Hello, and thank you for joining the HNI Corporation presentation at the Water Tower Research Consumer Products virtual conference. I'm Budd Bugatch, Head of Consumer Hardlines Research at Water Tower. My partner on covering the hardlines consumer companies, Brian Gordon, and I are excited to welcome you to this presentation. With us today, we have Marshall Bridges, Senior Vice President and Chief Financial Officer of HNI. Marshall has been with HNI since 2001, and has been its CFO since 2017. Marshall is also joined by Matt McCall, HNI's Vice President of Investor Relations and Corporate Development, and Matt's on the call with us today as well. Due to scheduling, this chat has been pre-recorded, so we will not be able to answer questions on this live call, but we want your questions, and we invite you to ask them. If you have a question for Marshall or Matt or and/or HNI, please use the chat function at the bottom of the screen, and we will monitor them, or you can email me at budd@watertowerresearch.com, and we will forward your questions directly to HNI, and they'll respond to them directly. Marshall, welcome, and to get started, could you provide a high-level overview of HNI for us? Yeah, absolutely, Budd. Look, I'll start with a couple numbers. We've generated approximately $2.7 billion in revenue and over $300 million in EBITDA over the last 12 months. That's a TTM number. It also is adjusted to include a full year of impact from the acquisition of Kimball International, which we completed last June. As many of you are probably aware, we operate in two industries, workplace furnishings and residential building products. Those are both reportable segments for us. Workplace furnishings accounts for about 75% of our revenue. This is where we manufacture and market basically furniture for workplaces, primarily offices. We're a large player, one of the largest in the US and the world for that matter. Our position's a bit unique in that we have really unmatched coverage in terms of price point, product breadth, and channel reach. Our customers in workplace furnishings range from small businesses to large multinational firms. It also includes significant exposure to verticals like healthcare, hospitality, education, and government. So we're a little bit different from the other large players in the industry in that we're a little more balanced about where we sell to. The other players are maybe a little bit more oriented towards the larger markets for the larger customers, where we, you know, more than half of what we do is aimed at the small to midsize business segment, where we have a really long-standing leading position there. I'll switch over to residential building products. That's the other quarter of our revenue. That business is disproportionately profitable, so even though it's only a quarter of revenue, it's roughly half of our profit. This is basically where we manufacture and market factory-built fireplaces and heating stoves and the ancillary product that goes with them. About half the business is new construction, the other half is remodel/retrofit. We have a really strong position in this business, which I'm sure we'll get into later. Look, we've got a pretty good track record. If you look over time, a couple highlights maybe to call out here. First is our free cash flow. We typically generate free cash flow in excess of net income, and we typically also generate solid, if not strong, free cash flow over the whole economic cycle. So we're able to stay cash flow positive in a pretty good way throughout a variety of conditions, which has enabled us to continue to pay our dividend. We paid our dividend, it's pretty healthy yield right now. For over 65 years, we've never cut it. Lastly, maybe just to conclude the overview, I'll talk about what we're excited about, and we just think we're on a different trajectory in terms of earnings growth right now. We've had a good year, and we think there's a lot more to come. We have two primary strategies that drive that profit growth. The first is margin expansion in the workplace furnishings business, and then we're expecting to continue to drive strong long-term growth in residential building products with the high margins we have in that business. Maybe I'll stop there and see what other questions you have, Budd. Sure. Thank you. Well, regarding the Kimball International acquisition, you recently increased your synergy expectations. Why don't you give us a quick update on those? Yeah, let me first give you a quick overview of what that transaction was. So we acquired Kimball International, we often refer to it as KII, last June for around $500 million in cash and stock. That acquisition is something we're very excited about. We believe that KII makes us more competitive. It's very complementary to our existing workplace furnishing business in terms of product, in terms of, like, geography, and culturally just really well aligned with us. So the acquisition was off to a really good start. When we announced that acquisition, we talked about having $25 million of cost synergies, and we increased that to $35 million earlier this year after our fourth quarter earnings call. Then a couple weeks ago, we announced that we're making some changes to our manufacturing network, where we're gonna close a facility in Hickory, North Carolina. It's a legacy HNI workplace facility, and integrate, consolidate that production into what was legacy KII facilities, as well as our new facility in Mexico. So with that announcement, as well as identification of about $4 million more in procurement savings, we now believe there's $50 million of cost synergies related to the deal, so more than double what we originally estimated. And so when you look at the deal, just from a value perspective, and you include the synergies, and you eliminate the losses from the, the Poppin business that we quickly divested after the acquisition, you know, you're looking at about a valuation multiple that's in the fours, when you include all those things. It just really speaks to the value of the deal, but more importantly, it makes us more competitive, and the integration is going really well, very compatible cultures. So in addition to the synergies from KII and the savings from the Hickory closure, you've also talked about savings associated with your new facility in Mexico. Can you break down what that facility does and the expected benefits, both in timings and dollars for each? Yeah, absolutely. We're gonna pull up a chart here to help illustrate this. So, look, we've got three kind of items. You've got the, the synergies, the addition of, the, the manufacturing network consolidation, which we, you know, collectively include in synergies, and then we got Mexico. So these three things by themselves can drive, an estimated $70-$75 million of savings by 2026, as it relates to 2023. So it's a savings versus 2023. So if you look at timing, you can see on this chart, we recognized about $10 million of that $70-$75 million last year, during 2023. We've got another $15 million we expect to realize in 2024, so that'll bring the cumulative savings to $25 million this year. So that means we've got another $40-$45 million yet to come in 2025 and 2026. That's a really meaningful number for us. If you, if you convert that to EPS, that's, you know, in excess of $0.70 of EPS growth just from these three actions. And that would roughly translate to more than 20% EPS growth over the next two years, compared to 2024. You know, which is... doesn't depend on volume. It's absolutely within our control. So we're really excited about where we can go with margin expansion and workplace furnishings because of these three initiatives. Now, of course, there'll be other things we work on as well, but if you, if you look at, the margin expansion we've, we've already posted, it's not been too bad. We've, we've expanded margins about 500 basis points between 2021 and 2023. We expect another solid year of margin expansion this year, and that $40-$45 million that I mentioned is on top of that. So one of the questions we get a lot is, you know, how much more runway you have on this margin expansion effort, and what I tell you is we have a lot of runway. I think this chart kind of shows why we have confidence in that. It also points to the fact that if you look at our history in residential building products, and you go back to the Great Recession, you know, we basically were a break-even business in that segment at that point, and now we have margins in the high teens. Now, we did benefit from a little bit of volume growth during that time, but a lot of that was just finding a better way to improve our profitability, whether it be from productivity, cost savings, or other initiatives. So we, we'd expect to have a, maybe not exactly the same journey, but a similar journey in workplace furnishings. As you mentioned, you do have two segments, and since this is a consumer products event, let's start with the RBP, or Residential Building Products. Your exposure to housing has provided some nice diversification throughout this cycle. Can we first discuss this segment, overall and how you're positioned and what makes it unique? Yeah, absolutely. We're gonna pull up another chart here. You know, what's really interesting about Residential Building Products for us is that we're the clear market leader. It probably takes the next five competitors combined to be as large as we are. We operate in both new construction and remodel/retrofit. We're about a 50/50 split there. You can see that on the chart in the lower left. So that's somewhat unique to us in that we're the leader in both of those segments. The other thing that's really interesting is that we really just cover the market broadly. You know, from a product perspective, a price point perspective, we have unmatched reach and breadth. We also have the best distribution and just are very efficient operators. Another highlight to call out, which is unique to us, is that we have an element of vertical integration here. If you look at the chart on the upper left, you can see that roughly speaking, around a quarter of our business flows through installing distributors or retail locations that we own. This is where we're mainly the sub to builders, but we also have some retail in there. This is something we're pretty efficient at. It offers a stacked margin on top of the manufacturing margin. We not only can generate good profit here, but we also can gain new customers because we offer really good service. It also provides us with the ability to kind of be the local marketing, control the local marketing effort, make sure we're trying to grow and drive sales forward... So look, it's a really good business for us, and we really have multiple initiatives underway to drive growth. As I mentioned earlier, our prime objective here is to drive growth at the high margins. Well, and so what are you seeing from a demand perspective in RBP right now? That, that's been a little bit of a debate going on in the overall market about what's going on in the residential area, particularly in the longer tail demand areas like housing. Yeah. Yeah, let's... I'll start with the long-term view, and we are super excited about growth in this, this business. And we'll start with you know, basically the fundamentals of the market. So I think that it's a pretty well-understood fact that the U.S. housing market has been undersupplied, underbuilt for about, you know, over a decade, and there are estimates out there that show that we're as much as 3 million homes underbuilt. So we're starting, or are currently in an undersupplied position, which is 3 million homes, if that's the right number, that's no easy amount to fill very quickly. At the same time, demand is growing, and this is primarily driven by demographics. If you look at the 30- to 50-year-old age bracket, this is an age in which homeownership really rapidly rises from the 20s, 20% range, up until you know, getting close to 50% as you get toward the end of that age bracket. We're seeing a lot of population growth into that age bracket, and homeownership desire to own a home is going up. We're seeing a lot of demand enter the market. At the same time, we're undersupplied. Supply-demand is really healthy, arguably maybe one of the best sort of situations we've seen in our lifetimes in terms of that sort of basic fundamental health. Now, we do have affordability pressures, which are somewhat related to this imbalance. So there are things that are gonna constrain that growth, but fundamentally, they're... it's just rock solid. If you flip over to remodel retrofit, it's a similar story. We got an aging housing stock. We have a situation where you can't necessarily build the homes fast enough, so renovation is gonna be more prevalent. And we got a lot of homes out there, there's an estimated 70% of all mortgages are at 4% or less, and what we think is gonna happen is, instead of maybe in the past you would sell your starter home and trade up, with the 4% or less mortgage, you might be more interested, some people will elect to remodel instead of trade up. So that's gonna drive increased remodeling, is our belief. So we're very excited about the mid to long term, but as you said, in the immediate term, we're in a bit of a reset phase. You know, housing certainly has been impacted negatively by rising rates. The hangover from the pandemic on remodeling is certainly something that is happening, and so this year we're expecting growth to be flat to slightly down. We're expecting sales to be flat to slightly down. Now, there's a little bit of a split between the halves. In the first half, we expect a decline. In the back half, we do expect to grow somewhat. We net that together, that's flat to slightly down. A lot of these numbers are being driven by the prior year comps. There's a lot of noise in the system. In the first half of last year, we really benefited from unwinding demand that was built up before the housing market really slowed, and then in the second half of last year, we were negatively impacted by destocking of inventory at our trade partners. Those comps are really easy. We're showing negative growth rates against the strong comps in the first half, and we expect to be positive against the easier comps in the back half. New construction is stronger than remodel retrofit. Remodel retrofit is still a bit slow, but we, as we said earlier, we're very excited about both of those once we get past this reset phase. So you've talked about your efforts in the past to drive category awareness of, certainly in the hearth-type business, and better connect with home buyer and the homeowner in the past. Can you give us an update on your on how that's going in terms of your ability to connect with the home buyer and the homeowner? Yeah. Yeah, let me give a little context first, and we'll show a video of that here in a minute. So we're very excited about growth in residential building products. You know, we just got done talking about the strong fundamentals, but we're equally as excited about our unique growth opportunity. So we've been talking about this for a while, and it still remains to be very true that the new home market is under-penetrated. We have data that shows that two-thirds of prospective home buyers see the fireplace as a must-have feature of the home, but less than 40% of them actually buy a fireplace. There's a bit of a disconnect there that we believe we can close if we better connect with the prospective home buyer during their customer journey, which means deploying digital assets to remind them of that they really want a fireplace, you know, digital marketing, social media, that sort of thing. Similar story on remodel retrofit. Less than 3%, at least we estimate less than 3% of remodeling events involve a fireplace, so it's almost a trivial amount that we just have a huge opportunity to grow. Again, we're deploying digital assets, social media, and things like that to better connect with them. And it's a huge opportunity. There's... We estimate there's 30 million homes in the United States that are either the old brick masonry fireplaces that are seldomly used, gotta carry in wood and deal with all that, have your chimney swept each year, or there are old gas-burning units that just don't look very good or don't offer much performance. All of those 30 million units are candidates for inserts, where you can put in a new fireplace. The installation is typically a few hours. You can turn it on and off, remote control. Typically just offers a lot of utility to the homeowner. People really are usually pretty happy they did this and wish they'd done it earlier. We just gotta get out there and make sure they think about it and are aware of the benefits. So, with that, maybe I'll pull up a video here, and I'll just give a little preface here. This is a segment that aired on Lifetime TV, and it's an influencer talking about the benefits of pellet stoves. So we'll go ahead and get that started and have a look at it. I'm Sarah Harmsen. I'm the content creator behind Sugar Maple Notes, and we are in my family's home in Wisconsin. My mission in life is really to focus on my family, and that is why I created Sugar Maple Notes. It's about home, and family, and motherhood, and our home is where we wanna be. Our home is where our hearts are. We wanted something that was really space-efficient, which this stove is. The alternate with a pellet stove is that you don't have to have, like, this giant space for it to be clear of certain things. You don't have to tile your back wall. One of the things that I love about the pellets is that it's very easy to do. We just grab a bag of our pellets, and you just dump it in to the stove, and it's good to go. We don't have to go out into the backyard and chop wood. The bags are easy to store. We also wanted to save money. I mean, heating an entire another level in our home could really increase our costs. When we thought about putting a stove in for a heating solution in the basement, we wanted to be able to save those costs by using a cost-effective option, such as burning wood pellets, and instead of just using natural gas, like we would've in the rest of our home. What we found actually over time is that since heat rises, we also heat the upper level of our home, and so we're saving costs there as well. For anyone out there looking to buy a Forge & Flame Wood Pellet Stove, I would say go for it. I mean, it makes your life very simple. You get beautiful, warm, even heat. And like I said, as a busy mom with three kids, I can just set it on its timer and forget about it. Once in a while, we need to fill it with those pellets, but that's really about it. It's super simple to use, and it's gonna make your life feel simple, too. So that's not a huge category for us. It's an important category. The fireplace category is bigger, but that's the type of effort that we're doing. And so, look, we're really excited about what we can do with this business. We have high-teen margins, and we think we can create a lot of value from growing the top line through the efforts like this. You know, you've done a really good job of supporting margins in RBP, and as you mentioned, it's a really good and premier business. During the soft patch in housing, you've done a great job of keeping those margins relatively high. How should we think about the segment margins in 2024 and in the longer term? Yeah, I mean, just to illustrate the resilience of the margins, so last year, you know, during the market reset, our top line in the segment declined 21%, and we still were able to hold a 17% operating profit margin. That was down about 130 basis points versus the prior year. So we did have a little bit of compression, but given that magnitude of top-line decline, we felt pretty good about that result. And it's a similar story this year, except this year, the decline's not as large, and we expect to expand margins this year, despite that, you know, flat to slightly down top line expectation. As we look forward, our goal here is to grow. We just talked about how we're just so excited about growth and just see lots of opportunity there. We're not necessarily looking to expand margin. We're looking to drive growth. I would expect us to maintain margins in the high teens and you know, grow disproportionately. You know, we don't wanna miss the opportunity to discuss your other segment, which we've known for a while, and sometimes we get questions about the long-term future of the workplace demand concerning... given the uncertainty around, particularly now, around commercial real estate. Are you concerned? What's your outlook for for workplace furnishings over the near and longer term? Look, we have a pretty bullish outlook, but we do get the question about, you know, what impact is this, this black cloud over commercial real estate have on you? And so, look, I... We answer that two ways. You know, the, the first one is, we've already been hit pretty hard. You know, if you look at sort of unit volume, you know, not including price realization, you know, we estimate the industry's down, like, more than 30% versus pre-pandemic levels. So we've already been impacted by this, these, these factors, the phenomenon that, that is flowing through to commercial real estate right now. And if you look at what's happened in the industry since, say, 2021, there's been some ups and downs, but it's been generally stable within a range. So there's no sign that there's another big step down coming. We don't, we don't expect that. We don't see that. In fact, what we do see is growth. And so, you know, maybe well, that brings me to my second point here, is that, you know, that the health of commercial real estate does not necessarily dictate furniture demand for, for workplaces. You know, what, what we see out there is there's a lot of excess space. You know, there, there's, several studies we've seen that, that talk about non-viable buildings. These are buildings that are typically low occupancy and are a bit dated, so they're in need of a refresh in order to attract tenants, but the economics don't really pencil out, so they're kind of in limbo. They're just lowly occupied and, and, and, not a lot of prospects for the future. These buildings are gonna have to be taken offline, and we have already started to see that happen. In 2023, for the first time on record, we saw more space removed from office use than added to it. And so our belief is that a lot of these non-viable buildings are gonna be removed. The tenants that are in those buildings are gonna have to move to other spaces. That's gonna create a furniture event. They typically don't take the furniture with them, and drive demand forward. You add that phenomenon onto the fact that a lot of businesses, a lot of offices, haven't really adjusted their space for hybrid. That's the dominant model in most of the markets. And you probably wanna lay your office out differently when people are there three days a week. They don't wanna do focused work as much, they're there to collaborate, but yet most of the floor plates are really set up to accommodate individual focus work. So that's gonna be something that's gonna drive some reconfiguration, again, drives demand. We are seeing office occupancy slowly grind up. I think that's good for the industry. All the favorable economics that are out there because of the excess capacity in office space are driving, you know, tenants to go, you know, take a good deal, maybe get a lower rate on better space. Maybe stay where they're at at a lower rate and, you know, all those are furniture events, and sometimes are coming with a shorter lease term. That's one of the things that we see tenants negotiating more of these days, and that's good for long-term demand because typically the lease sort of dictates, to some degree, when you refresh your space. So shorter lease lengths probably means more frequent refreshes, which means, you know, more demand, all else equal. So, lots of positives out there. Now, the good news is it's not all theoretical. We also see our pre-order metrics, you know, they're elevated right now. They're showing growth reflecting these trends, we believe. Now, those trends have been elevated for a bit now, and we've not seen it flow through to us. Our belief is that there's just taking longer to decide. There's a lot of uncertainty out there, so it's not a big surprise that we've seen that connection between pre-order and order stretch out a bit. Our belief is that is going to release, it's going to release slowly over time. We're gonna see a gradual grind up in demand where growth gets a little bit better, you know, every period. We don't necessarily foresee a big event where we see it all unleashing and we see this major change in the trajectory. We think it's a slow grind up, but we are excited about what we're seeing there. I don't know, Budd, you guys see a lot of different companies and certainly have been following the space for a while. I don't know if you guys have a view on where demand is going in workplace. Well, our thoughts are not terribly dissimilar from yours. We think your phrase of "grind up" is probably reasonable is accurate and a good way to think about it. And I also don't see a big step down, particularly with CEOs wanting to have their their associates back in the office so that their cultures can be taught and learned. So I think that's a pretty good area. You know, after Y2K, we kind of morphed, the industry kind of morphed into more of a cyclical, kind of slow growth industry, and I think that's kind of where we are. COVID got in the way of that for a period of time, and the after-COVID impact was certainly not pleasant either. But I think that, we're in a reasonably decent place to see at least modest growth in workplace furnishings in the office area. Let me finish up, 'cause we're running just about to the end of our presentation, with the balance sheet. HNI's got a strong balance sheet, strong cash flow, both are in really good shape. How do you look at that? How do you expect to deploy your cash over the near term and the longer term? Yeah, Budd, we pride ourselves on, you know, as I mentioned earlier, being able to generate positive cash flow, strong cash flow in a variety of conditions, and also maintaining a balance sheet with a lot of flexibility. You know, we operate two cyclical industries. We wanna make sure we've got the wherewithal to, you know, continue to invest through the cycle, and so we have a pretty low leverage historically. Now, after we acquired Kimball, we did take on some debt to facilitate that transaction. We have since delevered since last June, so our debt EBITDA is, you know, well under two right now and in really great shape. So we're in a good position to talk about deploying capital in a different way than I would say we've done the last year. You know, our, our priorities for capital deployment really are unchanged, and we wanna invest in the business. That's the first priority, of course. We pride ourselves, as I mentioned earlier, on our dividend. We wanna modestly grow that. We did announce a little over a 3% increase in the dividend just about a month ago. And after that, we've got a lot of flexibility left to pursue both share repurchase and M&A. What I would tell you is that we were not in the market during the Kimball transaction just due to, you know, restrictions for share repurchase, and we've started to ramp that up. I would expect us to increase our share purchase from the levels you've seen over the last, you know, quarter or so. We're definitely looking to use the balance sheet, getting back into finding good uses for cash. Marshall, thank you very much for this presentation, and Matt, thank you for your help in this presentation as well. We look forward to more interaction and hope our investors will ask whatever questions they may have. Thanks, thanks again, and have a great day. Thank you, Budd and Brian, and really appreciate inviting us to the conference. Look forward to getting some questions. Thank you.