Andi Owen - President, Chief Executive Officer Jeff Stutz - Chief Financial Officer Greg Bylsma - President of North American & Global Operations Kevin Veltman - Vice President of Investor Relations & Treasurer.

Good evening, and welcome to 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 evening, everyone. Joining me today on our third quarter earnings call are Andi Owen, our President and Chief Executive Officer; Jeff Stutz, our Chief Financial Officer; and Greg Bylsma our President of North American and Global Operations. We have posted today’s press release on our Investor Relations website at hermanmiller.com.

Some of the figures that we’ll cover today are presented on a non-GAAP basis. We’ve reconciled the GAAP to non-GAAP amounts in a supplemental file that can also be accessed on the website. Before we begin our prepared remarks, I will 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..

Good evening, everyone and thank you for joining us. Since we spoke with you last quarter, uncertainty and associated market volatility have clearly accelerated as the coronavirus outbreak has spread across the globe.

With that in mind, I'll begin our remarks today with our perspective on the current environment, followed by an overview of our financial results for the quarter and an update on our strategic progress.

Before I turn it over to Jeff and Kevin for further information on our financial results, Greg Bylsma, who not only leads our North American Contract Business, but also oversees our Global Manufacturing Operation will share more details on how we're managing the coronavirus situation.

Moving to our perspective on the current environment, first and foremost our hearts go out to the individuals and families around the world that have thus far have been directly impacted by the coronavirus. Our top priority right now at Herman Miller is to keep our employees and community safe and healthy, and we're taking every precaution to do so.

As we manage our business through this fluid situation, we are focused on the factors that we can control. We are monitoring our global footprint around the clock and have developed detailed contingency plans.

Given the outbreak began in China and our third quarter results were most impacted in Asia Pacific, let me provide some background on our footprint there. The Asia Pacific region which is served by manufacturing operations in Dongguan, China; Infinity, India, represent approximately 8% of our consolidated sales.

Across the globe 10% to 11% of our goods sold are sourced from China. As the number of new cases in this region of the world decline, our Dongguan manufacturing operations are nearly full capacity and our key suppliers in China are producing and shipping products for all regions of the world.

At the same time, we're proactively leveraging our team's efforts in China and applying that learning to our efforts to mitigate our exposure in North America and Europe. Against this backdrop, the demand picture was mixed during the quarter.

Sales in the period were 8% higher than last year as the consolidation of the HAY and naughtone brands contributed to report growth. On an organic basis, sales were slightly below the same quarter last year.

Our North America and retail businesses delivered modest organic sales growth, while shipments from our China facilities were unfavorably impacted by the broad based government mandated shutdowns following the virus outbreak. Reported order levels this quarter were 6% higher than last year, while 1% lower than last year on an organic basis.

Despite the relative softness we experienced on our top line, our teams did a great job managing costs and we're very encouraged by the overall level of profitability we generated in the quarter. We continue to drive year-over-year growth margin improvement in our business.

Favorable price realization, lower commodity costs and our profitability improvement efforts were the primary drivers of growth margin expansion over last year. As a result, we delivered another quarter of adjusted operating margin expansion, with an increase of 110 basis points over the same quarter last year.

Earnings per share on a GAAP basis were $0.64, while adjusted EPS, which excluded the impact of restructuring and other special charges totaled $0.74 in the quarter. This reflected an increase of 16% over the same quarter last year.

In addition to delivering on our earnings commitment for the quarter, we drove positive momentum toward our strategic priorities. Let me share some of the highlights.

First, on the innovation front, we’ve leveraged our leadership in high performance seating by establishing recent partnerships with e-Sports organization complexity gaming and Logitech, an industry leader in gaming gear.

While these partnerships are in the early days, they represent an opportunity to bring our ergonomic expertise to the e-Sports arena and highlight how our deep margin research can be applied to new audiences and rapidly growing market. Creating digital solutions that are aimed at improving our customer experience is one of our top priorities.

As part of that effort, we made significant progress on our journey to refresh our E-commerce platform. New page designs for DWR.com have been completed as part of our plans to re-launch DWR.com in the first quarter of next year.

We also launched a number of e-commerce improvements on our platforms in North America, including chat and video functionalities to communicate with our customer care team and a next generation financing option which we deployed on Herman Miller.com and HAY.com.

These new designs and functionality upgrades will result in a much improved customer experience, which we believe will translate to higher conversion rate. More broadly across our retail business, as we mentioned last quarter, Debbie Propst joined us in January to lead the business and she is hitting the ground running.

She initially spent a lot of time listening and learning. She and her team are already developing a number of work streams around the areas like brand marketing and merchandising assortment that will drive top and bottom line growth for the retail business.

With her deep background in global retail brand, we're excited to have her on board and expect Debbie to join us on an upcoming call to share more about her progress. I’d also like to call out one highlight from the quarter.

One, of the pillars for accelerating profitable growth in our retail business is joining with leading designers to launch higher margin exclusive designs.

Through our partnership with Ag Collective, a firm led by three award winning female designers, the [inaudible] is already our top selling sofa line since its launch in the second quarter of this year. And finally, I'm pleased to report that our North American profitability improvement initiative continues to deliver benefits to our bottom line.

We finished the quarter at a run rate of $44 million of benefit this quarter, which means exceeded our goal of $20 million to $40 million in savings that we have established when we began this work two years ago.

Our efforts in our pricing analysis and strategic sourcing has been particularly meaningful to this effort and will be leveraging our learning and successes into other parts of our business.

While we remain confident in our plants for sustainable long term growth for Herman Miller, given the rapidly changing environment surrounding coronavirus, we're not following our typical practice of providing quarterly guidance for the upcoming fourth quarter, given the difficulties of estimating near term demand.

Navigating the coronavirus situation will require flexibility, resilience and an ability to balance our long term objectives with the challenges we face today. With that, let me turn the call over to Greg to provide an update on the impact of the coronavirus on our global operations. .

Thanks Andi. I would like to reiterate that our people and their safety and wellness are at the heart of our efforts around coronavirus.

We have a significant number of initiatives in place right now across the organization, with an operation to some of the actions we have taken, include increasing the frequency and scope of our facility cleaning, staggering break periods and an increase in the time between shifts for manufacturing teams and changing the structure of our work to allow for social distancing in work cells.

Additionally, we are providing health guidance to help our employees stay well and understand the symptoms to look for, and if they are not feeling well, encourage them to stay home, removing barriers they may face in making that choice.

As Andi mentioned, we felt the initial impact of the coronavirus situation this past quarter in the Asia Pacific region, driven by government mandated delays returning from the Chinese New Year.

Our factories in the Dongguan region were closed for an additional full week, which caused a delay in shipments, which reduced net sales in the period by an estimated $6 million for the international business segment.

As workers have been returning over the past few weeks, our manufacturing operations and those of our key suppliers in the region are nearing full capacity, and we are working to catch up on missed production. Our manufacturing facility in India has also been able to help meet a portion of the customer demand in the region.

As coronavirus has spread across our global markets, we have put in place contingency plans to ensure we support our customers, maintain a supply of critical product lines and address potential disruption and key suppliers.

As this remains a fast moving situation, we are meeting regularly to assess any new issues within our manufacturing or supply chains, as well to ensure risk mitigation plans are fully implemented. With that background on a response, I’ll now turn the call over to Jeff to cover our financial details from the third quarter. .

Thanks Greg and good evening everyone. Consolidated net sales in the third quarter of $665.7 million were 8% above the same quarter last year on a reported basis and slightly below last year organically. Reporter orders in the period of $652 million were 6% ahead of last year on a reported basis, and 1% below the prior year on an organic basis.

Within our North American contract segment, sales were $413 million in the quarter, representing an increase of 4% from last year on a GAAP basis and an organic improvement of nearly 3%. New orders of $406 million in the quarter were 4% higher than last year on a reported basis and up 2% organically.

Order patterns in this segment reflected growth in larger project sizes, while small to medium project activity was lower. From a sector standpoint we saw order growth in the U. S. Federal Government, healthcare and energy sectors, partially offset by lower demand in financial services.

Our international contract segment reported a 24% increase in sales to $156 million in the third quarter, new orders of $159 million or 26% above the same quarter last year. Reported sales in our orders reflect the impact of our recent step acquisitions of HAY and naughtone.

Collectively the consolidation of these entities contributed approximately $50 million of net sales to our results in the quarter. On an organic basis, which excludes the impact of these acquisitions, net sales in order in the international segment decreased 10% and 7% respectively from the third quarter of last year.

The unfavorable impact from the mandated factory shut down at our facilities in Dongguan, China reduced the international growth rate by approximately 5 percentage points in the quarter. In addition to this pressure, the international business faced particularly challenging sales growth comparisons for the quarter.

In the same quarter last year, this segment of the business posted organic order growth of 24%. On a two year basis, organic sales growth has averaged 8.5%. Given the difficult comparison, organic order declines were fairly broad based, except for higher order levels in Japan and Mainland Europe during the period.

Our retail business segment reported sales in the quarter of $96 million, which were flat compared to the same quarter last year. New orders for the period of $86 million were down 9% on a year-over-year basis.

It's important to clarify that this comparison to last year was significantly impacted by a timing difference in our retail promotion calendar, specifically the timing of our Herman Miller product sale was shifted this year and as a result, our third quarter included six fewer days that it did a year ago.

Normalizing for this timing difference, we estimate order this quarter would have been approximately 1% lower than the same quarter last year. Consolidated gross margin in the quarter was 36.5% and includes certain adjustments related to the initial purchase accounting of HAY.

Excluding these items, adjusted gross margin of 36.8% was 110 basis points higher than last year. Favorable price realization, lower steel costs and our ongoing profit improvement efforts, all contributed to gross margin expansion. Operating expenses in the third quarter of $189 million compared to $173 million in the same quarter a year ago.

The current quarter included $5 million of special charges primarily related to transaction expenses and purchase accounting adjustments associated with HAY and naughtone. By comparison we recorded special charges totaling $0.5 million in the third quarter of last fiscal year.

Exclusive of these items, the year-over-year increase in operating expenses of $12 million resulted mainly from the impact of consolidating HAY and naughtone. Restructuring charges in the third quarter totaled $3.5 million and related to actions associated with our profit improvement initiatives.

On a GAAP basis we reported operating earnings of $50 million this quarter compared to operating earnings of $48 million in the year ago period.

Excluding restructuring and other special charges, adjusted operating earnings this quarter were $60 million or 9% of sales and by comparison we reported adjusted operating income of $49 million or 7.9% of sales in the third quarter of last year.

The effective tax rate in the third quarter was 22.4% and finally net earnings in the third quarter totaled $38 million or $0.64 per share on a diluted basis compared to $39 million or $0.66 per share in the same quarter last year.

On an adjusted basis earnings per share this quarter total $0.74 compared to an adjusted earnings of $0.64 per share last year. With that, I'll turn the call over to Kevin who will give us an update on our cash flow and balance sheet. .

Thanks Jeff. We ended the quarter with total cash and cash equivalents of $111 million, which was $66 million lower than the cash-on-hand last quarter, primarily related to the $79 million investment in HAY at the beginning of the quarter.

Cash flows from operations in the third quarter were $49 million, reflecting an increase of 26% over the same quarter of last year. Lower working capital was the key driver of higher operating cash flows, primarily due to decreased inventory and prepaid expense levels. Capital expenditures were $18 million in the quarter.

Cash dividends paid in the quarter were $12 million, while shares repurchased totaled $18 million for the quarter. We remain in compliance with all debt covenants and as of quarter end our gross debt to EBITDA ratio was approximately 0.9:1. The available capacity on our bank credit facility stood at $266 million at the end of the quarter.

Given our current cash balance, ongoing cash flow from operations and total borrowing capacity, we remain well positioned to weather the near term market volatility and meet the financing needs of the business moving forward. With that, I'll turn the call back over to Jeff. .

Okay, thank you Kevin. As Andi mentioned the rapidly changing situation surrounding global mitigation efforts around COVID 19 make it too difficult to estimate the near term impact on our business. As such, we are not following our typical practice of offering sales and earnings guidance for the fourth quarter.

But with that being said, there are a few data points that we can share. To begin, we enter the fourth quarter with a consolidated backlog of $411 million, which is up approximately 3% from last year. As a general rule, our backlog typically represents approximately six weeks of shipments as we head into a new reporting period.

To provide a sense of current activity levels, through the first two weeks of the fourth quarter, our consolidated sales were up approximately 6% from last year, while new orders were down closer to 3%. To-date we have received minimal requests from customers and dealers to adjust the timing of scheduled shipments, both in the U.S.

and abroad, though we would expect this to increase. However, we have not to-date experienced any meaningful order cancellations and would expected to ship the majority of our backlog within the fourth quarter. So with that additional commentary, I'll now turn the call back over to the operator and we'll take your questions. .

Thank you. [Operator Instructions] Our first question comes from Ruben Gardner with The Benchmark Company. Your line is now open. .

Thank you. Good afternoon everybody. .

Hi Rubin. .

So, maybe we can start – it's been awhile since we've had an environment like this.

Can you remind us how to think about detrimental margins, I guess just on the core business before any actions you take if we were to enter a period of softening volume growth?.

Yeah. Ruben, this is Jeff. I'll take stab and I think I’d emphasize this is, I don't know, we've seen an environment like this, but what we do have is a lot of experience dealing with recessionary periods going back in our history. So we do know a thing or two about how to manage our way into a down period.

So based on – let me start with – now you emphasized before actions, that’s key. Our business, we've always said in short bursts, China can lever up and lever down on incremental revenue changes in small time increments somewhere between 20% and 30% in a contribution margin perspective, maybe even a little higher in short bursts of time.

But we've had in the last 20 years two significant downturns, both times taking bold action around cost reduction and we’ve build a cost structure as the business that is naturally, its variable is we can make it. And so that level of de-leveraging is not what we experienced in the last couple of downturns.

So I'll go back to the last recession as probably my best reference point. I'm not suggesting that things are going to play out the exact same way, but it's probably the best reference I can give you. And it’s a general rule, with a 10% movement in revenue we saw operating margins move somewhere between 175 and 200 basis points. So as a general rule.

So if it moves 10%, if it moves 20%, it would be kind of two times that and so on..

Thanks Jeff, that’s very helpful. And then so you've got a lot of profit improvement initiatives going on right now. Are there any risks at this point that you can see that does have to be put off just given this as an environment that we've never dealt with before? I mean, I'm assuming there could be some interruptions.

How are we thinking about the savings that you've anticipated to get this year, you know in an environment when you might have temporary closures. .

You know, I think – Ruben, this is Andi. I think we've built a lot of muscle around optimization efficiencies by going through this process and I would anticipate we would continue to do that. Anything, I think what we've learned in going through this process will help us if we anticipate a downturn and how we prepare for that and what we do best. .

Yeah, and this is Jeff. I think as you look at the individual actions we've taken – and by the way, Greg is with us today on the call and he was front and center on a lot of the work here in North America, so he might add some thoughts too.

The one thing I would say and to be balanced about that is, you know in past downturn what you find when volumes levels drop off, the impact around price discounting has been a factor historically. Now that we certainly have not seen that, we had good margin flow through this last quarter as we have for the entire past 12 months.

So I make no predictions, but that is the one thing, and we've done a lot of work around price increases and so forth, we’ll have to see how that plays out. Greg I don’t know if you would want to add anything. .

Yeah, I would just maybe add on to Andi’s comment about the muscle. While it started out as a project, it turned into the way we work and the way we do things. So I don't necessarily expect to do anything that would say, ‘oh! That’s going to get in front of or in the way of what we’ve been doing profit improvement wise.’.

Got it. And then the last one from me and I hate to harp on it. Just given the environment, how do we think about cash flow, what are the puts and takes and you guys obviously have a strong balance sheet.

How do you think about assuming you continue to generate positive cash flow through this period? How do you think about uses of cash versus building it up on the balance sheet? Thanks guys and congrats on the quarter..

Yeah, thanks Ruben. I'll give you a few thoughts on this. So as you can imagine and I don't know that I’m going to directly get to puts and takes by category. You can imagine right now, we are actively looking at a range of scenarios.

In the early part of our recessionary period historically, we tend to see a fair amount of cash inflow, just given the nature of how our terms are structured in the business. So we do have at least a couple of data points historically to just kind of build that as an expectation.

But in a down period, we’re looking at everything from how do we you know potentially pull back on near term capital spending, but of course balancing the need to fund the strategic investments that we've been talking about for the last year or so, which we think are super important at building some new capabilities that were along ways down the path towards.

So that’s what we're going to try to protect and try to you know tighten our belt where we can. We got lots of scenario modeling that is currently happening and we’ve got a good amount of cash on the balance sheet. And as Kevin mentioned in his prepared remarks, I think it’s worth pointing out.

You know we do have a little over $110 million with the cash-on-hand; we've got lots of borrowing capacity on our line of credit which we upsized a year ago or thereabout the year ago. We've got a fairly low leverage ratio, just under one turn and a net debt position of $164 million.

So we feel as well positioned to go into a challenging period as we probably ever have and as evident to that I’d point, maybe to the last as we enter the credit crisis we had a leverage ratio that was over one – sorry, it was about 1.3 at going into the downturn and we had a significantly underfunded U.S.

pension plan, and we managed our way through that and that leverage ratio never got above three turns.

So you get no one predicting, you’re certainly not going to get a prediction from us as to what this means in the near term, but I think we are well positioned to manage our way through it and protect the critical investments that we need to come out on the other side. .

Thank you. [Operator Instructions] Our next question comes from Greg Burns with Sidoti & Company. Your line is now open..

Yes, I guess what is different this time around in the retail operations. Maybe talk about you know how that business performs through a recession.

In the history of that business, maybe how that impacts given this time around?.

Greg, this is Jeff. You know a little bit difficult to answer. I can give you some perspective. It’s historically based and so I qualify it with that. We can’t say that our retail business, given the price points that our business is focused on, now that’s changed a little bit with HAY, which I think is a good thing.

But given the higher price point that our product tend to be at, in the last downturn we found that that business levered down about half as much as the contract space. So we felt that and at least it proved out then, that it was much less impacted. You know clearly it was still down, but it moderated the overall.

Had we owned it then, it would have moderated the overall decline that we felt as a consolidated group. That's about all I can offer you.

Again, all of what I described on the scenario planning, you can be sure we are including our retail segment in that work as well and there's folks that are heavily focused on that right now and I don't know if you’d add….

Yeah, and I would add to that Greg.

If you look at the assortment additions that Debbie and her team are making, the addition of HAY and the price point there; the fact that we have an online presence that we didn't have in the last recession, I think those things are things and certainly the way we've updated and are looking at our digital platforms, the way we've introduced ways for customers to have virtual appointments versus in-person appointments.

I think those things kind of have – excuse me – to be in a little bit better position than perhaps we were in our last downturn. But having said that, I know this is an unprecedented time, but that would be my input. .

Okay, and are all your stores currently open? Have you pulled anything?.

Yes, so let me take a step back and talk a little bit about the selling process at DWR, because it's really not like the typical retail stores, so most of our sales are driven by clients who are in a relationship selling through our account executives and a good portion of that is trade, interior designers, architects, so we're bringing in a lot of business or the business is much less dependent on walk-in traffic.

So obviously where we've had issues, where governments have mandated shutdowns which is in the bay area in California, New Jersey where we have curfews we have shut stores, and the remainder of our stores we've gone to a virtual appointment only models. So essentially while we’re closed to public walk-ins, our account executives are available.

As I mentioned before, we have a platform where people online can actually connect with an associate in the store. So we anticipate we’ll see a drop in sales, but we don't anticipate we’ll see a drop as others might that have actually closed stores that don't have the same selling model as we do.

Now from a HAY perspective, because it's much more transaction based, we have closed the stores, but we have still a few of them right now, but we don't expect a major impact from now. .

Okay, great thanks. And then I guess some color on I guess what you're seeing early in the quarter and it seems like in the first couple of weeks there isn't really too much of a change, but it really – I mean everything's kind of really accelerated this last week or so.

Have you seen any shift in demand, order patterns, anything you know within the last week or is it too early to say – I know you're not quantifying things, but maybe just qualitatively and seeing a step change in the business over the last week or so..

Surprisingly, no, and if I look at our retail business, I think we’re surprised to see what we have continued to see in the trends.

Having said that, you know if anybody’s guess and I think we all expect that we will see a change, but I can sit here today and tell you in the contract side of the business and the retail side of the business, we haven’t had cancellations, we haven't seen a dramatic drop in our day-to-day.

So we are planning – you know as Chuck mentioned earlier, we're planning for all of those things, but as of right now, no. .

You know, I don't know, maybe the last time around the ’08, ‘09 financial crisis, was there a lead time? What was the experience back then; you know how the business got impacted by what was going on in the economy? What was it, like a one or two quarters delay before you really saw it or what was the experience then..

This is Greg and I'll try to having – had that memory come back to me a lot lately. Let me see if I can maybe provide some color. So the first thing that we saw back in the late ’08, early ‘09 calendar time frame was a drop off in what we call day-to-day business where it’s all defined as orders less than $100,000.

That at the time as you remember, as volatility increased and the market declined. We seem to get that pretty quick and so by kind of October-November timeframe back in ’08, you started to see that. What you also tend to have is people who are committed to a project, either through a new lease or through new construction.

Those larger projects tend to stay longer, because people have decided to move and they really have no choice, but to complete the project, both if you are just the landlord and/or the tenant. So the thing that I watch every day as we're going through this is the day-to-day and as Andi said, that seems to be pretty strong still.

You're actually getting – in some cases on the healthcare side you're getting people who are saying, ‘Can you hurry up? We have demanded that maybe we didn't have three or four weeks ago.’ So you know while that albeit a relatively small part of the contract business, probably 15%, it is an interesting dynamic given all that's going on.

So the day-to-day is what we watch, I think that's the big indicator.

You know I think you're going to see, you know like Jeff talked about the backlog, the backlog is the backlog, but I would imagine that you'll see the people who are committed will remain committed and then the question is how long this goes and what happens to people who have projects that maybe they were thinking about planning about, that are farther out maybe fall or winter of ’20..

Yeah, and I would add to that as well. You know with the large number of folks that are working from home, I think we've seen a sudden realization that maybe people are not set up to work from home as well as they thought they might be. So we have seen an increase in demand and products that are related to remote working as well. .

Okay, is there anyone else in the queue? I’ll hop out or I’ll keep on going if not... .

Go ahead. .

You can go ahead Greg, yeah..

Okay, alright. So maybe another one about, like a historical perspective, just going into this downturn. The industry is kind of this slow recovery. You never had this kind of frothy access it didn't seem like, maybe less time. Was that not the case maybe in ’08 or ’09 or even 2000.

But you have more of an overcapacity buildup in the industry where you would have a steeper decline than maybe what you would see this time around.

Like what does the overall market look like in terms of this time going in versus last year?.

Yeah. This is this Jeff, Greg. Maybe just a couple points that I would make. It’s a little difficult for me to – again, predicting the next several months is hard, it’s impossible actually, but let me describe one factor that we did.

I would start by agreeing with you that the entire recovery has been perhaps not as frothy to use your word, as we would have liked, but it’s been relatively steady if you’ve trending over the 10 years or so that we’ve been in.

But in the early part of the recovery, what we felt coming out of the credit crisis was, if you recall the landlords, we're desperate to fill their spaces because there was a lot of capacity.

Rent levels came down and what we found in those early days, and I remember being on the road Greg with you, and a lot of investors meeting that we would hear, yeah we just moved out of our space across town, we moved into these offices or we moved maybe from three floors down to two floors, but we got a killer deal on the space and we bought new furniture.

That kind of behavior drove a lot of demand in the early part of the recovery. I don't know that those same factors will come together this time around, so I’ll make no predictions, but that was one of the reasons for the big setback. The other thing that I would point out is the ramp up expects government spends.

I want to say, for many, many years Herman Miller ran somewhere between 8% and 10% of revenue was kind of GSA or Federal Government related and then coming into that part of the recovery, probably because the base business dropped off.

That percentage of revenue for the business related to Federal Government spiked and I think it got as high for our businesses, 14% and then I forget the year, but it was in those early years of the recovery. So those are just a few things that we observed and saw.

The last round, the fed government comment is probably worth noting, only because those projects tend to stick around even if – often times even if the broader economy softens. So I'll stop blabbing. .

All right, thanks. .

Yeah. .

Thank you. Our next question comes from Steven Ramsey with Thompson Research Group. Your line is now open..

Good afternoon, good evening. I was thinking about North America sales and orders up a slight year-over-year. I know down – and orders down slightly. But the order level of $400 million really is a setback considering the uncertainty out there.

I mean, I guess does this surprise you or is there in terms of what’s going on that kind of – that are working well or just surprising given the uncertainty out there. .

Greg, you want to take that one. .

You know I would say that the quarter performance actually isn't really a surprise; it was actually kind of when I make my team do kind of rollout of the forecast. We are pretty much within a couple of million and when you look at orders, we are kind of spot on.

We had a little bit of scheduling variation which tends to have a – and causing us to predict revenue that wasn’t exactly as we anticipated. But orders were almost exactly where we thought.

I guess like everybody else, you watch the news, and maybe you watch the news too much and you expect things to happen more quickly than they have, but I would say that I’m pleased and with the order performance so far this quarter.

But I think that, I looked at the team, I looked at the folks that run sales, not only at the top but in the region, because I don't think we've ever had a stronger team as we have right now, and I think that they’re cooler left under a leader who has a plan and a process and I think that’s making a difference for us. .

Great! And then thinking about, no quarterly guidance, I guess just given the visibility from the back log impact for the first half the quarter and minimal order cancelations, what is making you hold off exactly on the guidance that there is less visibility beyond, maybe the six weeks or any other specific factors?.

I think the biggest, specific factor is really the unknown around how this virus will impact the U.S., and watching what happened in China and Europe and I think we'll learn a lot in the next couple of weeks but, I think it's really anyone's guess to know what could happen, you know will it be flat in the curve, it won’t be flat in the curve and I think it’s just puts you in a really difficult position.

Jeff, what would you add to that?.

No, I think it’s just unprecedented uncertainty around – you know as Greg described, you see that day to day business change and it can’t happen quickly and with what seems to be this alkylating situation hour by hour almost over the past several days, we just felt it was, it was more transparent to just simply tell you that here's the data that we see, but we just don't feel comfortable making you know a guided range at this point in time.

.

Great! And I guess does the reset bring in HAY and then kind of combined with the recent uncertainty, you know does this delay the journey to the operating margins in the retail segment that you have outlined in the past or you know I mean just any factors kind of thinking long term on the retail profit margins. .

Steven, this is Jeff. I guess given – I want to be careful how I answer this, because we don’t know the extent to which this is going to impact us. I would say yes, we believe there's likely a delay in what we described, simply because you know we expect some dislocation in our industry, across many industries at least in the short run.

Yeah, since our revenue exposure is 100% to planet earth, we expect that’s going to, and I am certainly am and trying to be flippant, but it’s just that scale of uncertainty. So it’s likely we will feel some delay.

We hope that we’re wrong and you know after lots of commentary, I'm sure you have around the potential for a quick snap back, once we get to the other side of this thing and we understand just how disruptive it is. So I think the honest answer is, likely some delay.

I think long term, and Andi please, we are bullish on the long term strategy and I think Andi highlighted some of the most exciting parts of the business that we're working on right now, that we are really going to work to protect these strategic investments around, and that’s building out some of these digital capability that we're a long way down the path on.

And we think those make us so much stronger to compete once they are in place and you know if we can make sure those are in place on the other side of this, we are we're going to be very well positioned. .

Excellent! Thank you. .

Yep. .

Thank you. .

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Andi Owen for closing remarks. .

Thank you guys for joining us on the call today. We really appreciate your continued interest in Herman Miller and we really look for to next quarter seeing you again. In the meantime, I hope that all of you will please join us in keeping your community safe and staying healthy. Thanks a lot. .

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