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| 8-K - 8-K - KNOLL INC | q320148-k.htm |
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1235 Water Street
East Greenville, PA 18041
Tel 215 679-7991
Press Release
Knoll Reports Strong Third Quarter Results
Office segment margins and profits at highest level since 2012.
EAST GREENVILLE, PA, October 17, 2014 -- Knoll, Inc. (NYSE: KNL) today announced results for the third quarter ended September 30, 2014. Net sales were $268.3 million for the quarter, an increase of 23.7% from third quarter of 2013. Organically, excluding the impact of HOLLY HUNT®, which we acquired on February 3, 2014, sales increased 10.1% when compared with the third quarter of 2013. Operating profit for the quarter was $23.3 million. Operating profit increased 36.3% for the quarter when compared to operating profit of $17.1 million in the third quarter of 2013. Net income for the third quarter of 2014 was $15.7 million, an increase of 82.6% when compared with the third quarter of 2013. Diluted earnings per share was $0.33 for the quarter compared to $0.18 per share in the prior year.
"It was a strong quarter as our strategy delivered better than industry growth and operating margins," commented Andrew Cogan, CEO. "The combination of the continued turn of our North America Office business, double-digit organic growth, and the addition of our HOLLY HUNT acquisition are coming together to start to deliver the kind of performance we would expect," he added.
Third Quarter Results
Third quarter 2014 financial results highlights are as follows:
Dollars in Millions, Except Per Share Data | Three Months Ended | Percent | |||||||||
9/30/2014 | 9/30/2013 | Change | |||||||||
Net Sales | $ | 268.3 | $ | 216.9 | 23.7 | % | |||||
Gross Profit | 95.0 | 72.4 | 31.2 | % | |||||||
Gross Profit % | 35.4 | % | 33.4 | % | 6.0 | % | |||||
Operating Expenses | 71.7 | 55.3 | 29.7 | % | |||||||
Operating Profit | 23.3 | 17.1 | 36.3 | % | |||||||
Operating Profit % | 8.7 | % | 7.9 | % | 10.1 | % | |||||
Net Income Attributable to Knoll, Inc. Stockholders | 15.7 | 8.6 | 82.6 | % | |||||||
Earnings Per Share - Diluted | 0.33 | 0.18 | 83.3 | % | |||||||
Organic net sales growth is a non-GAAP financial measure and represents the change in net sales excluding the impact of HOLLY HUNT, which we acquired on February 3, 2014. For a reconciliation of organic net sales growth to net sales, see "Reconciliation of Non-GAAP Financial Measures" below.
Net sales for the Office segment were $166.8 million during the third quarter of 2014, an increase of $16.3 million, or 10.8%, when compared with the third quarter of 2013. The increase in sales in the Office segment was the result of growth attributable to new workplace models and office systems. Offsetting this growth in the Office segment was a marginal decline in government sales year-over-year. Net sales for the Studio segment was $72.2 million, an increase of $34.5 million, or 91.5%, when compared with the third quarter of 2013. The increase in sales in the Studio segment was due to the acquisition of HOLLY HUNT, which occurred during the first quarter of 2014, as well as organic growth in Europe and North America. Excluding HOLLY HUNT, organic sales increased in the Studio segment during the third quarter of 2014 by $5.0 million, or 13.3%. Net sales for the Coverings segment were $29.3 million, an increase of $0.6 million, or 2.1%, when compared with the third quarter of 2013. Net sales growth in the Coverings segment is attributable to improved year-over-year sales performance in our leather and felt businesses.
Gross profit for the third quarter of 2014 was $95.0 million, an increase of $22.6 million, or 31.2%, when compared with the same period in 2013. During the third quarter 2014, gross margin (gross profit as a percentage of net sales) increased to 35.4% from 33.4% in the same quarter of 2013. The increase in gross margin from the third quarter of 2013 mainly resulted from the mix of higher margin sales, primarily attributable to our Studio segment, which includes the results of HOLLY HUNT.
Operating expenses were $71.7 million, or 26.7% of net sales, compared to $55.3 million, or 25.5% of net sales, for the third quarter of 2013. The increase in operating expenses during the third quarter of 2014 was in large part due to additional operating expenses from HOLLY HUNT and greater commission and incentive compensation accruals incurred as a result of higher sales and profits.
Operating profit for the third quarter of 2014 was $23.3 million, an increase of $6.2 million, or 36.3%, when compared to the same period in 2013. Operating profit for the Office segment was $8.3 million in the third quarter of 2014, an increase of $2.6 million, or 45.6% when compared with the third quarter of 2013. Operating profit for the Studio segment was $9.1 million, an increase of $3.8 million, or 71.7% when compared with the third quarter of 2013. Operating profit for the Coverings segment was $5.9 million, a decrease of $0.2 million, or 3.3% when compared to the third quarter of 2013.
During the third quarter of 2014, other (income) expense was ($3.3) million. Other income for the third quarter of 2014 primarily related to foreign exchange gains, which increased diluted earnings $0.04 per share. During the third quarter of 2013, other (income) expense was $2.2 million. Other expense for the third quarter of 2013 primarily related to foreign exchange losses, which decreased diluted earnings $0.03 per share.
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 36.8% for the quarter, as compared to 35.9% for the same period last year.
Net income for the third quarter 2014 was $15.7 million, or $0.33 diluted earnings per share, as compared to $8.6 million, or $0.18 per share, for the same quarter in 2013.
During the third quarter of 2014 and 2013, cash provided by operations was $33.4 million and $15.3 million, respectively. Capital expenditures for the third quarter of 2014 totaled $14.3 million compared to $3.3 million in the comparable period for 2013. During the third quarter of 2014, the Company paid a
quarterly dividend of $5.7 million, or $0.12 per share, compared to a quarterly dividend of $5.6 million, or $0.12 per share, in the third quarter of 2013.
“Just 2 full quarters after the acquisition of HOLLY HUNT our leverage ratio is down to 2.73:1. The strong performance of this acquisition coupled with growing profits in our core businesses and debt reduction have contributed to this improvement,” 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 North America and offers 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, | ||||||||
(in millions) | ||||||||
Net Sales | 2014 | 2013 | ||||||
Office | $ | 166.8 | $ | 150.5 | ||||
Studio | 72.2 | 37.7 | ||||||
Coverings | 29.3 | 28.7 | ||||||
Total Net Sales | $ | 268.3 | $ | 216.9 | ||||
Three Months Ended September 30, | ||||||||
(in millions) | ||||||||
Operating Profit | 2014 | 2013 | ||||||
Office | $ | 8.3 | $ | 5.7 | ||||
Studio | 9.1 | 5.3 | ||||||
Coverings | 5.9 | 6.1 | ||||||
Total Operating Profit | $ | 23.3 | $ | 17.1 | ||||
Reconciliation of Non-GAAP Financial Measures
This release contains adjusted EBITDA and organic sales growth (decline) measures, which are non-GAAP financial measures. Organic sales growth (decline) represents the change in net sales excluding the impact of HOLLY HUNT. Adjusted EBITDA represents net income adjusted for items such as interest, taxes, depreciation, amortization, and other non-cash items. We present these non-GAAP measures because we consider them to be important supplemental measures of our performance and believe them to be useful to show ongoing results from operations distinct from items that are infrequent or not indicative of our operating performance.
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 to organic net sales for the periods indicated.
Three Months Ended September 30, 2014 | Three Months Ended September 30, 2013 | |||||||||||||
(in millions) | (in millions) | |||||||||||||
Net Sales | Holly Hunt | Organic Net Sales | Net Sales | |||||||||||
Office | $ | 166.8 | $ | — | $ | 166.8 | $ | 150.5 | ||||||
Studio | 72.2 | 29.5 | 42.7 | 37.7 | ||||||||||
Coverings | 29.3 | — | 29.3 | 28.7 | ||||||||||
Total | $ | 268.3 | $ | 29.5 | $ | 238.8 | $ | 216.9 | ||||||
Percent change over prior year | 23.7 | % | 10.1 | % | ||||||||||
The following table illustrates the computation of our bank leverage calculation is in accordance with our second Amended and Restated Credit Agreement dated May 20, 2014.
9/30/2013 | 12/31/2013 | 3/31/2014 | 6/30/2014 | 9/30/2014 | ||||||||||||||||
Debt Levels (1) | $ | 188.8 | $ | 178.8 | $ | 289.8 | $ | 287.8 | $ | 283.7 | ||||||||||
LTM Net Income ($mm) | 40.0 | 23.1 | 25.3 | 28.2 | 39.1 | |||||||||||||||
LTM Adjustments | ||||||||||||||||||||
Interest | 5.4 | 5.3 | 5.5 | 5.9 | 6.3 | |||||||||||||||
Taxes | 23.6 | 15.4 | 15.8 | 17.4 | 21.7 | |||||||||||||||
Depreciation and Amortization | 16.4 | 16.3 | 16.9 | 17.8 | 18.6 | |||||||||||||||
Non-cash items (2) | 7.6 | 20.4 | 27.1 | 28.8 | 18.1 | |||||||||||||||
LTM Adjusted EBITDA | $ | 93.0 | $ | 80.5 | $ | 90.6 | (3) | $ | 98.1 | (3) | $ | 103.8 | (3) | |||||||
Bank Leverage Calculation (4) | 2.03 | 2.22 | 3.20 | 2.93 | 2.73 | |||||||||||||||
(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 include, but are not limited to, stock-based compensation expenses, unrealized gains and losses on foreign exchange, an intangible asset impairment charge, and restructuring charges. | ||||||||||||||||||||
(3) - Includes an annualized proforma EBITDA for HOLLY HUNT, which was acquired on February 3, 2014. | ||||||||||||||||||||
(4) - Debt divided by LTM Adjusted EBITDA, as calculated in accordance with our credit facility. | ||||||||||||||||||||
Conference Call Information
Knoll will host a conference call on Friday, October 17, 2014 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 877 703-6105
International 857 244-7304
Passcode 36227863
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 24, 2014 by dialing 888 286-8010. International replay: 617 801-6888 (Passcode: 25526336).
About Knoll
Knoll is recognized internationally for workplace and residential design that inspires, evolves and endures. Our portfolio of furniture, textiles, leathers 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 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)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net sales | $ | 268,297 | $ | 216,898 | $ | 763,425 | $ | 631,796 | ||||||||
Cost of sales | 173,335 | 144,559 | 494,784 | 425,949 | ||||||||||||
Gross profit | 94,962 | 72,339 | 268,641 | 205,847 | ||||||||||||
Selling, general, and administrative expenses | 71,647 | 55,288 | 211,102 | 166,094 | ||||||||||||
Restructuring charges | — | — | 203 | — | ||||||||||||
Operating profit | 23,315 | 17,051 | 57,336 | 39,753 | ||||||||||||
Interest expense | 1,899 | 1,484 | 5,514 | 4,496 | ||||||||||||
Other (income) expense, net | (3,294 | ) | 2,224 | (3,098 | ) | (1,273 | ) | |||||||||
Income before income tax expense | 24,710 | 13,343 | 54,920 | 36,530 | ||||||||||||
Income tax expense | 9,088 | 4,793 | 20,266 | 14,018 | ||||||||||||
Net income | 15,622 | 8,550 | 34,654 | 22,512 | ||||||||||||
Net loss attributable to noncontrolling interests | (31 | ) | — | (39 | ) | — | ||||||||||
Net income attributable to Knoll, Inc. stockholders | $ | 15,653 | $ | 8,550 | $ | 34,693 | $ | 22,512 | ||||||||
Earnings per share attributable to Knoll, Inc. stockholders: | ||||||||||||||||
Basic | $ | 0.33 | $ | 0.18 | $ | 0.73 | $ | 0.48 | ||||||||
Diluted | $ | 0.33 | $ | 0.18 | $ | 0.72 | $ | 0.47 | ||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic | 47,376,605 | 46,915,660 | 47,314,810 | 46,882,362 | ||||||||||||
Diluted | 48,072,632 | 47,679,422 | 48,032,710 | 47,615,305 | ||||||||||||
KNOLL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30, 2014 | December 31, 2013 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 15,700 | $ | 12,026 | ||||
Customer receivables, net | 94,565 | 104,171 | ||||||
Inventories | 138,728 | 96,449 | ||||||
Prepaid and other current assets | 33,392 | 23,553 | ||||||
Total current assets | 282,385 | 236,199 | ||||||
Property, plant, and equipment, net | 162,228 | 137,893 | ||||||
Goodwill and Intangible assets, net | 383,223 | 294,646 | ||||||
Other non-current assets | 10,031 | 8,596 | ||||||
Total Assets | $ | 837,867 | $ | 677,334 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Current maturities of long-term debt | $ | 10,000 | $ | — | ||||
Accounts payable | 97,477 | 91,378 | ||||||
Other current liabilities | 102,629 | 76,925 | ||||||
Total current liabilities | 210,106 | 168,303 | ||||||
Long-term debt | 251,500 | 173,000 | ||||||
Other non-current liabilities | 136,551 | 107,589 | ||||||
Total liabilities | 598,157 | 448,892 | ||||||
Total equity | 239,710 | 228,442 | ||||||
Total Liabilities and Equity | $ | 837,867 | $ | 677,334 | ||||
KNOLL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended | ||||||||
September 30, | ||||||||
2014 | 2013 | |||||||
(Unaudited) | (Unaudited) | |||||||
Net income | $ | 34,654 | $ | 22,512 | ||||
Cash Flows provided by Operating Activities | 64,716 | 31,349 | ||||||
Cash Flows used in Investing Activities | (125,656 | ) | (20,761 | ) | ||||
Cash Flows provided by (used in) Financing Activities | 66,141 | (27,150 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (1,527 | ) | 119 | |||||
Increase (decrease) in cash and cash equivalents | 3,674 | (16,443 | ) | |||||
Cash and cash equivalents at beginning of period | 12,026 | 29,956 | ||||||
Cash and cash equivalents at end of period | $ | 15,700 | $ | 13,513 | ||||