Kimball International, Inc. announced results for the fourth quarter and fiscal year ended June 30, 2021.
Selected Financial Highlights:
Fourth Quarter FY 2021
Net sales of $146.2 million
Gross margin was 30.6%
Net income of $7.4 million; Adjusted net income was $2.1 million
Diluted EPS of $0.20; Adjusted diluted EPS was $0.06
Adjusted EBITDA of $2.9 million
Backlog of $141.4 million
Management Commentary
CEO Kristie Juster commented, “Year-over-year revenue growth in our Workplace and Health markets, which accounted for over 80% of total fourth quarter revenues, and robust growth of 33% in orders from those markets are strong indications of the post-pandemic recovery that is underway in our business. In fact, our revenues and orders increased progressively throughout the fourth quarter, reflecting positive momentum that has continued into July.
“As anticipated, our Health market has been the first to ramp up as we emerge from the COVID crisis. Our strategic investments in a comprehensive go-to-market strategy, together with our product innovations and focus on large hospital system customers have enabled us to gain additional traction in this dynamic arena throughout much of the past fiscal year. In Workplace, the market recovery has progressed at a steady pace aligned with the re-opening of offices. In the fourth quarter, we experienced a 27% year-over-year increase in Workplace orders across most key verticals, led by Commercial and Education, and we are pleased to report that the 26% sequential increase in Workplace orders featured a considerable increase in demand for Poppin products.
“Gross margin expanded sequentially by 190 basis points in the fourth quarter but was below our expectations, with most of the shortfall caused by an inflation-related increase in our LIFO reserve charge that reduced our reported fourth quarter margin by 150 basis points year-over-year. The price increase we implemented in March served to partially offset higher raw material and logistics costs, and we recently announced a price increase effective in October that should further mitigate the inflation impact. These actions will benefit upcoming quarters as volumes build, setting up a return to our historical gross margin levels. Additionally, we continue to closely manage our costs in serving the Hospitality market, where we do not expect to see sequential improvement until the end of fiscal 2022.
“In fiscal 2021, we exceeded our projections by generating $22.3 million in cost savings through the implementation of our Connect 2.0 strategy, facility optimization programs and our ongoing operational excellence initiatives. These savings have enabled us to manage effectively through the downturn, creating sustainable efficiency gains, and have provided additional resources to invest in future growth.”
Overview
Fourth Quarter Fiscal 2021 Results
Consolidated net sales were $146.2 million, compared to $156.1 million in the prior year fourth quarter. Organic net sales were $133.7 million. Gross margin of 30.6% reflected an inflation-related increase in the LIFO reserve charge, as well as higher domestic and ocean freight costs, raw material inflation, and the loss of leverage on a lower revenue base. Selling and administrative expenses (S&A) of $49.2 million increased $7.6 million compared to the prior year partially related to our acquisition of Poppin. Adjusted S&A was $46.5 million or 31.8% of net sales, compared to $39.9 million or 25.5% of net sales in last year’s fourth quarter. Our transformation plan yielded cost savings of $5.5 million in the fourth quarter. Net income was $7.4 million, or $0.20 per diluted share, inclusive of an after-tax contingent earn-out gain of $8.6 million, as well as intangible amortization expense and acquisition-related and restructuring charges. In last year’s fourth quarter, the company reported earnings per diluted share of $0.25. For the quarter, adjusted net income and adjusted earnings per share were $2.1 million, and $0.06 per diluted share, respectively. Adjusted EBITDA for the quarter was $2.9 million compared to $19.1 million in the year ago quarter.
The Company ended the fourth quarter in a strong financial position, with $107.6 million in short-term liquidity available, which includes cash, cash equivalents, plus the unused amount of our credit facility.
Fiscal Year 2021 Results
Fiscal year 2021 net sales were $569.0 million, compared to $727.9 million a year ago. Organic net sales in fiscal year 2021 were $544.9 million. Gross margin of 32.1% reflected an inflation-related increase in the LIFO reserve charge, as well as higher domestic and ocean freight costs, raw material inflation, and the loss of leverage on a lower revenue base. S&A of $181.8 million decreased $6.1 million compared to the prior year. Adjusted S&A was $170.6 million or 30.0% of net sales, compared to $186.6 million or 25.6% of net sales in fiscal 2020. Our transformation plan yielded cost savings of $22.3 million in fiscal 2021. Net income for fiscal year 2021 was $7.4 million, or $0.20 per diluted share, inclusive of an after-tax contingent earn-out gain of $8.6 million, as well as restructuring expense, intangible amortization expense, and acquisition-related costs. Fiscal year 2020 net income was $41.1 million, or $1.11 per diluted share, inclusive of restructuring expense. Adjusted net income in fiscal 2021 was $13.0 million, or $0.35 per diluted share, compared to $47.9 million, or $1.29 per diluted share in the prior year. Fiscal year 2021 adjusted EBITDA was $29.7 million, or 5.2% of net sales, compared to fiscal year 2020 adjusted EBITDA of $81.3 million, or 11.2% of net sales.
Capital expenditures for fiscal year 2021 were $19.5 million. Kimball International returned $16.8 million to shareholders in the form of dividends and share repurchases in fiscal 2021.
Summary and Outlook
“The rate of business activity improved considerably in the fourth quarter, enabling us to end a challenging fiscal 2021 with a clear path forward to future growth. Recent order trends, business development activity levels and proprietary research indicate that our Workplace and Health markets have entered the recovery phase, and this positive outlook is supported by data included in the Architecture Billing Index and various business surveys. With a portfolio comprised primarily of ancillary products that foster collaboration, learning and teamwork, and over 80% of our revenues derived from secondary markets, which are growing and recovering at a faster pace than many other areas of the country, Kimball International is in a strong position to benefit from the improved business conditions, and we are anticipating considerable growth across key business metrics in fiscal 2022.
“Looking ahead, we expect revenues to increase progressively throughout fiscal 2022, reaching 15% to 20% growth for the full year compared to fiscal 2021 levels, with the highest year-on-year comparisons taking place in the second half of the year. Similarly, we believe gross margin expansion will be more pronounced in the second half, increasing sequentially throughout the year, benefiting from higher volumes and ongoing efficiency projects. At the same time, we expect to continue to invest to support future growth, opening three new Poppin showrooms in fiscal 2022, increasing our marketing and promotional spend, and building our sales force, which will result in higher S&A spend than in fiscal 2021.
“Specifically, for the first quarter of fiscal 2022 we expect mid-single digit revenue growth compared to the prior year’s first quarter, driven by high-single digit growth in our Workplace and Health end markets, which should more than offset continued softness in Hospitality. Included in this expectation is the impact of modest production constraints driven by supply chain disruptions that have extended lead times. Gross margin is expected to be in the range of 31% to 33%. S&A costs are expected to increase slightly over the fiscal 2021 fourth quarter level.
“Kimball International has entered fiscal 2022 with an expanded and innovative product portfolio that is particularly well-suited to today’s post-pandemic environment, and we are confident in our ability to gain share in our target markets as well as further build our e-commerce capabilities,” Ms. Juster concluded.
