Good morning, everyone and welcome to the Herman Miller Incorporated Second Quarter Fiscal Year 2016 Earnings Results Conference Call. This call is being recorded. This presentation will include forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from those from the forward-looking statements. These risk and uncertainties include those risk factors discussed in the Company’s reports on Form 10-K and 10-Q, and other reports filed with the Securities and Exchange Commission. Today’s presentation will be hosted by Brian Walker, President and Chief Executive Officer; Mr. Jeff Stutz, Executive Vice President and CFO; and Mr. Kevin Veltman, Vice President Investor Relations and Treasurer. Mr. Walker will open the call with brief remarks, followed by a more detailed presentation of the financials by Mr. Stutz and Mr. Veltman. We will then open the call to your questions. We will limit today’s call to 60 minutes and ask that callers limit their questions to allow time for all to participate. At this time I’d like to begin the presentation by turning the call over to Mr. Walker. You may please go ahead.

Good morning, everyone and thank you for joining us. Yesterday, we announced our financial results for the second quarter of fiscal 2016. We continue to execute on our key strategic initiatives and made great progress across our business, hitting on almost all cylinders including delivering another strong quarter in our North American segment. Consolidated sales for the quarter were $580 million which reflected the midpoint of our guidance. Earnings per share are $0.57 came in above the high-end of our range, thanks to strong gross margin performance. Jeff and Kevin will provide a more detailed breakdown of our financial results later on the call, but as I normally do I'll by sharing some of my thoughts on our performance and the overall direction of the business. Let me start with some perspectives on the macroeconomic background. In North America the contract market is bullied by positive factors including strong employment, encouraging construction, good activity in design firms, low commodity costs. On the other hand, there are industry segments and geographic areas that are being hit very hard, are the dislocations happening in energy complex. This environment requires us to be very flexible and define opportunities and put our best resources towards winning them. Considering all of these factors we remain cautiously optimistic that we will continue to see reasonable growth in our North American contract furniture segment. As you know information on the North America consumer is somewhat mixed, as with the contract market some geographic areas are being impacted by the dislocations in the energy complex and the exceptionally strong dollar has reduced some of the appetite for vacation home buyers from some parts of the globe, while these factors are concerning, we believe strong employment, expanding wages and lower interest rates show to go well for investors in…

Well thanks, Brian and good morning everyone. Consolidated sales in the second quarter of $580 million were 3% higher than the same quarter a year ago. Orders in the period of $601 million were 5% above the prior year level. On an organic basis excluding the impact of foreign currency translations, sales and order increased approximately 5% and 7% respectively from the prior year. On a sequential basis, net sales in the second quarter increased 3% from the first quarter level, while orders improved 7%. Within our North American segment, sales were $348 million in the second quarter, representing a 10% increase from the same quarter last year. Adjusting for foreign currency translation, segment sales were up 12% on a year-over-year basis. New orders in this segment totaled $350 million in the quarter and this reflects an increase of nearly 10% from last year on a reported basis and on an organic increase of almost 11% marking the fourth straight quarter of meaningful improvement in year-on-year order trends. From a geographic perspective order growth was led by strength in the West region of the United States. We were also encouraged to see particularly strong order growth in our healthcare business this quarter and beyond this the growth by industry sector was relatively broad-based with the main exception being energy which continues to reflect that sector’s challenging economic backdrop. Our ELA segment reported sales of 101 million in the second quarter, reflecting a decrease of 12% compared to last year. New orders totaled $113 million, an amount roughly flat with the same quarter last year. Excluding the negative impact of currency translation, however segment sales decreased 4.5% while orders were up almost 8%, led by strong demand in the Middle East as well China and Mexico also contributed to order growth…

Thanks, Jeff. We ended the quarter with total cash and cash equivalents of $55 million, an increase of $3 million from where we ended last quarter. Cash flows from operations in the period were $40 million. Changes in working capital resulted in a net cash use of $14 million this quarter. The primary contributor to the change in working capital for the current quarter was higher accounts receivable levels. Capital expenditures in the quarter were $19 million and $35 million year-to-date. We continue to anticipate capital expenditures of $70 million to $80 million for the full fiscal year. We made further progress paying down the debt incurred in the acquisition of DWR with a repayment of $11 million in borrowings during the quarter. This brings our remaining outstanding acquisition debt to $7 million. Cash dividends paid in the quarter were just under $9 million. We also resumed a modest share repurchase program during the back half of the second quarter at a level aimed at offsetting dilution from share based compensation programs. In total, we made repurchases of $1 million during the quarter. We remain on compliance with all debt covenants, and as of quarter-end our gross debt-to-EBITDA ratio was approximately 1 to 1. The available capacity on our bank credit facility stands at $184 million. Given our current cash balance, ongoing cash flows from operations and our total borrowing capacity, we are well-positioned to meet the financing needs of the business moving forward. With that, I’ll now turn the call over to Jeff to cover our sales and earnings guidance for the third quarter of fiscal 2016.

Okay, thanks Kevin. So looking ahead to Q3, we anticipate sales in the quarter to range between $535 million and $555 million. We expect the year-over-year impact of foreign exchange on sales for the quarter to be approximately $7 million, so on an organic basis adjusted for this impact this forecast implies revenue growth of approximately 7% at the midpoint of the range. Consolidated gross margin in the third quarter is expected to range between 38% and 38.5%. This assumes the relative seasonal slowdown in factory production that we normally experience around the holiday period and in the month of January. Operating expenses in the quarter are expected to range between $167 million to $171 million. This guidance as already mentioned includes an estimated $2 million ramp-up in marketing spend for the consumer business and specifically at more effectively offsetting the impact of actions we implemented earlier in the calendar year to rationalize our legacy retail distribution channel. We anticipate earnings per share of between $0.37 and $0.41 for the period. And this also assumes an effective tax rate of 32% to 34%. This tax guidance does not include any potential benefits related to the R&D tax credit legislation currently pending in Washington. With that brief summary, will now turn the call back to the operator and we’ll take your questions.

[Operator Instructions] Our first question comes from Matt McCall with BB&T Capital Markets.

Maybe Brain start with your comments about the North American market. You talked a lot about the macro, but can you maybe reference what your internal leading indicators that you guys sometimes site are telling you, what are your expectations I know you are on a different fiscal, but as we talk about calendar 2016. What are your expectations for industry growth not exactly sure what reasonable growth means in West Michigan, so maybe put some more color behind that?

Well first of all from everything we can read from dealer, sales people and those kind of things and looking at project activity. We feel pretty good about where that is, activity levels have remained strong and we think we are in a pretty good spot competitively. I'd say if there is anything that you will hear out there certainly the size of projects continues to be on mid to smaller size there is not as many very-very large things out there at least that we can see. On the other hand a number of projects seem to be a little bit greater, so there is kind of an offset between those two more modest sites but more of them seem to be the current trend line if you will. I think this month's number right now for our calendar 2016 is around 4% give or take. My gut is that number is in the right direction it's always hard to say is it exactly 4 we have been sort of 2 to 4 has been our long run number depending on where of course where the economy is, I think if there is, if you look at the backdrop of the economy overall it feels pretty good I think for our industry while corporate profits haven’t been growing as much as people would like they remain pretty darn good. And certainly as there continues to be pressure on companies to hire the best talent to live to get through the sort of generational shift. There seems to be a fair amount of pent up activity with companies saying I got to create and provide the kind of places that are attractive to those folks I think that's a little bit of wise you see a number fairly good robust project activity is you feel folks trying to stand in front of that curve while they may not be building new headquarters at the same time and they're constantly looking for how am I going to update and improve.

The ERP impact, Jeff, can you quantify the sales impact, can you quantify the profit impacts and I think you had some expense pressure there as well, can you just quantify a little bit more?

May be Matt, it is Brian. May be I'll take the sales side and then Jeff can talk more about the cost angle. And I mean this is almost impossible as you can imagine to specifically parse out the revenue number based on the impact because it wasn't as if we weren't shipping and taking orders throughout the period, but what you did have is we know that we have a lot of sales associates unfortunately that we are spending their time making sure that they could find the right data to service their customers. The biggest transition we had with moving orders from old system to new system and being able to make sure that we didn't miss delivery days that just took a lot of selling capacity to go work on those kind of issues versus doing what you want folks doing which is start serving next customer who is up. And so we know we saw a lot of disruption and we have heard from the sales team that it was taken a big chunk of their time and certainly took a big chunk of the management team's time to be out with customers making sure. Now at one level, ERP conversions are always difficult is the best way to describe it so one of the reasons we talked about it on the first quarter call is to how we're going to go through this. We like always you believe you've done everything that you can to prepare, I'll say as these things go it was actually a pretty good one, but it still had more disruptive impact particularly at the sales level of what was going on to the sales team. And certainly as a result at times we were more difficult to do business with…

And, Matt, this is Jeff. Just to your question on the cost side, it is definitely one of the drivers that are caused our operating expenses in the period of economy that at the level we had anticipated at the start at the frontend. We did incur cost related to the incremental consulting fees, we had some. We brought in some temporary labor. We had a lot of travel as you might have imagined as we and our teams from West Michigan to rally to kind of support from an IT, finance, customer service perspective I will tell you rolling out I will out exact numbers, but rolling it altogether you're talking probably $0.5 million after you see in that zip code impact on the quarter.

And then that leads into my final question be. The gross margin outlook looks really good, good performance this quarter, but that looks like I just plug in the numbers you are going to see a further deleveraging of the SG&A. Is it all related to the marketing spend that you referenced, is that just a change. Can we look at that as a change in the promotional calendar and maybe you will see some relief from that as we move forward how do we model beyond Q3 on the SG&A line?

I'll let Jeff talk to you about how to model it Matt. Here is what I would say to you is first of all typically this quarter always bumps up a little bit as a percentage because you have a little bit, you have a little bit you have lower top-lines but often you got some level of fixed cost. What's a little unusual is the dollar is looking a little more flat Q2 to Q3 with lower revenues, that is a direct results of two or three things first of all the additional money that we’re spending on I'll call it consumer demand marketing, which I outlined two or three different areas that we will do that in the second quarter. That is a little bit of a catch up, I would say that overall we know we got to bring that up but it's a little bit more spiky this quarter than I think you will see as we will move forward. So there is a bit of spike here on purpose. The second thing that's in there as we told you guys in the past we’re building this new showroom space flagship location in New York City, we will have some additional cost in the quarter that will again will kind of elevate it in dollar terms in this quarter compared to what you might typically see in a year. So I think this quarter, the third quarter is going to be a bit unusual and already has Jeff has talked throughout there, we've been doing a pretty darn good job on margin and top-line that's driving a little bit higher incentive comp throughout the year and those look a little bit more fixed when you look quarter-to-quarter, so they will drive our percentages of sales if you roll out. I'll let Jeff talked about going forward.

Yes. So, and of course I guess just to be perhaps it's obvious but while we anticipate continuing at that higher incentive compensational level as you know that's going to lever up and down based on performance that's a natural part of the program. But right now that's our anticipated it's included in our guidance. I'll tell you Matt, so from Brain's point we are going to see seasonally lower top-line in the third quarter and on a percent of revenue basis that having our guide implies about a 31% operating expense run rate. I would tell you as we move towards the back half of the year we expect that to come back more in line with what we ran in Q2 which I think is 129%.

Our next question comes from Bud Bugatch with Raymond James.

This is Bobby, actually, filling in for Bud. Thank you for taking my questions and happy holidays to everyone. So just on ERP system, so a system went live in September largely completed the end of the quarter. Are all the new orders now on the new systems and that's kind of up in running from that aspect?

Yes. Bobby it's completely up and running partly what we're trying to do is to do something that's both at the store level, so when we think ERP system we are talking all the way down that what's in the associates hand when you walk into the store and most of that's through a salesforce product it's on the right hand, so that they can service you right there and it ties back to the ERP system all of that stuff is now completely installed, so we’re up and running and in pretty good shape and the last well last three weeks to four weeks have been much-much better and we've got our rail back where we needed to be and I think people out of being distracted.

Okay. And then and the same is for shipment and delivery times are on a normalized cadence now I guess?

Correct. And in fact we didn’t really so much move out delivery times, we just had a lot of hick ups with placing orders directly to supply base and those kinds of things but that is all in good shape as we speak.

And then Brain can you maybe update us on where you guys are with the refresh showrooms in North America I know it's been a big focus over the last couple of quarters, as you try to kind of reenergize the North America contract segment. So how much is left to be done or where do you feel you are in that process I guess.

Well first of all we have essentially refreshed virtually between last year and February and now we have touched every showroom not only in North America but globally. Of course there is always that question of showroom churn ones that are ending with their lease. The big investments this year is we've got a reset of New York where we’re moving from what I think is about three or four locations in New York City down to one, with one combined showroom with all the brands and a retail shop as well. We also have a movement in Washington D.C. we’re in a temporary space in D.C. right now and the new space opens up I think in the fourth quarter if I'm not mistaken and with the first quarter’s initiative perhaps in Q1 but yes. So those are the big ones in North America, we've got some we will next fiscal year we will actually move our Chinese showroom, our Hong Kong showroom that is going to move locations, the lease is ending, so there is always some level of those but I'd say the push to get them all reset and up to a similar level we did that now we’re into what I would call the more sort of you will a normalized cadence Bobby.

And then lastly from me, just on the real estate plans with DWRs is the goal still about a net add of about 55,000 square feet this year?

It's come down a little bit, Bobby, this is Kevin. As Brian mentioned earlier some of them getting the necessary approvals and things it is closer to 20,000 to 25,000 net square adds.

Okay.

Yes, we have some stuff moving to next year Bobby, so you'll see more of that as we look into next year and even next year a fair amount of the stores next to our what we would call realignment. I think out of the 6 or 7 we got planned for next year, a couple of them are actually new locations and some of them are realignment, often though remember when we're doing a realignment we're not just moving locations, we're going to be a bigger footprint and that's where you get additional square footage even when you're not adding a next studio that's certainly a driver, but we also know longer term that we want to grow the number of studios from today 31 or 32 to more in the mid 40s. But that will take us some time to get through with the kind of a mix always of realignment and brand new.

The next question comes from Kathryn Thompson with Thompson Research.

First on North America, how much of the North America margin outside is driven by strategically repositioning versus just an overall market improvement, really what we're trying to drive at is how sustainable conceptually are these and how much is it specifically Herman Miller versus just the continuation of an improving market? Thank you.

This is Jeff. Let me give you a little bit of color on the some of the kind of the moving parts within the margin line for the North American business and Brian can maybe speak a little bit to the strategic realignment piece. I would tell you that clearly we have benefited from commodities we mentioned that in the prepared remarks. Commodity pricing has been a big benefit for us, I mean, that's not unique to Herman Miller of course but that's been very helpful as you know as we've talked in the past steel and steel component parts are big driver in our overall cost of goods sold and those levels are at levels that we haven't seen since the early 2000s, right, so that's been a big help now intertwined in that a bit that is the currency drag that we have been feeling and of course we feel that as an North American segment in our Canadian business. So those two aren’t necessarily exact offsets but they are, it is kind of been moving in opposite directions and somewhat offsetting I'd say the by and large in North America we have benefited more from commodities than the currency has hurt us and I'd say the opposite for our ELA segment. So those are two important competing cards and I'd also say to that within our margin as we mentioned incentive bonus expenses those are running higher than they were a year ago so if your comparisons are year-over-year keep in mind we have got a bit heaver expense load in the margin line from bonus and increments, Brian if you can add on the strategic side.

What I would say to you Kathryn is certainly the team in operations continue to focus on lean manufacturing and we certainly have seen cost benefits on the manufacturing side, and I think yesterday when we talked as a management team it's about a half of point of margin that we can see from cost improvements that are beyond commodity and those kind of things, really the team is being better at operating. But look at -- I think you have to remember we still are in a very-very-very competitive market where every day we have to win every single project and so while we are focused on improving margins, we're mostly focused on saying we got to win and if we win we can figure out margins. What I think the team has done an incredible job on this year and give Greg Bylsma and Melissa Brian and the folks back in West Michigan all the credit for it and those guys have done a great job of making sure that we can respond to our dealers and our customers and our sales people needs to be more competitive. And we have been able to do that by providing them more cost effective solutions, so in many ways what you're seeing going on in margin line is a little bit of mix because we've been able to play better at price points, but without happen to simply give up discount but as much being able to provide solutions that drive better value for the dealers and let them be competitive and win which of course is the ultimate goal. While at the same time, they're continuing to focus on driving cost improvements. So, I think the combination of those two things are the key and they will continue to be the key going forward as that we're not only being competitive on the price side but we're doing a great job of tuning the offer specifically to where the market is moving. And I think that is if there is an overwriting thing that's happened this year better than we would have expected coming into the year, it's been how good the team has been doing that.

And then the second question just on ELA, what drove the better organic growth in orders for that segment, you obviously had a little bit softer in sales but you've certainly showed some improvement in orders as the quarter came to a close, what was the driver for this is a new product better in market demand, what are some of the factors and we should…?

Well, first of all Kathryn as I mentioned in my prepared comment, that is a historically and this is true of a lot of the smaller business they tend to be a little bit more lumpy or bumpy depending on how you want to talk about it and that you still win projects and projects comes through and that's a big part of it in that business in particular because it has a wide spread geographically and we are often not plan for market share as much as we’re playing with specific customers. You see a lot of outs and I would say as the team in international continues to do an amazing job of uncovering opportunities and winning significant projects, but the timing of those and they can move around quarter-to-quarter in terms of revenue. So in this quarter they had some significantly good sized wins right towards the end of the quarter they came in, in orders in the Middle East that were very impressive good wins both on the work side, as well as in healthcare and those guys have done a really nice job of that. Having said that I would also give Andy Lock and our team in international a lot of credit for the work they've done around the product offer, they've got a great pipeline in new products some of which have already gotten to the market, that's certainly has helped the competitive position of POSH in China and actually in India and other places where we use that brand pretty extensively. So I think it's a combination of being really good at uncovering opportunities, serving our global customers in a nice way and then mixing in some new products to make sure that the brands are relevant and fresh.

This is Jeff. Just one tag on comment to that and it gets more to the margin performance, you asked about North America but I would emphasize to internationally particularly in Asia the team at POSH has done a really nice job of improving operating performance relative to where we were just a year ago the margin improvements there has been significant and it's really moved the needle and made a big difference for the business, so I think that in combination with everything Brain just described our new product and so forth has been a big driver.

And I'm not showing any further questions at this time. I'd like to turn the call back over to our host.

Thanks everyone. We appreciate you joining us today and your continued interest in Herman Miller. On behalf of all the people at Herman Miller, I want to wish you and your family a wonderful holiday season. We look forward to the opportunity to talk to you again in March. Have a great day.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.