MillerKnoll Inc (MLKN) 2014 Q4 法說會逐字稿

Good morning, everyone, and welcome to this Herman Miller, Inc., fourth-quarter and fiscal year end 2014 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 on 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 financials by Mr. Bylsma and Mr. Stutz.

We will open the call to your questions. We will limit today's call to 60 minutes and ask the callers to limit their questions to allow time for all participants. 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. Thank you for joining us. I will briefly share some of my thoughts on the quarter's results and the strategic progress we have made this past year before turning the call over to Greg and Jeff for their presentations and more detailed financials.

We feel good about the results we posted yesterday afternoon. Despite softer than anticipated sales and order pacing early in the period, our overall operating performance on an adjusted basis came in at or above the levels we committed to in March. We are also encouraged by the continued progress being made across the organization to advance the momentum of our long-term strategic agenda.

I'm sure you noted our reported results included pretax restructuring and impairment expenses totaling $21 million. These charges relate to the impairment of intangible asset values associated with our Nemschoff and POSH trade names. The accounting for intangible assets that result from business combinations is complex. When you add a contingent consideration element such as an earnout provision, it gets even more difficult to follow. So I think it's important we give this topic a bit of time today.

Let me start by assuring you, we continue to believe both businesses and brands are important parts of our long-term offer. This past year, Nemschoff was again recognized as the number one healthcare furnishings brand in the United States. POSH continues to be a leading brand in China, and it's helping us to build a growing presence in India and other markets in Asia.

Both businesses posted growth and profitability this past year. However, the current and forecasted results are not at the level we forecasted at the time of the acquisitions, and we have work to do to realize our ultimate goals. As a result, this partial write-down of asset carrying values was required under GAAP accounting rules.

The current-quarter charges were offset by a $2.6 million gain from the reduction of a contingent consideration liability recorded at the time of the POSH acquisition. In essence, the original purchase accounting assumed we would have an additional payment based on achieving a sales target in the years after the acquisition.

This contingent liability gave rise in part to the trade name asset impaired this past quarter. In the case of Nemschoff, contingent consideration came in two forms: a cash earnout provision based on targeted sales growth; and a contingent value right, or CVR liability, which changes in value based on the movement in the price of our common stock.

In fiscal years 2010 and 2011, the contingent liabilities related to Nemschoff were reduced, and we recognized gains totaling $24 million based on the underlying performance metrics. In short, while the accounting impairments are disappointing, they have been largely offset by cumulative life-to-date reductions in the amount owed under the contingent consideration liabilities.

In a perfect world the liabilities and assets would have been reduced at the same time, but GAAP rules require us to evaluate the two separately, and this will often result in timing differences.

With that detail covered, let me go up a level and talk about the market and what we have done to move our agenda forward. Overall, the domestic and international business environment, though still mixed by region, is generally pointing in a positive direction. At a macro level, recent Fed commentary, supported by positive employment numbers and ISM reports suggest a moderate GDP rebound from the disappointing prior quarter.

Our industry's key indicators, including corporate profits and the ABI, are also pointing up. Those factors, along with an improving nonresidential construction backdrop, are helping fuel the optimism I'm sure you've seen in BIFMA's latest forecast for 2015.

Internationally, the picture also appears to be improving, with more encouraging signals from the UK and Europe and greater stability in parts of Asia. There are obviously wildcards out there, especially unfolding geopolitical events in the Ukraine, and most recently, the Middle East; but overall, we appear to be in a period of improving industry dynamics.

To be frank, it has been frustrating to see expected growth repeatedly pushed into later quarters as the domestic and global economy have been trying to find traction. Having said that, we continue to see signs that momentum is building our business. This past quarter serves as a good example. Despite a sluggish start for order entry in the early weeks of the quarter, our order pacing accelerated late in the period, driving us to a strong finish and a backlog of almost 12% compared to a year ago.

We have also noted that a greater percentage of our new orders are dating out beyond the normal delivery method. With this as context, I'll turn to some of our segment highlights.

On an organic basis, our North American reporting segment recorded flat sales for the quarter, while orders were up 7%. We were encouraged again this quarter to see further signs of stability in the US federal government sector, where sales and orders were up over last year, driven by strong demand from government healthcare agencies.

Our living office initiative continues to build momentum. During the quarter we began taking orders on two of our major new product platforms, with a third scheduled for formal market launch in early calendar 2015. At NeoCon, we displayed all 3 to great effect, integrated with our broader product offering.

Using our own Chicago staff and showroom as a case study, we were able to demonstrate a living office landscape uniquely designed for the people, work, character and culture in that space. This also enabled us to share more of Herman Miller's new research-based tools for assessing client needs and supporting designers in space planning.

We believe living office is well-timed, with clients and their designers seeking to understand and adopt a new landscape of work. And our NeoCon showroom was a powerful proof concept for both our unique insights and new product design. In fact, for the second consecutive year we received the International Interior Design Association's award for the best large showroom at NeoCon -- another significant validation of our living office design concepts.

Another key development in our work business this past year is the progress we made in rolling out new insight-led sales training and CRM tools for our field and dealer network. That work has energized our sales force and dealer partners with a living office, providing a great catalyst for their enthusiastic participation.

We have held a number of readiness rallies across North America and are now taking those program's events to other international regions. The Herman Miller sales team and dealer network have always been among the very best in our industry, but we are really excited to see the impact that these new skills and tools are having.

Our specialty consumer segment closed the year with another great quarter, with organic sales and orders up 8% and 7% respectively versus the prior year. We were particularly encouraged to see that this growth was broad-based across the segment.

The integration of Maharam, widely recognized as the industry's top textile brand, has gone very well. That team continues to make a positive contribution to our overall financial performance, and their product and operational capabilities are a great complement to the other elements of our business.

The Herman Miller collection also continues to grow in both product offer and brand value, demonstrated by the fantastic market reaction to our presentation at the New York Design Week in May. Dozens of new SKUs have been added to the collection from this past year in both new and archival design, growing both our consumer business and the range of solutions we offer for commercial and hospitality spaces.

This year has shown we are successfully reaching an expanded marketplace that offers new growth and richer margins. In short, we've made great progress expanding our specialty consumer portfolio and capabilities -- all of which builds on our conviction that our rich brand legacy gives us a unique advantage to improve our reach into the consumer market.

Turning to our ELA reporting segment, that business delivered a good quarter, with organic sales up more than 9%. This was led by strong performance in Europe, particularly the UK. Additionally, despite the recent news headlines highlighting strains on economies in Asia, we benefited this quarter from strengthening sales in that region, including our business in China. Organic orders for ELA were essentially flat, but we were generally encouraged by the improving fundamentals of Europe, in parts of Asia, and the opportunities we are seeing in Mexico and in greater Latin America.

We are also expanding our global capabilities to capture more of these international market opportunities. In the near term we are scheduled to begin the construction of a new manufacturing and fulfillment center in the UK that will serve the EMEA region. We are also very excited about our leased manufacturing distribution facility scheduled to be operational in Bangalore, India, later this year. In short, Herman Miller's international business continues to expand profitably. And we see much more potential as we grow our brand and operational capability in these markets.

Looking at the total body of work over this past year, we are pleased with how far we have come, but we all recognize there is still much more work to be done to achieve the long-term objectives of our strategy. Most of you are well aware that we have for some time referred to this as the shift strategy, in recognition that the key social and economic changes around the world offer us exciting new opportunities for profitable growth but also require a shift in our focus and capabilities in some fundamental areas.

These fundamental shifts have informed each of the areas of progress I've described for you this morning, and we are confident they will continue to lead us towards the objective we have established for the business. In June of 2012 we outlined for you a set of three year goals for sales and operating income growth. We are now two years into that period, and we have committed to be refreshing these goals, reflecting the changes we have made in the business and our strategic growth plan going forward.

We feel strongly that for these goals to be meaningful, they should be shared within the broader context of the strategy. Accordingly, we won't be providing this information on today's call. Instead, we will outline this information during a separate analyst day and investor conference call later this summer, following our Board meeting in July.

We are tentatively planning this event for July 28 in Chicago, and more details will be coming soon. With that brief introduction, let me turn the call over to Greg and Jeff for more details on the quarter.

Thanks, Brian. As Brian covered the main highlights of our business segments, I will focus my comments on the consolidated results for the quarter. Consolidated sales in the fourth quarter of $488 million were 6% higher than the same quarter last year. Excluding the impact of the Maharam acquisition, dealer divestitures, and foreign currency translation, sales increased 3% from the prior year.

Orders in the period totaled $480 million, an amount that was 4% higher than the prior-year level. As a reminder, at the beginning of February we increased our general list prices an average of 2.5%. And as a result, we estimate orders totaling approximately $22 million were pulled ahead into the third quarter that otherwise would have been entered in the fourth quarter. Excluding the pull-ahead impact of the price increase as well as the Maharam acquisition, the order divestitures, and foreign currency translation, orders increased 6% from the prior year.

Sequentially, net sales in the fourth quarter increased 7% from the third-quarter level, while orders improved 3%. When factoring in the impact of this year's price increase, sequential order growth in the fourth quarter was nearly 14%. This increase is directionally in line with the seasonal trends we've experienced in the business over the past several years.

The translation impact from changes in currency exchange rates had a negligible impact on consolidated net sales and orders in the quarter. Our consolidated gross margin in the fourth quarter totaled 36.7%, a 130 basis point improvement over last year's fourth-quarter gross margin of 35.4%.

The addition of higher-margin Maharam products as well as the net benefit from the recent price increase, net of discounting, drove the majority of this year-over-year increase. I will now move on to operating expenses and earnings in the period.

In total, operating expenses in the fourth quarter of $131.5 million compared to $127 million in the same quarter a year ago. This represents a year-over-year increase of $5 million.

Our expenses this quarter were reduced by $2.6 million related to a reduction in the remaining earnout liabilities for POSH, which Brian described earlier. When you adjust for this contingent consideration adjustment, our operating expenses came in at the low end of the guidance that we provided at the end of the third quarter.

Further, last year's fourth quarter included $2 million of legacy pension charges associated with the defined benefit plans that have since been terminated. Excluding these items, our operating expenses increased approximately $9 million from the fourth quarter of last fiscal year, the majority of which relates to the acquisition of Maharam.

On a GAAP basis, operating income this quarter was $26 million or 5.4% of sales. This represents a 240 basis point decrease from our consolidated operating income in Q4 of the last fiscal year.

Excluding restructuring and impairment expenses, as well as a reduction in the POSH contingent consideration, adjusted operating income was $45 million or 9.2% of sales. By comparison, we reported adjusted operating income of $39 million or 8.6% of sales in the fourth quarter of fiscal 2013.

The effective tax rate in the fourth quarter was 25.7%, and on an adjusted basis, excluding asset impairment expenses and reduction in contingent consideration liability, the effective rate was approximately 28%. This adjusted rate was below our previous forecast of 32% to 33% due to favorable true-ups to reconcile both tax provisions to complete tax returns. The effective tax rate in the fourth quarter of last fiscal year was 24.4%.

Finally, net earnings in the fourth quarter totaled $17 million or $0.28 per share on a diluted basis. Adjusted diluted earnings per share in the quarter were $0.50. This amount includes approximately $0.03 related to lower than expected tax rate in the quarter. And with that, I will turn the call over to Jeff to give you an update on our cash flow and balance sheet.

Thanks, Greg. We ended the quarter with total cash and cash equivalents of $102 million, an increase of nearly $25 million from where we ended last quarter. Cash flows from operations in the period were $40 million.

Changes in working capital resulted in a net use of cash totaling $4 million, with the largest factor being an increase in trade receivables.

For the full fiscal year, cash flows from operations were $90 million. As a reminder, this full-year amount is net of a $49 million cash outflow made earlier in the fiscal year, related to the final termination of our domestic defined-benefit pension plans.

Capital expenditures in the quarter were $9 million, bringing the year-to-date total to $41 million. Cash dividends paid in the period and full year were $8 million and $30 million, respectively. As a reminder, the dividend increase we announced last December was reflected in our April payment, putting our annualized payout level today to approximately $33 million.

We remain in compliance with all debt covenants, and as of the end of the quarter, our gross debt-to-EBITDA ratio was approximately 1.2 to 1. The available capacity on our bank credit facility remains at $145 million, with the only usage being from outstanding letters of credit.

Given our current cash balance, ongoing cash flows from operations, and our total borrowing capacity, we are confident we can meet the financing needs of the business as we move forward. And with that brief overview, I will turn the call back over the Greg to cover our sales and earnings guidance for the first quarter of fiscal 2015.

Okay. Based on the order trends we have seen in the recent weeks and the level of composition of our starting backlog, we anticipate sales in the first quarter will range between $480 million and $500 million. This implies total revenue growth between 2.5% and 7% over Q1 of last fiscal year.

Earnings in the quarter are expected to be between $0.44 and $0.48 a share. This assumes an effective tax rate of between 33% and 35%. We expect our consolidated gross margin in the first quarter to range between 36.5% and 37%.

And finally, operating expenses in the first quarter are expected to be between $132 million and $135 million.

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

(Operator Instructions) Josh Borstein, Longbow Research.

Last quarter you had talked about firing on all cylinders, and I realize revenue came in within your guidance range. But just wondering if any of the segments either under- or outperformed relative to your internal expectations this quarter?

It's Brian. You know, actually, that's great question, because in some ways that was a -- you know, we came out of the third quarter feeling really good that we have seen order growth really across the business. What we saw early on in the quarter, as we mentioned, it was a little more sluggish; particularly, I would say, in North America, because you saw we had really great activity across ELA. And in fact, the specialty and consumer business ran pretty well across the whole quarter. So the lightness early in the quarter was in North America.

The other thing that was a little surprising to us was the dating of when we started to get orders -- that a fair amount of that was outside of the quarter. In fact, even as we look into the first quarter, the lead time from when we are getting orders and when people want it is also pushing out in the first quarter, which is why even with the good-sized growth in backlog that we had in the fourth quarter, we are seeing some of that move out even into the second quarter of this next fiscal year.

Okay. And I know you had mentioned that earlier in the call about orders getting pushed out, or just the lead times getting longer. How unusual is that relative to historical norms? Is there any particular reason behind that or any kind of metrics you can put behind it?

No. I don't know that it's -- I think you go through this from time to time. That sort of depends on the scale of some of the projects.

The good news is we have seen some bigger projects, and those have tended to be a little bit longer. So I don't think there is a -- we don't see anything in there that yet makes us believe it's kind of a change in the business or a trend.

It was just interesting that we saw -- both as we got towards the end of the fourth quarter, and as we looked to the first quarter and we looked at the dating in the backlog, we saw it in both spots. So just a little greater percentage than what we have seen in the past. I wouldn't call it monumental, but when you are down to $4 million and $5 million worth of shipments making the difference of being at the top end of the range or the bottom end of the range, it makes a difference.

Okay. Thanks for that. And then in the most recent BIFMA forecast, there was a shift that seemed like it pulled some of the demand from 2015 into the back half of 2014. So it looks like the second half of 2014 is stronger than before. Is that a trend that you are seeing in your business as well?

You know, I don't know, but I think we've looked at the forecast over our total fiscal year and said, hey, the direction looked right. I don't know that we have ever said, hey, look, we can count on an exact number.

I think, still, when we look at patterns and strength of the US, you hear good things from the architectural and design community, as they are quite busy. NeoCon -- there was pretty good floor traffic from people who were in the mode of making decisions. Not that you see orders there, but it certainly looked like there was good traffic by companies that were in the mode of deciding what they were going to do.

So all of that seems to point to directionally, where BIFMA is looking at for continued momentum makes sense. As I said in my opening comments, Josh, the only trepidation I have about that is that forecast has continued to kind of move out a little bit throughout the last 12 months. We would have thought we would see more of that in the spring. In fact, it wasn't quite as strong in the spring as we would have thought.

Okay. And just one last one from me. With the living office -- you know, you spent a considerable amount of effort here to retrain sales and dealers on a solution-based selling approach. At this point is this how sales and dealers are going to market? And are there any metrics you can share just to gauge how successful that selling approach has been?

I don't have any particular metrics. I would say to you that -- to are they going to market that way -- I think we are in the -- I would call it, we are sort of in the middle innings of the development and training of everybody. I mean, it's a pretty big effort to get out and get everyone on board.

We've done initial training with folks to get them fired up. NeoCon was another chance to go back and do some of that training again. But you know, this is going to be a multiyear activity. It's not going to happen in 12 months. And we've really been at it super-strong the last 12 months.

But you know, we are probably talking a multiyear effort, to be frank, before we have got every person on the Herman Miller side, plus all the dealers up to speed and then in sync. I would say -- we just did a living office event this week in the UK, and Andy Lock, who runs the international business, called me the day after and said, hey, there was another kick of the can. This time we brought in all the dealers. The materials are getting easier for the dealers to absorb. They walked out fired up.

So I think -- you know, what you've got to hope is you get sort of the alchemy of the market improving at the same time that you've got folks out there with new tools to help people discover the new ways that they can create their offices.

I appreciate the color. Good luck on the rest of the year.

Todd Schwartzman, Sidoti & Company.

Earlier this morning a competitor cited warranty freight and distribution costs higher year-over-year in their May quarter. Can you speak to those as it pertains to Miller?

Todd, we have -- throughout our year this year, we have actually seen warranty costs come down, which is, I think, our second year in a row we have seen warranty come down. So we haven't seen anything significant around warranty at all. It wasn't a big move this year, but it was a nice move for us, which, to be frank, is really very much directly related to some hard work by Mr. Bylsma on some additional training and systems we put together around manufacturing.

But often in this industry -- and I obviously can't speak to their particular issue -- those things tend to come because you've got either a large project, or something that has caused you problems, or maybe a new product introduction. But we haven't had anything on our end that has been out of line with what we've seen in the recent past.

Distribution -- cost-wise, I would say the same thing there. Slightly up, but not that significant enough for us to talk about.

Okay. And when does product development spending ease a little bit, maybe, relative to the last couple of years?

You know, I don't really expect it to ease in terms of dollars. I think the question is going to be can we grow the top line faster versus the dollars increase in R&D?

To be frank, if you were at NeoCon and you walked through, I think the whole industry is going through a fairly transformative period, where everyone is looking for new ways to solve the problems of the modern office. I also think everyone is trying to find new places to get revenue -- whether that's new product segments, new customer segments.

And to do that, you are going to need a very robust set of new products. I think our primary challenge for us internally is how do we build a faster clock speed? Because when you look at our R&D, it's rarely related to capital as much as it is to our own folks.

So our focus is how do we apply the learning we have had from Lean to our R&D processes, which is not a one-year journey? It took us many years to get Lean, implement it across manufacturing. I'm sure that will be the same case with R&D.

So I don't expect us to see reductions in R&D dollars spent. Over time, hopefully, we can grow the top line faster than we are growing the investment. That's where you will see the offset, Todd.

Got it. And what color can you provide on integration of both POSH and Maharam? Anything new there? Any surprises, good or bad?

On the POSH front, you know, we acquired the manufacturing side in October. We knew that would take some additional effort. We had to sort of unwind some things we did as an interim step when we acquired just the front end of the business.

So I would say the team isn't completely finished with that work. It's gone pretty well overall. We feel really good about the stability of the workforce. I think our next challenge in POSH, to be frank, is around spreading the use of those products to our broader geography of Asia.

We've done some of that in India, and we think there are opportunities for other places we can use the POSH brand to give us a secondary brand, especially in markets that are maybe a little more cost-conscious. So overall, the POSH integration has gone well on that front.

Maharam was a -- I would call it, there was light integration of Maharam from the beginning. Generally, it's gone very well with the family. If we had any surprises at Maharam this year -- revenue-wise, it was dead on where we thought it would be. Margins were quite good. You can see that in our overall results.

The one place that we spent additional money on Maharam this year to introduce a greater number of new textile designs as well as an entire new rug offering and so the profitability was a little bit lower, mostly related to forward spending in R&D and marketing costs, which we think is going to be really helpful. That's not only expanding in the Herman Miller -- in the Maharam brand; new rugs with the Danskina brand, which we are quite excited about, that we launched at NeoCon; as well as additional textile offerings in other parts of our business. So overall the Maharam integration has gone well.

And those new products are being rolled out over a couple of quarters?

Yes. You will start to see them, yes. Those guys do, in the textile business, different than in our world, where we may think of a product line that is introduced, and then it's out there for 5, 10 years or longer. That business is more much more like the fashion industry. So you'll see two, three, four, five introduction periods in a year.

So you are constantly updating SKUs and bringing out new things; and things are pulling in and out of the line, depending on their receptivity. One of the reasons you can do that is it's primarily development costs and sales and marketing more than it is -- you know, you are not building tooling and those kind of things. The majority of those products are, of course, made in the supply base.

So you see a lot faster churn on their products than what we what might be used to. In this case a big chunk of the cost of launching more new SKUs is you have a higher sampling cost, which in some ways runs through as marketing dollars, because you have to go out and create samples for A&D firms, salespeople, dealers, and the such to be able to market the products.

And just looking at the ELA segment, I know you called out the UK as particularly strong. Are there any other markets on a normalized or organic basis that were up at least mid-single digits top line for the quarter?

Yes. Todd, this is Jeff. Actually -- and we have tried to make this point; Brian said it in his prepared remarks -- despite some of the skittishness that you are seeing in the headlines about the PRC, our business in the PRC was actually quite strong this quarter. So, obviously, we are always careful to -- we are not a bellwether for the Chinese economy, obviously.

But that was an area of our business where we were actually quite strong. You know, we've talked in recent quarters here about how the Chinese economy, and again, that skittishness has had a negative influence on the Australian economy. Of course, we own our distribution in Australia, and that's had a drag on us for most of the fiscal year.

We actually had really good order traction in Australia this quarter. Less so on the top line. We have still kind of seen some of the hangover in the quarter for sales. But order entry was quite strong, and the team is feeling more and more bullish there. We are hoping to see that continue, obviously. But those would be two that I think are notable.

Okay. Thanks a lot -- and last question. With the GSA, are you prepared to call a bottom?

Well, yes. It's probably early to say it's a bottom, Todd. But certainly, if you look at the last -- you know, I think we have seen this progression over the last year or so, that quarter by quarter it's at least evened out, and the declines are certainly -- and this quarter was the first time I think we had seen positive year-over-year numbers.

By the way, that was a little different whether you looked at healthcare facilities or non-healthcare. We had growth in healthcare; on the non-healthcare side, it was actually still down a little bit.

So some of that is going to depend on where the mix is. So right now I wouldn't say we are for sure at the bottom. We sure are feeling like we are getting close, though.

Sounds good. Thanks, guys.

Matthew McCall, BB&T Capital Markets.

So I guess, Brian, the comment you made about the spring, and the cycle, and expectations -- trends not necessarily meeting expectations -- as you kind of ponder the cycle and what's going on, I know you have a lot of conversations with folks out in the field, what's your best guess as to what is making this cycle so different?

I guess you'd have to say it's the same thing everybody keeps talking about in the overall economy, right? It seems like every day we hear one person say, hey, we are in this great period of expansion, and the GDP numbers are going to get better. And the next person says, well, not so fast. And of course, the overall GDP numbers in the first quarter weren't very good.

And I think the thing that maybe was a little surprising to us is -- if you remember, in our third-quarter call we did not talk about weather at all. Everybody else was talking about weather. We didn't see any impact, at least on the order front, from weather.

We said, okay, well, this didn't impact us. I don't know if that's partly what we started to feel in the beginning of the quarter was sort of maybe the hangover, and we tend to have a delayed effect of that stuff? I am hesitant to call that, Matt, because I don't have any data to point to.

On the other hand, it was odd; we felt like we went into a little bit of a lull. Now, some of that can be project related. And then it really picked up at the end of the quarter. So when you go out and talk to the sales team, and you talk to dealers, and you talk to A&D folks, they remain quite buoyant about what they are seeing.

I don't think it's a rocket ship, but I think that's true of the overall economy. So my gut is more what we're seeing, Matt, right now is it's a reflection of the overall economy, feeling like it's growing. It feels way better than it did at the bottom of the crisis. On the other hand I don't think anything has seen as big of a rebound as you might have expected given the change in the tone.

Okay. All right. So maybe hitting a different angle -- Jeff, in the past you talked about the mix of project activity versus the day-to-day activity. If you have that data, that is great; maybe throw it at us.

What does the trend, project versus day-to-day, tell you about the health -- I know we talked in the past, the day-to-day has actually not been keeping up -- I've heard that from time to time -- with expectations. So what does the mix of business tell you about the cyclical health?

So, Matt -- so I think this is always an interesting one, because as the underlying economics of the business start to improve, you tend to see a rising tide that hits both the project and the day-to-day side. What we are seeing -- and Brian alluded to this -- is a bit of a tilt toward the larger-size project.

You know, that commentary around the non-res construction data -- and I know we have talked a lot about that; I know you talk a lot about that in your notes. Certainly, we are seeing construction-related project. We have won some. We see construction-related project opportunities clearly on the rise.

So I think the overall mix, direct to your question, has not changed a great deal. But we are seeing a bit of a tilt toward larger-size projects. I think it's being, in part, driven by the improving construction environment.

Okay. Have you seen any trends -- improving trends in that day-to-day business, as well?

Well, if you think about it, Matt, if the mix doesn't change, which is what Jeff said -- if the mix doesn't change, and we are seeing this kind of 6% to 7% top-line growth, the answer is it's growing, but it's growing sort of along the normal -- the same trend line.

Okay. Okay. Got it. And then, finally, it looks like an analyst day, and we are going to get more detail about your new outlook then. But can you give us kind of a sneak peek? Anything we should think about on the margin front? Unfortunately, I have to publish a model before July 28, and I want to make sure that it reflects as much of the reality as I can. So anything we should think about when we are looking at margins for this year?

Matt, I would say that -- I think on the last call, we said, hey, as you look at the growth, we wouldn't expect -- obviously, in the guidance we gave, we are saying, hey, look, the margins are about the same on the same revenue. Right? But as that revenue number starts to pick up, we would imagine that our leverage number that we are talking about kicking around is that kind of 18% leverage number.

I think we did a little bit better than that in Q4, based on the year-over-year performance. But it's going to be in that kind of range as we look out. Unless you get -- if you do get a surge in revenue, like if the 10% becomes real in the second half of the year, we have always said that when you get it in quick bursts at that number then gets to -- the leverage number gets higher than that.

Okay. Thank you all.

Budd Bugatch, Raymond James.

This is Bobby Griffin, filling in for Budd. I appreciate you guys taking my questions.

I apologize if you answered this earlier. I jumped on the call a little bit late. But besides -- ex currency, is there anything structurally in the ELA segment that's hurting margins a little bit? It looks like it's the second quarter in a row that its profit or margin is down year over year.

You know, for the year, if you look at it -- I don't know about the quarter -- in the quarter, not so much -- for the year, actually, we did; we lost a fair amount of dollars on the margin line from currency change year over year, if you looked at it year to date. But not so much on the quarter, because I think by the time we got to this quarter last year, it had sort of anniversaried its way in, by the looks of it.

But certainly, in the early parts of the year that was hitting the margin line. I think more what you are looking at, if you look year over year, my guess is we are seeing more of a mix shift -- because as you noticed, a lot more of the business was in Europe, where margins tend to be a little bit tighter, because the mix of our product portfolio in Europe is more balanced rather than being as heavily skewed towards things like seating that tend to have a little bit higher margin.

So I would say it's mix of product line and it's mix of what region, depending on the makeup of our business, is more than likely. The other thing, for sure, if you look year over year, we're spending more money this year on the integration efforts at POSH and bringing that manufacturing site in. The margins have been a little bit lower than we would have had last year in total as we were working our way through that.

I appreciate -- that's helpful. On the mix -- is that something -- you know, I know it's very hard to look out and see where that mix is going, but is that something that you think could continue to play out going forward, more of a shift in mix towards Europe, and we should probably adjust our models a little bit because of that? Or how do you see that playing out going forward?

I think as we -- I'd have to step back and look at the plans in detail, but I think right now our plans are for the mix that we have seen in the balance of the year to be about the same next year. I don't expect it to move radically around one place or the other.

I mean, those are really hard to predict, of, hey, where is the volume exactly going to be? And what's the mix by product line?

It will -- over time we'll work to get the margins back up in the total of ELA. But I think you do have to remember as that business gets bigger and becomes more of a -- playing across all the different product categories, and by its nature, you are going to have a little bit of an offset to play lower dollars -- or lower percentages and, hopefully, higher dollars.

All right. That make sense. And then another question in the shift of the revenue out, you know, people pushing back their projects, are you seeing any type of change with that in terms of the dollar value that they're spending? Or is it just kind of the same project level, but just getting pushed back out because construction or whatnot is delayed?

I don't even know if these are delays as much as people are just taking more time through their planning process, because none of these are things that I think are due to delays, nor delayed by us. If you take, as an example -- even though this isn't one of them, I will just use as an example the large project we've been working on for the last couple of years in Texas.

We had a very long lead time from when orders started to flow till when we were shipping things, because they were being very deliberate about the building planning. So I don't know that I see anything in there that would tell us it's about size or it's delays as much as it is people being very deliberate about their planning and making sure all the components are lined up.

All right. Perfect. I appreciate that. And then, lastly, on full-year CapEx, can you give us a little estimate on where you expect that to end up for the year?

Bobby, this is Greg. So CapEx -- if you look at our spend this year, we probably had more purchase orders than actually cash outflows. So if you look at the commitments made, it's quite a bit -- well, not quite a bit. It's a bit higher than the $42 million that we spent, -ish, this year.

The number is going to be between right now $70 million to $80 million. Remember, a big chunk of that is how far along on the UK building we get. That will be the big variable in that number.

I was going to say, that's helpful. I appreciate that. Best of luck going forward. I appreciate you guys taking my questions.

Thank you. I'm showing no further questions at this time, gentlemen.

Thanks again for spending your time with us this morning and for your continued interest and ownership in Herman Miller. Be assured that the people at Herman Miller are working hard to reward your confidence by continuing the successful execution of our strategy in this new fiscal year. We look forward to sharing more of our plans and goals when we talk to you again in late July at our analyst briefing. Until then we hope you have a good day and a great summer.

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