Good morning. My name is Sheryl, and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation First Quarter Fiscal 2020 Results Conference Call. As a reminder, today’s conference call is being recorded. Thank you. Mr. McCall, you may begin your conference.

Thank you, Sheryl. Good morning. My name is Matt McCall, I'm Vice President of Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our first quarter fiscal 2020 results. With me today are Jeff Lorenger, Chairman, President and CEO, and Marshall Bridges, Senior Vice President and CFO. Copies of our financial news release, earnings presentation, and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risk. Actual results could differ materially. The earnings presentation posted on the website includes additional factors that could affect actual results. The Corporation assumes no obligation to update any forward-looking statements made during the call. Now, I'm pleased to turn the call over to Jeff Lorenger. Jeff?

Thanks, Matt. Good morning, everyone. Our members delivered strong first-quarter operating results, and we will come back to that in a moment. I want to start with an update on the ongoing COVID-19 pandemic. What we are experiencing, what we are assuming, and how we are currently responding. Upfront, the two most important points I would like to emphasize are; first, we will prioritize the health and well-being of all HNI members during this pandemic. And second, we will successfully navigate this pandemic. With respect to my first point, the HNI culture again is rising to the occasion. Our members are coming together to support our communities and doing what is necessary to move the business forward. To help protect our teams, we have aggressively implemented measures consistent with CDC guidelines across our organization. We have reorganized our production facilities to provide appropriate social distancing. We have increased the frequency and depth of facility cleaning. All members able to work remotely are currently doing so. With these measures in place, we are currently operating in our major facilities. Additionally, we are utilizing our facilities in Iowa, New York and North Carolina to produce personal protective equipment. These efforts include the manufacture of washable cloth face masks, face mask coverings and protective gowns for use by healthcare professionals and the public in general. We are donating these critical supplies to our first responders, healthcare systems, and hospitals in our communities. Let's talk about my second point, how we will successfully navigate this pandemic. We have a strong balance sheet and have liquidity and cash flow to maintain our business and meet our obligations for a prolonged period. While the sudden global economic shock has been felt across the majority of our businesses and geographies, we are responding accordingly and our teams are focused on three objectives. Number one, we are adjusting to the current operating environment and staying vigilant in our short-term scenario planning. Number two, we are maintaining our long-term strategic focus. And number three, we are focused on emerging from this period with our business poised to hit the ground running. Let me detail some of the actions we have taken to date to reduce costs and support our free cash flow. First, we temporarily reduced salaries across the board. Base salaries were reduced by 10% for all exempt salaried employees and by 15% for all executives. My salary was reduced by 25%. We plan to reevaluate these measures in six months. Second, our board of directors elected to reduce by 25% both their cap retainers for the next six months and their annual equity award. Third, to better match staffing levels with demand activity, various groups and/or members have been furloughed. We are supporting our furloughed members by covering all health and dental insurance premiums during the furloughed period, both the company and member portions. These furloughs are being continuously reevaluated as conditions evolve. Fourth, we suspended our share repurchase activity. As a point of reference, in recent years, buybacks have averaged approximately $55 million annually. Finally, we reduced our capital expenditure budget for 2020 from approximately $65 million to $35 million. Our planned growth investment spending for 2020 is being maintained at a reduced level of approximately 50%. In total, we currently anticipate $60 million to $65 million of cost improvement during 2020 as compared to 2019, with the full run rate expected by mid-Q2. In addition, from a cash flow perspective, savings associated with our buyback suspension and our CapEx reductions will add to our liquidity buffer. Again, these measures are part of our balanced approach to address the impact of the pandemic and are aimed at supporting our members and our free cash flow in 2020 as we navigate through these unchartered waters. I will now share some thoughts on the business and demand picture, what we are experiencing and currently assuming. While the extent of the pressure from the crisis is still uncertain, we believe several data points indicate we will see a near-term slowdown in our businesses. The first data point is our recent order activity. Not surprisingly, our orders over the last four weeks are trending down. Domestic office furniture orders are down 35% versus the prior year period. That rate does not include e-commerce, which continues to show strong growth. In fact, our e-commerce orders are up 120% versus the prior year levels, in large part due to a huge spike in demand for home office products. Orders for our Hearth business during the same period are down 20%. The second data point to consider is our experience in China. Our Furniture business in China faced pressure from the pandemic in Q1. Although China is a very different market compared to the U.S., our experience there may provide insight into the trend we could see domestically. Demand dropped quickly as measures to counteract the pandemic were implemented. Approximately eight weeks later, we started to see volume trends recover as businesses began to reopen. While we are still well below normal levels, the trend has improved. The third data point to look at is what happened to our markets in previous recessions. We are not saying the current downturn will play out the same way, as this one is certainly unique, but looking at history gives more data points to consider. In each of the last two downturns, the commercial furniture industry volume declined a little over 30%. Building products and housing were hit hard in the last recession. We are not expecting that level of severity this time. Compared to the great recession, construction levels are lower, inventories are tighter, and there is not an overhang of homes held by speculative buyers and subprime borrowers. Based on these data points, we anticipate and we are seeing a significant near-term slowdown in our businesses. Right now, we do not have good visibility on the depth and duration of the decline. We have run and are prepared for a variety of scenarios. Despite these near-term pressures, we see the potential for the post-crisis environment to positively impact our business segments in a couple of different ways. In our Furniture segment, in addition to incremental demand tied to work from home trends, office floor plates will most likely see change to accommodate less dense configurations that better support social distancing. In fact, in the last few weeks, we have already seen companies reconsider their plant layouts. In addition, our architectural products platform is also well positioned for this trend. The diverse product lineup can quickly create physical separation with minimal construction time, while maintaining natural light. In our Hearth Products segment, we may see increasing benefit from a shift away from dense multifamily construction toward more single-family homes. This will be a positive demand driver for our Hearth Products segment. In addition, we believe the extended period of shelter in place could drive elevated remodel spending as consumers look to spend more money where they are spending more time. I will now turn the call over to Marshall to discuss our first quarter results, our current financial position, and more color on the stress test we have performed in recent weeks. I will then come back and highlight the key elements of our long-term strategic framework.

Thanks, Jeff. Our members delivered a strong first quarter. Consolidated non-GAAP net income per diluted share was $0.21, which represented a substantial increase versus the $0.02 reported in the first quarter of 2019. First quarter consolidated organic sales decreased 2.5% versus the prior year to $469 million. Including the benefit of acquisitions, sales were down 2.2%. In the Office Furniture segment, first quarter sales decreased 4.3% year-over-year. We again generated strong profit growth in Office Furniture with first quarter non-GAAP operating income improving by $4 million. Sales in our Hearth Product segment increased 2.6% year-over-year organically or 3.5% when including acquisitions. Within the Hearth segment, new residential construction revenue grew 3.2% organically, and sales of remodel and retrofit products increased 1.9% year-over-year. We also showed strong profit improvement in the Hearth segment. Hearth non-GAAP operating profit increased 17% versus the prior year quarter. For HNI overall, the first quarter gross profit margin expanded 220 basis points year-over-year to 37.6%. Non-GAAP operating profit grew 279% versus the prior year. And non-GAAP operating margin in the first quarter expanded 220 basis points to 3% of net sales. Our non-GAAP results exclude $37.7 million of charges related to intangible impairments and one-time items related to the COVID-19 crisis. So overall, our first-quarter results demonstrate the strength of our operating platform. Our annual productivity and cost-saving efforts again drove improved profitability. Let's now talk about our liquidity and debt levels. At the end of the first quarter, we had $230 million in total debt, representing a gross leverage ratio of 1.0. This is well below the 3.5 times gross leverage covenant in our existing loan agreements. Our first debt maturity is not until 2023. Liquidity, as measured by the combination of cash and available capacity on our lending facilities, totaled more than $350 million at quarter end. This is equal to approximately two years of recent free cash flow levels. Okay. Let's shift to covering some of the scenario analysis we've done. Let's start by emphasizing that we are not providing sales and earnings guidance. That said, we have evaluated our earnings, cash flow, and balance sheet under various scenarios. The scenarios indicate the following. First, we would be able to manage to a 25% deleverage or decremental margin with our cost actions. Second, we would generate free cash flow at or above our current dividend level. Third, year-end debt levels would be similar or slightly above last year's ending balance. And finally, we would remain well within our debt covenants. They also indicate we should expect a sizable earnings loss in the second quarter. In our scenarios, we do remain solidly profitable on a non-GAAP basis for the year, and we'll manage cost accordingly. In addition to these scenarios, we thought we'd share the results of our stress test where we model the limits of our current capital structure. What it showed is that we can support nearly $270 million in debt with zero cash earnings. This is due in part to the $77 million in annual depreciation and amortization we incur. Please note, the stress test is not an outlook or scenario. We are not providing color around what circumstances might drive us to this condition. It has been solely to illustrate the financial flexibility of our business model. With that, I'll now turn the call back over to Jeff.

Thanks, Marshall. In my letter to shareholders recently published in the HNI annual report, I introduced our three strategic priorities. While HNI's unique member-owner culture remains our foundation, our corporate-wide focus and members' efforts going forward are centered on the following three pillars. First, we will be laser-focused on the customer. Customer journeys in our markets are changing and the impacts of the pandemic will create more change. To capitalize on these changes and identify and take advantage of the new market dynamics, we are investing in new tools and capabilities in the areas of data analytics, digital assets, branding, e-commerce, and expanded market coverage. Second, we are simplifying the buying process. Buying Office Furniture and Hearth Products can be complicated and time-consuming. There are large numbers of options and configurations to sort through, complicated installations to coordinate and tight timelines to manage. Navigating the process can take multiple in-person interactions. Customers today are less willing to go through that kind of process and they are upping their expectations. We are focused on transforming the experience to reduce their effort. Third, we will leverage our lean heritage. HNI's long-standing and well-established culture of rapid continuous improvement, and our recent results demonstrate our capability to leverage that lean heritage. We are doubling our efforts here in order to unlock our toolset in support of our first two pillars that I just referenced. Again, while our near-term focus is on our members' health, safety and our overall cash flow, our strategic framework will help drive significant improvements over the long-term. Later this year, as the pandemic-driven economic uncertainty moderates, we plan to roll out a more detailed version of our framework. We'll now open up the call for your questions.

The first question is from Steven Ramsey of Thompson Research Group. Please go ahead. Your line is open.

Good morning. I guess I will start with the Hearth. Maybe share a little bit more on the M&A activity. Was that started prior to COVID or was it in response to COVID players that were we can could shore up bringing with you guys coming in? And then I guess the financial side of it, $9 million for the acquisitions net of cash. Is that all the cash that will be deployed or were there more that were done, and cash will be laid out in Q2?

Yes. Thanks. The M&A activity on the Hearth side that you referenced was started before the COVID pandemic. And on the cash side of things, Marshall, why don't you comment?

Yes. Steven, that is what we anticipate in that. This acquisition of some small distributors adds about $1 million of revenue to the quarter. We expected to add somewhere in the neighborhood of $9 million to $12 million of revenue for the full year.

Excellent. And then I missed the specific numbers on the Hearth growth, but maybe review those. And then share more on why it strengthened as the quarter went along?

Yes. Hearth new construction was up 3.2% organically in the quarter, and that really did strengthen as we moved through the quarter. If you look at sort of mid-February to mid-March before the crisis hit, it was running in the high-single digits, around 7%, the orders were running there. I think that indicates the strength of the new construction market prior to the crisis.

Great. And then I guess shifting to office. I guess first on dealers. How is dealer health currently on our collections of receivables from dealers for any recently completed sales?

Yes. Dealer health so far has been good. We haven't seen any fallout. Obviously, we're in constant contact and we have high levels of engagement with our dealer partners, both on the office side and on the hearth side. They have been able to navigate these things in the past. And so far, we are monitoring their health, but we haven't seen any real stress yet.

Great. And as we think about the future of office formats, less density as you guys discussed, how quickly do you expect that to roll out? I guess, orders as they pick up, maybe later Q2, early Q3, whatever the speculative timeline is, would those orders fit into that less densified office format or is that going to happen one year, two years down the road?

Yes. It's a good question. I think there will be some short-term impacts from people who want to do some quick hits on screening and adjusting a little bit of what they have, and then obviously people who are in development of projects. There will be some change that will become more of a planning paradigm that has more permanency to it, probably in 12 months or so.

Great. And last question for me on CapEx, I don't know if I followed it well, but with the growth investment percentage of the previous plan, can you maybe explain that again? And if the growth areas of CapEx, what areas specifically are you focusing on or de-emphasizing in the near-term?

Yes. In terms of CapEx and growth. Roughly speaking, maybe a quarter of that $65 million we previously planned to spend was for maintenance and the rest was for growth and capabilities. So now it's roughly half; right? We've reduced it from $65 million to approximately $35 million this year. What was cut is broad-based; there is not a single large item there.

Your next question is from Greg Burns of Sidoti & Company. Please go ahead. Your line is open.

In terms of CapEx and growth, roughly speaking, maybe a quarter of that $65 million we previously planned to spend was for maintenance and the rest was for growth and capabilities. Now it's roughly half; we've reduced it from $65 million to approximately $35 million this year. What was cut is broad-based; there is not a single large item there.

Good morning.

I guess, you mentioned that your major manufacturing facilities are online, but what capacity are they currently running? What percent of your capacities?

Yes. I mean, it's kind of all over the board. We have taken down capacity in response to order incoming, but we can ramp back up pretty quickly. We're running anywhere in the 50% to 60% capacity right now, Greg.

Okay. You mentioned earlier that I missed some of the call patterns since the pandemic began. Have you noticed any cancellations in project activity pipelines?

Yes. We had mentioned, Greg, you may have missed it; the four-week average on office, for instance, is running down about 35%. On the hearth side, the four-week average run down about 20%. The funnel has really been pushed; we haven't really seen much cancellation. We've seen push outs of the second quarter into the third quarter or into the fourth quarter, but we haven't really seen cancellations.

All right. I think this addresses my next question. I was going to ask whether the hearth business last recession was primarily driven by the housing market. I'm not sure if that reflects the current situation. Overall, is the hearth business more cyclical compared to the office business, or is it the other way around?

It just depends greatly on what drives that recession, Greg. If you go back to the '01 recession, our Hearth business actually increased profitability during that recession. We had very minor impact on housing in that timeframe. As you mentioned, we just saw housing starts decline like 80% from peak to trough in the last recession. So this is a really wide range of outcomes there. I don't know that it's inherently more or less cyclical in office. But office has been a lot more consistent in the last two recessions, as Jeff noted in his comments.

And then I don't know, you outlined some cost savings initiatives. Did you put a number behind what you expect? What kind of savings do you expect from?

We did. There is probably two points there. The first one is, just to reiterate, the number is that we expect to generate about $60 million to $65 million of cost improvement in response to the pandemic. The second point is that, because of those actions and whatever else we can find to offset the pressures, we expect to deleverage at about 25%. So if we lose $1 in sales, we drop operating profit about $0.25.

Okay. And did you mention maybe a timeframe on when you might achieve that $60 million to $65 million?

Yes. It's ramping up pretty quickly. We expect to be at a full run rate by mid-second quarter.

Thank you.

Your next question comes from Reuben Garner of Benchmark Company. Please go ahead. Your line is open.

Thank you. Good morning, everybody. Apologies if I repeat anything; I got kicked off for a few minutes. So maybe I'll start with a follow-up to one of those last ones. The decremental margin at 25%, what does that assume from a mix of business standpoint from your different end markets? I know you said that office was down a little bit more than hearth. Is that the assumption that's kind of baked into that scenario?

It is.

It is, Reuben. It's sort of commensurate with the order rates that we're seeing currently. It's basically an average blend of that.

Okay. And then you referenced e-commerce getting a spike in home office products; I know you guys have been ramping capabilities in recent years. Can you update us on what the near-term and longer-term opportunities are with e-commerce? Is it just home office that you saw a spike in here recently, or is it boosting business in the office or in the commercial world as well?

Yes, it's a good question. The business targets small office and home office; that's the platform we're building out. So we've seen nice growth in this long before the home office spike that’s kind of additive to what we've been experiencing. It's a business that continues to ramp up. We're investing in it. We're building out the platform, and we really think it can be used to hit home office and small office, commercial.

You mentioned a couple of times, and there was already a question regarding the future layout of offices after COVID. In your opinion, will the post-COVID environment for office furniture be a net positive for the industry due to the need for reconfiguration of office setups that could result in more business? Or do you believe that working from home is more of a challenge? How do you generally perceive the situation as we emerge from this?

Yes. That's a good question. It's early days, but I would say it's going to be a net positive, because it's a furniture event. Anytime you touch your space, it's a furniture event. As people figure out how they want to bring people back and the distancing that may be required, there will be activity. It means there is content on the floor plate. The home office piece of this, candidly, I think is a positive as well. For us, in particular, given some of our assets and our brands that can service that business really well, I think that people won't go full-on in the home office. This has been a pretty forced March for people; it's been dramatic, and emotional. It's going to point to the fact that people like to work together and get things done. But it's also a point that you can be somewhat efficient and effective at home. I think you're going to see some upside on both fronts from our perspective, and we see that as a real opportunity going forward.

Are there any substantial investments that you think you'd have to make to service these changes, or is it your existing offering that just maybe is used in a different way going forward?

Good question. I think it's going to be some of both. We'll probably be looking at some different product types, different finished materials, things of that nature. But our architectural products group has seen a lot of pull right now. I think that will be an asset that’s going to be heavily utilized going forward as well. There will be continued investment in making the process easier, which I think is going to help us on the home office front as well.

Okay, great. And then I have one last question. Regarding the four-week trend, you mentioned that office is down 35% and hearth is down 20%. Have those numbers been declining further? Were they initially worse and are they starting to stabilize, or have they remained relatively consistent in that range since this all began a month ago?

There has been some volatility to it, Reuben. But in general, they've been trending lower, as you might expect. What we saw in China, and Jeff referenced this, is that for the first eight weeks really after the crisis started there, we did see orders trend lower, then they bottomed and started to trend more favorably. Still down versus prior year, but trend better. So far, that's consistent with what we're seeing here.

Okay, great. Thanks, guys. Stay safe and good luck navigating through this.

Great, thanks. Again, our near-term priorities are the health and safety of our members and the support of the company's cash flow. We entered this unexpected period from a position of strength. We will successfully navigate this pandemic and stay vigilant and disciplined in our approach to balancing the near-term with our focus on the long-term opportunities in front of us. I'm confident in our HNI members and their abilities to achieve our goals. We look forward to speaking to you again next quarter. Have a good day and stay safe. Thanks.

This concludes today’s conference call. Thank you for your participation. You may now disconnect.