Good evening, and welcome to MillerKnoll, Inc. Earnings Conference Call. As a reminder, this call is being recorded. I would now like to introduce you to your host for today's conference, Wendy Watson, Vice President of Investor Relations. Good evening.

And welcome to our third quarter fiscal 2025 conference call. On with me are Andi Owen, Chief Executive Officer, and Jeff Stutz, Chief Financial Officer. Joining them for the Q&A session are John Michael, President of North America Contract, and Debbie Propst, President of Global Retail. We issued our earnings press release for the quarter ended March 1, 2025, after market closed today. Along with our earnings release, we filed an 8-K announcing a change in our segment reporting structure. The 8-K includes recast segment financials, from fiscal 2023 to date reflecting the new reportable segment. The segment change has no impact on our historical consolidated financial results. These documents are available on our investor relations website at millerknoll.com. Before I turn the call over to Andi, please remember our safe harbor regarding forward-looking information. During the call, management may discuss information that is forward-looking and involves known and unknown risks, uncertainties, and other factors which may cause the actual results to be different than those expressed or implied.

Please evaluate the forward-looking information in the context of these factors.

Which are detailed in today's press release. The forward-looking statements are made as of today's date and except as may be required by law, we assume no obligation to update or supplement statements. We will also refer to certain non-GAAP financial measures. And our press release includes the relevant non-GAAP reconciliations. A replay of this call will be available on our website within 24 hours. With that, I'll turn the call over to Andi.

Thanks, Wendy, and good evening, everyone. And thank you for joining us tonight. Our results in the third quarter of fiscal year 2025 reflect the advantages of our diverse business model, strong performance in certain markets and channels, mitigated softness in others, and a disciplined focus on our cost structure helped us weather unpredictable and dynamic macroeconomic conditions. During the quarter, we saw a notable difference in demand in our retail businesses compared to most of our contract businesses. Leading indicators within our contract segments are mixed and overall demand in many geographies were sluggish during the quarter amid uncertainty related to tariffs and other macroeconomic factors. Our consolidated net sales were up year over year, and we saw impressive order growth in global retail, particularly in North America. Earnings in the quarter met our expectations. I'm especially proud of how nimble and responsive our teams have been. I want to thank them for driving sales and order growth in a challenging environment and for their focus on controlling our costs while preserving our growth investments. Next, before I move to segment-specific highlights from the quarter, I wanted to walk through the changes we've made to better align the business with our long-term strategies and to offer more visibility into our performance in key end markets. With the integration of Knoll largely behind us and a pivot towards driving growth, we have re-segmented our operations. Our three business reporting segments are now North America Contract, International Contract, and Global Retail. We moved our textile businesses, Mehram, Knoll Textiles, and Edelmann, as well as Spinebeck's Oakfelt into our North America Contract segment. Aligning these teams allows us to report all our business-to-business sales in North America through one reporting segment. To that end, as we continue to focus on the tremendous…

In the quarter, we saw strength in both new product introductions.

And with our bestsellers. We are continuing to grow overall product assortment and we're approaching new product development with an eye towards unique author design, and an appreciation for style, quality, and livability. Our new product pipeline is driven by a strong combination of timeless iconic pieces, and new exclusive collaborations with external designers. New product launches in spring-summer 2025 are up over 65% compared to spring-summer 2024. As we grow our product assortment, we are also growing our store footprint and brand awareness. In the quarter, we opened a new Design Within Reach studio in Palm Springs, California, and a new Herman Miller store in Fairfax, Virginia. In Palm Springs during Modernism Week, we hosted a series of events and brand activations. The foot traffic during opening week was triple back to some of our most highly visited locations.

We plan to open two more stores in the fourth quarter.

And a Design Within Reach Studio in Paramus, New Jersey, and a Herman Miller store in Coral Gables, Florida. Currently, we're working on over 15 exciting new locations in North America, and expect to open 10 to 15 new locations in fiscal 2026. And just in time for Fulton Market Design Days, this June, we're opening a newly redesigned Design Center location just steps away from our existing showroom. These spaces will create a much improved collocated flagship experience, bringing together the full breadth of our contract and retail design portfolio. A few highlights include new Design Within Reach and Herman Miller stores, new showroom presentations from Knoll, Herman Miller, Mutoh, Hay, and Not One, and an urban core courtyard designed by Michels and Volkenberg Associates.

We also recently opened a MillerKnoll Archives at our space in Holland.

Michigan design art location showcasing a hundred plus years of design history. Our archives are a critical resource for MillerKnoll Associates, as well as our architecture and design partners, curators, and academics. The early response to this new space has been overwhelmingly positive. We are eager and excited to continue to introduce our brands and our spaces to more customers as we expand our footprint. Now I'll shift to a supply chain update and discuss how we are navigating tariffs. As we've seen in the past several weeks, recent tariff announcements have created uncertainty in our industries. But as policies evolve, we will remain flexible and seek to adjust our approach to minimize impact to our valued customers. Reusing what we've learned from earlier rounds of tariffs and the pandemic, along with our manufacturing and supply chain footprint, to manage our approach in this dynamic environment. To begin, we recently announced a 4.5% list price increase which will become effective on June 2nd. In addition, we will partner with suppliers, leverage value engineering, and available flexibility within our supply chain and manufacturing footprint to offset cost impacts wherever possible. And we will also consider incremental price surcharges, if necessary to manage this period of volatility. Importantly, all of this will be done with an eye toward what will be the most transparent and least disruptive for our customers, and dealers. Seth will discuss the expected impact of the tariff-related cost increases in connection with our outlook later in the call. To close, despite entering the fourth quarter amidst an uncertain macroeconomic environment, we remain focused on our longer-term strategies and growth levers. While managing our costs and remaining as nimble as possible. We have the balance sheet strength to weather the current conditions, and that will allow us to invest in profitable growth opportunities. I'll now turn it over to Jeff to discuss our results in more detail, and share our outlook for the remainder of fiscal 2025.

Great. Thanks, Andi, and good evening, everyone. I'll start with an overview of our third quarter performance, followed by our outlook, which as Andi mentioned will include our most up-to-date view on tariffs. In the third quarter, we generated adjusted earnings of $0.44 per share, consistent with our midpoint of our guidance driven by proactive cost containment measures. While extremely dynamic tariff and policy uncertainty negatively impacted sales and order pacing this quarter, like Andi, I want to thank our teams across the company for their quick and decisive actions to reduce cost. Consolidated net sales in the third quarter were $876 million, an increase over last year on a reported basis and slightly and up 1.8% organically. Third quarter consolidated orders of $853 million were up 2.7% as reported and 4.1% higher on an organic basis. Our consolidated backlog in the quarter was $686 million which is up 7.4% from a year ago. In the period, our consolidated gross margin was 37.9% down 70 basis points to last year primarily from unfavorable channel and product mix as well as lower fixed cost leverage. At the consolidated level, we reported a loss per share of $0.19 for the quarter, compared to diluted earnings per share of $0.30 in the prior year.

This loss in the quarter included special charges related to intangible amortization, impairment, and restructuring of $140 million. Of these special charges, $130 million were related to pre-tax non-cash impairment of goodwill attributed to the Holly Hunt and Global Retail reporting units, and indefinite-lived intangible assets for the Knoll and Mutoh trade names. $6 million of the non-cash charges were related to our typical quarterly average and the remaining $4 million of special charges related to restructuring actions taken in the quarter to better align our cost structure to the current demand environment through workforce reduction. On an adjusted basis, which excludes these items, diluted earnings per share were $0.44 in the quarter compared to $0.45 the same period a year ago.

Turning to cash flows in the balance sheet.

In the third quarter, we generated $62 million in cash flow from operations. We repurchased approximately 786,000 shares for $18 million and importantly, we reduced our long-term debt by $61 million. We finished the quarter with a net debt to EBITDA ratio as defined by our lending agreement of 2.93 terms. And available liquidity at quarter end was $468 million.

Now with that, I'm going to move to our performance by segment.

So.

Within our North America Contract segment, net sales for the quarter were $468 million, up 1.4% on a reported basis and up 1.7% organically from the same quarter a year ago. New orders in the period were $434 million, reflecting a 1.8% reported decrease and a 1.5% organic decrease for last year. Order trends during the quarter were lower than we expected, and while we saw solid year-over-year growth in December, orders declined significantly in January, concurrent with trade policy and larger macroeconomic uncertainty. Encouragingly, we did see orders improve versus the prior year in February, and this improvement has continued into March. Where orders in the first three weeks are up more than 30%, highlighting the lumpy nature of projects in the contract segments of our business. Third quarter operating margin in this segment was 3.6% compared to 5.5% last year. Adjusted operating margin was 9.1% in the quarter, an 80 basis point improvement compared to the same quarter last year primarily due to lower variable incentive compensation and focused cost control in general. In the International Contract segment of the business, net sales in the third quarter were $146 million, 5% lower on a reported basis and 1.5% lower organically year over year. New orders in the quarter were $159 million. A 1.6% decline on a reported basis but a 1.4% increase organically year over year. Here again, similar to the North America segment, order trends in the quarter were much lower than what we saw in the month of December. With global trade policy and macroeconomic challenges impacting demand significantly more than we expected. On the positive side, as Andi mentioned, order growth in the Apnea region among others continues to be strong. And it's worth noting that the international contract orders in the first three weeks…

For the fourth quarter of fiscal 2025.

We expect net sales to range between $910 million and $950 million which would be up 4.6% versus last year at the midpoint of $930 million. Our gross margin is expected to range from 37.5% to 38.5% and adjusted diluted earnings are expected to range between $0.46 and $0.52 per share. Our gross margin and EPS outlook includes our estimate of tariff-related costs in the fourth quarter of between $5 million and $7 million before tax and between $0.05 and $0.07 of net earnings per share. This range includes our expected exposure under all known active tariffs and is net of expected mitigation efforts in the period.

Given its fluid nature.

As the tariff situation changes, we will provide further updates of course in future calls.

For all other details related to our outlook.

For the remainder of fiscal 2025, please refer to our press release. With that overview of our financial performance and outlook, I'll now turn the call over to the operator. And we'll take your questions. Thank you.

Before we all continue, one of our questions, just a quick reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. Again, that is star and the number one. On your telephone keypad. And our first question comes from the line of Brian Gordon from Water Tower Research. The line's open. Good afternoon, everyone. I guess my first question is about.

The impairment charges, especially in global retail. And how we can sort of square that with the rather impressive performance, especially in North America.

Yep. Brian, this is Jeff. So there's a couple of things. First of all, that the you know, we're required under US GAAP to do a quarterly evaluation and be on the lookout for any triggers that might signal impairment. And this quarter, there were two things. First off, relative to our own internal expectations, the overall profitability of the segments had lagged expectations. So that was a first signal. We also re-segmented the business as we outlined in our prepared remarks. And so for that reason, we ended up doing under as required, a full review evaluation, which would normally take place in the fourth quarter of the fiscal year, but we pull it ahead of quarter as required under the rules. And so really that was the driver behind it.

Okay. That definitely makes sense. And just sort of like a follow-up on, the new store and new locations that you guys are thinking about in that segment. For that ten to fifteen new locations number, how even will that be across the twenty-sixth time frame?

Hi there. Thanks for the question. This is Debbie. And we're hitting them pretty evenly quarter by quarter. We have two additional locations, as we said, this quarter. And then we'll pay fairly evenly throughout the quarter into throughout next year.

Okay. Great. Thank you guys very much.

Thank you. Our next question comes from the line of Greg Burns from Sidoti and Co. The line's open. Afternoon. Just in regards to tariffs, I know it's a fluid situation, and the net impact is gonna be at five to seven million in the fourth quarter. But do you think you're based on what you see now, we'll be able to fully offset that in future quarters?

Yeah. Greg, this is Jeff. I'll And then, Andi, if you wanna add anything, please. Yeah. Our belief would be here's the wild card is what happens in April. Right? There's a whole slew of potential tariff changes that seem to be changing a bit by the day. So our power outlook, we carved all that out. It's really difficult for us to estimate right now, but that's gonna look like until we see some of the movement settled down. So based on what we see, this active today, yeah, our belief is that through pricing and other mitigation efforts, we can offset those.

Okay. Great. And then in terms of the revenue guidance, you're coming in with a higher backlog, I think, you said plus seven percent than the order growth seems to be accelerating at least in the first part. So maybe there's.

You know, you're not fully sure how the quarter is gonna shake out, but it seems like.

You know, things are building a little bit of momentum from the softness you saw this quarter. I'm just trying to, like, square away the higher, like, backlog plus the, you know, the improved order growth versus.

The.

The revenue guidance for, like, four percent to five percent growth?

I think what you're seeing there, Greg, is I think you the lumpy nature of the business between Q3 and Q4. I think we're really excited about what we're seeing at the beginning of Q4. However, we're all reading the headlines. We all know what's happening in the world. And I think as we look at Q4, we're trying to be prudent in how we think about how this could all shake out. So I think what you see there is a little bit of our prudence on how we're guiding right now for the quarter. I think we're very optimistic about what we're seeing in the momentum. I think given some of the choppiness in this last quarter.

What we're hoping for is some.

Stability. And I think that will be welcome.

Okay. Yeah. May may.

Oh, sorry. Go ahead.

Okay. Yep. So just maybe digging into, like, what you saw this quarter. In the North American contract segments. In the last couple of quarters, you talked more positively, I think, about some of the pipeline metrics, the pipeline activity. That seemed to be a little bit more mixed this quarter. So can you just talk about maybe what you saw there, how it maybe changed this quarter, and if you're seeing any improvement in those pipeline activity metrics that you've talked about in the past, like mock-ups or anything like that.

Yeah. I think those metrics are still strong. I think it's a little bit more of a mixed bag, but we're not seeing massive changes. I'll let John. I'll let you go into specifics. There if you want to.

Sure. Thanks, Andi. Yeah. I think from a leading indicators perspective, we still have quite a bit of optimism and momentum. If you look at things like our twelve-month funnel, it's up 7% year over year. We look at awarded projects that haven't ordered yet. That's up 27% year over year. Contract activations where we let pricing for projects is up double digits as well. So I think what you're seeing in and as Jeff alluded to the nice start to Q4, it just takes a little longer for some of these leading indicators to show up in the order rate. And as Andi and Jeff alluded to, it's a little bit choppier perhaps, than we're accustomed to. But certainly, backlog order momentum and leading indicators are all pointing in the right direction.

Alright. Great. Thank you.

Thank you. Our next question comes from the line of Alex Fuhrman from Craig Hallum. The line's open.

Terrific. Thanks for taking my question. Wanted to ask what you're seeing in terms of demand from consumers on their direct-to-consumer side of the business. I think you mentioned that orders to date in March have been up really nicely. Year over year. Is that indicative of demand remaining strong, you know, from your high-end consumer for your consumer brands, or is there maybe something about the timing of promotions that maybe would have influenced that March result.

I think so far, Alex, we're seeing a plus ten so far this quarter for orders, which we're really encouraged about. I think we have a couple of things to unpack in our retail business. Number one is I feel like I say always, we're a very nascent business. We have a lot of opportunity to grow in both locations and assortment. And what you're beginning to see is some of the new assortment and product extensions that Debbie and her team have been putting in place for the last several years are beginning to track. And so we're very positive about the way that will help us kind of outperform the competition. One of the key indicators as well as the locations that we're opening. So we see momentum in that business continuing. Debbie, what would you add?

I'd just add, Alex, that as you know, we shared in the remarks that our North America retail business is up 14% last quarter adjusted for the cyber shift. That business is almost entirely direct to consumer or direct to trade. Whereas our international business is more significantly wholesale. And so where we are able to control all the levers to drive demand, we are outperforming versus our wholesale business where we are dependent on the open to buy third-party retailers. So we're really excited that our new offerings in our assortment with thirty new collections added last quarter. Our new store locations. These things are all off to a great start. And our marketing attribution capabilities are also driving progress. So what's working is repeatable. And as Andi said, we have a lot of market share opportunity. And our total addressable market is growing as we expand our assortment offering.

Okay. That's really helpful. Thank you both.

And our next question comes from the line of Reuben Garner from The Benchmark Company. Line's open. Thank you. Good evening, everybody.

So.

I guess, to start on the changes in the outlook.

For the full year. So I understand the tariffs piece I have a question on that in a second. But the bulk of the cut seems to be outside of that. I'm trying to figure out what exactly has changed from three months ago when you gave that to make that level of adjustment on the earning side. And I understand you didn't necessarily give specific top-line guidance before. At least I don't think you did. So maybe the outlook was much higher. But maybe walk me through the components or the pieces that have changed since you kinda last updated us?

Yeah. Ruben, this is Jeff. You say so maybe I'll confirm to start. We had not provided a top-line guide for the full year. So we had been talking kind of more from a bottom-line perspective. But look, I would just double down on what Andi just highlighted, and that is we really do view our fourth quarter guidance as being a prudent view of the next thirteen weeks given what we see in the news every day. I mean, this has been a wild ride of changes related to trade policy. And as you know, you have followed this space for a long time. Confidence matters, and it matters a lot. In this business. And that's true for both the contract side of our business with business confidence measures, it's also true, of course, in the retail side of our business with consumer. And consumer confidence has taken a real beating here the last four months straight. We're still waiting on the next reading of CEO confidence. But I think, you know, based on that the headlines and all of the work internally that we've been doing to try to keep abreast of the raft of changes that are coming about potential tariffs, and I emphasize potential. You know, every one of our customers is doing the same thing. So we just viewed it as reasonable and appropriate in the current environment to be more cautious, perhaps more so than normal in the outlook. That's really so it really kinda comes down to a top-line story.

Okay. And so I guess that's where so.

It's not actually anything you're seeing in your business that's leading to this level of production? Because, I mean, the bulk of the tariff uncertainty has been in the last sixty days, and it sounds like your orders have accelerated over the last sixty days.

That would be correct. That is true. Absolutely correct. That is true, Ruben. And think again, as I mentioned, I don't wanna overemphasize this because we don't know where this is gonna go. But there's an awful lot of kind of next wave talk about what the impact of tariffs could be. And the wild card question at one level becomes, what and I'm not an expert in this area by the way, so I'm gonna hardly pretend to be one right now, but what happens with retaliatory tariff impacts, and what that means for end market demand? And we certainly are not trying to make a prediction of that. But we're doing the best we can with the outlook. And as I you know, just again, would just say it's probably a bit more cautious than normal, but we felt it was prudent under the circumstances.

And I think given the situation, I think the thing that I think it's important for us to keep outlining here is that our revenue was growing to last year. We are growing even with these circumstances, and I think it's important to note that and not lose sight of that.

Okay. And then on the tariff side, just given how uncertain it is, why take the approach of putting through a I think you said a price increase a list price increase in June just given that some of these tariffs could come and go or already coming and going. Why not use the a surcharge tactic? I know you referenced you could use that, but why not lead with that?

Well, the first thing I would say is you know, the pricing it would be wrong to think that the price increase is squarely aimed as a response to tariffs. It's in part that, but you know, I would point out that even domestic US steel prices have run up since the start of the calendar year. And it has been coincident with this tariff conversation, and that has happened in the past as well. So it's not just the potential cost implications of the tariffs, there are some derivative effects that seem to be having an impact on key input costs like steel. And there are other cost inflationary pressures in the business as well. So we felt like a base price increase was appropriate. And as we mentioned on the call, we will. We're at the ready with surcharges if needed.

Okay. And then one more clarification.

For me. So don't think you give backlog specific to North America. Maybe you will with the new segment in, but I what you you're not seeing any cancellations to date in orders. Is that correct?

No.

Yeah. That's correct. Okay. And I said last one. I'm gonna sneak one more in. Actually, the sorry. On the restructuring side, I feel like we didn't really hit necessarily what the goals are or the purpose of that. I understand there's some charges and workforce realignments, but sounds like you're also adding in retail. You talked about investments last quarter in North America. Where are these cost reductions aimed? And I guess what are the ultimate savings that come from the one-time expenses?

Ruben. So I'll just directly answer the question. We had $4 million. As I mentioned in the prepared comments, $4 million of restructuring-related charges. They were principally related to workforce reduction. We expect annualized savings from that on the order of $4 million. It's between $4 and $4.5 is our best estimate. And look, this was this we have a long track record of when we sense that there's potential for uncertainty in the business and we're feeling the effects of that, on our cost structure and on our leverage. Look, we we'll take action. And so we view that as, again, with a prudent outlook, we felt like it was appropriate to manage costs, and you know, it was some a set of painful decisions, but certainly what we felt were right for the business. I don't know, Andi, if you wanna add any other comments.

And I think it also enables us this is just good hygiene. You're always looking at these things. Right? As you look at your outlook and with the uncertainty out there, I think we want it to be again, prudent. And also, to make sure that we are able to continue to invest in our growth strategies like retail. Like growth in international, so continuing to invest in research and development around new products, so those are things we're really protecting here.

Got it. Thank you guys, and good luck.

Thank you. There are no further questions. We turn the floor back to President and CEO, Andi Owen, for any closing remarks. Thanks again to everyone for joining us on.

Call, and we appreciate your continued support at MillerKnoll, Inc. And we look forward to updating you on our next quarterly call. Have a good night.

The meeting has now concluded. Thank you all for joining. Have a pleasant day.