Good morning, and welcome to the Herman Miller's Third Quarter Earnings Conference Call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Kevin Veltman, Vice President of Investor Relations and Treasurer.

Good morning. Joining me today on our third quarter earnings call are Andi Owen, our President and Chief Executive Officer; Jeff Stutz, our Chief Financial Officer; John Michael, President of North America Contract; Debbie Propst, President of Herman Miller Retail; and Ben Groom, our Chief Digital Officer. We have posted yesterday's press release on our Investor Relations website at hermanmiller.com. Wherever there are figures presented on a non-GAAP basis, we have reconciled the GAAP and non-GAAP amounts within that press release. Before I turn it over to Andi for a brief overview of the quarter, I would like to remind everyone that this call will include forward-looking statements. For information on factors that could cause actual results to differ materially from these forward-looking statements, please refer to the earnings press release as well as our annual and quarterly SEC filings. Any forward-looking statements that we make today are based on assumptions as of this date, and we undertake no obligation to update these statements as a result of new information or future events. At the conclusion of our prepared remarks, we will have a Q&A session. Today's call is scheduled for 60 minutes. With that, I'll turn the call over to Andi.

Thanks, Kevin. Good morning, everyone, and thanks for joining us today. While our third quarter coincided with the one-year marked with COVID-19, we have a renewed sense of optimism today as we are beginning to see a light at the end of the tunnel. We believe the changes brought about by the pandemic will lead to significant opportunities for us, and we are confident in our ability to grow our business and continue to create value for all of our shareholders. We believe that our differentiated set of capabilities are a significant advantage that will allow us to serve both our contract and retail audiences in every way and everywhere they want to do business with us. For the quarter, we continue to see the benefit of our diversified business model. While consolidated sales were down 11% and orders were down 13%, growth in our retail and international businesses helped to offset the challenging near-term conditions in our North American contract business. We also continued our trend of strong profitability, delivering another quarter of operating margin expansion over last year. Throughout the pandemic, we benefited from the strength of our retail business. While the rapid rise in demand for home offices certainly drove heart of our retail growth this year, it's not the whole story. We've taken a series of very deliberate actions in this business over the last two years, and we are seeing the results with sales growth of 63%, order growth of 81%, and operating margins of 20% in the third quarter. It's a new day for Herman Miller Retail, and we expect to see double-digit sales growth and operating margins in the low-teens going forward. Momentum is building for our contract business as well, with more of our customers moving into the action phase of their…

Thank you. [Operator Instructions] Our first question comes from the line of Reuben Garner with Benchmark. Your line is open. Please go ahead.

Thank you. Good morning, everybody.

Hey, Reuben.

Hey, Reuben. Good morning.

Maybe we can start with the – the stock opened up off a little bit. It's recovered some, but the two pieces of push back that I've gotten are I think things that you guys could help clarify here. The North American order trends down 38%. I think you guys report the home office a little bit differently than some of your peers, and so your numbers are behind what the BIFMA data, I think, has been during that period. Jeff, is there any way to kind of quantify what that impact is? And what your maybe more apples-to-apples numbers look like? And then secondly, same kind of clarification. You mentioned some things like cost coming back on and commodity inflation in the release. I think earnings estimates already have you guys declining next year. Can you just talk about what that all means from a contribution margin standpoint as we move into your fiscal 2022?

Sure, Reuben. Good morning. Let me try to take these in order. So I'm glad you asked the question on the North American contract order patterns because I do believe particularly, through the COVID period that the BIFMA data is good data. Don't hear this the wrong way. But certainly, there is – there are differences across the public company group in our space for how companies capture and report the work-from-home component of the industry. And for us, because we have a separate retail segment, that volume runs through the retail segment. It does not run through the orders that we report for North America. So to your point, North American orders were down 38% for the full quarter in Q3. If you adjust for the component of kind of the work-from-home volume that runs through the retail piece, that accounts for about 6 points of the decline in North American contract. So said differently, if you adjust for that, it's down closer on a pro forma basis to 32%. So let me pause there. Is that helpful?

Perfect. Thank you.

To your second question, and Kevin, I might ask you to lean in with a contribution margin comment here. Part of that gets difficult because order patterns are off so much and we've had such a kind of move – so many moving parts in the P&L with cost savings and so forth and costs coming back in which is the nature of your question. But let me just start with some clear clarification for what we expect near-term cost impact to be. Now, I'm talking Q4 not fully FY 2022 in this kind of just to be clear, but certainly, with the rise in steel prices, our expectation is that our fourth quarter is going to feel pressure from higher costs to the tune of between $3 million and $4 million, so that will be pressured the gross margin level. In addition to that, we have made the decision to begin bringing back some of those temporary cost pullbacks or those temporary cost reductions that we implemented earlier during the pandemic. I should point out that we're doing that because we have a growing sense of confidence that conditions in North America are going to improve and we're going to – well, there we're seeing it when I'm seeing the order rates yet, but John can speak to this, I'm sure, at some point about some of the green shoots that we are seeing. But all that being said, we are bringing back some of the employee benefit costs that we had temporarily turned off, expectations are that, that will drive about $6 million of incremental cost sequentially in the fourth quarter compared to our run rate in Q3. And then, Reuben, can you restate your question? I just want to make sure I understand what you're asking for on an FY 2022 contribution margin?

Yes. So just – I mean – I think you – obviously, your retail business, you gave some color on what margin – more sustainable margin level might look like going forward in the low-teens. And so I know that that business will – on a year-over-year basis will be under pressure. But what are these costs look like? How does that impact your ability to expand margins at the ink levels or hold margins at the ink levels in 2022 for the business? How do we think about what that might look like with all these moving pieces?

Yes. Reuben, this is Kevin. So as you know, revenue is an important variable to contribution margin as to the rate of growth. And given we don't have an FY 2022 guide out there, just consider that in the background of this answer. But the way, I would think about it is over the longer run, we've tended to be a business that has 20% or so contribution margins in a normal scenario. Next year as we bring those temporary costs that we've avoided this year back into the business, that's a variable that's not present typically in our year-over-year comparison. So without giving you an exact contribution margin assumption because revenue does come into the equation a little bit there. We do have those costs that will feed back into the business that should be part of the math you are thinking about. We'd expect those costs to kind of weave in over the course of next year fairly ratably as well.

Okay, helpful. And maybe a question for Debbie. Obviously, retail business has been unbelievably strong and the outlook for low teens margins, I think, is going to surprise a lot of folks. Can you just maybe go into detail what your confidence – how confident you are that you are going to able to grow that business double digits and sustain those low teens margins as we move into 2022? I know you guys have made a lot of moves. I think people looked at 2020 and thought that the benefits there are temporary. But clearly, if you guys see something else, can you just maybe elaborate on what gives you the confidence that you're going to continue to grow and sustain those margins?

Thanks, Reuben. I'd love to. So obviously, I certainly want to indicate that we believe that there is a build in our business this year due to the work from home needs and the increased spending in home. But there are also indicators that those trends have some longevity to them based on the real estate data that we are seeing and other data we're triangulating from the market. Additionally, we have, as you know, been strategically changing the way that we have run this business over the course of the last year, and we are really seeing some of those changes come to fruition. And I'm also pleased to note that we are just at the beginning of those journeys. So I think the momentum that we'll continue to build with some of the strategic drivers, the predominant drivers are marketing, assortment and web enhancements, and then you'll see us layer in some of their physical retail strategies as well, which we kicked off at the end of Q2 and Q3. So from a marketing perspective, we've been moving to seasonally – seasonal campaign management of our marketing and our consumer engagements. We've brought in new talent into the organization and are running our marketing mix in a much different way. So just as a point of reference, marketing as a percent of sales in Q3 was 4.8%, that's down from 5.3% in Q2 and down from 6.4% last year. Meanwhile, we obviously drove $80 million in increased orders in the quarter. And of that $80 million in increased orders, only $10.6 million came from organic traffic. So that really speaks to the effectiveness of our marketing demand tactics. And specifically, within Q3, we had a benefit from our holiday campaign. This is a season that Design Within Reach…

Yes, I will. Thanks, Debbie. And thanks for the question, Reuben. I want to start by just reminding everyone that we commenced an end-to-end e-commerce transformation for our entire Group in September 2019, which is obviously, very timely heading into the COVID period. Now as we mentioned on the last call, the first site that we relaunched as part of that transformation with DWR.com. It is performing extremely well ahead of our expectations. We're really seeing a step-change performance improvement relative to pre-launch. And even when you look at the COVID period relative to pre-launch, which really gives us a lot of confidence in this strategy and our ability to continue to see a step-change improvement as we roll out additional sites onto this platform. I mentioned last quarter that we're seeing a significant increase in our conversion on the site, but we're also seeing significant increases across really all of our key metrics on DWR.com, including add to cut rates, sessions with product views, site speed, which we believe is really important for our customer and we're seeing a significant decrease in our balance rate. So just to kind of reiterate Debbie's comment, we are really at the beginning of this journey, and certainly, site launches and relaunches are a critical part of the strategy going forward. I'm excited to let you know that we are well under way in getting the new Herman Miller store ready for relaunch, and that is on track currently for Q4. And we are continually evolving our platforms and ecosystem, and particularly, the technology providers that we work with to really create a richer and more frictionless experience for our customers. So we are very excited about that. And personalization is another key component that we relaunched during this quarter, and we are seeing great early success on that. And then just finally, Debbie touched on assortment growth and the newness metrics, I just really want to highlight that is so important for our e-commerce business because it's really creating a flywheel where people find their reason to come back and check the site more often. So all of these things are contributing and we have a lot of confidence in the quarters ahead.

Hey, thanks Ben and Debbie. I just want to add one thing. What I hope you guys are hearing from this is that we have made some pretty dramatic changes in this business. We've taken our lumps and the last two and a half years for this business to begin with, and we had a significant amount of things we had to get better and change. But these are not things that were in response to COVID. These are long-term investments. This is the fact that we saw distributed work coming for a while. We have been working for this, and these are things that will pay off in the long run as well. So I hope you are hearing a little bit about this, but understand this is not just a flash in the pan. This is a long-term change in the trajectory of this business.

Great. Thank you, guys for all that. I'm going to sneak one more in, if that's all right. The North American contract, you mentioned or alluded to, I think kind of green shoots or some optimism that things are inflecting here. You mentioned I think new orders up or the pipeline for orders up substantially, sequentially. Can you just maybe give us a little more color on what you are seeing? And when this actually might inflect and turn into business for you guys? I think that this is probably the most concrete sign we've seen that things are turning, but any more color you could give would be great.

Sure, Reuben. This is John Michael. Thanks for the question. Yes, there are a number of green shoots that we've seen emerge over the last 60 to – or so days. Just to give you a few data points. Our sales pipeline in terms of new opportunities, Q2 to Q3 of this fiscal year is up over 28% in both number of opportunities and in volume. Markup activity, which is where clients want to see product before they buy it in a sort of a sample or demonstration usually, as part of the competitive evaluation process were up significantly January year-over-year and doubled in February in terms of year-over-year improvement. And those are obviously against pre-COVID comps. Contract activations, which is when we let pricing for the project and then when orders start to come in against those contracts, changed direction significantly over the course of Q3, and are headed in a positive direction. I think the – anecdotally, the conversations with clients, as Andi mentioned in her opening comments are the concrete. They are here in now and clients understand that they've been waiting, they've been kicking the can down the road a little bit to see what emerges, but now they know that they need to take action. And I think we'll see from it – the last part of your question from an order perspective, I think we'll see that begin to build through Q4, but really feel the impact in the first half of our fiscal 2022. Does that answer your question?

It does. Thank you very much. Appreciate it guys, and congrats on the quarter.

Thanks, Reuben.

Thank you.

Thank you. And our next question comes from the line of Greg Burns with Sidoti. Your line is open. Please go ahead.

Good morning. Relative to some of the inflationary pressures you're feeling, what are the actions are you taking to close the – have you raised the price with any other cost cutting measures and how should we think about the timing of you closing the – or narrowing that price cost gap over the next couple of quarters? Thank you.

Hey, Greg, you're breaking up just a little bit, but I think your question is about price cost and actions we're taking. We are taking a price increase, but I'm going to hand it over to Jeff to give you details on that.

Yes. Good. Thanks, Greg. With respect to near-term actions, look as we had in the past, when we see major inflationary pressures like we're seeing with steel, we've had success implementing price increases to help offset that. That is, in fact, what we're doing. We've announced a price increase. Now it's not effective until the beginning of the fiscal year – upcoming fiscal year. But nonetheless, we've tried to size it accordingly to the kind of pressure we're seeing. I will remind and I know you realize this, but just for the others listening, it's always important to remember in the contract business that when you put a price increase in place, it's not as though you hit a light switch and immediately start to realize the benefit of that price increase that has to phase in over a period of time. We've taken that into account obviously, in sizing the price increase. So I would say we are reacting to this very much like we had in the past and we have the confidence that it will be effective. And then – and more broadly, look, we as a company, have always and I credit our operations teams tremendously with the work that they do and our supply chain folks, they're always working toward a goal of cost reductions that won’t change for us. We are continuing to press for improvements and efficiency improvements and so forth. So that's kind of part and parcel with how we do business and is expected as we move through the fourth quarter and into next year. Now I think as Kevin pointed out, we have these temporary costs that are coming back into the business, and to completely offset those next year with the efficiency improvement, that's probably a bridge too far, and I wouldn't want to set that expectation. But we continue to be focused on cost reductions like we always have been, and leaning out the operation.

Okay, thanks. And in the prepared remarks, you mentioned some of your, I guess, incubator projects, and one talks about was the Herman Miller Professional. Can you just talk about that? It sounds like you are going after the smaller end of the market with this initiative. Can you just tell us a little bit more about that, what the go-to-market is for that strategy? And how that might increase your total addressable market and your cost base?

Yes. I'm going to hand it off to Ben Groom in a second, but I just want to touch on the innovation incubator, Greg. I think it's a really important business model that we've set up. As you know, when you put a new idea in the middle of a big business, it doesn't necessarily get what it needs to flourish and thrive. And we've seen by setting up this sort of flat team and putting our new ideas into it, and running them effectively a little bit separate from the rest of our business, we've seen great traction. So we did that with gaming. And we haven't really touched on the gaming business that the gaming business is incredibly successful. And we're excited about our partnership with Logitech G, one of the most amazing, innovative and design thinking companies when it comes to gaming peripherals. So we think there is a lot of runway there. And then Herman Miller Professional is one of the other ideas that came out of that group. So Ben you've been pretty instrumental in that so I can turn over to you to give some color.

Yes. Thanks, Andi, and thanks for the question, Greg. So in essence Herman Miller Professional is the e-commerce business for our contract business, right. So I just whatever I'm to be very clear on that. And we are really committed to creating the best e-commerce experience we can for the contract market. So what we are working on will provides tailored B2B pricing, a contract focus catalog, design tools professional grade files and specifications, et cetera. So we're really trying to create a custom, e-commerce experience for B2B buys in general but particularly as you mentioned Greg focused on our small medium business segment, which we believe has been underserved by our business historically. And we're very focused on targeting that segment through this initiative and really in essence what we're trying to do here is turn hermanmiller.com, which as we all know is our most visited contract showroom into more of a revenue generating assets. So we are on track to launch in this quarter for Q4. We're going to take a very agile approach to this business, starting with an MVP launch and really beginning to build out more and more functionality over time as we learn more from how our customers behave on this platform. But I really want to emphasize to one of the unique aspects of what we're trying to do here is bring the best of Herman Miller customer service and the best of Herman Miller dealer customer service to an e-commerce experience because we believe the future of e-commerce for our business, for our customers at our price point, customer service is a huge component of that, and we feel like when we look at the marketplace right now, there are companies that are doing well in terms of technical innovation and there are traditional companies that are great from a customer service standpoint and we really want to be both. So this is a really big focus here, and as a result of that we've really partnered very closely with our dealer community on this initiative. They will be very much part of this. Obviously, this site will be designed to allow customers to buy now. But if we gather information during the purchasing process that these customers would be better served offline, particularly by a dealer that we expect that this will create great data and great leads generation for our dealer community as well. So we're really excited about what this could mean for our contract business, not just in North America, which is where we're going to start but internationally as well.

Good, thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Steven Ramsey with Thompson Research. Your line is open. Please go ahead.

Hey, good morning. Maybe to start with – on the long-term retail growth outlook, clearly, strong market backdrop and then many internal improvements going on. I guess, thinking about the long-term, maybe the three factors I'd like to get some color on is contributing to the long-term growth is, how much of that is same-store sales growth? How much of that is new store openings? And maybe how much of that is digital growth platforms as well?

Hi, Steven. This is, Debbie. Good morning. So maybe just start with a reference around our same-store physical retail performance in the quarter. Our comp stores grew 18% in sales and 37% in orders despite traffic in-store is being down 75%. So first of all, we're really pleased with the performance of our current comp fleet of stores. And we certainly driven a lot of changes in the way that we're managing those stores, compensating our sales associates, how we're thinking about selling the broader ecosystem of our digital expanded assortment offering through those stores and we're starting to see traction in those tactics, drive improved comps in our current fleet. From a long-term growth perspective, and as Ben indicated across our portfolio of retail brands, we've done a relaunch of the DWR site by Herman Miller, and here to come, and that certainly drives a good element of the growth that we're projecting over the course of the next year. And then from a new store perspective, we are – like I said, very happy with the initial results we've seen of the smaller format testing we've been doing in Herman Miller, as well as the new results we have from our recent DWR openings. We are planning additional openings in the upcoming year, but we're obviously being strategic. I'd say that the additional color I provide is that in order to continue to build double-digit growth, we do need some investment in these – in the retail infrastructure. We need some investment in our go-to-market channels, digital and physical stores, obviously, being those key channels. And so we're very excited about the strategies deployed so far and the traction we've gotten, and looking forward to continue to push in those areas.

Okay, great. And then thinking about costs coming back maybe for retail solely. Is the retail segment running full-on costs? If not, maybe where are costs not – at what you may call full run rate and what are the factors that would determine bringing those costs back to full run rate?

Hey, Steve, this is Jeff. Yes, let me jump in here, Debbie real quick. I would maybe as a general characterization, I would say that the large component of the costs that are yet to return are not in the retail business. That certainly, it touches the retail business, but they largely centered around the North American contract business into a little lesser degree international. The components that do touch retail and you can think of this is probably for a pro rata by size across the whole enterprise is travel and entertainment, right. That's an area that – that we are including in our own calculus for what is yet to come back and of course through COVID, travel has been significantly reduced, in some cases to almost nil. Now that will stay that way forever, but I can also tell you that Andi and I are pushing the organization to think differently about travel in the future. I think we've all learned some new ways to do work. And so with that, we don't expect to return to necessarily pre-COVID levels anytime soon. But you can't run a global business without some people moving around and we expect that that’s going – we expect that that's going to pick up. So that is one area, we're certainly the retail team will see some impact. And then there is some other employee benefits like retirement, employer paid retirement contributions and things that will affect retail. And Debbie please, I've cut you off, but join in.

The only thing I'd add is just most of the incremental cost that we're planning going forward is variable cost associated with sales. So as sales grow and our marketing costs will increase, but not the percent of sales. Just as an absolute spend, and then our variable-selling cost obviously increases.

Got you. Helpful color and shifting to maybe DWR Contract, how that relates to the improving North America pipeline and sentiment, is DWR Contract benefiting at all from this sentiment or overall do you expect, is there is a shift from people going back to offices may be some incremental less focus on home spending, is there may be a reverse effect, where it softens some retail demand but increases North America contract.

And well Steven, so DWR Contract is obviously captured in our retail segment and DWR Contract down 30% in the quarter. That's an improvement from where it's been trending and it's obviously an improvement from where North America contract is trending. What I will say is in recent weeks, we've seen a similar flurry of activity that John spoke to North America and DWR fee. And I think we are seeing DWR fee improved slightly ahead of the rest of North America because of the large penetration of ancillary products in that category. And as companies are thinking about what return to work looks like, they're rethinking about a different floor plate format and one that includes much more community and ancillary space. So I think we're seeing a leading indicator in the DWR fee business around what we might continue to see longer-term. Just to touch on the other audience segments of the retail business, we have what we call our residential consumers, so that's us selling a DTC version to the end-user, and that actually grew 142% in the quarter. And then our trade consumer also really rebounded this last quarter, growing 30% over last year. So I think between what we're seeing in DWR fee and trade, we're really seeing momentum and build, and the way that people are engaging with their lifestyle and ancillary category.

Yes. And I think Debbie touching on a really important point that I'm sure you all are hearing from some of our competitors as well, which is the need to get back to the office and the reality of getting back to the office is dawning on every CEO and every facility's planner, and everyone is engaging in this conversation with urgency now. But also taking a look at their environments and realizing how they need to be different with how we will all be working in the future. And there is certainly a spectrum of that but there is a huge opportunity for us in that, especially with some of our ancillary businesses and our brands that we own like DWR and not one of those actually we're excited about that opportunity going forward for the contract business.

Excellent. And maybe to something to add on there, which I was planning to ask because what you were just talking about Andi is, the North America discussions right now, how much of that is looking at large office changes and bigger projects? How much of that would you characterize as more ancillary products and smaller floor plan changes? And any leading thoughts there on the product mix being better which may kind of help cushion pressured contribution margins with expenses coming in?

John, do you want to take that one?

Sure.

Okay.

I think the – certainly, as companies are figuring out what their workspace needs to look like going forward. The focus is around connection and collaboration, opportunities or spaces for deep concentration, as well as connection in community. And so when you think about those key areas, ancillary product plays a big part in outfitting those types of spaces. So we are certainly seeing momentum in the ancillary product lines, I think, to your question about the size of offices and those types of things that's been an interesting conversation with clients. I think to be honest with you, it's a little bit all over the board, but the early the conversation was, we are not going to need nearly as much space. As we actually get into the planning process, and you begin to bring more collaborative space into the office, you find out that you may accommodate less people but you actually need more a similar-sized space because of the different type of spaces that you are creating. So I think, it's very fluid and it's evolving, but definitely ancillary will play a significant part in the conversation. And if I could just tag on to Andi's comment about CEOs, I think one of the things we are seeing is, a real sense of urgency or knowing that it's important to get this right, as right as they possibly can in the first time. And I think it's a real plus for the contract industry in general, as well as our company that this is an issue that is top of mind in the C-suite. And space is not always in the top of mind of the C-suite. But I think, it's going to play a critical role moving forward, and I think companies leadership understands that.

Yes. And Steven. I would say we're seeing projects coming from large company, and small companies, it's really across the board, everyone is thinking about it. So it's not just segmented in one area or another, it really across the board.

And I'd just add, as companies are starting to consider a more community driven floor plate, they are also really starting to look at and communicate what their long-term policies are around where their employees work from, and we believe that's also an indicator that there is longer-term momentum and this work from home trend we've been seeing. So we actually expect to see second wave of purchasing around the category as policies start to get assigned.

Very helpful, thank you.

Thank you. And our next question comes from the line of Budd Bugatch with Water Tower Research. Your line is open. Please go ahead.

Good morning, I hope you can hear me. Congratulations on the quarter.

Hi, Budd.

Hi, Budd. It's been a long time. How are you?

I'm fine. Thank you, Andi. Hope you all is well, and Jeff, I hope you all is well. Congratulations on navigating a difficult period. I want to go back a little bit in history because I remember Herman Miller for the last decade, really talked about the living office, which I think John talked about is collaboration with which is – which was the whole office contract community was talking about that. And COVID obviously, makes that a much more challenging issue. And I think you talked about space, and as I saw it over the last several decades, the amount of space was top of mind of at least real estate people of most corporations. So really I'm interested to get a little more color for you on those conversations, particularly with the C-suite, which I think is important because how will be office look in the future? What it's going to be? Are we going to have more architecture and go back to private office other than benching and those kinds of close quarters? Or what do you see as the future? And how does your mix go into that? And then I do have some other questions based upon the financials that I'm looking at.

Sure, Budd. This is John Michael. I think there is clearly a couple of principles emerging in terms of how the new workplace is going to be planned. One of them is that of what we were called de-densification, and this is a term that we're hearing a lot from the commercial real estate community as well. And that is, to your point, historically the focus has been how do we get more people in the space? How do we drive down square footage per person, et cetera? I think it's become clear to everyone that for both health and safety reasons, as well as for the purpose of the space that we got to reverse that trend to some degree. The other thing we are hearing a lot about is amenity-rich spaces, and that is as the office becomes not a place that I have to go to five days a week, but a place that I want to go to, to support the type of work that I need to do, it has to be a destination and it has to be an attractive place for employees to want to go. So I think those are two key themes that we hear and that obviously translates into what the new workplace will look like. I think every company has got a slightly different interpretation on what that might be, but I think those two themes are prevalent in all the things that we're hearing.

Sure. John Michael, how does that translate into product? What kind of products do you have to accommodate those, actually, I think they are very new principles as I think you had identified.

Yes. So the good news is, many of the investments we've made over the last several years in terms of rounding out the brands in the Herman Miller Group, fit very nicely into the types of spaces that we are designing and seeing designed by independent designers. Obviously, collaborative space is more prevalent, so brands like naughtone and HAY and Geiger ancillary products fit perfectly into those types of applications, certainly amenity type spaces, be that coffee bars, lounge areas that types of things. The brands we have in the Herman Miller Group, as well as part of the DWR Contract offering are significantly helpful there. And the other thing we're seeing is companies really trying to figure out how to leverage and take advantage of outdoor space. And the products we have added through – in the portfolio there are significant as that space becomes not just the place where people want to go and get a breath of fresh air, but actually where they may want to go and work, when the weather is just right.

Yes. And Budd, it's interesting, we've been through one of the most tragic and difficult social experiment probably of our time. One of the things we're also seeing is that there is a real focus as Debbie mentioned on health and wellness and how things like ergonomic seating when you are sitting, and when you are focusing on work and it has down way because really, really important. And so as we look at these workspaces with the collaborative spaces and amenity rich environments, we also need to include almost library like settings for heads-down work that are really focused on how you can do that work in a healthy way. And because many, many folks that have been working from home, for some people, it's an easy and for some people it's been really hard and what suffered for many people is the headcount work, especially money out people can get things like that. So I think it's really a spectrum of product ranges, and I think as John said, we're happy with what we've done to innovate around all of these categories over the last several years.

And this is all potentially very exciting because, but I'm curious if you have always evidenced in a way to think forward. And I think it changes the nature of the Herman Miller organization. I mean you separated retail from contract, when you made the bold decision to go heavily into DWR. But now with all of this, it seems to me that there has to be emerging, and am I correct is that changing the structure of the organization, can you talk to little bit about that?

Not that I anticipate Budd.

Okay. Not that you won't talk about or there is no change?

I don't anticipate changes.

Okay. If you could give us a little bit of a color on the international flavor of where the results were better and not so good?

Yes. Hey Budd, this is Jeff. I'll take this one. Well, maybe I want to start with just a shout out to the team in international, they continue to perform quite well. And certainly in relation to what we've seen in North America. I think in a lot of ways they made some of their own luck through much of their focus and investment in the past, I don't know 18 months or so particularly in places like Continental Europe, Western Europe where not only do we tend to sell a strong mix of seating products, which is a good thing from a margin perspective, but also the team there has done a really nice job, trying to find new dealer touchpoints, and really – I would say, maybe just focusing on deeper penetration in that particular market. So this may come to some surprise to folks, but Western Europe has actually been an area of strength for us for the past several quarters. The other thing I would say, Budd, parts of Asia Pacific and not the whole of Asia Pacific, obviously, that's a big geography, but Greater China, Japan, Australia, those have been strong markets for us. We certainly have seen some laggards as well. Maybe I should kind of flip the script and talk about where we haven't seen as much growth and strength that would be places like Latin America, Mexico, other parts of Latin America, India, the last quarter or so that tends to be a very project-driven part of the world, and certainly, this past quarter, it was down. But that gives you a flavor kind of as you walk around the globe is where we're seeing strength and where we're seeing some weakness.

Okay. And just a couple of specific questions. You typically spend somewhere in the $70 million to $75 million a year in R&D, if I remember right. Is that about where you're spending this year? Or is it going to come in lower than that?

Yes. I think a little lower than that. Budd, I don't have any number to give you here, but it feels like that's a little high. I thought you were doing with CapEx with your question, by the way.

Well, that's next, Jeff. That's exactly where I'm going to ask. The investing cash flow differential was eye-popping, so what's happened to CapEx because we don't have that. I don't think we have a detailed cash flow right now.

Yes. Kevin, I don't know if you want to add any comments here? Certainly, from a – just a pure CapEx standpoint, $55 million to $65 million would be the kind of full-year expectation. But go ahead, Kevin.

Yes. And we've had a little back half activity, Budd, related to – particularly, an exciting opening. We opened up a new space in Fulton market and that's both a commercial showroom as well as all three of our retail brands in the Chicago area. And so the investments related to that were part of the numbers that you saw this quarter as well.

I got you. And Jeff, I think you owe or at least you got a short-term debt of about $50 million. You paid down a lot of debt this year, but the $50 million was kind of on the balance sheet at the end of the year. I take that $200 million or some million that you might have already paid off was voluntary or was not necessarily due? Is that $50 million going to be paid in the fourth quarter, or?

Yes. We had some notes that were due beginning of March or sometime in the month of March, that bills were paid, Budd. And then as you said, the big paydown that we saw was earlier in the fiscal year and that came as a result of us drawing heavy on our line at the early part of COVID like so many companies did as we were concerned about liquidity. And once we got a degree of comfort, we paid that down. So that's what you are seeing.

Okay. And you still have cash, you have a repurchase authorization. But I don't think you bought any – at least as of the third quarter – as of the second quarter, you hadn't bought any stock. What's the plan on that for the rest of the year?

Yes. Budd, this is Kevin. So definitely, the goal is to not build a trove of cash. But as we navigate toward the end of the pandemic and look to gaining confidence in North America, we'll continue to look for opportunities to deploy that cash, whether it be M&A opportunities, we have a team that continues to screen for those types of things or cash returns to investors either through dividend or share repurchases.

Okay. Thank you very much. Good luck and congratulations on navigating a pretty challenging environment. I think that's an understatement.

Thank you, Budd.

Thanks, Budd. Nice to hear from you.

Thank you.

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Andi Owen for any further remarks.

Well, thank you, all for joining us on the call today. We appreciate your questions and your continued interest in Herman Miller. I'm looking forward to updating you again next quarter. Hope everyone stays well, and take care. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.