HNI Corporation

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 third quarter 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 Warringer.

Jeff? Thanks, Matt. Good morning, and thank you for joining us. In the third quarter, our members stayed focused on servicing our customers while we continue to experience ripple effects from the pandemic, which are creating constraints in the near term. While we drove strong order growth, ongoing difficulties tied to labor availability, supply chain disruptions, and inflation across all input cost categories negatively impacted our results. Despite these pressures, we are increasingly encouraged about 2022 given the actions we are taking, the ongoing recovery and workplace furnishings, and strength in residential building products. Our two differentiated business segments are well positioned to benefit from multiple secular trends and numerous H&I-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 points. First, we are addressing the constraints negatively impacting our second half results. Second, our residential building product segment continues to deliver strong revenue and profit growth. And third, demand in workplace furnishings continues to improve. I will cover these three key points. Marshall will then go through our fourth quarter outlook. I will conclude with some general comments. And finally, we will open up the call to your questions. I will now cover our first key point, what we are doing to address the near-term macro dynamics impacting our business. As we discussed in our business update on September 23rd, we continue to generate strong order growth across our businesses. Workplace furnishings orders in the third quarter increased 31% versus the prior year period and were 5% above third quarter 2019 pre-pandemic levels. Residential building products orders in the third quarter were 35% higher year over year. We have market momentum and are capturing demand. However, our third quarter profit was below prior year levels and was well below our potential due to three constraints, all of which we are addressing. The first constraint is labor availability. There are simply fewer people in the labor pool than there were before the pandemic. This has prevented us from increasing production as fast as we would like. Our current production staffing is 11% or approximately 340 members lower than what we would like to have given the strong demand we are generating. Along with the reduced labor pool, we have experienced increased impacts from COVID as the Delta variant ramped up in the third quarter. This has temporarily amplified the staffing shortage at our facilities and with our suppliers. To combat this issue, we are taking several steps. First, we are making our operations more efficient. Much of this is being driven by our lean manufacturing expertise. For instance, at one of our larger facilities, we are altering the layout and flow, which will allow us to improve output at that location by 17% with the same headcount. We are also pursuing productivity gains related to automation. Second, our new facility in Mexico will provide an additional source of labor to help meet growing demand. We expect that location to employ 250 members once it is fully ramped up next year. Third, we continue to aggressively hire, move production to facilities where labor is more readily available, and assess new labor pools with part-time and seasonal programs. These efforts are gaining traction, and we have seen staffing levels improve over the last 45 days. That brings us to our second constraint, supply chain capacity. Like many, we are experiencing disruptions largely tied to staffing shortages at suppliers, poor congestion, and material availability. These items limited our ability to keep up with demand and also made our members less productive. To strengthen our supply chains, we have started to diversify the supply base, create inventory buffers, and increase our monitoring and coordination efforts with key suppliers. We will continue to focus on these efforts as we expect supply chains to remain stressed for the foreseeable future. The third dynamic is rampant inflation across all input cost categories. Input costs increased $44 million in the third quarter compared to the prior year, which is by far the most inflation we have ever seen in a quarter. All of our input cost categories experienced increases led by steel and ocean freight. We have responded with aggressive pricing actions, the cumulative benefit of which will allow us to fully offset these cost pressures. Accordingly, our price-cost headwind is temporary. We expect it to narrow in the fourth quarter and turn positive early next year. We are taking a more agile and aggressive approach with pricing moving forward. We are prepared to manage in an ongoing inflationary environment and have the market power to get ahead and stay ahead of these headwinds. My second key point is residential building products delivered strong results despite increasingly difficult comps and multiple sources of pressure. Revenue in our residential building product segment increased 25% year-over-year in the third quarter on an organic basis. As I mentioned earlier, segment orders increased 35% year-over-year. Growth in the remodel retrofit channel slightly outpaced the new construction channel, despite increasingly difficult comps in R&R. Our building product segment was impacted by the three factors I discussed earlier, and as a result, lead times have extended and price costs continue to be negative. However, our members worked hard to maintain production output and service levels, and the business generated more than 10% year-over-year operating profit and EBIT margin of more than 17%. As we look forward, we remain optimistic about the prospects for both remodel retrofit and new construction. As we have stated previously, our residential building products business is supported by favorable trends and unique opportunities. Long-term demographic trends and a 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 organically grow the category in both new construction and remodel retrofit. In addition, we have opportunities to enhance our strategic position through acquisitions. As an example, earlier this month, we acquired Trinity Hearth and Home, a large installing distributor headquartered in the Dallas metro area. Trinity generates approximately $40 million of annual revenue and employs approximately 100 members. Trinity will act as a hub to better serve the rapidly growing Southwest region, and it further strengthens our unique vertically integrated business model and regional distribution infrastructure. Following this acquisition, we now own 26 fireside hearth and home locations. We're excited to have Trinity join the H&I family. Our third key point, Demand in workplace furnishings continues to recover, with year-over-year order growth up at least 25% in each month of the quarter. In total, workplace furnishings orders increased 31% during the third quarter on a year-over-year basis, and we are seeing growth across all major channels. Although demand was strong, the three constraints discussed earlier drove a year-over-year profit decline. As I previously noted, we are addressing these constraints, and as we look into 2022, we expect to return to driving profitable growth. We are increasing our capacity, strengthening our supply chains, and taking aggressive pricing actions to offset the ongoing and increasing inflationary pressures. We also expect strong revenue growth in 2022, supported by our elevated backlog and the ongoing recovery. Our workplace furnishings businesses have unmatched price point breadth, channel access, and market reach, and we are investing in multiple strategic initiatives aimed at driving continued outperformance. We have unique exposure to fast-growing segments of the market, including education, home office, and with small to mid-sized customers. Our 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 fourth quarter outlook. Marshall?