EX-99.1 2 q32015earningsrelease.htm SEPTEMBER 30, 2015 EARNINGS RELEASE Exhibit


1235 Water Street                    
East Greenville, PA 18041                
Tel 215 679-7991
Press Release        
Knoll Reports Strong Operating Margins and Profits
EAST GREENVILLE, PA, October 21, 2015 -- Knoll, Inc. (NYSE: KNL) today announced results for the third quarter ended September 30, 2015. Net sales were $263.6 million for the third quarter, a slight decrease of 1.8%, or 0.2% on a constant currency basis from the third quarter of 2014. Operating profit for the quarter increased to $28.7 million, when compared to operating profit of $23.3 million in the third quarter of 2014. Adjusted operating profit for the quarter was $29.1 million, a 24.4% increase from the third quarter of 2014. Net earnings for the third quarter of 2015 were $17.9 million, an increase of 14.7% when compared to the third quarter of 2014. Diluted earnings per share was $0.37 for the quarter compared to $0.33 per share in the third quarter of 2014. Adjusted diluted earnings per share was $0.38 in the third quarter of 2015.
"We are very pleased to be reporting the highest level of quarterly operating profits since 2008," commented Andrew Cogan, CEO. "We remain on track to deliver the upper end of our full year goal of improving operating margins by 100-200 basis points. While sales on a constant currency basis were flat against prior year as we faced some difficult large project comps in our Middle East business, orders and forward indicators are encouraging."
Third Quarter Results
Third quarter 2015 financial results highlights are as follows:
Dollars in Millions, Except Per Share Data
 
Three Months Ended
 
Percent
 
 
9/30/2015
 
9/30/2014
 
Change
Net Sales
 
$
263.6

 
$
268.3

 
(1.8
)%
Gross Profit
 
101.2

 
95.0

 
6.5
 %
Gross Profit %
 
38.4
%
 
35.4
%
 
8.5
 %
Operating Expenses
 
72.5

 
71.6

 
1.3
 %
Operating Profit
 
28.7

 
23.3

 
23.2
 %
Operating Profit %
 
10.9
%
 
8.7
%
 
25.3
 %
Adjusted Operating Profit (1)
 
29.1

 
23.4

 
24.4
 %
Adjusted Operating Profit % (1)
 
11.1
%
 
8.7
%
 
27.6
 %
Net Earnings
 
17.9

 
15.6

 
14.7
 %
Earnings Per Share - Diluted
 
0.37

 
0.33

 
12.1
 %
Adjusted Earnings Per Share - Diluted (1)
 
0.38

 
0.33

 
15.2
 %
(1) See Reconciliation of Non-GAAP Financial Measures below.
Net sales for the Office segment were $160.8 million during the third quarter of 2015, a decrease of 3.6%, or 2.8% on a constant currency basis, when compared to the third quarter of 2014. Strength in Commercial and Government sales did not fully offset a couple of large international projects in the prior year. Net sales for the Studio segment were $75.0 million during the third quarter of 2015, an increase of $2.8 million, or 3.8%, when compared to the third quarter of 2014. On a constant currency basis, Studio segment sales increased by 7.6%. The increase in constant currency sales in the Studio segment was spread across all our Studio segment businesses including Holly Hunt. Net sales for the Coverings segment were




$27.8 million, a decrease of 4.9%, or 4.0% on a constant currency basis, when compared to the third quarter of 2014. The decrease in sales in the Coverings segment was attributable to lower leather sales to aviation and OEM suppliers, offset by strong growth in our felt and textiles businesses.
Gross profit for the third quarter of 2015 was $101.2 million, an increase of $6.2 million, or 6.5%, when compared to the third quarter of 2014. Gross Margin (gross profit as a percentage of net sales) increased to 38.4% during the third quarter of 2015 from 35.4% in the third quarter of 2014. The increase in gross margin was driven by the mix of business, as well as foreign exchange benefits and operational improvements plus net price realization.
Operating expenses were $72.5 million, or 27.5% of net sales, compared to $71.6 million, or 26.7% of net sales, in the third quarter of 2014. During the third quarter of 2015, we closed a HOLLY HUNT® showroom in Brazil, which was opened prior to our acquisition. This action resulted in $0.4 million of restructuring charges in the Studio segment. These charges primarily relate to cash severance and employment termination related expenses.
Operating profit for the third quarter of 2015 was $28.7 million, or 10.9% of net sales, an increase of $5.4 million, or 23.2%, when compared to the third quarter of 2014. Adjusted operating profit was $29.1 million, or 11.1% of net sales for the third quarter of 2015 compared to $23.3 million, or 8.7% of net sales in the third quarter of 2014. Operating profit for the Office segment was $11.1 million in the third quarter of 2015, an increase of $2.8 million, or 33.2%, when compared to the third quarter of 2014. Office segment operating margins increased year over year from 5.0% to 6.9%. Operating profit for the Studio segment was $11.3 million in the third quarter of 2015, an increase of $2.2 million, or 24.2%, when compared to the third quarter of 2014. Studio segment operating margins increased year over year from 12.6% to 15.1%. Adjusted operating margin for the Studio segment in the third quarter of 2015 was 15.7%. Operating profit for the Coverings segment was $6.3 million for the third quarter of 2015, an increase of $0.4 million, or 6.8%, when compared to the third quarter of 2014. Coverings segment operating margins increased year over year from 20.4% to 22.5% for the third quarter of 2015.
During the third quarter of 2015 and 2014, other income was $1.8 million and $3.3 million, respectively. Foreign exchange gains during the third quarter of 2015 were $1.7 million compared to $3.2 million in the third quarter of 2014.
The mix of pretax income and the varying effective tax rates in the countries in which we operate directly affects our consolidated effective tax rate. The effective tax rate was 38.0% for the third quarter of 2015, as compared to 36.9% for the same period last year.
Net earnings for the third quarter 2015 were $17.9 million, or $0.37 diluted earnings per share, compared to $15.6 million, or $0.33 per share, for the third quarter of 2014. Adjusted diluted earnings per share was $0.38 for the quarter compared to $0.33 per share in the third quarter of 2014.
During the third quarter of 2015 and 2014, cash provided by operations was $30.7 million and $33.4 million, respectively. Capital expenditures for the period totaled $7.2 million compared to $14.3 million in the comparable period for 2014. During the third quarter of 2015 and 2014, the Company paid a quarterly dividend of $5.7 million, or $0.12 per share.
“The combination of improved profitability and reduced debt levels has driven our leverage ratio to under 2.0X.  We remain comfortably in compliance with all debt covenant requirements,” commented Craig B. Spray, SVP & CFO.







Business Segment Results
The following information categorizes the Company's results into its defined reporting segments.
The Office segment serves corporate, government, healthcare, retail and other customers in the United States and Canada providing a portfolio of office furnishing solutions including office systems, seating, storage, tables, desks and KnollExtra® ergonomic accessories. The Office segment also includes international sales of our North American office products. The Studio segment includes KnollStudio®, Knoll Europe which sells primarily KnollStudio products, Richard Schultz® Design, and HOLLY HUNT®. The Coverings segment includes, KnollTextiles®, Spinneybeck®, Edelman® Leather, and Filzfelt™. These businesses serve a wide range of customers offering high quality textiles and leather.
 
 
Three Months Ended
September 30,
Net Sales (in millions)
 
2015
 
2014
Office
 
$
160.8

 
$
166.8

Studio
 
75.0

 
72.2

Coverings
 
27.8

 
29.3

Total Net Sales
 
$
263.6

 
$
268.3

 
 
Three Months Ended
September 30,
Operating Profit (in millions)
 
2015
 
2014
Office
 
$
11.1

 
$
8.3

Studio
 
11.3

 
9.1

Coverings
 
6.3

 
5.9

Total Operating Profit
 
$
28.7

 
$
23.3


 





Reconciliation of Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures. A "non-GAAP financial measure" is a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with U.S. generally accepted accounting principles ("GAAP") in the statements of income, balance sheets, or statements of cash flow of the company. Pursuant to applicable reporting requirements, the company has provided reconciliations below of non-GAAP financial measures to the most directly comparable GAAP measure.
The non-GAAP financial measures presented within the company's earnings release are Net Sales, Adjusted, Last Twelve Months ("LTM") Adjusted EBITDA, Adjusted Operating Profit and Adjusted Earnings Per Share - Diluted. These non-GAAP measures are not indicators of our financial performance under GAAP and should not be considered as an alternative to the applicable GAAP measure. These non-GAAP measures have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating these non-GAAP measures, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using non-GAAP measures only supplementally.
The following table reconciles Net Sales, Adjusted to GAAP Net Sales for the periods indicated.
 
Office
 
Studio
 
Coverings
 
Knoll, Inc.
Q3 2015 Net Sales
$
160.8

 
$
75.0

 
$
27.8

 
$
263.6

Currency translation effects (1)
1.3

 
2.7

 
0.3

 
4.3

Q3 2015 Net Sales, Adjusted
162.1

 
77.7

 
28.1

 
267.9

 
 
 
 
 
 
 
 
Q3 2014 Net Sales
166.8

 
72.2

 
29.3

 
268.3

 
 
 
 
 
 
 
 
Adjusted Growth / (Decline) $
$
(4.7
)
 
$
5.5

 
$
(1.2
)
 
$
(0.4
)
Adjusted Growth / (Decline) %
(2.8
)%
 
7.6
%
 
(4.0
)%
 
(0.2
)%
(1) Currency translation effects represent the estimated net impact of translating current period sales using the average exchange rates applicable to the comparable prior year period.
The following table reconciles Adjusted Operating Profit to GAAP Operating Profit for the periods indicated.
 
 
Three Months Ended
 
 
9/30/2015
 
9/30/2014
Operating Profit
 
$
28.7

 
$
23.3

Add back:
 
 
 
 
Acquisition related expenses
 
—

 
0.1

Restructuring charges
 
0.4

 
—

Adjusted Operating Profit
 
$
29.1

 
$
23.4

Net Sales
 
$
263.6

 
$
268.3

Adjusted Operating Profit %
 
11.1
%
 
8.7
%





The following table reconciles Adjusted Operating Profit to GAAP Operating Profit for the Studio Segment for the period indicated.
 
 
Three Months Ended
 
 
9/30/2015
Operating Profit
 
$
11.3

Add back:
 
 
Restructuring charges
 
0.4

Adjusted Operating Profit
 
$
11.7

Net Sales
 
$
75.0

Operating Profit %
 
15.1
%
Adjusted Operating Profit %
 
15.7
%

The following table reconciles Adjusted Earnings Per Share - Diluted to GAAP Earnings Per Share - Diluted for the periods indicated.
 
 
Three Months Ended
 
 
9/30/2015
 
9/30/2014
Earnings per Share - Diluted
 
$
0.37

 
$
0.33

Add back:
 
 
 
 
Restructuring charges
 
0.01

 
—

Adjusted Earnings per Share - Diluted
 
$
0.38

 
$
0.33


The following table illustrates the computation of our bank leverage calculation and is in accordance with our Second Amended and Restated Credit Agreement dated May 20, 2014.
 
9/30/2014
 
12/31/2014
 
3/31/2015
 
6/30/2015
 
9/30/2015
Debt Levels (1)
$
283.7

 
$
275.5

 
$
316.7

 
$
290.7

 
$
274.2

LTM Net Earnings ($mm)
34.8

 
46.6

 
56.2

 
62.6

 
64.8

LTM Adjustments
 
 
 
 
 
 
 
 
 
Interest
6.3

 
6.7

 
6.9

 
6.8

 
6.6

Taxes
21.8

 
29.2

 
35.0

 
37.2

 
39.1

Depreciation and Amortization
18.6

 
20.0

 
20.6

 
21.1

 
21.2

Non-cash items and Other (2)
22.1

 
11.9

 
5.7

 
3.3

 
6.0

LTM Adjusted EBITDA
$
103.6

(4) 
$
114.4

(4) 
$
124.4

 
$
131.0

 
$
137.7

Bank Leverage Calculation (3)
2.74

 
2.41

 
2.55

 
2.22

 
1.99

 
 
 
 
 
 
 
 
 
 
(1) Outstanding debt levels include outstanding letters of credit and guarantee obligations. Excess cash over $15.0 million reduces outstanding debt per the terms of our credit facility, a copy of which was filed with the Securities and Exchange Commission on May 21, 2014.
 
(2) Non-cash items and Other includes, but is not limited to, a pension settlement and other postretirement benefit curtailment, stock-based compensation expenses, unrealized gains and losses on foreign exchange, and restructuring charges.
 
(3) Debt divided by LTM Adjusted EBITDA, as calculated in accordance with our credit facility.
 
(4) Includes an annualized proforma EBITDA for HOLLY HUNT, which was acquired on February 3, 2014.




Conference Call Information
Knoll will host a conference call on Wednesday, October 21, 2015 at 10:00 A.M. EST to discuss its financial results.
The call will include slides; participants are encouraged to listen to and view the presentation via webcast at http://www.knoll.com; go to "About Knoll" and click on "Investor Relations".
The conference call may also be accessed by dialing:
North America     866 510-0712
International     617 597-5380
Passcode      354 225 68
A replay of the webcast can be viewed by visiting the Investor Relations section of the Knoll corporate website. In addition, an audio replay of the conference call will be available through October 29, 2015 by dialing 888 286-8010. International replay: 617 801-6888 (Passcode: 98364913).
Discover Knoll
Knoll is recognized internationally for workplace and residential design that inspires, evolves and endures. Our portfolio of furniture, textile, leather and accessories brands, including Knoll, KnollStudio, KnollTextiles, KnollExtra, Spinneybeck, FilzFelt, Edelman Leather, and HOLLY HUNT, reflects our commitment to modern design that meets the diverse requirements of high performance offices and luxury interiors. A recipient of the National Design Award for Corporate and Institutional Achievement from the Smithsonian`s Cooper-Hewitt, National Design Museum, Knoll is aligned with the U.S. Green Building Council and the Canadian Green Building Council and can help organizations achieve Leadership in Energy and Environmental Design (LEED) workplace certification. Knoll is the founding sponsor of the World Monuments Fund Modernism at Risk program.





Cautionary Statement Regarding Forward-Looking Information
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding Knoll, Inc.'s expected future financial position, results of operations, revenue and profit levels, cash flows, business strategy, budgets, projected costs, capital expenditures, products, competitive positions, growth opportunities, plans and objectives of management for future operations, as well as statements that include words such as "anticipate," "if," "believe," "plan," "goals," "estimate," "expect," "intend," "may," "could," "should," "will," and other similar expressions are forward-looking statements. This includes, without limitation, our statements and expectations regarding any current or future recovery in our industry, our publicly announced plans for increased capital and investment spending to achieve our long-term revenue and profitability growth goals, and our expectations with respect to leverage. Such forward-looking statements are inherently uncertain, and readers must recognize that actual results may differ materially from the expectations of Knoll management. Knoll does not undertake a duty to update such forward-looking statements. Factors that may cause actual results to differ materially from those in the forward-looking statements include corporate spending and service-sector employment, price competition, acceptance of Knoll's new products, the pricing and availability of raw materials and components, foreign currency exchange, transportation costs, demand for high quality, well designed furniture solutions, changes in the competitive marketplace, changes in the trends in the market for furniture or coverings, the financial strength and stability of our suppliers, customers and dealers, access to capital, our success in designing and implementing our new enterprise resource planning system, our ability to successfully integrate acquired businesses, and other risks identified in Knoll's annual report on Form 10-K, and other filings with the Securities and Exchange Commission. Many of these factors are outside of Knoll's control.

Contacts
Investors:
Craig B. Spray
Senior Vice President and Chief Financial Officer
Tel 215 679-1752
cspray@knoll.com
Media:
David E. Bright
Senior Vice President, Communications
Tel 212 343-4135
dbright@knoll.com






KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
263,588

 
$
268,297

 
$
798,708

 
$
763,841

Cost of sales
 
162,381

 
173,335

 
501,001

 
495,007

Gross profit
 
101,207

 
94,962

 
297,707

 
268,834

Selling, general, and administrative expenses
 
72,062

 
71,647

 
218,008

 
211,202

Restructuring charges
 
441

 
—

 
441

 
795

Operating profit
 
28,704

 
23,315

 
79,258

 
56,837

Interest expense
 
1,650

 
1,899

 
5,386

 
5,514

Other (income) expense, net
 
(1,757
)
 
(3,294
)
 
(8,714
)
 
(3,098
)
Income before income tax expense
 
28,811

 
24,710

 
82,586

 
54,421

Income tax expense
 
10,950

 
9,113

 
30,068

 
20,151

Net earnings
 
17,861

 
15,597

 
52,518

 
34,270

Net earning (loss) attributable to noncontrolling interests
 
28

 
(31
)
 
3

 
(39
)
Net earnings attributable to Knoll, Inc. stockholders
 
$
17,833

 
$
15,628

 
$
52,515

 
$
34,309

 
 
 
 
 
 
 
 
 
Earnings per share attributable to Knoll, Inc. stockholders:
 
 
 
 
 
 
 
 
Basic
 
$
0.37

 
$
0.33

 
$
1.10

 
$
0.73

Diluted
 
$
0.37

 
$
0.33

 
$
1.08

 
$
0.71

 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
47,764,462

 
47,376,605

 
47,725,186

 
47,314,810

Diluted
 
48,487,623

 
48,072,632

 
48,441,129

 
48,032,710






KNOLL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
 
 
September 30, 2015
 
December 31, 2014
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
9,757

 
$
19,021

Customer receivables, net
 
93,145

 
114,551

Inventories
 
148,509

 
140,835

Prepaid and other current assets
 
37,479

 
37,412

Total current assets
 
288,890

 
311,819

Property, plant, and equipment, net
 
166,013

 
165,019

Goodwill and Intangible assets, net
 
379,557

 
382,657

Other non-current assets
 
7,800

 
9,448

Total Assets
 
$
842,260

 
$
868,943

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current maturities of long-term debt
 
$
10,000

 
$
10,000

Accounts payable
 
67,183

 
114,914

Other current liabilities
 
101,538

 
106,860

Total current liabilities
 
178,721

 
231,774

Long-term debt
 
247,500

 
248,000

Other non-current liabilities
 
177,299

 
175,951

Total liabilities
 
603,520

 
655,725

Total equity
 
238,740

 
213,218

Total Liabilities and Equity
 
$
842,260

 
$
868,943






KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
 
 
 
Nine Months Ended
 
 
September 30,
 
 
2015
 
2014
Net earnings
 
$
52,518

 
$
34,270

Cash Flows provided by Operating Activities
 
38,163

 
64,716

Cash Flows used in Investing Activities
 
(19,837
)
 
(125,656
)
Cash Flows (used in) provided by Financing Activities
 
(23,985
)
 
66,141

Effect of exchange rate changes on cash and cash equivalents
 
(3,605
)
 
(1,527
)
(Decrease) increase in cash and cash equivalents
 
(9,264
)
 
3,674

Cash and cash equivalents at beginning of period
 
19,021

 
12,026

Cash and cash equivalents at end of period
 
$
9,757

 
$
15,700