What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-11 compared with 2023-04-12 · 146 added, 273 removed, 201 unchanged (68% of the section changed)

1 unchanged sentence

(Dollars in millions, except share data)

The following is management's discussion and analysis of certain significant factors that affected the Company's financial condition, earnings and cash flows during the periods included in the accompanying Condensed Consolidated Financial Statements and should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended May 28, 2022.

References to “Notes” are to the footnotes included in the accompanying Condensed Consolidated Financial Statements.

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The Company researches, designs, manufactures, sells, and distributes interior furnishings for use in various environments including office, healthcare, educational, and residential settings and provides related services that support companies all over the world.

The Company's products are sold through independent contract office furniture dealers, retail studios, the Company’s eCommerce platforms, direct mail catalogs, as well as direct customer sales and independent retailers.

The following is a summary of results for the three months ended March 4, 2023:

• Net sales were $984.7 million and orders were $885.4 million, representing an decrease of 4.4% and a decrease of 19.2%, respectively, when compared to the same quarter of the prior year.

On an organic basis, which excludes the impact of foreign currency translation and the divesting of an owned dealership in the prior year, Net sales were $1,000.6 million (*) and orders were $899.7 million, representing an decrease of 2.7% and decrease of 17.6%, respectively, when compared to the same quarter of the prior year.

The following is a summary of results for the three months ended September 2, 2023:

• Net sales were $917.7 million and orders were $913.7 million, representing a decrease of 14.9% and 9.8%, respectively, when compared to the same quarter of the prior year.

On an organic basis, which excludes the impact of foreign currency translation, an additional week in the prior year and the impact of the closure of the Fully business, Net sales were $912.3 million (*) and orders were $906.4 million (*) , representing an organic decrease of 6.9% and 1.3%, respectively, when compared to the same quarter of the prior year.

• Gross margin was 39.0% as compared to 34.5% for the same quarter of the prior year.

The increase in Gross margin was driven primarily by the impact of recently implemented price increase actions and the realization of synergies associated with the Knoll integration.

These benefits more than offset impairment costs recorded as part of a decision to cease operating Fully as a stand-alone brand as well as higher commodity, transportation and logistics costs as compared to the prior year.

• Operating expenses increased by $4.1 million or 1.3% as compared to the same quarter of the prior year.

The increase was driven primarily by impairment expenses recorded in the third quarter of the current year related to the decision to cease operating Fully as a stand-alone brand, offset in part by lower variable compensation, and the realization of cost synergies as a result of optimization of our organizational structure.

• As of the end of the third quarter, the Company has captured $123 million in annualized run rate synergies following the close of the Knoll acquisition in the first quarter of Fiscal 2022.

The Company continues to make further progress towards our target of $140 million in synergies by the end of the third year following the acquisition.

The increase in Gross margin was driven primarily by the impact of price increase actions, reduced costs associated with commodities, inventory handling and freight costs, as well as from the realization of synergies associated with the Knoll integration.

• Operating expenses decreased by $3.0 million or 0.9% as compared to the same quarter of the prior year.

The decrease was driven primarily by the impact of the additional week in the prior year, reduced spending on product development costs and the realization of cost synergies as a result of optimization of our organizational structure.

These cost reductions were offset in part by increased compensation and benefit costs and an increase in restructuring costs as compared to the prior year.

• As of the end of the first quarter, the Company has captured $142 million in annualized run rate synergies following the close of the Knoll acquisition in the first quarter of Fiscal 2022.

The Company continues to make further progress on integration plans and now expects total run-rate cost synergies to equal $160 million per year by July 2024 (three years following the acquisition closing date).

• The effective tax rate was 24.4% compared to 18.8% for the same quarter of the prior year.

The year over year change in the effective tax rate for the three months ended March 4, 2023 resulted from an unfavorable tax adjustment in the current quarter related to stock compensation.

Additionally, the effective tax rate in the prior year third quarter was reduced by favorable tax adjustments related to the acquisition of Knoll and restructuring activities, which did not re-occur in the third quarter ended March 4, 2023.

The prior year tax rate benefited from the recapture of a foreign tax credit benefit which significantly outpaced the current year benefit.

Additionally, the current quarter tax rate was hampered by a larger unfavorable tax adjustment related to stock compensation than the prior year.

• Diluted earnings per share was $0.22 as compared to earnings per share of $0.34 in the prior year.

Excluding integration related costs, restructuring costs, impairments related to the Fully decision and the amortization of intangible assets purchased as part of the Knoll acquisition, adjusted diluted earnings per share was $0.54 (*) , a 74.2% (*) increase as compared to prior year adjusted diluted earnings per share.

Excluding integration related costs, restructuring costs, and the amortization of intangible assets purchased as part of the Knoll acquisition, adjusted diluted earnings per share was $0.37 (*) , a 15.9% (*) decrease as compared to prior year adjusted diluted earnings per share.

(*) Non-GAAP measurements;

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• During the quarter the Company continued to experience the impact of economic uncertainty in many of the geographies and markets in which we operate.

The Company believes that our third quarter financial results reflect how our diversified business model, with brands across multiple channels, customer segments and geographies, provides risk diversification and opportunities for future growth.

• The Company's financial performance is sensitive to changes in certain input costs, including steel and steel component parts.

Ongoing cost reduction initiatives and price increase actions have been implemented to help offset these cost pressures, and the benefit from these initiatives is expected to increase over time.

• The Americas Contract segment in the third quarter reported Net sales totaling $484.6 million, down 4.9% compared to the prior year period on a reported basis and down 4.5% organically.

Americas Contract had new orders of $461.6 million, which was a decrease of 12.6% from the prior year, and down 11.8% on an organic basis.

The decline in orders year-over-year reflect the impact of a challenging macro-economic environment compounded by pandemic-driven pent-up demand in the same period of the prior year.

• The International Contract & Specialty segment delivered Net sales in the third quarter of $242.5 million, an increase of 0.6% from the year-ago period on a reported basis and up 4.3% organically.

The Company believes that our first quarter financial results reflect how our diversified business model, with brands across multiple channels, customer segments and geographies, provides risk diversification, and opportunities for long-term future growth.

• The Americas Contract segment in the first quarter reported Net sales totaling $490.4 million, down 8.7% compared to the prior year period on a reported basis and down 1.7% (*) organically.

Americas Contract had new orders of $487.3 million, which was a decrease of 4.7% from the prior year, and up 2.1% (*) on an organic basis.

• The International Contract & Specialty segment delivered Net sales in the first quarter of $228.3 million, a decrease of 16.2% from the year-ago period on a reported basis and a decrease of 10.9% (*) organically.

New orders in this segment totaled $227.9 million, representing a year-over-year decrease of 9.7% on a reported basis and a decrease of 3.6% (*) organically.

The year over year decline in orders as driven primarily by the cycling of record post-pandemic activity in the same quarter of the prior year.

• Net sales in the third quarter for the Global Retail segment totaled $257.6 million, a decrease of 7.7% over the same quarter last year on a reported basis and a decrease of 5.5% organically.

• Net sales in the first quarter for the Global Retail segment totaled $199.0 million, a decrease of 26.0% over the same quarter last year on a reported basis and a decrease of 13.6% (*) organically.

Orders in the quarter totaled $198.5 million, down 20.4% compared to the same period last year on a reported basis and down 6.4% (*) organically.

The decline in year over year orders reflect the impact of a slowdown in the North American housing market and general economic uncertainty.

(*) Non-GAAP measurements;

see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."

The Company's fiscal year is the 52 or 53 week period ending on the Saturday closest to May 31.

The fiscal year ended May 28, 2022 ("fiscal 2022") was a 52 week period while the fiscal year ending June 3, 2023 ("fiscal 2023") will be a 53 week period.

The first nine months of fiscal 2022 contained 39 weeks, and the first nine months of fiscal 2023 contained 40 weeks.

The fiscal year ending June 1, 2024 contains 52 weeks, while fiscal year ended June 3, 2023 ("fiscal 2023") contained 53 week.

The first quarter of fiscal 2024 contained 13 weeks and the first quarter of fiscal 2023 contained 14 weeks.

This is a factor that should be considered when comparing the Company's year to date financial results to the prior year period.

The remaining sections within Item 2 include additional analysis of the three and nine months ended March 4, 2023, including discussion of significant variances compared to the prior year periods.

The remaining sections within Item 2 include additional analysis of the three months ended September 2, 2023, including discussion of significant variances compared to the prior year periods.

Reconciliation of Non-GAAP Financial Measures

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Adjusted Earnings per Share and Organic Growth (Decline).

Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from amortization of purchased intangibles, acquisition and integration charges, debt extinguishment charges, restructuring charges, impairment charges, other special charges or gains and the related tax effect of those adjustments.

Adjusted Earnings per Share represents reported diluted earnings per share excluding the impact from amortization of Knoll purchased intangibles, integration charges, restructuring expenses, and the related tax effect of these adjustments.

These adjustments are described further below.

Organic Growth (Decline) represents the change in sales and orders, excluding currency translation effects, the impact of an additional week in the fiscal 2023 and the impact of acquisitions and divestitures.

The adjustments made to arrive at these non-GAAP financial measures are as follows:

• Amortization of Purchased Intangibles:

Includes expenses associated with the amortization of inventory step-up and amortization of acquisition related intangibles acquired as part of the Knoll acquisition.

• Amortization of Knoll Purchased Intangibles:

Includes expenses associated with the amortization of acquisition related intangibles acquired as part of the Knoll acquisition.

The revenue generated by the associated intangible assets has not been excluded from the related non-GAAP financial measure.

We exclude the impact of the amortization of purchased intangibles, including the fair value adjustment to inventory, as such non-cash

amounts were significantly impacted by the size of the Knoll acquisition.

Furthermore, we believe that this adjustment enables better comparison of our results as Amortization of Purchased Intangibles will not recur in future periods once such intangible assets have been fully amortized.

We exclude the impact of the amortization of Knoll purchased intangibles as such non-cash amounts were significantly impacted by the size of the Knoll acquisition.

Furthermore, we believe that this adjustment enables better comparison of our results as Amortization of Knoll Purchased Intangibles will not recur in future periods once such intangible assets have been fully amortized.

Any future acquisitions may result in the amortization of additional intangible assets.

Although we exclude the Amortization of Purchased Intangibles in these non-GAAP measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

• Acquisition and Integration Charges:

Costs related directly to the Knoll acquisition including legal, accounting and other professional fees as well as integration-related costs.

Integration-related costs include severance, accelerated stock-based compensation expenses, asset impairment charges, and expenses related to other cost reduction efforts or reorganization initiatives.

• Debt Extinguishment Charges:

Includes expenses associated with the extinguishment of debt as part of financing the Knoll acquisition.

We excluded these items from our non-GAAP measures because they relate to a specific transaction and are not reflective of our ongoing financial performance.

Although we exclude the Amortization of Knoll Purchased Intangibles in these non-GAAP measures, we believe that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

• Integration Charges:

Knoll integration-related costs include severance, accelerated stock-based compensation expenses, asset impairment charges, and expenses related to synergy realization efforts and reorganization initiatives.

• Restructuring charges:

Includes actions involving targeted workforce reductions.

• Impairment charges:

Includes non-cash, pre-tax charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand.

• Special charges:

Include certain costs arising as a direct result of COVID-19 pandemic.

• Tax related items:

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Three Months Ended

March 4, 2023

September 2, 2023

Americas International & Specialty Retail Total

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Three Months Ended

February 26, 2022

Americas International & Specialty Retail Total

Net sales, as reported $ 509.4 $ 241.0 $ 279.1 $ 1,029.5

Dealer divestitures (0.7) — — (0.7)

Net sales, organic $ 508.7 $ 241.0 $ 279.1 $ 1,028.8

(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period

Nine Months Ended

March 4, 2023

September 3, 2022

Americas International & Specialty Retail Total

Net sales, as reported $ 537.4 $ 272.5 $ 268.9 $ 1,078.8

% change from PY 11.6 % 19.1 % (0.2) % 10.0 %

Acquisitions (77.2) (55.5) (31.1) (163.8)

Currency translation effects (1)

5.0 40.7 25.4 71.1

Fully closure — — (22.8) (22.8)

Impact of Extra Week in FY23 (38.7) (19.6) (18.2) (76.5)

Net sales, organic $ 498.7 $ 252.9 $ 227.9 $ 979.5

% change from PY 5.0 % 15.0 % (2.6) % 5.2 %

Nine Months Ended

February 26, 2022

Americas International & Specialty Retail Total

Net sales, as reported $ 1,390.0 $ 655.1 $ 800.4 $ 2,845.5

Dealer divestitures (6.7) — — (6.7)

Net sales, organic $ 1,383.3 $ 655.1 $ 800.4 $ 2,838.8

(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period

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Three Months Ended

March 4, 2023

September 2, 2023

Americas International and Specialty Retail Total

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Three Months Ended

February 26, 2022

Americas International and Specialty Retail Total

Orders, as reported $ 528.0 $ 288.7 $ 279.2 $ 1,095.9

Dealer divestitures (3.8) — — (3.8)

Orders, organic $ 524.2 $ 288.7 $ 279.2 $ 1,092.1

(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period.

Nine Months Ended

March 4, 2023

September 3, 2022

Americas International and Specialty Retail Total

Orders, as reported $ 511.3 $ 252.4 $ 249.4 $ 1,013.1

% change from PY (9.4) % (5.2) % (8.4) % (8.1) %

Acquisition (80.3) (57.5) (32.3) (170.1)

Currency translation effects (1)

3.8 37.5 23.6 64.9

Fully closure — — (23.0) (23.0)

Impact of Extra Week in FY23 (36.2) (18.9) (16.6) (71.7)

Orders, organic $ 475.1 $ 233.5 $ 209.8 $ 918.4

% change from PY (15.1) % (9.3) % (11.0) % (12.6) %

Nine Months Ended

February 26, 2022

Americas International and Specialty Retail Total

Orders, as reported $ 1,596.5 $ 742.8 $ 830.9 $ 3,170.2

Dealer divestitures (11.4) — — (11.4)

Orders, organic $ 1,585.1 $ 742.8 $ 830.9 $ 3,158.8

(1) Currency translation effects represent the estimated net impact of translating current period sales and orders using the average exchange rates applicable to the comparable prior year period.

The following table reconciles earnings per share - diluted to adjusted earnings per share - diluted for the periods ended as indicated below:

Three Months Ended Nine Months Ended

March 4, 2023 February 26, 2022 March 4, 2023 February 26, 2022

Earnings (loss) per share - diluted $ 0.01 $ 0.19 $ 0.56 $ (0.66)

Amortization of purchased intangibles 0.09 0.11 0.26 0.78

Acquisition and integration charges 0.05 — 0.14 1.62

Three Months Ended

September 2, 2023 September 3, 2022

Earnings per share - diluted $ 0.22 $ 0.34

Amortization of Knoll purchased intangibles 0.08 0.08

Integration charges 0.07 0.06

Restructuring charges 0.05 0.01

Impairment charges 0.48 — 0.48 —

Special charges — — — (0.01)

Debt extinguishment — — — 0.19

Gain on sale of dealer — (0.03) — (0.03)

Tax impact on adjustments (0.05) (0.05)

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Weighted average shares outstanding (used for calculating adjusted earnings per share) – diluted 75,707,536 76,266,966

Analysis of Results for Three and Nine Months

The following table presents certain key highlights from the results of operations for the three and nine months ended:

Three Months Ended Nine Months Ended

(In millions, except share data) March 4, 2023 February 26, 2022 % Change March 4, 2023 February 26, 2022 % Change

Key Highlights

The following table presents certain key highlights from the results of operations for the three months ended:

Three Months Ended

(In millions, except share data) September 2, 2023 September 3, 2022 % Change

Net sales $ 917.7 $ 1,078.8 (14.9) %

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Operating expenses 317.8 321.3 (1.1) %

Operating earnings (loss) 21.2 29.2 (27.4) % 110.7 (17.2) 743.6 %

Operating earnings 40.3 50.8 (20.7) %

Other expenses, net 19.2 17.1 12.3 %

Earnings (loss) before income taxes and equity income 1.6 19.8 (91.9) % 56.9 (52.8) 207.8 %

Income tax expense (benefit) 0.5 3.6 (86.1) % 11.1 (9.8) 213.3 %

Earnings before income taxes and equity income 21.1 33.7 (37.4) %

Income tax expense 5.1 6.3 (19.0) %

Equity income from nonconsolidated affiliates, net of tax 0.1 — — %

Net earnings (loss) 1.1 16.2 (93.2) % 46.0 (43.0) 207.0 %

Net earnings attributable to redeemable noncontrolling interests 0.7 1.8 n/a 3.8 5.7 n/a

Net earnings 16.1 27.4 (41.2) %

Net (loss) earnings attributable to redeemable noncontrolling interests (0.6) 1.6 n/a

Net earnings (loss) attributable to MillerKnoll, Inc.

$ 16.7 $ 25.8 (35.3) %

Earnings (loss) per share - basic $ 0.01 $ 0.19 (94.7) % $ 0.56 $ (0.66) 184.8 %

Earnings per share - basic $ 0.22 $ 0.34 (35.3) %

Orders $ 913.7 $ 1,013.1 (9.8) %

Backlog $ 694.0 $ 868.6 (20.1) %

The following table presents select components of the Company's Condensed Consolidated Statements of Comprehensive (Loss) Income as a percentage of Net sales, for the three and nine months ended:

Three Months Ended Nine Months Ended

March 4, 2023 February 26, 2022 March 4, 2023 February 26, 2022

The following table presents select components of the Company's Condensed Consolidated Statements of Comprehensive (Loss) Income as a percentage of Net sales, for the three months ended:

Three Months Ended

September 2, 2023 September 3, 2022

Net sales 100.0 % 100.0 %

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Operating expenses 34.6 29.8

Operating earnings (loss) 2.2 2.8 3.5 (0.6)

Operating earnings 4.4 4.7

Other expenses, net 2.1 1.6

Earnings (loss) before income taxes and equity income 0.2 1.9 1.8 (1.9)

Income tax expense (benefit) 0.1 0.3 0.4 (0.3)

Earnings before income taxes and equity income 2.3 3.1

Income tax expense 0.6 0.6

Equity income from nonconsolidated affiliates, net of tax — —

Net earnings (loss) 0.1 1.6 1.5 (1.5)

Net earnings attributable to redeemable noncontrolling interests 0.1 0.2 0.1 0.2

Net earnings 1.8 2.5

Net (loss) earnings attributable to redeemable noncontrolling interests (0.1) 0.1

Net earnings (loss) attributable to MillerKnoll, Inc.

— 1.4 1.3 (1.7)

The following charts present graphically the primary drivers of the year-over-year change in Net sales for the three and nine months ended March 4, 2023.

The amounts presented in the graphs are expressed in millions and have been rounded.

Net sales decreased $45 million or 4.4% in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022.

The following chart presents graphically the primary drivers of the year-over-year change in Net sales for the three months ended September 2, 2023.

The amounts presented in the graph are expressed in millions and have been rounded.

Net sales decreased $161 million or 14.9% in the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023.

The following items contributed to the change:

• Decreased sales volume within the Global Retail and Americas segments of approximately $23 million and $81 million, respectively.

• Foreign currency translation decreased Net sales by approximately $16 million.

• The additional week during the first quarter of the prior year contributed to approximately $77 million of the net sales decrease.

• Decreased sales volume within the Global Retail, International & Specialty, and Americas segments of approximately $24 million, $34 million and $46 million, respectively.

• Decrease of $24 million related to the closure of the Fully business that occurred in the prior year.

Offset in part by:

• Incremental price increases, net of price discounting, which drove an increase in Net sales of approximately $74 million.

• Increased sales volumes within the International Contract & Specialty segment contributed to sales growth in the quarter by approximately $1 million.

Net sales increased $285 million or 10.0% in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022.

The following items contributed to the change:

• Incremental price increases, net of price discounting drove an increase in Net sales of approximately $204 million.

• Increase of $161 million due to the Knoll acquisition that was completed on July 19, 2021 of the prior year, net of a decrease in sales related to the divestiture of an owned dealership in the prior year.

• Increased sales volumes within the International Contract & Specialty segment contributed to sales growth in the quarter by approximately $78 million.

The International Contract & Specialty segment's growth was driven, in part, by a strong backlog of orders in the first half of the year.

• The additional week during the first quarter of the current year contributed to approximately $53 million of the year to date Net sales increase.

• Decreased sales volume within the Global Retail and Americas segments partially offset these increases by approximately $53 million and $87 million, respectively.

• Foreign currency translation decreased Net sales by approximately $72 million.

Gross margin was 34.1% in the third quarter of fiscal 2023 as compared to 33.0% in the third quarter of fiscal 2022.

• Incremental price increases, net of incremental price discounting, which drove an increase in Net sales of approximately $39 million.

• Foreign currency translation increased Net sales by approximately $5 million.

Gross margin was 39.0% in the first quarter of fiscal 2024 as compared to 34.5% in the first quarter of fiscal 2023.

The following factors summarize the major drivers of the year-over-year change in gross margin percentage:

• Price increases, net of incremental discounting, contributed to margin improvement of approximately 280 basis points.

• Reductions in variable compensation compared to the prior year had a favorable impact on margin of approximately 70 basis points.

• The impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period had a favorable impact on gross margin of approximately 20 basis points.

These factors were offset in part by the following factors:

• Cost pressures from commodities, storage and handling costs, freight and product distribution costs, which decreased gross margin by approximately 170 basis points.

• Charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand contributed to a decrease in gross margin of approximately 100 basis points.

• Increased labor and overhead costs had a negative impact on margin of approximately 60 basis points.

• Unfavorable product and channel mix as compared to the prior year also had a negative impact on gross margin.

Gross margin was 34.4% in the nine months ended March 4, 2023 as compared to 34.1% for the same period in the prior fiscal year.

The following factors summarize the major drivers of the year-over-year change in gross margin percentage:

• The positive impact of price increases, net of incremental discount, offset some of these pressures by approximately 370 basis points.

These factors were offset in part by the following factors:

• Cost pressures from commodities, storage and handling costs, freight and product distribution costs decreased gross margin by approximately 250 basis points.

• Increased labor costs had a negative impact on margin of approximately 60 basis points.

• Charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand contributed to a decrease in gross margin of approximately 10 basis points.

• Reduction in costs from commodities, storage and handling costs, freight and product distribution costs, as compared to the same period of the prior year which increased gross margin by approximately 220 basis points.

• Savings from the realization of incremental synergies associated with the Knoll acquisition as compared to the same period in the prior year.

• Loss of leverage on lower sales volumes offset the favorable drivers above by approximately 100 basis points.

Operating Expenses

The following charts present graphically the primary drivers of the year-over-year change in Operating expenses for the three and nine months ended March 4, 2023.

The following chart presents graphically the primary drivers of the year-over-year change in Operating expenses for the three months ended September 2, 2023.

The amounts presented in the graphs are expressed in millions and have been rounded.

Operating expenses increased by $4 million or 1.3% in the third quarter of fiscal 2023 compared to the prior year period.

The following factors contributed to the change:

• Restructuring charges related to voluntary and involuntary reductions in the Company's workforce and charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand contributed to an increase in Operating expenses of approximately $26 million;

• Warranty costs increased by approximately $4 million in the quarter driven primarily by a favorable adjustment to the general accrual in the prior year that did not re-occur in the current period and increased warranty expenses in the current year within the Americas segment;

• Studio costs increased by approximately $1 million related to the expansion of physical store locations within the Global Retail segment.

These increases were offset in part by:

• Compensation and benefit costs, which decreased approximately $16 million, driven by changes in variable-based compensation and incentives and reduction in costs associated with optimization of our organizational structure;

• Acquisition related integration costs, which decreased by approximately $3 million;

• Favorable foreign currency translation, which reduced Operating expenses by approximately $2 million;

as well as decreased marketing costs.

Operating expenses decreased by $22 million or 2.3% in the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022.

Operating expenses decreased by $3 million or 1.1% in the first quarter of fiscal 2024 compared to the prior year period.

The following factors contributed to the change:

• Acquisition related integration and amortization expense decreased $134 million from the prior year period;

• The impact of an extra week in the first quarter of fiscal 2023 decreased operating expenses by approximately $10 million in the current period.

• Product development costs decreased approximately $4 million, primarily in the Americas and Retail segments;

• Variable selling costs decreased by approximately $3 million.

These decreases were offset in part by:

• Compensation and benefit costs, which increased approximately $8 million, driven by changes in variable-based compensation and incentives;

• Restructuring charges related to reductions in the Company's workforce contributed to an increase in Operating expenses of approximately $5 million;

• Favorable foreign currency translation of approximately $1 million.

• Compensation and benefit cost, which decreased approximately $7 million, driven primarily by a decrease in variable-based compensation.

These factors were offset in part by;

• The consolidation of Knoll results for the entirety of the first quarter of fiscal 2023, which increased Operating expenses by $50 million;

• The impact of an extra week in the first quarter of fiscal 2023, which increased Operating expenses by approximately $13 million;

• Studio costs, which increased by approximately $7 million, related to the expansion of physical store locations within the Global Retail segment;

• Warranty costs, which increased by approximately $7 million in the quarter driven by favorable adjustments to the general warranty accrual recorded in the same period of the prior year, as well as increased warranty expenses in the current year.

• The remaining change was primarily related to a decrease in marketing related program costs.

Other Income/Expense

During the three months ended March 4, 2023, net Other expense was $19.6 million, representing an unfavorable change of $10.2 million compared to the same period in the prior year.

Other income/expense in the three months ended March 4, 2023 included $8.9 million of higher interest expense resulting from higher levels of debt and increased interest rates as compared to the same period of the prior year.

During the nine months ended March 4, 2023, net Other expense was $53.8 million, representing an unfavorable change of $18.2 million compared to the same period in the prior year.

Other income/expense in the nine months ended March 4, 2023 included a loss on extinguishment of debt of approximately $13.4 million, which represented the premium on early debt redemption.

Interest expense was $29.2 million higher during the current year resulting from higher levels of debt as well as higher foreign currency losses recorded in the current fiscal year compared to the prior fiscal year.

During the three months ended September 2, 2023, net Other expense was $19.2 million, representing an increase of $2.1 million compared to the same period in the prior year, driven primarily by increased interest expense as compared to the same period of the prior year.

See Note 10 of the Condensed Consolidated Financial Statements for additional information.

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For descriptions of each segment, refer to Note 15 of the Condensed Consolidated Financial Statements.

The charts below present the relative mix of Net sales and Operating earnings across each of the Company's segments during the three and nine month periods ended March 4, 2023.

The charts below present the relative mix of Net sales and Operating earnings across each of the Company's segments during the three month period ended September 2, 2023.

This is followed by a discussion of the Company's results, by reportable segment.

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Americas Contract

Three Months Ended Nine Months Ended

(Dollars in millions) March 4, 2023 February 26, 2022 Change March 4, 2023 February 26, 2022 Change

Three Months Ended

(Dollars in millions) September 2, 2023 September 3, 2022 Change

Net sales $ 490.4 $ 537.4 $ (47.0)

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Gross margin % 35.6 % 26.8 % 8.8 %

Operating earnings (loss) 32.5 (8.6) 41.1 78.2 (30.1) 108.3

Operating earnings 41.4 20.4 21.0

Operating earnings % 8.4 % 3.8 % 4.6 %

For the three month comparative period, Net sales decreased 8.7%, or 1.7% (*) on an organic basis, over the prior year period due to:

• Decreased sales volumes within the segment of approximately $81 million, driven by the impact of a challenging macro-economic environment compounded by pandemic-driven pent-up demand in the prior year;

as well as unfavorable foreign currency translation of approximately $1 million;

offset in part by

• Price increases, net of incremental discounting of $57 million

For the nine month comparative period, Net sales increased 11.6%, or 5.0% (*) on an organic basis, over the prior year period due to:

• Decreased sales volumes within the segment of approximately $46 million, driven by the impact of a challenging macro-economic environment;

• The impact of an additional week in the same period of the prior year, which reduced sales approximately $39 million;

• Price increases, net of incremental discounting of $38 million.

• An increase in sales of $74 million due to the Knoll acquisition that was completed on July 19, 2021.

The increase represents the impact of consolidating Knoll results for the entirety of the first quarter of fiscal 2023;

• An increase of approximately $27 million related to the additional week in the first quarter;

offset in part by

• Decreased sales volumes within the segment of approximately $87 million, which was driven by the impact of a challenging macro-economic environment compounded by pandemic-driven pent-up demand last year;

as well as unfavorable foreign currency translation of approximately $5 million.

(*) Non-GAAP measurements;

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For the three month comparative period, operating earnings increased $21.0 million, or 102.9%, over the prior year period due to:

• Increased Gross margin of $29 million due to the increased gross margin percentage of 720 basis points.

The increase in gross margin percentage was due primarily to the impact of incremental list price increases, net of contract price discounting, that increased gross margin percentage by 1110 basis points as well as from the impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period.

These increases were offset in part by higher commodity and labor costs that decreased gross margin percentage by approximately 300 basis points.

• Decreased Operating expenses of $12 million driven primarily by a decrease in variable based compensation costs of $10 million and a decrease in digital and technology program costs.

These decreases in Operating expenses were offset in part by increases in restructuring and warranty expenses.

For the nine month comparative period, operating earnings increased $108.3 million, or 359.8%, over the prior year period due to:

• Increased Gross margin of $97.0 million due to the increased gross margin percentage of 360 basis points.

The increase in gross margin percentage was due primarily to the impact of incremental list price increases, net of contract price discounting, that increased gross margin percentage by 820 basis points as well as from the impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period.

These increases were offset in part by higher commodity and labor costs that decreased gross margin percentage by 440 basis points.

• Decreased Operating expenses of $11 million.

The following factors contributed to the change:

◦ A decrease in variable based compensation of $10 million.

◦ Operating expenses also decreased due to lower amortization and integration charges of $36 million.

◦ An increase of approximately $20 million from consolidating Knoll results for the entirety of the first quarter of fiscal 2023.

◦ An increase of approximately $6 million related to the additional week in the first quarter of fiscal 2023.

◦ Increased restructuring expenses of approximately $18 million related to voluntary and involuntary reductions in the Company's workforces.

These increases in Operating expenses were offset by lower technology spend.

• Increased Gross margin of $31 million due to the increased gross margin percentage of 880 basis points, which more than offset the decrease in net sales discussed above.

The increase in gross margin percentage was due primarily to:

◦ The impact of incremental list price increases, net of contract price discounting which provided an approximately 500 basis point improvement over the prior year;

◦ Decreased commodity costs which provided an improvement of approximately 300 basis points;

◦ The favorable impact of realization of synergies associated with the Knoll acquisition.

Partially offset by;

• Increased Operating expenses of $10 million driven primarily by an increase in variable compensation costs, offset in part by a reduction in costs as compared to the prior year associated with the additional week in the prior year period.

International Contract & Specialty

Three Months Ended Nine Months Ended

(Dollars in millions) March 4, 2023 February 26, 2022 Change March 4, 2023 February 26, 2022 Change

Three Months Ended

(Dollars in millions) September 2, 2023 September 3, 2022 Change

Net sales $ 228.3 $ 272.5 $ (44.2)

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Operating earnings % 5.0 % 10.2 % (5.2) %

For the three month comparative period, Net sales increased 0.6%, or 4.3% (*) on an organic basis, over the prior year period due to:

• Price increases, net of incremental discounting of $9 million.

• Increased sales volume of approximately $1 million;

offset in part by

• Unfavorable foreign currency translation of approximately $9 million.

For the nine month comparative period, Net sales increased 19.1%, or 15.0% (*) on an organic basis, over the prior year period due to:

• Increased sales volume of approximately $78 million;

• An increase in sales of $56 million due to the Knoll acquisition that was completed on July 19, 2021.

The increase represents the impact of consolidating Knoll results for the entirety of the first quarter of fiscal 2023;

• The positive impact of the additional sales from the additional week in the first quarter of $12 million;

For the three month comparative period, Net sales decreased 16.2%, or 10.9% (*) on an organic basis, over the prior year period due to:

• Decline in sales volume of approximately $34 million driven mainly by challenging macroeconomic conditions in Europe and China.

• Impact of the extra week in the prior year period, which drove a decrease of $20 million;

• Price increases, net of incremental discounting of $7 million.

offset in part by

• Unfavorable foreign currency translation of approximately $41 million.

• Favorable foreign currency translation of approximately $3 million.

(*) Non-GAAP measurements;

see accompanying reconciliations and explanations under the heading "Reconciliation of Non-GAAP Financial Measures."

For the three month comparative period, operating earnings increased $8.3 million, or 48.8%, over the prior year period due to:

• Increased Gross margin of $7 million due to the increase in sales explained above, as well as the increased gross margin percentage of 250 basis points due primarily to the leverage of fixed costs on higher sales volume, lower freight costs as compared to the same period of the prior year and favorable mix;

• Decreased Operating expenses of approximately $2 million driven primarily by decreased variable based compensation.

For the nine month comparative period, operating earnings increased $43.1 million, or 112.2%, over the prior year period due to:

• Increased Gross margin of $63 million due to the increase in sales explained above, and increased gross margin percentage of 180 basis points due primarily to the leverage of fixed costs on higher sales volume as well as from the impact of amortization of purchased intangibles related to the Knoll acquisition recorded in the prior year that did not occur in the current period;

offset in part by

• Increased Operating expenses of $20 million driven primarily from consolidating Knoll results for the entirety of the first quarter of fiscal 2023, the impact of the additional week in the current period as compared to the prior year, partially offset by the impact of foreign currency translation and lower amortization and acquisition related integration charges as compared to the same period of the prior year.

For the three month comparative period, operating earnings decreased $16.5 million, or 59.1%, over the prior year period due to:

• Decreased Gross margin of $17 million due to the decrease in net sales discussed above, which more than offset an increase in gross margin percentage of 80 basis points due primarily to the benefit from price increase actions.

• Operating expenses decreased approximately $4 million due to the additional week in the prior year which was largely offset by an increase in variable compensation costs in the current year.

As a result, operating expenses were flat as compared to the same period of the prior year and did not contribute to the decrease in operating earnings.

Global Retail

Three Months Ended Nine Months Ended

(Dollars in millions) March 4, 2023 February 26, 2022 Change March 4, 2023 February 26, 2022 Change

Three Months Ended

(Dollars in millions) September 2, 2023 September 3, 2022 Change

Net sales $ 199.0 $ 268.9 $ (69.9)

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Gross margin % 43.4 % 42.6 % 0.8 %

Operating (loss) earnings (24.5) 36.3 (60.8) (4.7) 97.1 (101.8)

Operating earnings 2.2 17.8 (15.6)

Operating earnings % 1.1 % 6.6 % (5.5) %

For the three month comparative period, Net sales decreased 26.0%, and decreased 13.6% (*) on an organic basis, over the prior year period due to:

• A decrease in sales volume of approximately $23 million, driven by a slowdown in the North American housing market and a general increase in economic uncertainty;

• Unfavorable foreign currency translation of approximately $6 million;

partially offset by

• Price increases, net of incremental discounting, which increased sales by $8 million.

For the nine month comparative period, Net sales decreased 0.2%, and decreased 2.6% (*) on an organic basis, over the prior year period due to:

• A decrease in sales volume of approximately $53 million, driven by changes in customer spending trends;

• Unfavorable foreign currency translation of approximately $25 million;

offset in part by

• An increase in sales of $31 million due to the Knoll acquisition that was completed on July 19, 2021.

The increase represents the impact of consolidating Knoll results for the entirety of the first quarter of fiscal 2023;

• Price increases, net of incremental discounting, which increased sales by $32 million;

• The positive impact of additional sales from the 14th week in the first quarter of $14 million.

• A decrease in sales volume of approximately $24 million, driven by a slowdown in the North American housing market and a continuation of general economic uncertainty;

• Decrease of $24 million related to the closure of the Fully business that occurred in the prior year;

• The additional week during the first quarter of the prior year contributed to approximately $18 million of the net sales decrease;

• Incremental discounting, net of price increases which decreased sales by $6 million;

• Favorable foreign currency translation of approximately $2 million.

(*) Non-GAAP measurements;

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For the three month comparative period, Operating earnings decreased $16 million or 87.6% over the prior year period due to:

• Decreased Gross margin of $39 million due to the decrease in sales explained above, and decreased gross margin percentage of 1,150 basis points attributable to the impact of impairment of inventory associated with the decision to cease operating Fully as a stand-alone brand, unfavorable changes in product mix, partially offset in part by the favorable impact of pricing;

• Increased Operating expenses of $22 million driven primarily charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand, offset in part by lower variable compensation.

For the nine month comparative period, Operating earnings decreased $102 million, or 104.8%, over the prior year period due to:

• Decreased Gross margin of $55 million primarily due to decreased gross margin percentage of 690 basis points attributable to Impairment charges from Fully described above as well as the unfavorable impact of higher commodity and inventory storage costs as well as unfavorable changes in product mix, partially offset in part by the favorable impact of pricing.

• Increased Operating expenses of $47 million primarily due to consolidating Knoll results for the entirety of the first quarter of fiscal 2023, charges for the impairment of assets associated with the decision to cease operating Fully as a stand-alone brand, the impact of the additional week in the current period as compared to the prior year, increased

costs associated with retail studio locations and digital and technology program costs.

These expenses were offset in part by reduced costs associated with variable based compensation.

Corporate unallocated expenses totaled $12 million for the third quarter of fiscal 2023, a decrease of $3.4 million from the third quarter of fiscal 2022.

The decrease was driven by a reduction of integration and transaction costs related to the Knoll acquisition, which were $4 million in the prior period compared to $1 million in the third quarter of fiscal 2023.

Corporate unallocated expenses totaled $44.3 million for the first nine months of fiscal 2023, a decrease of $78.3 million from the same period of fiscal 2022.

The decrease was driven primarily by a reduction of integration and transaction costs related to the Knoll acquisition, which were $89.5 million in the prior period compared to $4.3 million in the third quarter of fiscal 2023.

• Decreased Gross margin of $28 million due to the decrease in sales explained above, which more than offset an increased gross margin percentage of 80 basis points attributable to the favorable impact of reduced costs as compared to the prior year associated with product distribution and inventory handling;

offset in part by

• Decreased Operating expenses of $13 million driven primarily by decreased variable selling costs and decreased product development costs as well as the additional week in the prior year period .

Corporate unallocated expenses totaled $15 million for the first quarter of fiscal 2024, a decrease of $0.6 million from the first quarter of fiscal 2023.

The decrease was driven primarily by a reduction in integration costs as compared to the same period of the prior year.

Liquidity and Capital Resources

The table below summarizes the net change in Cash and cash equivalents for the nine months ended as indicated.

(In millions) March 4, 2023 February 26, 2022

The table below summarizes the net change in Cash and cash equivalents for the three months ended as indicated.

(In millions) September 2, 2023 September 3, 2022

Cash provided by (used in):

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The principal source of our operating cash flow is net earnings, meaning cash receipts from the sale of our products, net of costs to manufacture, distribute, and market our products.

Net cash provided by operating activities for the nine months ended March 4, 2023 totaled $70.4 million, as compared to cash used of $57.9 million in the same period of the prior year.

The increase in cash inflow is due primarily to an increase in earnings in the current nine month period compared to the same period of the prior year as well as a reduction in working capital.

Our working capital consists primarily of receivables from customers, prepaid expenses, accounts payable, accrued compensation, and accrued other expenses.

The timing of collection of our receivables, and the timing of spending commitments and payments of our accounts payable, accrued expenses, accrued compensation and related benefits, all affect these account balances.

Net cash provided by operating activities for the three months ended September 2, 2023 totaled $130.9 million, as compared to cash used of $64.8 million in the same period of the prior year.

The increase in cash inflow is due primarily to a reduction in working capital.

Our working capital consists primarily of receivables from customers, inventory, prepaid expenses, accounts payable, accrued compensation, and accrued other expenses.

The following all affected these account balances:

•The timing of collection of our receivables;

•Effective inventory management resulting in reduced inventory levels;

•Increased variable compensation in the current quarter.

Cash Flows - Investing Activities

Cash used in investing activities for the nine months ended March 4, 2023 was $53.2 million, as compared to $1,145.0 million in the same period of the prior year.

The decrease in cash outflow in the current year, compared to the prior year, was primarily due to the acquisition of Knoll, which drove a cash outflow, net of cash acquired, of $1,088.5 million in the prior year period.

In the nine months ended March 4, 2023, we were advanced $13.5 million of cash against the value of company owned life insurance policies.

Cash used in investing activities for the three months ended September 2, 2023 was $26.3 million, as compared to $10.2 million in the same period of the prior year.

The increase in cash outflow in the current year, compared to the prior year, was primarily due to the advancement of $13.5 million of cash against the value of company owned life insurance policies received in the three months ended September 3, 2022.

This is reflected as cash proceeds from investing activities in the Consolidated Statement of Cash Flows.

At the end of the third quarter of fiscal 2023, there were outstanding commitments for capital purchases of $19.7 million.

At the end of the first quarter of fiscal 2024, there were outstanding commitments for capital purchases of $14.0 million.

The Company plans to fund these commitments through a combination of cash on hand and cash flows from operations.

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This compares to full-year capital spending of $83.3 million in fiscal 2023.

Capital expenditures through for the first nine months of fiscal 2023 of $60.6 million are $5.2 million less than the same period of the prior year.

Capital expenditures for the first three months of fiscal 2023 of $19.9 million were $2.6 million more than the same period of the prior year.

Cash Flows - Financing Activities

Cash used in financing activities for the nine months ended March 4, 2023 was $22.1 million, as compared to cash provided by financing activities of $1,061.4 million in the same period of the prior year.

The decrease in cash provided in the current year, compared to the prior year, was primarily due to net borrowings of $1,007.0 million under the credit agreement the Company entered into during the prior year.

Cash used in financing activities for the three months ended September 2, 2023 was $111.1 million, as compared to cash provided by financing activities of $77.0 million in the same period of the prior year.

The increase in cash used in the current year, compared to the prior year, was primarily due to net payments on the credit agreement of $59.4 million in the current year compared to net borrowings of $110.9 million in the same period of the prior year.

During the three months ended September 2, 2023 we repurchased 1.7 million shares at a cost of $31.7 million, compared to share repurchases totaling $14.2 million in the same period of the prior year.

Sources of Liquidity

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The Company maintains an open market share repurchase program under our existing share repurchase authorization and may repurchase shares from time to time based on management’s evaluation of market conditions, share price and other factors.

At the end of the third quarter of fiscal 2023, the Company had a well-positioned balance sheet and liquidity profile.

At the end of the first quarter of fiscal 2024, the Company had a well-positioned balance sheet and liquidity profile.

The Company has access to liquidity through credit facilities, cash and cash equivalents, and short-term investments.

1 unchanged sentence

For additional information, refer to Note 13 to the Condensed Consolidated Financial Statements.

(In millions) March 4, 2023 May 28, 2022

(In millions) September 2, 2023 June 3, 2023

Cash and cash equivalents $ 217.5 $ 223.5

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Total liquidity $ 561.3 $ 507.7

Of the Cash and cash equivalents noted above at the end of the third quarter of fiscal 2023, the Company had $200.9 million of Cash and cash equivalents held outside the United States.

Of the Cash and cash equivalents noted above at the end of the first quarter of fiscal 2024, the Company had $205.3 million of Cash and cash equivalents held outside the United States.

The Company’s syndicated revolving line of credit, which matures in July, 2026, provides the Company with up to $725 million in revolving variable interest borrowing capacity and allows the Company to borrow incremental amounts, at its option, subject to negotiated terms as outlined in the agreement.

Outstanding borrowings bear interest at rates based on the prime rate, federal funds rate, SOFR or negotiated terms as outlined in the agreement.

As of March 4, 2023, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $468.5 million with available borrowings against this facility of $242.4 million.

The Company intends to repatriate $185.0 million of undistributed foreign earnings of which $104.0 million is held in cash in certain foreign jurisdictions with the remainder recorded in working capital.

As of September 2, 2023, the total debt outstanding related to borrowings under the syndicated revolving line of credit was $367.3 million with available borrowings against this facility of $343.8 million.

The Company intends to repatriate $142.8 million of undistributed foreign earnings all of which is held in cash in certain foreign jurisdictions with the remainder recorded in working capital.

The Company has recorded a $5.8 million deferred tax liability related to foreign withholding taxes on these future dividends received in the U.S.

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The Company intends to remain indefinitely reinvested in the remaining undistributed earnings outside the U.S.

which is estimated to be approximately $250.2 million on March 4, 2023.

which is estimated to be approximately $282.2 million on September 2, 2023.

The Company believes cash on hand, cash generated from operations, and borrowing capacity will provide adequate liquidity to fund near term and foreseeable future business operations, capital needs, future dividends and share repurchases, subject to financing availability in the marketplace.

1 unchanged sentence

Contractual obligations associated with ongoing business and financing activities will require cash payments in future periods.

A table summarizing the amounts and estimated timing of these future cash payments as of May 28, 2022 was provided in the Company's Annual Report on Form 10-K for the year ended May 28, 2022.

A table summarizing the amounts and estimated timing of these future cash payments as of June 3, 2023 was provided in the Company's Annual Report on Form 10-K for the year ended June 3, 2023.

There have been no material changes in such obligations since that date.

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The Company continually reviews the accounting policies and financial information disclosures.

A summary of the more significant accounting policies that require

the use of estimates and judgments in preparing the financial statements is provided in the Company's Annual Report on Form 10-K for the year ended May 28, 2022.

A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Company's Annual Report on Form 10-K for the year ended June 3, 2023.

New Accounting Standards

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general economic conditions;

the impact of and any related company or government policies and actions to protect the health and safety of individuals or government policies or actions to maintain the functioning of national or global economies, and the impact of public health crises, such as pandemics and epidemics;

the impact of any government policies and actions to protect the health and safety of individuals or to maintain the functioning of national or global economies, and the Company's response to any such policies and actions;

the impact of public health crises, such as pandemics and epidemics;

risks related to the additional debt incurred in connection with the Knoll acquisition;

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and the outcome of pending litigation or governmental audits or investigations.

For additional information about other factors that could cause actual results to differ materially from those described in the forward-looking statements, please refer to MillerKnoll’s periodic reports and other filings with the SEC, including the risk factors identified in our Annual Report on Form 10-K for the year ended May 28, 2022 .

The forward-looking statements included in this report are made only as of the date hereof.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis