EX-99.1 2 a8kexhibit991pressrelease1.htm KIMBALL INTERNATIONAL, INC. EXHIBIT 99.1 Exhibit


Exhibit 99.1
KIMBALL INTERNATIONAL, INC. REPORTS SECOND QUARTER FISCAL YEAR 2019 RESULTS

JASPER, IN (February 4, 2019) - Kimball International, Inc. (NASDAQ: KBAL) today announced results for the quarter ended December 31, 2018.
Highlights:
•
Revenue growth of 13%, or 11% on an organic basis, led by double-digit growth in commercial, healthcare, and hospitality verticals.
•
Order growth of 5%, or 4% on an organic basis, with double-digit increases in healthcare and education verticals.
•
New product introductions rose to 27% of office furniture sales compared to 19% in the prior year.
•
Increases in tariffs, steel, and transportation costs were mitigated by cost savings initiatives.
•
Lower effective tax rate of 25.6% compared to prior year rate of 40.6%, as lower income tax rates are now fully in effect.

Kristie Juster, CEO, stated, “I was very pleased with our revenue growth during the quarter. It was a strong delivery with growth across 5 of our 6 verticals combined with continued diligent management of our cost savings initiatives. In fact, we are increasing our projected savings from these initiatives in fiscal year 2019 from $7 million to $10 million, made possible by the hard work and ideas from our dedicated employees.”
Ms. Juster continued, “Our strong financial position has allowed us to make solid investments in our strategic growth initiatives for 2019: new products, the healthcare vertical, our deeper focus on the Architectural and Design community and the recently announced David Edward acquisition. These strategic investments are a critical step in setting the foundation for our next chapter of growth. Since becoming CEO in November, I have valued my time getting to know our employees, obtaining a deeper understanding of our core competency of manufacturing and connecting with our dealer partners. It is truly an exciting time for Kimball International. We are actively involved in the development of our new growth strategy that is grounded in a clear purpose and a renewed focus on the opportunities ahead of us. We at Kimball International are committed to delivering long-term value for our shareowners.”

Overview
Financial Highlights
(Amounts in Thousands, Except Per Share Data)
Three Months Ended
 
 
 
December 31,
2018
December 31,
2017
Percent Change
Net Sales
$
201,008

 
$
178,614

 
13
%
Gross Profit
$
64,989

 
$
57,420

 
13
%
Gross Profit %
32.3
%
 
32.1
%
 
 
Selling and Administrative Expenses
$
51,491

 
$
45,415

 
13
%
Selling and Administrative Expenses %
25.6
%
 
25.4
%
 
 
Operating Income
$
13,498

 
$
12,005

 
12
%
Operating Income %
6.7
%
 
6.7
%
 
 
Adjusted Operating Income *
$
14,000

 
$
12,005

 
17
%
Adjusted Operating Income %
7.0
%
 
6.7
%
 
 
Net Income
$
9,405

 
$
7,378

 
27
%
Adjusted Net Income *
$
9,777

 
$
7,378

 
33
%
Diluted Earnings Per Share
$
0.25

 
$
0.20

 

Adjusted Diluted Earnings Per Share *
$
0.26

 
$
0.20

 

Return on Capital
20.1
%
 
16.7
%
 
 
Adjusted EBITDA *
$
16,987

 
$
16,142

 
5
%
    
* The items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.
Prior period financial statements were recast due to the full retrospective adoption of guidance on the recognition of revenue from contracts with customers.




•
Consolidated net sales increased 13%, or 11% on an organic basis, driven by increases in all vertical markets except the government vertical. The commercial vertical had strong momentum with 29% growth, and the healthcare vertical grew 20% on continued strategic focus within this vertical. The hospitality vertical grew 16% on increases of both program business and higher margin custom business. Sales in the government vertical declined 21% as the project nature of this vertical often results in fluctuations.
•
The Company continues to develop and launch new products. New product sales approximated 27% of total office furniture sales compared to 19% in the prior year second quarter, driven by a 60% increase in sales of new office furniture products. New products are defined as those introduced within the last three years.
•
Orders received during the second quarter of fiscal year 2019 increased 5% from the prior year, or 4% on an organic basis. The increase was primarily attributable to the healthcare (up 22%), education (up 10%), and commercial (up 5%) vertical markets. The healthcare and education verticals have experienced steady growth due to increasing strategic focus, and the commercial vertical is benefiting from new product introductions.
•
Gross profit as a percent of net sales increased 20 basis points from the prior year as incremental margins from price increases, leverage from higher sales volumes, savings realized from cost reduction initiatives, and lower healthcare costs, were partially offset by higher tariffs, steel, and transportation costs. The David Edward acquisition also negatively impacted gross profit in the second quarter, as expected, and will continue to in the short-term until productivity improvements and synergies are realized.
•
Selling and administrative expenses in the second quarter increased 20 basis points as a percent of net sales and increased 13% in absolute dollars compared to the prior year. The increase in selling and administrative expense was driven by higher incentive compensation and commission costs related to improved sales and operating profits, salaries, costs related to strategic growth investments, and CEO transition costs.
•
The Company benefited from a lower effective tax rate of 25.6% for the second quarter of fiscal year 2019 compared to the prior year effective tax rate of 40.6%. The decline was primarily driven by the Tax Cuts and Jobs Act enacted in December 2017, under which the Company’s statutory federal tax rate for fiscal year 2019 declined to 21% from the prior year second quarter tax rate of 28.1%.
•
Operating cash flow for the second quarter of fiscal year 2019 was $16.8 million compared to operating cash flow of $8.4 million in the prior year, an increase of $8.4 million. The increase was primarily driven by payments of employee incentives that occurred during the prior year second quarter but not in the current year second quarter as a result of a change in timing of annual cash incentive payments.
•
The Company’s balance in cash, cash equivalents, and short-term investments was $81.1 million at December 31, 2018, compared to $87.3 million at June 30, 2018. The fiscal year 2019 decrease was primarily due to capital expenditures of $10.7 million, a $4.9 million cash outflow for the David Edward acquisition, and the return of capital to shareowners in the form of $9.1 million in stock repurchases and $5.6 million in dividends, which more than offset $23.9 million of cash flows from operations.
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) organic net sales; (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 CEO transition costs from the GAAP income measure. Organic net sales are defined as net sales excluding acquisition-related sales, and Adjusted EBITDA is defined as net income before interest expense, income taxes, depreciation expense, amortization 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 organic net sales is useful to investors to aid in identifying underlying trends in our business and facilitating comparisons of our sales performance with prior periods. Management believes that Adjusted EBITDA and other metrics excluding CEO transition expenses 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.
Forward-Looking Statements
Certain statements contained within this release are considered forward-looking under the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties including, but not limited to, the risk that any projections or guidance, including revenues, margins, earnings, or any other financial results are not realized, the impact of changes in tariffs, adverse changes in the global economic conditions, significant volume reductions from key contract customers, significant reduction in customer order patterns, financial stability of key customers and suppliers, and availability or cost of raw materials. 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, 2018 and other filings with the Securities and Exchange Commission.
Conference Call / Webcast
 
 
 
Date:
 
February 5, 2019
Time:
 
11:00 AM 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.
Kimball International, Inc. creates design driven, innovative furnishings sold through our family of brands: Kimball, National, and Kimball Hospitality. Our diverse portfolio offers solutions for the workplace, learning, healing, and hospitality environments. Our values and integrity are demonstrated daily by living our Guiding Principles and creating a culture of caring that establishes us as an employer of choice. “We Build Success” by establishing long-term relationships with customers, employees, suppliers, shareowners and the communities in which we operate. To learn more about Kimball International, Inc. (NASDAQ: KBAL), visit www.kimballinternational.com.




Financial highlights for the second quarter ended December 31, 2018 are as follows:

Condensed Consolidated Statements of Income
 
 
 
 
 
 
 
(Unaudited)
Three Months Ended
(Amounts in Thousands, except per share data)
December 31, 2018
 
December 31, 2017
Net Sales
$
201,008

 
100.0
%
 
$
178,614

 
100.0
%
Cost of Sales
136,019

 
67.7
%
 
121,194

 
67.9
%
Gross Profit
64,989

 
32.3
%
 
57,420

 
32.1
%
Selling and Administrative Expenses
51,491

 
25.6
%
 
45,415

 
25.4
%
Operating Income
13,498

 
6.7
%
 
12,005

 
6.7
%
Other Income (Expense), net
(854
)
 
(0.4
%)
 
423

 
0.3
%
Income Before Taxes on Income
12,644

 
6.3
%
 
12,428

 
7.0
%
Provision for Income Taxes
3,239

 
1.6
%
 
5,050

 
2.9
%
Net Income
$
9,405

 
4.7
%
 
$
7,378

 
4.1
%
 
 
 
 
 
 
 
 
Earnings Per Share of Common Stock:
 
 
 
 
 
 
 
Basic
$
0.26

 
 
 
$
0.20

 
 
Diluted
$
0.25

 
 
 
$
0.20

 
 
 
 
 
 
 
 
 
 
Average Number of Total Shares Outstanding:
 
 
 
 
 
 
 
Basic
36,793

 
 
 
37,476

 
 
Diluted
37,088

 
 
 
37,736

 
 

 
 
 
 
 
 
 
 
(Unaudited)
Six Months Ended
(Amounts in Thousands, except per share data)
December 31, 2018
 
December 31, 2017
Net Sales
$
395,131

 
100.0
%
 
$
353,974

 
100.0
%
Cost of Sales
264,269

 
66.9
%
 
232,547

 
65.7
%
Gross Profit
130,862

 
33.1
%
 
121,427

 
34.3
%
Selling and Administrative Expenses
103,670

 
26.2
%
 
93,465

 
26.4
%
Operating Income
27,192

 
6.9
%
 
27,962

 
7.9
%
Other Income (Expense), net
(158
)
 
(0.1
%)
 
912

 
0.3
%
Income Before Taxes on Income
27,034

 
6.8
%
 
28,874

 
8.2
%
Provision for Income Taxes
6,753

 
1.7
%
 
10,539

 
3.0
%
Net Income
$
20,281

 
5.1
%
 
$
18,335

 
5.2
%
 
 
 
 
 
 
 
 
Earnings Per Share of Common Stock:
 
 
 
 
 
 
 
Basic
$
0.55

 
 
 
$
0.49

 
 
Diluted
$
0.54

 
 
 
$
0.49

 
 
 
 
 
 
 
 
 
 
Average Number of Total Shares Outstanding:
 
 
 
 
 
 
 
Basic
36,951

 
 
 
37,452

 
 
Diluted
37,347

 
 
 
37,775

 
 





 
(Unaudited)
 
 
Condensed Consolidated Balance Sheets
December 31,
2018
 
June 30,
2018
(Amounts in Thousands)
 
ASSETS
 
 
 
    Cash and cash equivalents
$
38,993

 
$
52,663

    Short-term investments
42,076

 
34,607

    Receivables, net
64,085

 
62,276

    Inventories
48,994

 
39,509

    Prepaid expenses and other current assets
15,331

 
18,523

    Assets held for sale
281

 
281

    Property and Equipment, net
88,433

 
84,487

    Goodwill
11,161

 
8,824

    Intangible Assets, net
12,022

 
12,607

    Deferred Tax Assets
6,828

 
4,916

    Other Assets
12,090

 
12,767

        Total Assets
$
340,294

 
$
331,460

 
 
 
 
LIABILITIES AND SHAREOWNERS’ EQUITY
 
 
 
    Current maturities of long-term debt
$
25

 
$
23

    Accounts payable
52,236

 
48,214

    Customer deposits
26,849

 
21,253

    Dividends payable
3,044

 
2,662

    Accrued expenses
42,491

 
50,586

    Long-term debt, less current maturities
136

 
161

    Other
14,642

 
15,537

    Shareowners’ Equity
200,871

 
193,024

        Total Liabilities and Shareowners’ Equity
$
340,294

 
$
331,460






Condensed Consolidated Statements of Cash Flows
Six Months Ended
(Unaudited)
December 31,
(Amounts in Thousands)
2018
 
2017
Net Cash Flow provided by Operating Activities
$
23,908

 
$
15,382

Net Cash Flow used for Investing Activities
(21,849
)
 
(26,873
)
Net Cash Flow used for Financing Activities
(15,750
)
 
(9,090
)
Net Decrease in Cash, Cash Equivalents, and Restricted Cash
(13,691
)
 
(20,581
)
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period
53,321

 
63,088

Cash, Cash Equivalents, and Restricted Cash at End of Period
$
39,630

 
$
42,507







Net Sales by End Vertical Market
 
 
 
 
 
 
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(Unaudited)
December 31,
 
 
 
December 31,
 
 
(Amounts in Millions)
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Commercial
$
63.6

 
$
49.3

 
29
%
 
$
120.2

 
$
101.6

 
18
%
Education
18.1

 
17.4

 
4
%
 
52.7

 
49.1

 
7
%
Finance
18.1

 
17.9

 
1
%
 
36.3

 
31.1

 
17
%
Government
18.8

 
23.8

 
(21
%)
 
35.9

 
51.3

 
(30
%)
Healthcare
28.5

 
23.8

 
20
%
 
52.9

 
44.2

 
20
%
Hospitality
53.9

 
46.4

 
16
%
 
97.1

 
76.7

 
27
%
Total Net Sales
$
201.0

 
$
178.6

 
13
%
 
$
395.1

 
$
354.0

 
12
%
Orders Received by End Vertical Market
 
 
 
 
 
 
 
Three Months Ended
 
 
 
Six Months Ended
 
 
(Unaudited)
December 31,
 
 
 
December 31,
 
 
(Amounts in Millions)
2018
 
2017
 
% Change
 
2018
 
2017
 
% Change
Commercial
$
58.2

 
$
55.3

 
5
%
 
$
119.1

 
$
104.4

 
14
%
Education
19.4

 
17.7

 
10
%
 
41.2

 
37.9

 
9
%
Finance
17.9

 
19.0

 
(6
%)
 
35.4

 
35.4

 
0
%
Government
20.9

 
20.7

 
1
%
 
39.2

 
46.5

 
(16
%)
Healthcare
29.7

 
24.3

 
22
%
 
57.5

 
45.9

 
25
%
Hospitality
44.9

 
44.9

 
0
%
 
96.1

 
79.5

 
21
%
Total Orders Received
$
191.0

 
$
181.9

 
5
%
 
$
388.5

 
$
349.6

 
11
%



Supplementary Information
 
 
 
 
 
 
 
Components of Other Income (Expense), net
Three Months Ended
 
Six Months Ended
(Unaudited)
December 31,
 
December 31,
(Amounts in Thousands)
2018
 
2017
 
2018
 
2017
Interest Income
$
428

 
$
234

 
$
847

 
$
468

Interest Expense
(56
)
 
(74
)
 
(106
)
 
(105
)
Gain (Loss) on Supplemental Employee Retirement Plan Investments
(1,097
)
 
413

 
(726
)
 
764

Other Non-Operating Expense
(129
)
 
(150
)
 
(173
)
 
(215
)
Other Income (Expense), net
$
(854
)
 
$
423

 
$
(158
)
 
$
912





Reconciliation of Non-GAAP Financial Measures
 
 
 
(Unaudited)
 
 
 
(Amounts in Thousands)
 
 
 
 
 
 
 
Organic Net Sales
 
Three Months Ended
 
December 31,
 
2018
 
2017
Net Sales, as reported
$
201,008

 
$
178,614

Less: David Edward acquisition net sales
2,617

 
0

Organic Net Sales
$
198,391

 
$
178,614

 

 
 
Adjusted Operating Income
 
Three Months Ended
 
December 31,
 
2018
 
2017
Operating Income, as reported
$
13,498

 
$
12,005

Add: Pre-tax CEO Transition Costs
502

 
0

Adjusted Operating Income
$
14,000

 
$
12,005

 
 
 
 
Adjusted Net Income
 
Three Months Ended
 
December 31,
 
2018
 
2017
Net Income, as reported
$
9,405

 
$
7,378

Pre-tax CEO Transition Costs
502

 
0

Tax on CEO Transition Costs
(130
)
 
0

Add: After-tax CEO Transition Costs
372

 
0

Adjusted Net Income
$
9,777

 
$
7,378

 
 
 
 
Adjusted Diluted Earnings Per Share
 
Three Months Ended
 
December 31,
 
2018
 
2017
Diluted Earnings Per Share, as reported
$
0.25

 
$
0.20

Add: After-tax CEO Transition Costs
0.01

 
0.00

Adjusted Diluted Earnings Per Share
$
0.26

 
$
0.20




Earnings Before Interest, Taxes, Depreciation, and Amortization excluding CEO Transition Costs (“Adjusted EBITDA”)
 
Three Months Ended
 
December 31,
 
2018
 
2017
Net Income
$
9,405

 
$
7,378

Provision for Income Taxes
3,239

 
5,050

Income Before Taxes on Income
12,644

 
12,428

Interest Expense
56

 
74

Interest Income
(428
)
 
(234
)
Depreciation and Amortization
4,213

 
3,874

Pre-tax CEO Transition Costs
502

 
0

Adjusted EBITDA
$
16,987

 
$
16,142