Delivering Growth by Design

Transcription

1 NASDAQ: MLHR Delivering Growth by Design Investor Presentation Third Quarter FY2018

2 Forward looking statements 2 This information contains forwardlooking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management s beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and the company itself. Words like anticipates, believes, confident, estimates, expects, forecasts, likely, plans, projects, should, variations of such words, and similar expressions identify such forwardlooking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks include, without limitation, the success of our growth strategy, our success in initiatives aimed at achieving longterm cost savings goals, employment and general economic conditions, the pace of economic recovery in the U.S, and in our International markets, the increase in whitecollar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitivepricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, our ability to expand globally given the risks associated with regulatory and legal compliance challenges and accompanying currency fluctuations, changes in future tax legislation or interpretation of current tax legislation, the ability to increase prices to absorb the additional costs of raw materials, the financial strength of our dealers and the financial strength of our customers, the mix of our products purchased by customers, our ability to locate new DWR studios, negotiate favorable lease terms for new and existing locations and the implementation of our studio portfolio transformation, our ability to attract and retain key executives and other qualified employees, our ability to continue to make product innovations, the success of newly introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances, the pace and level of government procurement, the outcome of pending litigation or governmental audits or investigations, political risk in the markets we serve, and other risks identified in our filings with the Securities and Exchange Commission. Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc., undertakes no obligation to update, amend or clarify forwardlooking statements.

3 Company Snapshot 3 Headquarters: Zeeland, MI, USA Founded: 1905 Employees: ~8,000 FY17 Revenue: $2.28B FY17 Adj. EBITDA: $264M Over 600 dealers in 109 countries and 32 Design Within Reach retail studios North America 56% Specialty 13% Consumer 14% ELA 17%

4 Strategic Position 4

5 Strategic Position 5 Capitalizing on an expanded total addressable market 2012 $28B 2017 $41B North America (Contract) European (Contract) Target Emerging Markets (Contract) Consumer Lifestyle Healthcare/Education/Hospitality Small/Medium Business Textiles $10B $2B $2B $14B $3B $6B $2B $1B $16B $3B Sources: BIFMA, CSIL, Parthenon Group, ACT Financial Survey, Management Estimates $10B

6 Strategic Position 6 Unparalleled multichannel reach including direct to consumer Over 600 contract dealers in 109 countries 32 Design Within Reach retail studios Direct to consumer catalog Multiple global ecommerce storefronts Opportunities to grow share of channel/customer wallet 600 Dealers Catalog y 32 Studios ECommerce

7 Strategic Position 7 Positioned for global growth Growing and profitable business outside North America Favorable trends and demographics in AsiaPacific Further growth opportunities: Leverage Herman Miller and POSH brands in AsiaPacific Expand dealer networks and ecommerce platforms Regional R&D and manufacturing capabilities support new product growth Leverage Healthcare, Education and Consumer franchises ELA Revenue $386M $347M +2% CAGR +5% organic

8 Strategic Position 8 The global leader dedicated to creating inspiring places Work Heal Learn Live

9 Investment Thesis 9

10 Investment thesis 10 Our Compelling Story A higher ambition culture Powerful brands deliver design and innovation leadership Strategic priorities and valuedrivers Strong track record of performance and healthy returns on capital Compelling financial outlook and opportunity for margin expansion

11 A higher ambition culture 11 Driven by a sense of purpose and values A business is rightly judged by its products and services, but it must also face scrutiny as to its humanity. D.J. De Pree, Herman Miller Founder Eleven Consecutive Perfect Score in Human Rights Campaign Foundation s Corporate Equality Index Twelve of the Last Fourteen Years on the Dow Jones Sustainability World Index Corporation of the Year in the Commercial sector for 11 of the last 13 years by the Michigan Minority Supplier Development Council

12 Powerful brands deliver design and innovation leadership 12 An inspiring brand that customers value #1 in Brand that Inspires, Contract Magazine Survey Social Media Followers Nearly 5X all major competitors combined* * Twitter followers as of March 2018 (Herman Miller, Allsteel, Haworth, Knoll, and Steelcase)

13 Powerful brands deliver design and innovation leadership 13 A portfolio of leading global brands Design Within Reach Marketplace for authentic modern furnishings Maharam Performance textiles POSH Asia distribution Nemschoff Healthcare Colebrook Bosson Saunders Ergonomic work tools Geiger Craft wood furnishings Herman Miller brands are #1 in six categories, Contract Magazine Survey (2017)

14 Strategic priorities and valuedrivers 14

15 Strategic priorities and valuedrivers 15 Bringing innovative solutions to our customers through the Living Office framework An insightdriven and researchbased framework for making place a strategic asset Delivers measurable results through improved: Workplace Effectiveness Work Activity Support Workplace Experience Example results from customer case studies: My work environment is the reason I continue to work here. 57% Staff Survey, Tavistock Development Company I can have impromptu meetings with colleagues. 47% 93% Staff Survey, Harry s Create smart, connected workplaces through Live OS (SM) Guide innovation agenda My workplace presents a good corporate image. Staff Survey, CHS, Inc. 54% 93%

16 Strategic priorities and valuedrivers 16 Commitment to innovation Innovation Priorities: Collaborative and other work points Active/healthy postures Technology enhanced user experience Enclosures 24% of our sales were from new products in fiscal 2017 Introduced 50 new products and extensions in fiscal 2017 Industryleading investment in design, research and development at 3.2% of sales in fiscal 2017

17 Strategic priorities and valuedrivers 17 Leverage Dealer EcoSystem Increase Dealer Share of Wallet Digital Tools Bend Price/Performance Curve Make Herman Miller Easy to do Business With Dealer Excellence Sales & Marketing Through Herman Miller Elements

18 Strategic priorities and valuedrivers 18 Clear path to revenue growth and margin expansion in Consumer business Double digit revenue growth opportunity from Design Within Reach by transforming legacy studios to larger formats and adding new locations Increase studio count to low forties and square footage to 400, ,000 by to 4 new or expanded studios per year Increase exclusive product mix from 60% to 70% of revenue Continued ecommerce growth Drive operational excellence through $10 to $20M profitability improvement intiative High single digit operating margin target by FY20

19 Strategic priorities and valuedrivers 19 Profit Optimization Initiative $25 TO $35M (BY FY20) BUSINESS UNIT SYNERGIES FACILITIES CONSOLIDATION OPERATING MARGIN OF: LOGISTICS OPTIMIZATION GENERAL COST RATIONALIZATION 10% OF SALES (BY FY20)

20 20 Strong track record of performance and healthy returns on capital

21 Strong track record of performance and healthy returns on capital 21 Organic revenue growth of 4% at a premium to North America Contract industry growth of 2%, and robust EBITDA growth over last 5 years Revenue $2.3B $2.3B 7% Adjusted EBITDA (1) $2.1B CAGR $1.8B $1.9B $1.7B $180M $182M $206M $235M $259M $264M 8% CAGR FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17 (1) Represents a nongaap measure; see Appendix for reconciliation

22 Strong track record of performance and healthy returns on capital 22 Focused acquisition partnership strategy accelerates our performance Entering New Areas: Audience Channel Geography Product

23 Strong track record of performance and healthy returns on capital 23 Bestinclass lean enterprise delivers leverage Focused improvement through: Customer first orientation Waste reduction Asset efficiency One of three U.S. companies showcased by Toyota Production System Support Center Further opportunity to spread more broadly and deeply through the organization and across the entire value chain +21% West Michigan sales per mfg. square foot Improvement from FY12 to FY17 26% ppm Manufacturing defect rate 46% Engineering lead time for custom requests

24 Strong track record of performance and healthy returns on capital 24 Robust free cash flow generation and disciplined approach to capital allocation drives average annual return on invested capital of 22% over last five years Adj. Free Cash Flow (1) ($ millions) Debt to EBITDA Ratio Dividends Paid ($ millions) $150 $100 $50 $0 $112 $86 $98 $104 $125 $ $50 $40 $35 $30 $25 $20 $15 $10 $5 $0 $5 $19 $30 $33 $35 $39 FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17 FY12 FY13 FY14 FY15 FY16 FY17 (1) Cash flow from operations less CAPEX plus domestic pension contributions

25 25 Compelling financial outlook and opportunity for margin expansion

26 Compelling financial outlook and opportunity for margin expansion 26 Supportive economic backdrop BIFMA Forecast (1) +4.6% CY18 US Architectural Billings Index (2) > out of last 12 months AIA Consensus Office Construction Forecast (2) +4.6% CY18 US Housing Starts (3) +11% CY18 US Tax Reform Job creation Lower tax rates Cash repatriation Immediate deduction of capital investment (1) BIFMA (Nov 2017) (2) American Institute of Architects (Jan 2018) (3) National Association of Realtors (March 2018)

27 Compelling financial outlook and opportunity for margin expansion 27 Opportunity for continued aboveaverage revenue performance over the next three to five years Revenue Core Contract Industry 13% New Products and Initiatives 11.5% Consumer Growth 11.5% Estimated Annual Organic Revenue Growth 36% Targeted Acquisitions 12% Estimated Annual Revenue Growth Including Acquisitions 48%

28 Compelling financial outlook and opportunity for margin expansion 28 Operating income growth of 2x to 2.5x the rate of organic revenue growth Structurally higher operating margins driven by: Expanding business and channel mix Consumer growth and higher exclusive product mix Volume leverage Lean enterprise focus Cost savings initiative targeting $25M to $35M in annual savings by FY20 Target consolidated operating margin of 10% by FY20

29 Investment thesis 29 Our Compelling Story A higher ambition culture Powerful brands deliver design and innovation leadership Strategic priorities and valuedrivers Strong track record of performance and healthy returns on capital Compelling financial outlook and opportunity for margin expansion

30 30 Recent Quarterly Financial Trends

31 Recent Quarterly Financial Trends 31 Quarterly Net Sales + Orders ($ millions) Gross Margin and Adjusted Operating Margin (% net sales) $600 $500 $577 $568 $580 $595 $605 $629 $578 $ % 40.0% 38.3% 37.4% 36.7% 35.6% $400 $300 $200 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Net Sales Orders 30.0% 20.0% 10.0% 0.0% 10.2% 8.8% 8.6% 7.3% Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Gross Margin % Adjusted Operating Income % Quarterly Operating Expenses ($ millions) $190 $170 $150 $130 $110 $170 $162 $166 $168 Q3 net sales and orders increased 10% and 4%, respectively, from the prior year. Gross margin in Q3 declined 160 bps from the prior year primarily due to product mix, discount levels, and commodity cost increases. Operating expenses in Q3 include $3.9 million of special charges. EPS in Q3 totaled $0.49 per share; $0.50 per share on an adjusted basis, compared to $0.37 per share last year, on a reported basis and $0.39 adjusted. $90 $70 $50 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18

32 Recent Quarterly Financial Trends 32 Quarterly Cash Flow from Operations ($ millions) Rolling 4 Qtr Coverage Ratio (EBITDA (1) to Interest) $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 $80 $19 $63 $29 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY Bank Covenant > 4.0 Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Q3 ending cash and equivalents totaled $193 million. Rolling 4 Qtr Leverage Ratio (Debt to EBITDA) (1) 4.0 Bank Covenant < LT Debt maturity schedule: PPN ($150M) due 2018 PPN ($50M) due 2021 Revolver ($0M) due 2021 Availability of $167 million on the revolving line of credit at the end of Q Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 CAPEX totaled $11 million in Q3 and $51 million year to date. Q3 dividends paid totaled $11 million and share repurchases of $13 million. (1) Represents a NonGAAP Measure, see Appendix for reconciliation

33 Recent Quarterly Financial Trends 33 Guidance as provided in March 21, 2018 earnings press release: Q4 Fiscal 2018 Net Sales $590 to $610 million Gross Margin % 36.25% to 37.25% Adjusted Operating Expenses $169 to $173 million Effective Tax Rate 23% to 25% GAAP Earnings Per Share, Diluted $0.49 to $0.53 Adjusted Earnings Per Share, Diluted $0.56 to $0.60 Note: The adjusted EPS estimate excludes an estimated $2 million to $2.5 million of pretax restructuring and $4 million to $4.5 million of other special charges.

34 Appendix 34

35 Appendix Segment Overviews North America Furniture Solutions 35 Overview Description: Design, manufacture and sale of furniture products for office, education and healthcare environments in the United States and Canada FY17 Percent of Consolidated Revenues North America 56% Specialty 13% Revenue Trend (in US$ millions) $1500 $1300 1,192 1,269 1,176 1,143 1,152 $1100 1,277 5 YEAR CAGR 2% (4% organic) FY17 Adj. EBITDA Margin 16.2% Consumer 14% $900 ELA 17% $700 MacroEconomic Drivers North America Sales (in US$ billions) Source: BIFMA, November 2017 FY12 FY13 FY14 FY15 FY16 FY17 Other Leading Economic Indicators include: Corporate profitability, service sector employment, Architectural Billings Index (ABI), Office vacancy rates, CEO and small business confidence, Nonresidential Construction Education Construction Spending (in US$ billions) Healthcare Construction Spending (in US$ billions) Source: U.S. Census Bureau and AIA Fcst, July 2017 Source: U.S. Census Bureau and AIA Fcst, July 2017 History Forecast History Forecast History Forecast $

36 Appendix Segment Overviews ELA Furniture Solutions 36 Overview Description: Design, manufacture and sale of furniture products primarily for office settings in EMEA (39% of sales in FY17), Latin America (21% of sales in FY17) and AsiaPacific (41% of sales in FY17) FY17 Percent of Consolidated Revenues North America 56% Specialty 13% Consumer 14% ELA 17% MacroEconomic Drivers $500 $400 $300 $200 $100 $0 Revenue Trend (in US$ millions) FY12 FY13 FY14 FY15 FY16 FY17 5 YEAR CAGR 2% (5% organic) FY16 Adj. EBITDA Margin 12.0% Regional Office Furniture Consumption (in US$ billions) Source: CSIL (2017) GDP Forecast Source: World Bank (January 2018) Region Annual 5 Year CAGR Consumption Europe $ % China $ % India $ % Brazil $ % Mexico $ %

37 Appendix Segment Overviews Specialty 37 Overview Description: Design, manufacture and sale of highcraft furniture products and textiles focused on architect and design specifiers. The Specialty portfolio includes Geiger wood products, Maharam textiles and Herman Miller Collection products. FY17 Percent of Consolidated Revenues Revenue Trend (in US$ millions) FY17 Adj. EBITDA Margin North America 56% Specialty 13% Consumer 14% ELA 17% MacroEconomic Drivers $300 $250 $200 $150 $100 $ FY12 FY13 FY14 FY15 FY16 FY17 5 YEAR CAGR 12% (2% organic) 8.6% U.S. Architects Billing Index Source: The American Institute of Architects AIA Consensus Construction Forecast (% YOY Growth) Source: The American Institute of Architects, Jan 2018 Annual Fabric Sales (in US$ millions) Source: ACT Financial Survey AUG 2017 SEPT 2017 OCT 2017 NOV 2017 DEC 2017 JAN NonResidential 4.0% 3.9% ,091 1,123 Commercial Total 4.4% 2.9% Office 4.6% 3.0% Health 4.0% 4.9% Education 4.0% 4.9% Hotel 4.1% 0.8%

38 Appendix Segment Overviews Consumer 38 Overview Description: Sale of modern design furnishings and accessories in North America through multiple channels, including 32 Design Within Reach studios, ecommerce storefronts, direct mailing catalogs and independent retailers. FY17 Percent of Consolidated Revenues Five Year Revenue Trend (in US$ millions) FY17 Adj. EBITDA Margin North America 56% Specialty 13% Consumer 14% ELA 17% MacroEconomic Drivers FY12 FY13 FY14 FY15 FY16 FY17 5 YEAR CAGR 38% 4.9% (14% organic) Existing Home Sales (thousands of units) Housing Starts (thousands of units) Furniture and Home Furnishing Stores Source: Ntl. Assoc. of Realtors U.S. Economic Outlook (March 2018) Source: Ntl. Assoc. of Realtors U.S. Economic Outlook (March 2018) Annual Sales Growth History 5,450 Forecast 5,510 5,500 5,670 $300 $200 $100 $0 History 1,174 1,200 Forecast 1,331 1, Source: US Census Bureau 2.6% 4.4% 3.6% 3.5% 5.7% 3.5% 4.9% 0.6%

39 Appendix Reconciliation of NonGAAP Measures 39 This presentation contains Organic Sales Growth, Adjusted EBITDA, Adjusted EBITDA ratios, Adjusted Operating Earnings, and Adjusted Earnings Per Share, all of which constitute nongaap financial measures. Each of these financial measures is calculated by excluding items the Company believes are not indicative of its ongoing operating performance. The Company presents these nongaap financial measures because it considers them to be important supplemental indicators of financial performance and believes them to be useful in analyzing ongoing results from operations. These nongaap financial measures are not measures of financial performance under GAAP and should not be considered alternatives to GAAP. NonGAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company s results as reported under GAAP. In addition, you should be aware that in the future the Company may incur expenses similar to the adjustments presented.

40 Appendix Reconciliation of NonGAAP Measures Organic Sales Growth (Decline) by Reportable Segment ($ Millions); (unaudited) 40 North America ELA Specialty Consumer Total Sales, as reported $ 1,142.6 $ 1,276.6 $ $ $ $ $ 64.2 $ $ 1,724.1 $ 2,278.2 Proforma Adjustments Dealer Divestitures Cumulative foreign exchange Acquisition base year (70.3) (16.6) 25.6 (25.0) (7.0) 60.3 (51.4) 1.0 (107.5) 1.3 (194.3) (95.3) (7.0) (16.6) 88.2 (353.2) Sales, pro forma $ 1,072.3 $ 1,285.6 $ $ $170.0 $ $ 64.2 $ $ 1,621.8 $ 1,996.6 Compound Annual Growth Rate, as reported Compound Annual Growth Rate, pro forma 2.2% 3.7% 2.1% 4.6% 11.9% 2.4% 37.7% 14.3% 5.7% 4.2%

41 Appendix Herman Miller Inc. Reconciliation of NonGAAP Measures Adjusted EBITDA by Reportable Segment ($ Millions) (unaudited) 41 Segment Operating Earnings Add: Allocated Depreciation & Amortization Add: Acquisitionrelated Adjustments Add: Legacy Pension Expenses Add: Restructuring/Impairment Expenses Less: POSH Contingent Consideration Reduction Adjusted EBITDA Revenue by Segment Adjusted EBITDA Margin Segment Operating Earnings Add: Allocated Depreciation & Amortization Add: Acquisitionrelated Adjustments Add: Legacy Pension Expenses Add: Restructuring/Impairment Expenses Less: Other, net Less: POSH Contingent Consideration Reduction Adjusted EBITDA Revenue by Segment Adjusted EBITDA Margin Segment Operating Earnings Add: Allocated Depreciation & Amortization Add: Acquisitionrelated Adjustments Add: Restructuring/Impairment Expenses Less: Nonrecurring gains Other, net Adjusted EBITDA Revenue by Segment Adjusted EBITDA Margin 2012 Actual 2013 Actual Consol. Consol. $ $ $ 1, % 2016 Actual 2017 Actual Consol. $ (6.1) 0.5 $ $ 2, % $ $ $ 1, % 2014 Actual 2015 Actual Consol. Consol. $ (25.7) $ (0.7) (2.6) $ $ $ 1,882.0 $ 2, % 11.0% Consol. $ (0.7) 2.0 $ $ 2, % NA ELA Specialty Consumer Corporate $ (0.7) $179.3 $ 1, % $ $ 40.6 $ % $ $ 25.8 $ % $ $ 16.1 $ % $ (0.7) $ %

42 Appendix Adjusted Operating Earnings and Adjusted Earnings Per Share ($ millions, except for per share amounts) (unaudited) 42 Adjusted Operating Earnings Adjusted Earnings per Share Q3 FY18 Q3 FY18 Net Sales $ Earnings per Share Diluted $ 0.49 Add: Special Charges $ 0.05 Operating Earnings (GAAP) Operating Earnings (%) $ % Less: Onetime impact of adopting U.S. Tax Cuts and Jobs Act Adjusted Earnings per Share Diluted $ (0.04) $ 0.50 Add: Special Charges 3.9 Adj. Operating Earnings (nongaap) $ 42.2 Adj. Operating Earnings (%) 7.3%

43 Appendix Adjusted EBITDA and Adjusted EBITDA Ratios (Bank) ($ millions) (unaudited) 43 Adjusted EBITDA (Bank) Ratios Trailing 4Quarter Period Ended Q4 FY17 Q1 FY18 Q2 FY18 Q3 FY18 Earnings Before Income Taxes (EBT) Add: Depreciation Amortization Interest Other Adjustments (1) Adjusted EBITDA Bank $ $ $ $ Total Debt, End of Trailing Period (includes outstanding LC s) $ $ $ $ Rolling 4Quarter DebttoAdj. EBITDA Rolling 4Quarter Adj. EBITDAtoInterest (1) Other Adjustments include, as applicable in the period, charges associated with business restructuring actions, noncash stockbased compensation, as described in lending agreements.

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