Good day, and thank you for standing by, and welcome to the HNI Corporation Second Quarter F iscal 2021 Conference Call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to speaker today, Matt McCall. Please go ahead. Good morning. My name is Matt McCall. I'm Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our second quarter fiscal 2021 results. With me today are Jeff Lorenger, 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 risks. 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 Lorenger. Jeff? Thanks, Matt. Good morning, thank you for joining us. In the second quarter, our members executed at a high level, delivering substantial year-over-year profit improvement. The post-pandemic recovery continues to provide reasons to be encouraged about both the general environment and our opportunities at HNI. However, the macro backdrop, along with our strong growth, also presented new challenges in the quarter related to labor availability, supply chain capacity, and inflation. Our teams managed through those challenges to deliver strong results. Our two differentiated business segments are well-positioned to benefit from the recovery of the cycle, multiple secular trends, and numerous HNI-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 highlights of the second quarter. First, non-GAAP EPS doubled year-over-year, despite increasing pressure from inflation and returning costs. Second, our Residential Building Products segment delivered exceptional performance. Third, demand in Workplace Furnishings is recovering. I will start by providing some detail on those highlights. Marshall will then cover our third quarter outlook. I will conclude with some general comments. Finally, we will open up the call to your questions. Our first highlight for the quarter, we doubled non-GAAP EPS versus the prior year, despite increasing pressures and returning costs. Non-GAAP earnings per share of $0.40 was up 100% from the $0.20 reported in second quarter 2020. In the quarter, we overcame greater than expected pressures related to material inflation, labor availability, and supply chain capacity. We generated 22% sales growth, and our network ramped up to meet that demand. In addition, as we discussed last quarter, some of the costs related to temporary measures taken in the second quarter of 2020 returned. Despite these pressures, we drove strong margin expansion and profit growth. Overall, the second quarter shows the power of our diversified revenue streams, our ability to react quickly to changing market dynamics, and our overall operational capability associated with our member and our culture. Our second highlight for the quarter, we delivered exceptional revenue and profit growth in our Residential Building Products segment. On a year-over-year basis, total revenue growth exceeded 50% in the quarter, and operating profit more than doubled, with operating margins expanding more than 500 basis points from second quarter 2020 levels. From a channel perspective, new construction revenue was up more than 30% from year-ago levels, and Remodel-retrofit sales increased nearly 90% versus the prior year quarter. Orders were equally strong in the quarter, growing 53% year-over-year. As the quarter progressed, the comps became more difficult. Order growth moderated, but remained at high levels. Our value propositions, growth initiatives, and supply chain strength continue to resonate with homeowners, home buyers, and builders. As we look forward, we remain optimistic about the prospects for both Remodel-retrofit and new construction. Long-term demographic trends and a persisting 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 grow the category in both new construction and Remodel-retrofit. As a reminder, in new construction, 2/3 of home buyers see having a fireplace as a must-have feature of the home, but less than 40% buy one. On the Remodel-retrofit side, we estimate that only about 3% of all remodeling projects involve fireplaces. To take advantage of these opportunities, we are driving a better connection with the home buyer and homeowner, and will continue to make investments and launch tools that will assist and influence home buyers and homeowners in their purchase and remodeling journeys. An example of our investment in our model home is our model home virtual tour capability, where our content and messaging seamlessly plugs into the builder's virtual experience. This allows us to reach the home buyer early in the decision process with consistent and effective content. We have strong competitive positions in both new construction and R&R. Our vertically integrated business model, unmatched product depth, and pricing breadth, strong builder relationships and regional distribution infrastructure all provide differentiation for this business. As a result, we have significant opportunities ahead of us to grow revenue in the Residential Building Products business. The third highlight for the quarter, our Workplace Furnishings segment is recovering. On an organic basis, net sales in the segment increased 9%, and orders grew 32% versus the prior year period. Second quarter non-GAAP operating income grew 21% year-over-year, despite the pressures discussed earlier. Our small to mid-size customers continue to outperform, as does demand in the public sector with orders in our businesses focused on these markets increasing 55% year-over-year in the second quarter, putting us back to pre-pandemic levels. In addition, the North American contract market continues to recover, with orders in our contract businesses up more than 23% in the second quarter year-over-year. In the past five weeks, contract orders are up approximately 30% versus the prior year period. Looking to the back half, we believe Workplace Furnishings has turned a corner and expect to drive revenue growth through the remainder of the year. Recent order patterns are encouraging and are indicative of our agility, our competitive position, and improving demand trends. Market demand signals indicate activity will continue to ramp in the back half. We continue to expect year-over-year revenue growth in our Workplace Furnishings segment to accelerate as the recovery in our contract business gains momentum. Our Workplace Furnishings businesses have unmatched price point breadth, channel access, and market reach, we are investing in multiple strategic initiatives aimed at driving continued outperformance. A few examples of our growth initiatives include the December 2020 acquisition of Design Public Group. We are seeing strong momentum with DPG. Year-to-date orders are up over 40%, with record bookings in May and June.. DPG is also giving us more access and greater insight into the work from home segment and e-commerce possibilities. Another example is our recently launched DSR app. This is a mobile app we built to drive engagement with dealer sales reps. It currently provides quick access to marketing content, product information, visualization, and order status updates, all from a single mobile-enabled platform. Over 600 dealer sales reps are already using the app. We expect that number to grow as we add more capability. Additionally, we are investing to make our contract dealers more efficient and effective. This includes technology to streamline the design and selling processes and platforms to make their back office more efficient. These investments, along with our existing competitive differentiators, position us well to benefit from office re-entry, work from home, and de-urbanization trends. I will now turn the call over to Marshall to provide some detail around our third quarter outlook. Marshall? Let's start with our outlook for consolidated revenue growth. We expect third quarter revenue to grow in the mid 20% range compared to the prior year quarter. Because of our seasonality, this outlook implies third quarter volume will be substantially above second quarter levels, with sequential growth in the mid 20% range. That level of growth, when combined with the general labor and sourcing environment, is presenting new challenges. Our staffing levels and overall supply chain capacity are ramping up, but not as fast as demand. As a result, we expect labor and supply chain constraints will limit third quarter revenue growth versus the prior year quarter by four to six percentage points. That headwind is included in our outlook. This is a timing impact. We can solve these constraints over time. We are capturing the demand and expect that four to six percentage points of growth to flow to subsequent quarters. Let's move to our third quarter outlook for the Residential Building Products segment. Recent order trends, new home construction activity, the outlook for Remodel-retrofit demand, and expected benefits tied to our multiple growth initiatives combine to suggest a revenue growth rate in the mid to high 20% range compared to the prior year quarter. We see continued momentum with both Remodel-retrofit and new construction. Now let's shift to our outlook for Workplace Furnishings. Strong second quarter order trends are growing backlog and a low prior year comparable suggest a growth rate, including acquisition impacts in the low to mid 20% range on a year-over-year basis. Let's shift to third quarter profitability. Compared to the prior year quarter, we expect the impact of strong volume growth to be mostly offset by cost challenges related to inflationary pressures, increased growth investments, and the return of costs associated with temporary actions taken in the prior year. While we expect operating income to be modestly higher than Q3 2020, operating margins will likely compress on a year-over-year basis. We do expect margin expansions return post the Q3 as our recent price actions take hold and we anniversary the temporary cost actions taken during the pandemic. Finally, some comments on our cash flow and balance sheet expectations. Quarter-ending debt levels were approximately $179 million, modestly higher than last quarter and down slightly from Q2 of last year. The gross leverage ratio at the end of Q2 2021 was approximately 0.9, unchanged from last quarter. On a sequential basis, while our leverage ratio was unchanged, cash increased by more than $24 million. We expect free cash flow to ramp up in the second half, consistent with normal seasonality, and our projected cash flow will provide ample capacity for continued growth investment, dividend payments, and opportunistic M&A and buyback activity. I'll now turn the call back over to Jeff. Thanks, Marshall. Let me wrap up by stating that as we look to the rest of 2021 and into 2022, we remain optimistic about our businesses and our markets. We continue to gain momentum in Workplace Furnishings, where our winning customer experiences, the multiple strategic investments discussed earlier, and our operational excellence will combine to provide a competitive advantage as the market recovers. Recall, our focus in our Workplace Furnishings segment is a combination of driving revenue growth and expanding margins. We are increasingly confident in the recovery of the Workplace Furnishings market, as order strength is broadening across customer groups, project sizes, and geographically. Our improving order growth in the quarter and over the past five weeks is encouraging. Our unique industry-leading Residential Building Products platform is positioned for sustained long-term revenue growth. Our growth strategies in this segment continue to gain traction, and we see strong demand supported by demographics and low housing inventories. As a reminder, our focus in our building products segment is on maintaining our strong margins while continuing to drive strong revenue growth. As we move through the next stage of the recovery, we do so positioned to grow revenue, expand margins, and increase cash flow. I would like to conclude by stating I'm extremely proud of and thankful for the efforts of all HNI members, particularly given how hard everyone is working to overcome the constraints we've described. We will now open up the call to your questions. Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Your first question is from Greg Burns of Sidoti & Company. Your line is open. Morning. In relation to the four to six points of growth due to some of the staffing and supply chain challenges, can you just talk about where that is in the business? Is that mainly in the Workplace Furnishings, or is it across segments? Then also, how much of a margin impact are those constraints contributing? Yeah, for the third quarter, Greg, the constraints are mostly in Workplace Furnishings. In terms of the margin impact, it's not a material driver right now. Of course, inflation, which is hand-in-hand with these factors, is a big headwind for us in the third quarter. Okay. It's not really creating efficiencies, it's just limiting your ability to produce more, is really the impact here? Yes. Okay. All right. I guess you gave a little color on the order patterns you're seeing in Workplace Furnishings after the quarter. Could you just talk about in the Residential Building Products segment, you did mention that they moderated a little bit? Could you just talk about where they ended the quarter and how we've trended into the first part of the third quarter? Yeah, I think what we're seeing is a little bit of noise just based on the prior year order activity. If you think about last year, Remodel-retrofit tailed off in the early stages of the pandemic. A lot of the reason our growth rates in the segment are so high is our Remodel-retrofit sales were actually up 90% versus the prior year. If you compare that to 2019 levels, our growth rate was pretty similar to what we saw in the first quarter, and that's continuing. We're still seeing strong activity, but now we're starting to compare against where orders grew in the third quarter of 2020. The growth rate's coming down. It's more a reflection of the prior year levels than it is a change in trajectory of market activity. Okay. In terms of some of the growth initiatives you mentioned on the Residential Building Products side of the business, are you seeing the benefit of those yet in your numbers, or is that still things that are in the early stages that will benefit you in future quarters? Is there any way to quantify or any qualitative kind of color you could give around the impact those are having? Thank you. Yeah, Greg, this is Jeff. Look, I would tell you, yeah, we can quantify. I'll give you a couple examples. I would also tell you we're also early on, but we believe there's a lot of headroom. Some examples would be like, we started aggressively going after fireplace inserts. That's one of our initial areas of focus to connect with existing homeowners. Those are up over 90% year to date. We're also seeing anecdotally much more website traffic from awareness consideration purchases. It's up 47%. Another growth initiative is the electric category, and to create awareness and acceptance of electric fireplaces, and we're gaining traction there with sales in that category up over 100%. Even though it's early, we have real tangible evidence that those growth initiatives are taking hold and starting to drive the business. Okay, great. Thank you. Thank you. Your next question is from Reuben Garner from The Benchmark Company. Your line is open. Thank you. Good morning, everybody. Apologies if I repeat anything. I got kicked off the call briefly earlier. Maybe just to follow up on Greg's first question to start. Marshall, can you clarify, what if the labor constraints are not causing the year-over-year margin pressure? Is it entirely price cost that is leading to the near-term margin drag and that will normalize as your price increase comes through as we move into the fourth quarter? Yeah, Reuben, that's certainly a major factor. In the second quarter, we had a price cost gap of about $11 million. We expect that to be $10 million to $15 million in the third quarter of a negative price cost gap. As we move into the fourth quarter, we expect our price increases to ramp up and catch up with the inflation and be roughly neutral. That's about a 200 basis point headwind that's going to abate as we progress into the fourth quarter. That's the major driver. We also have the impact of some of the costs that are coming back from temporary actions we took last year. We're investing in growth, and we've got some impact from the normalization of the variable comp and insurance programs, all of which impact the second and third quarter more than the fourth. Your next question is from Steven Ramsey from Thompson Research Group. Your line is open. Hi. Good morning. Maybe to start with on the orders and delayed single-family starts, kind of the extending lag time between start and completion, yet seeing strong orders in resi. Is that pushing out resi sales for single family into Q4 and even into early 2022, or is that not a major factor in the segment? Steven, this is Jeff. I'll take a shot at that. We don't think it's pushing out. The long-term fundamentals remain. The supply-demand imbalance we've talked about. For instance, new home sales slowed in June. That was the headline. Building permits outpacing starts. Starts are outpacing orders. Builders are trying to manage the inventory right now just to manage their margins. We're very bullish on that, and we don't think it's pushing out. We continue to see strong activity there for quite a while. Steven, just to add to that. Our new construction sales were up 24% in the first quarter, and we actually accelerated 31%. We had thought it might decline a little bit from that strong first-quarter growth rate because of the trends you mentioned, and we just haven't seen it yet. Okay. Yes, that's helpful color. Wanted to clarify on the temporary cost reductions coming back in. Can you maybe clarify the impact to Q3 and Q4? Another way to think about it maybe, at what quarter do you expect that temporary comeback to be over, be completed, and operating at normal? Yeah. There's about $18 million of cost-related temporary actions that we took last year that are coming back in 2021. About $10 million to $18 million hit second quarter. We expect about $6 million to hit in the third, and by the fourth, we only have about $2 million left, and then that's the end of it. Okay, great. Last thing for me on the Workplace guidance for Q3. What swings that range to low high? Is it broad-based demand from here, or is it the constraints that you've discussed? I think it's mostly constraints. We probably will see some variation in demand. I think given that we've got that 4%-6% buffer, it really comes down to how we manage the constraints. Yeah. This is Jeff. I would agree. I think the demand continues. If we look at 5-week order averages. For instance, in the Workplace Furnishings, for the quarter, we were up 23%, and the five weeks up 30%. It's really just guessing how we can break constraints, and it's kind of all over the map with supply chain and labor throughout the value chain. Excellent. Thank you. We have a follow-up question from Reuben Garner from The Benchmark Company. Your line is open. Thank you. Good morning, guys. Can you hear me? Yeah, we can hear you. All right. Sorry about that. I don't know what I've missed and what's been asked, but I'm going to do my best. The first question's kind of a follow-up. I heard Greg's first question about the cost impact or the margin impact from the constraints. I think you just clarified, Marshall, what that impact is to your margins in the second, third, and fourth quarters. Does that include the price cost drag? If not, can you quantify what that looks like and how that you expect to sort of progress as we move into Q4 and then into early next year? Yeah, Reuben. Sorry you keep getting disconnected. What I answered just previously had to do with the returning costs related to the temporary actions we took last year. That's one headwind we face. Price cost is significant, though, maybe I'll kind of cover that. I think I mentioned that we had about a $11 million price cost gap in the second quarter. We expect that to be $10 million to $15 million in the third. By the time we get to the fourth quarter, we expect our pricing actions to catch up with inflation, even though it's continued to go up, and we'll basically be price cost neutral by the fourth quarter. That we do expect our incremental margins to be higher in the fourth quarter than they have been here in the second and third because of that price cost gap. Will the incremental margins sort of return to normal less that $2 million that you called out before? Or will the sort of labor constraints and supply chain and other factors, will we need to factor that in Q4 and beyond? Yeah. I wouldn't expect any return to normal in the fourth quarter. There's a lot of price that we're pushing to cover that inflation, which isn't creating any incremental profit, right? That dilution is going to lower our incremental margins and along with the other items that we'd already talked about. Got it. I think I heard you say that the small to midsize business is back to pre-pandemic levels. I guess one, did I hear you right? Two, it sounds like contract is really starting to accelerate. Do you guys expect that we'll get back to pre-pandemic levels maybe quicker than we would've thought three or six months ago? Yeah, I think the business that focused on the small to midsize customers is doing really well. Our order activity in the second quarter is basically back to 2019 levels. We're still running below that in Contract, but as you said, it is encouraging accelerating. I think the outlook for Contract is positive, but it is moving slower than the small to midsize business segment, which is where we have a lot of our exposure. It's a positive to us. I think the other positive thing is that the growth environment's encouraging, but we're also focusing on driving margin expansion in that segment. We're pleased with the traction we're getting in our productivity and cost savings initiatives and just the improvement we're making across the board there. That's one of our big near-term goals in addition to the recovery in the top line. Got it. Last one from me, any comments or color on the home office, or I guess your e-commerce business? I know we're going to start anniversarying some really difficult comps there. Is that something we need to factor in, or has that business remained pretty robust even a year into this? Yeah. Reuben, this is Jeff. I'd say that both of those aspects of our business remain robust, and we like our positions there, and we continue to invest in both those aspects of the business. Thanks, guys. Appreciate it. Okay. Yep. Take care. There are no questions over the phone. I will now turn the call back to Jeff Lorenger for closing comments. Well, great. Thanks. Thank you for joining us today, and have a great day, everybody. This concludes today's conference call. Thank you for participating. You may now disconnect.