Knoll Reports Fourth Quarter and Full Year Results

Knoll Reports Record 2018 Revenues

  • 4th quarter sales of $354.6M set quarterly record
  • 4th quarter margin expansion; GAAP EPS decline of 25.4% and Adjusted EPS growth of 54.1%
  • Muuto acquisition continues to deliver with accelerating top and bottom line performance
  • Year-end leverage reduced to 2.6:1 and debt down by over $80M since the acquisition closed

Knoll, Inc. (NYSE: KNL), a leading designer and manufacturer of furnishings, textiles and fine leathers for the workplace and home, today announced results for the fourth quarter and year ended December 31, 2018. Net sales were $354.6 million for the fourth quarter of 2018, an increase of 12.2% from the fourth quarter of 2017. Operating profit was $35.0 million, an increase of 141.3% from the fourth quarter of 2017. Adjusted operating profit for the fourth quarter of 2018 was $39.2 million, an increase of 22.8% from the fourth quarter of 2017. Net earnings for the fourth quarter of 2018 were $24.5 million, a decrease of 24.9% compared to the fourth quarter of 2017. Adjusted net earnings for the fourth quarter of 2018 were $28.2 million, an increase of 56.3% compared to the fourth quarter of 2017. Adjusted EBITDA was $50.4 million, an increase of 23.1% compared to $41.0 million in the fourth quarter of 2017. Diluted earnings per share was $0.50 and $0.67 for the fourth quarter of 2018 and 2017, respectively. Adjusted diluted earnings per share was $0.57 and $0.37 for the fourth quarter of 2018 and 2017, respectively. Net earnings and diluted earnings per share for the fourth quarter of 2017 are inclusive of the $26.6 million one-time tax benefit from the re-measurement of deferred tax liabilities in response to the passage of the U.S. Tax Cuts and Jobs Act (“Tax Reform”).

Net sales were $1,302.3 million for the year ended 2018, an increase of 15.0% from the year ended 2017. Operating profit was $115.2 million, an increase of 39.3% from the year ended 2017. Adjusted operating profit for the year ended 2018 was $132.4 million, an increase of 27.1% from the year ended 2017. Net earnings for the year ended 2018 were $73.2 million, a decrease of 8.7% compared to the year ended 2017. Adjusted net earnings for the year ended 2018 were $91.4 million, an increase of 31.1% compared to the year ended 2017. Adjusted EBITDA was $176.5 million, an increase of 22.2% compared to $144.5 million in the year ended 2017. Diluted earnings per share was $1.49 and $1.63 for the year ended 2018 and 2017, respectively. Adjusted diluted earnings per share was $1.85 and $1.42 for the year ended 2018 and 2017, respectively.

“We are pleased to wrap up our 80th anniversary year with the highest quarterly revenues ever reported and our best adjusted EPS of the year,” commented Knoll Chairman and CEO Andrew Cogan. “Our efforts to diversify our sources of revenue into higher margin Lifestyle categories both organically and through acquisitions like Muuto, combined with efforts to improve the profitability of our Office segment, are leading to better than industry top line growth and margin expansion. We feel we are well positioned to continue to build on these initiatives and benefit from the trend to more social and hospitality-based workplaces in 2019 and beyond,” added Cogan.

Fourth quarter Results

Net sales were $354.6 million for the fourth quarter of 2018, an increase of 12.2%, from the fourth quarter of 2017. Organic nets sales were $327.8 million in the fourth quarter of 2018, an increase of 3.7%, from in the fourth quarter of 2017. Net sales for the Office segment were $212.0 million during the fourth quarter of 2018, an increase of $1.9 million, or 0.9% compared to the fourth quarter of 2017. Newer workplace platforms and ancillary products drove sales growth while legacy system sales experienced a slight decline. Net sales for the Lifestyle segment were $142.6 million during the fourth quarter of 2018, an increase of 34.5% compared with the fourth quarter of 2017. This increase was primarily driven by the inclusion of three months of sales from Muuto as well as increased volume in contract markets within our Lifestyle businesses. Organic net sales for the Lifestyle segment grew 9.2% in the fourth quarter of 2018 compared to the same quarter in 2017.

Gross profit for the fourth quarter of 2018 was $131.7 million, an increase of $19.4 million, or 17.3% compared to the fourth quarter of 2017. During the fourth quarter of 2018, gross margin increased to 37.1% from 35.5% in the fourth quarter of 2017. Gross profit in the fourth quarter of 2018 included a seating product discontinuation charge of $0.7 million. This charge relates to the disposal of inventory and fixed assets associated with a discontinued seating product. Excluding this discontinuation charge, adjusted gross profit for the fourth quarter of 2018 was $132.4 million, an increase of $20.1 million, or 17.9% compared to the fourth quarter of 2017. Adjusted gross margin was 37.4% and 35.5% in the fourth quarter of 2018 and 2017, respectively. The increase in gross margin was primarily the result of the continued shift of the percentage of total Knoll, Inc. sales towards our higher margin Lifestyle segment, which experienced significantly higher sales growth than our Office segment.

Operating expenses were $96.7 million for the fourth quarter of 2018, or 27.3% of net sales, compared to $97.8 million, or 30.9% of net sales, for the fourth quarter of 2017. Operating expenses in the fourth quarter of 2018 included acquisition related expenses of $3.5 million. Acquisition related expenses included amortization of acquired intangible assets of $2.5 million, retention agreements for key employees of $0.8 million, and other customary acquisition related expenses of $0.2 million. Excluding these items, adjusted operating expenses were $93.2 million for the fourth quarter of 2018, or 26.3% of net sales compared to $80.3 million, or 25.4% of net sales in the fourth quarter of 2017. The increase in adjusted operating expenses was related primarily to incremental operating expenses from Muuto, in addition to incremental investments within our sales and distribution network.

During the fourth quarter of 2018, interest expense was $5.1 million, an increase of $3.1 million compared to the fourth quarter of 2017. This increase was due primarily to additional debt from the Muuto acquisition and higher interest rates.

During the fourth quarter of 2018, other income was $2.0 million compared to other expense of $2.5 million for the fourth quarter of 2017. Other income during the fourth quarter of 2018 was primarily related to net periodic benefit income from the Company’s pension and other post-employment benefit plans as well as foreign currency gains from a strengthening US dollar. Other expense for the fourth quarter of 2018 also included a pension settlement charge of $0.5 million related to the cash payments from lump sum elections. Other expense for the fourth quarter of 2017 primarily related to a pension settlement charge of $2.2 million and foreign currency losses, partially offset by net periodic benefit income from the Company’s pension and other post-employment benefit plans.

Net earnings for the fourth quarter of 2018 was $24.5 million, or $0.50 diluted earnings per share, compared to $32.7 million, or $0.67 diluted earnings per share, for the fourth quarter of 2017. Net earnings for the fourth quarter of 2017 included a $26.6 million one-time benefit, primarily related to the re-measurement of the Company’s net deferred tax liabilities at the new corporate income tax rate of 21.0% as a result of the passage of the U.S. Tax Cuts and Jobs Act (“Tax Reform”). Excluding the tax-effected impact of the seating product discontinuation charge, acquisition related expenses, and the pension settlement charge, adjusted net earnings for the fourth quarter of 2018 was $28.2 million, or $0.57 adjusted diluted earnings per share, compared to $18.1 million, or $0.37 adjusted diluted earnings per share for the fourth quarter of 2017.

The effective tax rate for the fourth quarter of 2018 was 23.3%, up from (227.6)% in the fourth quarter of 2017. The effective tax rate for the fourth quarter of 2017 was favorably impacted by the one-time re-measurement benefit resulting from Tax Reform. Excluding the impact of Tax Reform, the effective tax rate for the fourth quarter of 2017 would have been 39.2%. The effective tax rate is also affected by the mix of pretax income and the varying effective tax rates in the countries and states in which we operate.

Capital expenditures for the fourth quarter of 2018 totaled $19.0 million compared to $11.2 million in the fourth quarter of 2017. During the fourth quarters of 2018 and 2017, the Company paid a quarterly dividend of $7.2 million, or $0.15 per share.

Full Year Results

Net sales were $1,302.3 million for the year ended 2018, an increase of 15.0%, from the year ended 2017. Organic net sales were $1,216.7 million for the year ended 2018, an increase of 7.4%, from the year ended 2017. Net sales for the Office segment were $782.0 million during the year ended 2018, an increase of $59.0 million, or 8.2% compared to the year ended 2017. Newer workplace platforms and ancillary products experienced significant sales growth complemented by modestly increased legacy product sales. Net sales for the Lifestyle segment were $520.3 million during the year ended 2018, an increase of 26.9% compared with the year ended 2017. This increase was primarily driven by the inclusion of eleven months of sales from Muuto as well as increased volume in contract markets within our Lifestyle businesses. Organic net sales for the Lifestyle segment grew 6.1% in the year ended 2018 compared to the year ended 2017.

Gross profit for the year ended 2018 was $481.5 million, an increase of $66.9 million, or 16.1% compared to the year ended 2017. During the year ended 2018, gross margin increased to 37.0% from 36.6% in the year ended 2017. Gross profit for the year ended 2018 included a seating product discontinuation charge of $0.7 million and an acquisition related inventory adjustment of $0.9 million. Excluding these items, adjusted gross profit for the year ended 2018 was $483.1 million, an increase of $68.5 million, or 16.5% compared to the year ended 2017. During the year ended 2018, adjusted gross margin increased to 37.1% from 36.6% in the year ended 2017. The increase in gross margin was primarily the result of favorable margins from the Muuto acquisition combined with increased volume driving fixed cost leverage and favorable net price realization.

Operating expenses were $366.3 million for the year ended 2018, or 28.1% of net sales, compared to $331.9 million, or 29.3% of net sales, for the year ended 2017. Operating expenses in the year ended 2018 included acquisition related expenses of $13.0 million. Acquisition related expenses included amortization of acquired intangible assets of $8.3 million, retention agreements for key employees of $3.2 million, and other customary acquisition related expenses of $1.9 million, partially offset by the reduction of an acquisition related liability of $0.4 million. Operating expenses also included restructuring charges of $2.6 million which were primarily related to the Company’s supply chain optimization initiative as well as organizational realignment and headcount rationalization in the Office segment that will result in greater operational efficiency and control. Excluding these items, adjusted operating expenses were $350.7 million for the year ended 2018, or 26.9% of net sales compared to $310.3 million, or 27.4% of net sales in the year ended 2017. The increase in adjusted operating expenses was related primarily to incremental operating expenses from Muuto, increased warehousing and showroom investments, and additional incentive compensation due to greater profitability.

During the year ended 2018, interest expense was $20.9 million, an increase of $13.4 million compared to the year ended 2017. This increase was due primarily to additional debt from the Muuto acquisition and higher interest rates.

During the year ended 2018 and 2017, other income was $3.8 million and $3.4 million, respectively. Other income during the year ended 2018 was primarily related to foreign exchange gains and net periodic benefit income from the Company’s pension and other post-employment benefit plans. Other income for the year ended 2018 also included a pension settlement charge of $5.7 million related to the purchase of annuities for certain pension plan retirees as well as cash payments from lump sum elections. Other income during the year ended 2017 was primarily related to net periodic benefit income from the Company’s pension and other post-employment benefit plans partially offset by a pension settlement charge of $2.2 million related to cash payments from lump sum elections and foreign exchange losses.

Net earnings for the year ended 2018 was $73.2 million, or $1.49 diluted earnings per share, compared to $80.2 million, or $1.63 diluted earnings per share, for the year ended 2017. Excluding the impact of the acquisition related inventory adjustment, seating product discontinuation charge, acquisition related expenses, restructuring charges, loss on extinguishment of debt, and the pension settlement charge, adjusted net earnings for the year ended 2018 was $91.4 million, or $1.85 adjusted diluted earnings per share, compared to $69.7 million, or $1.42 adjusted diluted earnings per share for the year ended 2017.

The effective tax rate for the year ended 2018 was 25.4%, up from (2.0)% in the year ended 2017. The effective tax rate for the year ended 2017 was favorably impacted by the one-time re-measurement benefit in the fourth quarter of 2017 resulting from the passage of Tax Reform. Excluding the impact of Tax Reform, the effective tax rate for the year ended 2017 would have been 31.8%. The mix of pretax income and the varying effective tax rates in the countries and states in which we operate directly affects our consolidated effective tax rate.

Capital expenditures for the year ended 2018 totaled $40.3 million compared to $40.6 million in the year ended 2017. During the year ended 2018, the Company paid quarterly dividends of $29.2 million, or $0.60 per share, and payment of accrued dividends of $0.8 million, compared to payment of quarterly dividends of $29.1 million, or $0.60 per share, and payment of accrued dividends of $1.2 million in 2017.

The full text of Knoll’s 4Q19 earnings release and a replay of its Feb. 7 conference call webcast, including slides, may be accessed via the Investor Relations section of the Knoll corporate website. In addition, an audio replay of the conference call will be available through February 15, 2019 by dialing (855) 859-2056. International replay: (404) 537-3406 (Conference ID: 3975428).

About Knoll

Knoll, Inc. is a constellation of design-driven brands and people, working together with our clients to create inspired modern interiors. Our internationally recognized portfolio includes furniture, textiles, leathers, accessories, and architectural and acoustical elements. Our brands — Knoll Office, KnollStudio, KnollTextiles, KnollExtra, Spinneybeck | FilzFelt, Edelman Leather, HOLLY HUNT, DatesWeiser and Muuto — reflect our commitment to modern design that meets the diverse requirements of high performance workplaces and luxury interiors. A recipient of the National Design Award for Corporate and Institutional Achievement from the Smithsonian`s Cooper-Hewitt, National Design Museum, Knoll, Inc. is aligned with the U.S. Green Building Council and the Canadian Green Building Council and can help organizations achieve the Leadership in Energy and Environmental Design (LEED) workplace certification. Our products can also help clients comply with the International Living Future Institute to achieve Living Building Challenge Certification, and with the International WELL Building Institute to attain WELL Building Certification. Knoll, Inc. is the founding sponsor of the World Monuments Fund Modernism at Risk program.

www.knoll.com