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

Good evening, and welcome to our fourth quarter fiscal 2025 conference call. On with me are Andy 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 May 31, 2025, after market closed today, and it is available on our Investor Relations website at millerknoll.com. A replay of this call will be available on our website within 24 hours. Before I turn the call over to Andy, please remember our safe harbor disclosure 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 that 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 these statements. We also refer to certain non-GAAP financial metrics, and our press release includes the relevant non-GAAP reconciliations. With that, I'll turn the call over to Andy.

Thanks, Wendy. Good evening, everyone, and thank you so much for joining us tonight. We are very pleased with our strong finish to fiscal 2025, with our Q4 results significantly exceeding our expectations. Jeff will share the details of our financial performance with you, but I want to briefly recap a few highlights from the past year that underscore our design leadership, speak to our opportunities ahead and then discuss what we are currently seeing in our markets. First, I want to thank our teams across MillerKnoll for our accomplishments over the past year. In our contract businesses, we made incredible progress, and we have multiple opportunities to grow our market share both in North America and internationally. We opened new flagship locations in London and New York that include both contract showrooms and retail stores and have meaningfully elevated how we present the collective strength of our brands and products to customers. With these new locations, we've improved the quality of our customer interactions and have seen a significant increase in customer visits, positioning us to capitalize on our product and brand leadership as trends improve in our markets. We've spent the past year reimagining what our newest flagship in Chicago's Fulton market could be. We debuted this new comprehensive design center earlier this month at Design Days 2025, a marquee event for the contract furniture industry. With 2 buildings at 1100 and 1144 West Fulton, we brought our collective closer together, making it easier for customers to see what's possible in spaces that reflect the ways people work, gather, heal and create. Our new space highlights the unique strengths of the Herman Miller and Knoll brands, while also featuring our Herman Miller floor and MillerKnoll floor designed to showcase the power of our combined portfolio and real-world solutions…

Thanks, Andy, and good evening, everyone. I'll start with an overview of our performance in the fourth quarter and some full year highlights, followed by our outlook and targets for the first quarter, including our most up-to-date view on tariffs. In the fourth quarter, we generated adjusted earnings of $0.60 per share, significantly outperforming the midpoint of our guidance, driven by better-than-expected sales and strong gross margin performance that benefited from leverage on our sales growth. Consolidated net sales in the fourth quarter were $962 million, well above the midpoint of our guidance. Relative to the same quarter last year, net sales were up 8.2% on a reported basis and up 7.8% organically, driven by relative strength in all segments of the business. In North America Contract, we saw both strong orders and sales, which was partially enhanced by pull-forward activity ahead of our recently announced tariff surcharge and list price increase. New orders at the consolidated level in the fourth quarter were $1.04 billion, up 11.1% as reported and 10.7% higher on an organic basis. Our consolidated backlog increased by $78 million to $761 million from improved demand in the quarter. We were very pleased with our consolidated gross margin of 39.2% in the fourth quarter. While down slightly to last year, gross margin was up 130 basis points sequentially. Gross margin included a drag of approximately $7 million from tariff-related impacts to cost of goods sold, an amount right in line with the estimate we provided in our fourth quarter earnings guidance back in March. Given the volume of orders pulled forward ahead of our price surcharge and the normal time it takes to begin benefiting from list price changes in our contract businesses, we expect margins to be negatively impacted in the near term by tariffs currently…

[Operator Instructions] And our first question comes from the line of Greg Burns with Sidoti & Company.

So I just want to kind of dig into the pull-forward effect from the pricing actions you've taken, obviously, strong order growth this quarter. Can you just give us maybe a little bit of insight into what you've seen in the early part of the current quarter? Has that slowed down? And are orders going to -- do you expect orders, I guess, to be down year-over-year because of the pull forward? How has that dynamic played out since the quarter ended?

Yes, Greg, this is Jeff. So we're 3 weeks -- we've got 3 weeks of data. And as we would fully expect, we're down mid-single digits in order entry in total at the consolidated level year-over-year during that period of time, which is in no way a surprise given the level of pull forward that we saw in the fourth quarter. So it's -- it lines right up with our expectations. Time will tell. As we progress through the quarter, our expectation is that we're going to resume growth, but we'll see where it goes.

Okay. And then in terms of the retail store openings, can you just talk about your confidence level in such, I guess, aggressive expansion this year or accelerating the expansion of the retail footprint this year given kind of the softer demand environment that we're currently in? And then could you just talk about how long it takes a store to fully mature and start to absorb some of those incremental upfront costs? And then lastly, I guess, just what are your expectations for the margin profile of the retail business in the near term, given all the store openings that you project?

You may have to repeat that 3-part question, maybe, as we lean into it. So first, let me talk a little bit about the confidence in the retail business. It takes time to land real estate and open stores. So as we pace these 10 to 15 stores over the next 12 to 18 months, we anticipate that we will start to see a little bit better housing market, and we'll start to see things calm down a little bit. So we have great confidence in that. But more importantly, we believe that our retail prospect in our stores, both the DWR brand and the Herman Miller brand lean into white space in the market that we do not see. So right now, we are very under-stored compared to our competitors. We are under-assorted. And if you compare us to many of the folks out there in the residential home furnishings market, we're filling a need. So that gives us great confidence to open and expand. And I would say we are not moving any more quickly than we think is prudent, and we're certainly getting the best real estate as we do this. So we feel confident in how we're expanding. Debbie, what would you add? I think there was a question on margin profile.

Yes, we've shared that our long-term goal is to be in the mid-teens from an operating income performance for the segment and our growth strategy models us towards that over the next few years. And I think if you look at where some of our competitors were when they were at the fleet size that we have today, our operating income today is in line with where they were when they were at the fleet size that we have now. So we're confident in modeling much because we're conservative and the expectation to have from these stores on the basis of current market conditions. So if market conditions improve, then we have instant upside to that strategy.

And I think he also mentioned about store, time to maturity.

So the time to mature -- in our current FY '26 planning, the new store possessions become less of a drag in the back half of this year. So right now, we're carrying -- in Q1, we'll carry 7 possessions that we don't have open yet. So the time to maturity on -- well, the time from possession to opening on a Herman Miller is only about 2 to 4 months, and it's about 3 to 6 months on a DWR. And then the stores become profitable within the first year, faster for Herman Miller just because it's a smaller footprint.

Okay. Great. And then just to clarify, I appreciate kind of the long-term model on where you see the operating margins heading. But should we just expect kind of margins to be around that 5% level, I guess, in the near term until these stores mature and then you start to see leverage like for the next couple of quarters? Should our expectation be that, that models -- that margins stay at these current levels?

Yes. I would hold there as you look at the shares and investment, Greg. And just from a cautious standpoint, I think, certainly in year 2 and 3, we'll see that start to pump up. But right now, that feels like a safe place to bet.

Our next question comes from the line of Reuben Garner with Benchmark Company.

Jeff, can you clarify, did you say that you guys estimated that North American pull forward was in the range of $55 million to $60 million in the quarter. Is that right?

Yes, that's accurate. Well, and Reuben, just to clarify, that's North America, but that's our estimate for the consolidated enterprise as well because we just -- there was no meaningful pull ahead at all that we estimate in the international side of the business. So yes.

Okay. And is there any way to gauge like what period that was actually pulled forward from? In other words, like was that all pulled out of the month of June? Was it pulled from things that were in the pipeline for the rest of the year? And then in the past, you guys have kind of given us some of your internal metrics like the 12-month funnel and otherwise, how have those trended? I know last quarter was a little bit more mixed, but are those still tracking positively?

Yes. Go ahead, John.

Sure. Reuben, it's John. From a -- in terms of where the orders are going to fall when they start to ship, significant amount in Q1 and Q2 and obviously, a lesser amount in the back half of the year. You might recall in the last couple of quarterly calls, we pointed at a funnel called awarded, not ordered yet. And so those were things where customers were just hesitating for whatever reason. And I think the pricing actions sort of provided some motivation to sort of get off the fence and get the orders placed. From a leading indicators perspective, looking at the funnel, I think if you look at funnel additions, still very strong. Pricing requests were up over 35% year-over-year. Contract activations were actually up over 50% year-over-year, that's from the time we let pricing to the time we actually see an order. Mark-up activity was still very robust. So I think, overall, all the leading indicators still continue to point in the right direction.

And does anything jump out whether it's geographically or in terms of end markets within the North American Contract channel that stand out in the quarter or size of customers, size of projects, or anything like that?

Yes, we're still seeing a lot of strength in the key verticals that we're focused on, those being public sector and health care. In terms of order or project size, we've seen growth in the $1 million to $5 million category. And really across all the different vertical segments, pretty strong growth. The only one that's down slightly is banking, but that's off of a very significant comp from -- against last year.

Yes, Reuben, this is Jeff. If I can just -- sorry, I just want to jump in and add one more bit of color on the pull ahead. We still have -- if you normalize for that pull ahead, there was still mid-single-digit order growth in the Americas Contract segment for the quarter. So I wouldn't want you to walk away and assume that all the pull ahead, if you normalize for it, creates a negative story. We still felt really good about the underlying demand indicators.

Great. And then next question is on the profitability. So what you're suggesting is because of the pull forward, you're facing the tariffs, but you don't have the surcharge to offset it. How long? Is that just a 1 quarter dynamic? Or does that kind of lead into Q2 and Q3 as well when these orders are ultimately shipped?

Reuben, that's typically a 2-quarter dynamic for us. So we imagine it will be the biggest impact in Q1. It'll lessen a bit in Q2, and then we should see pretty healthy coverage in Q3 and Q4. Jeff, would you add to that?

Yes, I think that's right. And I think it's important to note that the issue with pull ahead, the nature of pulled is that customers are trying to get their order in, in front of the effectivity of these price changes, be it a surcharge or a list price increase. So what you have is we grew backlog $78 million in the quarter. A large portion of that backlog, the large majority of that backlog was pre-pricing. So that's part of the reason why as we go through Q1 and Q2, we're going to see the sales book not have the full benefit of pricing because of that pull ahead. And that's not an unusual dynamic in this business.

Okay. And then if I could sneak one more in on the balance sheet and cash flow, starting a new fiscal year, Jeff, any thoughts on the puts and takes of what might impact free cash flow this year and/or kind of targeted leverage levels by the end of the year?

Yes. I think what I'll say is, in my prepared comments, I highlighted the fact that we were -- we leaned into share buybacks in fiscal 2025. We have -- we've made a real conscious effort to turn our attention to 2 primary areas, and part of which is informing a higher CapEx estimate, and that is the build-out of these stores that we've talked about, but also a focus on paying down debt. We were opportunistic with the share buybacks, but we also acknowledge the need to manage that debt level down, particularly in an environment like this where you have geopolitical uncertainty and so forth. So we think that, that's the prudent approach. And so those are going to be the fundamental areas we're going to focus on.

Next question comes from the line of Brian Gordon with Water Tower Research.

First, I just kind of wanted to dig in a little bit on what you saw in the sales and order growth for North American Contract. I'm trying to get a handle on how much of that pretty robust growth was kind of more transactional or shovel-ready projects and how much of it was genuine pull forward of larger projects?

Brian, this is John. I would say that most of it -- much of it obviously had been in the funnel for a period of time. So you would consider that more project-oriented business. Did we pick up some day-to-day business as a result of the pricing actions? I'm sure we did. But the vast majority of it came from project opportunities.

Okay. And my next question maybe is best for Debbie. I was kind of wondering, did you see any indications of like significant demand pull forward on the retail side? And then kind of maybe as a quick follow-up to that, has the environment been getting more promotional from your standpoint?

Thanks for the question. So maybe I'll just start by saying we're really happy with the quarter because across all of our retail brands, channels and regions, we saw growth versus last year with pricing increasing offsetting incremental discounting where that did exist. And no real pull forward to speak of outside of a small amount in our Holly Hunt business, where we do have a surcharge that was implemented in the quarter.

There are no further questions. We turn the floor back to President and CEO, Andy Owen for any closing remarks.

Great. Thank you all so much for your support at MillerKnoll, and we look forward to updating you again next quarter. Have a good night.

Ladies and gentlemen, this concludes today's conference call. Thank you all for joining, and you may now disconnect.