HNI Corporation

Good day and thank you for standing by and welcome to the HNI Corporation Second Quarter Fiscal 2021 Conference Call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Matt McCall. Please go ahead.

Good morning. My name is Matt McCall. I'm Vice President, Investor Relations and Corporate Development for H&I Corporation. Thank you for joining us to discuss our second quarter of fiscal 2021 results. With me today are Jeff Loringer, Chairman, President, and CEO, and Marshall Bridges, Senior Vice President and CFO. Copies of our financial news release, earnings presentation, and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risk. Actual results could differ materially. The earnings presentation posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward-looking statements made during the call. I'm now pleased to turn the call over to Jeff Langer.

Jeff? Thanks, Matt. Good morning, and thank you for joining us. In the second quarter, our members executed at a high level, delivering substantial year-over-year profit improvement. The post-pandemic recovery continues to provide reasons to be encouraged about both the general environment and our opportunities at H&I. However, the macro backdrop, along with our strong growth, also presented new challenges in the quarter related to labor availability, supply chain capacity, and inflation. Our teams managed through those challenges to deliver strong results. Our two differentiated business segments are well-positioned to benefit from the recovery of the cycle, multiple secular trends, and numerous H9-specific growth initiatives. We have a track record of effectively deploying capital, driving annual productivity and cost savings, and managing through macro and operational challenges. On today's call, I will cover three key highlights of the second quarter. First, non-GAAP EPS doubled year over year, despite increasing pressure from inflation and returning costs. Second, our residential building product segment delivered exceptional performance. Third, demand in workplace furnishings is recovering. I will start by providing some detail on those highlights. Marshall will then cover our third quarter outlook. I will conclude with some general comments. Finally, we will open up the call to your questions. Our first highlight for the quarter, we doubled non-GAAP EPS versus the prior year despite increasing pressures and returning costs. Non-GAAP earnings per share of $0.40 was up 100% from the $0.20 reported in second quarter 2020. In the quarter, we overcame greater than expected pressures related to material inflation, labor availability, and supply chain capacity. We generated 22% sales growth, and our network ramped up to meet that demand. In addition, as we discussed last quarter, some of the costs related to temporary measures taken in the second quarter of 2020 returned. Despite these pressures, we drove strong margin expansion and profit growth. Overall, the second quarter shows the power of our diversified revenue streams, our ability to react quickly to changing market dynamics, and our overall operational capability associated with our member-owner culture. Our second highlight for the quarter, we delivered exceptional revenue and profit growth in our residential building product segment. On a year-over-year basis, total revenue growth exceeded 50% in the quarter, and operating profit more than doubled, with operating margins expanding more than 500 basis points from second quarter 2020 levels. From a channel perspective, new construction revenue was up more than 30% from year-over-year levels, and remodel retrofit sales increased nearly 90% versus the prior year quarter. Orders were equally strong in the quarter, growing 53% year-over-year. As the quarter progressed, the comps became more difficult, order growth moderated, but remained at high levels. Our value propositions, growth initiatives, and supply chain strength continue to resonate with homeowners, homebuyers, and builders. As we look forward, we remain optimistic about the prospects for both remodel retrofit and new construction. Long-term demographic trends and a persisting housing supply demand imbalance will continue to support a prolonged housing cycle and elevated remodeling activity. Nesting and de-urbanization trends also provide secular support, and we have an outstanding opportunity to grow the category in both new construction and remodel retrofit. As a reminder, in new construction, two-thirds of homebuyers see having a fireplace as a must-have feature of the home, but less than 40% buy one. And on the remodel retrofit side, we estimate that only about 3% of all remodeling projects involve fireplace. To take advantage of these opportunities, we are driving a better connection with the home buyer and homeowner, and we'll continue to make investments and launch tools that will assist and influence home buyers and homeowners in their purchase and remodeling journeys. An example of our investment in our model home is our model home virtual tour capability. where our content and messaging seamlessly plugs into the builder's virtual experience. This allows us to reach the home buyer early in the decision process with consistent and effective content. We have strong competitive positions in both new construction and R&R. Our vertically integrated business model, unmatched product depth and pricing breadth, strong builder relationships, and regional distribution infrastructure all provide differentiation for this business. As a result, we have significant opportunities ahead of us to grow revenue in the building products business. The third highlight for the quarter, our workplace furnishings segment is recovering. On an organic basis, net sales in the segment increased 9% and orders grew 32% versus the prior year period. Second quarter non-GAAP operating income grew 21% year over year, despite the pressures discussed earlier. Our small to mid-sized customers continue to outperform, as does demand in the public sector, with orders in our businesses focused on these markets increasing 55% year-over-year in the second quarter, putting us back to pre-pandemic levels. In addition, the North American contract market continues to recover, with orders in our contract businesses up more than 23% in the second quarter year-over-year. And in the past five weeks, contract orders are up approximately 30% versus the prior year period. Looking to the back half, we believe workplace furnishings has turned a corner and expect to drive revenue growth through the remainder of the year. Recent order patterns are encouraging and are indicative of our agility, our competitive position, and improving demand trends. Market demand signals indicate activity will continue to ramp in the back half. As a result, we continue to expect year-over-year revenue growth in our workplace furnishing segment to accelerate as the recovery in our contract business gains momentum. Our workplace furnishing businesses have unmatched price point breadth, channel access, and market reach, and we are investing in multiple strategic initiatives aimed at driving continued outperformance. A few examples of our growth initiatives include the December 2020 acquisition of Design Public Group, We are seeing strong momentum with BPG. Year-to-date orders are up over 40% with record bookings in May and June. BPG is also giving us more access and greater insight into the work-from-home segment and e-commerce possibilities. Another example is our recently launched ESR app. This is a mobile app we built to drive engagement with dealer sales reps. It currently provides quick access to marketing content, product information, visualization, and order status updates, all from a single mobile enabled platform. Over 600 dealer sales reps are already using the app. We expect that number to grow as we add more capability. Additionally, we are investing to make our contract dealers more efficient and effective. This includes technology to streamline the design and selling processes and platforms to make their back office more efficient. These investments, along with our existing competitive differentiators, position us well to benefit from office reentry, work from home, and de-urbanization trends. I will now turn the call over to Marshall to provide some detail around our third core outlook. Marshall?