Good morning and welcome to Herman Miller's Fourth Quarter Earnings Conference Call. As a reminder this call is been 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 in our fourth quarter earnings call are Andy Owen, our President and Chief Executive Officer, Jeff Stutz our Chief Financial Officer and Greg Bylsma, our President of North America Contracts. We have posted yesterday's press release on our investor relations website 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 and non-GAAP amounts in a supplemental file that can also be accessed on the website. 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. Today's call is scheduled for 60 minutes, and we ask that callers limit their questions to no more than three to allow time for all to participate. With that, I'll now turn the call over to Andi.

Good morning, and thank you for joining us today. I'll begin our call by covering highlights of our results for the fourth quarter and full year, followed by some perspective on the current macroeconomic picture. I'll close with a recap of our refreshed strategic priorities that we rolled out at our Investor Day on May 9. Then, I'll turn the call over to Greg Bylsma, who's joining us today, to share some of the initiatives in place for our North American business that support our strategy. Jeff and Kevin will close by providing more information on our financial results. We built on our momentum this year by finishing the fiscal year on a strong note, with a record level of quarterly sales for Herman Miller. When compared to last year, the quarter reflected organic sales growth of 8% and organic order growth of 6%. Encouragingly, we delivered sales and order growth across each of our business units. We leveraged this growth in bottom line as well as with adjusting operating margins that were 140 basis points higher than the same quarter last year. We reported earnings per share on a GAAP basis of $0.78 during the quarter. On an adjusted basis, earnings per share is $0.88, reflecting an increase of 33% over the same quarter last year. For the full fiscal year, net sales totaled $2.57 billion, an organic increase of 8% over last year and also of record sales level. Full year operating margin of 8.8% reflected expansion of 50 basis points over the prior year, despite the challenge of inflationary pressures on key commodities and the impact of trade tariffs throughout most of the year. We delivered reported EPS of $2.70 for the year and adjusted earnings per share of $2.97, which were 29% higher than last year.…

Thanks, Andi. I appreciate the opportunity to provide some additional background and initiatives within the North American Contract business that supports our growth agenda. First, we are combining our legacy North America and specialty businesses together as part of our One Herman Miller priority. The benefit of this move will result in better alignment of our sales teams. By ensuring this go-to-market alignment, our sales force will more effectively present products across all of our brands, ultimately helping our customers build high-performing workspaces. The power of this combination was demonstrated earlier this month when we were recognized as the best large showroom at the NeoCon industry trade show in Chicago. Our goal for the showroom was to highlight the depth of our brands and their ability to work seamlessly under the theme of All Together Now. It is important to note the digital tools that Andi referred to earlier are a critical component to this process, allowing our dealer designers to more easily help customers visualize, specify and order products from our entire group of brands. Another important opportunity as we accelerate growth is the launch of the HAY brand in North America. We continue to localize key products within our North American manufacturing footprint to drive improved lead times for delivering these well-crafted and beautifully designed products to our contract customers. As a great tribute to the design leadership that Rolf and Mette Hay bring to the Herman Miller family of brands, we are proud that they were named to the Fast Company's 100 Most Creative People list for 2019. Finally, our North American profit improvement initiative is playing a key role in our margin expansion. We continue to expect $30 million to $40 million of annual run rate savings from this initiative as we work through our implementation plans over the upcoming fiscal year. Highlighting our progress here, we generated run rate savings of $24 million in the fourth quarter, which were an important contributor to the 54% growth in adjusted operating income that the North American Contract business delivered in Q4. In closing, I'm especially grateful for the energy our North America team is bringing behind each of these initiatives as we focus and continue to grow in our core Contract business. And with that, I'll turn the call over to Jeff to provide more perspective on the financial results for the quarter.

Thanks, Greg, and good morning, everyone. Consolidated net sales in the fourth quarter of $671 million were 9% above the same quarter last year on a GAAP basis and up 8% organically after adjusting for the impact of year-over-year changes in foreign currency rates and the adoption of new revenue recognition rules earlier this fiscal year. New orders in the period of $665 million were 7% above last year on a reported basis and up 6% organically. Before I begin reviewing our results by segment, I want to cover the changes that Andi and Greg referred to earlier in the way we report our results across each of our business segments in more detail. Effective in the fourth quarter, we combined our legacy North America and Specialty segments into the North America Contract segment under Greg's leadership. As Greg said, this change was made in support of our One Herman Miller strategy to better leverage the power of all of our brands across the combined selling effort. Also, while our other two segments will continue to be reported on the same basis, we have renamed each of them. Our ELA segment will be referred to going forward as our International Contract segment and our Consumer segment has been renamed as our Retail segment. On June 19, we filed an 8-K that included a recast of our segment results under these new definitions on a quarterly basis over the past two fiscal years. So with that as background, let me turn to the fourth quarter results by business segment. Within our North America Contract segment, sales were $434 million in the fourth quarter, representing an increase of 11% from last year on a reported basis and up 9% compared to last year organically. New orders were $441 million in the quarter,…

Thanks, Jeff. We ended the quarter with total cash and cash equivalents of $159 million, an increase of $46 million from the level on hand last quarter. Cash flows from operations in the fourth quarter were $86 million, reflecting an increase of 54% over the $56 million generated in the same quarter of last year. The key contributors to higher operating cash flows were increased net income and higher inflows from working capital, primarily driven by higher accrued liabilities and lower inventory levels. For the full fiscal year, cash flows from operations of $260 million reflected an increase of $50 million from the prior fiscal year. Capital expenditures were $23 million in the quarter and $86 million year-to-date. Cash dividends paid in the quarter were $12 million and $46 million for the full year. The 6% dividend increase that we announced yesterday increases our expected annual payout level to approximately $49 million. We also returned cash to shareholders through share repurchases of $4 million during the quarter and $48 million for the full year. We remain in compliance with all debt covenants. And as of quarter end, our gross debt-to-EBITDA ratio was approximately 1:1. The available capacity on our bank credit facility stood at $165 million at the end of the quarter. Given our current cash balances, 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 will now turn the call back over to Jeff to cover our sales and earnings guidance for the first quarter of fiscal 2020.

Okay. Thank you, Kevin. With respect to the forecast, we anticipate sales in the first quarter of fiscal 2020 to range between $650 million and $670 million. The midpoint of this range implies an organic revenue increase of 6% compared to the same quarter last year. We expect consolidated gross margin in the first quarter to range between 36.6% and 37.6%. This midpoint gross margin forecast is 110 basis points higher than the first quarter of fiscal 2019, reflecting improved production leverage, lower steel prices and net benefits from our ongoing profit improvement initiatives. Operating expenses in the first quarter are expected to range between $182 million and $186 million, and we anticipate earnings per share to be between $0.77 and $0.81 for the period. And our assumed effective tax rate is between 21% and 23%. With that summary, I'll now turn the call over to the operator, and we'll take your questions.

[Operator Instructions]. And our first question comes from Greg Burns with Sidoti & Company.

Can you just talk about some of the sales trends you're seeing in the retail side? I saw that your same-store sales were down a little bit this quarter. And then also in terms of the underperforming location that you're closing, when you look at your studio footprints, how many other studios would you categorize as maybe underperforming and potential candidates for closing?

Greg, how are you doing?

Good.

So as far as retail trends, I think we saw in the quarter, as many of our other retail competitors did, a little bit of a slowdown in retail trends. The good news is we're starting to see that pick back up again. I think if you look at the DWR business specifically, with the stock market volatility, that business is definitely very susceptible to that. And we certainly saw a lot of that in the last quarter with our [indiscernible] uncertainty and some of the announcements around that. When it comes to the studio closure in Manhasset, I'm a big believer in recognizing when we made a mistake and rectifying it quickly. We found the studio to be unproductive pretty much from the get-go, and I'm happy that we've taken action there. And I'm also happy to say that it's really the only studio that we have that's been over -- opened over a year that is unproductive. So we don't see any other closures happening that we did so it was important to act quickly in that instant. Jeff, do you want to add anything on that?

I think I would agree with all that.

Okay. And then obviously, you had a number of items this quarter aimed at longer-term profitability. But what's your view on returning that business to positive operating profit and your longer-term view on the margin potential of that business?

I think in the long term, and I think in the relatively short term, that business has strong potential. We all feel that we can get to mid- to high single digits relatively quickly in the next year or two. Having said that, we're in build mode, and we're launching a new brand, HAY. We are looking at changing our warehouse and distribution facilities to enable us to grow faster. So right now we've made some investments. So I think we remain bullish on this. We remain bullish on HAY. We think we have a $75 million to $100 million opportunity in that business as we continue to launch. So we feel strongly that this is the right way to go.

And our next question comes from Steven Ramsey with Thompson Research Group.

Yes. Just wanted to follow up again on retail. I guess [indiscernible] that with three stores opening, we did not see sales growth. But the closing of the store, I guess, was that a material contributor to sales decline? Clearly, you guys had a tough comp, but kind of [indiscernible] even a breakdown too on the segments within retail, contract, consumer and e-commerce?

Steven, this is Jeff. So I guess to directly answer your first question, the store on Long Island that we closed, I would not characterize that as a material item in terms of moving the needle to year-over-year sales or order activity in the overall retail business. So what I might add is, in total for the retail business, while revenue growth rates were a bit more anemic than we would have liked, the order growth for that -- for the business was closer to 10% year-over-year. So we were pretty happy with that in total. In our business, at least those of us who have been on the contract side of the business for a long time, that tends to be the more forward-looking metric for us anyway. And I think we still view our retail business in the same vein. And then as it relates to -- what -- remind me of the second part of your question, Steven.

Yes. Just a little more detail, the different channels of the retail segment, the contract side, consumer side, e-commerce. Was there any trend that [diverged] [ph] with strong growth or slower growth by channel?

Yes. I would say that -- where we saw the most strength continued to be in this quarter, as it has been for several quarters, on the growth of our Contract business within the Retail segment. So that is where we've continued to see very consistently strong growth, strong double-digit growth. As it relates to studios that have been in place on a comp basis, that was down in terms of revenue year-over-year. That was probably the weakest part of the overall segment performance. But as I mentioned, our overall order rates were much more encouraging.

Great. And then switching to North America, clearly, good margin improvement there. And I guess what's surprising, given the inclusion of the lower-margin specialty business, maybe just help us understand the drivers there in the quarter. And then on the restructuring charges there, how much of that was legacy North America or specialty? Or is that -- are those -- is that spending in order to merge the segments and operations together?

Steven, I'm going to turn the first part of that over to our special guest, Greg Bylsma.

So when you look at the pieces of the specialty business, the -- especially the Geiger piece of that had a very strong performance. And we've seen continued margin improvement really over the last 4 or 5 quarters. And the team down there has done a really nice job of building that. So I wouldn't suggest that what was -- in that Specialty segment what was hidden because they had op margins that were very solid, as a matter fact, I think even low double digits. So the overall trends in margin, I think, is the word, that we've really done in project Optimis, what we call project Optimis, our profit improvement initiatives. And it just continues to increment into the numbers since the start -- really start, at the beginning, late first quarter of last year, and then it's just continuing to build. And I think what you see in that quarter is an almost -- not quite the culmination but a strong momentum of that work, which showed up in the quarter. And then I think, like I said on the -- in the prepared remarks, [indiscernible] on an annual basis of just over $24 million.

Yes. Steven, this is Jeff. I was just going to add onto that. You had asked the question -- kind of the primary drivers in the North American Contract business, and Greg touched on some of the important ones. But I just want to remind you, we've taken some pretty aggressive actions around -- in our overall profit improvement work that he described, but also we've taken some pricing actions earlier in the year. And volume levels have been quite strong across the North American Contract segment, including the legacy definition of that segment, and that helped tremendously in the quarter. I'd also maybe point out that the -- about the restructuring costs. Most of those actions are related to the legacy North American Contract business. But important to the point out that while we implemented those actions in Q4, we haven't yet recognized any of the benefits from it. That will be layering in going forward.

And our next question comes from Budd Bugatch with Raymond James. We'll go ahead and go with Matt McCall with Seaport Global.

So maybe just start with the 6% growth I think you said at the midpoint in the guidance. And you just kind of referenced strength in legacy North America. I'm just curious about the outlook in the guidance kind of a segment basis or a subsegment segment basis, whatever detail you feel like you should provide. And then maybe take it a step further and give me your thoughts around kind of the North American Contract macro outlook of kind of intermediate term.

So I mean I'm going to be a little careful giving you a ton of color on segment-by-segment. I mean our guide is a consolidated view obviously. What I can tell you, Matt, is -- let me give you one point of clarity. If you look at our overall backlog to end the year, this is actually a similar conversation that we had with you all at the end of Q3. We had a very strong backlog. I think it's up. If you adjust for revenue recognition impact year-over-year, it's about 10% growth. I think the reported numbers have been higher than that, but there's that rev rec implication for itself. On an adjusted basis, that 10% would normally imply a slightly higher revenue guide than what we're talking about at the 6% level. What I can tell you is, very similar to last quarter, we do have some longer-dated projects in the backlog, particularly in the international business that are pushing out into the -- are beyond the first quarter. And to kind of frame that for you, it's probably in the order of magnitude of $15 million in the backlog. In terms of the overall revenue growth by segment, I would say that there's, in our expectation, no real outlier growth levels in the NAC or international expectations relative to kind of current -- where we've been running. They're kind of in -- on the order of magnitude of what the growth rates have been, and I'll kind of leave it at that.

Yes. And, Matt, as far as the macro trends, we mentioned in our prepared remarks, many things are pointing to nice business ahead for us. I would also say that going out and talking to most of our customers, the word for talent is working to our advantage. We have more people leaving the workforce than we have entering the workforce. With unemployment levels really low, that really helps us. And also when you look at most office buildings or workplaces, people really are looking to upgrade and attract new generations of talents. So that's helpful to us from a macro standpoint. I don't know. Greg, would you add anything to that?

No. I think the -- I mean -- yes, I think the -- you look at the relative near-term activity levels and funnel, they all are simply merged along in accordance with the bigger macro picture and the bigger macro items that Jeff and Andi referred to.

Okay. All right. That's helpful. And maybe I guess switching gears, similar question on the margin in front of me. The North American Contract jumped out. So maybe Greg, since you're there, good to hear your voice. But what's the ultimate goal there? Remind us of the target. I know you talked about the expectations around retail in the -- I think for the next year or two getting to mid- to high single digits. But I guess North American Contract specifically, what's the expectation? Are we in this 13.5% for a while? Or is that kind of the new starting point?

I mean at least I get a good number. You've also [indiscernible] tell you that's the new starting point, Matt. I think I would love to have the trade conversation at least settled down to a spot of we know what the future looks like. That would be super helpful. Given all that's going on, we've done things to try to make that picture as good as we can under the current environment. We are getting some good news starting to build on where the steel prices have gone. So yes, I look forward to what we just did in the fourth quarter, as there's always headwinds you can talk about, but there's actually some tailwinds, too.

So maybe that leads to my third question. I was just going to ask Jeff the -- Jeff, you mentioned steel prices and lower steel prices, the benefit there. Can you talk about price and price cost and the -- how that's going to layer in the remainder of this calendar year?

Yes, Matt. I'm going to talk -- I'll reserve my comments to the Q1 guide only because I don't have a clue what the back half of the year is going to look like. But in the near term -- let me first start with the fourth quarter just to kind of leverage that. And I think some of these was covered in the prepared remarks. But between the impact of tariffs and commodity, that -- those combined were a net negative of between $2 million and $3 million. We figure we had net pricing benefit offset a portion but not all of that. So for the fourth quarter, the cost price equation was a negative year-on-year of about somewhere between $1 million to $1.5 million. Fast forward to the Q1 guide and what's implied in the guidance, the commodity picture, as Greg just described, is getting better. We expect, in total, commodities, and this is mainly driven by steel, is something on the order of $2.5 million favorable year-on-year. The tariff impact obviously gets worse as we move from a 10% level to the 25% level. And we don't know where that whole story is going to end, but right now I would could call that at about $5.5 million negative year-on-year. In the first quarter, that was implied. And then the pricing picture, we expect continued ramp of the price that we implemented -- the price increase we implemented back in January. Expectations would be that would be net out somewhere around $5 million. So if you do the math on all of that, it's favorable year-on-year implied in the guidance of around $2 million to $2.5 million. And where it goes from there, I guess I'm going to -- I won't make any guesses, but it's an improving picture as we move into Q1.

So I understand not wanting to make any guesses, but if we just hold things steady, are those the right trends to think about at least for the next couple or few quarters if we hold...

Well, yes. I would say if you allow me to hold serve on pricing, that's probably the biggest one. I would tell you that the commodity picture, that one likely gets better unless there's any shock to the system. If you recall, Matt, as we move into the back part of Q1 last year, steel prices, I think, got above $1,000 a ton. And because of our lag and how those prices affect our cost of goods sold, that would have impacted us largely in the second quarter. So we should have a very favorable comp to the Q2 margin -- on Q2 margins just because of commodities. Tariffs are an offset to that, and pricing would be the big wildcard. But our expectation would be we should be able to hold on to some of that still. It's largely because of the tariff situation.

And our next question comes from Budd Bugatch with Raymond James.

Let's try this again. Can you hear me? I'm not going to ask some of the questions that I have. I'll wait till we're offline because I suspect they've been asked already. But let's -- if you would, just characterize the promotional or the competitive market and maybe characterize your contract revenues North America and international by project versus continuing business, if you would.

So Budd, when you were in the first question on competitive nature, you're talking about the contract side?

Yes, sir. Of course.

Yes. Okay. I figured. I thought -- I don't think that's changed that much. I think we've got good competition. And market by market, it depends on the distribution in place about who you face every day. But I think we obviously are concerned about our competition, but we got our things to do. And we're marching forward with our strategy and trying to get our go-to-market team aligned, just like we talked about at our Investor Day back in May and the digital tools that our dealers need to compete. And we think that with the current structure and alignment and to be more leveraged, we think we've got upside with all that and a ton of costs as we move forward. So competition is good, but we like what we're doing. And based on the data that we can see, I'll say we're making progress.

Greg, when you were shooting in Jeff's seat several years ago, you used to report kind of the impact of discounting year-over-year, and you gave us kind of some numbers to go on that. Is that up year-over-year? Down year-over-year? What does it look like today?

Budd, this Jeff. I'm going to take this one. I don't know if Greg has the data in front of him. So we netted out positive pricing -- price increase impact from January net of discounting. It was a good guide for us year-on-year in the fourth quarter.

Okay. And do you think that continues? If that persists, how does that look as you go forward?

I think the thing that -- to go forward, we don't have a lot of product as a percentage of total that we buy from -- that is impacted by tariff. It's not a small number, but I don't think that across the competitive landscape, we -- I think we're in a better -- we might not be in the best spot, but we're in a better spot than most. The anecdotal evidence I hear about pricing actions are in excess of ours. And given that, I think we can continue to hold where we're at with this kind of price level.

Okay. And internationally, are there any changes? Brexit still a question mark, correct? We don't quite know how that's going to play out over the long term?

Yes, you're right. We don't know where Brexit is going to play out. I wish we did. I would say in the international business as a general rule, we've seen -- it's been a strong year, as you know. I would say we've probably seen a shift in the business towards a bit more larger -- mid- to larger-sized projects. And I think that it is -- accounts for, I don't know if you were on the line at least a few minutes ago. I talked a bit about our backlog. And some of the longer-dated items in the backlog relate to the some decent-sized projects for international. So that's kind of the project picture. And from an overall -- to me, the bigger story in the international business this year has been the work that they've done around margin efficiency. The gross margin performance has improved, particularly in Asia. Some of our profit optimization work there related to factory consolidation, and we're starting to see the real benefits from that reveal themselves in the results.

So that's all done. Ningbo is closed essentially, and you're all in one factory?

This is Greg. The Ningbo is closed. We have the old, if you remember, POSH factory that we are in the process of moving to the new factory. And we have everything in there, except metal. So the paint lines are going in there as we speak. And the metal we're transferring from the old factory to the new factory around September timeframe.

I'm showing no further questions at this time. I'd like to turn the call back to Ms. Andi Owen for closing remarks.

Thanks, everybody, for joining us today. We really appreciate your continued interest in Herman Miller. And we're looking forward to updating you again next quarter. Hope you have a great day. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.