Good morning, and welcome to the Herman Miller Second Quarter Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Kevin Veltman, Vice President of Investor Relations and Treasurer.

Good morning, everyone. Joining me today on our second quarter earnings call are Andi Owen, our President and Chief Executive Officer; and Jeff Stutz, our Executive Vice President and Chief Financial Officer. We have posted today’s press release on our Investor Relations Web site at hermanmiller.com. Some of the figures that we’ll cover today are presented on a non-GAAP basis. We’ve reconciled the comparable GAAP to non-GAAP amounts in a supplemental file that can also be accessed on the Web site. Before we begin our prepared remarks, I will remind everyone that this call will include forward-looking statements. For information on factors that could cause actual results to differ materially from these forward-looking statements, please refer to the earnings press release we issued last night as well as our annual and quarterly SEC filings. At the conclusion of our prepared remarks, we will have a Q&A session. We will limit today’s call to 60 minutes and ask that callers limit their questions to no more than three to allow time for all to participate. With that, I will now turn the call over to Andi.

Good morning and thank you all for joining us today. With this quarter being my first full quarter with Herman Miller, I found it appropriate to open with a few comments describing how I’ve spent my first 100 days in the role. As I’m sure you can imagine it’s been a whirlwind schedule but I thoroughly enjoyed engaging with stakeholders across all of our businesses and around the globe. My travels have taken me to each of our primary office and manufacturing locations around the world and have given me an opportunity to meet and speak with our diverse and talented employees. I’ve had the opportunity to engage with our customers, our dealer partners and investors, tour our retail studios and spend quality time with each of our executive leaders focusing on ways to amplify our progress. In many ways, this first 100 days has been about actively listening and building an understanding of what’s going well and where there may be opportunities ahead that we can capitalize on. It’s been an amazing experience overall, and I’m encouraged and energized by the opportunities I see for our company. My team and I are focused on accelerating our path to these opportunities, and I look forward to sharing more about our strategy in the months ahead. In the meantime, I’d like to share a few thoughts on our results for the second quarter and progress on several key initiatives. After that, I’ll turn the call over to Jeff and Kevin to share the details of the financials. So let me start with the global macroeconomic picture. While volatile equity markets and uncertainties around U.S. and China trade policy and Brexit persist, underlying economic indicators are generally positive. We were encouraged to see the recent postponement of higher tariff rates to allow…

Thanks, Andi, and good morning, everyone. Consolidated net sales in the second quarter of 653 million were 8% above the same quarter last year on a GAAP basis and up 7% organically, which adjusts for the impact of year-over-year changes in foreign currency rates and the impacts of adopting new revenue recognition rules earlier this fiscal year. New orders in the period were 12% above last year on a GAAP basis and up 10% organically. Within our North America segment, sales were $353 million in the second quarter, representing an increase of 7% from last year. New orders were 371 million and were up 9% on a reported basis and increased 7% organically over last year. The order growth in North America this quarter was led by small- and medium-sized projects with the strongest geographic increases coming from the Central and Western regions of the U.S. Our ELA segment reported sales of $119 million in the quarter, an increase of 5% compared to last year. New orders totaled $137 million representing growth of approximately 16% over last year’s second quarter. The strong year-over-year order performance was led by growth in Asia Pacific, Mexico and the Middle East. Sales in the second quarter within our specialty segment were 82 million, an increase of 10% from the same quarter last year. New orders in the period of $87 million were 13% higher than the prior year. Encouragingly, the increase in orders this quarter reflecting higher demand levels across all four businesses that comprised the specialty segment. Our consumer business segment reported sales in the quarter of $99 million, an increase of 15% from the same quarter a year ago. These results were driven by strong growth across our studio, catalog, e-commerce and wholesale channels. New orders for the quarter of 108 million…

Thanks, Jeff. We ended the quarter with total cash and cash equivalents of $114 million, an increase of $12 million from last quarter. Cash flows from operations in the second quarter were $59 million compared to $63 million generated in the same quarter of last year. Capital expenditures were $19 million in the quarter and $41 million year-to-date. For fiscal 2019, we anticipate capital expenditures of $90 million to $100 million for the full year. Cash dividends paid in the quarter were $12 million and we repurchased $17 million of shares during the quarter. We remain in compliance with all debt covenants and as of quarter-end our gross debt to EBITDA ratio was approximately 1.1 to 1. The available capacity on our bank credit facility stood at $164 million at the end of the quarter. Given our current cash balance, ongoing cash flow from operations and total borrowing capacity, we remain well positioned to meet the financing needs of the business moving forward. With that, I’ll now turn the call back over to Jeff to cover our sales and earnings guidance for the third quarter of fiscal 2019.

Great. Thank you, Kevin. So with respect to the forecast, we anticipate sales in the third quarter of fiscal 2019 to range between $615 million and $630 million. The midpoint of this range implies an organic revenue increase of 7% compared to the same quarter last fiscal year. We expect consolidated gross margin in the second quarter to range between 35.75% and 36.75%. This estimate of course includes the impact of adopting the new revenue recognition standard in fiscal 2019, which, as I described earlier, impacts year-over-year comparability by approximately 60 basis points. Adjusted for this change, this midpoint gross margin forecast is approximately 65 basis points higher than the third quarter of last fiscal year. This forecast reflects the latest view for sequentially lower steel costs next quarter and a full quarter impact of tariffs on Chinese imports at the 10% level. Operating expenses in the quarter are expected to range between $177 million and $182 million. And we anticipate earnings per share to be between $0.59 and $0.63 for the period, and our assumed effective tax rate is between 20% to 22%. So with that overview, I’ll now turn the call back over to the operator and we’ll take your questions.

Thank you. [Operator Instructions]. Our first question is from the line of Bobby Griffin of Raymond James. Your line is open.

Good morning, everybody. Congrats on the quarter and the broad-based order growth and thank you for taking my questions.

Thanks, Bobby.

So the first question I had, Jeff, for the revenue rec, is the largest impact of that in the North America segment? I mean the impact on the gross margin, I guess.

Yes, good question. So it’s 60 basis points roughly speaking at the consolidated level, it’s about that magnitude at the gross margin line in the North American contract segment. In fact, the largest impact is in our ELA segment where the year-over-year adjustments to gross margin percentage is closer to 90 basis points. And then further when you get into the specialty segment at the gross margin level, it’s about a 40 basis point impact and the combination of those all nets to about a 60 basis point impact at the consolidated level.

Okay. So with the gross margin -- in North America office, was down 90 or so basis points which was better than – better performance than Q1, the largest impact being in that was the revenue rec and then I guess the other side would still be steel inflation and maybe a little of the tariffs. Is that the other moving parts to get me to the 92?

Yes, very little tariff impact in the quarter a little bit, certainly year-over-year commodity impact. You’ve got everything from product mix as a factor in there. We had a really good quarter, for example, in the healthcare sector, which has an influence on margins in the North American contracts, and those are the big moving pieces.

Okay. And then when I think about steel going forward, is the potential tailwind you’re going to get from where steel prices are now, I don’t know if tailwind is the best word, but the potential release that you’re going to get from where steel prices are trending, is that about the same magnitude of impact of what a full quarter worth of the tariffs would be?

Yes, correct. Let me make sure I say this clearly because it always depends on whether you’re talking sequentially or year-over-year, Bobby. So, I’ll answer and then you tell me if I’m getting to your question. If you think about year-over-year impact implied in our guidance for Q3, the commodity impact which is principally steel is about a $2 million year-over-year drag.

Okay.

The estimated tariff impact is about a $2 million year-over-year drag. This is at the 10% level. And then, we think we can offset that with the planned pricing that either already has been implemented or is planned for the early part of Q3.

Okay, that’s very helpful. You explained in an even clear way than I was asking, so I appreciate that; so very helpful. I’ll give you credit. My question wasn’t nearly as clear as the response. So, I guess next for me I just wanted to maybe talk at a high level about the consumer segment. You mentioned the comps which have been very impressive. Looking back with that streak of positive comps, what do you think some of the biggest drivers that you guys have achieved so far that’s kind of driven that good performance at DWR? And then I guess more looking forward, what still has you excited about some low-hanging fruits or some other aspects in that business that you’re still working towards?

Bobby, it’s a great question, and I think if you look at the performance in DWR, it is pretty amazing. I mean, we’ve had 11 straight quarters of solid comp performance as well as revenue growth. And I think the contributing factors to that are the product assortment. I think the team has done an excellent job of rationalizing the store base. I think we have stores of the right size and the right place. I think we have done a great job increasing our private label products. There was a little bit of a higher margin. So if I look at kind of all the factors; understanding our customer, understanding how we’re marketing to our customer, location, on how we’re spending our money and where we are, those things are all contributing to a really, really nice run for this business. I also think that the market and kind of residential furnishings is doing well as well. So we are getting a little bit of benefit from that, but we expect this to continue. We’re very optimistic about this business.

Okay, I appreciate it. I appreciate all the detail. Congrats again on the quarter and have a great holiday season and good start to the new year.

Thanks, Bobby. You too.

Thanks, Bobby.

Thank you. Our next question comes from the line of Greg Burns of Sidoti & Company. Your line is open.

Good morning. In terms of the ELA segment, it sounds like you called out some nice growth in APAC, Mexico, and the Middle East. But can you just give us some color on what’s going on in Europe? Are you seeing an impact from Brexit and kind of what’s going on in France? Thanks.

That’s a great question. Our European business is actually still pretty strong, but with the Brexit uncertainty, we have seen orders slow just a little bit. can you hear that?

Yes. Greg, just to check in. We’re getting a little feedback. Can you hear us okay?

Yes, I hear you.

Okay. Sorry.

Great. I think we remain really optimistic about that business. I think Europe is probably although strong still struggling a little bit from an order standpoint compared to the other businesses in the market, but still performing well.

Yes, I agree with that. Greg, just maybe a little color. So a lot of uncertainty around Brexit in the continent and in the UK. We did see pretty good revenue growth in the quarter. Orders were impacted for sure in the quarter. So that was kind of the one area where we saw some pressure offset in this broader EMEA region by really good strength in the Middle East.

Okay. Thanks. And turning to the consumer segment and obviously like you just discussed, the revenue numbers have been really solid. Not seeing as much margin leverage as I would expect given the volumes. So I was just wondering kind of what’s your view on when we start to see some of this top line growth fall through more strongly to the operating line?

Yes, I think that as we look at kind of top line margin and operating income, I’ll kind of talk about both of those things. I think a couple of things that are impacting our margin performance right now are increased shipping costs. And I think if we look at what the consumer is expecting from us, everyone wants things just for free. But I think right now we are sort of in the place of figuring out how we can more efficiently and effectively provide shipping in a rate the customer is happy with. So I think that’s a problem that we can solve relatively soon. The other thing that’s been contributing to margin decline is discounting. So while we’ve had very, very good top line revenue growth, we have increased our discounting in a number of ways. We think as we look at our promotional plans going forward for the rest of the year and into next year, we need to rein that in a little bit so that we have a good balance of top line revenue growth but also a nice margin increase. So I think these are things that in the short term we’ll see a little bit of a gradual incline but long term we feel really optimistic about the margin potential.

Okay. And then lastly, what percent of the consumer business is sold into the contract market? And how do you feel about the progress you’re making on that side of the consumer business? Thanks.

So, Greg, Jeff here. So this is obviously not something we’ve disclosed as part of the segment disclosure. I can tell you it’s less than 20%. Contract continues to be a fast growing component of the consumer segment and we’re excited about it. In fact, the addition of HAY moving forward gives us even more confidence that we can supplement our already strong and growing product offer from DWR in the contract space with even more broader price points to leverage growth. But it’s certainly not the large component of that business today, but we see great future there.

Is the contract component of the consumer business growing faster than your North American contract business?

It’s on a much smaller base. So if you look at it from a percentage point, it is growing faster but obviously in a very small size. But we are super optimistic about what it can be in the future.

Okay. Thank you.

Thank you. Our next question comes from the line of Kathryn Thompson of Thompson Research. Your line is open.

Hi. Good morning. This is Brian Biros for Kathryn. Thank you for taking my questions.

Hi, Brian.

Hi. Good morning.

How are you?

Good. Hope you guys are doing well too.

Good.

So I wanted to I guess start with the guidance for Q3. It came in a little bit above what the Street was anticipating for both revenue and EPS. If you could maybe just touch on that a little bit where it gives you confidence for that higher guide? I think you mentioned steel coming down, tariffs, pricing actions. But is there anything else that’s driving that guide higher? Maybe it’s pace so far throughout the quarter or change in end market or maybe it’s just the Street being too pessimistic looking for a slowdown? But any additional color on that would be helpful.

I’ll add one thing and then I’ll turn it over to Jeff and I would say from a product launch standpoint, in the last few months we’ve had several very successful product launches. Last two weeks we launched Canvas Vista and Overlay. Both have had incredibly successful launches. And on Cosm which we launched in North America in August and have launched globally now has been an incredible performer. And when I look at the innovation pipeline of Herman Miller on something like a Cosm, I think only Herman Miller could have envisioned and executed and delivered that share and it an amazing innovation and I see that pipeline continuing, so that gives me confidence. I know it gives Jeff confidence that we can guide where we have for Q3.

Yes. Brian, this is Jeff. I’d just add a little color to that as well. When you take a look at – part of what – to answer your question about what gives us some confidence is we’ve been waiting throughout this recovery for signs of stability and order rates in the broader industry and we’ve seen it here in recent months. And certainly our results in total with 10% order growth, backlog up to the level that it’s upping 11% year-on-year that certainly gives us some confidence. But it’s also supplemented by the broader data points that we see outside, right. You see some competitors of ours showing fairly consistent strong results which is good for the group. When you look at other data points like contract activations, the activation of new contracts in our business for projects going forward, that relative to year-ago levels is up. The overall health of the funnel looks pretty good to us and it’s not just isolated to a handful of large projects, it’s fairly broad based. Now I always am cautious there and to say that those are projects that we’ve won but the point is there’s projects to go compete for. You look at customer visit activity as an example. Again anecdotal but customer visit activity has been strong here, West Michigan compared to year-ago levels. And then you step back because again considering the broader order trends in the industry and the fact that we haven’t seen any kind of notable shift or mix in the – the mix of day-to-day versus project business which is historically a bit of an indicator that things are starting to shift in the kind of current condition of our space, we haven’t seen anything like that. No question though that we would love to see some resolution to some of the macro factors that are out there in the economy that are creating I guess concern or nervousness, things like Brexit resolution, things like trade policy, obviously a lot of concern and noise here in the last day or so around interest rate policy. So all of those things all beyond our control but the nature of our business is such that nervousness tends to shake confidence and that’s not good for our space. So the sooner we can see some of those things resolved the better, but the broader macro picture for us is team support for future growth. So that’s really the big picture is to what gives us some confidence.

Yes, and I would just add one more thing to that which is really the very low unemployment rate. And although that is challenging on one front for us as far as our manufacturing and gaining talent ourselves, the flipside of that is what we hear from most of our customers is they’re also in the war for talent and space. It’s something that they are looking at critically and really trying to be creative and innovative about how they attract talent with their space, and that is very helpful for us and makes us optimistic.

Got it. Thanks for help around the guidance and I appreciate the color. Last one, if you could dig a little deeper on the order growth in the quarter? You mentioned small and medium-sized strength. I think last quarter was also led by small projects. But when you’re seeing now in that mix, any different from perhaps a few years ago and also during the last downturn? Really just trying to understand where we are today versus a few years ago and the last downturn given that it seems at least a pause is maybe coming in the next year or two for the economy? Thank you.

Yes. Brian, this is Jeff. I’ll give you a few thoughts and add anything obviously if you’d like. So generally speaking we had order growth across really all project sizes. As we had noted in the prepared remarks the greatest areas of strength were in small to medium. That does bounce around from quarter-to-quarter. And again as I said earlier we’re not seeing anything notable that gives us reasons for pause in terms of a trend that looks like it will cause nervousness in our business or questions the guide going forward in any case. So generally broad-based growth across all regions or all project sizes and overall kind of macro data points looking pretty strong. Andi, I don’t know if you want to add anything to that?

No. I think you captured it.

Okay. Thanks.

Thank you.

Thank you. And I’m showing no further questions at this time. I’d like to turn the call back over to Andi Owen for the closing remarks.

Thanks for guys. I just want to really thank you for joining us on the call today. We appreciate your continued interest in Herman Miller and we really look forward to updating you again next quarter. And I want to say on behalf of all of us here at Herman Miller, I want to wish all of you and your families a wonderful holiday season. Have a great day and be well. Thank you.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.