Good morning, and welcome to Herman Miller’s Second Quarter Earnings Conference Call. As a reminder, this 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; Jeff Stutz, our Chief Financial Officer; and Jeremy Hocking, President of our International business. 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 GAAP to 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. With that, I’ll now turn the call over to Andi.

Thanks, Kevin. Good morning, and thank you all for joining us. Today, I’ll begin by highlighting of our quarterly results, followed by sharing our latest progress towards our strategic goals. I’ll then turn it over to Jeremy to provide an update on our international business, after which Jeff and Kevin will cover the financial results of the quarter in detail. Sales for the second quarter were 3% higher than last year, led by our North America and Retail businesses. This revenue performance fell short of the expectations we set coming into the quarter, driven by softer-than-anticipated order pattern, which ultimately closed the period down 4% from last year’s level. To be clear, while we’re never happy to deliver growth rates below the goals we set, our view of the business and our near-term opportunities remains bullish. This industry is inherently project-driven. And this past quarter, we felt the impact of a pause in project activity. This was aggravated by a very difficult growth comparison in the second quarter of last year, when we posted orders of $705 million, an all-time record high for our business, representing year-over-year organic growth of 10%. In fact, that amount exceeded the highest volume quarter in our history by over $25 million. When establishing our guidance at the start of the quarter, we considered these tough comparisons, what we didn’t anticipate was the impact that the mixed macroeconomic and geopolitical environment in recent months would have on project activity. U.S.-China trade tensions and Brexit uncertainty persists. And in North America, the Architectural Billings Index and BIFMA industry order levels have been choppy in recent months. We believe these factors contributed to lower-than-expected demand levels in the quarter. To be sure, the order patterns we experienced in Q2 have a direct impact on our revenue guide…

Thank you, Andy. Good morning, everyone. It’s a pleasure to join you today. International has been a key driver of accelerating profitable growth for our business. We’ve delivered annual organic sales growth of 8% per year over the past five years, including last year, where we grew sales of 13% organically, with an adjusted operating margin for the business of 12.3%. While the growth in international last year creates more difficult sales growth comparisons this fiscal year, demand levels in the second quarter also reflected the uncertain global picture in our inherently more volatile international business. In addition to global geopolitical tensions, we’ve seen a softer economic picture in Mainland Europe and Mexico impacting demand in those regions. Helping to mitigate these pressures, we’ve continued to expand our gross margins this quarter, with an increase of 60 basis points over last year. An important contributor to that expansion has been the consolidation of our China manufacturing facilities. Looking ahead, there are a number of initiatives that we believe position us well for the future. The acquisition of the remaining shares of naughtone helps expand Herman Miller’s global offering in the fast-growing area of collaborative and ancillary products, which we can leverage across our global dealer network. Similarly, increasing our ownership position in HAY, directly aligned with our priority to accelerate profitable growth. Through our continued partnership with HAY’s Co-Founders and creative directors, Rolf and Mette Hay, we will make HAY’s well designed, high-quality products accessible to contract in retail audiences around the world. We look forward to accelerating this partnership by exploring cross-distribution opportunities between our respective distribution channels. At the same time, we’re leveraging the brands of the Herman Miller Group to bring new products to our regions that will help with one of our key initiatives to expand our share of our global dealer wallet. The addition of the Crosshatch family of seating from Geiger, as well as the lean a chair from Design Within Reach, a great recent examples of unlocking the power of One Herman Miller globally. We believe our international business will remain an important growth driver for Herman Miller. Not only will we continue to add dealers to our global network, we believe we can gain meaningful share with our existing dealers as we expand our product offerings. At the same time, we have great teams in each of our regions, who are leveraging the One Herman Miller mindset to further build our growth orientation in the business. With that overview of international, I’ll now turn the call over to Jeff for more discussion of our financial results for the quarter.

Okay. Thank you, Jeremy. Good morning, everyone. Consolidated net sales in the second quarter of $674 million were 3% above the same quarter last year. New orders in the period of $675 million were 4% below the prior-year level. As Andy mentioned, our order levels this quarter had a difficult comparison to the record levels reported in the year-ago period, but we believe demand levels this quarter were also impacted by persisting macroeconomic and geopolitical uncertainties. Within our North American Contract segment, sales were $451 million in the quarter, representing an increase of 4% from last year on a GAAP-basis and an organic increase of 3%. New orders of $435 million in the quarter were 5% lower than last year and reflected fairly broad-based declines across project sizes. From a sector standpoint, we saw lower demand levels in business services, communications and healthcare sectors, partially offset by growth in the U.S. federal government and information technology. Our International Contract segment reported sales of $118 million in the quarter, roughly flat with the second quarter of last year. New orders of $126 million were 8% below the same quarter last year on a reported basis and 7% lower organically. It’s important to note that the international business faced particularly challenging order growth comparisons for the quarter, as Jeremy pointed out. To put this in perspective, in the second quarter of last year, the international business posted organic order growth of 15%. Now tough comparison decide this quarter, this business has been a key contributor to our growth in recent years and factors heavily into our strategy for driving continued profitable growth in the future. With that background, lower year-over-year demand levels were experienced in Mexico, Southeast Asia, China and the Middle East this quarter. These declines were partially mitigated by new…

Thanks, Jeff. We ended the quarter with total cash and cash equivalents of $177 million, which was $18 million higher than cash on hand last quarter. Cash flows from operations in the second quarter were $90 million, reflecting an increase of 53% over the same quarter last year. Increased earnings and lower working capital, primarily due to lower accounts receivable were the key contributors to higher operating cash flows in the quarter. Capital expenditures were $20 million in the quarter and cash dividends paid in the quarter were $12 million. Share repurchase activity was modest during the quarter, as our capital deployment was focused on funding, but not one investment of $46 million in reserving funds for the $79 million required to close the HAY transaction at the start of the third quarter. We remain in compliance with all debt covenants, and as of quarter-end, our gross debt-to-EBITDA ratio was approximately 0.9 to 1. The available capacity on our bank credit facility stood at $266 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’ll turn the call back over to Jeff to cover our sales and earnings guidance for the third quarter of fiscal 2020.

Okay. Thanks, Kevin. We expect sales in the third quarter of fiscal 2020 to range between $672 million and $692 million. This outlook includes a full quarter of sales for both HAY and naughtone, which on a combined basis, are expected to contribute approximately $48 million in revenue for the quarter. From an organic perspective, the midpoint of this range implies a revenue increase of 3% compared to the same quarter last fiscal year. We expect consolidated gross margin in the third quarter to range between 36.5% and 37.5%. This midpoint gross margin forecast is a 130 basis points higher than the third quarter of fiscal 2019, reflecting net price realization, lower steel prices and net benefits from our ongoing profit improvement initiatives. The forecast also contemplates the relative seasonal slowdown in factory production that we normally experience around the holiday period and in the month of January. Operating expenses in the third quarter are expected to range between $194 million and $198 million. This range includes an estimated $14 million from the full quarter consolidation of both HAY and naughtone. We anticipate adjusted earnings per share to be between $0.68 and $0.72 for the period and our assumed effective tax rate is between 21% and 23%. With that, I’ll now turn the call over to the operator, and we’ll take your questions.

[Operator Instructions] Our first question comes from the line of Steven Ramsey with Thompson Research Group. Your line is now open.

Hey, good morning. This is Brian Biros on for Steven. Thanks for taking my questions. I want to start with the – consolidated gross profit came in slightly higher than the guide, where you guys called out favorable pricing, the lower steel and the profitability initiatives. I was wondering if you could, I guess, one, quantify those just to give a sense of the pieces that arrived to the 180 basis point gain? And then maybe some additional color on when you will start lapping the lower steel costs?

Hey, Brian, this is Jeff. Yes, I’ll take a start here and Kevin, maybe you can pull the data on steel and answer that second part. So I’ll frame this up in big and, look, big buckets for you Brian. So the 180 basis point improvement really pricing, the impact of the price actions I’m going to break this by the way on a gross basis. So I’m going to break out the impact of tariffs from pricing. Obviously, the pricing actions we took were a little larger than normal as a result of the tariff situation. So in total, about somewhere between 120 and 130 basis points of year-over-year benefit in gross pricing flow through. Tariffs offset that to the tune of about 40 basis points, okay, year-over-year. Commodity prices in total, with the largest contributor, of course, being steel pricing being, to your question, being down year-over-year. You get about 50 basis points of benefit there. And then the remainder I would point to a combination of some freight drag in the retail business, but offset by some mixed benefit, including channel mix, we write one of our larger revenue growth segments being retail just has structurally higher gross margins than the rest of the business. So that’s a factor in the numbers, as well as some production leverage and higher production volumes across much of the business So that nets out should get you to close to that 180 basis point improvement year-over-year.

And then, Brian, this is Kevin. On the steel front, this quarter implied in our guide for next quarter, steel cold rolled has been running about $200 favorable per ton. It’ll start to work its way down in Q4 a little bit and it’s really more Q1, Q2 of next year that we’ll start to lap that full $200 a ton.

Got it. I appreciate all the color. One more from me right now. I guess, still on the gross profit, but now for the early guide for Q3. I guess, could you just talk about some of the drivers or assumptions that would get us from the low-end to the high-end of the gross margin guide for Q3?

Yes, Brian, Jeff again. I would say, on a year-over-year basis, our guide would be – imply a fairly similar kind of puts and takes in terms of basis point movement year-over-year, as I just walked you through for Q2. Obviously, we’re starting – Q3 is always a seasonally lower gross margin quarter, mainly because you tend to have lower factory production levels, both here in our plants in the U.S., as well as internationally. So you’re already starting from a lower kind of factory production leverage perspective. That’s probably the biggest factor outside of any changes in the pricing environment, which we don’t see and it certainly aren’t factored into our guide. But production volumes in the U.S. and – within our international business can swing gross margins in our business up and down depending on if you get better leverage or less leverage than you anticipate. That’s probably the single biggest factor that I would point to. But by and large, the guide is predicated on fairly similar trends as we saw this quarter in terms of the commodity pricing, similar price flow-through.

Thank you. I’ll pass it on.

Yes.

[Operator Instructions] Our next question comes from the line of Greg Burns with Sidoti. Your line is now open.

Good morning. Could you just discuss the order pattern or the trends you saw this quarter almost the softness broad-based localized in particular reach of the business, any additional color you can give us there? And was something you saw throughout the quarter, or did it sort of materialize at a later point during the quarter? Thank you.

Hey, Greg, this is Andy. From a timing perspective, we really saw the softness in the first part of the quarter in September and October. Part of this was the price increase we had in the prior quarter, which we believe really pulled about $7 million to $10 million of volume into Q1 from Q2. And then as we turned into November, we started to see orders start to rebalance and November was flat. And then as we look into the first few weeks of this quarter, we’re seeing a nice pickup in orders. So we really do think, it was a little bit of an air pocket in September and October and the first part of the quarter. Jeff, would you add anything to that?

No, I think that’s right up.

Okay. And any more granularity you can give us on the improvement in the orders? I mean, are you – in the first few weeks, are they up year-over-year, or are you seeing – what kind of growth are you seeing in terms of the improvement in the orders?

Yes, Greg, this is Jeff. We – obviously, we have two weeks of data, but we’re up about 3.5% year-on-year at the consolidated level through those first couple of weeks. So a nice improvement certainly over the trends we saw in total over Q2.

Okay. And – okay, so obviously, that’s a positive trend. Is there anything else you could point to that maybe gives you confidence that this was an air pocket and then demand – the demand outlook remains very positive for the industry as a whole and…?

Yes, Greg, as we look at the funnel across all of our businesses internationally and in North America, we’re seeing really strong funnel month in in the four-month funnel. So that gives us a lot of reason to be optimistic.

Okay, great. Thanks.

And Greg, I might – Jeremy, I don’t know if you want to add anything just in qualitative terms on your business….

Yes.

…because I know your business had, particularly difficult comps to start Q2 improved a bit, so.

Sure. I think one of the really positive things, I speak and you can tell it from my accent, we just got through a general election in the UK, it’s a huge amount of relief in that market. And I think that the FTSE bounced 2.25% straightaway. And this is a sense that some real estate transactions that have been held up in that particular market could get release. So I think we’re feeling good about that. Clearly, some progress in U.S.-China negotiations always helps as well. So I think the team and I was catching up just yesterday are feeling somewhat more optimistic right now than they were six to eight weeks ago. So that’s pretty good.

Okay. And then just switching to the retail business. I know there was some initiatives going on there through the steel distribution facilities, some things that were maybe transitory that would improve margins. What’s the status of those items? And then still operating at a loss year, what’s your view on getting this business back to profitability?

Yes. I think if you look at the warehouse in that DC move, I think, we’ve had our last charges to that and they were not as large as they were in the prior quarters. Going forward, we won’t see that again. I think, as we continue to invest in growth here, the biggest investments for us are really around digital. So we have a really multi-year strategy around upgrading our sites across all of our brands and geographies. So that will have a single flexible architecture. We believe that allows our business going forward for HAY, particularly as well as DWR will come from digital. And then investing in store growth, we’ve been doing that. We will continue to do that. So I would say, our view to single operating margin improvements in single-digits is still optimistic. But I would say, with the change in leadership and as we look forward to growing HAY, now that we have majority ownership, we’ll still continue to invest, but we’re very confident that we’ll get to the operating margin in positive territory in the next few quarters.

Okay, great. Thanks. Is there anyone else queued up?

No. Go ahead if you have another question, Greg.

Okay. Nemschoff, you did talk about it in the – on the call, but I think there was some commentary in the press release. Could you just give us an update on that business? I’m just trying to want to better understand, is there something – is the healthcare market just more challenging, or is there something structurally specific Nemschoff that is causing that business to lag?

Yes, Greg, good question. So, look, it’s – this Nemschoff is – I want to be really clear. Nemschoff, we – the product that we get out of the Nemschoff business are really important to our healthcare business. And so I want to be upfront with that as a starting point that this is an important component of a very impressive overall healthcare offer for Herman Miller that doesn’t change. What we have been focused on and this is not new news. We – this has been a work in progress for sometime is getting that business leaner, so that it can operate profitably and that has not been the case consistently over the years that we’ve owned that business. And so there has been a big push. This latest round of announcements was aimed at just that. And so I’m going to be a little – because we do have some continued ongoing negotiations. I’m going to be a little careful on sharing too much in the way of detail. But what I can tell you is, the actions we’ve taken prior to this second quarter that we’re reporting and obviously, including the actions we’re taking this – in Q2 have the business at a point today where it’s profitable and, obviously, the goal is to improve upon that. So we’re heading in the right direction. It has been a journey for us. But I think we’re feeling pretty good about where we stand.

Yes.

Okay. And then the operating margin is very strong in North America. You’ve gotten a nice improvement in the gross margins there, too. So I just wanted to maybe get a sense of your view on further margin improvements, maybe specifically in North America, are we confident where that business should be operating? And then on a consolidated basis, kind of your view on what kind of margin leverage you would expect to drive out of the business? Thanks.

Yes, Greg, so this is Jeff again. With respect to – again, the North American business has been performing very well. As you well know, we have been focused heavily on profit optimization for the last couple of years. And in very specific terms over the last, I’d say, 12 to 18 months, within the North American contract business. And much of that work has been focused on the gross margin line and just making sure that we’re – we have the right pricing strategy in general, but then also that we’re working with our supplier partners and making sure that we have a fair arrangement on both sides of that equation. And I want to stress that we have very important long-term partners and suppliers that we value. And so that’s been an ongoing conversation. And I think made really good progress over that time on the margin improvements as always in this business. The – so much of it does depend on top line performance to get the kind of leverage that you can get in short versus if you get the volume flowing through. So that’s important. And we’ve had a – notwithstanding this – the second quarter order patterns. We’ve had a pretty good run over the last year or so. And I think, as we look forward, we continue to be optimistic that we can keep those factories running and generate the kind of profit leverage that we’ve been able to show in the past. So on the North American front, things are working quite well. We’re always – we’re never done. And we have a great supply management team and the folks that are – they lean in on what we call a Herman Miller Performance System or HMPS. And so that’s ongoing. And…

Yes. I would add to that, Greg. Just as we learned a lot in the last couple of years from our project optimists work and our contract side of the business, we’re launching that same effort in the retail side of the business, because we believe there is obviously room for improvement there. So that will be a big help, too.

Okay, great. And then lastly, in terms of the investments in HAY, the increased investments in HAY and naughtone. Why was now the right time to kind of step up your investments there? And then for each, maybe you can highlight some of the more immediate value creation opportunities now that you do have a controlling interest in those? Thank you.

Yes. So let me just start at the beginning. I think now is the right time. If you start with naughtone, it’s been an incredibly successful contracts brand around the globe. We feel like having majority ownership now to the number of things. As Jeremy pointed out, it really helped us enter international markets, but one of the highest growth areas for naughtone is also North America. So I’ll let Jeff talk about some more value creation around naughtone. And then HAY, we believe HAY tremendous opportunity around the globe from a contract perspective, but also is an incredibly compelling retail solution in North America. And as we’ve minority ownership for quite sometime, we’ve been unable to really accelerate the growth potential of its brand, both in bricks-and-mortar and retail and also online. Now that we have that ownership and partnership with Rolf and Mette, we feel like we can really put the gas on the fire what this brand can do for us in North America and we’re excited to get started.

Yes. Greg, this – the only thing I would add to that is, this is true for both HAY and naughtone. Both of these businesses address a sweet spot in the market right now for us in the area of ancillary furnishing, and they are both – have a track record of impressive growth. And it’s part of their Herman Miller family at this right moment in time, where that is where much of the market attention is going. And so it just adds to what is already a pretty impressive overall portfolio and makes us that much more competitive. And I think, Jeremy, I don’t get anything to add to that.

I would add that we’re still, I think, really only beginning to see the penetration of HAY into our contract channels in North America. So a lot of upside still go there. And in Europe, where HAY, a very strongly established kind of darling of the architecture and design community. We think this is a great opportunity to explore further kind of integration and sharing of distribution channels. So they got some wonderful dealers and wholesalers in each market across Europe. Many of those companies, I think, are going to be very interested to discuss the opportunity to distribute Herman Miller products in that channel, as well as maybe Herman Miller dealers in some markets today that are not selling HAY. So there’s plenty of upside we think for this brand, both in North America and in Europe.

Okay, great. Thanks for the color.

Thank you.

And I’m not showing any further questions in queue at this time. I’d like to turn the call back to Andi Owen for closing remarks.

Great. Well, thank you all for joining us on the call today. We really appreciate your continued interest in Herman Miller, and we look forward to updating you again next quarter. And from all of us here at Herman Miller, I want to wish you and your families a very, very happy holiday season. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.