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| EX-99.1 - KIMBALL INTERNATIONAL, INC. EXHIBIT 99.1 - KIMBALL INTERNATIONAL INC | a8kexhibit991pressrelease0.htm |
| 8-K - KIMBALL INTERNATIONAL, INC. FORM 8-K - KIMBALL INTERNATIONAL INC | form8-kearningsrelease0331.htm |
Investor Presentation
Third Quarter Fiscal Year 2018
Exhibit 99.2
Safe Harbor Statement
Certain statements contained within this release are considered forward-looking under
the Private Securities Litigation Reform Act of 1995 and are subject to risks and
uncertainties including, but not limited to, the risk that any projections or guidance,
including revenues, margins, earnings, or any other financial results are not realized,
uncertainties related to the future impact of federal tax reform, the outcome of a
governmental review of our subcontractor reporting practices, adverse changes in the
global economic conditions, significant volume reductions from key contract customers,
significant reduction in customer order patterns, financial stability of key customers and
suppliers, and availability or cost of raw materials. Additional cautionary statements
regarding other risk factors that could have an effect on the future performance of the
Company are contained in the Company's Form 10-K filing for the fiscal year ended
June 30, 2017 and other filings with the Securities and Exchange Commission.
1
Company Snapshot
Headquarters: Jasper, Indiana, USA
Founded: 1950
Employees: ~3,000
2
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
(1)
Who We Are
Kimball International, Inc. creates design driven, innovative furnishings sold
through our family of brands: Kimball, National, and Kimball Hospitality. Our diverse
portfolio offers solutions for the workplace, learning, healing, and hospitality
environments. Dedicated to our Guiding Principles, our values and integrity are
evidenced by public recognition as a highly trusted company and an employer of
choice.
“We Build Success” by establishing long-term relationships with customers,
employees, suppliers, shareowners, and the communities in which we operate.
We are committed to sales growth, profitability and return on capital that is among
the best in each of our markets.
3
Why Invest in Us
• Design Driven and Award Winning Products
• Evolving Office Environment Driving Growth in New Products
• Hospitality Industry Continuing Growth
• Solid Financial Performance
• $7 million savings in FY’19 expected from lean initiatives
• Capital Available for Accelerated Growth
4
Design Driven and Award Winning
5
Evolving Office Environment Driving New Products
6
✓ Increased mobility/technology requires flexible work space
✓ Shifting to more open and collaborative office layouts to
promote teamwork
✓ Promotion of healthy work environments
✓ Real Estate Optimization
Office Furniture New Products
7
14 New Products Introduced So Far This Fiscal Year
20 New Products Introduced Last Fiscal Year
$21 $21 $19 $27 $29 $28 $29 $36 $39 $34 $35 $43 $29 $25 $26
6%
31%
26%
58%
37%
33%
54%
33% 33%
22%
21% 22%
-27% -28%
-26%
FY'15 Q1 Q2 Q3 Q4 FY'16 Q1 Q2 Q3 Q4 FY'17 Q1 Q2 Q3 Q4 FY'18 Q1 Q2 Q3
Office Furniture New Products
8
($ in millions)
New Product Introductions and Year Over Year Growth (1)
(1) Unaudited
New product
introductions (NPIs) are
defined as those
introduced in last 3
years. Some significant
NPIs hit this mark this
fiscal year causing them
to be excluded.
Investment in NPI
remains a strategic
priority. We had 20
NPIs in FY’17 and 14
NPIs so far in FY’18.
7%
8%
13%
6%
6%
3%
0%
18%
-1%
-5%
4%
-9%
4%
2%
0%
-1%
3%
1%
-2%
6%
1%
-2%
3%
-1%
Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
Kimball Int'l (excluding Hospitality vertical) Office Furniture Industry (BIFMA)
Without the prior year price
increase effect, Q3’18 orders
are down approximately 4%.
Order Trend Relative to Office Furniture Market
9
Price increase on April 1,
2017 pulled orders forward
to Q3. Without this effect,
estimated orders would
have been up 12% in
Q3’17 and 4% in Q4’17.
(1) Sales and order data are not available for the Hospitality furniture industry (BIFMA industry data excludes Hospitality furniture). Therefore, to get a comparable industry comparison, sales and orders for the Hospitality vertical
are excluded from the Kimball International numbers presented in this graph.
(2) Calculated using monthly year over year % growth reported by BIFMA for the U.S. Commercial Furniture Market.
(3) BIFMA Q3’18 computed based upon January, February & March average.
(3)
(2)(1)
Without the prior
year price increase
effect, April orders
are up
approximately 11%.
US Furniture Leading Indicators
10
S
ou
rc
e:
B
IF
M
A
(A
pr
il
20
18
)
S
ou
rc
e:
U
S
B
ur
ea
u
of
E
co
no
m
ic
A
na
ly
si
s
(D
ec
em
be
r 2
01
7)
So
u
rc
e: Co
n
fe
re
n
ce
B
o
ar
d
(
M
ar
ch
2
01
8)
So
u
rc
e: A
IA
(M
ar
ch
2018
)
Includes imported product
0
10
20
30
40
50
60
70
80
3
/1
/2
0
0
8
9
/1
/2
0
0
8
3
/1
/2
0
0
9
9
/1
/2
0
0
9
3
/1
/2
0
1
0
9
/1
/2
0
1
0
3
/1
/2
0
1
1
9
/1
/2
0
1
1
3
/1
/2
0
1
2
9
/1
/2
0
1
2
3
/1
/2
0
1
3
9
/1
/2
0
1
3
3
/1
/2
0
1
4
9
/1
/2
0
1
4
3
/1
/2
0
1
5
9
/1
/2
0
1
5
3
/1
/2
0
1
6
9
/1
/2
0
1
6
3
/1
/2
0
1
7
9
/1
/2
0
1
7
3
/1
/2
0
1
8
Conference Board CEO Confidence
0
500
1000
1500
2000
6
/1
/2
0
0
4
1
2
/1
/2
0
0
4
6
/1
/2
0
0
5
1
2
/1
/2
0
0
5
6
/1
/2
0
0
6
1
2
/1
/2
0
0
6
6
/1
/2
0
0
7
1
2
/1
/2
0
0
7
6
/1
/2
0
0
8
1
2
/1
/2
0
0
8
6
/1
/2
0
0
9
1
2
/1
/2
0
0
9
6
/1
/2
0
1
0
1
2
/1
/2
0
1
0
6
/1
/2
0
1
1
1
2
/1
/2
0
1
1
6
/1
/2
0
1
2
1
2
/1
/2
0
1
2
6
/1
/2
0
1
3
1
2
/1
/2
0
1
3
6
/1
/2
0
1
4
1
2
/1
/2
0
1
4
6
/1
/2
0
1
5
1
2
/1
/2
0
1
5
6
/1
/2
0
1
6
1
2
/1
/2
0
1
6
6
/1
/2
0
1
7
1
2
/1
/2
0
1
7
US Corporate Profit After Tax
With IVA and CCA adjustment ($billion)
5.8%
6.9%
1.5%
2.0% 1.9%
3.6%
0%
2%
4%
6%
8%
$-
$5,000
$10,000
$15,000
$20,000
2014
Actual
2015
Actual
2016
Actual
2017
Forecast
2018
Forecast
2019
Forecast
BIFMA
US Office Furniture US Ed. and Health Furniture
US Total Total Growth
Architecture Billings Index
3.0%
2.7%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2017 2018
Hospitality Industry Growth
11
Revenue Per Available Room (RevPAR) Growth Rates Estimated (1)
(1) Source PWC January 2018 Hospitality Directions
$500.0
$543.8
$600.9
$635.1 $669.9
-1.4%
1.6%
4.8%
6.4%
8.2%
FY 2013 FY 2014 FY 2015 FY 2016 FY 2017
Net Sales Adjusted Pro Forma Operating Income from Continuing Operations Percentage of Net Sales
Financial Performance
12(1) Unaudited. Adjusted Pro Forma Operating Income from Continuing Operations. See Appendix for Non-GAAP reconciliation.
(1)
($ in millions)
-1.4%
1.6%
4.8%
6.4%
8.2%
7.2%
9.0%
9.4%
6.9%
5.4%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2013 2014 2015 2016 2017 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
Adjusted Pro Forma Operating Income from Continuing Operations Percentage of Net Sales Series 2
Fiscal Year Quarterly
(4)
Operating Income
13
(1)
(2)
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
(2) Includes pre-tax gain of $1.2 million on sale of land which had 70 basis point favorable impact on Q4’17 percent.
(3) Includes pre-tax gain of $0.4 million on sale of excess land partially offset by $0.3 million acquisition costs related to D’sty le.
(4) Includes pre-tax gain of $1.7 million on sale of administrative building offset by $0.4 million acquisition costs related to D’style.
(3)
Mix shift to lower
margin products,
transportation cost
increases and higher
discounting
contributing to lower
operating income
Long Term Target: 10%
Q3 seasonal
decline in sales
weighs on
operating income
margin
Financial Targets
14
Over the Next Three to Five Years
Sales Mid-single digit organic growth annually
Operating Income Margin Growth of 2X to 2.5X sales growth
Operating Income Long-Term Target 10%
Effective Tax Rate 25% to 27%
EPS Growth of 2X to 2.5X sales growth
$2.3 $2.3 $2.6 $2.6 $2.6
$0.1
$1.7
$0.1
$6.6
Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
Dividends Declared (1) Share Repurchases (2)
$7.5 $7.5 $7.7 $8.3 $9.0
$11.3 $8.7 $6.7
FY'13 FY'14 FY'15 FY'16 FY'17
Dividends Declared (1) Share Repurchases (2)
$4.4
$6.6
$5.6
$3.7
$20.3
Q4'17 Q1'18 Q2'18 Q3'18 Trailing 4 Qtrs
Capital Available for Growth
15
• Reinvestment for growth
• Stock buy back offsetting dilution
• Dividends comparable to peers
• Acquisitions
• Stock buy back if excess capital
Quarterly Dividends and Share RepurchasesFiscal Year Dividends and Share Repurchases
Capital Expenditures
_____________________
(1) Includes total Class A and Class B dividends declared.
(2) Accrual basis
Note: All periods presented above are unaudited
($ in millions)
Priorities for Capital Allocation
$153.1
$172.0 $169.5
$173.7
$157.9
2.0%
4.4%
-3.1%
2.2%
3.2%
0.6%
0.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
$0
$100
$200
Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
Net Sales Year Over Year Growth Organic Growth
(1)
Sales Growth Each Quarter
16(1) Unaudited.
(1)
($ in millions)
1st sales decline
in 17 quarters
(1)
$172.3 $165.9 $168.2 $148.4 $176.4 $177.2 $165.9 $166.4 $175.7 $164.1 $178.9 $156.8
7.8%
-5.7%
15.0%
2.5%
5.8%
13.4%
2.4%
6.9%
-1.3%
12.1%
0.3%
-7.4%
5.9%
-8.8%
Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
$0
$100
$200
Orders Received Year Over Year Growth Organic Growth(1) (1)
Excluding both prior year price increase and
acquisition, Q3’orders would be down 5%
Orders
17
($ in millions)
(1)
(1) Unaudited.
Without the prior
year price increase
effect, April organic
orders are up
approximately 30%.
$47.0
$35.8
$22.1
$13.5
$17.2 $17.5
$49.6
$43.1
$19.0
$12.2
$16.5
$17.5
Commercial Hospitality Healthcare Education Government Finance
Q3'17 Q3'18
Sales by Vertical – Good Diversification(1)
18
($ in millions)
_____________________
(1) Unaudited.
20% growth or 7%
growth excluding
D’style acquisition
$52.8
$32.4
$23.4
$19.4
$23.4
$15.0
$48.7
$34.6
$22.5
$16.9 $16.0
$18.1
Commercial Hospitality Healthcare Education Government Finance
Q3'17 Q3'18
7% growth or 9%
decline excluding
D’style acquisition
Orders by Vertical(1)
19
($ in millions)
_____________________
(1) Unaudited.
33.4%
33.6%
35.2%
31.1%
30.2%
Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
% of Net Sales
Highest in 15
years
Mix shift to lower margin
products, transportation
cost increases, higher
discounting and increase
in LIFO reserve are
primary drivers to lower
gross profit
Gross Profit(1)
20
_____________________
(1) Unaudited.
$40.1
$42.4
$43.6
$41.9
$39.2
26.2%
24.6%
25.8%
24.2%
24.8%
Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
S&A S&A % of Net Sales
Selling and Administrative Expenses(1)
21
_____________________
(1) Unaudited.
Q2’18 includes $1.7
million gain on sale
of an administrative
building.
17.2%
23.0% 23.2%
16.7%
12.1%
Q3'17 Q4'17 Q1'18 Q2'18 Q3'18
Adjusted Return on Capital
Adjusted Return on Capital(1)
22
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
$10.7
$0.4
$2.8
$7.3
$21.2
0
5
10
15
20
25
Q4'17 Q1'18 Q2'18 Q3'18 Trailing 4 Qtrs
Free Cash Flow(1)
23
_____________________
(1) Unaudited. See Appendix for Non-GAAP reconciliation.
($ in millions)
Appendix
Annual Non-GAAP Reconciliation (Unaudited)
25
Millions $ 2013 2014 2015 2016 2017
Operating Income from Continuing Operations -$10.6 $1.9 $17.3 $33.5 $56.6
Add: Spin Cost – Included in SGA
Add (Deduct): Restructuring
$1.5 $3.2
$5.3 $7.3 -$1.8
Adjusted Operating Income from Continuing Operations -$10.6 $3.4 $25.8 $40.8 $54.8
Adjusted Operating Income from Continuing Operations as a % of Sales -2.1% .6% 4.3% 6.4% 8.2%
Add: Employee Retirements – Included in SGA (1)
Add: Other Non-operational – Included in SGA (2)
$5.0 $6.8
-$.5
$3.3
Adjusted Pro Forma Operating Income from Continuing Operations
before External Reverse Synergies
-$5.6 $9.7 $29.1 $40.8 $54.8
Deduct: External Reverse Synergies (3) -$1.3 -$1.2 -$0.4
Adjusted Pro Forma Operating Income from Continuing Operations (3) -$6.9 $8.5 $28.7 $40.8 $54.8
Adjusted Pro Forma Operating Income from Continuing Operations as a
% of Sales
-1.4% 1.6% 4.8% 6.4% 8.2%
_____________________
(1) Estimated cost associated with the retirement and separation of people due to spin. Costs include that for salary, incentive compensation, performance shares, retirement contribution, and payroll tax.
(2) Includes: pre-tax airplane write-off $1.2M and gain from sale of idle property of $1.7M in FY’14.
(3) Adjusted pro forma operating income includes external reverse synergies representing estimated increases to the cost structure necessitated by the split into two companies. For example, pre-spin Kimball had one board of directors, and such costs were allocated to Furniture and
Electronics. Post spin, there are two boards with each company experiencing a cost increase merely because of the separation. Other examples include IT expenditures and certain insurance cost among others. The $1.3M per year reflected in the table above is a mid-point of a range
estimated to be from $1.0M to $1.5M adjusting the adjusted pro forma operating income from continuing operations to reflect this estimated increase in cost structure post spin. In addition to external cost, internal reverse synergy cost also exist and are embedded in the calculation of
Operating Income from continuing operations reducing income. Different than external cost, these costs do not have to be separately deducted in this reconciliation because by way of the discontinued operation calculation this cost increase remains within the computed Operating
Income from continuing operations. As an example for this type of cost, pre-spin Kimball had an SEC financial reporting function, and such costs were allocated to Furniture and Electronics. Post spin, there are two separate functions experiencing a cost increase as it takes more
resource to perform this function for two separate companies than one. This cost increase is estimated to be $500k to $1M. So in total, it is estimated that reverse synergy cost will increase cost structure post spin by $1.5 to $2.5M per year as already reflected in the adjusted results
included in the reconciliation above.
Note: We had formerly excluded Supplemental Employee Retirement Plan (SERP) expense from adjusted pro forma operating income. We are no longer excluding SERP because it does not have a material impact on the trend of operating income. The annual amounts of SERP
expense now included in adjusted pro forma operating income are $1.7M in FY’13, $2.6M in FY’14, and $0.6M in FY’15, $0.0 in FY’16 and $1.2M in FY’17.
Quarterly Non-GAAP Reconciliation (Unaudited)
26
Millions $ Q3’17 Q4’17 Q1’18 Q2’18 Q3’18
Operating Income $10.9 $15.4 $16.0 $12.0 $8.5
Median Effective Income Tax Rate for Trailing Four Quarters 35.7% 35.1% 33.4% 35.1% 33.4%
Median Income Tax Expense $3.9 $5.4 $5.4 $4.2 $2.8
Net Operating Profit After-Tax (NOPAT) $7.0 $10.0 $10.6 $7.8 $5.7
Average Capital (Total Equity plus Interest-Bearing Total Debt) (1) $164.1 $173.8 $183.1 $187.0 $186.7
Adjusted Return on Capital (annualized) 17.2% 23.0% 23.2% 16.7% 12.1%
(1) Includes Cash And Investments
Millions $ Q3’17 Q4’17 Q1’18 Q2’18 Q3’18
Operating Cash Flow, as reported $17.6 $15.1 $7.0 $8.4 $11.0
Total Capital Expenditures -$2.4 -$4.4 -$6.6 -$5.6 -$3.7
Free Cash Flow $15.2 $10.7 $0.4 $2.8 $7.3