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

Good evening and welcome to our third quarter fiscal 2026 conference call. On with me are Andi Owen, Chief Executive Officer, and Kevin Veltman, 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 February 28, 2026 after market close today, and it is available on our Investor Relations website at investors.millerknoll.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 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 will turn the call over to Andi.

Thanks, Wendy. Good evening, everyone, and thank you for joining us. I want to begin our call by expressing my appreciation to our 10,000 associates across the globe for their hard work in delivering our third quarter results. Our team's dedication and focus on our strategy to drive long-term value delivered another solid quarter with continued sales and order growth and disciplined execution. Despite ongoing macroeconomic and geopolitical uncertainty, as well as the impact of severe weather during the quarter, we were able to deliver quarterly results within our expectations and we continue to be optimistic about the impact that our strategic initiatives can deliver. Before I move to segment-specific highlights from the quarter, I want to congratulate the operations team on the 30th anniversary of MKPS, our MillerKnoll, Inc. performance system used across our manufacturing footprint. We have successfully worked with Toyota for 30 years and remain a model for efficient and reliable production. MKPS is a significant competitive advantage for MillerKnoll, Inc., and enables us to produce all of our products efficiently, at the highest quality. So let's move to the current macro environment. From a tariff perspective, we do not expect the most recent developments to result in any meaningful changes to our approach, and we expect to continue to fully offset tariff costs for the remainder of this fiscal year as we did in the third quarter. Recognizing that things can develop quickly, however, we are very experienced in navigating tariff changes and continue to monitor both policy and rates closely. With respect to the Middle East, this region remains an important long-term growth opportunity for our International Contract business. In the near term, the current conflict is creating disruption, and we do expect some impact to fourth quarter sales and costs. Kevin will provide additional…

Thanks, Andi, and good evening, everyone. I will begin with a summary of our third quarter results and then discuss our outlook. In the third quarter, we generated adjusted earnings per share of $0.43 compared to $0.44 in the same quarter last year. Consolidated net sales for the quarter were $927 million, up 5.8% year over year on a reported basis and 3.8% higher organically. Orders for the quarter grew to $932 million, up 9.2% as reported and 7.2% higher on an organic basis, driven by growth in our North America Contract and Global Retail segments. Our consolidated backlog was $712 million at quarter end, up 3.7% from a year ago. Third quarter consolidated gross margin increased 20 basis points to 38.1%, driven by gross margin strength in our North America Contract segment. Turning to cash flows and the balance sheet, we generated $61 million in cash flow from operations in the quarter and reduced our debt by $41 million, lowering our debt to EBITDA ratio to 2.75x as defined by our lending agreement. This moved us meaningfully towards our mid-term goal of a net debt to EBITDA ratio in the range of 2.0x to 2.5x. We also finished the third quarter with $594 million in liquidity. In January, our Board of Directors declared a quarterly cash dividend of $0.1875 per share. The dividend is payable on April 15 to shareholders of record on 02/28/2026. At an annual indicated dividend of $0.75 per share, the yield is 3.9% based on yesterday's closing stock price. Our capital allocation priorities continue to balance our investments in growth with improving our debt to EBITDA ratio, retaining our commitment to our dividend, and maintaining a strong balance sheet. With that, I will move to the third quarter performance by segment. Net sales in the…

We will now begin the Q&A session. If you would like to ask a question at this time, please press star one on your telephone keypad. Your first question comes from Doug Lane from Water Tower Research. Your line is live.

Yes. Hi. Good evening, everybody. Just want to clarify or maybe you could put some color on how the snowstorms and ice storms and all that weather we had earlier in the year impacted your business. Maybe, you know, do they the Contract versus the Retail?

Yes, Doug. Let me give you a kind of a high level. This is Andi, by the way. We definitely saw lower traffic than normal across our retail stores. We had quite a few closures during that frigid weather period. We had several plants that were also closed during that frigid weather period. So for us, we would say that the impact ranged. Kevin, you would probably give us—

Yes, when we look at relative to our guidance, obviously it did not incorporate the severe weather. Most of it was in our Retail business, which was when we look at where our miss was to guide on the top line, a little under half of it was related to our North America Retail business.

And I would say just from a Contract perspective, when you look at order patterns in the quarter, we certainly saw a slowdown in showroom visits and visits to kind of our corporate headquarters during that month of January. So the order patterns reflected that weather trend a little bit, but primarily in Retail is where we saw the biggest impact.

Okay. That makes sense. Just and then you know, I get that it is a volatile situation in the Middle East, and I can see the demand being impacted. That is pretty obvious. But I am wondering throughout the P&L, where else are you seeing potential cost pressures? Have you seen any movement on plastics or aluminum or some of these, you know, commodities that go through that part of the world? Has it begun to be impacted yet? I know it can take a while to work through your inventories. But what are you seeing? And what are you doing about the potential for elevated costs coming through?

Yes. You know, we are looking at a variety of things, Doug. Obviously, you know, we have not seen much except for increases in diesel and things that are really impacting oil-related fuel so far. But we anticipate we will see increases in the cost of plastics, foam, all the things where you see petroleum-related products. We have not seen it yet. This was a really hard quarter to take a look at because the situation is obviously very chaotic and moving every day. What we have tried to layer into this guide is what we know today, which has higher oil costs and potentially higher logistics cost. Shipping containers, we have really looked at that across all of our businesses, as well as our inability to ship orders we have directly into the Middle East. As we have done in the past with tariffs and the kind of changing environment around tariffs, we will watch the situation closely and we will continue to react as we can with pricing and surcharges if needed as we see other situations continue to develop. But we are looking at it every day and scenario planning as the situation changes. Kevin, what would you add?

You covered it very well.

Are you starting to build inventories just out of precaution, or is it just early to make any of those judgments?

You know, we are looking at—we have dual supply in a variety of places for most of our really important components. We learned that lesson in COVID. So we are looking at that right now. We do not see a lot of areas where we are going to need to take supply or inventory yet. We are being very cautious as we look at that, but so far not yet.

Okay. That is helpful. And just one last thing, if you could, you know, characterize the office environment. I mean, the tone has been fairly positive from a macro standpoint. And, again, I do not know if you are seeing anything shift here with all the geopolitics or you just see the underlying business continuing to firm as it has for the past several quarters?

You know, as it always is, Doug, it is a different story depending on what region of the world you are in. I have been on a plane a lot in the last couple of months. I would say in North America, and certainly John Michael can add color to this, we continue to see momentum. We continue to see architectural billings moving in the right direction. We continue to see lots of customer visits and demand and orders, and we are very pleased about that. I would say when you step out of the US, it really varies by region. I think we are seeing a little bit of price sensitivity. We are seeing a little bit of different reaction in different parts of the world. We are not seeing major pullbacks anywhere, but I think in places that are touched more closely, whether it is the conflict in Ukraine or whether the latest in the Middle East, we are certainly seeing a little bit more caution, but not necessarily reflected in order trends that have changed.

Okay. Fair enough. Thanks, Andi.

Thank you.

Your next question comes from the line of Philip Bley from William Blair. Your line is live.

Good evening. This is Olivia Whittie on for Philip. So can you talk a little bit about the volatility, if any, that you have seen from the recent oil market volatility and rising gas prices? Do you have any concerns that the uncertainty could cause a bigger pullback or deferral in the Contract business that could be prolonged? And then what kind of impact does the market fall have on your traffic or conversion in the Retail segment?

Okay. Those are great questions. I would say from a Contract perspective, like I was telling Doug, I think we have built in some caution around oil prices and how that might impact trucking expense and diesel certainly in shipping containers, Olivia. So we are looking at that for the Contract business. We will continue to monitor component costs and costs that go into the products that we make. We have not seen any movement yet, but we anticipate we will if this is prolonged. And then from a Retail standpoint, you know, whenever you have a consumer that has seen prices rise, that could potentially see inflation go up, and also is paying more at the gas pump, we watch that carefully. So far we have a consumer that tends to be premium and tends to be rather unaffected by many of these changes. So we have a resilient consumer that continues to come back and continues to buy from us, but we are still making sure that we are balancing our price and our demand, and so that we are not beginning to kind of out-price the demand levers that we have in the business. Debbie, would you add anything from a Retail perspective or John in Contract?

I would just add in Retail that I think we are well poised to continue to navigate macroeconomic conditions that are unfavorable as we have been. And we are well poised to do that because we have demand levers and initiatives that we are deploying such as assortment growth, which drove the majority of our comp demand growth in the quarter, such as our new stores and our e-commerce acceleration and our marketing funnel mix investments. So we continue to be optimistic that we can bend macroeconomic trend curve.

I would say from a Contract perspective, customers have become accustomed to the uncertainty and the geopolitical risk. So whereas maybe uncertainty a couple years ago would have—they would have put the brakes on—they are proceeding cautiously. So it maybe is slowing down timelines a bit, but activity still seems to be pretty robust.

Okay. Great. Thank you for all that detail. And then in the Contract business, I know government is not a huge contributor, but still a chunk of the North America business. So could you talk about recent trends here and how the partial shutdown could potentially impact spend there?

Yes. John, you want to take that one?

We came into this year expecting that the federal government business would be rather tough and would be down a bit year over year. I think we still saw there were sort of a number of agencies that still had a lot of activity. I think once the war started in Iran, we saw that sort of slow down because a lot of the agencies that were getting funded were now involved in supporting that conflict. So I think it has had an impact. On the other hand, there are a number of projects coming out of the ground for the federal government—buildings that are going to need to be filled with furniture. So it will be rather choppy with federal government for the next several months probably, but there is still activity there.

Okay. I see. Thank you. That is helpful.

Thanks, Olivia. Your next question comes from the line of Reuben Garner from The Benchmark Company. Your line is live.

Hi, Reuben. Evening, guys.

Hello.

Maybe to start, just a clarification. Kevin, the $8 million to $9 million, or $0.09 to $0.10 of earnings drag, is there something specific about the fourth quarter or how quickly this evolved that is kind of making the earnings impact a little bigger in the near term? Or is this more—if it drags out, is that kind of $0.10 a quarter the right way to think about it on an ongoing basis?

The sales that we do not expect to be able to ship in the quarter is pretty close to what our run rate has been, that $12 million that I mentioned. The cost side, that is the piece where initially you are seeing it in diesel prices and things of that nature. But some other elements of cost, if this becomes a prolonged situation, would not have fully flowed through yet, right? Think container rates or foam, resin-type costs. So not a huge impact to that. Mostly, it is logistics-related things that are reflected in what we see as the fourth quarter exposure.

But I would say just like tariffs, Reuben, when these things come up quickly, it is harder for us to cover them in the immediate quarter. We just—by the nature of the Contract business—we are not able to get that pull-through. So you will see it sort of gradually come through as we see what happens with cost.

Which gives us time to think about the different levers that we have as well.

Great. And is this—know, is this an opportunity to use surcharges in a way given the abrupt nature of it and how it could very well be temporary, or do you not see a path to use that mechanism this go round?

It is a tool we have in the toolbox, and it is definitely one we will consider. But there are a number of other levers that we could look at as well. And as you know, our two segments operate on a little different cadence from a pricing perspective. So Retail is one where we can react without needing to think about surcharges.

Got it. And then a lot of discussion in the market about AI and its implications on various industries. I think office furniture is one that has been topical of late. Just curious. I know you guys have had some insights in the past, you know, from your own board even, how you are thinking about that. What are you seeing today from your technology clients from an order perspective? Are they building out their offices in a bigger way? Any insights into kind of sector-specific growth within Contract would be helpful. Hi, Reuben. It is John.

Yes. The tech sector is very active right now, particularly in the Bay Area. As you might imagine, we have seen this significant uptick in activity in that area. And I think, you know, the other sort of tech-focused areas around the country, whether that be Austin or other areas like that, the activity is really robust.

And I think, Reuben, just like any other sort of technological step change, we are seeing, you know, some organizations that are talking about laying off certain types of employees and others that are adding on just as many of other types of skill sets. So we are really seeing it kind of balance out as AI impacts different parts of the economy and of businesses. But so far, we are seeing quite a robust tech business.

Reuben, one other item I would call out is we just look at some of the different sectors in the third quarter. General business services and insurance and financial are big categories of activity, and both of those were showing nice activity in the quarter.

Great. Very helpful. And then last one for me. I do not know if you gave it. If I missed it, I apologize. But quarter-to-date order growth rate for Retail and North American Contract? Do you have those numbers, or did you already share them?

Yes. So let me unpack that with you. And you will recall this from discussions last year in the fourth quarter. At this time last year, we were starting to see some of the order pull-ahead related to the tariff surcharges and price increases we were putting in place. And so our comps are a little bit tricky early in the quarter. If you look at International and Retail, which did not have the surcharge scenario pushing through, those are both up here through the first few weeks of the quarter. NAC is down, but if you adjust for the estimate of the pull-ahead impact, it is more flattish. And so if you take that noise out, around 2% year-over-year growth at this point, with some normalization.

Great. Thank you, guys, for the color, and good luck going forward.

Thanks, Reuben. Your final question comes from the line of Greg Burns from Sidoti & Company. Your line is live.

I just wanted to clarify the $12 million shipped to the Middle East, was that what you are going to be able to ship or what you are not going to be able to ship?

It is what we anticipate we will not be able to ship.

Not be able. Okay. Perfect. Okay. And then in the Retail business, I know we are not into fiscal 2027 yet, but would you expect the pace of store openings to remain about the same next year, or do you expect to continue at the current pace and would that mean that the incremental cost per quarter will kind of remain the same into next year?

Yes. We are expecting next year's store openings to be in a similar zone to the 14 to 15 this year, maybe a touch higher based on our plans. And so I think that would be a good modeling assumption to assume you continue to have somewhat similar year-over-year OpEx growth, that kind of $3.5 million to $4.5 million that we had mentioned.

Okay. And then in terms of product assortment, could you just talk about maybe some of where you are adding to your product portfolio and maybe what areas are still opportunities for you to round out?

Yes. Debbie, I will let you take that one and give some specifics.

Absolutely. So from a Retail perspective, we continue to grow what we call the lifestyle category, which is really our residential home furnishings. We have made significant progress in areas of upholstery, bedroom, storage, but we still have a lot more latitude in those areas. We are also continuing to invest in our gaming portfolio, which is continuing to show major traction. All of our categories were positive to last year, but the biggest opportunity areas continue to be rounding out the home furnishings areas of the home.

Okay. And why was the Retail gross margin down?

Our gross margin was impacted versus last year by a couple of things, predominantly that we had a favorable freight true-up last year of just over a couple of million dollars, and then we had some incremental ship and revenue costs in Q3 as we pushed into some free shipping promos to try and adjust the trends during the time that we had weather impact. So those are the largest areas, but we also had a little bit of FX impact and variable incentive impacts at the OI line as well.

Alright. Great. Thank you.

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

Thanks, everyone, for joining us on the call tonight.

We really appreciate your support, and we look forward to updating you again next quarter. Have a nice day.

This concludes today's meeting. You may now disconnect.