Kimball International, Inc. Reports Fourth Quarter and Fiscal Year 2020 Results

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Kimball International, Inc. Reports Fourth Quarter and Fiscal Year 2020 Results

--Fourth Quarter Results Demonstrate Resilience Within Current Market Conditions--
--Achieved $25.6 Million in Cost Savings in Fiscal 2020--
--Announced New Market Centric Organizational Structure to Drive Market Share Gains--
--Additional Cost Savings of $20 Million Expected in Fiscal 2021--

JASPER, Ind., Aug. 03, 2020 (GLOBE NEWSWIRE) -- Kimball International, Inc. (NASDAQ: KBAL) today announced results for the fourth quarter and fiscal year ended June 30, 2020.

Selected Financial Highlights:

Fourth Quarter FY 2020

  • Net sales decreased 20% to $156.1 million
  • Gross margin expanded by 70 basis points despite lower volume
  • Operating income margin of 7.0%, or 9.4% on an adjusted basis
  • Net income of $9.2 million, decreased 17%
  • Adjusted EBITDA of $19.1 million, increased 1%, and adjusted EBITDA margin of 12.2% increased 260 basis points
  • Diluted EPS of $0.25, or $0.29 on an adjusted basis, a decrease of 9% compared to adjusted EPS of $0.32 a year ago
  • Return on Invested Capital (ROIC) of 30.0%
  • Backlog of $151.1 million  

CEO Kristie Juster commented, “Fourth quarter results demonstrated the resilience of Kimball International in navigating a very difficult business and operating environment. Excellent execution across our organization enabled us to report stable adjusted operating income, along with modest growth in adjusted EBITDA, despite a significant COVID-19 impact on our revenues. This performance reflected the success of our ongoing transformation plan and Phase 1 of our restructuring program, which together have yielded significant cost savings while streamlining our operations and leveraging expertise across our brands. 

“Business conditions remained challenging throughout the fourth quarter as the health crisis and resultant economic decline caused postponements of projects and uncertainty around adapting to a post-COVID working environment. In early May, with our production facilities fully operational under strict safety and health protocols, we acted quickly to develop products and solutions that would assist clients in adhering to social distancing and workplace safety requirements, while providing comfortable and collaborative settings. These included retrofits and redesigns for existing products and spaces, as well as roadmaps to reimagine the new work environment.

“We are pleased with the initial market response to our initiatives, but we recognize that the business environment is likely to remain difficult in the periods ahead. As a result, we have decided to accelerate the implementation of the next phase of our Kimball International Connect strategy, which we believe will drive continued market share gains for Kimball International during this period as well as yield additional cost savings that will enable us to effectively manage through the downturn and emerge as a leaner, more nimble company.

“Specifically, the Connect 2.0 Strategy is comprised of four new market centric business units of  Workplace, Health, Hospitality and eBusiness that will accelerate our ability to redesign and reimagine the new workplace, build a new work from home portfolio, continue assembling experts in health, and expand our hospitality business into other commercial direct sales environments.  The dedicated eBusiness unit will take a leadership role in establishing all e-commerce across our brands and end markets.  Each of these four business units will be supported by the agility and efficiency of Global Operations and the streamlined center-led structure that we implemented in year one of our strategy.

“At the same time, we are initiating Phase 2 of our restructuring program, which will result in a restructuring charge of between $17.0 million and $18.0 million in total of which approximately $6.0 million will be recorded in the first quarter of fiscal 2021. Approximately 75% of the total charge will be cash charges. The workforce reductions and facility optimization that comprise this program, together with our ongoing operational excellence initiatives are expected to yield cost savings of approximately $20.0 million in fiscal 2021.”  

Overview

Fourth Quarter Fiscal 2020 Results

Consolidated net sales were $156.1 million, down 20% from $195.6 million in the year ago quarter. Gross margin expanded by 70 basis points to 35.0% due to cost savings, selected product price increases and efficient management of our manufacturing facilities through the revenue decline. Selling and administrative expenses of $41.6 million declined $11.3 million compared to the prior year, decreasing to 26.8% of net sales. Adjusted selling and administrative expenses were $39.9 million or 25.5% of net sales, compared to $52.4 million or 26.8% of net sales in last year’s fourth quarter. Net income decreased 17% to $9.2 million, and GAAP earnings per diluted share were $0.25, compared to $0.30 reported in the fiscal 2019 fourth quarter. Adjusted earnings per share, which excludes restructuring charges, decreased 9% to $0.29, compared to $0.32 last year. Adjusted EBITDA increased 1% to $19.1 million, and adjusted EBITDA margin expanded 260 basis points to 12.2%.

The current year fourth quarter benefited from approximately $3.1 million in one-time favorable adjustments to year-to-date annual incentive compensation accruals, which increased adjusted earnings per share by $0.06.  In addition, this year’s fourth quarter was favorably impacted by lower incentive compensation costs, delayed spending across the Company and reduced employee healthcare costs, much of which was related to the COVID-19 pandemic.

The Company ended the fourth quarter in a strong financial position, with $97.1 million in cash and short-term investments, minimal debt and $73.4 million in available credit lines, providing the resources to weather the COVID-19 crisis and continue to invest to support future growth.

Fiscal Year 2020 Results

Fiscal year 2020 net sales of $727.9 million decreased 5% from fiscal year 2019 net sales of $768.1 million. Fiscal year 2020 operating income was $54.4 million, or 7.5% of net sales, compared to fiscal year 2019 operating income of $49.5 million, or 6.4% of net sales. Adjusted operating income was $64.2 million, 21% above the $53.1 million in fiscal 2019. Net income for fiscal year 2020 was $41.1 million, or $1.11 per diluted share, inclusive of $6.3 million restructuring expense ($0.17 per share) and $0.5 million CEO transition costs ($0.01 per share). Fiscal year 2019 net income was $39.3 million, or $1.06 per diluted share, inclusive of $0.7 million restructuring expense ($0.02 per share) and $1.5 million CEO transition costs ($0.04 per share). Fiscal year 2020 adjusted EBITDA was $81.3 million, or 11.2% of net sales, compared to fiscal year 2019 adjusted EBITDA of $69.5 million, or 9.0% of net sales.

Capital expenditures for fiscal 2020 were $21.1 million. The Company returned $15.9 million to shareholders in the form of dividends and share buybacks.

Net Sales by End Market            
  Three Months Ended       Fiscal Year Ended    
(Unaudited) June 30,       June 30,    
(Amounts in Millions) 2020   2019   % Change   2020   2019   % Change
Workplace $ 91.0      $ 117.2      (22  %)   $ 435.4      $ 462.7      (6  %)
Health 21.6      28.8      (25  %)   108.9      110.4      (1  %)
Hospitality 43.5      49.6      (12  %)   183.6      195.0      (6  %)
Total Net Sales $ 156.1      $ 195.6      (20  %)   $ 727.9      $ 768.1      (5  %)

Summary and Outlook

“Fiscal 2020 results represented very respectable performance in light of the COVID-19 impact on our fiscal third and fourth quarter revenues. We succeeded in posting double-digit growth in operating income and adjusted operating income on a 5% decline in revenues, and we reported an industry-leading 37.5% return on invested capital, all indications of the significant efficiency gains that have been achieved by the Kimball International team.

“Recent order rate trends within this period of economic uncertainty lead us to anticipate lower year-on-year comparisons over the next several quarters. Our fiscal year-end backlog was $151 million, of which $90 million is scheduled to ship in the first quarter of fiscal 2021. Recent order trends and the resurgence of COVID-19 in certain parts of the country lead us to expect that first quarter fiscal year 2021 revenue will be slightly below fourth quarter fiscal year 2020 levels.

“Longer term, we are confident in our ability to grow our business organically and through opportunistic acquisitions that enable us to gain share in our selected vertical markets as well as build our e-commerce capabilities,” Ms. Juster concluded.

Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company’s financial performance that excludes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States in the statement of income, statement of comprehensive income, balance sheet, or statement of cash flows of the Company. The non-GAAP financial measures used within this release are (1) adjusted selling and administrative expense; (2) adjusted EBITDA; (3) adjusted operating income; (4) adjusted net income; and (5) adjusted diluted earnings per share. Adjusted operating income, adjusted net income, and adjusted diluted earnings per share each exclude restructuring expense and CEO transition costs from the GAAP income measure. Adjusted selling and administrative expense excludes market value adjustments related to the SERP liability and CEO transition costs from the GAAP income measure. Additionally, adjusted operating income excludes market value adjustments related to the SERP liability. Adjusted EBITDA is defined as net income before interest expense, income taxes, depreciation expense, amortization expense, restructuring expense, and CEO transition costs. A reconciliation of the reported GAAP numbers to the non-GAAP financial measures is included in the Reconciliation of Non-GAAP Financial Measures table below. Management believes that Adjusted EBITDA and other metrics excluding restructuring expense, CEO transition expenses, and market value adjustments related to the SERP liability are useful measurements to assist investors in comparing our performance over various reporting periods on a consistent basis by removing from operating results the impact of items that do not reflect our core operating performance.

The orders received metric is a key performance indicator used to evaluate general sales trends and develop future operating plans. Orders received represent firm orders placed by our customers during the current quarter which are expected to be recognized as revenue during current or future quarters. The orders received metric is not intended to be presented as an alternative measure of revenue recognized in accordance with GAAP.

Return on Invested Capital is a key performance indicator calculated as: [(Earnings Before Interest, Taxes, Amortization, Restructuring Expense, and CEO Transition Costs) multiplied by (1 minus Effective Tax Rate)] divided by (Total Shareholders’ Equity plus Net Debt). Net Debt is defined as current maturities of long-term debt plus long-term debt less cash, cash equivalents, and short-term investments.

Forward-Looking Statements

Certain statements contained within this release are considered forward-looking under the Private Securities Litigation Reform Act of 1995.  These statements generally can be identified by the use of words or phrases, including, but not limited to, “intend,” “anticipate,” “believe,” “estimate,” “project,” “target,” “plan,” “expect,” “setting up,” “beginning to,” “will,” “should,” “would,” “resume” or similar statements.  We caution that forward-looking statements are subject to known and unknown risks and uncertainties that may cause the Company’s actual future results and performance to differ materially from expected results including, but not limited to, the risk that any projections or guidance, including revenues, margins, earnings, or any other financial results are not realized, adverse changes in global economic conditions, successful execution of Phase 2 of our restructuring plan, the impact of changes in tariffs, increased global competition, significant reduction in customer order patterns, loss of key suppliers, loss of or significant volume reductions from key contract customers, financial stability of key customers and suppliers, relationships with strategic customers and product distributors, availability or cost of raw materials and components, changes in the regulatory environment, global health concerns (including the impact of the COVID-19 outbreak), or similar unforeseen events. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of the Company are contained in the Company’s Form 10-K filing for the fiscal year ended June 30, 2019 and other filings with the Securities and Exchange Commission.

Conference Call / Webcast
   
Date: August 3, 2020
Time: 5:00 PM Eastern Time
Dial-In #: 844-602-5643 (International Calls - 574-990-3014)
Pass Code: Kimball

A webcast of the live conference call may be accessed by visiting Kimball International’s Investor Relations website at www.ir.kimballinternational.com

For those unable to participate in the live webcast, the call will be archived at www.ir.kimballinternational.com within two hours of the conclusion of the live call.

About Kimball International, Inc.

For 70 years, Kimball International has created design driven furnishings that have helped our customers shape spaces into places, bringing possibility to life by enabling collaboration, discovery, wellness and relaxation. We go to market through our family of brands: Kimball, National, Kimball Hospitality, and D’style by Kimball Hospitality. Our values and high integrity are demonstrated daily by living our Purpose and Guiding Principles that establish us as an employer of choice. We build success by growing long-term relationships with customers, employees, suppliers, shareholders, and the communities in which we operate. In fiscal year 2020, the company generated $728 million in revenue and employed over 2,800 people. To learn more about Kimball International, Inc. (KBAL), visit www.kimballinternational.com

Financial highlights for the fourth quarter ended June 30, 2020 are as follows:

Condensed Consolidated Statements of Income
(Unaudited)   Three Months Ended
(Amounts in Thousands, except per share data)   June 30, 2020   June 30, 2019
Net Sales   $ 156,069     100.0 %   $ 195,570     100.0 %
Cost of Sales   101,513     65.0 %   128,441     65.7 %
Gross Profit   54,556     35.0 %   67,129     34.3 %
Selling and Administrative Expenses   41,646     26.8 %   52,962     27.0 %
Restructuring Expense   1,925     1.2 %   937     0.5 %
Operating Income   10,985     7.0 %   13,230     6.8 %
Other Income, net   1,686     1.1 %   931     0.4 %
Income Before Taxes on Income   12,671     8.1 %   14,161     7.2 %
Provision for Income Taxes   3,491     2.2 %   3,052     1.5 %
Net Income   $ 9,180     5.9 %   $ 11,109     5.7 %
                 
Earnings Per Share of Common Stock:                
Basic   $ 0.25         $ 0.30      
Diluted   $ 0.25         $ 0.30      
                 
Average Number of Total Shares Outstanding:                
Basic   36,861         36,753      
Diluted   36,895         36,868      


(Unaudited)   Fiscal Year Ended
(Amounts in Thousands, except per share data)   June 30, 2020   June 30, 2019
Net Sales   $ 727,859     100.0 %   $ 768,070     100.0 %
Cost of Sales   477,098     65.5 %   513,518     66.9 %
Gross Profit   250,761     34.5 %   254,552     33.1 %
Selling and Administrative Expenses   187,885     25.8 %   204,140     26.6 %
Restructuring Expense   8,489     1.2 %   937     0.1 %
Operating Income   54,387     7.5 %   49,475     6.4 %
Other Income, net   1,743     0.2 %   2,195     0.3 %
Income Before Taxes on Income   56,130     7.7 %   51,670     6.7 %
Provision for Income Taxes   15,076     2.1 %   12,326     1.6 %
Net Income   $ 41,054     5.6 %   $ 39,344     5.1 %
                 
Earnings Per Share of Common Stock:                
Basic   $ 1.11         $ 1.07      
Diluted   $ 1.11         $ 1.06      
                 
Average Number of Total Shares Outstanding:                
Basic   36,883         36,842      
Diluted   37,037         37,064      


   (Unaudited)    
       
Condensed Consolidated Balance Sheets  June 30,    June 30
(Amounts in Thousands)   2020       2019  
ASSETS              
Cash and cash equivalents $ 91,798     $ 73,196  
Short-term investments 5,294     33,071  
Receivables, net 68,365     63,120  
Inventories 49,857     46,812  
Prepaid expenses and other current assets 16,869     13,105  
Assets held for sale 215     281  
Property and Equipment, net 92,041     90,671  
Right of use operating lease assets 16,461     0  
Goodwill 11,160     11,160  
Intangible Assets, net 13,949     12,108  
Deferred Tax Assets 7,485     8,722  
Other Assets 12,773     12,420  
Total Assets $ 386,267     $ 364,666  
       
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current maturities of long-term debt $ 27     $ 25  
Accounts payable 40,229     47,916  
Customer deposits 19,649     24,611  
Current portion of operating lease liability 4,886     0  
Dividends payable 3,454     3,038  
Accrued expenses 41,076     57,494  
Long-term debt, less current maturities 109     136  
Long-term operating lease liability 16,610     0  
Other 15,431     14,956  
Shareholders’ Equity 244,796     216,490  
Total Liabilities and Shareholders’ Equity $ 386,267     $ 364,666  


Condensed Consolidated Statements of Cash Flows Fiscal Year Ended
(Unaudited) June 30,
(Amounts in Thousands) 2020   2019
Net Cash Flow provided by Operating Activities $ 29,798     $ 64,967  
Net Cash Flow provided by (used for) Investing Activities 6,141     (22,186 )
Net Cash Flow used for Financing Activities (17,332 )   (22,265 )
Net Increase in Cash, Cash Equivalents, and Restricted Cash 18,607     20,516  
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period 73,837     53,321  
Cash, Cash Equivalents, and Restricted Cash at End of Period $ 92,444     $ 73,837  


Orders Received by End Market            
  Three Months Ended       Fiscal Year Ended    
(Unaudited) June 30,       June 30,    
(Amounts in Millions) 2020   2019   % Change   2020   2019   % Change
Workplace * $ 88.4     $ 134.2     (34 %)   $ 442.5     $ 479.8     (8 %)
Health 18.2     32.1     (43 %)   109.9     118.3     (7 %)
Hospitality 15.3     42.5     (64 %)   167.3     183.3     (9 %)
Total Orders $ 121.9     $ 208.8     (42 %)   $ 719.7     $ 781.4     (8 %)
                                           
* Workplace end market includes education, government, commercial, and financial vertical markets


Supplementary Information                
Components of Other Income (Expense), net   Three Months Ended   Fiscal Year Ended
(Unaudited)   June 30,   June 30,
(Amounts in Thousands)   2020   2019   2020   2019
Interest Income   $ 159     $ 592     $ 1,641     $ 1,931  
Interest Expense   (14 )   (28 )   (79 )   (174 )
Gain on Supplemental Employee Retirement Plan Investments   1,610     367     600     673  
Other Non-Operating Expense   (69 )   0     (419 )   (235 )
Other Income, net   $ 1,686     $ 931     $ 1,743     $ 2,195  
                                 
                                 


Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in Thousands, except per share data)
 
Adjusted Selling and Administrative Expense
    Three Months Ended   Fiscal Year Ended
    June 30,   June 30,
    2020   2019   2020   2019
Selling and Administrative Expense, as reported   $ 41,646       $ 52,962       $ 187,885       $ 204,140    
Less: Pre-tax Expense Adjustment to SERP Liability   (1,610 )     (367 )     (600 )     (673 )  
Less: Pre-tax CEO Transition Costs   (173 )     (237 )     (698 )     (2,046 )  
Adjusted Selling and Administrative Expense   $ 39,863       $ 52,358       $ 186,587       $ 201,421    
Adjusted Selling and Administrative Expense %   25.5   %   26.8   %   25.6   %   26.2   %
                 
Adjusted Operating Income                                  
    Three Months Ended   Fiscal Year Ended
    June 30,   June 30,
    2020   2019   2020   2019
Operating Income, as reported   $ 10,985       $ 13,230       $ 54,387       $ 49,475    
Add: Pre-tax Restructuring Expense   1,925       937       8,489       937    
Add: Pre-tax Expense Adjustment to SERP Liability   1,610       367       600       673    
Add: Pre-tax CEO Transition Costs   173       237       698       2,046    
Adjusted Operating Income   $ 14,693       $ 14,771       $ 64,174       $ 53,131    
Adjusted Operating Income %   9.4   %   7.6   %   8.8   %   6.9   %
                 
Adjusted Net Income        
    Three Months Ended   Fiscal Year Ended
    June 30,   June 30,
    2020   2019   2020   2019
Net Income, as reported   $ 9,180       $ 11,109       $ 41,054       $ 39,344    
Pre-tax CEO Transition Costs   173       237       698       2,046    
Tax on CEO Transition Costs   (45 )     (61 )     (180 )     (527 )  
Add: After-tax CEO Transition Costs   128       176       518       1,519    
Pre-tax Restructuring Expense   1,925       937       8,489       937    
Tax on Restructuring Expense   (495 )     (241 )     (2,185 )     (241 )  
Add: After-tax Restructuring Expense   1,430       696       6,304       696    
Adjusted Net Income   $ 10,738       $ 11,981       $ 47,876       $ 41,559    
                 
Adjusted Diluted Earnings Per Share        
    Three Months Ended   Fiscal Year Ended
    June 30,   June 30,
    2020   2019   2020   2019
Diluted Earnings Per Share, as reported   $ 0.25       $ 0.30       $ 1.11       $ 1.06    
Add: After-tax CEO Transition Costs   0.00       0.00       0.01       0.04    
Add: After-tax Restructuring Expense   0.04       0.02       0.17       0.02    
Adjusted Diluted Earnings Per Share   $ 0.29       $ 0.32       $ 1.29       $ 1.12    


Earnings Before Interest, Taxes, Depreciation, and Amortization excluding Restructuring Expense and CEO Transition Costs (“Adjusted EBITDA”)
 
    Three Months Ended   Fiscal Year Ended
    June 30,   June 30,
    2020   2019   2020   2019
Net Income   $ 9,180       $ 11,109       $ 41,054       $ 39,344    
Provision for Income Taxes   3,491       3,052       15,076       12,326    
Income Before Taxes on Income   12,671       14,161       56,130       51,670    
Interest Expense   14       28       79       174    
Interest Income   (159 )     (592 )     (1,641 )     (1,931 )  
Depreciation   3,770       3,726       15,107       14,803    
Amortization   695       322       2,402       1,777    
Pre-tax CEO Transition Costs   173       237       698       2,046    
Pre-tax Restructuring Expense   1,925       937       8,489       937    
Adjusted EBITDA   $ 19,089       $ 18,819       $ 81,264       $ 69,476    
Adjusted EBITDA %   12.2   %   9.6   %   11.2   %   9.0   %
                                         

Contacts:
Lynn Morgen - lynn.morgen@advisiry.com 
Eric Prouty - eric.prouty@advisiry.com 


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Source: Kimball International, Inc.