual incentive program and other working capital changes. Capital expenditures during the quarter were $6.2 million, and we returned $4.6 million to shareholders in the form of dividends and share repurchases.

  • As of December 31, 2019, the Company’s cash, cash equivalents, and short-term investments totaled $97.1 million, down $9.2 million since June 30, 2019. The fiscal year 2020 year to date decline was primarily due to capital expenditures of $13.5 million and the return of $7.6 million in capital to shareholders, including $6.3 million in dividends and $1.3 million in stock repurchases, which more than offset the $13.4 million in cash flows from operations.

Fiscal Year 2020 – 2022 Financial Targets

  • Organic sales growth: 4% to 7% CAGR

  • Adjusted EBITDA: 150 to 250 basis points improvement

  • Adjusted EPS: 10% to 15% CAGR

Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s 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 and are subject to risks and uncertainties 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 the global economic conditions, 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, 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 Company’s Form 10-K filing for the fiscal year ended June 30, 2019 and other filings with the Securities and Exchange Commission.

Conference Call / Webcast
     
Date:   February 5, 2020
Time:   11:00 AM Eastern Time
Dial-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 International’s 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 over 65 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, David Edward, and D’style 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 2019, the Company generated $768 million in revenue and employed over 3,000 people. To learn more about Kimball International, Inc. (KBAL), visit www.kimballinternational.com.

Financial highlights for the second quarter ended December 31, 2019 are as follows:

Condensed Consolidated Statements of Income              
(Unaudited) Three Months Ended
(Amounts in Thousands, except per share data) December 31, 2019   December 31, 2018
Net Sales $ 192,164     100.0 %   $ 201,008     100.0 %
Cost of Sales 126,823     66.0 %   136,019     67.7 %
Gross Profit 65,341     34.0 %   64,989     32.3 %
Selling and Administrative Expenses 49,719     25.9 %   51,491     25.6 %
Restructuring Expense 1,396     0.7 %   0     0.0 %
Operating Income 14,226     7.4 %   13,498     6.7 %
Other Income (Expense), net 1,185     0.6 %   (854 )   (0.4 %)
Income Before Taxes on Income 15,411     8.0 %   12,644     6.3 %
Provision for Income Taxes 4,372     2.3 %   3,239     1.6 %
Net Income $ 11,039     5.7 %   $ 9,405     4.7 %
               
Earnings Per Share of Common Stock:              
Basic $ 0.30         $ 0.26      
Diluted $ 0.30         $ 0.25      
               
Average Number of Total Shares Outstanding:              
Basic 36,921         36,793      
Diluted 37,221         37,088      


(Unaudited) Six Months Ended
(Amounts in Thousands, except per share data) December 31, 2019   December 31, 2018
Net Sales $ 393,616     100.0 %   $ 395,131     100.0 %
Cost of Sales 257,905     65.5 %   264,269     66.9 %
Gross Profit 135,711     34.5 %   130,862     33.1 %
Selling and Administrative Expenses 100,633     25.5 %   103,670     26.2 %
Restructuring Expense 5,746     1.5 %   0     0.0 %
Operating Income 29,332     7.5 %   27,192     6.9 %
Other Income (Expense), net 1,770     0.4 %   (158 )   (0.1 %)
Income Before Taxes on Income 31,102     7.9 %   27,034     6.8 %
Provision for Income Taxes 8,679     2.2 %   6,753     1.7 %
Net Income $ 22,423     5.7 %   $ 20,281     5.1 %
               
Earnings Per Share of Common Stock:              
Basic $ 0.61         $ 0.55      
Diluted $ 0.60         $ 0.54      
               
Average Number of Total Shares Outstanding:              
Basic 36,929         36,951      
Diluted 37,274         37,347      


  (Unaudited)    
Condensed Consolidated Balance Sheets December 31,   June 30,
(Amounts in Thousands) 2019   2019
ASSETS      
Cash and cash equivalents $ 71,430     $ 73,196  
Short-term investments 25,648     33,071  
Receivables, net 62,344     63,120  
Inventories 49,743     46,812  
Prepaid expenses and other current assets 15,511     13,105  
Assets held for sale 281     281  
Property and Equipment, net 93,205     90,671  
Right of use lease assets 17,092     0  
Goodwill 11,160     11,160  
Intangible Assets, net 12,510     12,108  
Deferred Tax Assets 9,663     8,722  
Other Assets 14,092     12,420  
Total Assets $ 382,679     $ 364,666  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current maturities of long-term debt $ 27     $ 25  
Accounts payable 39,621     47,916  
Customer deposits 32,494     24,611  
Current portion of lease liability 4,443     0  
Dividends payable 3,477     3,038  
Accrued expenses 37,775     57,494  
Long-term debt, less current maturities 109     136  
Long-term lease liability 16,570     0  
Other 15,574     14,956  
Shareholders’ Equity 232,589     216,490  
Total Liabilities and Shareholders’ Equity $ 382,679     $ 364,666  


Condensed Consolidated Statements of Cash Flows Six Months Ended
(Unaudited) December 31,
(Amounts in Thousands) 2019   2018
Net Cash Flow provided by Operating Activities $ 13,402     $ 23,908  
Net Cash Flow used for Investing Activities (6,747 )   (21,849 )
Net Cash Flow used for Financing Activities (8,419 )   (15,750 )
Net Decrease in Cash, Cash Equivalents, and Restricted Cash (1,764 )   (13,691 )
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 73,837     53,321  
Cash, Cash Equivalents, and Restricted Cash at End of Period $ 72,073     $ 39,630  


Net Sales by End Vertical Market            
  Three Months Ended       Six Months Ended    
(Unaudited) December 31,       December 31,    
(Amounts in Millions) 2019   2018   % Change   2019   2018   % Change
Commercial $ 55.8     $ 63.6     (12 %)   $ 111.0     $ 120.2     (8 %)
Education 20.1     18.1     11 %   54.8     52.7     4 %
Finance 16.8     18.1     (7 %)   34.0     36.3     (6 %)
Government 21.7     18.8     15 %   40.3     35.9     12 %
Healthcare 28.2     28.5     (1 %)   57.1     52.9     8 %
Hospitality 49.6     53.9     (8 %)   96.4     97.1     (1 %)
Total Net Sales $ 192.2     $ 201.0     (4 %)   $ 393.6     $ 395.1     0 %


Orders Received by End Vertical Market            
  Three Months Ended       Six Months Ended    
(Unaudited) December 31,       December 31,    
(Amounts in Millions) 2019   2018   % Change   2019   2018   % Change
Commercial $ 60.8     $ 58.2     4 %   $ 113.8     $ 119.1     (4 %)
Education 19.9     19.4     3 %   44.7     41.2     8 %
Finance 18.9     17.9     6 %   39.1     35.4     10 %
Government 23.6     20.9     13 %   43.3     39.2     10 %
Healthcare 32.8     29.7     10 %   62.4     57.5     9 %
Hospitality 58.9     44.9     31 %   101.9     96.1     6 %
Total Orders Received $ 214.9     $ 191.0     13 %   $ 405.2     $ 388.5     4 %


Supplementary Information              
Components of Other Income (Expense), net Three Months Ended   Six Months Ended
(Unaudited) December 31,   December 31,
(Amounts in Thousands) 2019   2018   2019   2018
Interest Income $ 489     $ 428     $ 1,096     $ 847  
Interest Expense (21 )   (56 )   (44 )   (106 )
Gain (Loss) on Supplemental Employee Retirement Plan Investments 716     (1,097 )   774     (726 )
Other Non-Operating Income (Expense) 1     (129 )   (56 )   (173 )
Other Income (Expense), net $ 1,185     $ (854 )   $ 1,770     $ (158 )


Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in Thousands, except per share data)
 
Adjusted Selling and Administrative Expense
  Three Months Ended
  December 31,
  2019   2018
Selling and Administrative Expense, as reported $ 49,719     $ 51,491  
Less: Pre-tax Expense Adjustment to SERP Liability (716 )   1,097  
Less: Pre-tax CEO Transition Costs (175 )   (502 )
               
Adjusted Selling and Administrative Expense $ 48,828     $ 52,086  
Adjusted Selling and Administrative Expense % 25.4 %   25.9 %
       
Adjusted Operating Income
  Three Months Ended
  December 31,
  2019   2018
Operating Income, as reported $ 14,226     $ 13,498  
Add: Pre-tax Restructuring Expense 1,396     0  
Add: Pre-tax Expense Adjustment to SERP Liability 716     (1,097 )
Add: Pre-tax CEO Transition Costs 175     502  
Adjusted Operating Income $ 16,513     $ 12,903  
       
Adjusted Net Income
  Three Months Ended
  December 31,
  2019   2018
Net Income, as reported $ 11,039     $ 9,405  
       
Pre-tax CEO Transition Costs 175     502  
Tax on CEO Transition Costs (45 )   (130 )
Add: After-tax CEO Transition Costs 130     372  
Pre-tax Restructuring Expense 1,396     0  
Tax on Restructuring Expense (359 )   0  
Add: After-tax Restructuring Expense 1,037     0  
Adjusted Net Income $ 12,206     $ 9,777  
       
Adjusted Diluted Earnings Per Share
  Three Months Ended
  December 31,
  2019   2018
Diluted Earnings Per Share, as reported $ 0.30     $ 0.25  
Add: After-tax CEO Transition Costs 0.00     0.01  
Add: After-tax Restructuring Expense 0.03     0.00  
Adjusted Diluted Earnings Per Share $ 0.33     $ 0.26  


Earnings Before Interest, Taxes, Depreciation, and Amortization excluding Restructuring Expense and CEO Transition Costs (“Adjusted EBITDA”)
  Three Months Ended
  December 31,
  2019   2018
Net Income $ 11,039     $ 9,405  
Provision for Income Taxes 4,372     3,239  
Income Before Taxes on Income 15,411     12,644  
Interest Expense 21     56  
Interest Income (489 )   (428 )
Depreciation 3,866     3,729  
Amortization 547     484  
Pre-tax CEO Transition Costs 175     502  
Pre-tax Restructuring Expense 1,396     0  
Adjusted EBITDA $ 20,927     $ 16,987  

Contact:
Dennis Gerber
Investor Relations
812-482-8619
Dennis.Gerber@kimballinternational.com

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