Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation First Quarter Fiscal 2025 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. I'd now like to turn the call over to Mr. McCall. Please go ahead.

Good morning. My name is Matt McCall. I am Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our first quarter fiscal year 2025 results. With me today are Jeff Lorenger, Chairman, President and CEO; and VP Berger, Executive Vice President and CFO. Copies of our financial news release 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 risks. Actual results could differ materially. The financial news release posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward-looking statements made during the call. I'm now pleased to turn the call over to Jeff Lorenger. Jeff?

Thanks, Matt. Good morning and thank you for joining us. I'm going to divide my commentary today into three sections. First, I will provide some comments on our first quarter results. Non-GAAP EPS increased nearly 20% year-over-year with revenue growth returning in both segments. Next, I will discuss our expectations for 2025. Our earnings outlook remains unchanged from what we provided on last quarter's call. We continue to anticipate a fourth consecutive year of double-digit non-GAAP earnings improvement. And finally, I'll provide additional detail about our EPS growth visibility and discuss how we see our markets playing out over the remainder of the year. In general, we are proceeding with caution, but also with confidence in our strategies. Following those highlights, VP will provide more detail around our second quarter and full year 2025 outlook. He will also comment on our strong balance sheet. I will conclude with some closing comments before we open the call to your questions. Let's start with the first quarter. Our members delivered $0.44 of non-GAAP earnings per share. The 19% year-over-year growth was better than we anticipated. Year-on-year revenue growth returned with both segments reporting improvement and both modestly exceeding the ranges we discussed last quarter. Workplace Furnishings revenue increased slightly versus the same period of 2024, and Residential Building Products revenue grew 7% year-over-year. Profitability was also better than we anticipated. Consolidated non-GAAP gross and operating margins expanded on a year-on-year basis to 40% and 5.3%, respectively, driven by incremental productivity gains, synergy capture, and volume growth. Our non-GAAP operating margin reached the highest first quarter level since 2007. During the quarter, revenue from contract customers increased 4% year-over-year, while shipments to small and medium sized customers declined approximately 5% versus the same period of 2024. Within SMB, we experienced continued soft transactional purchase activity. As a reminder, these purchases are highly sensitive and react quickly to macroeconomic changes. From a profitability perspective, Workplace Furnishings segment non-GAAP EBIT margin compressed 20 basis points year-over-year. Our profit transformation efforts and realization of KII synergies continued to benefit first quarter results. However, stronger volume from several large projects in both the commercial and state and local government bases, which tend to carry higher discounts, was dilutive to segment profit margins. As we reviewed the quarter, this slight compression is a result of a different mix of business during the quarter than we had planned and in our view not an indication of increasing competitive discounting. Finally, in Residential Building Products, first quarter revenue increased 7% year-over-year. Despite challenging housing market dynamics, our new construction revenue increased 3% versus the same period of 2024. Our remodel-retrofit business generated solid year-on-year revenue growth during the first quarter, increasing 13% versus the prior year period. Segment profitability was also strong in the quarter. Operating profit grew 16% year-over-year. Segment EBIT margin expanded 130 basis points from the same period of 2024 to 15.7%. The consistently strong profit margins in this segment are evidence of the business' unmatched price point breadth and channel reach, along with the benefits of its vertically integrated business model and overall operational agility. To summarize the first quarter, the return of growth in both segments despite heightened macroeconomic uncertainty is evidence of the strength of our strategies and customer-first business model, along with the resilience of our members. Our margin expansion further demonstrates our ability to manage through varying economic conditions. Going forward, we expect continued earnings improvement, driven by our margin expansion efforts and continued revenue growth as we move through the year. While we see the likelihood of demand volatility across our business over the near-term, we remain focused on our strategies and are prepared to adapt to changes in the operating environment. That leads to my comments about our expectations for the remainder of 2025. As I referenced earlier, we are proceeding with caution, but also with confidence. First, in our Workplace Furnishings business, while segment orders were relatively unchanged versus the first quarter of 2024, order trends improved as the quarter progressed. Broadly, our internal metrics support our outlook for revenue growth this year and we continue to focus our investments on driving growth in this segment. However, tariff uncertainty and rising inflation expectations provide reasons to expect ongoing demand volatility as well as temporary margin pressure. From a customer perspective, contract customer orders increased 4% year-on-year in the first quarter. Excluding hospitality, contract orders increased 15% versus the same period of 2024. We are excluding hospitality to provide a view of the trends within the commercial market. Hospitality can be lumpy quarter-to-quarter, and the prior year quarter was especially strong. This thus far in the second quarter, we experienced solid contract order trends reflective of a supportive demand backdrop, along with some pull-forward activity ahead of tariff-related pricing actions. In summary, we continue to see supporting trends in our Workplace Furnishings segment. Internally, total segment backlog is up 19% year-over-year. Externally, office sublease activity is a leading indicator for office furniture demand is moving in the right direction. Return to office continues to present an opportunity, and we view elevated levels of nonviable space as a positive indicator for future furniture events. So we continue to see encouraging signs that support our view of volume improvement, while at the same time, we are increasingly focusing our investments on driving revenue growth in this segment. Moving to Residential Building Products. Orders in the first quarter increased 8% year-over-year. Remodel-retrofit order growth was up double digits versus the same period of 2024, while new construction orders declined slightly. It is clear any real housing recovery continues to push out as mortgage rates remain elevated and consumer sentiment is trending the wrong way. As is well documented, the dynamics in the housing market remain difficult. Builder sentiment continues to reflect the impacts of elevated interest rates, ongoing affordability issues and weaker consumer confidence. Despite the current environment, we believe in the long-term opportunities tied to the broader housing market and in the strength of our market-leading positions and profitable operating model, and we will continue to invest accordingly. I will finish by making a few comments about our view of our markets and provide additional detail around our elevated 2025 EPS growth visibility. On last quarter's call, we highlighted an increased focus on investing to drive growth in both businesses. Our first quarter revenue strength and encouraging leading indicators provide added support for these initiatives. However, we are paying close attention to the macroeconomic environment and associated risks, and we are approaching the current environment with very intentional initiatives while staying flexible. As we look at our Workplace Furnishings segment, we experienced slow activity in the SMB portion in the first quarter driven primarily by macroeconomic headwinds. SMB is an area of unique strength for us and has delivered consistent order growth in recent years, and we remain bullish about the fundamentals of this business. We believe our strength in the SMB space and our broad price point breadth continue to be competitive differentiators, especially as more cost-conscious customers embrace price mixing across projects, increasingly mingling SMB projects, products into contract settings. In our contract business, we see growth continuing. We see encouraging signs associated with larger projects across our key verticals, the workplace, health and education end markets saw order outperformance in the first quarter, and we see signs of longer-term demand improvement. While underlying demand drivers are encouraging in the contract space, the level of macro uncertainty will continue to affect how quickly opportunities translate to orders. Looking ahead, we believe we are particularly well positioned to benefit as the Workplace Furnishings market continues to improve. We have a portfolio of brands with unmatched product and pricing breadth and depth, allowing us to meet any future need a customer has. We have products that work for customers ranging from small businesses to the largest multinationals. Our brands are distributed widely across geographies from tertiary markets to the top MSAs, and we can broadly meet the needs of workplaces, schools, healthcare facilities and hotels. Moving to Residential Building Products. We continue to believe in the positive long-term market fundamentals. The near-term remains challenging given current housing market dynamics and no doubt a market-driven revenue recovery will take some time. We are, however, optimistic about our opportunities to increase revenue through our growth initiatives. Specifically, we continue to invest in developing market leading new products that offer customers more options and features. We are driving new programs to increase consumer awareness of the fireplace options, ensuring our products are considered in all remodel and new construction projects and we are strengthening our already strong relationships with builders across the country, helping them deliver the best overall value to the homeowner. While we invest in growth, we will continue to deliver attractive margins and strong profits in this business. Longer term, single-family housing remains undersupplied, and demographics will support additional demand growth. The results of our ongoing investments, which will enhance our connection to customers and build on our leading brands, will fortify our position of strength in the industry. Finally, and importantly, we continue to have elevated earnings visibility this year and next. Our earnings expectation for 2025 is unchanged and includes revenue improvement in both segments. We continue to have high visibility to significant profit growth driven by operational efficiencies. As a reminder, we have two initiatives underway, Mexico and KII synergies that will deliver a total of $0.70 to $0.80 of additional EPS through 2026. That represents approximately 25% EPS growth on top of our 2024 earnings with the savings expected to be divided roughly equally over the next two years. Taking all these factors into account, without help from the cycle, we expect our double-digit earnings growth to extend to at least five years. I will now turn the call over to VP to discuss our outlook for 2025.

Thanks, Jeff. I'll start by discussing our outlook for revenue and profit. Beginning with the top line, second quarter revenue in Workplace Furnishings is expected to increase at a mid-single-digit rate year-over-year when including the impact of tariff-related pricing actions. The benefits of improving orders and backlog are expected to drive revenue growth again in the second quarter for 2025. The Residential Building Products, second quarter 2025 net sales are projected to increase at a low single-digit rate compared to the same period in 2024. We expect pricing actions to drive the majority of the growth with remodel-retrofit and new home construction volume growth returning in the back half of the year. We will be watching several key housing market drivers, including interest rates, home affordability, and consumer confidence as the year progresses. Shifting to our second quarter profit outlook, similar to last quarter, we expect temporary price-cost pressure related to tariffs. First quarter pressure was lower than previously expected given the delays of tariff implementation. However, we now expect total tariff-related price-cost margin pressure in the second quarter to total $3 million to $5 million. As we look to the full year and based on what we know today, we continue to expect to offset the majority of the first half drag in the second half of 2025. And even when including the anticipated impact of tariffs, we are still expecting non-GAAP earnings per share in the second quarter of 2025 to increase solidly from 2024 levels. This projected improvement is driven by productivity benefits and volume growth, partially offset by investments. The tariff situation remains fluid. However, we have the flexibility to adjust and expect to be able to manage the estimated impact for the full year. We have utilized a surcharge to allow us to adjust quickly to the dynamic environment. Going forward, we are also implementing list price adjustments in combination with the surcharge approach. In the second quarter, we expect operating margin in Workplace Furnishings to be relatively flat year-over-year as the dilutive impact of tariffs offsets volume improvement and continued profit transformational benefits. Residential Building Products operating margin is expected to compress slightly year-over-year in the second quarter as a result of lower volume, increased investments, and tariffs. Again, when including the anticipated impact of tariffs, we're still expecting the non-GAAP earnings per share in the second quarter of 2025 to increase solidly from 2024 levels. Moving to the full year of 2025. For the full year, we continue to expect volume growth in both segments. In Workplace Furnishings, we expect quarterly year-over-year revenue growth rates in the mid-single digits, excluding the benefit of an extra week in the fourth quarter. In Residential Building Products, we expect quarterly year-over-year revenue growth rates in the low to mid-single digits, excluding the benefit of the extra week. From an earnings perspective, our outlook is unchanged from what we provided last quarter. We expect another year of double-digit non-GAAP EPS growth, driven by KII synergies, the ramp-up of our Mexico facility, and increased profits from volume growth. Our projections for 2025 net sales and earnings are based on current order patterns and leading indicators with an acknowledgment that both are subject to elevated levels of uncertainty given the current condition. I'll wrap up with a few comments on our balance sheet and cash flow. Quarter ending gross debt leverage was 1.3x as calculated in accordance with our debt agreements. The ratio was up modestly from the end of the fourth quarter of 2024, consistent with normal seasonal borrowing patterns. During the quarter, we continued to deploy cash through our long-standing quarterly dividend and through the repurchase of stock in the amount of $40 million, demonstrating our continued confidence in our future earnings and cash flow generation. The combination of our strong balance sheet and consistent cash flow generation will continue to provide a high degree of financial flexibility and capacity for investment. Our capital priorities remain reinvesting in the business, paying dividends, pursuing share buybacks, and exploring M&A opportunities. I'll now turn the call back over to Jeff.

Thanks, VP. We remain focused on investing to drive revenue growth and on expanding margins. No doubt the operating environment is dynamic. However, we have multiple avenues to drive growth and are prepared to manage through demand uncertainty and expect to extend our track record of consecutive years of double-digit EPS growth. And beyond 2025, we are positioned for continued success. We have elevated earnings growth visibility through 2026, broad and diverse product and market coverage in Workplace Furnishings, market-leading positions in Residential Building Products, and we continue to invest to drive growth. All this is supported by our strong balance sheet and the ability to generate continued free cash flow. I want to thank each and every HNI member for their continued dedication and focus to succeed and congratulate them on another strong quarter. We will now open the call to your questions.

Your first question comes from the line of Greg Burns with Sidoti. Please go ahead.

Good morning. Just first, I think, you mentioned that contract orders were up 4%. What was the SMB order number last quarter?

Slightly down 5% for Q1 orders at SMB.

Okay. Okay. And it doesn't sound like there's been any kind of meaningful change in order patterns or buying activity, but are you hearing anything given kind of the increased uncertainty that we're seeing out there? Is there anything that maybe gives you pause where you might expect maybe contract demand to slow or catch down to what you're seeing in the SMB market?

Greg, there is a lot of uncertainty out there. However, our sales pipeline looks good, and our backlog is encouraging. We have discussed how some customers are reevaluating their office spaces and orders. Currently, it’s a bit mixed, but those customers are committed. We observe that many are making long-term decisions and tend to invest more in their businesses than smaller SMBs, which can fluctuate quickly. This situation could change, but for now, we see that momentum sustaining in the near term, and customers are remaining engaged and ready to invest in their businesses.

Okay, great. And then, I guess, maybe now on the hospitality side, you mentioned there's kind of more lumpiness or volatility there. Was it just against a tough comp this quarter? Or are you seeing any change in the demand environment in the hospitality space?

Yes, it was a really challenging comparison this quarter, which is a significant part of the situation. The demand is mixed; we've experienced both some advancements and some delays. Our business can essentially be divided into two segments: program business and custom business. The program business is stable and continues to progress, while we've noticed some slowdown in custom business as clients are reflecting on timing and when to make commitments. This variability in the custom sector is likely to persist for a while, particularly given the tough comparison in the first quarter.

Okay, thank you.

Thank you. Good morning everyone.

Good morning.

Good morning.

Two questions on the SMB business. Did you see any improvement in the transactional part of that in April when the tariffs were pulled back? Or has it kind of remained muted? And then secondarily, I think, if I recall correctly, the low end of that business historically would kind of compete with some product coming in from China. Is that an opportunity for you guys? Or do you have to bring in enough yourself that it's more of a neutral impact on you?

I think, Reuben, there are a couple of answers to your questions. First, regarding the SMB sector, we mentioned earlier that Q1 orders were down 5%, and part of that decline is attributed to transactional elements. This sector tends to be the first affected by macro uncertainties, as these quick purchasing decisions often require minimal design assistance, making them the fastest to initiate and the quickest to retract. Concerning April, we've noticed that orders in that segment have started to rise over the past five weeks, indicating its resilience. Jeff highlighted the significance of this business to us, and we're observing some positive signs. Regarding our products, most of what we sell is sourced independently, so we're not reliant on China for these goods. Therefore, we believe our go-to-market strategy and support are unaffected by developments in Asia, and we can manage everything right here.

Okay. And then the change in the tariff impact to you or the impact in the second quarter was that mostly related to the change in the percentage on China? Or was there other factors maybe reduced surcharge or others that led to that?

I would describe the situation as a delay from what we discussed three months ago, influenced by tariff delays and an increase in our order backlog. We're prioritizing the fulfillment of backlogged orders without applying any changes to them. There's no fundamental shift from our previous discussions, but we do have a larger order book, and we are committed to safeguarding those orders for our customers. The positive aspect is that we have the orders in place. I mentioned a financial drag of $3 million to $5 million, but we remain confident that the measures we've implemented, such as surcharges and adjustments across all our businesses, will compensate for that over the course of the year.

And Reuben, I think, the 80:20 to your question is it's China. That second quarter was China driven for sure.

Got it. Very helpful. And last one, I'm going to sneak one more in, if I can. The residential outlook for the second half some, I guess, loose peers in the building products space that's kind of been reducing end market assumptions for both new housing and R&R certainly new housing, maybe less so R&R. But can you talk about what your end market assumptions are for the second half? In other words, what do you have in your control because of the easier comparisons with inventory and the growth investments that you've got internally?

Yes, I think there's a couple of things. We don't see a lot of help in the market in NCC, Reuben. Permits have been down in the last four months, low single digits. So we're not predicting any help there, and we weren't predicting a lot of help on the remodel side from a retail standpoint, but we also didn't see it as a negative. So the way we see our growth there, Reuben, is our strategic initiatives are kicking in. We started those investments last year. You saw in the first quarter, we grew 7%, primarily in the remodel-retrofit market. As the year progresses, we put out there low single digits. The new construction piece of that will be on the lower end of that and the remodel side will be on the mid-single digits. And we see that just based on the initiatives that we have in place and where we made the investments. So limited market help, yet we still expect low single-digit growth in Q2 and mid-single digits for the full year.

Great. Thank you guys for the help. I appreciate it.

Hi, good morning. Maybe to start out building on that residential topic, one of the focal points at the builder show a couple of months ago was the higher price point products with compelling features for the higher-end consumer. Can you talk about this rollout thus far, the traction you're getting? And in this macro environment, do you expect that could be resilient? Or do you expect any kind of pull back in the near-term, but maybe not changing your long-term view of where that product set can go?

Yes, Steven, I think that's good insight. We believe that is a strong platform for us, and while nothing is completely recession-proof, that segment of the business has held up well. The rate at which we are launching that platform into the market has been positively received. Many products in that line are performing well, and we believe they will continue to provide support for us moving forward. VP, do you have anything else to add?

Yes. I mean, it's going in a lot of custom homes, and those are relatively resilient. So I agree.

Okay. That's helpful. And then I wanted to pull up high level, think about Mexico production and with the changing or evolving geopolitical situation. Is there anything that kind of changes your strategic outlook around your production base there in the near-term or long-term?

No, it really doesn't. We initiated that to support our growth initiative, and that remains true. We established a center of excellence there and we are maintaining a long-term perspective. We continue to invest, and we view this as a significant aspect of our strategy, and we are confident in our position there. Our perspective hasn't changed. As we often mention, we are long-term investors, and this is contributing to the visibility we keep discussing for this year and next.

Okay. Great. And then last one for me, thinking about the earnings visibility that you have for this year and into next year, very solid. How do you expect that to translate into free cash flow over the next couple of years? I know you've got investments you're making, including CapEx, but curious how that translates into free cash flow?

We anticipate $45 million to $50 million coming from two transformational initiatives, which will positively impact our free cash flow. We expect this to be realized in 2025 and 2026. This cash flow will enable us to maintain our current capital and pursue additional investments, as well as assess the possibility of more stock buybacks. Overall, it enhances our financial flexibility, and with these projects in progress, we are planning for that cash flow in line with our activities.

Good morning everyone and congratulations on the quarter. I guess, I have a tale of two cities question myself. If we take a look at the softness, especially on the order side with SMB and try and contrast that with the strength that you guys had in renovations for RBP, what do you make of that in terms of what it says about where main street and the consumer is? Because they seem to be kind of leading us in slightly different directions.

Yes. Part of this is likely due to individuals with mortgages below 4% who are still in their homes and have significant equity. We've seen considerable remodeling activity in this segment. While I understand your question, I wouldn't say their situations are identical. Some may have small businesses they're cautious about, but at home, they feel more secure in pursuing remodeling projects they've been considering. This trend is somewhat unique to the current situation, as the housing market has been stable, leading to fewer people moving. The secondary home market has also been somewhat stagnant. In contrast, the small and medium-sized business sector behaves as expected during economic disruptions, which doesn't surprise us.

Great. Thanks. That definitely makes sense. I guess my second question, and this is kind of a shifting focus to supply chains that you guys have, as tariffs have started to affect things, are there any constraints that have come up that have been unexpected? And kind of where are you in terms of like the adjustments that you need to make to hit your full year guidance?

Yes. I would say we haven't run into any constraints. In fact, we've got a pretty resilient supply chain where we're able to move product to other countries. We've talked about this really isn't just about price. There's cost reductions, there's concessions from suppliers and there's actually our ability to move stuff. So I would say that, that hasn't been an issue as it relates to how we're managing and it was just important to get our heads around what it is. What it is today is actually different than it was 90 days ago. That's allowed us to be proactive with our trade and communicate with them. That's important with them, so they can actually give good cost estimates with projects. And all of that's allowing us to be able to navigate it, I would say. And like we mentioned, we expect to offset the costs that we've already seen and the drag in the first half throughout the remainder of the year.

Great. Thank you.

I will now turn the call back over to Mr. Lorenger for closing remarks. Please go ahead. Great. Thanks for everybody taking the time out of their day to join us and get the update on our first quarter. Have a great day.

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.