Herman Miller, Inc. NASDAQ: MLHR - Q3 FY2015
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NASDAQ: MLHR
Herman Miller, Inc.
Investor Presentation
Fourth Quarter FY2015
1
Forward Looking Statements
This information contains forward-looking 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 forward-looking
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,
employment and general economic conditions, the pace of economic recovery in the U.S, and in our International markets, the increase in white-
collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitive-
pricing 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, 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 forward-looking statements.
2
Presentation Overview
3
Our Ambition
Work Home
Learning Healing
5
Focus on Expanding Market Opportunity Priorities to Drive Shareholder Value
Estimated Market Size
($ billions)
N.A. Contract
European Contract
Emerging Markets
Consumer Lifestyle
Health/Education/Hosp.
Small/Medium Business
Textiles
Source: (1) The Business and Institutional Furniture Manufacturers Association; (2) 2013 CSIL
Market Research; (3) Company estimate (4) ACT Financial Survey (5) Parthenon Group 6
North American Furniture Solutions Value Drivers
Solution Based Selling Problem Solving Innovation
Targeted Acquisitions Branding and Marketing
8
North America Contract Industry Drivers
2015 Forecast
Leading economic indicators include: North American Office
Corporate profitability Furniture Orders
$14,000
Service sector employment levels ($ millions)
Nonresidential construction activity $12,000
Office vacancy rates Source: The Business $10,000
Institutional Furniture
Architectural billing activity (ABI) Manufacturers Association $8,000
CEO & small business confidence
$6,000
$4,000
$2,000
$0
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Service Sector AIA Consensus Construction Forecast U.S. Architecture Billings Index
(million workers) (%YOY Growth)
Source: U.S. Bureau of Labor Statistics Source: The American Institute of Architects, February 2015 Source: The American Institute of Architects
125
120 Category 2015 2016 58
56
115 Nonresidential Total +7.7% +8.2% 54
52
110 50
Commercial +11.8% +10.4%
105 48
Office +12.9% +12.0% 46
100 44
May-13
May-14
May-15
Mar-13
Mar-14
Mar-15
Jul-13
Jul-14
Sep-13
Nov-13
Sep-14
Nov-14
Jan-13
Jan-14
Jan-15
Oct-06
Oct-08
Oct-10
Jun-05
Oct-12
Jun-07
Oct-14
Jun-09
Jun-11
Jun-13
Jun-15
Feb-06
Feb-08
Feb-10
Feb-12
Feb-14
9
EMEA, Latin America, Asia-Pacific (ELA) Furniture Solutions Value Drivers
Global R+D Capability Product Innovation
Regional Manufacturing Footprint Expanded Distribution
10Specialty
Geiger Collection Maharam
11Consumer Retail Studios and eCommerce
12
12Design Within Reach Value Drivers: Studio Transformation and Exclusive Products
13Consumer Studio Transformation
Studio Sales
Number of Studios Sq Footage Sales/Sq Foot
40 270 $800 $790
38
260K
33 260 $750
32 250 $719
247K
$700
30 240 $660
228K $650
230
220 $600
20 210 $550
FY14 Q4 FY15 FY17 (1)
FY17Goal FY14 FY15 Avg. FY17
FY17 (1)
Goal
FY14 FY15 FY17
FY17Goal
(1)
(1) Represents goal outlined by the Company in July 2014
14Operating Performance Highlights
Net Sales 6.8% Adj Operating Margin (1) Return Metrics
($ millions) FY11-15 CAGR (% Net Sales) (FY10 – FY15)
600.0
9.0% 8.7% 8.7%
500.0
8.3%
8.5% 8.1% 13%
400.0 Total Shareholder
8.0% Return
300.0 7.5%
7.0% 6.7%
200.0
6.5%
21%
100.0 6.0% Return on
Invested Capital
5.5%
-
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
5.0%
FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation;
15Operating Performance Highlights Debt and Dividend Trends
Total Debt (1) Dividends Paid
($ millions) (% Net Sales)
$320 $40
$311
$352
$35 $33
$300 $293
$30
$282 $30
$279
$280
$25
$262
$260 $20 $19
$15
$240
$10
$220 $5 $5
$5
$200 $0
FY11 FY12 FY13 FY14 FY15 FY11 FY12 FY13 FY14 FY15 Current Rate
(1) Defined as interest bearing debt and GAAP unfunded pension liabilities; (2) Represents the most recently announced quarterly dividend rate annualized
16Operating Performance Highlights Recent Operating Performance
Quarterly Net Sales + Orders Gross Margin and Adjusted Operating Margin (1)
($ millions) (% net sales)
$600 $565 $572
$551 $557
$516 (2) (2)
$510$517 $501 50.0%
$500 37.0% 37.2% 36.9% 38.1%
40.0%
$400
30.0%
$300 20.0% 9.3% 9.1% 7.6% 8.7%
Net Sales Gross Margin %
Orders 10.0% Adjusted Operating Income %
$200
Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 0.0%
Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15
Quarterly Operating Expenses (Adjusted)(1)
Q4 net sales increased 13% from the prior year; orders were up 16%; on an organic basis, sales increased
($ millions)
4% over prior year
$170 $159 $162
$151 Adjusted gross margin in Q3 improved 140 bps from the prior year due to improved product and channel
$150 $141 mix, including the DWR acquisition, operational improvements and net pricing realization.
$130 Adjusted operating expenses in FY15 reflect approximately 5 weeks of expense in Q1 and full 13-week
Q1 FY15 periods in the following quarters related to DWR.
$110
Q2 FY15 EPS in Q4 totaled $0.39 per share, or $0.47(1) adjusted for impairment expenses and a one-time tax
$90
benefit recognized in the period.
Q3 FY15
$70
Q4 FY15
$50
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation; 17
(2) Amount noted is adjusted to exclude the impact of acquisition-related adjustments in the period. The reported GAAP gross margin in both the first and second quarter of fiscal 2015 was 36.4%.Operating Performance Highlights Debt + Liquidity Profile
Quarterly Cash Flow from Operations Rolling 4 Qtr Coverage Ratio
($ millions) (EBITDA(1) to Interest)
$58
$60
12.9 13.4
14.0 12.3 12.6
$50
$42 12.0
$39
$40 Q1 FY15 Q1 FY15
10.0
$29
$30 Q2 FY15 8.0 Q2 FY15
Q3 FY15 6.0 Q3 FY15
$20 Bank Covenant > 4.0
4.0
$10 Q4 FY15 Q4 FY15
2.0
$0 0.0
Rolling 4 Qtr Leverage Ratio
Q4 ending cash and equivalents totaled $63.7 million, up $2 million from Q3.
(Debt to EBITDA)(1)
LT Debt maturity schedule:
4.0
Bank Covenant < 3.5 – PPN ($150M) due 2018
3.5
– PPN ($50M) due 2021
3.0
2.5
CAPEX totaled $20 million in Q3 and $64 million for the full year of 2015. Expecting $70 - $80 million for
Q1 FY15 fiscal 2016.
2.0 1.6 1.5 1.4
1.5 1.3 Q2 FY15 Dividends paid in Q4 totaled $8.3 million
1.0 Q3 FY15 Balance on revolving line of credit stands at $90 million, with $152 million of availability, at the end of Q4.
0.5
Q4 FY15
0.0
(1) Represents a Non-GAAP Measure, see Appendix for reconciliation. 18Appendix
20Appendix Reconciliation of Non-GAAP Measures
This presentation contains Adjusted Operating Margin, Adjusted EBITDA, Adjusted EBITDA ratios, Adjusted Operating Expenses, Organic Sales
and Order Growth and Adjusted Earnings per Share, all of which constitute non-GAAP financial measures. Each of these financial measures is
calculated by excluding items the Company believes are not indicative of its ongoing operating performance. The Company presents these non-
GAAP financial measures because it considers them to be important supplemental indicators of financial performance and believes them to be
useful in analyzing ongoing results from operations.
These non-GAAP financial measures are not measures of financial performance under GAAP and should not be considered alternatives to GAAP.
Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the
Company’s results as reported under GAAP. In addition, you should be aware that in the future the Company may incur expenses similar to the
adjustments presented.
21Appendix
Table I
Herman Miller, Inc.
Reconciliation of Non-GAAP Measures
Adjusted Operating Earnings %
($ millions; percents represent % of net sales); (unaudited)
FY11 FY12 FY13 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 YTD FY15
Net Sales $ 1,649.2 $ 1,724.1 $ 1,774.9 $ 1,882.0 $ 509.7 $ 565.4 $ 516.4 $ 550.7 $ 2,142.2
Operating Earnings
Operating Earnings (GAAP) $ 123.3 $ 137.6 $ 114.9 $ (25.8) $ 42.2 $ 46.7 $ 37.4 $ 37.1 $ 163.4
Operating Earnings (%) 7.5% 8.0% 6.5% -1.4% 8.3% 8.3% 7.2% 6.7% 7.6%
Add: Restructuring and Impairment Expenses 3.0 5.4 1.2 26.5 - - 1.9 10.8 12.7
Add: Acquisition-related Expenses - - - - 5.0 5.0 10.0
Add: Debt Tender Offer Settlement Charges - - - - - - - -
Less: Adjustments to Nemschoff / POSH Contingent Consideration (15.1) - - (2.6) - - - - -
Add: Maharam Inventory "Step Up" Expenses - - - 1.4 - - - - -
Add: Legacy Pension Expenses - - 28.2 164.4 - - - - -
Adj. Operating Earnings (non-GAAP) $ 111.2 $ 143.0 $ 144.3 $ 163.9 $ 47.2 $ 51.7 $ 39.3 $ 47.9 $ 186.1
Adj. Operating Earnings (%) 6.7% 8.3% 8.1% 8.7% 9.3% 9.1% 7.6% 8.7% 8.7%
22Appendix
Table II
Herman Miller, Inc.
Reconciliation of Non-GAAP Measures
Adjusted EBITDA and Adjusted EBITDA Ratios - Bank
($ in millions); (unaudited)
Adjusted EBITDA (Bank) Ratios
Trailing 4-Quarter Period Ended
Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15
Earnings Before Income Taxes (EBT) $ (40.5) $ 130.9 $ 133.6 145.2
Add:
Depreciation 38.7 41.1 43.5 44.2
Amortization 4.6 4.9 5.2 5.6
Interest 17.8 18.1 18.1 17.5
Other Adjustments (1) 198.8 33.3 33.8 22.7
Adjusted EBITDA - Bank $ 219.4 $ 228.3 $ 234.2 $ 235.2
Total Debt, End of Trailing Period (includes outstanding LC's) $ 360.6 $ 337.6 $ 334.3 $ 298.3
Rolling 4-Quarter Debt-to-Adj. EBITDA 1.6 1.5 1.4 1.3
Rolling 4-Quarter Adj. EBITDA-to-Interest 12.3 12.6 12.9 13.4
(1)
"Other Adjustments" include, as applicable in the period, charges associated w ith business restructuring actions, non-cash stock-based
compensation, credits and expenses associated w ith the company's planned termination of its domestic defined benefit pension programs,
as defined in lending agreements.
23Appendix
Table III
Herman Miller, Inc.
Reconciliation of Non-GAAP Measures
Operating Expenses - Adjusted
($ millions); (unaudited)
Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15
Operating Expenses (GAAP) $ 143.4 $ 159.0 $ 151.2 $ 161.7
Less: Acquisition-Related Expenses $ (2.0) $ (0.2)
Operating Expenses - Adjusted $ 141.4 $ 158.8 $ 151.2 $ 161.7
(1)
During the fourth quarter of fiscal 2014, the company's expenses w ere reduced by $2.6 million from the reversal
of contingent liabilities associated w ith the targeted sales grow th of its POSH subsidiary.
Table IV
Herman Miller, Inc.
Reconciliation of Non-GAAP Measures
Adjusted Earnings per Share
($ per share); (unaudited)
Q4 FY15
Earnings per Share - Diluted $ 0.39
Less: One-Time Tax Impact $ (0.07)
Add: Restructuring Expenses $ 0.15
Adjusted Earnings per Share - Diluted $ 0.47
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