HNI : Presents Q4 2019 HNI Corporation Earnings Presentation

Fourth Quarter Fiscal 2019 Results

February 20, 2020

1

Forward-Looking Statements

This release contains "forward-looking" statements based on current expectations regarding future plans, events, outlook, objectives, financial performance, expectations for sales growth, and earnings per diluted share (GAAP and non-GAAP).Forward-looking statements can be identified by words including "anticipate," "believe," "could," "confident," "estimate," "expect," "forecast," "hope," "intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "will," "would," or other similar words, phrases, or expressions. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Corporation's actual future results and performance to differ materially from expected results. These risks include but are not limited to: the levels of office furniture needs and housing starts; overall demand for the Corporation's products; general economic and market conditions in the United States and internationally; industry and competitive conditions; the consolidation and concentration of the Corporation's customers; the Corporation's reliance on its network of independent dealers; change in trade

policy; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation's new products; changing

legal, regulatory, environmental, and healthcare conditions; the risks associated with international operations; the potential impact of product defects; the various restrictions on the Corporation's financing activities; an inability to protect the Corporation's intellectual property; impacts of tax legislation; and force majeure events outside the Corporation's control. A description of these risks and additional risks can be found in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q. The Corporation assumes no obligation to update, amend, or clarify forward-looking statements, except as required by applicable law.

2

Q4 2019 Conference Call Agenda

Q4 2019 Review

1. What went as or better than expected
2. What didn't play out as anticipated

Q4 2019 Detail

1. Segment revenue and profitability detail
2. Total company margin highlights

2020 Guidance

1. Revenue and EPS
2. Segment revenue outlook
3. Margin expectations
4. Seasonality

Summary Commentary

3

Q4 2019 Review

Q4 2019 Highlights:

• Organic revenue growth was 3.9% (Office Furniture +6% and Hearth Products -1%)
• Gross margin expanded 50 bps (non-GAAP)year-over-year to 38.0%
• Operating income (non-GAAP) grew 12.3% year-over-year; operating margin expanded 80 bps year-over-year to 10.5%
• Reported EPS (non-GAAP) of $1.12 (a record) compared to guidance of $1.03-$1.13 (bottom left)
• Q4 EPS (non-GAAP) grew 16% year-over-year; EBITDA (non-GAAP) grew 10% year-over-year
• EBITDA margin (non-GAAP) expanded 90 bps year-over-year to 13.7%, highest level in over 15 years

		Non-GAAP Net Income/Non-GAAP EPS
$60,000							$1.20
$50,000							$1.00
$40,000							$0.80
$30,000							$0.60
$20,000							$0.40
$10,000							$0.20
$0							$0.00
Q1'18	Q2'18	Q3'18	Q4'18	Q1'19	Q2'19	Q3'19	Q4'19
		Net Income (non-GAAP)	EPS (non-GAAP)

			Non-GAAP EBITDA/Margin
$90,000							16.0%
$80,000							14.0%
$70,000							12.0%
$60,000
							10.0%
$50,000
							8.0%
$40,000
							6.0%
$30,000
$20,000							4.0%
$10,000							2.0%
$0							0.0%
Q1'18	Q2'18	Q3'18	Q4'18	Q1'19	Q2'19	Q3'19	Q4'19
		EBITDA (non-GAAP)	EBITDA Margin (non-GAAP)
							4

Q4 2019 Review (cont.)

What went as expected:

1. Margins benefitted from cost and expense control
2. • Gross margin expected to expand again in 2020
3. Contract furniture revenue was in line and continued to benefit from solid industry conditions
4. • Furniture segment growth expected in 2020
5. Free cash flow exceeded expectations and we returned $136M to shareholders in 2019
6. • Balance sheet in strong position, providing capacity to support strategic growth initiatives

$250
		$62		$34
$200					$1
$150					$118
		$96		$118			$67
			$113
$100	$79					$3
						$40	$53
					$43
		$49		$34
$50	$18		$14			$10
	$43	$44	$46	$48	$50	$51	$52
$0
	2013	2014	2015	2016	2017	2018	2019
		Dividends	Buybacks, net	CapEx	Acquisitions	Oper CF

5

Q4 2019 Review (cont.)

What didn't play out as anticipated:

1. Hearth segment revenue - Holiday timing and slow ramp of new construction business (bottom left)
2. Supplies furniture growth - Growth was a solid 9%, but holiday sales in e-commerce lower than expected (bottom right)

No impact on long-term strategy:

• Confidence supports increased 2020 investments
• Investments to drive growth, margin improvement, and free cash flow next 3-5 years

		Hearth Products Segment Revenue/Organic Growth
$180,000							12.0%
$160,000							10.0%
$140,000
							8.0%
$120,000
							6.0%
$100,000
							4.0%
$80,000
							2.0%
$60,000
							0.0%
$40,000
$20,000							(2.0%)
$0							(4.0%)
Q1'18	Q2'18	Q3'18	Q4'18	Q1'19	Q2'19	Q3'19	Q4'19
		Hearth Products Segment Revenue		Organic Growth

		Office Furniture Segment Revenue/Organic Growth
$600,000							10.0%
							8.0%
$500,000
							6.0%
$400,000
							4.0%
$300,000							2.0%
							0.0%
$200,000
							(2.0%)
$100,000
							(4.0%)
$0							(6.0%)
Q1'18	Q2'18	Q3'18	Q4'18	Q1'19	Q2'19	Q3'19	Q4'19
		Office Furniture Segment Revenue		Organic Growth
							6

Q4 2019 Details - Segments

			$ change	% change
Segment Breakdown	4Q19	4Q18	F/(U)	Basis Pt Change
Sales
Office Furniture (1)	$449.4	$429.6	$19.8	4.6%
Hearth Products (2)	$166.7	$168.5	($1.8)	(1.1%)

Total	$616.1	$598.1	$18.0	3.0%
Operating Profit
Office Furniture (3)	$35.7	$11.1	$24.6	NM
Office Furniture Operating Margin (4)	7.9%	2.6%		530
Hearth Products	$39.6	$36.1	$3.5	9.6%
Hearth Operating Margin	23.8%	21.4%		240
General Corporate	($11.5)	($3.4)	($8.2)	(241.0%)
Interest Income (Expense)	($1.8)	($2.1)	$0.2
Income Before Taxes	$61.9	$41.8	$20.2

1. Organic up +5.9%; Supplies-driven channel up 8.5%; Contract organic sales up +3.0% (+0.4% as reported)
2. New construction down 1.3%; remodel and retrofit products down 0.9%
3. Non-GAAPoperating profit of $36.9M up compared to prior year non-GAAP operating profit of $26.5M
4. Non-GAAPoperating margin of 8.2% up compared to PY non-GAAP operating margin of 6.2%

7

Q4 2019 Details

			$ change	% change
Income Statement	4Q19	4Q18	F/(U)	Basis Pt Change
Net Sales	$616.1	$598.1	$18.0	3.0%
Non-GAAP Gross Profit (excluding restructuring and transition costs)	233.9	224.5	9.4	4.2%
% of Net Sales (1)	38.0%	37.5%		50
Transition Costs (2)	-	0.6	0.6
GAAP Gross Profit	$233.9	$223.9	$10.0	4.5%
% of Net Sales	38.0%	37.4%		60
Freight & Distribution	57.2	56.8	(0.4)	0.6%
% of Net Sales	9.3%	9.5%		-20
Non-GAAP Other SG&A (excluding F&D; restructuring charges)	111.8	109.9	(1.9)	1.8%
% of Net Sales	18.1%	18.4%		-30
Restructuring Charges (2)	1.2	0.3	(0.9)
Impairment Charges (3)		13.1	13.1
Operating Income	$63.8	$43.8	$20.0	NM
% of Net Sales	10.4%	7.3%		300
Non-GAAP Operating Income	$64.9	$57.8	$7.1	12.3%
% of Net Sales	10.5%	9.7%		80
Net Income attributable to HNI Corp	$47.6	$32.4	$15.2	47.1%
% of Net Sales	7.7%	5.4%		230
EPS (diluted) - GAAP	$1.10	$0.73	$0.37	50.7%
EPS (diluted) - Non-GAAP	$1.12	$0.97	$0.15	15.5%
Shares (diluted)	43.1	44.3

1. Gross profit margin expanded compared to prior year primarily driven by price/cost and productivity (net of investment), partially offset by volume and mix.
2. Includes costs related to previously announced facility closures and structural realignments of office furniture and hearth facilities.
3. PY impairment charges related to goodwill on small office furniture company.

See GAAP to Non-GAAP reconciliations in appendix.

8

2020 Financial Outlook

Guidance:

Net Sales - Consolidated of $2.30B to $2.35B (up 2.5% to 4.5% yr/yr)

• Office furniture revenue up 2% to 4% yr/yr
• Hearth products revenue up 4% to 6% yr/yr

Annual effective tax rate of 22.5% to 23.0%

Earnings per diluted share $2.60 to $2.90

Commentary:

• Similar seasonality to 2018 and 2019; majority of 2020 generated in 2H
• Minimal profit in seasonally-soft Q1
• Negative impact on international business from coronavirus included in guidance

9

Summary Comments

• Q4 results demonstrate performance HNI can drive
• Both segments expected to report solid growth in 2020
• 2020 growth investments increasing; will drive sustained revenue growth, margin expansion, and free cash flow generation over the next 3-5 years

10

Non-GAAP Financial Measures

This earnings release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to HNI's financial statements as prepared in accordance with GAAP are included below and throughout this earnings release. This information gives investors additional insights into HNI's financial performance and operations. While HNI's management believes the non-GAAP financial measures are useful in evaluating HNI's operations, this information should be considered supplemental and not in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures within this earnings release: organic sales, gross profit, operating income, operating profit, EBITDA, income taxes, net income, and net income per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the impacts of the selected items as summarized in the table below. Generally, non-GAAP EPS is calculated using HNI's overall effective tax rate for the period, as this rate is reflective of the tax applicable to most non-GAAP adjustments.

The sales adjustments to arrive at our non-GAAP organic sales information included in this earnings release excludes the impact of closing and divesting small office furniture companies. The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release for all periods presented include restructuring charges, impairment charges, and/or transition costs. Restructuring charges incurred in the current year periods presented are primarily comprised of severance costs related to a structural realignment in the office furniture segment. Transition costs incurred in connection with this realignment include member relocation costs. In the prior year periods presented, costs were incurred as part of the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana, and structural realignments in China. Prior year restructuring charges include severance costs, while transition costs incurred include production move costs. Specific transactions in the prior year periods include impairment of closed manufacturing facilities held for sale, a nonrecurring gain on the recovery of an impaired long-lived asset, and impairments of goodwill, intangibles, and other long-lived assets.

This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for fiscal year 2020. We provide such non-GAAP measures to investors on a prospective basis for the same reasons we provide it to investors on a historical basis. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP earnings per diluted share to a forward-looking estimate of GAAP earnings per diluted share without unreasonable efforts because certain information needed to make a reasonable forward-looking estimate of GAAP earnings per diluted share is highly variable and difficult to predict and estimate, and is dependent on future events which are uncertain or outside of our control. These may include unanticipated charges related to asset impairments (fixed assets, intangibles, or goodwill), unanticipated acquisition related costs, and other unanticipated nonrecurring items not reflective of ongoing operations. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our GAAP earnings per diluted share.

11

Non-GAAP Reconciliations

	Three Months Ended 12/28/2019		Three Months Ended 12/29/2018
(Dollars in millions)	Office				Office
	Furniture	Hearth	Total		Furniture	Hearth	Total
Sales as reported (GAAP)	$449.4	$166.7	$616.1		$429.6	$168.5	$598.1
% change from PY	4.6%	(1.1%)	3.0%
Less: Impact of Acquisitions and Divestures	-	-	-		5.1	-	5.1
Organic sales (non-GAAP)	$449.4	$166.7	$616.1		$424.4	$168.5	$592.9
% change from PY	5.9%	(1.1%)	3.9%
	Twelve Months Ended 12/28/2019		Twelve Month Ended 12/29/2018
	Office				Office
	Furniture	Hearth	Total		Furniture	Hearth	Total
Sales as reported (GAAP)	$1,697.2	$549.8	$2,246.9		$1,706.1	$551.8	$2,257.9
% change from PY	(0.5%)	(0.4%)	(0.5%)
Less: Impact of Acquisitions and Divestures	-	-	-		23.1	-	23.1
Organic sales (non-GAAP)	$1,697.2	$549.8	$2,246.9		$1,682.9	$551.8	$2,234.8
% change from PY	0.8%	(0.4%)	0.5%

12

Non-GAAP Reconciliations (cont.)

		Three Months Ended 12/28/2019
	Gross	Operating		Net	Diluted
(Dollars in millions, except per share data)	Profit	Income	Tax	Income	EPS
As reported (GAAP)	$233.9	$63.8	$14.3	$47.6	$1.10
% of net sales	38.0%	10.3%		7.7%
Tax %			23.1%
Restructuring charges	-	1.2	0.3	0.9	0.02
Impairment charges	-	-	-	-	0.00
Transition costs	-	-	-	-	0.00
Results (non-GAAP)	$233.9	$64.9	$14.6	$48.5	$1.12
% of net sales	38.0%	10.5%		7.9%
Tax %			23.1%
		Three Months Ended 12/29/2018
	Gross	Operating		Net	Diluted
(Dollars in millions, except per share data)	Profit	Income	Tax	Income	EPS
As reported (GAAP)	$223.9	$43.8	$9.4	$32.4	$0.73
% of net sales	37.4%	7.3%		5.4%
Tax %			22.4%
Restructuring charges	-	0.3	0.1	0.3	0.01
Impairment charges	-	13.1	3.3	9.7	0.22
Transition costs	0.6	0.6	0.1	0.4	0.01
Results (non-GAAP)	$224.5	$57.8	$12.8	$42.8	$0.97
% of net sales	37.5%	9.7%		7.2%
Tax %			23.2%

13

Non-GAAP Reconciliations (cont.)

		Twelve Months Ended 12/28/2019
	Gross	Operating		Net	Diluted
(Dollars in millions, except per share data)	Profit	Income	Tax	Income	EPS
As reported (GAAP)	$833.8	$151.3	$32.2	$110.5	$2.54
% of net sales	37.1%	6.7%		4.9%
Tax %			22.6%
Restructuring charges	-	2.4	0.5	1.8	0.04
Impairment charges	-	-	-	-	-
Transition costs	-	0.2	0.0	0.2	0.00
Results (non-GAAP)	$833.8	$153.9	$32.8	$112.5	$2.59
% of net sales	37.1%	6.8%		5.0%
			22.6%
		Twelve Months Ended 12/29/2018
	Gross	Operating		Net	Diluted
	Profit	Income	Tax	Income	EPS
As reported (GAAP)	$835.0	$128.2	$25.4	$93.4	$2.11
% of net sales	37.0%	5.7%		4.1%
Tax %			21.4%
Restructuring charges	-	2.3	0.6	1.7	0.04
Impairment charges	-	13.4	3.5	9.9	0.22
Transition costs	2.3	2.3	0.5	1.7	0.04
Results (non-GAAP)	$837.3	$146.2	$30.0	$106.7	$2.41
% of net sales	37.1%	6.5%		4.7%
			22.0%

14

Non-GAAP Reconciliations (cont.)

	Office Furniture			Hearth Products
	Three Months Ended	Percent		Three Months Ended	Percent
(Dollars in millions)	12/28/2019	12/29/2018	Change		12/28/2019	12/29/2018	Change
Operating profit as reported (GAAP)	$35.7	$11.1	NM		$39.6	$36.1	9.6%
% of net sales	7.9%	2.6%			23.8%	21.4%
Restructuring charges	1.2	0.2			-	0.2
Impairment charges	-	14.9			-	-
Transition costs	-	0.4			-	0.1
Operating profit (non-GAAP)	$36.9	$26.5	39.2%		$39.6	$36.4	8.6%
% of net sales	8.2%	6.2%			23.8%	21.6%

15

Non-GAAP Reconciliations (cont.)

	Office Furniture			Hearth Products
(Dollars in millions)	Twelve Months Ended	Percent		Twelve Months Ended	Percent
	12/28/2019	12/29/2018	Change		12/28/2019	12/29/2018	Change
Operating profit as reported (GAAP)	$103.9	$76.0	36.8%		$94.3	$91.4	3.2%
% of net sales	6.1%	4.5%			17.2%	16.6%
Restructuring charges	2.4	1.5			-	0.8
Impairment charges	-	14.9			-	0.3
Transition costs	0.2	1.6			-	0.6
Operating profit (non-GAAP)	$106.5	$94.0	13.3%		$94.3	$93.1	1.3%
% of net sales	6.3%	5.5%			17.2%	16.9%

16

Non-GAAP Reconciliations (cont.)

Operating Income (EBIT)					2018											2019
(Dollars in millions)		Q1			Q2				Q3			Q4			Q1			Q2				Q3			Q4
As reported (GAAP)	$	3.7	$	27.1			$	53.6	$	43.8		$	3.7	$	23.2			$	60.7	$	63.8
Restructuring and impairment charges		1.3			0.8				0.1			13.4			-			0.9				0.3			1.2
Transition costs		1.3			0.3				0.2			0.6			-			-				0.2			-
Non-GAAP Operating Income (EBIT)		6.3			28.2				53.9			57.8			3.7			24.2				61.1			64.9
Depreciation and Amortization		18.4			18.8				18.6			18.9			19.0			19.4				19.4			19.6
Non-GAAP EBITDA	$	24.7	$	47.0			$	72.5	$	76.7		$	22.7	$	43.6			$	80.5	$	84.5
Debt												250.1			296.4			286.5				240.8			175.2
Debt / TTM EBITDA (non-GAAP)												1.1x			1.4x			1.3x		1.1x			0.8x
Net Income					2018											2019
(Dollars in millions)		Q1			Q2				Q3			Q4			Q1			Q2				Q3			Q4
As reported (GAAP)	$	2.5	$	18.6			$	39.9	$	32.4		$	1.0	$	15.8			$	46.1	$	47.6
Restructuring and impairment charges		1.0			0.6				0.1			10.0			-			0.7				0.2			0.9
Transition costs		0.9			0.2				0.1			0.4			-			-				0.2			-
Non-GAAP Net Income	$	4.4	$	19.4			$	40.1	$	42.8		$	1.0	$	16.5			$	46.5	$	48.5
Earnings Per Share					2018											2019
(Per share data in dollars)		Q1			Q2				Q3			Q4			Q1			Q2				Q3			Q4
As reported (GAAP)	$	0.06	$	0.42			$	0.89	$	0.73		$	0.02	$	0.36			$	1.07	$	1.10
Restructuring and impairment charges		0.02			0.02				0.00			0.23			-			0.02				0.01			0.02
Transition costs		0.02			0.00				0.01			0.01			-			-				0.00			-
Non-GAAP EPS	$	0.10	$	0.44			$	0.90	$	0.97		$	0.02	$	0.38			$	1.08	$	1.12

17

Non-GAAP Reconciliations (cont.)

Hearth Products Sales		2018								2019
(Dollars in millions)	Q1		Q2			Q3		Q4		Q1		Q2			Q3		Q4
As reported (GAAP)	$124.2	$119.7			$139.4	$168.5		$125.9	$116.5	$140.6	$166.7
Less: Impact of Acquisitions and Divestitures	-		-			-		-		-		-			-		-
Organic Sales (non-GAAP)	$124.2	$119.7			$139.4	$168.5		$125.9	$116.5	$140.6	$166.7
Office Furniture Sales		2018								2019
(Dollars in millions)	Q1		Q2			Q3		Q4		Q1		Q2			Q3		Q4
As reported (GAAP)	$380.9	$423.9			$471.7	$429.6		$353.5	$409.5	$484.8	$449.4
Less: Impact of Acquisitions and Divestitures	8.5		5.0			4.5		5.1		-		-			-		-
Organic Sales (non-GAAP)	$372.4	$418.8			$467.2	$424.4		$353.5	$409.5	$484.8	$449.4

18