Attached files
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| EX-99.2 - KIMBALL INTERNATIONAL, INC. EX-99.2 - KIMBALL INTERNATIONAL INC | nextgenkbalearningsandst.htm |
| 8-K - 8-K - KIMBALL INTERNATIONAL INC | kbal-20200505.htm |
Exhibit 99.1
KIMBALL INTERNATIONAL, INC. REPORTS THIRD QUARTER RESULTS
Strong EPS Growth Driven by Transformation Savings of $7.2 Million
Modest Revenue Growth Despite COVID-19 Shipment Delays of Approximately $18 million
Strong Balance Sheet Provides Financial Flexibility
Eight Manufacturing Facilities Currently Operating, up from Four in Late March
JASPER, IN (May 5, 2020) - Kimball International, Inc. (NASDAQ: KBAL) today announced results for the quarter ended March 31, 2020.
Selected Financial Highlights:
Third Quarter FY 2020
•Net sales increased 0.5% to $178.2 million
•Operating income margin of 7.9%, or 7.5% on an adjusted basis
•Net income of $9.5 million, increased 19%
•Adjusted EBITDA of $17.5 million, increased 21%, and adjusted EBITDA margin of 9.8%, increased 160 basis points
•Diluted EPS of $0.25, or $0.27 on an adjusted basis, an increase of 23% compared to $0.22 a year ago
•Return on Invested Capital (ROIC) of 29.4%
•Backlog of $187.0 million
Kimball International CEO Kristie Juster commented, “I am very pleased with the continued success of our transformation program designed to generate sales growth, while yielding significant cost savings. Despite the impact of COVID-19-related order pushouts and the temporary shutdown of our facilities, third quarter sales were led by year-on-year growth in our Commercial market and the healthcare and educational verticals in our Institutional market. Even with the impact of COVID-19 on our revenues, we achieved 23% growth in adjusted earnings per share and 21% growth in adjusted EBITDA, representing significant operating leverage driven by transformation cost savings and increased prices on selected product lines. Additionally, we continued to experience strong demand for our innovative new workplace products, which increased to 29% of total Commercial and Institutional sales, up from 27% last year.
“Kimball International has a rich history of banding together in difficult times, and I am proud of the tremendous efforts of our employees and leadership team to achieve a high level of response to the COVID-19 pandemic within a very short time. At the onset of this health crisis, we took swift action to proactively safeguard and support our people, activate business continuity plans to minimize impacts to our customers and continue the rigorous financial management of our business. By the end of March, we had curtailed our business operations to four facilities and shifted our focus to prioritize critically needed healthcare industry products by launching a family of quickship products for facilities serving the COVID-19 crisis. By the end of April, we increased the number of facilities in operation to eight out of the 10 that comprise our U.S. manufacturing footprint, which has reduced our lead-times on incoming orders and provides us with the ability to accommodate additional volumes.
“Order rates in the third quarter increased at a mid-single digit rate, led by our Institutional and Hospitality markets, but by the second half of March we began to see a significant number of COVID-19-related order and shipment push-outs in our Hospitality vertical, which represents approximately 25% of our revenue. This trend has continued, along with a slowdown in order flow in all three markets. Fortunately, our backlog was $187.0 million at the end of the third quarter, of which over $100 million is anticipated to ship in the fourth quarter, and we expect to continue to benefit from our transformation cost savings initiatives in this year’s fourth quarter.”
Overview
Third Quarter Fiscal 2020 Results
Consolidated net sales were $178.2 million, up 0.5% from $177.4 million in the year ago quarter. Delays in shipments due to temporary production halts and delivery push-outs totaled approximately $18 million during the quarter. Gross margin expanded to 34.0% due to cost savings and selected product price increases. Selling and administrative expenses of $45.6 million declined $1.9 million compared to the prior year, decreasing to 25.6% of
net sales. Adjusted selling and administrative expenses were $47.2 million or 26.5% of net sales, compared to $46.2 million or 26.1% of net sales in last year’s third quarter. Net income increased 19% to $9.5 million, and GAAP earnings per diluted share were $0.25, up 14% from the $0.22 reported in the fiscal 2019 third quarter. Adjusted earnings per share, which excludes restructuring charges, increased 23% to $0.27 compared to $0.22 last year. Adjusted EBITDA increased 21% to $17.5 million, and adjusted EBITDA margin expanded 160 basis points to 9.8%.
The Company ended the third quarter in a strong financial position, with $90.3 million in cash and short-term investments, minimal debt and $73.4 million in available credit lines, providing the resources to weather this crisis and continue to invest to support future growth. Capital expenditures during the quarter were $5.6 million, most of which related to manufacturing equipment upgrades to increase automation and facility upgrades, and the Company returned $5.1 million to shareholders in the form of dividends and share repurchases.
| Net Sales by End Market | |||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| (Unaudited) | March 31, | March 31, | |||||||||||||||||||||||||||||||||
| (Amounts in Millions) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||||||||||||
| Institutional * | $ | 63.5 | $ | 61.3 | 4 | % | $ | 215.7 | $ | 202.8 | 6 | % | |||||||||||||||||||||||
| Commercial ** | 71.0 | 67.8 | 5 | % | 216.0 | 224.3 | (4 | %) | |||||||||||||||||||||||||||
| Hospitality | 43.7 | 48.3 | (10 | %) | 140.1 | 145.4 | (4 | %) | |||||||||||||||||||||||||||
| Total Net Sales | $ | 178.2 | $ | 177.4 | 0 | % | $ | 571.8 | $ | 572.5 | 0 | % | |||||||||||||||||||||||
* Institutional end market includes healthcare, education and government end markets
** Commercial end market includes commercial and financial end markets
Institutional – Institutional market revenue increased 4% despite the impact of COVID-19 to sales near the end of the quarter. Growth in this important vertical was driven by strength in healthcare, education and state and local government agencies.
Commercial – Commercial revenue grew 5% against a pre-COVID-19 backdrop of economic and business strength with particular strength in the financial end market driven by our capability to deliver custom solutions.
Hospitality – The decline in revenue from hospitality customers reflected projects deferred in response to the COVID-19 pandemic, but there have been only minimal project cancellations. We are working closely with our customers in this vertical to accommodate their extended delivery requirements.
Summary and Outlook
“It is difficult to predict the duration of the COVID-19 pandemic and its impact on our customers, our suppliers and our business. Given this lack of visibility, we believe it is prudent to suspend our long-term financial targets until economic conditions become clearer. That said, Kimball International has entered this crisis with a strong balance sheet and a lean and nimble operating model thanks to our transformation program. Additionally, we have taken actions to further reduce costs and preserve cash to address the uncertain economic environment, including reducing our planned fourth quarter capital expenditures by 50%, curtailing discretionary spending, and suspending our share buyback activity. We are closely monitoring the situation and evaluating other actions to take if warranted.
“Our customer end markets are well diversified, and we have significant manufacturing agility, enabling us to efficiently shift production to those products in higher demand. Once the economy recovers, we are confident that Kimball International has the structure in place to achieve consistent mid-single-digit revenue growth and to grow adjusted EBITDA and EPS at a faster rate than sales.
“Looking ahead, we believe that this health crisis will cause major changes in the workplace environment that will provide opportunities for Kimball International to gain market share, leveraging our investments in innovation, flexible manufacturing and rapid time-to-market. Our current line-up is heavily weighted toward products that enable
us to retrofit and redesign a new post-COVID-19 workplace that will accommodate an increase in teleworking and the social distancing requirements of the future,” Ms. Juster concluded.
Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s financial performance that excludes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States in the statement of income, statement of comprehensive income, balance sheet, or statement of cash flows of the Company. The non-GAAP financial measures used within this release are (1) adjusted selling and administrative expense; (2) adjusted EBITDA; (3) adjusted operating income; (4) adjusted net income; and (5) adjusted diluted earnings per share. Adjusted operating income, adjusted net income, and adjusted diluted earnings per share each exclude restructuring expense and CEO transition costs from the GAAP income measure. Adjusted selling and administrative expense excludes market value adjustments related to the SERP liability and CEO transition costs from the GAAP income measure. Additionally, adjusted operating income excludes market value adjustments related to the SERP liability. Adjusted EBITDA is defined as net income before interest expense, income taxes, depreciation expense, amortization expense, restructuring expense, and CEO transition costs. A reconciliation of the reported GAAP numbers to the non-GAAP financial measures is included in the Reconciliation of Non-GAAP Financial Measures table below. Management believes that Adjusted EBITDA and other metrics excluding restructuring expense, CEO transition expenses, and market value adjustments related to the SERP liability are useful measurements to assist investors in comparing our performance over various reporting periods on a consistent basis by removing from operating results the impact of items that do not reflect our core operating performance.
The orders received metric is a key performance indicator used to evaluate general sales trends and develop future operating plans. Orders received represent firm orders placed by our customers during the current quarter which are expected to be recognized as revenue during current or future quarters. The orders received metric is not intended to be presented as an alternative measure of revenue recognized in accordance with GAAP.
Return on Invested Capital is a key performance indicator calculated as: [(Earnings Before Interest, Taxes, Amortization, Restructuring Expense, and CEO Transition Costs) multiplied by (1 minus Effective Tax Rate)] divided by (Total Shareholders’ Equity plus Net Debt). Net Debt is defined as current maturities of long-term debt plus long-term debt less cash, cash equivalents, and short-term investments.
Forward-Looking Statements
Certain statements contained within this release are considered forward-looking under the Private Securities Litigation Reform Act of 1995. These statements generally can be identified by the use of words or phrases, including, but not limited to, “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” “beginning to,” “will,” “should,” “would,” “resume” or similar statements. We caution that forward-looking statements are subject to known and unknown risks and uncertainties that may cause the Company’s actual future results and performance to differ materially from expected results including, but not limited to, the risk that any projections or guidance, including revenues, margins, earnings, or any other financial results are not realized, adverse changes in global economic conditions, the impact of changes in tariffs, increased global competition, significant reduction in customer order patterns, loss of key suppliers, loss of or significant volume reductions from key contract customers, financial stability of key customers and suppliers, relationships with strategic customers and product distributors, availability or cost of raw materials and components, changes in the regulatory environment, global health concerns (including the impact of the COVID-19 outbreak), or similar unforeseen events. 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, 2019 and other filings with the Securities and Exchange Commission.
| Conference Call / Webcast | ||||||||
| Date: | May 6, 2020 | |||||||
| Time: | 11:00 AM Eastern Time | |||||||
| Dial-In #: | 844-602-5643 (International Calls - 574-990-3014) | |||||||
| Pass Code: | Kimball | |||||||
A webcast of the live conference call may be accessed by visiting Kimball International’s Investor Relations website at www.ir.kimballinternational.com.
For those unable to participate in the live webcast, the call will be archived at www.ir.kimballinternational.com within two hours of the conclusion of the live call.
About Kimball International, Inc.
For 70 years, Kimball International has created design driven furnishings that have helped our customers shape spaces into places, bringing possibility to life by enabling collaboration, discovery, wellness and relaxation. We go to market through our family of brands: Kimball, National, Kimball Hospitality, and D’style by Kimball Hospitality. Our values and high integrity are demonstrated daily by living our Purpose and Guiding Principles that establish us as an employer of choice. We build success by growing long-term relationships with customers, employees, suppliers, shareholders, and the communities in which we operate. In fiscal year 2019, the company generated $768 million in revenue and employed over 3,000 people. To learn more about Kimball International, Inc. (KBAL), visit www.kimballinternational.com.
Financial highlights for the third quarter ended March 31, 2020 are as follows:
| Condensed Consolidated Statements of Income | |||||||||||||||||||||||
| (Unaudited) | Three Months Ended | ||||||||||||||||||||||
| (Amounts in Thousands, except per share data) | March 31, 2020 | March 31, 2019 | |||||||||||||||||||||
| Net Sales | $ | 178,174 | 100.0 | % | $ | 177,369 | 100.0 | % | |||||||||||||||
| Cost of Sales | 117,680 | 66.0 | % | 120,808 | 68.1 | % | |||||||||||||||||
| Gross Profit | 60,494 | 34.0 | % | 56,561 | 31.9 | % | |||||||||||||||||
| Selling and Administrative Expenses | 45,606 | 25.6 | % | 47,508 | 26.8 | % | |||||||||||||||||
| Restructuring Expense | 818 | 0.5 | % | 0 | 0.0 | % | |||||||||||||||||
| Operating Income | 14,070 | 7.9 | % | 9,053 | 5.1 | % | |||||||||||||||||
| Other Income (Expense), net | (1,713) | (1.0 | %) | 1,422 | 0.8 | % | |||||||||||||||||
| Income Before Taxes on Income | 12,357 | 6.9 | % | 10,475 | 5.9 | % | |||||||||||||||||
| Provision for Income Taxes | 2,906 | 1.6 | % | 2,521 | 1.4 | % | |||||||||||||||||
| Net Income | $ | 9,451 | 5.3 | % | $ | 7,954 | 4.5 | % | |||||||||||||||
| Earnings Per Share of Common Stock: | |||||||||||||||||||||||
| Basic | $ | 0.26 | $ | 0.22 | |||||||||||||||||||
| Diluted | $ | 0.25 | $ | 0.22 | |||||||||||||||||||
| Average Number of Total Shares Outstanding: | |||||||||||||||||||||||
| Basic | 36,813 | 36,712 | |||||||||||||||||||||
| Diluted | 37,089 | 36,909 | |||||||||||||||||||||
| (Unaudited) | Nine Months Ended | ||||||||||||||||||||||
| (Amounts in Thousands, except per share data) | March 31, 2020 | March 31, 2019 | |||||||||||||||||||||
| Net Sales | $ | 571,790 | 100.0 | % | $ | 572,500 | 100.0 | % | |||||||||||||||
| Cost of Sales | 375,585 | 65.7 | % | 385,077 | 67.3 | % | |||||||||||||||||
| Gross Profit | 196,205 | 34.3 | % | 187,423 | 32.7 | % | |||||||||||||||||
| Selling and Administrative Expenses | 146,239 | 25.6 | % | 151,178 | 26.4 | % | |||||||||||||||||
| Restructuring Expense | 6,564 | 1.1 | % | 0 | 0.0 | % | |||||||||||||||||
| Operating Income | 43,402 | 7.6 | % | 36,245 | 6.3 | % | |||||||||||||||||
| Other Income, net | 57 | 0.0 | % | 1,264 | 0.3 | % | |||||||||||||||||
| Income Before Taxes on Income | 43,459 | 7.6 | % | 37,509 | 6.6 | % | |||||||||||||||||
| Provision for Income Taxes | 11,585 | 2.0 | % | 9,274 | 1.7 | % | |||||||||||||||||
| Net Income | $ | 31,874 | 5.6 | % | $ | 28,235 | 4.9 | % | |||||||||||||||
| Earnings Per Share of Common Stock: | |||||||||||||||||||||||
| Basic | $ | 0.86 | $ | 0.77 | |||||||||||||||||||
| Diluted | $ | 0.86 | $ | 0.76 | |||||||||||||||||||
| Average Number of Total Shares Outstanding: | |||||||||||||||||||||||
| Basic | 36,890 | 36,871 | |||||||||||||||||||||
| Diluted | 37,234 | 37,260 | |||||||||||||||||||||
| (Unaudited) | |||||||||||
| Condensed Consolidated Balance Sheets | March 31, 2020 | June 30, 2019 | |||||||||
| (Amounts in Thousands) | |||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 76,636 | $ | 73,196 | |||||||
| Short-term investments | 13,658 | 33,071 | |||||||||
| Receivables, net | 68,934 | 63,120 | |||||||||
| Inventories | 50,710 | 46,812 | |||||||||
| Prepaid expenses and other current assets | 13,855 | 13,105 | |||||||||
| Assets held for sale | 215 | 281 | |||||||||
| Property and Equipment, net | 93,344 | 90,671 | |||||||||
| Right of use lease assets | 18,219 | 0 | |||||||||
| Goodwill | 11,160 | 11,160 | |||||||||
| Intangible Assets, net | 13,339 | 12,108 | |||||||||
| Deferred Tax Assets | 9,188 | 8,722 | |||||||||
| Other Assets | 12,184 | 12,420 | |||||||||
| Total Assets | $ | 381,442 | $ | 364,666 | |||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| Current maturities of long-term debt | $ | 27 | $ | 25 | |||||||
| Accounts payable | 38,675 | 47,916 | |||||||||
| Customer deposits | 27,377 | 24,611 | |||||||||
| Current portion of lease liability | 4,820 | 0 | |||||||||
| Dividends payable | 3,493 | 3,038 | |||||||||
| Accrued expenses | 36,912 | 57,494 | |||||||||
| Long-term debt, less current maturities | 109 | 136 | |||||||||
| Long-term lease liability | 17,203 | 0 | |||||||||
| Other | 14,576 | 14,956 | |||||||||
| Shareholders’ Equity | 238,250 | 216,490 | |||||||||
| Total Liabilities and Shareholders’ Equity | $ | 381,442 | $ | 364,666 | |||||||
| Condensed Consolidated Statements of Cash Flows | Nine Months Ended | ||||||||||
| (Unaudited) | March 31, | ||||||||||
| (Amounts in Thousands) | 2020 | 2019 | |||||||||
| Net Cash Flow provided by Operating Activities | $ | 17,368 | $ | 42,680 | |||||||
| Net Cash Flow used for Investing Activities | (312) | (27,186) | |||||||||
| Net Cash Flow used for Financing Activities | (13,612) | (18,688) | |||||||||
| Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | 3,444 | (3,194) | |||||||||
| Cash, Cash Equivalents, and Restricted Cash at Beginning of Period | 73,837 | 53,321 | |||||||||
| Cash, Cash Equivalents, and Restricted Cash at End of Period | $ | 77,281 | $ | 50,127 | |||||||
| Orders Received by End Market | |||||||||||||||||||||||||||||||||||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||
| (Unaudited) | March 31, | March 31, | |||||||||||||||||||||||||||||||||
| (Amounts in Millions) | 2020 | 2019 | % Change | 2020 | 2019 | % Change | |||||||||||||||||||||||||||||
| Institutional * | $ | 73.1 | $ | 63.4 | 15 | % | $ | 223.5 | $ | 201.3 | 11 | % | |||||||||||||||||||||||
| Commercial ** | 69.4 | 76.0 | (9 | %) | 222.3 | 230.5 | (4 | %) | |||||||||||||||||||||||||||
| Hospitality | 50.1 | 44.7 | 12 | % | 152.0 | 140.8 | 8 | % | |||||||||||||||||||||||||||
| Total Orders | $ | 192.6 | $ | 184.1 | 5 | % | $ | 597.8 | $ | 572.6 | 4 | % | |||||||||||||||||||||||
* Institutional end market includes healthcare, education and government end markets
** Commercial end market includes commercial and financial end markets
| Supplementary Information | |||||||||||||||||||||||
| Components of Other Income (Expense), net | Three Months Ended | Nine Months Ended | |||||||||||||||||||||
| (Unaudited) | March 31, | March 31, | |||||||||||||||||||||
| (Amounts in Thousands) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Interest Income | $ | 386 | $ | 492 | $ | 1,482 | $ | 1,339 | |||||||||||||||
| Interest Expense | (21) | (40) | (65) | (146) | |||||||||||||||||||
| Gain (Loss) on Supplemental Employee Retirement Plan Investments | (1,784) | 1,032 | (1,010) | 306 | |||||||||||||||||||
| Other Non-Operating Expense | (294) | (62) | (350) | (235) | |||||||||||||||||||
| Other Income (Expense), net | $ | (1,713) | $ | 1,422 | $ | 57 | $ | 1,264 | |||||||||||||||
| Reconciliation of Non-GAAP Financial Measures | |||||
| (Unaudited) | |||||
| (Amounts in Thousands, except per share data) | |||||
| Adjusted Selling and Administrative Expense | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Selling and Administrative Expense, as reported | $ | 45,606 | $ | 47,508 | |||||||
| Less: Pre-tax Expense Adjustment to SERP Liability | 1,784 | (1,032) | |||||||||
| Less: Pre-tax CEO Transition Costs | (175) | (252) | |||||||||
| Adjusted Selling and Administrative Expense | $ | 47,215 | $ | 46,224 | |||||||
| Adjusted Selling and Administrative Expense % | 26.5 | % | 26.1 | % | |||||||
| Adjusted Operating Income | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Operating Income, as reported | $ | 14,070 | $ | 9,053 | |||||||
| Add: Pre-tax Restructuring Expense | 818 | 0 | |||||||||
| Add: Pre-tax Expense Adjustment to SERP Liability | (1,784) | 1,032 | |||||||||
| Add: Pre-tax CEO Transition Costs | 175 | 252 | |||||||||
| Adjusted Operating Income | $ | 13,279 | $ | 10,337 | |||||||
| Adjusted Operating Income % | 7.5 | % | 5.8 | % | |||||||
| Adjusted Net Income | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net Income, as reported | $ | 9,451 | $ | 7,954 | |||||||
| Pre-tax CEO Transition Costs | 175 | 252 | |||||||||
| Tax on CEO Transition Costs | (45) | (65) | |||||||||
| Add: After-tax CEO Transition Costs | 130 | 187 | |||||||||
| Pre-tax Restructuring Expense | 818 | 0 | |||||||||
| Tax on Restructuring Expense | (211) | 0 | |||||||||
| Add: After-tax Restructuring Expense | 607 | 0 | |||||||||
| Adjusted Net Income | $ | 10,188 | $ | 8,141 | |||||||
| Adjusted Diluted Earnings Per Share | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Diluted Earnings Per Share, as reported | $ | 0.25 | $ | 0.22 | |||||||
| Add: After-tax CEO Transition Costs | 0.00 | 0.00 | |||||||||
| Add: After-tax Restructuring Expense | 0.02 | 0.00 | |||||||||
| Adjusted Diluted Earnings Per Share | $ | 0.27 | $ | 0.22 | |||||||
| Earnings Before Interest, Taxes, Depreciation, and Amortization excluding Restructuring Expense and CEO Transition Costs (“Adjusted EBITDA”) | |||||||||||
| Three Months Ended | |||||||||||
| March 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Net Income | $ | 9,451 | $ | 7,954 | |||||||
| Provision for Income Taxes | 2,906 | 2,521 | |||||||||
| Income Before Taxes on Income | 12,357 | 10,475 | |||||||||
| Interest Expense | 21 | 40 | |||||||||
| Interest Income | (386) | (492) | |||||||||
| Depreciation | 3,861 | 3,716 | |||||||||
| Amortization | 639 | 496 | |||||||||
| Pre-tax CEO Transition Costs | 175 | 252 | |||||||||
| Pre-tax Restructuring Expense | 818 | 0 | |||||||||
| Adjusted EBITDA | $ | 17,485 | $ | 14,487 | |||||||