Kimball International, Inc. (KBAL) on Q2 2022 Results - Earnings Call Transcript
Operator: Good afternoon, ladies and gentlemen. My name is Michelle, and I will be your conference call facilitator today. At this time, I would like to welcome everybody to the Kimball International Second Quarter Fiscal 2022 Earnings Conference Call. As with prior conference calls, today's call, February 3, 2022, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from forward-looking statements. Risk factors that may influence the outcome of forward-looking statements can be seen on the Kimball International Form 10-K. During today's call, the presenters will be making references to an earnings slide deck presentation that is available on the Investor Relations section of Kimball International website. On today's call are Kristie Juster, Chief Executive Officer of Kimball International; and T.J. Wolfe, Executive Vice President and Chief Financial Officer. I would now like to turn today's call over to Kristie Juster. Ms. Juster, you may begin. Kristie Juster: Good afternoon, everyone, and thank you for taking the time to join us on today's call. Our second quarter results were in line with our expectations, reflecting strong demand for our diversified portfolio of Kimball International products. We are pleased with the double-digit revenue growth we achieved in the quarter. And importantly, we have continued to see momentum in orders and pipeline activity throughout the quarter. The evolution of the hybrid workplace is on track despite some delays in return to offices caused by the Omicron variant. The return to learning is proceeding as expected and capital projects at major health systems remain on the upswing. These business trends are consistent with our views on how the markets would evolve post pandemic and support the choices we have made over the last 2 years to position Kimball International for accelerated growth. Workplace and Health orders combined have increased at double-digit rates in each of the past 3 quarters, indicating the strength and consistency of demand in these 2 markets, which account for 89% of our second quarter net sales. The magnitude and extent of the prevailing commodity inflation and supply chain issues continued to impact our business in a variety of ways, affecting us on the top line as well as margin levels. Despite these pressures, we were able to deliver adjusted gross margin improvement of 40 basis points versus last quarter. Kimball International's year-to-date performance, together with the robust growth in orders we experienced in the second quarter, continued to support our expectations for fiscal 2022 to be a year of 15% to 20% sales growth, indicating a substantial pickup in the second half of this fiscal year. T.J. will provide additional detail on the elements that affected gross margin in the second quarter and the assumptions underlining our expectations for pronounced margin expansion in this year's fourth quarter. Taking a closer look at our key end markets. Workplace revenue and orders increased 21% and 42%, respectively, in the second quarter, led by the commercial and education sectors and supported by growth in the finance sector. These figures include Poppin, where delays in inventory availability presented a challenge to Poppin's in-stock business model. This caused a pause in the positive sequential momentum in Poppin sales, which we expect to resume in this year's second half as evidenced by Poppin's bookings up 106% versus last year's quarter. As the return to office continues, companies are investing and reimagining their spaces to accommodate 3 consistent themes: a hybrid workplace that caters to both physically and digitally present workforces; a flexible workspace that allows for configuration based on short-term needs and the evolving long-term trends; and an amenity-rich workspace that attracts and retains the best talent and fosters the culture, safety, productivity and well-being of its workforce. With ancillary products representing 85% of our portfolio, Kimball International is benefiting from these themes as our products are well suited to address these demands. Equally, our long-time presence and momentum in secondary metropolitan areas, from which we derive approximately 80% of our revenues, has been a significant advantage as companies migrate to more affordable geographies or established satellite offices in these areas. We have also seen a steady increase in demand in the education vertical, driven by the return to in-person learning, and we are very optimistic for the upcoming educational buying season. Institutions are looking to create flexible environments that support the many ways of learning while driving connection and collaboration for students and staff. Research shows that hybrid learning will become the norm. Technology will play a critical role in ensuring equitable learning opportunities. And safety of students and teachers will remain a priority. At Kimball International, our responsive design and our ancillary products that support adaptive and flexible environments allow students to learn comfortably and safely and enable staff to gather and collaborate in a variety of ways. As shared, our Poppin business has been more affected by the supply chain disruption due to the in-stock value proposition. In spite of this, we continue to see the proof of how Poppin will support and elevate our go-to-market strategy. Our acquisition was grounded in 3 assumptions: our ability to ramp the direct digital B2B model; our belief in expansion in secondary markets and our ability to expand the Poppin brand and portfolio into the Kimball International dealer channel. Our progress has been significant in all 3 areas. Poppin orders were up 106%. Our showroom expansion into secondary markets is in full execution, with Miami fully operational and both Austin and Atlanta showrooms opening this quarter. And our new Poppin Pro dealer cross-sell opportunity will represent a new channel that is over 10% of our total mix at Poppin in year 1. we continue to hold much confidence in our ability to scale and expand this business. Moving to our Health market. Second quarter revenue increased 6% and orders were up 13% despite a slight slowdown due to the COVID variant and diverted focus from noncritical care. Orders have picked up in the second quarter, and we expect demand to build further in the coming quarters as focus will return to elective surgeries and preventative care. We are actively addressing the expanding health care concentrations and investing in customized products in areas such as behavioral health and outpatient clinics, where we see substantial long-term growth opportunities. Staffing shortages and burnout amongst hospital workers have been well documented, and health systems are looking for innovative ways to attract and retain staff. We continue to leverage our research and product development efforts to focus on these issues, and our designs for this market incorporate features that facilitate and support, offer amenities -- and offering amenities in the workplace, flexible environments and hybrid approaches to patient care. Our continued focus on innovation with award-winning products such as the Embra and Ezzeri line is resonating in the market with new product sales representing 23% of our health market sales in the second quarter and will continue to provide opportunities for us to expand further into the retail health space. While our hospitality market is awaiting the full-scale return of business in international travel, the industry continues to be pressured by the effects of the pandemic. Within this environment, we are proactively shifting our sales mix to higher-margin customized products. In the first half of fiscal 2022, customized products account for 64% of hospitality market revenues, up from 42% in the first half of fiscal 2021. We will be well positioned to benefit from a recovery in this market, which we expect to materialize during fiscal 2023. In summary, we are pleased with the strength and the consistency of the demand trends we have seen in the first half of this fiscal year, which is a clear indication that Kimball International is well positioned in the end markets that stand to benefit the most from the pandemic recovery. With that, I'd like to turn over the call to our CFO, T.J. Wolfe, to provide a financial review that will include our update on operational progress. T.J. Wolfe: Thank you, Kristie, and good afternoon, everyone. We are very pleased to report double-digit revenue growth this quarter, especially given the continued economy-wide labor and logistic challenges. Our second quarter net sales were up 11% to $151.4 million compared to the prior year's quarter. If not for the labor and supply chain issues that constrained our production and shipment capabilities in the first half of this year, our revenue for the quarter would have been approximately $18 million higher than reported. Top line growth continues to be led by strength in our workplace and health end markets, offsetting continued expected weakness in the hospitality market and a slightly lower-than-anticipated contribution from Poppin of $13.5 million. As Kristie already mentioned, despite strong demand trends, the ongoing supply chain issues particularly impacted sales at Poppin, which experienced a challenge to its in-stock business model as a result of inventory availability issues. We expect Poppin revenue growth to resume next quarter. However, because of the impact COVID and related labor and logistics issues have had on Poppin's near-term results, we have recognized a onetime $34.1 million noncash goodwill impairment charge associated with the Poppin acquisition. This charge was partially offset by a corresponding decrease in our earnout liability. These actions do not change our view of Poppin's long-term prospects at all and simply reflect the current COVID-related operating environment. We continue to see Poppin as a key driver of our long-term growth model and are excited to underline this commitment through investments such as the 3 new Poppin showrooms opening this fiscal year. Gross margin adjusted for onetime pandemic-related expense of $1.6 million was 31.8% and increased 40 basis points sequentially despite the widespread inflation and supply chain pressures. Raw material inflation and higher freight and labor costs continue to pressure our margins, partially offset by price increases that went into effect earlier in 2021 and ongoing cost-savings programs. While we expect the pace of inflation to subside over the coming months, we think that prices will maintain their elevated levels, thus creating a new normal in our input cost environment, which we've attempted to offset through our various pricing actions. As we mentioned to you before, we announced a price increase that went into effect on October 1 and introduced a price surcharge effective as of November 15 that will become a permanent price increase next month. Approximately one-third of our backlog reflects the November surcharge, and the remaining two-third includes the previously announced price increases, giving us good visibility to improving gross margins, especially starting in the fiscal fourth quarter. Adjusted selling and administrative expenses amounted to $48.5 million compared to $40.7 million in the year ago quarter, primarily related to a full quarter of costs associated with the Poppin acquisition compared to just 3 weeks in the year ago quarter and incremental investments such as the Miami Poppin showroom to support our sales growth and new product introductions. Excluding the goodwill impairment, the earnout adjustment as well as the acquisition-related non-GAAP charges and restructuring, the second quarter adjusted net loss was $5.7 million or $0.16 per diluted share compared to adjusted net income of $3.3 million or $0.09 per diluted share in the prior year quarter. Adjusted EBITDA was $4 million compared to $9.1 million a year ago. Diving into our end markets. Net sales in Workplace and Health increased 21% and 6% year-over-year, respectively. Order activity in the workplace end market was 42% higher compared to the year ago quarter, including the full contribution from Poppin whose orders were up 106% year-over-year and double-digit order growth rates in commercial, finance and education verticals within Workplace. Health orders were up 13% year-over-year. Business activity in the hospitality end market remains at depressed levels, which is reflected in a 23% revenue decline and order activity 12% below the year ago quarter. Our second quarter-end total backlog was a record $196.9 million compared to $170.8 million in the prior quarter and $144.9 million in the second quarter of fiscal 2021, and we expect $134 million of this backlog to ship out in the third quarter. From a balance sheet and cash flow perspective, we ended the quarter with $99.6 million in short-term liquidity, which includes cash and cash equivalents plus the unused amount of our credit facility. Our capital expenditures were $8 million, and we returned $4 million of capital to shareowners in the form of dividends and share repurchases. Despite the near-term challenges, we are reaffirming our guidance for fiscal year 2022 and still expect year-over-year revenue to increase approximately 15% to 20%. Gross margins in the third quarter should be comparable to the first half and should see a sequential increase in the fourth quarter. Capital expenditures net of disposals are on track to total approximately $25 million, unchanged from prior guidance with spending primarily allocated to the construction of our new warehouse in Jasper and a new automated metal manufacturing capability in our Salem facility. We continue to anticipate operational excellence projects to yield cost savings of approximately $10 million in fiscal 2022. These savings will partially fund our ongoing growth investments, namely the opening of new Poppin showrooms, as Kristie mentioned earlier, as well as our marketing and promotional spend and building out of our sales force. As a result, we project higher overall S&A spend in fiscal 2022 compared to the prior year. For our third quarter guidance, we forecast year-over-year revenue growth of 23% to 25% with gross margins at approximately 31% and S&A expenses totalling $50 million to $52 million. With that, I will turn the call back to Kristie for closing remarks. Kristie Juster: Thank you, T.J. We are pleased with the strong year-to-date demand we have experienced across our broad product portfolio, selected geographies and key vertical markets, which reinforces the relevance of Kimball International's innovative designs to today's dynamic workplace and health care environments. In addition to our record backlog heading into the second half of the fiscal year, which incorporates the price increases and the surcharge we implemented in recent months, our sales team have line of sight to sustained high activity levels that are contributing to our broader pipeline. We are focused on accelerating market share gains and continued investment in growth by opening and scaling our new showrooms, investing in new product development and introductions and the expansion of our selling organization. I'd like to close by acknowledging and thanking all our Kimball International employees for their commitment and contributions every day. As a company, we remain dedicated to providing a safe and inclusive workplace, being responsible for a more sustainable future and making a difference in our communities. We have confidence in our progress and much conviction as our business continues to ramp and our end markets return. Now I'd like to turn the call back over to the operator. Operator: And our first question comes from the line of Greg Burns with Sidoti & Company. Your line is open. Please go ahead. Greg Burns: When we look at the outlook for the gross margin, what's been the, I guess, the biggest change and the biggest factor impacting that? It looks like you're expecting a little step back in the third quarter, but some improvement into the fourth quarter. Whereas previously, I think the idea was we would see kind of sequential improvement throughout the year. So what's been the biggest factor that's changed there? And what gives you confidence that you start to see that trend improve into the fourth quarter? T.J. Wolfe: Yes. Sure, Greg. So I think a few things there. I think, one, certainly, in the first half, inflation outstripped our initial estimates. And so I think the realization of that in the near term and I think the other factor is that the supply constraints have really delayed our ability to convert the backlog into revenue. And so as I mentioned, the record backlog gives us a lot of visibility, but most of our most recent pricing actions are still held up there. So as I mentioned, one-third of the backlog has our most recent price, two-third prior to that. And so as that starts to convert in the fourth quarter, we'll see margin expansion there. I would also note that in Q3 we would have a slightly adverse mix element. So hospitality would play a bigger mix roll in Q3 versus Q2, which would offset any of the kind of improvement we would see in Workplace and Health. So I think those are the broad factors. But in general, why do we feel confident in Q4, I would say, is what we see in the backlog with pricing there. Greg Burns: And then in terms of labor constraints, is that your biggest bottleneck right now in terms of production? Or is there other supply chain issues that are impacting your ability to meet demand? T.J. Wolfe: Sure. It spans all 3 areas we talked about before, labor, materials and logistics. And I would say in each case, labor, we see an improving landscape. So we've been able to hire. We've added about 10% -- increased our manufacturing workforce by about 10% since the beginning of the year. We're going to look to try to do a similar amount over the next 6 months. On the material side, I would say it's probably settled out. It's not getting any worse, but not any better at this point. I think what we're learning now is how to work in this environment, so how can we expedite materials, how can we transload to get things to our factories faster. So we're looking to adapt in this constrained logistics environment. So I think labor outlook improving. Materials and logistics similar, but we're learning to live with the new normal. Greg Burns: And in regards to Poppin, what percent of their business is that kind of that on-demand that's been impacted by the inventory constraints? And going forward, can you just touch on the Poppin Pro program? How long has that been live? And kind of what's your outlook there for driving growth at Poppin? T.J. Wolfe: Sure, Greg. Let me just kind of break out the channels. Again, I'll hand it to Kristie to talk about Pro. But as a reminder, there's really 4 channels within Poppin. We've got our -- the primary it he B2B. There's also a wholesale channel, a much smaller direct-to-consumer and then Poppin Pro, which I'll let Kristie mention. But by far, the B2B -- and again, this is on-demand, in-stock, short lead time is the vast majority of their business. And so as we referenced, with the pullback in the previous quarter, that was the big driver was that, that business wasn't able to deliver because the inventory levels haven't been replenished to where they were prior to the pandemic. But I'll let Kristie talk about Pro for a minute. Kristie Juster: Sure. So Poppin Pro, we started at the program -- the concept of the program at the beginning of the acquisition. And I think we commented in the script that we believe the Pro volume will be about 10% of the mix by the end of the year, which is, obviously, the first year that we've been doing it. If you think about launching Poppin Pro into the commercial channel, as you know, it takes a little while to get traditional trade and dealers comfortable in selling the Poppin Pro portfolio and acclimating to the lead times and the value proposition that is a part of that model. We've been very pleased with the progress. We have -- we do see lots of opportunity in the future. One of the things that we've seen forming is that the pod business is a very attractive business that goes into that channel, and that is obviously a brand new category for us. So we make good traction. We're getting great feedback from our dealers. We have a lot of alignment between the Kimball International selling organization and the Poppin expertise, and we really think that is a significant opportunity going forward. Greg Burns: And then just lastly, you did mention Poppin's orders were up 106%, but how much is the backlog up? Like is this on-demand kind of order flow loss business? Or is it something that falls into backlog that you could fill at a later date? T.J. Wolfe: Yes, that's a great question, Greg. And I would say, for the most part, the backlog in Poppin does not work like our traditional business. So -- and that's as evidenced by the results in the quarter. So in our existing Workplace and Health business outside of Poppin, if we get an order and there's a long lead time, we put it in the backlog and produce it when we can. With Poppin, they do have a small backlog, but it's things that would be delivered within, we'll say, 4 to 6 weeks. It's very short. So in some cases, as you say, if you can't deliver on demand, it is a lost sale. They are able to put some projects in the backlog, but most of it would be on demand. Operator: And our next question comes from the line of Rudy Yang with Berenberg. Your line is open. Please go ahead. Rudy Yang: I guess, firstly, could you guys just provide some color around how maybe order trends have evolved? So I guess, specifically, orders last year, earlier last year were really coming from secondary markets where a majority of Workplace and Health segments are focused. So I guess are there any numbers you could kind of put around where secondary versus primary market order growth currently stands? And maybe talk to how much more potential you think secondary markets have to ramp up in terms of orders. T.J. Wolfe: Sure. Let me start, Rudy, and then I'll hand over to Kristie for her thoughts. I think a few things. We look at orders in a few different ways. I would say, number one, the order pattern, and we said this last quarter, has been very consistent over really the past 9 months. And this goes through the different variants that have come out to put challenges in the market, the price increases we've taken, the supply constraints, we've seen very resilient and consistent demand throughout that period. I think, when you look at day-to-day and project business, day-to-day, again, is the larger part of our business. That is two-third of it. I do think in the project space, particularly in Health, you see some delay as the Omicron variant put challenges into health systems over the past 2 months. I think that's one element. And then as we talked about in secondary markets, that is our strength. Those came out of the pandemic earlier in the calendar year very well. Metropolitan markets were catching up, we'll say, in the fall. But then those, again, were impacted more by the Omicron variant over the past few months. So I would say metropolitan markets, large metro markets have pulled back in the short term. But again, not quite the same impact in secondary. So that's a few of the points that I'd highlight. Kristie Juster: Yes. I would just add that we are seeing a handful of secondary markets certainly getting back to work with significant growth trends and some of the -- we have 6 metropolitan markets that we follow, 2 of them, New York and San Francisco, are definitely lagging. There is no doubt about it. And -- but we are spending our time really in those secondary markets where we can see the growth. And then I'll just comment on the ancillary category. We continue to see the ancillary category outpace everything else significantly, and we're very pleased with the progress in the new product development that we have in that area. And the last thing that I would say is the Health new product development number is really gaining momentum. So we're excited about the progress that we're making in our health specialty area. Rudy Yang: And then secondly, how long does it take for the benefits of lower materials cost to kind of flow into your results? Was any of that recognized this quarter? Or is it more kind of price increases starting to take effect that played a larger role and kind of mitigating impacts to your margin this past quarter? T.J. Wolfe: Sure, Rudy. So I think on -- when these -- the price increases that we've realized from our suppliers have come on quite quickly, much faster than they have in the past because inflation is coming to the supply chain quicker. And then as we've said, it takes us 3 to 6 months to pass those on in our list prices. As far as where you would see improvements in metals, so steel, aluminum and then in corrugated perhaps, those contracts in general will reprice as the market reprice. So they're structured to lower somewhat automatically as market rates decrease. The broad remainder of our procurement portfolio would require some other actions. So it would require you revisiting the supply base. So certain commodities reprice, but others will take more time. Rudy Yang: And then in terms of your backlog, that $134 million that will be moved next quarter. I guess how does that firstly compare to the amount of backlog you've been able to move historically? And how much of that one-third in orders tied to, I guess, previously, the lower negotiated prices will move in the next quarter? T.J. Wolfe: Sure. Rudy, I would say the majority of the backlog that carries prices prior to the November price increase, the majority of that, and I would say maybe 80-20 will clear this quarter. So those orders have been in for some time. The majority of those will clear this quarter. I think when you look historically how we've turned our backlog, I think we are -- if you look over the last 4 quarters, it's increased every quarter. I think we're getting back now to sort of a normal cycle where you would expect to turn roughly two-third of the backlog in any given quarter. I don't -- that's kind of what a historical level would be. Also, it depends on the mix of Hospitality, as we talked about, because that is a longer project life cycle, more like 6 months. But I think we're beginning to get back into where the backlog should begin to level out and then we can begin to lower it over time as we ramp up production through, again, hiring and improved supply chain. Rudy Yang: And then finally, just on Poppin, I guess, despite the supply chain disruptions this quarter, you still anticipate sales will kind of pick back up in the second half of the year. So I guess, firstly, what gives you confidence in supply chain issues for Poppin specifically will improve going forward? And secondly, I know you kind of mentioned earlier that sales are usually lost kind of after that 4- to 6-week period. So do you expect to make up any of those kind of lost sales in this quarter just going forward? T.J. Wolfe: On the first point, as far as what gives us confidence, so we have visibility now to inventory replenishment for Poppin that is on the water. So again, as a reminder, that's a sourced product primarily from Asia. So we have a good visibility now to what's on the water will be arriving in the port and then to our warehouse and ultimately to the customer. So I think that visibility -- and again, those shipping times were worse than we had anticipated in the prior quarter, which is what again drove the lower revenue number. So I think we've got better visibility to inventory levels and therefore stocking going forward. And as far as the sales, as I mentioned, those sales are, in some ways, lost sales. If you don't have the inventory on hand, those customers will look elsewhere. So I think that doesn't mean that we're having less days in prospects to the back half, but those aren't sales necessarily be able to recoup or recover. Kristie Juster: And Rudy, I'll just add a couple of thoughts. Just one thing that I would add is one of the dynamics that happens with that digital lead-gen model where search marketing is really the main component is when your inventory is so low you actually can't invest in search mechanics. And so the search marketing is significantly down because our inventory position is not available and doesn't allow us to do that. We will turn that back on, and we are tracking the inventory coming in. So that will come back on. The other dynamic is the consumer uses the website for information and it's a completely transparent model. And you can see right now some of our models are actually out of stock. That will be turned back on. So those 2 dynamics will turn around the moment that the inventory gets back in position. Operator: And our next question comes from the line of Tom Maher with Hilton Capital. Your line is open. Please go ahead. Tom Maher: Just to follow up a little bit on gross margin and then I had some follow-ups. But on the gross margin, I'm curious, in terms of the price, if you calculated in the second price or the surcharge which will become permanent, does that sort of fully catch you up? Or are you still a little bit behind? I understand that there's a lag. T.J. Wolfe: Yes, Tom. So what we've been saying is that the pricing actions we've taken, so up to and including the surcharge, will cover what we believe are the elements of inflation that will be sticky. So we think about those as being wages, elements of the supply base that weren't automatically reset, as I mentioned, things like steel, aluminum, corrugated, those reset, but others don't. And then a higher level of logistics cost. Because while we do think the current, let's say, ocean freight rates won't stay where they are, we don't see them going back to where they were. So in our model, we've taken into account what we believe are those sticky amounts of inflation, and that's how we've set our price increases. Tom Maher: And just out of curiosity, how has the response been? I mean, obviously, you're still looking at decent growth in orders, but I'm just curious if you're getting any pushback. I don't know what the magnitude is on a percentage basis. But if that had impacted demand, do you think at all? T.J. Wolfe: Yes. So far, we have had levels of price realization that matched our expectations. So with each subsequent price increase, we've, again, captured the amount we sought to capture. I think this quarter will be something to certainly watch as we've got these pricing actions fully in the market, the Omicron variant. But no, to date, no significant challenges in relation to that. Kristie Juster: And I would just add, Tom, that we have a very seasoned selling organization that has long-time relationships with our dealer partners. We do a tremendous amount of work to educate our dealer partners and support them through this process. So I think, as T.J. always says, our market is very rational in regards to price. And -- but they are deep conversations to make sure that we are setting up the right partnerships and business in the future, and our selling organization has done an outstanding job. Tom Maher: And then in a totally different area, you mentioned the sort of education, the buying season. And I'll admit to my lack of knowledge here. But kind of what's the timing when you're seeing orders going into the summer for delivery in the fall? Or when would that sort of be? And then I was just curious, in terms of the types of products they're ordering, is there any sort of change relative to what a typical education buying season might look like? T.J. Wolfe: Sure. I'll take the timing. I'll pass the product over to Kristie. But for timing, that would tend to be March, April, May for delivery and installation in the middle to end of summer prior to the school starting in fall. That would kind of apply universally. So you think about kind of in the spring time for delivery and installation this summer is generally the pattern that it flows through. Kristie Juster: And talking about Tom Maher: In the quarter near term, right, in terms of that? T.J. Wolfe: Yes. Kristie Juster: And from a product portfolio perspective, one of the reasons that education is such an important vertical for us is because of our expertise in ancillary lounge, tables, seating. And so as educational environments are going into more open environment, if you think about the role of technology in educational formats, the rooms are looking different. They're needing -- they're working with open floor plans now. And so our product portfolio fits extremely well in the educational environment, and we are seeing that actually take place. And we have product pipeline that's designed to specifically fill the needs of education. So -- and that is an area that we've been in for quite some time. Tom Maher: And then just one last one, and this is probably too minutiae, but just curious on the goodwill write-down. I mean, given the fact that what seems to be occurring in the market is temporary, if you will, although it's less temporary than we all thought, I'm just curious about what sort of the mechanism and understanding part of the earnout is an offset. But since you would think that the nature of the business hasn't necessarily been impaired on a long-term basis, just curious why it triggered the write-down. T.J. Wolfe: Yes. No, Tom, a very good question. And I think, as we said, our long-term prospects and kind of excited for the business haven't changed. But when you look at some of the way the rules around this work and the valuation models, they put a heavy emphasis on the near-term period. So when you then look at a compressed period like we had in the prior quarter, although you might still have this confidence in the longer term, basically, the way the valuation works is that it has that impact and it pulls down kind of the analysis. As we said, though, significantly offset by a $22.5 million decrease in the earnout. And so I think when we look at the totality of that, still very excited about what Poppin is going to do for us in that space. Tom Maher: Yes, makes sense. And I did see the offset in the release. Operator: And I'm showing no further questions at this time. And I would like to turn the conference back over to Kristie Juster for any further remarks. Kristie Juster: Great. Thank you, Michelle. Well, first, I want to thank everybody for joining us tonight in their engagement and our business at Kimball International. We have entered this challenging time with an incredible focus on delivering results for the short term with diligence, but also making sure that we are really building this business for the future. And I'm incredibly proud of the progress that we've made on our strategic agenda. And we'll be excited to tell you about our path forward next quarter. So thank you very much and wishing everyone a nice evening. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.KBAL Ratings Summary
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Kimball International Reports Strong Q3 Results
Kimball International, Inc.(NASDAQ:KBAL) reported its Q3 results, with revenue coming in at $180.9 million (up 30% year-over-year), above the consensus estimate of $171.8 million. Non-GAAP EPS was $0.21, beating the consensus estimate of $0.03.
Workplace and Health sales remained robust, growing 52% and 8% year-over-year, respectively. Hospitality sales declined 2% year-over-year, due to continued softness in travel levels. Orders grew across all segments, with Workplace, Health, and Hospitality delivering 36%, 2%, and 43% year-over-year growth, respectively.
Analysts at Berenberg Bank shared their views following the earnings announcement, expecting demand strength for Workplace orders to continue, given the ongoing population growth in secondary geographies (Kimball’s target market), and the emerging use of well-designed offices to attract and retain talent.
