MillerKnoll, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended February 26, 2022. The request metadata says “2021 Q3,” but the filing covers fiscal 2022 Q3. Dollar amounts are in millions unless noted.
Business context and results
MillerKnoll designs, manufactures, and sells furnishings for workplace, healthcare, education, and residential markets. Knoll was acquired July 19, 2021; its results are included from that date. Accordingly, reported comparisons include a substantial acquisition-related increase in scale.
| Metric | Q3 FY22 | Q3 FY21 | Nine months FY22 | Nine months FY21 |
|---|---|---|---|---|
| Net sales | $1,029.5 | $590.5 | $2,845.5 | $1,843.6 |
| Gross margin | $336.8; 32.7% | $230.9; 39.1% | $964.9; 33.9% | $725.2; 39.3% |
| Operating earnings (loss) | $26.5 | $55.1 | ($22.5) | $221.5 |
| Net earnings (loss) attributable to MillerKnoll | $12.6 | $41.5 | ($52.3) | $165.7 |
| Diluted EPS | $0.16 | $0.70 | ($0.72) | $2.80 |
Financial position and cash flow
- Q3 sales rose 74.3%; organic sales rose 20.3%. Orders increased 93.6% to $1,095.9, and backlog increased to $1,020.6 from $379.0 a year earlier.
- For the nine months, operating cash flow was negative $57.9, versus positive $260.1 a year earlier. Working capital absorbed cash, including a $219.6 increase in current assets. Investing cash outflow was $1,145.0, including $1,088.5 net cash paid for Knoll; financing provided $1,061.4.
- At February 26, cash was $245.9 and total liquidity was $542.5, including $296.6 available on the revolving facility. Debt was $1,434.0, compared with $277.1 at May 29, 2021. Current liabilities were $833.6 and current assets were $1,271.1.
- Capital expenditures were $65.8 for the first nine months. Management expected full-year capital purchases of $100–$120.
Material changes and management commentary
- Knoll contributed $336.9 of Q3 sales and $829.5 since acquisition. Nine-month results include $101.7 of Knoll integration costs and significant acquired-intangible amortization. Management reported $45 of implemented run-rate savings and remained confident in achieving $120 of cost synergies within three years of closing; integration costs were expected to total approximately $100–$120.
- Q3 gross margin fell 6.4 percentage points year over year. Management cited commodities, freight and distribution costs (about 390 basis points of negative impact), labor costs, purchase-accounting effects, and unfavorable mix; price increases offset about 90 basis points. Supply-chain and labor disruptions were estimated to reduce Q3 sales by approximately $34.
- Management said production and shipments began improving late in the quarter and that price increases were expected to help offset inflation in coming quarters. Demand strengthened with return-to-office plans, while Global Retail demand remained strong. No specific forward earnings or revenue guidance was provided.
- The acquisition was financed with new term loans and revolving borrowings. The company recorded a $13.4 debt-extinguishment loss and higher interest expense. Open-market repurchases were temporarily suspended to manage cash flows.
Risks, contingencies, and unusual items
- Key risks include labor shortages, supply-chain constraints, inflation in materials and freight, pandemic-related uncertainty, and possible broader effects of the Russia-Ukraine conflict on costs, operations, and supply chains. MillerKnoll said it stopped accepting or fulfilling orders in Russia and Belarus and stopped new and outstanding orders in Ukraine; the region was a small part of its business.
- Additional risks include the increased debt burden, covenant compliance, and the ability to integrate Knoll and realize synergies. Knoll purchase-price allocation remained preliminary.
- Performance bonds represented maximum exposure of $6.6; standby letters of credit were $15.4 and counted against revolver capacity. Management did not expect pending ordinary-course litigation to have a material adverse effect.
- Q3 included a $2.0 gain on sale of a Toronto dealership. Nine-month results also included $15.5 in impairment losses and the debt-extinguishment loss. Reported and adjusted EPS differ materially: Q3 adjusted diluted EPS was $0.28 versus reported $0.16; nine-month adjusted diluted EPS was $1.28 versus reported loss of $0.72.
Important facts for investors to verify
- Whether margin recovery and price increases are sufficient to offset continuing input-cost, freight, labor, and mix pressures.
- Progress against the $120 synergy target, integration-cost estimates, and Knoll purchase-accounting adjustments.
- Working-capital trends, operating cash conversion, debt repayment, and available revolver capacity.
- Whether order and backlog growth translates into shipments despite production and supply constraints.
- The sensitivity of results to ongoing geopolitical, pandemic, and customer return-to-office developments.