MillerKnoll, Inc. (MLKN) Q3 2015 Earnings Report, Transcript and Summary

Good morning, everyone, and welcome to this Herman Miller, Inc. Third Quarter Fiscal Year 2015 Earnings Results Conference Call. This call is being recorded. This presentation will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks and uncertainties include those risk factors discussed in the company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission. Today's presentation will be hosted by Mr. Brian Walker, President and Chief Executive Officer; Jeff Stutz, CFO; and Mr. Kevin Veltman, VP of Investor Relations and Treasury. Mr. Walker will open the call with brief remarks, followed by a more detailed presentation of the financials by Mr. Stutz and Mr. Veltman. We will then open the call to your question. We will limit today's call to 60 minutes and ask that callers limit their questions to allow time for all to participate. At this time, I would like to begin the presentation by turning the call over to Mr. Walker. Please go ahead. Brian C. Walker - President, Chief Executive Officer & Director: Good morning, everyone. Thank you for joining us on today's call. I'll begin with a brief update on our recent performance and key strategic initiatives then hand the call over to Jeff and Kevin to review the financials in greater detail. As you know, we announced preliminary third quarter sales and orders on March 2, just ahead of our presentation at the Raymond James Investor Conference that same week. Our final results for the quarter landed within the ranges we provided at that time with consolidated sales coming in at $516 million and new orders totaling $501 million, representing year-on-year growth of 13% and 8%, respectively. As we noted at the time of our preannouncement; during the third quarter, we continued to see momentum in our Specialty and Consumer business segments, both of which reported year-on-year growth in sales, orders and profitability. The same can be said of our ELA segment, which despite a challenging currency environment posted solid organic sales and order growth and improved earnings performance. At the same time, as we highlighted last quarter, the performance of our North American contract business has not met our expectations, particularly in the area of order growth, which began to lag the broader industry trends during our second quarter. On our call in December, we outlined several contributing factors along with the actions we were taking to address the issues. During the third quarter, we rallied around implementing these action plans. Indeed, many of them are complete, and we continue to actively make tactical moves to improve both our short and long-term competitive position in this segment. While we are pleased with the speed with which the organization is responding to these challenges, these actions did not impact orders and revenue in the third quarter. To be frank, given the project cycles of this segment, it will take some time before these actions work their way through wins, orders, and ultimately revenue. With that said, we are confident, these actions will improve our competitive position and we will be relentless in our drive to compete and win. I would further note that our industry outlook for North America continued to show positive signs. The most recent BIFMA forecast calls for mid-single-digit growth in calendar 2015 and 2016. Underlying leading indicators, including service sector employment, non-residential construction forecast, and ABI trends should also support our efforts to accelerate growth. So, let me recap how we plan to do it. First, I'll discuss actions within our sales organization, and then what we're doing on the product side. Within sales, we increased selling capacity during the third quarter by filling open sales positions, and we're now running at normal staffing levels. We're also putting greater focus on small and mid-sized projects to ensure we are competing more effectively for this business. Finally, we are executing detailed, market-by-market plans to ensure showrooms and sales teams are well positioned to effectively communicate our value proposition. Each of these initiatives are up and running and gaining traction. From a product perspective, we've completed development and launch of key new product introductions, including the Canvas Dock, an important extension to the Public Office Landscape and Mirra 2 product lines, all of which are now available for order. We're also accelerating the development of products, which will fill gaps in our offer over the next six months to 12 months. We've also reset many of our North American showrooms with the remainder to be completed by the end of the fourth quarter. The objective was to ensure we had the right assortment of products on the floor including our newest products such as Canvas Dock. We've also moved quickly to get these products into the showrooms of our dealers and accelerated the training of their people. In addition to these actions, we took important steps within our North American leadership to ensure we have the right team in place to help us execute our strategic plan. Our goal is simple, get closer to the customer and dealer and then deliver industry-best speed and solutions. And we're confident we have the right team to do it. To sum it up, as we look at our North American business, we have our arms around the issues, we're attacking them with a sense of urgency and resolve, and we are confident we have the right strategy, the right tools and the right leadership in place to return this business to higher growth. Let me now turn to other parts of our business that have continued to perform well. The Specialty and Consumer segments, once again delivered solid orders and sales and margin contribution. That's great evidence of the continued progress in our Shift strategy to diversify our customer base and develop new avenues for long-term growth as we focus on building a lifestyle brand. Within the Consumer segment, the integration of DWR is well underway and proving very complementary to the strategy. The team led by John Edelman and John McPhee is deeply engaged and moving ahead in high gear on our priorities and plans. We are making good progress towards our exclusive product goals, introducing more DWR exclusives and growing our Herman Miller Consumer product offer, while also expanding our e-commerce business. We are also continuing to see growth from other key non-exclusive brands that DWR carries. Likewise, the new large format studios continue to perform well and are proving to be a more efficient model for the business. We will continue to convert three to five studios per year to the larger format to allow us to display our products much more effectively for our customers. In short, the Consumer business is becoming a powerful part of our economic engine and we expect the positive momentum the team is building to continue. Our Specialty business also performed well this quarter, with double-digit sales and order growth in both Geiger and our Herman Miller Collection business. The Maharam team continues to deliver premium margins and remained very positive on their growth potential with active plans underway in new categories and geographies. While our reported growth rate in the third quarter reflected the negative impact of the strengthening U.S. dollar, our ELA segment delivered solid organic results, posting year-over-year growth of 6% in sales and 5% in orders. This growth was led by increased demand in Asia-Pacific, particularly Australia and India, and continued project activity in the Middle East. As we look at the Herman Miller value proposition overall, we have a premier brand and a talented team to take it further. We are focused on executing a strategy that fits well with our strengths and capabilities. Through our swift and decisive actions and an unmatched dealer network, we are confident we were gaining momentum in our contracts business in North America. With that, I'll turn the call over to Jeff to further discuss the financials.

Thank you, Brian. Good morning, everyone. Consolidated sales in the third quarter of $560 million were 13% higher than the same quarter last year. Orders in the period of $501 million were 8% above the prior-year level. On an organic basis, excluding the impact of DWR, dealer divestitures and foreign currency translation, net sales in the period increased 4% from the prior-year. Within our North American segment, sales were $296 million in the third quarter. This represents an increase of 1% from Q3 of last year. Adjusting for the impact of dealer divestitures and foreign currency translation, segment sales were up nearly 3% on a year-over-year basis. New orders in this segment totaled $282 million in the third quarter, reflecting a 3% decrease from last year on a GAAP basis and an organic decline of 1%. Our ELA segment reported sales and orders in the quarter totaling $97 million and $100 million respectively, both of which reflect the decrease of 1% compared to last year. Adjusted for the negative impact of changes in foreign currency translation, segment sales increased approximately 6%, and orders were up 5% relative to Q3 of last year. As Brian highlighted, the organic sales and order growth was driven by increased demand in the Asia-Pacific region, particularly Australia and India and continued strength in the Middle East. Sales in the third quarter, within our Specialty segment, totaled $51 million. This represents a 6% increase over the same quarter last year. New orders in the period of $53 million increased almost 8% from a year-ago period. Our Consumer segment reported sales of $73 million in the third quarter, an increase of $56 million from the same period last year. Of course, the addition of DWR drove the majority of this year-on-year sales growth, but we also enjoyed strong organic growth posting an increase of 22% over Q3 of last year. New orders in this segment totaled $65 million, an increase of $43 million over Q3 of last year. We estimate that the translation impact from changes in currency exchange rate relative to year-ago levels reduced our consolidated net sales and orders in the quarter by approximately $8 million. I'll now review expenses and earnings for the quarter. Our consolidated gross margin in the third quarter totaled 36.9% compared to 35.7% in the same quarter last fiscal year. This 120-basis-point improvement resulted primarily from favorable product and channel mix, including the addition of DWR, operational improvements within our Specialty and ELA business segments, and net pricing realization. These factors combined to more than offset the negative currency impact of the stronger U.S. dollar. Operating expenses in the third quarter of $151 million were up $24 million from the same quarter last year. This relative increase in expenses was driven principally by the addition of DWR. Additionally, during the third quarter, we announced restructuring actions involving targeted workforce reductions within our North American business. These actions resulted in a recognition of severance and outplacement expenses totaling $1.9 million before tax. On a GAAP basis, including restructuring charges, we reported operating earnings of $37 million in the third quarter. Excluding these charges, adjusted operating earnings in the quarter were $39 million or 7.6% of sales. In the third quarter of last fiscal year, adjusted operating earnings were $35 million or 7.7% of sales. Our effective tax rate in the third quarter was 33.6% compared to 33.3% in the same quarter last year. And finally, net earnings in the third quarter were $21 million or $0.35 per share on a diluted basis. Excluding the impact of restructuring expenses recognized in the period, adjusted diluted earnings per share this quarter totaled $0.37. This compares to adjusted earnings of $0.34 per share in the third quarter of last year. With that, I'll turn the call over to Kevin to give us an update on our cash flow and balance sheet. Kevin Veltman - VP of Investor Relations & Treasurer: Thank you, Jeff. We ended the quarter with total cash and cash equivalents of $62 million, an amount down approximately $3 million from where we ended last quarter. Cash flows from operations in the third quarter totaled $39 million, which reflects an increase of $6 million over the third quarter of last year. Changes in working capital resulted in a net cash use of $12 million in the period. This was driven primarily by a reduction in accounts payable balances and increased prepaid expenses associated with income tax payments. These changes were partially offset in the quarter by a net reduction in trade receivables. Capital expenditures in the quarter were $17 million, and we continue to anticipate full-year capital spending to be between $65 million and $70 million. Cash dividends paid in the quarter were $8 million compared to $7 million in Q3 of last fiscal year. We remain in compliance with all debt covenants; and as of quarter-end, our gross-debt-to-EBITDA ratio was approximately 1.4 to 1. The available capacity on our bank credit facility stands at $116 million at the end of this quarter. We are confident that we can meet the financing needs of the business moving forward, given our current cash position, expected cash flows from ongoing operations, and available borrowing capacity. With that, Jeff will now cover our sales and earnings guidance for the fourth quarter of fiscal 2015.

Okay. Thanks, Kevin. We expect sales to range between $530 million and $560 million in the fourth quarter. This guidance implies total revenue growth between 10% and 14% over Q4 of last fiscal year. We're expecting our consolidated gross margin in the fourth quarter to remain fairly stable with the Q3 level, as increased factory production and lower commodity costs are offset by continued currency pressure and incremental discounting. In total, we expect gross margin to range between 36.5% and 37.5% for the quarter. We also anticipate a seasonal ramp-up in operating expenses this quarter, driven by higher sales volume, increased spending on program marketing in support of new product launches and the preparations for the NeoCon trade show in June. In addition, we expect our fourth quarter expenses will reflect incremental investments in selling capacity and showroom refreshes relative to our third quarter spending level. So, in total, Q4 operating expenses are expected to range between $157 million and $161 million. Earnings per share in the quarter are expected to be between $0.39 and $0.43. This guidance assumes an effective tax rate of approximately 34%. I should also point out that this estimated tax rate does not reflect any potential benefits related to certain tax planning ideas we are contemplating for the fourth quarter. And with that, I'll turn the call back over to the operator, so we can take your questions.

Our first question comes from the line of Budd Bugatch of Raymond James. Your line is open. Please go ahead. Beryl Bugatch - Raymond James & Associates, Inc.: Good morning, Brian. Good morning, Jeff. Good morning, Kevin. I guess, my first question goes to the composition of sales growth in the fourth quarter. How do you see that, given the issues with North American Furniture Solutions? And also the issue with ELA and currency translation? Brian C. Walker - President, Chief Executive Officer & Director: Budd, it's Brian. Jeff may have to fill in the details. But, I would say, a good chunk of the growth in the fourth quarter is actually on the Consumer side. I think we talked about that too when we were down at your conference, that we've got – first of all, we've got more promotional activity in the fourth quarter on the Consumer side at DWR and the Herman Miller stores. So, we'll see a good chunk of the growth will come quarter-over-quarter in that part of the business. ELA, I think is about flat...

Yeah, Budd. This is Jeff. I would say, if you look at the rate that we've contemplated for our Q4 guidance and you go back to kind of average rate levels a year ago, that would suggest that we could see somewhere between $10 million and $15 million of additional pressure or additional headwind from currency. And, of course, just like we saw this quarter, the bulk of that will be felt in the ELA segment. So, we don't expect that to get any easier necessarily if we move into Q4. So, that will definitely impact our growth rate, I think, in the ELA segment. A portion of that, of course, will be in North America with the Canadian dollar as well. Beryl Bugatch - Raymond James & Associates, Inc.: Okay. We were guessing that the fourth quarter for the Consumer segment might match what you did in the second quarter, somewhere around $80 million. Is that a reasonable guess for the fourth quarter?

Yeah. Budd, I think that's probably pretty close. That's right. That's our expectation. Beryl Bugatch - Raymond James & Associates, Inc.: Okay. And I guess my last question and I'll cede the floor to others, really goes back to the 2014 Analyst Day and the goals that you set there. Since that time we've had some moving parts. Obviously, North American Furniture Solutions' disappointment, I think Consumer and DWR maybe a little bit better, and FX. So, do you still maintain that kind of – those goals or maybe you want to recast them or tell us how you think about them today? What those moving parts might reflect?

Budd, I think it's, to be frank, it's too early for us to even know how to recast anything. I would say, longer-term, we still think the things we're doing strategically are in the right direction for what we talked about. Obviously, with all the moving parts, until we get a bit of a track record, further track record, to be frank, on the Consumer side, as well as with all the actions we've been taking in North America. And as you know, the currency one has been a relatively recent and rather dramatic change. So, I would say those ones are hard for us to actually absorb right now, to figure out how long are they, when do they turn. In North America, I think the question for us is going to be, we see signs on, I would call it very micro-data of things we're doing and how they're having an impact. Talking to dealers, they're positive. On the other hand, when those things will come through and convert from – we're doing the right things to win on individual projects. So, when they convert to project wins, when they convert to orders, when they convert to sales, I think we still got some ways to go to figure out a good solid point of view on that. Beryl Bugatch - Raymond James & Associates, Inc.: Okay. I will let others ask, and I'll probably get back in the queue. Thank you.

Thank you. Our next question comes from the line Josh Borstein of Longbow Research. Your line is open. Please go ahead.

Hi, Brian, Jeff, and Kevin. Good morning to you. Brian C. Walker - President, Chief Executive Officer & Director: Morning.

Just a question, on the areas in the North American solutions business that you think led to some of the market share losses, whether it's selling capacity, the showrooms, product gaps, or maybe the Living Office approach, could you rank which items you think have given you the most troubles? Brian C. Walker - President, Chief Executive Officer & Director: Josh, it's difficult to rank them at one level, because they're interrelated at one level or another. By the way, let me just say, I don't think Living Office was a negative factor that caused anything other than, if you tie the launch of all the work we've been doing on sales training, part of which was related to Living Office, but only a part of; the sales capacity, as we talked – I think, again, in the second quarter, we talked at the Raymond James Conference, you really had two things going in at sales capacity. A, we're doing a lot of training and development both of our salespeople as well as the dealers, which took a fair amount of time out of the field. You couple that with, we actually were down in head count as well. And those two things combined, you just took a lot of selling days out. Both those things are kind of what I would call them at more normalized levels now where we've got the sales folks back in play. The product side, we've launched a number of new products this year, most recently Canvas Dock, which has been ordered for about three weeks now, I think, maybe four week, which is still getting in the hands of the dealers. We've accelerated that by offering to put that product in every dealer showroom over the next two months to three months. Those orders are being processed, as we speak, as we want to get it in their hands as well as getting it into all of our showrooms. If you had to do it over again, you would love to have that product probably six months ago. We think it's going to have a big impact. Of course, you never know until you launch it and get it out in the market. I would say, we've had business on that product but in a different version that we did for a specific customer for the last 18 months or so. Now, we're talking about taking it out to a broader commercial ramp. Those two are probably the most significant in terms of where I think it's – whereas I combine those two together, those are the two biggest. I would also say – and I wouldn't put small on this. For sure, I think there has been a lot of talk in the industry that the project sizes have become more small to mid-sized. Everybody probably has their own definition of what that means. It's clear as we're out there day-by-day with dealers that the competitive pressures around those project sizes have increased over the last 18 months to 24 months. I would say we weren't as agile in that world as we needed to be, so I think it's a combination of being more agile around projects that sometimes means discounting, that sometimes means terms and conditions, that sometimes means applications, sometimes means product modification. So, we've got a whole effort around that as much as we do on the other ones to say we intend to be as competitive as anybody in that whole spectrum of projects. And then I'd actually probably put last the work around the showrooms. It's important because, of course, if a customer comes to a showroom and can't see what they want to buy, that's not helpful. I don't think that was a primary thing, but as we get caught up on the product side, it's more important that we got the showrooms reset as those new products roll. And that's been really the push, is to make sure, as we get products that seemed to have good legs, how do we make sure they're available.

Okay. And just to follow-up to some of those comments, and thanks for all that color, you mentioned an increase in small to mid-sized projects. Do you think the Living Office solutions-based approach is similarly appropriate for those size businesses as it might for a large-size project? Brian C. Walker - President, Chief Executive Officer & Director: Absolutely. In fact, some of our most important ones that we've done have actually been in more mid-sized. The one thing you have to keep remember, the Living Office is two things. First of all, it's a research-based point of view about where offices are going in the future. And we use it really for two things; one, to set our product agenda; and two, to help customers make better choices about the things that they need. And it's important on both fronts, because it helps drive what is in our product development queue. And even if you don't go through the process of choosing from that model, it'll still be important. It'll be inside essentially into every product that we do.

Okay. Great. And just a follow-up for me. On SG&A, you talked about the reasons why it's going to bump up here in 4Q as a percent of sales. Just longer-term looking at SG&A, it's been up, I think, the past four years, more meaningfully in the last two years. Just trying to look into fiscal 2016, how should we think about SG&A as a percent of sales? Do you think it could be lower than it was in FY 2015? Brian C. Walker - President, Chief Executive Officer & Director: Well, first thing you got to remember, Josh is a big chunk of what's going on, on SG&A rising in the last four years, is we have a very different mix. So, you really do have to look at it by segment, because in the Consumer segment, you have significantly higher gross margins and you have significantly higher operating expenses as well. That's also true in some of the other parts of the business, particularly in the coverings or textiles, or whatever you want to call that segment. You tend to run higher on both ends as well. So, part of what you're watching happening in operating expenses is a mixed question, as much as it is business unit by business unit. Having said that, and I don't know that this will be true in 2016; but as we look longer-term, we are asking ourselves, particularly in the core business, as we continue to see a lot of activity around how do you compete in the small to mid-size world, how do we continue to get more efficient and effective where we can around operating expenses. That is a topic we've got. I'm not going to make a prediction for you on it. We're not going out any further than the next quarter right now, but let me just say it's an area that we are paying attention to.

Okay. Great. Thanks for the color. I'll hop back in the queue. Thanks.

Thank you. Our next question comes from the line of Todd Schwartzman of Sidoti and Company. Your line is open. Please go ahead. Todd A. Schwartzman - Sidoti & Co. LLC: Hi. Good morning, guys. Brian C. Walker - President, Chief Executive Officer & Director: Hi, Todd.

Hey, Todd. Todd A. Schwartzman - Sidoti & Co. LLC: Can you talk about North American orders kind of slice-and-dice, if you would, by maybe project type, size, some of the verticals, including government during the quarter?

Sure, Todd. This is Jeff. Let me start by saying, in terms of the pace of orders in the North American business, the core contract business, we saw a fairly stable rate of order entry through the quarter. So, I'll start there. When you look across sectors, there were a couple of things, I think, that are probably worth pointing out. The first one being – and you alluded to a fed government, we actually did see some additional drag on year-over-year activity with the federal government. Our fed government business is, I think we ran – I'm going to give you rough numbers here, maybe just under 4% of the total consolidated group this quarter that's down a bit from where we ran in Q2. I think all-in, we saw about $6 million or $5 million, I think it's closer to $5 million overall order decrease year-on-year with the fed government. So, we did feel some pressure there, which as you know, that is in a sector for us that for a couple of quarters, two or three quarters running had shown a fair amount of stability. And by the way, it's not in any one project that drove that year-on-year. The petroleum sector is one that's down a bit. There was modest movement across some of the others, but I don't see anything that was terribly notable from that point of view. State and local government was pretty flat year-on-year. Todd A. Schwartzman - Sidoti & Co. LLC: And that big energy industry order that you've been shipping for a number of quarters now, how much of that's shipping in Q3 and what's remaining in terms of the timeline?

So, in Q3 we had about $15 million of invoicing in the third quarter. Q4 is going to be down a bit from that number would be our best guess. Our guidance would contemplate something between $10 million and $15 million. Todd A. Schwartzman - Sidoti & Co. LLC: And when does that finish up?

It'll finish up in fiscal 2016. I think, primarily, in the first half of fiscal 2016 we've got – and I don't have the number on the top of my head, but I believe it's probably going to be running closer to half of the rate that we ran in Q3 and Q4 per quarter. Todd A. Schwartzman - Sidoti & Co. LLC: Great. Thank you for that. On DWR, could you elaborate on the increase in promotional activity this quarter? Brian C. Walker - President, Chief Executive Officer & Director: We just have more – if you look at it, it historically had more events in that period of time. It's not necessarily tied to the quarter for us. It just happened to be when it falls into their annual calendar. So, they've just completed – today completes the semiannual sale, which obviously is in this quarter. You'll have the Herman Miller sale towards the end of the quarter. The Knoll sale actually was at the beginning of this quarter. So, you had those three events. Traditionally, in this period, they would have actually had their outdoor sale. That'll actually fall into the first quarter, so we just have more big events. And typically, you see an uptick in the spring generally just because of the normal activity, Todd. Todd A. Schwartzman - Sidoti & Co. LLC: Okay. Just getting back to North American project business for a second, were there any verticals worth calling out that saw meaningful increases in orders? Brian C. Walker - President, Chief Executive Officer & Director: In terms of sectors, Todd, like industry sectors? Todd A. Schwartzman - Sidoti & Co. LLC: Yes. Brian C. Walker - President, Chief Executive Officer & Director: I'm not aware of any honestly, Todd. Nothing stands out that was notable. Todd A. Schwartzman - Sidoti & Co. LLC: And overseas, what's driving the project activity in the Middle East? Brian C. Walker - President, Chief Executive Officer & Director: I think you've got a lot of – you still have a lot of activity. And it's pretty broad-based, when you look at the Middle East, because you're talking about multiple places, right? I think we've been in the Middle East for long time. There's a fair amount of healthcare activity in the Middle East, as well as more corporate spaces. So, we've got a really good dealer base in the Middle East. We actually just opened a new office in Dubai, which I was over at earlier when we had a good conference with our dealers throughout the Middle East and Africa. We run that as sort of one group. So, it's very project-based. So, you're bouncing around. You don't really see it like – and you can't say it's one particular geography, it's one place. The Middle East becomes fairly broad when you're over there and looking across it. So, good buys, fairly well-spread. Todd A. Schwartzman - Sidoti & Co. LLC: Got it. My last question is regarding cash. Now, that with the pension situation more or less fully under control, what would it take for us to see meaningful debt pay down or perhaps share buybacks? Brian C. Walker - President, Chief Executive Officer & Director: Hey, Todd, the first chore for us, which we've been pretty clear about is to get debt back down post the DWR acquisition. So, that's number for us. We have, as you know over the last couple of years, been moving the dividend up. If we did anything next on share repurchase, we would begin to ask ourselves about how do we make sure that we don't have dilution from equity programs. Certainly, our cash flow remains pretty strong, and we've continued to be able to pay that the debt down, and I think you'll see that just continue quarter-by-quarter with us. We didn't do as much this quarter; partially we invested some money in a dealer conversion that actually took some cash out that will come back to us here in the next month or two. Todd A. Schwartzman - Sidoti & Co. LLC: Sounds good. Thanks so much. Brian C. Walker - President, Chief Executive Officer & Director: Yeah.

Thank you. And our next question is a follow-up from the line of Budd Bugatch of Raymond James. Your line is open. Please go ahead. Beryl Bugatch - Raymond James & Associates, Inc.: Yeah. I guess, I just had some nits, covered a lot of ground. You were talking on currency. Just want a couple of clarifications or help, if you can. What are the cross-currency effects that we have in ELA and maybe even in the U.S. or North America that - then can you quantify some of that?

Yeah, Budd. So, this is Jeff. The cross-rate, the pound-euro rate, I think if we looked at it, it looks like, the pound strengthened by about 8% relative to euro. That's the same direction as USD-euro, but not the same magnitude. And as you know, we have manufacturing in the UK that permits us or allows us to denominate some of our manufacturing costs both in pounds, and additionally, also in euro. So, we've got some natural hedge because of that on translation. We figure, the best estimate right now, Budd, that helped us to the tune of about $1 million relative to what it otherwise would have been, had all of that manufacturing come out of the U.S., so just kind of frame of reference. Brian C. Walker - President, Chief Executive Officer & Director: You'll see some as well, Jeff, I think in the Consumer business because DWR buys a fair amount from the Eurozone as well.

Right. So... Beryl Bugatch - Raymond James & Associates, Inc.: What about – I'm sorry. Go ahead.

No, please. I was going to pause to make sure we're getting to the heart of your question. Beryl Bugatch - Raymond James & Associates, Inc.: And then percentage of North America, that's in Canada, that's also got a cross-currency translation impact, right?

It does, but we don't have – the difference there unlike my example with the UK is we've got those costs largely U.S.-based, right? So, we've got the Canadian dollar revenue, and you don't have that hedge like we do or a partial hedge like we do in the UK. That makes sense. Those are U.S.-based costs? Beryl Bugatch - Raymond James & Associates, Inc.: Oh, yeah. We figure maybe about 8% of your sales in the North American Furniture Solutions are in Canada. Is that a good guess?

Yeah. That's pretty close. Yeah. Beryl Bugatch - Raymond James & Associates, Inc.: Okay. So, that would be – that's where we would feel the currency impact to the Canadian dollar to the U.S. dollar. Brian C. Walker - President, Chief Executive Officer & Director: Correct.

Yeah. You got it. Beryl Bugatch - Raymond James & Associates, Inc.: Okay. Two other questions. One, pro-forma DWR versus last year, I know you didn't own it this time last year. But, what were their comps, or how do you characterize it, look at that and I recognize that's going to be more of a guess than – because you don't have audited numbers that you can – at least your audited numbers?

Yeah, Budd. You are right. I would say it this way. Actually, I don't have that number off the top of my head, but I can tell you that the comparable kind of market-by-market when you look at the performance of their large stores, it continued to outpace on a comparable market basis where they put new large store format studios relative to where they've had the smaller ones. And that showed a nice growth this quarter on that basis, north of 10% growth. So, from that point of view, I think the comps are positive. I don't have the exact pro forma in total, though, off the top of my head. We can certainly – we can follow back. Beryl Bugatch - Raymond James & Associates, Inc.: Okay.

So, I guess we have – yeah. We'll follow back. Beryl Bugatch - Raymond James & Associates, Inc.: And lastly from me, Brian, you said you're seeing signs that you're getting some traction in North America. I don't know if you've quantified or put any color to that. If you did, I missed it. Brian C. Walker - President, Chief Executive Officer & Director: I didn't quantify it, Budd, because to be frank, it's a little hard to quantify right now, because I can't necessarily see it fully in order numbers as much as when we're looking at the things we're doing and we're watching projects, we hear positive things. I would say mostly, we're hearing the positive side from dealers and from sales folks saying, hey, this is making a difference. We can feel it. So, it's one of those that you're at the base of making those changes that you're listening, kind of got your ear on the ground, listening to folks. They sound positive, yet you can't see yet in data. So, we're kind of looking at pre-data, if you will. It's going to probably take us another, I would guess, probably 90 days before we're going to start to really see how it's popping up in project wins and those kind of things than any guy convert it to order. So, it's too early to declare a victory, to be frank. And I would say, one level is not just doing a couple of things. It's constantly being out there and asking tactically how do we move day-by-day. So, we're extremely active out in the field, not only the folks in sales but the entire executive team. And we're literally announcing things back to the dealer and the sales team by week. So, we feel good about the speed with which we're going. I think the dealers are positive with how they find us in the game with them. And they're taking time before we know all of those are working and these are all the great things. But, we are, as I said in my opening comments, we're relentless about it.

Hey, Budd. This is Jeff. Just to follow back to your questions, so I share this broadly, our best estimate on pro forma growth for DWR is 7% year-on-year. Beryl Bugatch - Raymond James & Associates, Inc.: Okay. All right. Thank you very much. Good luck on the balance of this year and into next.

Thanks, Budd. Brian C. Walker - President, Chief Executive Officer & Director: Thanks, Budd.

Thank you. Our next question is a follow-up from the line of Josh Borstein of Longbow Research. Your line is open. Please go ahead.

Hi, guys. Just on the Consumer segment looking at the profitability, the EBIT margins maybe came in a little bit lower than I had anticipated it was. There's something particular in the quarter to give that EBIT margin level or just more of a normalized rate that we should expect going forward? Brian C. Walker - President, Chief Executive Officer & Director: Well, you're always going to be low in this quarter, Josh, because you get a fair amount of fixed cost in the stores, and based on the way that calendar plays out, the third quarter is a low quarter for both DWR and, historically, has been a pretty good one for our wholesale and online business. But, it's typically because the Herman Miller sale was in December. And so, you see a little bit of flop over in December on that side. But DWR, January, February, just like a contract business laying up is a light period for them. So, you get a lot of fixed cost. So, if you look, you get a lot of bounce in the EBITDA rates in that business. So, if you look back to Q2, it was better, Q3's a little light. We should see some pick up in Q4. The only other thing that you get as an offset, and I don't know if that was a big drag this quarter, is when you're opening new stores, you do get a timing thing like, for instance, we're opening a new store shortly in Brooklyn. You get hiring ahead of the store opening, you get the people onboard to open the store. So, you do get some bounciness in that edge for opening a new store. So, we think, over time, as we continue to get growth and get more of the new stores opened, we'll get to that sort of double-digit EBITDA number, but it's going to take us some time to get there, which is the pathway around right from the beginning. I would say overall, the Consumer business is right about where we told everybody last August, we would be. Of course, this fourth quarter, we got a pretty good uptick. So, we won't know until that's over and see. But, so far, those guys have run pretty close to where we predicted they would be.

Yeah. Okay. That makes sense. And then just on ELA that EBIT margin actually came in a little bit better than I was modeling. I think it was up – I forget how much, but on a similar revenue base. So, is there anything going on in that segment? Brian C. Walker - President, Chief Executive Officer & Director: We saw some improvement at POSH. To be frank, that helped us a bit. POSH has been one that we've been working on especially on the operating side. We've seen some improvements there. We've got some new manufacturing folks, that's certainly helping – Andy's done – Andy Lock who runs our business has done a nice job of figuring how to get POSH in the other markets. I would also say, typically that business can be helped a lot by the mix of what's there. We had pretty good growth in places like Australia and Middle East, which enables us to really leverage pretty heavy off the U.S. seeding manufacturing base as well as systems. So, when we get it in the right place, it drives the margins up for those guys.

Great. Thank you.

Thank you. And I'm showing no additional questions. I'd like to turn the conference back over to management for any closing remarks. Brian C. Walker - President, Chief Executive Officer & Director: This is Brian. Thanks again for sharing your time with us today. I hope you hear our determination and sense of urgency to improve the competitive position of our North American business, while continuing to build on the momentum in our Specialty, Consumer and ELA segments. Thank you for your continued interest, and we look forward to updating you in June. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.