MillerKnoll Inc (MLKN) 2012 Q1 法說會逐字稿

Good morning everyone and welcome to the Herman Miller Incorporated first quarter fiscal year 2012 earnings results conference call. This call is being recorded. This presentation will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. These risks and uncertainties include those risk factors discussed in the Company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission.

Today's presentation will be hosted by Mr. Brian Walker, President and Chief Executive Officer, and Mr. Greg Bylsma, Executive Vice President and Chief Financial Officer. Mr. Walker and Mr. Bylsma are joined by Mr. Jeff Stutz, Treasurer and Vice President, Investor Relations. Mr. Walker and Mr. Bylsma will open the call with a brief presentation which will be followed by your questions. We will limit today's call to 60 minutes and ask that callers limit their questions to allow time for all to participate. At this time, I would like to begin the presentation by turning the call over to Mr. Walker. Please begin.

Good morning and welcome everyone. When we last spoke with you in June, we pointed to a couple of important factors you should consider when modeling our first quarter numbers. These included the extra week of operations, and the deconsolidation of 2 dealerships we sold earlier in the quarter. In addition, we've made a change to the way we report our business segments, adding a new segment called Specialty and Consumer. These factors add some complexity to the details of the quarter so I'll keep my opening comments relatively brief in order to allow adequate time for Jeff and Greg to review the results.

Despite concerns on the global macroeconomic environment, demand across our business has been remarkably resilient. The relative strength drove sales and orders in the quarter to $458 million and $481 million, respectively, representing solid double-digit growth from the prior year level after adjusting for the extra week.

We were also very encouraged this quarter to report continued improvement in profitability, posting an adjusted operating margin of 9.1%, an improvement of 260 basis points over the first quarter of last year. The growth in the quarter was a good reflection of how we expect our segment and lead strategy to enable us to grow and expand the size of our market potential.

Of particular note was the growth of our international business. Orders and shipments for this segment were the highest recorded in the Company's history. Growth was particularly strong in Asia and South America, and we also had solid performance in the EMEA region.

The growth was entirely organic as we did not complete the previously announced acquisition of POSH Office Systems. It remains our intent to complete this acquisition and build on our partnership with POSH but we've been slowed by the complex regulatory environment in China. The outstanding organic growth in this segment was driven by secular growth of these economies, new products which are building our portfolio of solutions, and increasing awareness of the Herman Miller brand and great execution by our teams on the ground in these markets.

Another highlight was the order performance of our healthcare business which posted a double-digit increase in the prior year. Our healthcare team has made swift use of the new showroom in west Michigan and the response to the space from customers, dealers and designers has been overwhelmingly positive. We're also continuing to gain market traction with our newest products, including the award-winning Compass System, having recently won 2 long-term projects with several nationally recognized healthcare systems.

Our North American office furniture business again reported sales and order increases over the prior year. This business was impacted this quarter by the sale of 2 dealerships in June. Business levels within the core have remained generally upbeat and broad-based across geographic regions and industry sectors. And we've been encouraged by the level of customer inquiries and showroom visits, which, in west Michigan, were up some 66% from the same quarter last year.

Similar to our international business, growth in this segment has been enhanced by new products such as the SAYL family of seating, our Thrive Portfolio of ergonomic tools and the Canvas Office System which we launched this past June. These are positive signs that the core Herman Miller capability of problem-solving design remains a competitive advantage and a source of differentiation and growth.

As I mentioned at the start of the call, we made a change this quarter in the way we report our results by business segment, introducing a new segment called Specialty and Consumer. I want to spend a few minutes discussing this change and how it fits with our overall business strategy.

A key component of the Specialty and Consumer segment involves the launch of a brand-new initiative aimed at growing our business by leveraging our rich design legacy. The new business which we're calling the Herman Miller Collection will officially launch in December of this year. It will combine a broad range of thoughtfully designed products including both classics and new designs into a single offering. These products will be matched with a dedicated sales team trained to serve architects, designers and brand-oriented customers in both the contract and retail channels.

The Specialty and Consumer segment combines the Herman Miller Collection with our existing retail and Geiger operations to form a single business unit with a shared emphasis on authored design, quality craftsmanship and desired utility. Combined business is being led by Steve Gane, an office furniture veteran with over 25 years of experience in the furniture industry. Steve has led our Geiger subsidiary since joining us in 2007. We're thrilled to have Steve and his team in place to lead this combined business and we look forward to sharing additional updates on our progress in the months to come.

I conclude my prepared remarks with an exciting honor we received earlier this month. We're incredibly proud to have been once again named to the Dow Jones Sustainability World Index, an international stock portfolio derived from the evaluation of the world's 2,500 largest companies using economic, environmental and social criteria. This is our eighth consecutive year in the index, an achievement we believe reflects our long-standing commitment to business practices that drive both solid financial performance, and environmental advocacy.

In all, we're extremely pleased with our performance this quarter. This is especially true given the unsettled economic and political backdrop we currently face. Of course, we've faced uncertainty before and we have always relied on the long view to guide us through. That's exactly where we stand today and I'm confident we're headed in the right direction. With that, I'll turn the call over to Greg to cover our first quarter results in more detail.

Thanks, Brian. Good morning everyone. As Brian mentioned, our first quarter results reflect 14 weeks of operations rather than the normal 13 weeks. This is a change we make every 6 years in order to realign our fiscal cut-off dates with the standard calendar months. As I talk through the details, I will quantify the financial impact of the additional week.

On a consolidated basis, net sales in the first quarter were $458 million. This represents an increase of 20% from the year-ago period and a sequential quarter improvement of 4% from the fourth quarter of last fiscal year. Consolidated orders in the first quarter of $481 million were up 22% on a year over year basis, and improved 7% sequentially.

Adjusting for the extra week of operations in the quarter, pro forma sales on a 13-week basis increased 12% year over year, and decreased 4% sequentially from Q4. Likewise, pro forma orders adjusted to 13 weeks were up 14% on a year over year basis, and were approximately flat with the fourth quarter of last year. Factoring in the impact of dealer deconsolidation in the period, pro forma sales and orders grew 14% and 16%, respectively, over the prior year.

In addition to the extra week of operations, we believe the timing of our most recent price increase accelerated some orders into the first quarter. On September 6, we increased our general list prices an average of 2.5%. As a result, we estimate that between $10 million and $12 million of new orders were scheduled in the first quarter that would otherwise would have been entered in Q2.

Sales within our North American reporting segment of $331 million were up 16% from the prior year. On an adjusted basis excluding the extra week of operations and the dealer deconsolidation, this year over year increase drops to approximately 10%. New orders within the North American segment totaled $348 million. This is 21% above the same quarter last year, or roughly 15% on a pro forma basis excluding the extra week and the dealer impact. Customer demand remained generally strong across each of our North American regions and industry sectors throughout the first quarter.

International business levels were again up through most of our regions. In total, net sales within our non-North America business segment were $85 million in the first quarter; this represents a 27% increase from Q1 of last year or roughly 18% when adjusted for the extra week. Orders in the period of $99 million far outpaced last year's level, growing 42% as reported and 32% on an adjusted basis. As Brian mentioned, Asia and Latin America have continued to drive the largest percentage increases. In addition, demand across the EMEA region was robust throughout the period.

Net sales within the Specialty and Consumer segment were very strong in the quarter, with each component business unit reporting solid double-digit percentage growth. In total, segment sales were $43 million, an increase of 53% from the same quarter last year. On an adjusted basis, excluding the extra week, sales were up 42%.

New orders within Specialty and Consumer decreased 7% from the prior year, or approximately 14% on an adjusted basis. This was driven by our Geiger subsidiary where our prior year results were particularly strong, due to an unusually large order, the biggest in Geiger's history.

We estimate the translation impact from currency, from changes in currency exchange rates increased our consolidated net sales in the quarter by approximately $7.5 million relative to the first quarter of last year. This resulted from the general weakening of the US dollar against major world currencies compared to the year-ago period.

I'll now move on to gross margin which was a clear highlight in the quarter. Our first quarter gross margin of 33.7% improved 120 basis points from the first quarter of last year. Higher sales and factory production this quarter drove much of the increase.

The price of key direct materials including steel and steel components remained above last year's level throughout the first quarter. This drove an estimated $4 million increase in the cost of goods sold compared to Q1 of last fiscal year. However, this was offset in the quarter by net flow-through from the May price increase.

Sequentially, our gross margin percentage improved 70 basis points over the fourth quarter of last fiscal year. Here again, net benefit captured from our May price increase and leverage from higher production levels played a significant role in the improvement, more than offsetting approximately $2 million in higher commodity costs relative to our fourth quarter.

I'll now move on to operating expenses and earnings for the quarter. Operating expenses in the first quarter totaled $113 million. This represents an increase of $14 million from Q1 of last year after excluding adjustments related to Nemschoff purchase contingencies recorded in the year-ago period. The increase in sales and profitability between periods drove higher variable expenses, including sales incentives, product warranty accruals and royalties. Employee compensation and benefit expenses in the quarter were also higher than the prior year level, a factor due in part to incentive accruals which were $2.6 million above prior year level.

We also recognized approximately $3 million in compensation expense as a result of the extra week of operations in the first quarter. However, this was offset by the sale of dealerships in the quarter which drove a reduction in our consolidated operating expense relative to Q1 of last year. On a sequential quarter basis, operating expenses in the first quarter decreased just under $2 million from the Q4 level which was in line with our expectations coming into the quarter.

Overall, operating earnings this quarter were $42 million, or 9.1% of sales. This represents a 260 basis point improvement over our adjusted operating margin in Q1 of last fiscal year. It's also 190 basis points above our operating earnings in Q4 of last year. The effective tax rate in the first quarter was 33.3%. Looking ahead to the second quarter, we expect our effective rate to be in the range of 32% to 34%.

Finally, net income in the quarter totaled $24.6 million, or $0.42 per share on a diluted basis. With that, I'll turn the call over to Jeff to give us an update on our cash flow and our balance sheet.

Thank you, Greg. Good morning everyone. Cash flows from operations in the first quarter totaled $39 million. We're especially pleased with this given the fact that we made cash payments in the period of roughly $27 million for employee bonus and profit sharing benefits that were earned in fiscal 2011. In total, changes in working capital drove a net $3 million source of cash in the period, as reductions in accounts receivable and prepaid expenses offset outflows for incentive compensation and increased inventory.

Capital expenditures in the first quarter were roughly $8 million, an amount that was almost equally offset by the receipt of proceeds from the dealership sales that closed in June. Dividend payments in the quarter were $1.3 million and we received just under $3 million from exercise activity in connection with our stock-based compensation plans.

We ended the first quarter with total cash and equivalents of $182 million, which is up $40 million from the end of last fiscal year. Approximately $35 million of our total cash balance was held within our international entities. We do remain in compliance with all debt covenants and as of quarter-end, our gross debt to EBITDA ratio was approximately 1.5 to 1, a substantial improvement from the level we were running at this time last year.

The available capacity on our revolving credit facility remains at approximately $140 million with the only usage being from outstanding letters of credit. Given our current cash balance, ongoing cash flow from operations and borrowing capacity, we're confident that we have sufficient flexibility to meet the financing needs of the business as we move forward. That's the balance sheet and liquidity overview for the quarter and now I'll turn the call back to Greg to share some thoughts on our outlook for Q2.

Thanks, Jeff. We're expecting net sales in the range of $440 million to $460 million in the second quarter. This is based on a number of factors, including the composition of our order backlog, average order rates in Q1, and the level of seasonality we typically experience between the quarters. We expect our gross margins in the second quarter to be at or slightly above the Q1 level. Of course, it's important to keep in mind that factors such as product mix, price discounting can have a significant impact on our margin performance in any given period.

Operating expenses in Q2 are expected to be flat to down slightly from the first quarter level. The return to a standard 13 week will drive a sequential reduction in expenses. However, some of this reduction will be offset by planned spending for marketing programs and showroom improvements. Finally, as I mentioned earlier, we expect our effective rate in the quarter to be between 32% and 34%. And with that, I will now turn the call back to the operator and we'll take questions.

(Operator Instructions) Mark Rupe with Longbow Research.

Hey, guys. Good quarter. Just had a question, on the pricing, you cited that it was a benefit more than you expected. Any color on why that was the case relative to maybe I assume you base it on historical yields?

I don't think there's anything in particular other than, of course, we were -- we have been slower to do price increases and we haven't done as much as some of our competitors overall. So I think in that regard it was a little easier probably for us to capture some of it.

Okay. And then you have another price increase going into effect, early -- well, I guess it's already -- September 6; is that correct?

Correct.

Was there any pull forward on that or was it less of an impact in this quarter?

Yes, Mark, this is Greg. It was about $10 million to $12 million pull ahead into the quarter.

Okay, okay. And then just on some of the outlook, you obviously had strong order growth over in Asia and Latin America. How -- you cited secular growth, new products and end market execution. But could you just give us some color on how long the tail is on your ability to continue to penetrate those markets and grow at above average rates?

Well, assuming -- this is Brian, Mark. Assuming that those economies don't catch anything from the rest of the world, and they continue to have their very, very strong internal growth rates, in each of the markets, we have relatively small market share.

Right.

And as we continue to develop both capabilities in terms of manufacturing capabilities, supply capabilities, as well as build our teams over there from a sales and distribution standpoint, there should be a fair amount of runway to us in a lot of those markets. Now, again, that area, both areas, both Asia and South America, are a bit charmed right now given where they're at in terms of the development of their economies and you hear a little noise here and there in China and other places. But assuming none of that comes through, we think there's a lot of runway in front of us.

Okay, perfect. Then just lastly, obviously you provided the second quarter revenue guidance which seems to be pretty good. Just how are you feeling from an outlook standpoint, what you're hearing in the channel, like RFPs and inquiries and things like that? Then just lastly, any color on the level of discounting in the marketplace?

I'll let Greg cover discounting. I think if you look at it overall, there's nothing that we've heard or seen in any of the data we can look at that would suggest anything different. Of course, like everybody else, we've never seen the sales team or dealers really predict any change. We're more often looking at what's going on in order patterns and looking at what we can glean from the macro environment.

So you can't help but be concerned by what you hear from the general economy. But I would just say so far we have not seen any of it impacting us. So we're doing what we always do. We're paying attention to where we think we need to be three years to five years from now, focusing on our teams, doing the things we can do to beat all of our very strong competitors.

Finding new scenes and niches that we can grow into that we haven't exploited in the past like we did with Thrive or like we've done with healthcare. And at the same time keeping our heads up and saying, if things turn, we'll be ready to adjust and respond in a way that lets us deal with the short term without losing our focus on capturing where we want to be in the long run.

It's about the best we can do right now. The business moves around as you know. It can move quickly. We've not seen any of that. We feel pretty confident about where we're at and we're going to keep focused on what we can do and pay attention to the environment around us.

Perfect.

Mark, on discounting, obviously on big projects, discounting is always in the area of deep discounting. But what we saw sequentially from Q4 to Q1, we got a little bit of net benefit from our price exceeded the level of incremental discounting. It netted to a little bit of a favorable. And right now, we think that's the trend going forward.

Perfect. Very helpful. Thank you, guys. Good luck.

Budd Bugatch with Raymond James.

Good morning, Brian, Greg and Jeff. Congratulations on the quarter. Couple of questions. One, just on the EMEA, can you go through that again, maybe a little more slowly and what you think drove that and how did the price realization there compare with price realization domestically?

I'll let Greg talk about the price realization, Budd. EMEA, we had really -- if you looked at it and you broke it down into the sub-regions of what we include in EMEA, for us, that's primarily Europe and the Middle East and the little bit that we do in Africa, although that's not a big market. When you looked at it piece by piece, there was no one particular country that I would say we can look to say it was there.

Of course, we're small in each one so you can see one move around more than another but that's really driven probably more by a project that comes in. The one area I think we've seen some recovery in is the Middle East where we had a little bit lighter growth over the last couple of years. So I think that's due to -- we got some new team members over there that we're pretty confident of, as well as we're doing a really decent job, Andy Lock and the team in international in total, of looking at our total global portfolio and figuring out which products from around the globe are best to each of those markets.

So, of course, seating continues to have an ability to play most broadly but in some places, particularly, like the Middle East, we've been able to get a little traction on the healthcare side where the health system is more like what we see in the US, not the same but more like. They've done a great job of picking out which of our workstation products are appropriate and remixing it to what is best for those marketplaces.

Now in Europe, you are strongest in the UK, is that your strongest market there?

Yes, in terms of dollars and in terms of brand awareness and market share, the UK is clearly our lead steer. But like I say, the growth was pretty even across each of the individual sub-regions. Of course, in some of the other markets we're going to be much stronger in seating, so you get a mix difference really when you look from the UK to other places.

In all markets, outside the US, do you over-index in seating versus other products?

Yes, yes.

Okay. So that's your strongest area there. And Greg was going to answer about pricing realization in the Far East --

Yes, but we don't see anything different in the US capture rates that we see in EMEA. It's pretty similar.

So pricing realization is fairly similar over there?

Yes.

When we do the math on the implied guidance or the line items, we get somewhere, I think if we crank the numbers right, $0.37 to $0.45 on an EPS basis with a midpoint around $0.41. Is our math flawed?

It all depends what you use for gross margin but if you used flat gross margin you would be maybe $0.01 down at the midpoint of that range.

Okay. All right. And my final question is explain to me again what you're doing in terms of reporting and how are we going to see that and where's the disclosure going to come and how much do we have to restate? How many hours will we have to burn to redo the models?

You shouldn't have to do any burning of models.

Burning the midnight oil to do the models.

There you go. We're going to really have what's going to amount to three primary segments we're going to report going forward. North America, which will include primarily the North American office furniture business and healthcare and dealers that we own that will fall into that. International, which is everything outside of continental North America. We include Mexico in the international numbers. As you know, we made that change awhile back. So there's no real change to makeup of international over what we've done the last few years. Then the third will be Specialty and Consumer, which is largely what has been our retail business, Geiger and the new Collection business.

And so when will you -- or do you have restating to do? And have -- when will we get those -- that data?

It will be in the Q.

Budd, this is Jeff. So the change -- again, you'll see this laid out in the Q. The change to the North American segment would be the Geiger component will now be pulled out of the North American numbers and reported as part of the specialty and consumer.

In the Q, are you going to restate the prior how many quarters or are you going to leave that a quarter-by-quarter --

We will provide the comparable results to the prior year.

Just for that quarter?

Correct. Yes.

Thank you so much. That's very helpful. All right. Thank you.

Todd Schwartzman with Sidoti & Company.

First, on the Herman Miller Collection, just want to get a feel for how significant new products are going to be within the Specialty and Consumer segment as reconfigured? How much of that segment is going to be -- or how much of the Herman Miller Collection is going to be newly launched products?

It's an interesting question, Todd. It's going to be a mix. First of all, the thing you have to remember in this segment, we're going to probably look when you look at a product line, they're going to generally be smaller in size for each platform than what you would see in the contract business like you would expect from a typical home or specialty-driven business.

Now they tend to be less than tooling and those kind of investments as well, right? So they're smaller in total volume by any one platform. You'll have more platforms which actually have less investment and time into each one. The mix in the beginning of new products is going to be a combination of really two things or three things.

First of all, we've already begun and we'll include this in this first wave, there will be a relaunch or introduction of new options for many of the great classics we've had for years. So for instance, if you've been watching, we just have been showing in several of our retailers a new version of the Eames 670 Lounge Chair, a Herman Miller classic done in a completely new set of materials and finishes which the retailers would tell us and we can see already it breathes a lot of new life into that whole program.

So is it a new platform? No. But it actually, from that world, looks like a completely new product. So there's several of those happening and they will happen over time. In addition to that, we will be taking some of the products that have been in the past in the Geiger portfolio that were from folks like Ward Bennett that are considered design classics on their own, there will be some updates to those and they'll be brought into that same portfolio.

In addition, we have a couple of alliance partnerships with two Italian companies where we will have exclusive distribution rights to their products in North America for both contract and retail that will give us a really broad breadth of products, particularly for areas like dining, cafeterias, group settings, those kind of things that are very, very exciting products that we're really glad that we've got our hands on. In addition to that, there will be some brand-new products that we're designing from the ground up.

Now these will happen a little different than what you might see in the contract business where you get a lot of focus around one or two launches a year. These will tend to happen almost seasonally at one level.

So this year, it's a little hard to talk about which particular products because it's such a combination and some of them are going to be, like I say, where we're bringing them in from other companies, which will give us a bigger portfolio. We'll also have, like I say, the updates from material and finishes which will make a big difference and then some wholly new designs on top of that.

So it's a pretty ambitious package. And like I say, no individual product will necessarily move the needle in and of itself. It will be the impact of the sum total of the Collection.

Great, great. Thanks. On the North American business, in your opening comments, I thought I heard the term, generally strong, used a couple of times to describe North America. Maybe it's just a matter of semantics. But it seems a minor change but a change nonetheless from previous quarters. I wonder if you could just expound a little bit on some of the strengths and weaknesses among the verticals, geography, maybe speak on day-to-day business versus contract orders as well? Thanks.

I'll let these guys talk about the contracts versus day-to-day but what I would say, in general, I don't think we saw any particular variation by geography. We have seen that some areas like business services and financial services have come back from where they were at the bottom.

Now, I think what you're seeing is that business rebounded much more quickly than some of the others. If you remember, we had very big sequential and year over growth in that category or in that segment for the last year. So in some ways, what we're doing is that business is anniversarying in a lot of those increases that we saw a year ago. And as we all know, the US just doesn't have the same level of general secular macroeconomic growth that you would see in some of the emerging markets, nor some of the fundamental demographic drivers of healthcare.

In addition to those things, the other thing you're seeing is, of course, we got a fair number of new products coming into international. And as I said earlier, to one of the other questions, is in some those markets, we have relatively low market share, so our ability to grow is greater when we have a little bit lower market share and room to go find new niches.

Todd, this is Jeff. On the project question, project versus day-to-day, we were about even with where we were last year, low 40% on project mix.

That's helpful. Thanks. On EMEA, did you quantify sales and order rates for the quarter?

We didn't do EMEA. We talked about international in total. We don't give information by the individual geographic segments below international.

Got it. And finally, what prompted the sale of the two dealers and was there any P&L effect here?

First of all, I'll let Greg answer the question on the P&L effect. We have been -- we've always said that we were -- when we own dealers, the long-term intent was not to actually own dealers but to actually use owning them to, A, first, for us to learn more and more about what's going on for our dealers so that we can be more receptive to their needs.

But the second thing was we've had a program for many years called a Dealer Earn-In where finding people who are both experienced in our industry as well as have capital is always difficult. So in this case what we had created was a program where we could recruit very talented seasoned veterans from the industry and then help them over time grow the capital by actually putting sweat equity into these businesses as well as deferring their own compensation and building their own money into them so they can own them.

So I would say this is the end of a journey for these two dealers, not necessarily a change in plan where we always knew at some point they would be set free if they met their goals and in fact, both of them did a great job. So this is actually more of a sign of two markets that the leaders did a great job in.

Todd, this is Greg. The impact of selling them versus the earnings that they otherwise would have had is negligible in the total results.

Terrific. Thanks, guys.

(Operator Instructions) Matt McCall with BB&T Capital Markets.

So, Brian, you said you don't break out any -- within international, the EMEA, so I was going to ask about the percentage of international. I don't know if you could provide any, maybe directional, detail there. But because of the mix differences, do you have less visibility over there at all versus the North American market and do you look to the same leading indicators to provide that visibility?

Well, I guess the answer is in the question of visibility, of course, statistics on a lot of those markets the way you'd see it, there is no real BIFMA-type organization that builds forecasts by each one of those. So it's a little harder to get information around the industry. In fact, it's even almost difficult to get market size. It takes a fair amount of educated guessing, if you will, Matt, to really figure that out.

So I guess from that angle, I'd say, no, we don't have the same forecasting information that we might have in the US. On the other hand, as you guys know, that's good in a long view. It's not very -- it's not really all that useful in running the business day in and day out. So from that angle, I wouldn't say we have any more or any less.

And we tend to watch what's going on in order patterns and understanding what the teams are seeing in terms of project flows. And so I wouldn't say our data's way different; it's just a little bit more fragmented.

Matt, this is Jeff. The one thing I will add, on the Eurozone specifically, we talked about this before, relative to the consolidated total, we've typically run between 3% to 5% of our consolidated total in the Eurozone, to give you just some flavor on sizing.

The question though, what is the growth for total international, I don't know if we gave that anywhere.

But I asked for mix, too, so that's fine. One concern I think in the market has been the trends in government, hitting tougher comps. I know that was an area of strength for a while. I don't think you mentioned the outlook there. I know we're hitting the end of the fiscal year. This is typically a period of seasonal strength. Any comments there about first, the seasonality but just trends in general?

The net of it is, I think we saw fairly typical seasonal patterns with the government up to this point. Now you always get year-over-year variations based on which big projects you won and when you won them and all those things but if you wash it out, look at it over a longer horizon, we haven't seen a lot of significant difference. The teams still feel fairly confident in what they're seeing in the federal government year end which is always -- the next couple of months are a big deal.

So I think the truth is we'll know more about the tenor of the federal government for this fiscal year when we get through the next eight weeks or so and we see them finish up what is always their rush towards getting through their system. Then I think the question's probably going to be longer term what we see coming out of all the talks in Washington. That's more likely to affect, of course, next year more than it is what we're seeing right now, in the next couple of quarters, anyway.

Okay. And then final question. You mentioned in one of the earlier responses that the sales team or the dealers, in general, haven't been a good predictor of the future. I know you're not seeing anything in the pipeline of activity right now but as you go back to that '08 period, what signs are you looking for, either internally or externally, that things that you need to start to make some changes and pull some of those binders off the shelf? So what are you watching for? I know you're not seeing it yet but what are going to be the keys that tell you that some of the weakness is flowing through into your business?

Well, I think if you look back at the last couple, Matt, I think the things you've got to pay attention to is what's happened with corporate profits would be the first thing that we're going to pay attention to. That tends to be the precursor that if you start to see people believe corporate profits are falling off that would be one that you would want to really wake up and pay attention to.

If we saw like we did in 2008 a real seizing of the credit markets where people were starting to believe they had to hold on to cash because they weren't going to enough cash to fuel their day-to-day operations. Certainly, there's been lots of talk about what's going on in Europe and potentially here but nobody really yet has seen a negative impact, at least from what we can tell. Those would be the couple of things I would probably pay attention to first; or if we saw significant numbers of companies stepping up with unusual levels of staff reductions.

Again, I don't know that we've seen any of those so far. What you've seen is much more of a flattening out of increases more than you've seen a massive amount of decreases. So I think that's why -- when I say by the way, I didn't mean to talk negatively about the sales and dealer teams. They obviously are down there and they can see individual projects. When you try to roll it up to the total, what tends to be a better predictor of inflection points is when we look at some of that macro data or when we look at quarter over trends in orders or weekly trends in orders and/or as Greg points out often, what's happening in cancellations.

And we haven't seen any of those big dislocations. Of course, we would be less than transparent if we didn't say, we're paying attention to those things, given the news that's in the newspaper. We're not blind to it. We're paying attention to it. We would just say so far we're pretty impressed with how our teams have done and so far it looks like things are hanging in there.

Okay. Helpful. Thank you, Brian.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Walker for closing remarks.

Thank you all for joining us on the call this morning and for your continued interest in Herman Miller. We've had a good start to this fiscal year. And we're enthused by the clear signs that our strategy is gaining traction and momentum. That's all we have for you now. We look forward to talking to you again in November.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation and have a wonderful day.