Good evening, and welcome to MillerKnoll, Inc.'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 first quarter fiscal 2026 conference call. On with me are Andi Owen, Chief Executive Officer, and Kevin Veltman, Interim Chief Financial Officer. Joining them for the Q&A session are Jeff Stutz, Chief Operating Officer, John Michael, President of North America Contract, and Debbie Propst, President of Global Retail. We issued our earnings press release for the quarter ended August 30, 2025, after market closed today. It is available on our Investor Relations website at millernoll.com. A replay of this call will be available on our website within 24 hours. Before I turn the call over to Andi, 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 which may cause the 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 Andi.

Thanks, Wendy. Good evening, everyone, and thank you for joining us tonight. We are very pleased with our strong start to fiscal 2026. Our Q1 results significantly exceeded our expectations. Before we get into the financial details, I'd like to recap a few highlights from the quarter including leadership names, progress on our strategic initiatives, and an update on what we're seeing in our markets. First, I want to touch on our recently announced board chair succession plans and leadership changes. I'd like to thank Mike Volkema, our outgoing board chair, for his dedication and leadership for the past 25 years, and to congratulate John Hoke as he prepares to succeed Mike as board chair. John has served on our board since February 2005, and I'm looking forward to working closely with him in his new role. We have a strong bench of talent at MillerKnoll, and I'm thrilled to congratulate Jeff Stutz on his well-deserved promotion to Chief Operating Officer. Jeff has impacted nearly every corner of our business during his 25 years with the company, including as Chief Financial Officer for the past ten years. As Chief Operating Officer, Jeff is responsible now for our international contract business, our Europe-based brands, and our global manufacturing and distribution. This evening, Kevin Veltman is joining us as interim CFO. Many of you know Kevin from his prior roles with MillerKnoll over the past ten years, serving in a variety of leadership positions, including investor relations, and as the integration lead for the Knoll acquisition. When we spent last quarter, I set out our priorities for this fiscal year. We are focusing on accelerated product creation and innovation, consistent execution, and prudent cost management while investing for profitable growth across our businesses. In the four years since we combined the strengths…

Thanks, Andi, and good evening, everyone. I'll start with an overview of our first quarter performance followed by our outlook for the second quarter. In the first quarter, we generated adjusted earnings of $0.45 per share, significantly outperforming the midpoint of our guidance and 25% ahead of prior year, driven by better than expected sales and strong gross margin performance that benefited from leverage on our sales growth. Consolidated net sales in the first quarter were $956 million, above the midpoint of our guide. Versus prior year, net sales were up 10.9% on a reported basis and up 10% organically, driven by strength in all segments of the business. New orders at the consolidated level in the first quarter were $885 million, down 5.4% as reported and 6.2% lower on an organic basis. As a reminder, we expected lower orders in the first quarter due to the $55 million to $60 million in pull forward activity we saw in the fourth quarter in our North America contract business, related to our pre-announced tariff surcharge and list price increase. I will touch more on this later in the call. In keeping with this same dynamic, our consolidated backlog by $67 million to $691 million. First quarter consolidated gross margin was 38.5%. Gross margin included approximately $8 million in net tariff-related impacts. As mentioned last quarter, we expect margins to be negatively impacted through the first half of our fiscal year by tariffs currently in place but remain confident our pricing actions will ease these in the second half of the fiscal year. Turning to cash flows in the balance sheet. We generated $9 million in cash flow from operations in the first quarter, and ended the quarter with $481 million in liquidity. In August, we refinanced our term loan B to…

We will now open the floor for questions. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. Our first question comes from the line of Reuben Garner with Benchmark Company. Reuben, please go ahead.

Thank you. Good evening, guys, and congrats to Jeff and Kevin.

Hey, Reuben. How are you? Good. Thanks.

Doing well. So I guess to start off in The Americas, I guess if I try to normalize for the pull forward, you've kinda been consistently growing in the low to mid single digits the last I think, three or four orders for both revenue and orders. Okay. I guess, one, do I have that right? Okay. And two, can you break down what that looks like from a volume and a pricing standpoint? Is that evolving, I guess, in the more recent quarters, is it more volume driven than price? And then how do you feel about that trend in the last four quarters? And based on what you're seeing here, of late, I don't know if things have, you know, strengthened or weakened throughout the quarter. But how do you feel on a go forward about those numbers?

So, Reuben, I could unpack your question. Maybe to start, you're thinking about it as the right way looking for NAC at the combination over the two quarters between Q4 and Q1. And if you normalize for NAC, it's itself on a trailing two-quarter basis, it's averaged out to 3.3% growth over that period of time. Your other question was related to price versus volume, and volume was a key driver for us. We expected with the pull forward, we might see some lighter demand in the quarter, and underlying demand was more positive during the quarter. We also had a surcharge adjustment during the quarter in July that customers also responded to by placing some orders. And so we had fairly strong orders in July. And given our lead times, we were able to ship some of that activity as well. The last point I would make as we look at external demand indicators right now is we mentioned in the prepared remarks, the funnel that's looking positive year over year, additions to the funnel, mock-ups were all looking positive. And then early in the quarter, we often comment our orders are up about 6% on a consolidated basis in the first three weeks of the quarter as well.

Yeah, Reuben, you'll recall from the last call, thank you, Kevin, we talked a little bit about the makeup of the funnel and international contract as well as North America contract. And what we've seen is a consistent change from orders that are four and five quarters out to orders that are one to three quarters out. Those orders have more certainty, they drive more revenue close in, so that is also a good sign that continues to bode well for consistent growth in North America contract. And would also add that you look at kind of the pull ahead that we talked to you about in Q4 and what's happening in Q1 and what we expect for Q2 is unfolding exactly as we thought it would. We feel good about the results. We feel good about what we're seeing in the trend, especially in North America. Would you add anything, John?

No. I think that's spot on, Andi.

Well, how about any discounting? I understand that the surcharges and tariff pricing, but has there been any increase in discounting necessary to win projects or has that been pretty stable?

You know, that's been pretty stable for us, Reuben. We haven't seen increased discounting at this stage. We feel good about that trend holding steady.

Okay. And then my last question is on retail profitability. In the press release, you listed a few sources of what appear to be near-term pressures. Can you break down the freight, new store expenses, and there was one other bucket, the tariff-related, those three items, how much in either dollars or basis points did those drag the retail margins on a year-over-year basis? And then how the new store expense in particular, like, how is that gonna play out through the year? Is that something we should expect in each of the next three quarters, and then next year, we'll get relief? Or how do we map that out? Thank you.

Those are all great questions. I'm gonna let Kevin break down the details about a high level, Reuben. The bulk of what you'll see as margin degradation is really new store expenses. So we're being aggressive in opening more new stores than we have before. So you will see in Q1, Q2, and Q3 those expenses will hit our bottom line, but you will also see as we get further into the year the revenue from those new store locations starting to minimize that impact. We imagine that by the end of Q4 and going into Q1 of next year, those stores will start to be accretive to the top line and the bottom line. But this year, these first three quarters, will see a margin impact. And also from a tariff perspective, and Debbie can speak to this in a little bit more detail, we had a little bit of unplanned tariff expense this quarter based on mix and what customers bought and really trying to guess where our tariff expense would be based on how customers actually fill the revenue cart. So that's one of the other factors. What would you add, Kevin?

Yeah. Just to break down and maybe a reminder, Reuben, that Q1 is always our lowest seasonal point in the retail segment. So from an absolute margin, that would be a lower volume quarter for us. And then we build in the other quarters. But of that 190 basis points for the retail margins are lower than last year from an operating margin perspective, as Andi mentioned, the new stores would be more than half of that. And then the impact of tariffs and the freight would kind of split the difference between the remainder.

Can I squeeze one more small follow-up in? Is the new store impact at both the gross margin and operating margin line? Or were there other factors impacting gross margin, whether it's product mix or door or some other driver?

The new store costs are in the operating expense, so they're impacting the operating margins. You'd have those other items up in gross margins.

The only other thing in gross margin was some unfavorable FX impact this quarter versus last year.

Perfect. Thank you, guys, and good luck.

Thanks. You too.

Thanks. And our next question comes from the line of Greg Burns with Sidoti and Company. Greg, please go ahead.

Good afternoon. Just wanted to talk a little bit about the recent consolidation. Does that in any way change the competitive outlook for you in terms of how you go to market? And do you feel like there needs to be maybe further consolidation, or is M&A or acquisitions on the table for you in terms of maybe gaining greater scale in any areas of the business? Thanks.

Listen, I think consolidation for the industry where we are right now is a good thing for all of us. I do think that the industry has shifted to growth mode. So I can't say whether I anticipate further consolidation, but I think it presents opportunity for all of us. So from our perspective, we're excited. We think we're competitively differentiated. We know what integrations will be like, so we are looking forward to the opportunities that it presents for MillerKnoll. And as far as M&A acquisitions, we are always opportunistic in that arena.

Okay. And I know you're focused on the retail business in North America. But can you just maybe talk about the rest of the world? It seems to be lagging kind of the performance that you're delivering in North America. Longer term, maybe what your view is for those markets, how you might be able to bolster them or have them catch up to what you're doing in North America?

Yeah. I think it's a smaller part of our business, but I think just as a reminder, Greg, that the international markets are primarily wholesale, and they have been slower to recover from over-inventory in COVID, but we are seeing them start to rebound. I think it's a little bit of a slower trend. I'll let Debbie elaborate, but I think it is an area that will grow for us and continue to grow slowly, but in the future. Probably not this year. What would you add, Debbie?

I'll just start by saying where we do have DTC internationally, we're pleased with the growth performance we're seeing in those channels, and as Andi suggested, the more challenging areas are wholesale business. Where we're still sort of beholden to the lack of to buy with the dealer or retail network that we sell through. However, we're seeing some green shoots, particularly with our Hay and Mitchell brands, which hit a lower price point within our portfolio and seeing progress this quarter already with our Knoll and Herman Miller brands.

Okay. Thank you.

And our next question comes from the line of Doug Lane with Water Tower Research. Doug? Please go ahead.

Yes. Hi. Good evening, everybody. Thank you. I'm trying to understand how these tariffs have impacted your business because there's a lot of moving parts as a result of all this. Can we start with just in the first quarter, had $8 million of net tariff-related impact? And does that mean there was some mitigation to the tariffs? You did get some pricing or some cost reductions, or is that mostly just the cost of the tariffs at this point?

Yeah. Doug, this is Kevin. Exactly right. The point of the net is to say we've been working on pricing. We put a surcharge in place. We had a price increase in June as well. And the way it works for us is those take a little while to flow through back and through our contracts with customers. So the net impact in the short term is the $8 million that we called out from a pressure perspective. We expect that to be less in Q2, $2 million to $4 million of net impact. And then when we get into the back half of the year, we believe our pricing mitigation actions will be offsetting those costs based on the current tariff environment.

Oh, okay. So well underway to the mitigation efforts. And the disruption to order patterns because of the buy ahead for the tariffs. Sounds like it's pretty much behind us and the way to address that is to sort of look at the fourth quarter and first quarter in aggregate to capture the broader trends. And then beginning in the second quarter, we kind of, I don't want to say back to normal, but back to more normal ordering and sales patterns.

Correct. And that's what we felt like in looking at the order rates in the first three weeks of the quarter. We feel like we're in a more normalized place related to that. The other way we tried to cut through that noise in our prepared remarks was to say sales year to date through Q2, including the midpoint of our guide, are up 3.8% on a consolidated basis. That takes out some of that noise for you.

Right. Right. No. That's very helpful. And then, you know, at the adjusted operating profit line where margins are up in the quarter, I know you don't have a full year number out here. But should we be modeling improvements in the adjusted operating profit margin for this year despite all these cross currents?

Yeah. On that front, we'll hold off on commenting with the uncertainty that's out there in the macro. We're guiding right now on a quarter-to-quarter basis as opposed to still watching visibility, feeling fairly limited out beyond that.

Okay. Fair enough. Thank you.

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

Thanks again, everyone, for joining us on the call. We really appreciate your continued support of MillerKnoll, and we look forward to updating you on our next quarterly call. Good night.

That concludes today's conference call. You may now disconnect.