MillerKnoll Inc (MLKN) 2013 Q3 法說會逐字稿

Good morning, everyone, and welcome to the Herman Miller, Inc. third-quarter fiscal year 2013 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; Mr. Greg Bylsma, Executive Vice President and Chief Financial Officer; and by Mr. Jeff Stutz, Treasurer and Chief Accounting Officer. Mr. Walker will open the call with brief remarks followed by a more detailed presentation of the financials by Mr. Bylsma and Mr. Stutz. We will then open the call to your questions.

We will limit today's call to 60 minutes and ask that the 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 go ahead, sir.

Good morning, everyone. As usual I will begin this morning's call by offering some added commentary to yesterday's reported numbers including a brief review of our performance by reporting segment and an update on the strategic investments and priorities. Then I will hand the presentation to Greg and Jeff for more on the consolidated results.

To begin, the standout story for the quarter is gross margin, which at 34.1% significantly exceeded our forecast. This strong margin performance helped drive a 23% increase in adjusted earnings per share compared to last year. A number of factors contributed to this improvement including strong growth in our higher-margin product categories and businesses.

This point is critical as we're seeing progress driven by the investments we're making in margin rich products and categories in all segments and consistent with our growth strategy. While we are pleased with this earnings performance, net sales and orders did fall short of our expectations, coming in at $424 million versus the $430 million to $450 million range we expected.

To be frank, the month of January was particularly soft and ultimately proved to be a bigger hurdle than we expected coming into the quarter. With that said, our results for the full quarter reflect encouraging progress in a number of areas including a return to year-on-year growth after four straight periods of decline.

It's also important to note that while January was tougher than we expected, we did see an improvement in order pacing through February and into March, as is typical during this period of the year. Importantly, macroeconomic indicators for the industry suggest a positive trend in demand through 2014.

While our growth in North America remains challenged by weaknesses in federal government demand, the balance of our North American segment showed solid momentum, generating sales and order growth of 5% and 10% respectively. Fueling that growth are the investments we're making in higher margin products including the Thrive portfolio and in adjacent market opportunities.

We also made progress strengthening our distribution channel in North America. Late in the quarter we completed the sale of our company-owned dealership. This transaction combines our dealership with a group of existing dealer locations previously [aligned] with a major competitor, creating the largest commercial interior distributor in the state of Florida.

In the specialty and consumer segment we once again posted solid results with Geiger retail in the collection combining for sales growth of more than 13% over the same quarter a year ago. While segment orders in total were off modestly from last year, we posted double-digit growth within the Herman Miller collection.

Another key strategic aim for the segment and particularly for the collection is the enhancement of our overall brand. We're clearly seeing this bear fruit in brand recognition and appreciation among design specifiers, business end users and consumers.

Importantly, we know there is still more opportunity. We are continuing to expand our re-issues of iconic Herman Miller designs updated with today's materials and technology and we're introducing wholly new designs that serve across the office, home and public spaces both domestically and internationally.

Our non-North American segment reported sales growth in the quarter of 17% while orders increased 3% relative to the same period of last year. In both cases the growth was concentrated in Asia and largely related to our acquisition of POSH. Beyond this contribution from POSH we experienced varying rates of growth and decline by region which in total combined for flat sales and a decrease in orders on a year-over-year basis.

Regional volatility is not uncommon with an international business given that it is generally more project dependent than North America. That said we feel good about our international position with a growing offer of products appropriate to both mature and developing markets, an expanding brand and dealer presence and the regional teams to capitalize on our momentum.

For some time we have talked about the significant investments we're making across geographies, vertical markets and product categories and there are many more examples worth highlighting. Product innovation, knowledge rich services and overall brand development continue to be the engines for our growth strategy in the office.

Seating is a major -- is a Herman Miller hallmark and we continue to win both large and small volume customers with our industry-leading solutions. Today we are as committed as ever to protecting this leadership position. To that end we will be introducing a major seating refinement later this spring.

Likewise we are committed to sustaining and building on our legacy of pioneering design for the larger workplace. At NeoCon we will be unveiling our most ambitious rethinking of the office since our invention of the first open plan system action office in 1968.

Working with leading design firms and backed by intensive global research, we will demonstrate how the needs of individuals and their work can better intersect with the collaborative and group needs and bring new life to the office through furnishings, technology and space design. In short, we are creating the office where people will want to work and organizations can achieve optimal real estate performance. I hope you'll be able to join us in Chicago to see it firsthand.

Prior to June during the Milan Furniture Fair we are also launching a complementary global furniture platform serving open plan to executive offices and specifically designed for international markets. At the same event we will also introduce to the European market two newly commissioned designs from the Herman Miller collection that address today's blending of work and lifestyle.

These investments are taking place even as we strengthen our balance sheet and return significantly more cash to shareholders. We are also following through on our commitment to reduce balance sheet risk by terminating our legacy pension plans. We expect this process to be complete by November of this year; meanwhile we have increased our shareholder dividend twice this fiscal year from an annualized payout of $5 million to today's run rate of $29 million.

Even with this significantly enhanced dividend, we are confident that our strong balance sheet and growing base of business leaves us room for further strategic investments. With that brief introduction let me turn the call over to Greg and Jeff for more details on the quarter.

Thanks, Brian. Net sales in the third quarter were lower than we anticipated coming into the period, though at $424 million we were still 6% ahead of last year's level. On a sequential comparison sales were down 4% from the second quarter of this year. New orders in the quarter of $382 million were also up 6% year-on-year basis and decreased 20% from the second-quarter level. These sequential period declines in both sales and orders this quarter were at the upper end of the normal seasonal range for our business.

As Brian described, while demand from the US Federal Government remains a headwind to year-on-year growth, this was more than offset by broad-based strength across remaining major industry sectors in North America. In total, sales within our North America reportable segment of $285 million were up 2% from the prior year. New orders in the third quarter were $268 million reflecting an increase of 8% from the same period last fiscal year. Sequentially North American segment sales and orders were down 6% and 19% respectively from the second-quarter level.

Our non-North American segment reported net sales of $91 million for the quarter. This represents a 17% increase over Q3 of fiscal 2012 and a decrease of approximately 2% from the second quarter of this fiscal year. The revenue growth over last year was driven primarily by the acquisition of POSH.

We saw continued growth in Asia emerging markets; however, this was offset by decreases in more developed international regions where demand in the financial service sectors has weakened. New orders in the third quarter of $81 million were a 3% on a year-over-year basis driven by the addition of POSH and continued strength in the Middle East. This was offset by decreases in Australia, Latin America and the UK. Sequential segment orders were down 20% from the second-quarter level.

Net sales within our Specialty and Consumer segment totaled $47 million in the quarter. This represents a 13% improvement over the year ago period led by the continued momentum of our Herman Miller collection business. Segment orders of $34 million decreased 2% on a year-over-year basis. This is largely attributed to a temporary reduction in order activity following the merger and integration of two of our largest online retailers.

We also saw a shift this quarter in the buying patterns of our retail distributors who ordered more aggressively in Q2 of this year to better prepare for the holiday season. Compared to the second quarter of fiscal 2013 sales for this segment increased 7% and orders reflected a seasonal decrease of 27%.

As expected our results this quarter reflected expenses associated with our strategy to close and terminate our legacy dimension defined benefit pension plans. In total our third quarter includes approximately $4 million in pre-tax expenses related to these plans scheduled for termination. Of this amount approximately $3 million is recorded in operating expense and the remaining portion is included in cost of sales.

Our consolidated gross margin in the quarter was 34.1%. Excluding legacy pension expenses gross margin in the quarter was 34.2 -- 34.3%, an amount that was 70 basis points above the third quarter of last year and significantly better than our expectation coming into the period. Favorable product and channel mix, improved labor productivity and lower commodity cost drove the majority of these improvements.

Additionally, despite seasonally lower production levels, these same factors helped drive a 50 basis point improvement in gross margin from the second quarter of this fiscal year.

I will now move on to operating expenses and earnings for the period. Operating expenses in the quarter were $117 million compared to $109 million in the same quarter last year. Excluding the impact of legacy pension costs, operating expenses this quarter increased $5 million on a year-over-year basis.

The increase was primarily to higher spending in the areas of marketing and new product development and the addition of POSH, which wasn't included in our results at this time last year. These increases were partially offset in the quarter by a year-over-year decrease in product warranty expenses.

On a sequential quarter basis operating expenses excluding legacy pension costs increased $1.7 million from the second-quarter level. This change was in line with our expectations coming into the period.

On a consolidated basis operating earnings for this quarter were $27 million or 6.5% of sales. Excluding legacy pension expenses recognized in the period adjusted operating earnings were $31 million or 7.4% of sales. By comparison we reported operating earnings of $25 million or 6.3% of sales in the third quarter of fiscal 2012.

The effective income tax rate in the third quarter was 29.4% compared to 30.3% in the same quarter last fiscal year. The lower rate this quarter resulted primarily from benefits recognized in connection with legislation to extend the R&D tax credit which was signed into law in January of this year.

Finally, net earnings in the third quarter totaled $17 million or $0.28 per share on a diluted basis. Excluding the impact of legacy pension charges recognized in the quarter, adjusted earnings per share totaled $0.32 representing a 23% growth over Q3 of last year. And with that I will turn the call over to Jeff to give us an update on our cash flow and our balance sheet.

Great, thanks, Greg. Good morning, everyone. Cash flow from operations in the third quarter were $30 million. Net changes in working capital drove a $12 million source of cash in the period with the largest contributor being reductions in trade accounts receivable.

Capital expenditures in the quarter were $10 million which brings the year-to-date total to just over $40 million. Dividends paid in the third quarter were $5 million compared to just over $1 million in the same period a year ago. The amount paid in Q3 reflects the rate we established at the beginning of the fiscal year.

In January we announced a further change to the dividend, increasing it 39% to $0.125 per share. This higher rate will improve our dividend payout to approximately $7 million in the fourth quarter of fiscal 2013.

We ended the quarter with total cash and cash equivalents of $198 million, an increase of approximately $12 million from the end of Q2. We remain in compliance with all debt covenants and as of quarter end our gross debt to EBITDA ratio was approximately 1.4 to 1. The available capacity on our bank credit facility remains at $142 million with the only usage being from outstanding letters of credit.

Given our current cash balance, ongoing cash flows from operations and the total borrowing capacity we maintain, we're confident we can meet the financing needs of the business as we move forward. That's the balance sheet and liquidity overview and I will now give the call back over to Greg and he will cover our Q4 sales and earnings guidance.

Okay, thanks, Jeff. We expect sales to range between $430 million and $450 million in the fourth quarter. This implies anticipated revenue growth between 2% and 7% over Q4 of last fiscal year. Our guidance also reflects an assumed reduction in sales of approximately $5 million from the sale and deconsolidation of our Florida dealership.

We are expecting our fourth quarter will again include approximately $4 million in legacy pension expenses of which approximately 80% will be recorded in operating expenses. Excluding the impact of these pension costs adjusted earnings per share in the quarter are expected to be between $0.34 and $0.38.

On a GAAP basis diluted earnings per share in the fourth quarter are expected to between $0.30 and $0.34. This assumes an effective tax of approximately 27%. However, we believe this rate could range between 24% and 30% depending on the outcome of a variety of factors as we close out the fiscal year.

We anticipate the fourth-quarter gross margin to range between 34% and 34.5% excluding the impact of legacy pension charges. In total operating expenses in the fourth quarter are expected to range between $117 million and $119 million excluding the legacy pension impact. This guidance reflects the anticipated increase in spending on strategic initiatives including new products scheduled for launch in the upcoming months.

And with that I will now turn the call back over to the operator so we can take your questions.

(operator instructions). Budd Bugatch, Raymond James.

Hello, gentlemen, good morning, this is actually Chad filling in for Budd. Congratulations on the strong performance in the quarter. First question, Brian, in your comments you talked about a pretty weak January. Could you guys quantify for us sort of what the weekly order pacing was throughout the quarter and then what you've seen so far in March?

Yes, Chad, I think that is a level of detail I don't think we should get into because we will be talking about that every quarter then up and down throughout the month and it bounces too much, to be honest with you. And by the way, we should probably spare you guys the feelings that we always have when you look at weekly and daily numbers.

So I would just say it was less than we expected, December started off really good. And in fact we knew that going in to the call for the second quarter. January was weak as you looked at the overall as you could see from even the press release, the seasonality that wasn't more than normal. I think we actually had some signs from talking with the sales force coming out of the second quarter that in fact the seasonality would be less than what would be typical.

So I think somewhat our surprise was maybe because what we had seen exiting the second and early December felt like their forecasts were pretty reasonable. In retrospect actually we saw pretty typical seasonality. So I don't know that it is unusual in a typical year. We probably got a little overexcited based on what we saw at the end of the second and early December.

Now again, we have seen kind of a normal -- I would say a normal bounce back, but we've only got two weeks in March so it is a little early to call it yet. This is typically the time of year you are probably going to start to feel better once you get into April, March is still a little up and down. April starts to get solid and that is when we really got a better feel about it.

Okay. And can you share with us how your customer visits trended during the quarter?

You know, customer visits compared to prior years, I would say they are relatively flat. I mean not a big difference. I would say one of the things that is difficult to look at that data though -- remember we virtually shut down West Michigan from customer visits, but we didn't say don't come.

But we had the major place that people often come to is the front door space at the design yard and it has been under construction really starting in August. And has only been opened -- in fact, we have only been back in our offices for about three or four weeks.

So it's just -- I would say activity lately has been quite strong. We know that some customers had in fact deferred visits kind of waiting until we got to the other side. So folks that were for sure in the midst of something and thought that the only way they could make their decision was coming to see us in West Michigan, those happened. But activity has been a little bit stronger.

I would say from anything we can hear from folks that are with the architectural community, as well as our own sales force, activity in the industry looks like it is still quite good. I know there are some concerns out there that the first half of calendar 2013 doesn't look like it's going to be robust, but as you get into the second half of calendar 2013 there are a lot of good signs with where the ABI is.

And even looking at the economic forecast yesterday from the Fed would have you believe that calendar 2013 is going to be okay; 2014 looks better and even 2015 looks pretty darn good. So I think what we see is we are not going crazy in terms of what we think -- trying to stay reasonable, but relatively optimistic that if the general economic trend and the things you see underneath the data continue to happen it should firm up as we get to the end of calendar 2013, we should start to see the industry get to maybe some better growth rates.

Okay, that is very helpful, thank you. And it sounds like the upcoming NeoCon is going to be a pretty big deal for Herman Miller. Greg talked about the operating expense guidance for the quarter including some of that spending or some of the new product-related stuff, I guess. Can you just help us -- how should we think about the costs related to the show, kind of the new product introductions in terms of the magnitude and the timing of where we will see those expenses layer in?

Well, we have already seen some of them. We have been talking about those for a good chunk of this year. I would say we are actually a little bit lighter in the first half of the year, in fact even in the third quarter a little lighter than we may have thought coming into the year.

It will, Chad -- as Greg described, we'll have a fair amount in the third -- in the fourth quarter. It will be somewhat show related. It will be also related to you're just starting to get towards the tail end of what I would call market introduction versus market launch, because NeoCon will really be an introduction of these ideas much more than it will be the final launch.

The products themselves will actually launch, the seating product line will probably be near NeoCon and then you will see them launch throughout next year. So I think we have been telling folks is, look, we are going to have a fairly hefty expense load between now and sort of this time next year because we have got a lot of stuff coming through the pipe now.

Some of that, whether it will look (inaudible) or not will depend on what growth rates are in the top-line. I would suspect we won't see a lot in volume from those products until we get into probably tail end of next fiscal year just because (inaudible) their launch rates are and they won't probably have a big impact until we get into fiscal 2015 in terms of actual revenue.

Okay and a last question for me, you have recently acknowledged a pretty significant meaningful project win. Any thoughts on sort of when that starts to show up in terms of the orders and shipments? And obviously gross margin this quarter and your guidance for next quarter is awfully good. Should we anticipate a bit of a margin drag given the size of that project and just how should we think about modeling all that?

Well, first of all I don't think we will see any orders from what we can tell right now. A lot of that is based on construction schedules. From what we know right now I don't think we will see any orders this fiscal year. I would think probably sometime in the first quarter we will start to see orders. We probably won't see any shipments until Q2 and that kind of depends on how the building schedule goes.

Best guess right now is we will start to get some orders end of Q1, probably really ramp in Q2, shipments will start I would guess middle of Q2. Net-net it is going to kind of depend on what the margins do because if that becomes additive and helps boost growth, of course, as you guys know and you saw this quarter, if we can get large or reasonable gains in volume we can actually leverage that quite well both at gross margin and at the operating income line.

So, Chad, I think it will really depend -- how that comes in will depend on what other business is around it and what the total nature of growth is at that time.

Okay, well, thanks, guys, for taking my questions. Good luck to you.

Josh Borstein, Longbow Research.

Just on the orders and the specialty consumer you said were up 2% and you mentioned it was a temporary reduction due to something to do with the online retailers. I was just wondering if you can go and a little more depth on what was going on there.

Yes, I mean if you looked at the retail -- if you look at Specialty and Consumer, I think you saw revenue increased faster than orders, which is one of those questions you always ask yourself -- well, what is going on, what does that mean.

What we saw happen, particularly in the retail business, is first of all we saw a little bit of a change year over year where a fair amount of retailers put restocking or stocked heavier pre-Christmas than they did the year before. So we saw a little bit of movement of orders from Q3 to Q2 if you follow me. So the year-over-year comparison was a little funny in terms of timing.

The second thing we had is we had one of our larger online retailers, two of them combine together. During that combination they weren't as active as they typically are with advertising and those kinds of things. And we saw a little bit of a drop-off in orders for them as they went through their integration. We think that will come back.

But those are the things that we saw bouncing around that made the orders look a little lighter than we think the ongoing trend will be as we get into the balance of the year.

Okay, thanks for that. And then, that specialty consumer, just to follow up, it has been 10% of consolidated revenue now for the past two quarters. Where do you see this business as a percentage of revenue in say two years -- two or three year's time from now?

That's a great question. It sort of depends on how much of that -- how much of it is organic growth versus if we can find acquisitions that may make a difference to it. So if it is through organic growth -- we never thought that the retail business would become a huge business. We think there is some opportunity to grow that, the margins have been good on it. We've seen increases in both our online as well as our online partner's growth.

Our gut is we could probably see that thing grow to be around somewhere around 15% of the total revenue if it is all organic. And I would say the two factors that are inhibitors to growth, maybe three -- one is how many doors can we get open. We are doing some experiments with some of our retailers that give us more of a physical presence.

Two, how fast can we get new products out the door so that we can build the pipeline of that out for both the contract side as retail.

And then three, can we find some complementary either acquisitions or new segments of that world that we can get into that give us new room to grow from a product perspective.

So I think it is going to really depend on those three items whether or not we can have that become bigger than 15%.

Thanks for that color. And then just going back to North American Furniture Solutions, you called out to commercial in the press release as an area of strength. And I was just wondering if you can dig a little deeper into specifically where in commercial you saw that strength so well?

It was actually I would say fairly across the board. There wasn't a particular segment that was super strong, financial services -- I would say internationally maybe I can give you the converse. The only thing that internationally we saw banking sector, particularly in some of the big money centers, Hong Kong, Singapore, some of those being weak.

Financial services was better overall, globally. Banking particularly in the international side was weak. That is probably not a surprise when you hear what is going on in Europe, what is going on in Asia around banking and some of the changes and people trying to figure out capitalization and all of those things. In the US I think it was pretty broad. Jeff, would you add anything to that?

Yes, Josh, this is Jeff. Yes, I was just going to tag onto that, I think there is definitely -- there was a contrast. Certainly this quarter year on year, as Brian mentioned, internationally we are banking and financial services has definitely stepped back in the major developed markets whereas in the US we had a really good quarter.

And of course this is very project oriented, as you know. So it was quite strong. That was actually -- if you look across sectors, that was where we saw the greatest strength on a year-on-year growth basis. But it was broad-based, as Brian mentioned, outside of the government.

Okay, great. And then within that is it your sense that right now businesses -- a lot of the business that you are seeing is due more to say consolidation efforts rather than any kind of expansion efforts on the part of these businesses?

Well, I don't know. You are seeing a fair amount if you just watch what is going on. You are seeing a fair amount of folks either, A, building new corporate headquarters. I mean, there are a fair amount of new corporate campuses going up across especially in the United States.

If you look at -- you've got certainly the one big one that we have been talking -- that people have talked about related to us. You've got Apple in the process of building new headquarters, Juniper Networks just put up a new headquarters, Red Hat is building a new headquarters.

So you've got a fair amount of folks talking about new headquarters, construction. You do have that going on and a bit of that I think is people realize we are at a point where there needs to be a little bit of a reinvention. I mean if you read all the news from Marissa Mayer saying hey, look, I want folks to come home. I think you can overstate that, by the way, that I think they had very specific issues that aren't necessarily a general trend.

On the other hand, I think people are realizing more and more that you have to have the kind of places that attract your people to come to your business to operate if you are going to create the innovation and the strategic things you need for the future.

So I think there is a little bit of a reinvention going on right now with people saying can I house people without maybe -- with if not less space certainly without adding space and at the same time make my places more attractive to where people want to come to me.

So I think that is the mix that we are seeing is people saying how do I reinvent. And certainly as companies have a little bit of cash to go do those kind of things that if they are not finding places that they can put money with -- that they can get monster returns on acquisitions and things I think they are looking at how do I keep my people and make sure that the folks I do have are as productive as possible.

I appreciate the color and good luck to you.

(operator instructions). Todd Schwartzman, Sidoti & Company.

I want to just look at the gross margin for a second. Looking back at least 10 years, the past decade plus, the sequential change from third- to fourth-quarter gross margin has been at least 60 basis points up. I just want to maybe ask you for some more color on the guidance.

I realize it is early in the quarter and there is uncertainty out there in the world. But why the potential baked into your guidance for a sequential decline in margin?

Yes, Todd, this is Greg. I think the big thing that you typically see there is that the Q3 gross margin goes down because our ability to -- or our challenge is to manage labor through what is typically a very busy December and then a very slow January. So you typically see -- from Q2 to Q3 you see that margin drop and then you see it pick back up again.

Our guidance for Q4 reflects the fact that we -- the ops team did a really good job of managing that through the first higher production levels and December then lower in January. And so, what we are typically forecasting in Q4 is that level of variation in production schedules not to occur, but because we managed it so well in Q3 we don't predict a rebound in Q4.

And what about those other positive puts and takes that contributed to that third-quarter margin such as commodities?

I think what you see there, Todd, is we had -- over time we have been saying this, we are shifting some of our product mix towards higher margin areas. We saw that in Q3, we saw it both through product and channel mix. And we don't see that changing too much as we move into Q4.

And on product development, when you look at the big picture, you look at your R&D budget, how do you think about allocation of dollars amongst the I'll call it new paradigm, old paradigm products, collaborative versus kind of bread and butter legacy Herman Miller products? I mean do you target any percentage or is it just based on whatever designs you're -- the designers are able to come up with that meet people's needs?

Yes, we certainly try to get a mix between things that are sort of updates to current platforms, things that are what we would call real breakthroughs and things that are new platforms. We have a set mix. You've got to watch it over time.

You don't want to have too heavy of a load towards breakthroughs. You want a big chunk of it to be right in the middle of new platforms that are kind of driven by your research but that are going to be kind of cornerstones, if you will.

The thing that -- even in the collection we are trying to do a mix of things that are both updates. What I have always said to our team though is we are not in the business of doing antiques; we don't sell antiques. We have to sell products that are relevant to today.

What we are doing with the collection though, looking at things that are still relevant and asking how do we improve them with new materials and new design adaptations that make them even more relevant for today's user.

So there is a section of the business that is not going to be the major part of what they do, they also have to be working on new platforms that are at the core of that business. And then we've got to be doing some things that catch people's imagination that are more breakthroughs or specialty things that kind of re-ignite people's love of Herman Miller.

So looking at that mix is a -- it's an art form as much as it is a science. The other thing you are doing is Greg talked about this mix between trying to look at high-margin areas. While that has been true, the other thing you have to be careful of is our business also has to be because our customers see us as a complete provider that we can go in and provide not just an individual object but in fact we can help you with an entire environment.

So we are also trying to balance that often to say we have to -- to get the high-margin products into our customers we have to be able to give them an entire environment. So thinking through how we reshape the environment and then at the same time bringing those products that have great margins, those two things have to be seen in balance.

That helps, great, thanks. Turning to POSH for a minute -- under your ownership are they losing, gaining market share? How would you characterize their performance under your early involvement?

That is a really tricky one to predict for China, to be perfectly frank, because there is no great data on what is the market for China. What I will say is happening is during the initial phases of the acquisition, like you often find with acquisitions, we have a model where they're producing product for us today, the family who own the business are still in manufacturing.

We had some hiccups trying to get that all worked through the system, so their orders were a little light in the summer and I would call it sort of self-inflicted wounds a little bit. We have seen that pick back up.

The good news with POSH, I think where we are really seeing the place where it's growing is, A, us selling our products into their channel in mainland China, which was always one of our big drivers. And B, using POSH products in the remainder of our distribution in the emerging markets across Asia and the Middle East.

Those are the places -- so, is that marketshare, yes, it is. But it is not marketshare in China necessarily, it is looking at the business more broadly, more holistically. Certainly it is enabling us to get the opportunities in some of those markets we wouldn't have done otherwise.

What were their third-quarter revenues and maybe if you could orders in dollars?

You know what, we are not going to break down the segment that far, because that starts to get, in my opinion, sort of on the point of a level of granularity that is not helpful. And by the way, it's going to bounce around depending on whether it is a POSH product or a Herman Miller product on a project, so I don't think it is actually that meaningful.

And the seasonality there not terribly different from North America?

It's a little different. Sometimes you will see it at different periods within a quarter because Chinese New Year is obviously going to have a bigger impact for those guys than what we are going to see in the US around Christmas.

So Chinese New Year is always one of those things -- I think this year it hit in the third quarter, right, Greg -- that basically China shuts down for that week or two weeks where nothing moves. So you get a lot of spikiness on either side, much like we see around the Christmas holiday in the Western world.

Got it. And on share buybacks, just if you could refresh me, what do you have, if anything, under authorization remaining?

We have a fair amount of authorization. As you know, our -- we've been on this mode to say the first thing we wanted to do was pay down debt, get that taken care of. The second thing we wanted to do was get the pension plan in order. Our third priority was looking for things where we could grow the business. And then last, we said we were going to be -- we would look at the dividend.

We have -- as you know, the debt piece is pretty much there. We are in the late innings on the pension thing, we think that will get wrapped up as we get to the fall. Because we had enough cash we figured we had plenty of room to do the strategic things we wanted to do, we have been fairly aggressive about getting the dividend not only back up to where it used to be but above at the highest level we have ever done.

Certainly one of the conversations at the Board now is what should we do next? And I think one of the things we have been considering is at some point, if we did share repurchases at all, the one thing we would look at first is how do we ensure that our long-term incentive plans are not dilutive. And that would be the next spot I think we would go to.

Sounds good, thank you very much.

Thank you. I am showing at no one else in queue at this time. I would like to turn the conference bike over to Mr. Brian Walker for any closing remarks.

Thank you all. In closing I want to summarize some of the key points of our strategy reflected in today's call that we believe will drive growth and help us continue to expand margins.

First, we are investing in our core base business domestically and internationally with a clear aim to grow revenue. That added volume will also elevate our margins through better utilization of our existing overhead.

Secondly, we are working to refine and fix those areas of the business that need attention and we are seeing progress in strengthening their margin contributions.

Finally, we are investing in our Specialty and Consumer segment, specifically the retail and collection elements with a focus on margin rich products and channel models.

As we said, these investments in product and service innovation, new channels, international reach and brand building will have some impact on our profit leverage over the next nine to 12 months. But we are already seeing validation of our strategy and expect greater returns in the coming fiscal year.

Today we are confident our direction, our people and our partners and we look forward to sharing more with you in June. Until then have a great spring and we will talk soon.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect. And have a wonderful day.