MillerKnoll, Inc.

Good evening and welcome to Miller Knowles' Fourth Quarter Earnings Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Vice President of Investor Relations, Carola Mingolini.

Good evening and welcome to Miller Knowles' Fourth Quarter Fiscal 2023 Conference Call. I am joined by Andy Owen, Chief Executive Officer, and Jeff Studds, Chief Financial Officer. Also available during the Q&A session is John Michael, President of America's Contract. Before I turn the call over to Andy, please remember our safe harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors which are detailed in today's press release. The forward-looking statements are as of today, and we assume no obligation to update or supplement these statements. We may also refer to certain non-GAAP financial metrics, which are reconciled and described in our press release posted on our investor relations website at millernol.com. With that, I will turn the call over to Andy.

Thanks, Carola. Good evening, everyone, and thank you so much for joining our call. Our fourth quarter results demonstrate the power of our business model and the ability of our team to seize opportunities and innovate in an uncertain macroeconomic environment. By leveraging our diverse channels, geographies, and brands, we connected with customers around the globe, delivering innovative designs while improving our margin performance and strengthening our balance sheet. As we've shared in the recent quarters, the environment is still challenging. Customers are staying cautious and deliberate about their spending. We continue to see demand softness across our channels, but there is strong performance worth noting in several areas of our business, and our pattern of orders have started to improve. Jeff will highlight that he provides a closer look at our financials. From my seat, I want to highlight that we have done a lot of work to future-proof our business. We were early movers in our industry, combining with two best collective of brands in our space to form an unrivaled portfolio of products, market reach, and innovation. Since then, we've worked to streamline our global operations network across Miller Knoll, moving production and capability efficiently and creating centers of excellence, along with investing in e-commerce and retail, as we know these will drive future growth opportunities. We've prioritized our strong partnership with our dealer network in North America, and that alignment is resulting in positive traction quarter over quarter. We're arming our dealers with the tools they need to sell our collective, from developing a Miller Knoll contract e-commerce site to more dynamic tools that allow customers and specifiers to envision and specify our solutions. Additionally, as we continue to expand our presence globally with our Miller & Old Dealer network, we're taking our collective of brands into high-growth regions such as India, the Middle East, Southeast Asia, and China. This allows us to leverage our capacity to develop, expand, and design solutions that meet the demand of our clients, former and new. While I have no crystal ball, I believe that this year's economic outlook will gradually improve as time progresses. Our efforts to future-proof, plan ahead, and model our business for the successes of tomorrow will serve us well. I was recently in Chicago for Design Days, the largest stateside presentation of our brands to our contract market audience. And the response to our product launches and showrooms was overwhelmingly positive. Having had the opportunity to connect with many of our customers in person, I've come across some key findings. First, While the unpredictability surrounding the return to office persists in North America, we're starting to observe an inflection point. And second, in order for companies to achieve a desired success in their return to office strategies, it's crucial to construct a workplace that revolves around collaboration, wellness, productivity, and flexibility. Products like Herman Miller's new task chair, Asari, as well as the mobile height-adjustable passport work table and the soon-to-be-introduced fold nesting chairs are perfect examples of new innovative designs that will help our clients rebuild their spaces with flexibility and productivity. And while we're an industry leader in workplace design, we're also expanding our solutions into resilient verticals, including healthcare and the public sector. In the healthcare sector specifically, we've been active for over 50 years. However, as Miller Knowles, our scale enables us to bring fully realized spaces to life at a faster pace. During design days, we offered customers a distinctive showroom experience that highlighted some of our healthcare solutions. Witnessing the level of engagement and excitement generated by this space underscores the leadership and momentum we've built in this vertical. For higher education in the public sector, a combined Millernual portfolio presents a comprehensive range of solutions and services, giving us a unique advantage and delivering larger-scale projects for our customers. We're experiencing positive traction in this space as well. As an organization with over a century of success, navigating through varying economic conditions, we have confidence in the long-term health of our industry and the advantages of our business model. We will continue to balance our approach for the long term using a playbook that has served us well through multiple cycles. We'll focus on our customers, we'll be thoughtfully prudent managing our costs, we'll align our teams and talent to our strongest competitive advantages, we'll deliver innovation, and we'll invest for long-term growth opportunities. In the near term, we'll continue to prioritize operating efficiently, focusing on free cash flow, and ensuring our spending aligns with sales and order levels. With that, I want to thank you for your continued partnership with us on this path. And I'll now turn the call over to Jeff for a deeper look at the financials.

Thanks, Annie. Good evening, everyone. It's good to be with you.

I'll start by providing an overview of our performance in the fourth quarter and some full year highlights, followed by some insights into our outlook and targets for both the first quarter and the full fiscal year. For the fourth quarter, we generated adjusted earnings of 41 cents per share, slightly above the midpoint of our guidance. Overall, stronger-than-expected net sales and gross margin helped alleviate certain cost pressures stemming from increased marketing, product development, and variable expenses. At the consolidated level, net sales in the fourth quarter were 957 million, slightly above the midpoint of our guidance, driven by strong performance in the America's contract segment. Additionally, supply chain enhancements improved production reliability, and better inventory management facilitated faster order fulfillment across all segments. This allowed us to ship more of our backlog than we initially anticipated coming into the period. We're pleased to report another quarter of improvement in gross margin performance. Our consolidated adjusted gross margin was 37% at the high end of our guide. This result was 220 basis points higher year over year and 130 basis points higher on a sequential quarter basis, mainly driven by the realization of price increases and benefits from integration-related synergies. Our consolidated adjusted operating margin was 5.9% for the quarter. Turning to cash flows and the balance sheet, this quarter we generated approximately $93 million in cash flow from operations, driven by sales and a meaningful reduction in working capital, primarily attributed to our inventory management efforts. Consequently, we paid off $48.4 million of debt. We finished the fourth quarter with a net debt to EBITDA ratio of 2.5 times, putting us comfortably under the maximum limit defined in our lender agreements. New orders at the consolidated level totaled $922 million in the fourth quarter, reflecting an organic decrease of 7.8% from the same quarter last year, and a sequential increase of 4.2% when compared to the third quarter. And while the absolute level of new orders were lower than last year, the rate of decrease improved this quarter, providing evidence that we're moving to a point of demand stabilization in the business. And I'll take a moment to summarize our fourth quarter operating performance by segment. Within our Americas contract segment, net sales for the quarter were $474 million, down 11.8% organically year over year, while new orders came to 454 million, reflecting an organic decrease of 8.2% year-over-year. Clearly, the general economic uncertainty has weighed on this segment's sales and order rates. Still, our team feels very optimistic for the medium to long term, which is supported by various indicators. These include year-over-year growth in order rates observed thus far in the first quarter and robust project funnel activity. I'll also highlight that despite the macro challenges, this quarter we achieved an adjusted operating margin in excess of 10% in this segment, which is up both sequentially and year-over-year, driven by continued price-cost benefit and savings from integration-related synergies. As it pertains to global retail, net sales for the quarter were $245 million, down 12.1% organically year-over-year, while new orders came to $228 million, which reflects an organic decrease of 14.2%. The North American housing market slowdown and reduced spending on discretionary goods continue to affect demand levels for this segment. In response, we're focusing heavily on effective inventory management and product mix optimization to drive operational efficiencies. Additionally, we are enhancing brand awareness while also prioritizing investments in our most established channels and brands in order to better leverage our scale. Turning to our international contract and specialty segment, net sales for the quarter totaled 237 million, down 12.3% organically year-over-year, while new orders came to 240 million, reflecting slight year-over-year organic growth. Make no mistake, we are very optimistic about the growth potential in this segment. We've witnessed strong demand from India, Korea, and the Middle East, and we're beginning to see improved demand in China. And we're also encouraged by the scale and reach that we are achieving with our global dealership network. To date, international contract distribution has transitioned more than 80 legacy Herman Miller dealers into full-line Miller & Old dealers. In the year ahead, the team plans to keep this momentum going by phasing in an additional 60 full-line dealers. For the full fiscal year, net sales at the consolidated level totaled $4.1 billion, and adjusted earnings totaled $1.85 per share. Throughout this year, we've made remarkable progress in achieving our target synergies related to the NOL integration. And this synergy capture has been critical to our ability to deliver margin improvements, especially given the impact of elevated input costs and constrained production volumes. This has been a complex journey enabled by the talent and dedication of our team members around the world. We're better because of this work, and I'm grateful for their efforts. I'll conclude my prepared remarks with a few comments on our outlook for fiscal 2024. As we are all aware, the COVID-19 pandemic introduced unprecedented dynamics into our business, which resulted in abnormal trends over the past couple of years. As we begin the new fiscal year, we anticipate certain shifts in sales and earnings patterns in comparison to previous periods. Consequently, we recognize the significance of providing improved visibility for both the upcoming quarter and the entire fiscal year. Overall, we expect slightly lower year-over-year consolidated net sales in fiscal 2024. As it pertains to the quarterly cadence of sales and earnings, and giving consideration to factors such as recent order trends, historical seasonality, expected benefit from price increases, the current funnel of project opportunities, and our beginning backlog, we expect operating earnings to be back half-weighted in fiscal 2024. We do maintain a cautious near-term outlook due to macroeconomic dynamics. However, I will also highlight several indicators that make us feel optimistic about the upcoming year. In this regard, the following points are worth noting. Order trends in the first five weeks of the new year have shown improvement, both at the consolidated level and in the Americas contract segment. Our prior year comparisons are easing, and the sequential and year-over-year trends in the project funnel are encouraging. Second, various indicators, such as consumer sentiment, the architectural billings index, and new home sales, although still relatively low, are showing signs of improvement. And third, we're well-positioned in several key international markets where we expect supportive GDP growth bolstered by an increasing number of full-line Miller & Old dealers. Taking all these factors into consideration, we expect to generate adjusted earnings in the range of $1.70 and $2 per share for the full fiscal year 2024. Now, as it relates to the first quarter, let me elaborate on a few factors impacting our guidance. First, the sluggish order rates over the past two quarters have resulted in a reduction in the consolidated order backlog. In effect, we don't have the same running start that we had heading into Q1 of last year. It's important to remember that the first quarter of last year, fiscal 2023, included 14 weeks of operations versus the standard 13-week calendar. That extra week added an estimated $77 million to consolidated net sales last year. And lastly, as we enter the new fiscal year, our first quarter expense run rate will reflect on-target incentive bonus expenses as well as a partial quarter of higher employees' salaries and wages. Taking these factors into consideration, we expect net sales for the first quarter to be in the range of $880 million and $920 million, operating expenses in the range of $288 million to $298 million, and adjusted earnings per share to be between 18 and 24 cents. Okay, with that overview of the numbers, I'll now turn the call back to the operator, and we'll take your questions.

Thank you. If you would like to ask a question on the phone lines today, it is star 1 on your telephone. And if you find your question has been answered and you would like to remove yourself from the queue, it's star 1 again. We'll take our first question from Greg Burns with Sedoti.

Good afternoon.

So I just wanted to, I guess, touch on the guide for the year. So as we think about the cadence of revenue What is driving the stronger back half on the earnings side and how should we think about, I guess, maybe the split of revenue percentage-wise or split of earnings maybe percentage-wise first half, second half? Can you just give us a little more color on the expected cadence for the year?

Yeah, Greg, this is Jeff. Good to be with you. Let me start, and then Andy and John, you might want to lean in if you have a perspective here. But let me start with a few of the, I kind of talked on some of these, but a few factors that give us growing confidence that we're going to see improved top line as we move through the year. So we talked about already the fact that in the first five weeks of the quarter, we've seen a notable improvement in order entry levels in the America's contract segment in particular. We've already been seeing several quarters of relatively strong performance internationally, and I mentioned in my prepared remarks that we expect the international dealer network to expand in this next year and to gain further traction. But the specific things I'd point to are the trends that we're seeing in funnel opportunities continue to be encouraging. We're seeing growth in the funnel year over year. I mentioned the order trends. When you look at some of those leading indicators, I think are important to maybe reiterate. Consumer confidence levels, the ABI has turned into expansion territory again. That tends to be an indicator nine or so months into the future based on history. And we're starting to see home sales begin to show some signs of life. So those are more forward indicators that I would reiterate. The other thing I would say is the bulk of the integrate, we're not done with integration, but the bulk of the heavy lifting is largely behind us. And that's important because the focus of the sales team and our dealer network, they've already got many months behind them now getting up to speed on all the learning that it takes to sell the full offer. And so while we still expect that to ramp, we've come a long way and we expect to see that flywheel begin to spin a little faster. The other thing I would say, Greg, is on the earnings front, We do expect further pricing benefit. We've got a good track record now showing pricing benefit layering in quarter after quarter. We expect that to continue. We still have price increases that we've put in place that we expect to ramp up and realize throughout fiscal 24, which lends itself to back half earnings. And as volume levels pick up, so will the leverage benefit against fixed overhead costs. So those are the major factors. I'm going to fall short of giving you a quarter-by-quarter view. We'll just simply tell you that all of those factors collectively give us some confidence that we can hit that full year number. And I'll pause there and see, Andy, if you want to add anything.

Yeah, Jeff, you hit on most of it. The thing I would add, Greg, is probably if we look at return to office, particularly in North America, where it has been more sluggish than I think we would have hoped as industries. We're definitely starting to see people moving to decisions. We're starting to see more people having people come back together. All of our research would indicate that this is the way that we need to be moving. So I think we're optimistic about that as well. Jeff touched on the funnel, but I'll say this funnel is better than it's been in two years, which I think is a really encouraging sign for us.

Perfect. Thanks. And then lastly, on the retail side of the business, how do you look at operating that business now in the current demand environment. I know you've been investing there, but it was about breakeven this quarter. So is that, you know, are there things you can do to optimize that business, optimize spend? You know, how do you view the demand environment there and how that impacts how you run that business?

Yeah, I mean, I think if you look at all of our competitors, there, Greg, and kind of across the industry, the residential home furnishings industry, we expect will probably be softer for the next couple of quarters. We're encouraged by new home sales going up. We're encouraged by the real estate market rebounding a little bit. But we still think it'll take some time to work through. So we're really simplifying. We're focusing our efforts on the DWR brand. We're focusing our efforts on Herman Muller and Knoll. And where we've seen some real struggles this past year has been working through inventory, and not just in inventory in North America, But many of our wholesalers internationally, whether that be with Hay, with Knoll, around the world, have really been sitting on piles of inventory. And as these people are working through that inventory, we expect to see further profitability. But really, we're addressing this through simplification and continuing to focus on building the categories where we are not necessarily maximized right now. So we expect to see a slow climb as demand improves over the year. But we're being very, very prudent on how we invest further in that business right now until the customer comes back full force. I will say, however, that we've invested quite a bit and quite successfully in building our brands, and where we have invested there from a marketing perspective, it's paid off.

All right, great. Thank you.

We'll take our next question from Bud Bugach with Water Tower Research.

Good afternoon, and thank you for taking my questions. I hope everybody's doing okay there.

Hi, Bud. Hey, Bud.

Thank you. And Jeff, you talked a little bit about that sales for the year. I know we're starting off with a really low backlog compared to where it's been. And the excessive backlog has been largely cleared. Where do you think orders will come in for the year? And what do you think the ending backlog will look like for the year?

Well, we intentionally didn't provide a specific guide. You know, my prepared remarks kind of outlined the level of detail we're willing to go to from a revenue standpoint, which is simply to say that softer running start with the lower backlog, and I will acknowledge specifically backlog being down about 25% year over year heading into fiscal 2024. means that we're likely to see slightly lower revenue. I would expect qualitatively orders in total for the year to be higher than FY23 because we do expect that to accelerate as we move through the balance of year. But I'm not going to provide any more detail than that.

So if orders are higher year over year, that would imply that the backlog goes up at the end of the year if you're able to meet your plan or meet your thinking. Is that correct?

That's right. You got it. We expect to build backlog throughout the 24th.

Okay. And looking at the guide for Q1, can you maybe give us some help on where the gap guidance is? We've got some impairment and restructuring that affected this quarter, and I'm going to ask a little bit about if you can give us some color on those programs. I know the null trade name was impaired, but the restructuring specifically. But where do you think the GAAP EPS comes in? My quick pencil work, and it could be very flawed, says around 20 cents. Is that reasonable?

Well, so our EPS guide is at the midpoint 21 cents, but I want to make sure I understand your question. Are you talking about GAAP EPS?

Yeah. I'm trying to figure out what's in the adjustments going forward.

Well, frankly, part of the reason we're guiding to an adjusted number is the timing of some of the adjustments related to restructuring, past restructuring, and integration costs. They tend to be a little lumpy, and they're not terribly easy to predict with a level of precision. But what I would tell you is we have amortization costs related to the null acquisition that has been a consistent adjustment item. In the fourth quarter, that was $6 million. I would expect that to be comparable in Q1. So that's there about six pennies of earnings that would reduce that adjusted earnings number. And then we will have some integration costs that are a little tougher to predict. So That's why we fell short of giving you the number, but for sure you're going to see that amortization charge come through on a gap basis.

Just one thing, and I don't know if this is where you're headed or not, but as Jeff pointed out in his prepared remarks, the bulk of our integration activities and cost to achieve are behind us. We would expect those adjustments to gradually continue to decrease over time.

Thank you. Yeah, I know that that $6 million, how long do you think that acts out? I think we still have a number of years before that leaves, right?

Yeah, that's a long-term asset that will amortize over a long period of time, but yep.

One thing that's confused me, and Andy, you may have given us part of the answer to that, is that the retail gross margin really has been quite volatile recently. at least quarterly, and I imagine maybe daily or weekly to you as well. And is that basically inventory reduced? Is that a markdown issue, or is there something in the original mark on that's an issue in the retail gross margin?

Yeah, but the two factors that I would point to that plagued us quite a bit throughout fiscal 23, and frankly, that we expect we'll improve moving forward. The first one Andy alluded to is inventory related. You'll remember early in the year we had demurrage and storage fees that we were feeling. In the fourth quarter, we also had some inventory related charges that were recognized in the period that reduced margin. In addition to that, though, the other big category I'd point to is freight and distribution costs, mainly outbound freight, parcel delivery, to customers, those rates have been elevated and have continued to pressure margins. And I know the team has a number of strategies that they're working on to defray those, including some potential price decisions that they have to make.

Yeah, but I would say from a discounting perspective, we're not seeing pricing pressure. We're not degrading our margin and discounting a ton. That has not been our problem from a margin perspective.

And what about geographically? Because we have DWR domestically, but we've got Hay and Muto, some overseas stuff. What's the geographical disparity of gross margin at retail?

I would say that the international retail businesses, which are primarily wholesale, are the most challenged from a top-line and bottom-line perspective. As most of those wholesalers bought a ton of inventory, And based on the supply chain challenges that everyone faced, and when the war in Ukraine started, I think everyone bought up, and then demand dropped. So we're seeing a lot of pressure with those wholesalers. Now, the good news is we're starting to see them work through that inventory, and demand is coming back, but that's really pressured our European businesses.

And that does flow through the retail set, right? That does.

Absolutely. Yeah. It didn't used to, which makes it a little confusing now, but yes, it does now. It's part of the global retail number.

Okay. All right. And the last question, have you got inventory overall where you want it? What's the target inventory for the end of the year or during the year? How much excess inventory are we carrying now, if any?

I think, Bud, we've got inventory. We've come a long way. Inventory came down significantly in the quarter. That unlocked some working capital cash flow. I think the team feels pretty good with inventory levels, albeit we'll have seasonal changes in inventory levels as we move in towards, like, for example, in the retail space, the holiday period, there will be some stocking related to that. But I think, by and large, we're where we need to be.

Yeah, we're where we need to be internally, but it's really just our wholesale partners working through their inventory.

And that is their inventory. You've already turned title to that. So you're just waiting.

Yeah, that's exactly. Not our inventory, but it does affect their ability to buy from us.

Gotcha. And last for me, Jeff, CapEx for the year. Did you give a number?

We did not give a number, but I'm happy to. We spent $83 million in CapEx and FY23.

And what do you think in FY24?

We're going to do our level best to try to keep that as flat to that number as we can. But as I sit here today, I'd give you a range on the year of 80 to 100. Thank you.

Thank you very much. Good luck on the near term and the full year. Thank you. Thank you, bud.

Take care.

We'll take our next question from Ruben Garner with Benchmark.

Thanks, good evening everybody.

Hey Ruben.

Jeff, any quantification you could give us on the growth in orders and the robust funnel and pipeline that you talked about in the early part of this fiscal year?

Sure Ruben, happy to. Let me start with the order pacing through the quarter. Maybe what I'll start with is, you know, because we made a point in the prepared remarks to highlight the fact that in the first five weeks of the quarter, we've seen some nice improvement in order entry levels. So maybe to begin, just to reiterate, in the America's contract segment, order entry levels on an organic basis were down 8% year over year in the fourth quarter. In the first five weeks of Q1, we've actually moved to positive growth of about 5%. Now, and because our conference call here is a little later than it normally is, we normally only have a couple weeks worth of activity to share with you, but we've got a full five weeks, and so we're very encouraged by that. The only other thing I would say on order trends is that at the consolidated level, we saw improvement as we moved through, modest improvement as we moved through the quarter. We were still negative year on year, but that was beginning to show signs of easing as well. So let me Let me pause there, John. Maybe you can speak to the funnel. Sure.

Thanks, Jeff. Ruben, just to maybe add some color commentary to the progress we've seen in the funnel and in the order rate, I'd point to a couple things. At the start of the calendar year, we put together a plan to compete and win in a recessionary environment. And really, in terms of deployment of sales resources and the value proposition that we bring to customers, I think we've really fine-tuned that. And those strategies are beginning to pay off, and we're seeing that in order rate. The other thing I would say is we just passed the one-year anniversary of what we originally called cross-sell, which was when we had legacy Knoll dealers beginning to sell Herman Miller product and vice versa. And anecdotally, I was with a group of dealers last night, and the comment was made that they are so much more confident and feel so much more ready with the full collective of brands today versus a year ago, that it's really noticeable. And their confidence in the market is improving. And I think that drives order rates as well.

Great. That's helpful. And then maybe if we could switch back to the guidance for this year. At a high level, Jeff, can you help us with what the price versus volume assumptions are, I recognize that you kind of give a general view of the top line. Maybe the better way to ask it is how much pricing, just from a carryover perspective, from things you've already announced, do you have that will benefit FR24?

Yeah, maybe it's easier for me to just take the latter, Ruben. So you know how pricing flows through and over what period of time it tends to take in this industry. So maybe just a reminder that it was last October we did a – it was a tailored price increase, but think of it as an average of about an 8% price increase in the America's contract business and – in the contract elements of our business. So that is still layering in. It takes the better part of a year to get the full impact of that. So we still – and that has contributed meaningfully to the sequential margin improvements that we've been seeing since then. And then in addition, we just put in place a price increase that averages 3%, and when I say just, beginning of July. So those factors collectively are fully expected to provide margin support as we move through the year. The harder one to quantify, so I'll just, again, speak qualitatively about it, is the volume impact, because you're right to highlight that. That's where my earlier comment about leverage comes in. As volume levels improve, we're very sensitive. Our factories, particularly in North America but really around the world, are sensitive to volume increase levels. And so as those order levels ramp, as we expect that they will, that too will support margin performance. But that's probably the best I can offer you right now.

All right, and we'll move on to our next.

Ruben, are you still with us?

Ruben has dropped.

Okay, got it.

He either didn't like it or not.

All right, and we'll move on to our next question from Alex Furman with Craig Hallam Capital Group.

Hey guys, thanks for taking my question.

Andy, I wanted to ask about the retail business. How does that factor into the guidance for the upcoming year? You know, obviously been, you know, up against some incredibly tough comparisons. Is the consumer there, you know, starting to come back a little bit? What's your expectation there for, you know, the rest of this year as it relates to your guidance for this year?

Hey, Alex, it's a great question. Listen, I think as I said earlier, we think these first couple of quarters we're going to continue to see softer demand. As we turn into calendar year 24, we expect that we will start to see the consumer come back. We're encouraged by home sales. When people move, that makes a big difference for us. We think as people have adapted to interest rates where they sit today, that makes a difference in what they're purchasing. The great news is our AOV, as we look at what the quality of the consumer that we're looking at, hasn't really changed. So we're very optimistic about that. We're not having to discount our inventory levels or where we want them to be. So right now we're really just focusing on those important brands to us, those kind of top three, focusing on categories that we don't currently maximize and sort of kind of looking to reduce our investment in this business while we wait for the consumer to come back. I think they're there, but I think right now they're still spending on travel, they're still spending on other experiences, and we expect that will change as the year goes on.

Alex, this is Jeff. Just one more bit of color. And I didn't mention this in my prepared remarks, but I think it warrants mentioning. The other thing that I think affects the cadence of performance of the year is, bear in mind, our fiscal quarter one is the seasonal low watermark for the retail business. And that's just seasonality and where promotional events are scheduled, consumer behaviors in the summer months all play into that. So we do expect improved performance just based on seasonal trends as we move into Q2 and beyond.

Okay, that's really helpful information. And then just thinking about some of those comments about the consumer, are you seeing anything differently in the U.S. versus abroad? And then all of your brands are certainly premium, but some of them are kind of mega premium price points. Are you seeing any sort of a difference in demand based on the prices in your portfolio?

I would say, Alex, difference in demand really kind of goes back to what I was saying earlier. I think we're seeing a little softer demand internationally with our wholesale partners. I really believe that has to do with inventory buildups. I don't necessarily think that has to do with price points in the product. As I said, we're not having to discount, and that to us is a really important piece of this puzzle. And the quality of the consumer is there. It's taking a little bit longer for people to pull the trigger on purchases, but the quality of the consumer is definitely there.

That's really helpful. Thank you guys very much.

Thank you.

All right, and we'll take a follow-up question from Ruben Gardner with Benchmark Company. You're back.

Thanks. Sorry, guys. Yes, I got dropped as soon as I finished asking it, and I came back in at the tail end. I did not drop because I didn't like the answer. I just didn't hear it.

We thought we took your answer off the air.

Yeah, I'll have to get that one in the transcript. But I do have one more I want to ask about. So the turn in orders and the robust pipeline, I mean, you could see it at the show at Neocon. It was definitely, it seems more upbeat. I'm just curious about your conversations with customers, specifically on the North American contract side. Do you think it's just the macro uncertainty that's holding customers businesses up at this point, or is there still some angst about what the future of the office is going to look like kind of longer term with the return to office trend?

Jay, anyone want to take that one?

Sure.

You know, I think the future of the office and how it plays in work is something that's still evolving, and I think it's going to continue to evolve. But I think more times than not, as Andy mentioned earlier, there is an inflection point that we are feeling where companies see the benefit of having their people together, see the benefit of providing opportunities for connection, for belonging, for well-being, to address things like stress and burnout. And the right environment helps with that. So I think that there's still some hesitation, but definitely companies are moving towards really working hard and asking us for the help in how do we get our people back. The other thing we've seen happen is, you know, hybrid work is changing in and of itself. It was six to 12 months ago pretty loose in terms of how companies approached hybrid work. It is becoming much more structured, still offering employees flexibility, but putting some guardrails around time in the office, et cetera. And I think those are all positive trends that will bode well for us as the year goes on.

Great, and I said just one more, but I'm going to sneak another one in, a quick one. Did I hear you say inventory had normalized, and was that a comment specific to the kind of international wholesale retail or consumer business, or was that a broad-based comment for Milano?

No, Ruben, I'm glad you asked for clarification. So the comment was more related to our own inventory levels that we have in either in work in progress, waiting to be recognized as revenue on the contract business, or in the retail business that we actually have in our own warehouse and storage facilities. Those are the levels of inventory that have become more normalized. We no longer have the buildup or glut of inventory that we had earlier in fiscal 23. I think Andy's comments, there is still elevated inventory held by wholesale partners that is affecting the business, but that's not our inventory, if that makes sense, Ruben.

Yeah, and Ruben, just one more thing to add to that that we can't forget throughout the integration process is that as we integrate with Knoll, Herman Miller had a much more robust and efficient operating management system in our plants. And as we've gone through our Knoll operations, we have also reduced inventory pretty substantially. as we've implemented our Toyota production system that we call MKPS across those plants. So that has also reduced inventory on the contract side, and that has been work that's taken us the better part of the last 12 to 24 months. So we're seeing that efficient and effective inventory management really start to show up across the entire business.

Great. Thanks again, guys. And sorry about the drop call there. Congrats and good luck on the new year.

Thank you, Levin.

All right, and there are no further questions. We turn the floor back to CEO Andy Owen for closing remarks.

Thanks again, everyone, for joining us on the call. We really appreciate your continued support of Miller & All, and we are looking forward to updating you on our next quarterly call. Have a great night.

And that does conclude today's presentation. Thank you for your participation, and you may now disconnect. Thank you. Thank you. Music playing Thank you. Thank you.

Thank you.

Good evening and welcome to Miller Knowles' fourth quarter earnings conference call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Vice President of Investor Relations, Carola Mingolini.

Good evening and welcome to Miller Knowles' fourth quarter fiscal 2023 conference call. I am joined by Andy Owen, Chief Executive Officer, and Jeff Studds, Chief Financial Officer. Also available during the Q&A session is John Michael, President of America's Contract. Before I turn the call over to Andy, please remember our safe harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied. Please evaluate the forward-looking information in the context of these factors which are detailed in today's press release. The forward-looking statements are as of today, and we assume no obligation to update or supplement a statement. We may also refer to certain non-GAAP financial metrics, which are reconciled and described in our press release posted on our investor relations website at millernol.com. With that, I will turn the call over to Andy.

Thanks, Karla. Good evening, everyone, and thank you so much for joining our call. Our fourth quarter results demonstrate the power of our business model and the ability of our team to seize opportunities and innovate in an uncertain macroeconomic environment. By leveraging our diverse channels, geographies, and brands, we connected with customers around the globe, delivering innovative designs while improving our margin performance and strengthening our balance sheet. As we've shared in the recent quarters, the environment is still challenging. Customers are staying cautious and deliberate about their spending. We continue to see demand soften throughout our channels, but there is strong performance worth noting in several areas of our business, and our pattern of orders have started to improve. Jeff will highlight that he provides a closer look at our financials. From my seat, I want to highlight that we have done a lot of work to future-proof our business. We were early movers in our industry, combining with two best collective of brands in our space to form an unrivaled portfolio of products, market reach, and innovation. Since then, we've worked to streamline our global operations network across Miller Knoll, moving production and capability efficiently and creating centers of excellence, along with investing in e-commerce and retail, as we know these will drive future growth opportunities. We've prioritized our strong partnership with our dealer network in North America, and that alignment is resulting in positive traction quarter over quarter. We're arming our dealers with the tools they need to sell our collective, from developing a Miller Knoll contract e-commerce site to more dynamic tools that allow customers and specifiers to envision and specify our solutions. Additionally, as we continue to expand our presence globally with our Miller & Old Dealer network, we're taking our collective of brands into high-growth regions such as India, the Middle East, Southeast Asia, and China. This allows us to leverage our capacity to develop, expand, and design solutions that meet the demand of our clients, former and new. While I have no crystal ball, I believe that this year's economic outlook will gradually improve as time progresses. Our efforts to future-proof, plan ahead, and model our business for the successes of tomorrow will serve us well. I was recently in Chicago for Design Days, the largest stateside presentation of our brands to our contract market audience. And the response to our product launches and showrooms was overwhelmingly positive. Having had the opportunity to connect with many of our customers in person, I've come across some key findings. First, While the unpredictability surrounding the return to office persists in North America, we're starting to observe an inflection point. And second, in order for companies to achieve a desired success in their return to office strategies, it's crucial to construct a workplace that revolves around collaboration, wellness, productivity, and flexibility. Products like Herman Miller's new task chair, Asari, as well as the mobile height-adjustable passport work table and the soon-to-be-introduced fold nesting chairs are perfect examples of new innovative designs that will help our clients rebuild their spaces with flexibility and productivity. And while we're an industry leader in workplace design, we're also expanding our solutions into resilient verticals, including healthcare and the public sector. In the healthcare sector specifically, we've been active for over 50 years. However, as Miller Knoll, our scale enables us to bring fully realized spaces to life at a faster pace. During design days, we offered customers a distinctive showroom experience that highlighted some of our healthcare solutions. Witnessing the level of engagement and excitement generated by this space underscores the leadership and momentum we've built in this vertical. For higher education in the public sector, a combined Miller-Noel portfolio presents a comprehensive range of solutions and services, giving us a unique advantage and delivering larger-scale projects for our customers. We're experiencing positive traction in this space as well. As an organization with over a century of success, navigating through varying economic conditions, we have confidence in the long-term health of our industry and the advantages of our business model. We will continue to balance our approach for the long term using a playbook that has served us well through multiple cycles. We'll focus on our customers, we'll be thoughtfully prudent managing our costs, we'll align our teams and talent to our strongest competitive advantages, we'll deliver innovation, and we'll invest for long-term growth opportunities. In the near term, we'll continue to prioritize operating efficiently, focusing on free cash flow, and ensuring our spending aligns with sales and order levels. With that, I want to thank you for your continued partnership with us on this path. And I'll now turn the call over to Jeff for a deeper look at the financials.

Thanks, Annie.

Good evening, everyone. It's good to be with you. I'll start by providing an overview of our performance in the fourth quarter and some full year highlights, followed by some insights into our outlook and targets for both the first quarter and the full fiscal year. For the fourth quarter, we generated adjusted earnings of 41 cents per share, slightly above the midpoint of our guidance. Overall, stronger-than-expected net sales and gross margin helped alleviate certain cost pressures stemming from increased marketing, product development, and variable expenses. At the consolidated level, net sales in the fourth quarter were 957 million, slightly above the midpoint of our guidance, driven by strong performance in the America's contract segment. Additionally, supply chain enhancements improved production reliability, and better inventory management facilitated faster order fulfillment across all segments. This allowed us to ship more of our backlog than we initially anticipated coming into the period. We're pleased to report another quarter of improvement in gross margin performance. Our consolidated adjusted gross margin was 37% at the high end of our guide. This result was 220 basis points higher year over year and 130 basis points higher on a sequential quarter basis, mainly driven by the realization of price increases and benefits from integration-related synergies. Our consolidated adjusted operating margin was 5.9% for the quarter. Turning to cash flows and the balance sheet, this quarter we generated approximately $93 million in cash flow from operations, driven by sales and a meaningful reduction in working capital, primarily attributed to our inventory management efforts. Consequently, we paid off $48.4 million of debt. We finished the fourth quarter with a net debt to EBITDA ratio of 2.5 times, putting us comfortably under the maximum limit defined in our lender agreements. New orders at the consolidated level totaled $922 million in the fourth quarter, reflecting an organic decrease of 7.8% from the same quarter last year, and a sequential increase of 4.2% when compared to the third quarter. And while the absolute level of new orders were lower than last year, the rate of decrease improved this quarter, providing evidence that we're moving to a point of demand stabilization in the business. And I'll take a moment to summarize our fourth quarter operating performance by segment. Within our Americas contract segment, net sales for the quarter were $474 million, down 11.8% organically year over year, while new orders came to 454 million, reflecting an organic decrease of 8.2% year-over-year. Clearly, the general economic uncertainty has weighed on this segment's sales and order rates. Still, our team feels very optimistic for the medium to long term, which is supported by various indicators. These include year-over-year growth in order rates observed thus far in the first quarter and robust project funnel activity. I'll also highlight that despite the macro challenges, this quarter we achieved an adjusted operating margin in excess of 10% in this segment, which is up both sequentially and year-over-year, driven by continued price-cost benefit and savings from integration-related synergies. As it pertains to global retail, net sales for the quarter were $245 million, down 12.1% organically year-over-year, while new orders came to $228 million, which reflects an organic decrease of 14.2%. The North American housing market slowdown and reduced spending on discretionary goods continue to affect demand levels for this segment. In response, we're focusing heavily on effective inventory management and product mix optimization to drive operational efficiencies. Additionally, we are enhancing brand awareness while also prioritizing investments in our most established channels and brands in order to better leverage our scale. Turning to our international contract and specialty segment, net sales for the quarter totaled 237 million, down 12.3% organically year-over-year, while new orders came to 240 million, reflecting slight year-over-year organic growth. Make no mistake, we are very optimistic about the growth potential in this segment. We've witnessed strong demand from India, Korea, and the Middle East, and we're beginning to see improved demand in China. And we're also encouraged by the scale and reach that we are achieving with our global dealership network. To date, international contract distribution has transitioned more than 80 legacy Herman Miller dealers into full-line Miller & Old dealers. In the year ahead, the team plans to keep this momentum going by phasing in an additional 60 full-line dealers. For the full fiscal year, net sales at the consolidated level totaled $4.1 billion, and adjusted earnings totaled $1.85 per share. Throughout this year, we've made remarkable progress in achieving our target synergies related to the NOL integration. And this synergy capture has been critical to our ability to deliver margin improvements, especially given the impact of elevated input costs and constrained production volumes. This has been a complex journey enabled by the talent and dedication of our team members around the world. We're better because of this work, and I'm grateful for their efforts. I'll conclude my prepared remarks with a few comments on our outlook for fiscal 2024. As we are all aware, the COVID-19 pandemic introduced unprecedented dynamics into our business, which resulted in abnormal trends over the past couple of years. As we begin the new fiscal year, we anticipate certain shifts in sales and earnings patterns in comparison to previous periods. Consequently, we recognize the significance of providing improved visibility for both the upcoming quarter and the entire fiscal year. Overall, we expect slightly lower year-over-year consolidated net sales in fiscal 2024. As it pertains to the quarterly cadence of sales and earnings and giving consideration to factors such as recent order trends, historical seasonality, expected benefit from price increases, the current funnel of project opportunities, and our beginning backlog, we expect operating earnings to be back half-weighted in fiscal 2024. We do maintain a cautious near-term outlook due to macroeconomic dynamics. However, I will also highlight several indicators that make us feel optimistic about the upcoming year. In this regard, the following points are worth noting. Order trends in the first five weeks of the new year have shown improvement, both at the consolidated level and in the Americas contract segment. Our prior year comparisons are easing, and the sequential and year-over-year trends in the project funnel are encouraging. Second, various indicators, such as consumer sentiment, the architectural billings index, and new home sales, although still relatively low, are showing signs of improvement. And third, we're well positioned in several key international markets where we expect supportive GDP growth bolstered by an increasing number of full-line Miller & Old dealers. Taking all these factors into consideration, we expect to generate adjusted earnings in in the range of $1.70 and $2 per share for the full fiscal year 2024. Now, as it relates to the first quarter, let me elaborate on a few factors impacting our guidance. First, the sluggish order rates over the past two quarters have resulted in a reduction in the consolidated order backlog. In effect, we don't have the same running start that we had heading into Q1 of last year. It's important to remember that the first quarter of last year, fiscal 2023, included 14 weeks of operations versus the standard 13-week calendar. That extra week added an estimated $77 million to consolidated net sales last year. And lastly, as we enter the new fiscal year, our first quarter expense run rate will reflect on-target incentive bonus expenses as well as a partial quarter of higher employees' salaries and wages. Taking these factors into consideration, we expect net sales for the first quarter to be in the range of $880 million and $920 million, operating expenses in the range of $288 million to $298 million, and adjusted earnings per share to be between 18 and 24 cents. Okay, with that overview of the numbers, I'll now turn the call back to the operator, and we'll take your questions.

Thank you. If you would like to ask a question on the phone lines today, it is star one on your telephone. And if you find your question has been answered and you would like to remove yourself from the queue, it's star one again.

We'll take our first question from Greg Burns with Sedoti.

Good afternoon.

So I just wanted to, I guess, touch on the guide for the year. So as we think about the cadence of revenue growth, What is driving the stronger back half on the earnings side and how should we think about, I guess, maybe the split of revenue percentage-wise or split of earnings maybe percentage-wise first half, second half? Can you just give us a little more color on the expected cadence for the year?

Yeah, Greg, this is Jeff. Good to be with you. Let me start, and then Andy and John, you might want to lean in if you have a perspective here. But let me start with a few of the, I kind of talked on some of these, but a few factors that give us growing confidence that we're going to see improved top line as we move through the year. So we talked about already the fact that in the first five weeks of the quarter, we've seen a notable improvement in order entry levels in the America's contract segment in particular. We've already been seeing several quarters of relatively strong performance internationally, and I mentioned in my prepared remarks that we expect the international dealer network to expand in this next year and to gain further traction. But the specific things I'd point to are the trends that we're seeing in funnel opportunities continue to be encouraging. We're seeing growth in the funnel year over year. I mentioned the order trends recently. When you look at some of those leading indicators, I think are important to maybe reiterate. Consumer confidence levels, the ABI has turned into expansion territory again. That tends to be an indicator nine or so months into the future based on history. And we're starting to see home sales begin to show some signs of life. So those are more forward indicators that I would reiterate. The other thing I would say is the bulk of the integrate, we're not done with integration, but the bulk of the heavy lifting is largely behind us. And that's important because the focus of the sales team and our dealer network, they've already got many months behind them now getting up to speed on all the learning that it takes to sell the full offer. And so while we still expect that to ramp, we've come a long way and we expect to see that flywheel begin to spin a little faster. The other thing I would say, Greg, is on the earnings front, We do expect further pricing benefit. We've got a good track record now showing pricing benefit layering in quarter after quarter. We expect that to continue. We still have price increases that we've put in place that we expect to ramp up and realize throughout fiscal 24, which lends itself to back half earnings. And as volume levels pick up, so will the leverage benefit against fixed overhead costs. So those are the major factors. I'm going to fall short of giving you a quarter-by-quarter view. We'll just simply tell you that all of those factors collectively give us some confidence that we can hit that full year number. And I'll pause there and see, Andy, if you want to add anything.

Yeah, Jeff, you hit on most of it. The thing I would add, Greg, is probably if we look at return to office, particularly in North America, where it has been more sluggish than I think we would have hoped as industries. We're definitely starting to see people moving to decisions. We're starting to see more people having people come back together. All of our research would indicate that this is the way that we need to be moving. So I think we're optimistic about that as well. Jeff touched on the funnel, but I'll say the funnel is better than it's been in two years, which I think is a really encouraging sign for us.

Perfect. Thanks. And then lastly, on the retail side of the business, how do you look at operating that business now in the current demand environment. I know you've been investing there, but it was about breakeven this quarter. So is that, you know, are there things you can do to optimize that business, optimize spend? You know, how do you view the demand environment there and how that impacts how you run that business?

Yeah, I mean, I think if you look at all of our competitors, there, Greg, and kind of across the industry, the residential home furnishings industry, we expect will probably be softer for the next couple of quarters. We're encouraged by new home sales going up. We're encouraged by the real estate market rebounding a little bit. But we still think it'll take some time to work through. So we're really simplifying. We're focusing our efforts on the DWR brand. We're focusing our efforts on Herman Muller and Knoll. And where we've seen some real struggles this past year has been working through inventory, and not just in inventory in North America, But many of our wholesalers internationally, whether that be with Hay, with Knoll, around the world, have really been sitting on piles of inventory. And as these people are working through that inventory, we expect to see further profitability. But really, we're addressing this through simplification and continuing to focus on building the categories where we are not necessarily maximized right now. So we expect to see a slow climb as demand improves over the year. But we're being very, very prudent on how we invest further in that business right now until the customer comes back full force. I will say, however, that we've invested quite a bit and quite successfully in building our brands, and where we have invested there from a marketing perspective, it's paid off.

All right, great. Thank you.

We'll take our next question from Bud Bugach with Water Tower Research.

Good afternoon, and thank you for taking my questions. I hope everybody's doing okay there.

Hi, Bud. Hey, Bud.

Thank you. And Jeff, you talked a little bit about that sales for the year. I know we're starting off with a really low backlog compared to where it's been. And the excessive backlog has been largely clear. Where do you think orders will come in for the year? And what do you think the ending backlog will look like for the year?

Well, we intentionally didn't provide a specific guide. You know, my prepared remarks kind of outlined the level of detail we're willing to go to from a revenue standpoint, which is simply to say that softer running start with the lower backlog, and I will acknowledge specifically backlog being down about 25% year over year heading into fiscal 2024. means that we're likely to see slightly lower revenue. I would expect, qualitatively, orders in total for the year to be higher than FY23, because we do expect that to accelerate as we move through the balance of year. But I'm not going to provide any more detail than that.

So if orders are higher year over year, that would imply that the backlog goes up at the end of the year if you're able to meet your plan or meet your thinking. Was that correct?

That's right. You got it. We expect to build backlog throughout the 24th.

Okay. And looking at the guide for Q1, can you maybe give us some help on where the gap guidance is? We've got some impairment and restructuring that affected this quarter, and I'm going to ask a little bit about if you can give us some color on those programs. I know the null trade name was impaired, but the restructuring specifically. But where do you think the GAAP EPS comes in? My quick pencil work, and it could be very flawed, says around 20 cents. Is that reasonable?

Well, so our EPS guide is at the midpoint 21 cents, but I want to make sure I understand your question. Are you talking about GAAP? EPS?

Yeah. I'm trying to figure out what's in the adjustments going forward.

Well, frankly, part of the reason we're guiding to an adjusted number is the timing of some of the adjustments related to restructuring, past restructuring, and integration costs. They tend to be a little lumpy, and they're not terribly easy to predict with a level of precision. But what I would tell you is we have amortization costs related to the null acquisition that has been a consistent adjustment item. In the fourth quarter, that was $6 million. I would expect that to be comparable in Q1. So that's there about six pennies of earnings that would reduce that adjusted earnings number. And then we will have some integration costs that are a little tougher to predict. So That's why we fell short of giving you the number, but for sure you're going to see that amortization charge come through on a gap basis.

Just one thing, and I don't know if this is where you're headed or not, but as Jeff pointed out in his prepared remarks, the bulk of our integration activities and cost to achieve are behind us. We would expect those adjustments to gradually continue to decrease over time.

Thank you. Yeah, I know that that $6 million, how long do you think that acts out? I think we still have a number of years before that leaves, right?

Yeah, that's a long-term asset that will amortize over a long period of time, but yep.

One thing that's confused me, and Andy, you may have given us part of the answer to that, is that the retail gross margin really has been quite volatile recently. at least quarterly, and I imagine maybe daily or weekly to you as well. And is that basically inventory reduced? Is that a markdown issue, or is there something in the original mark on that's an issue in the retail gross margin?

Yeah, but the two factors that I would point to that plagued us quite a bit throughout fiscal 23, and frankly, that we expect we'll improve moving forward are the first one Andy alluded to is inventory related. We had, you'll remember early in the year, we had demurrage and storage fees that we were feeling. In the fourth quarter, we also had some inventory related charges that were recognized in the period that reduced margin. In addition to that, though, the other big category I'd point to is freight and distribution costs, mainly outbound freight, parcel delivery, to customers, those rates have been elevated and have continued to pressure margins. And I know the team has a number of strategies that they're working on to defray those, including some potential price decisions that they have to make.

Yeah, but I would say from a discounting perspective, we're not seeing pricing pressure. We're not degrading our margin and discounting a ton. That has not been our problem from a margin perspective.

And what about geographically? Because we have DWR domestically, but we've got Hay and Muto, some overseas stuff. What's the geographical disparity of gross margin at retail?

I would say that the international retail businesses, which are primarily wholesale, are the most challenged from a top line and bottom line perspective. As most of those wholesalers bought a ton of inventory, And based on the supply chain challenges that everyone faced, and when the war in Ukraine started, I think everyone bought up, and then demand dropped. So we're seeing a lot of pressure with those wholesalers. Now, the good news is we're starting to see them work through that inventory, and demand is coming back, but that's really pressured our European businesses.

And that does flow through the retail set, right? That does.

Absolutely. Yeah. It didn't used to, which makes it a little confusing now, but yes, it does now. It's part of the global retail number.

Okay. All right. And the last question, have you got inventory overall where you want it? What's the target inventory for the end of the year or during the year? How much excess inventory are we carrying now, if any?

I think, Bud, we've got inventory. We've come a long way. Inventory came down significantly in the quarter. That unlocked some working capital cash flow. I think the team feels pretty good with inventory levels, albeit we'll have seasonal changes in inventory levels as we move in towards, for example, in the retail space, the holiday period, there will be some stocking related to that. But I think, by and large, we're where we need to be.

Yeah, we're where we need to be internally, but it's really just our wholesale partners working through their inventory.

And that is their inventory. You've already turned title to that. So you're just waiting.

Yeah, that's exactly. Not our inventory, but it does affect their ability to buy from us.

Gotcha. And last for me, Jeff, CapEx for the year. Did you give a number?

We did not give a number, but I'm happy to. We spent $83 million in CapEx and FY23.

And what do you think in FY24?

We're going to do our level best to try to keep that as flat to that number as we can. But as I sit here today, I'd give you a range on the year of 80 to 100. Thank you.

Thank you very much. Good luck on the near term and the full year. Thank you. Thank you, bud.

Take care.

We'll take our next question from Ruben Garner with Benchmark.

Thanks. Good evening, everybody. Jeff, any quantification you could give us on the growth in orders and the robust funnel and pipeline that you talked about in the early part of this fiscal year?

Sure, Ruben. Happy to. Let me start with the order pacing through the quarter. Maybe what I'll start with is, you know, because we made a point in the prepared remarks to highlight the fact that in the first five weeks of the quarter, we've seen some nice improvement in order entry levels. So maybe to begin, just to reiterate, in the America's contract segment, order entry levels on an organic basis were down 8% year over year in the fourth quarter. In the first five weeks of Q1, we've actually moved to positive growth of about 5%. Now, and because our conference call here is a little later than it normally is, we normally only have a couple weeks worth of activity to share with you, but we've got a full five weeks, and so we're very encouraged by that. The only other thing I would say on order trends is that at the consolidated level, we saw improvement as we moved through, modest improvement as we moved through the quarter. We were still negative year on year, but that was beginning to show signs of easing as well. So let me... Let me pause there, John. Maybe you can speak to the funnel. Sure. Thanks, Jeff.

Ruben, just to maybe add some color commentary to the progress we've seen in the funnel and in the order rate, I'd point to a couple things. At the start of the calendar year, we put together a plan to compete and win in a recessionary environment. And really, in terms of deployment of sales resources and the value proposition that we bring to customers, I think we've really fine-tuned that. And those strategies are beginning to pay off, and we're seeing that in order rate. The other thing I would say is we just passed the one-year anniversary of what we originally called cross-sell, which was when we had legacy Knoll dealers beginning to sell Herman Miller product and vice versa. And anecdotally, I was with a group of dealers last night, and the comment was made that they are so much more confident and feel so much more ready with the full collective of brands today versus a year ago, that it's really noticeable. And their confidence in the market is improving. And I think that drives order rates as well.

Great. That's helpful. And then maybe if we could switch back to the guidance for this year. At a high level, Jeff, can you help us with what the price versus volume assumptions are, I recognize that you kind of give a general view of the top line. Maybe the better way to ask it is how much pricing, just from a carryover perspective, from things you've already announced, do you have that will benefit FR24?

Yeah, maybe it's easier for me to just take the latter, Ruben. So you know how pricing flows through and over what period of time it tends to take in this industry. So maybe just a reminder that it was last October we did a – it was a tailored price increase, but think of it as an average of about an 8% price increase in the America's contract business and – in the contract elements of our business. So that is still layering in. It takes the better part of a year to get the full impact of that. So we still – and that has contributed meaningfully to the sequential margin improvements that we've been seeing since then. And then in addition, we just put in place a price increase that averages 3%, and when I say just, beginning of July. So those factors collectively are fully expected to provide margin support as we move through the year. The harder one to quantify, so I'll just, again, speak qualitatively about it, is the volume impact, because you're right to highlight that. That's where my earlier comment about leverage comes in. As volume levels improve, we're very sensitive. Our factories, particularly in North America but really around the world, are sensitive to volume increase levels. And so as those order levels ramp, as we expect that they will, that too will support margin performance. But that's probably the best I can offer you right now.

All right, and we'll move on to our next.

Ruben, are you still with us?

Ruben has dropped.

Okay, got it.

He either didn't like it or not.

All right, and we'll move on to our next question from Alex Furman with Craig Hallam Capital Group.

Hey guys, thanks for taking my question.

Andy, I wanted to ask about the retail business. How does that factor into the guidance for the upcoming year? You know, obviously been, you know, up against some incredibly tough comparisons. Is the consumer there, you know, starting to come back a little bit? What's your expectation there for, you know, the rest of this year as it relates to your guidance for this year?

Hey, Alex, it's a great question. Listen, I think as I said earlier, we think these first couple of quarters we're going to continue to see softer demand. As we turn into calendar year 24, we expect that we will start to see the consumer come back. We're encouraged by home sales. When people move, that makes a big difference for us. We think as people have adapted to interest rates where they sit today, that makes a difference in what they're purchasing. The great news is our AOV, as we look at what the quality of the consumer that we're looking at, hasn't really changed. So we're very optimistic about that. We're not having to discount our inventory levels or where we want them to be. So right now we're really just focusing on those important brands to us, those kind of top three, focusing on categories that we don't currently maximize and sort of kind of looking to reduce our investment in this business while we wait for the consumer to come back. I think they're there, but I think right now they're still spending on travel, they're still spending on other experiences, and we expect that will change as the year goes on.

Alex, this is Jeff. Just one more bit of color. And I didn't mention this in my prepared remarks, but I think it warrants mentioning. The other thing that I think affects the cadence of performance of the year is, bear in mind, our fiscal quarter one is the seasonal low watermark for the retail business. And that's just seasonality and where promotional events are scheduled, consumer behaviors in the summer months all play into that. So we do expect improved performance just based on seasonal trends as we move into Q2 and beyond.

Okay, that's really helpful information. And then just thinking about some of those comments about the consumer, are you seeing anything differently in the U.S. versus abroad? And then all of your brands are certainly premium, but some of them are kind of mega premium price points. Are you seeing any sort of a difference in demand based on the prices in your portfolio?

I would say, Alex, difference in demand really kind of goes back to what I was saying earlier.

I think we're seeing a little softer demand internationally with our wholesale partners. I really believe that has to do with inventory buildups. I don't necessarily think that has to do with price points in the product. As I said, we're not having to discount, and that to us is a really important piece of this puzzle. And the quality of the consumer is there. It's taking a little bit longer for people to pull the trigger on purchases, but the quality of the consumer is definitely there.

That's really helpful. Thank you guys very much.

Thank you.

All right, and we'll take a follow-up question from Ruben Gardner with Benchmark Company. You're back.

Thanks. Sorry, guys. Yes, I got dropped as soon as I finished asking it, and I came back in at the tail end. I did not drop because I didn't like the answer. I just didn't hear it.

We thought we took your answer off the air.

Yeah, I'll have to get that one in the transcript. But I do have one more I want to ask about. So the turn in orders and the robust pipeline, I mean, you could see it at the show at Neocon. It definitely seems more upbeat. I'm just curious about your conversations with customers, specifically on the North American contract side. Do you think it's just the macro uncertainty that's holding – businesses up at this point, or is there still some angst about what the future of the office is going to look like kind of longer term with the return to office trend?

J.M., you want to take that one? Sure. You know, I think the future of the office and how it plays in work is something that's still evolving, and I think it's going to continue to evolve. But I think more times than not, as Andy mentioned earlier, there is an inflection point that we are feeling where companies see the benefit of having their people together, see the benefit of providing opportunities for connection, for belonging, for well-being, to address things like stress and burnout. And the right environment helps with that. So I think that there's still some hesitation, but definitely companies are moving towards really working hard and asking us for the help in how do we get our people back. The other thing we've seen happen is, you know, hybrid work is changing in and of itself. It was six to 12 months ago pretty loose in terms of how companies approached hybrid work. It is becoming much more structured, still offering employees flexibility, but putting some guardrails around time in the office, et cetera. And I think those are all positive trends that will bode well for us as the year goes on.

Great, and I said just one more, but I'm going to sneak another one in, a quick one. Did I hear you say inventory had normalized, and was that a comment specific to the kind of international wholesale retail or consumer business, or was that a broad-based comment from Illinois?

No, Ruben, I'm glad you asked for clarification. So the comment was more related to our own inventory levels that we have in either in work in progress, waiting to be recognized as revenue on the contract business, or in the retail business that we actually have in our own warehouse and storage facilities. Those are the levels of inventory that have become more normalized. We no longer have the buildup or glut of inventory that we had earlier in fiscal 23. I think Andy's comments, there is still elevated inventory held by wholesale partners that is affecting the business, but that's not our inventory, if that makes sense, Ruben.

Yeah, and Ruben, just one more thing to add to that that we can't forget throughout the integration process is that as we integrate with Knoll, Herman Miller had a much more robust and efficient operating management system in our plants. And as we've gone through our Knoll operations, we have also reduced inventory pretty substantially. as we've implemented our Toyota production system that we call MKPS across those plants. So that has also reduced inventory on the contract side, and that has been work that's taken us the better part of the last 12 to 24 months. So we're seeing that efficient and effective inventory management really start to show up across the entire business.

Great. Thanks again, guys. And sorry about the drop call there. Congrats and good luck on the new year.

Thank you, Evan.

All right, and there are no further questions. We turn the floor back to CEO Andy Owen for closing remarks.

Thanks again, everyone, for joining us on the call. We really appreciate your continued support of Miller & All, and we are looking forward to updating you on our next quarterly call. Have a great night.

And that does conclude today's presentation. Thank you for your participation, and you may now disconnect.