Q1 2024 HNI Corp Earnings Call

Participants

Matthew McCall; VP of IR & Corporate Development; HNI Corp

Jeffrey Lorenger; Chairman of the Board, President, Chief Executive Officer; HNI Corp

Marshall Bridges; Chief Financial Officer, Senior Vice President; HNI Corp

Reuben Garner; Analyst; Benchmark Company LLC

Gregory Burns; Analyst; Sidoti & Company LLC

Budd Bugatch; Analyst; Water Tower Research LLC

Kathryn Thompson; Analyst; Thompson Research Group LLC

Presentation

Operator

I would thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation First Quarter Fiscal 2024 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again, I would now like to turn the conference over to Matt McCall. Please go ahead.

Matthew McCall

Good morning. My name is Matt McCall. I'm Vice President, Investor Relations and Corporate Development for HNI Corporation.
Thank you for joining us to discuss our first quarter fiscal 2024 results. With me today are Jeff Loranger, Chairman, President and CEO, and Marshall Bridges, Senior Vice President and CFO. Copies of our financial news release and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risk. Actual results could differ materially. Financial news release posted on our website includes additional factors that could affect actual results. The Corporation assumes no obligation to update any forward-looking statements made during the call.
I'm now pleased to turn the call over to Jeff Lawrence or Geoff.

Jeffrey Lorenger

That.
Good morning, and thank you for joining us during the first quarter, our team continued to build on the strong progress we have made over the past two years. We delivered earnings that were nearly triple the prior year period with operating margin and EPS reaching first quarter levels not seen since 2007. First quarter non-GAAP EPS of $0.37 was up 185% year over year. This was despite an 8% organic revenue decline, which was primarily driven by continued housing market softness. Our strong results continue to be fueled by our legacy Workplace Furnishings profit transformation plan and the inclusion of Kimball International, which combined to deliver the highest first quarter Workplace Furnishings operating profit margin since 2016.
At Residential Building Products, our recent cost actions helped support profitability despite a continued soft housing market. Longer term, we remain bullish about the prospects of the housing market broadly and our market-leading positions. Specifically overall, we started the year on a very strong note on the call today, I will highlight three key topics. First, our profit transformation actions continue to drive improvement in Workplace Furnishings. When excluding the benefits of Kimball International legacy Workplace Furnishings. non-GAAP operating margin expanded 560 basis points year over year. Looking forward, we expect profit growth and margin expansion to continue.
Second Kimball International delivered strong accretion. The addition of KI. is already providing significant value creation to our shareholders and there's more to come. We continue to expect annual cost synergies resulting from the combination with KI. to total $35 million when mature.
Third Residential Building Products posted solid profit despite ongoing housing market challenges. Recent cost reduction actions continue to support profitability and we expect revenue growth and margin expansion to return through the year. Following those highlights, Marshall will review our outlook. I will conclude with some general closing comments before we open the call to your questions.
Moving to the first topic, our profit transformation actions continue to drive improvement in Workplace Furnishings. As I mentioned, first quarter non-GAAP operating profit margin for legacy Workplace Furnishings improved 560 basis points year over year. That was the eighth straight quarter of year-over-year operating margin improvement in the segment, and there is more to come as we expect additional benefits from our profit transformation plan during 2024 and beyond.
As a reminder, our legacy Workplace Furnishings profit transformation plan consists of four primary actions. First we are driving increased productivity. Second, benefits from price, positive price cost are helping to drive improved profitability. Third, we have streamlined our cost structure. And finally, we continue to simplify our business. Some of these benefits of this plan are recognized in our results and have helped drive the recent strength in our margins. We also continue to see opportunity our operational investments primarily in our new facility in Mexico will help drive substantial productivity benefits as they mature over the next couple of years. This will add to our continued lean efforts and helped drive additional profit growth. Next, we expect continued net price cost benefit through the remainder of 2024 from pricing actions announced over the past 12 months.
Finally, the rollover benefits from our corporate-wide cost savings program will provide incremental profit support in 2024 all of this gives us line of sight to additional margin improvement. And as I said earlier, we expect year-over-year profit growth and margin expansion in Workplace Furnishings to continue in 2024 and beyond.
Let's shift to Workplace Furnishings demand. Our view of the market is mostly unchanged from our last call. First quarter organic revenue was down 2.5% year over year, consistent with our expectations. Smb again outperformed contract in the near term. Demand remains choppy, but is stable within a range.
Smb orders grew 1% year over year in the first quarter on top of an 18% increase in the first quarter of 2023, which was positively impacted by price increase timing. This segment of our business continues to benefit from healthy dynamics, including population shifts to markets outside the top 10 and relatively higher office usage in those markets. We expect these factors along with increasing preorder metrics to continue to support SMB. demand.
Switching to contract demand trends further improved in the quarter. Orders from contract customers were also up 1% in the first quarter on a year-over-year basis. The year-ago comp was also challenging and contract with first quarter 2023 order growth of 14%, which was also positively impacted by timing of price increases. The two year order trend is encouraging and is consistent with many of the other demand indicators our preorder activity and quoting remain elevated. Return to office metrics continue to tick up and reach post pandemic highs. In recent weeks, lease churn is expected to accelerate as tenants take advantage of attractive lease economics and non-viable office spaces repurpose and the need for companies to adapt their spaces for hybrid work will further support demand.
In summary, we continue to see encouraging trends related to future demand, particularly given our unique market position and overall market coverage. However, as we have communicated for several quarters, our profit transformation plan is not required. Volume growth volume growth will only enhance our profitability.
Moving to my second topic, Kimball International delivered strong accretion. KI. generated an operating profit margin of 9.3% and added an estimated $0.1 to non-GAAP EPS in the first quarter. We continue to expect annual cost synergies to reach $25 million in 2024, and total synergies are expected to reach $35 million when fully mature.
From a revenue perspective, Cai solidly outperformed the expectations we shared with you last quarter. The upside came from the hospitality segment. Hospitality has been performing well. However, entering the quarter, we had expected revenue recognition to be negatively impacted by shipping delays related to disruption in the Red Sea. Those delays did not materialize, which helped drive hospitality revenue above our expectations. We continue to be encouraged by the complementary nature and attractive post pandemic positioning of Sky's offerings. The addition of KI. is providing significant value creation. As we have highlighted, Kimball International is complementary from a product market and cultural perspective, cash strengthens our exposure to several important trends and markets, namely ancillary products, secondary geographies, health care and hospitality. Each provides new opportunities for profit growth and our confidence in the combination, strategic and financial benefits continues to prove out and accelerate.
My third topic, Residential Building Products posted solid profit despite ongoing housing challenges. Recent cost reduction actions continue to support profitability segment non-GAAP operating margin for the first quarter was 14.4%. This represents the seventh consecutive year with first quarter segment non-GAAP operating margin at or above 14%, and we were able to extend this level of performance in '24 despite a 17% year over year revenue decline as housing market weakness continued to pressure demand trends in the quarter. Let me provide some color on the first quarter revenue decline in residential building products first, the year-over-year rate has some noise in it. We are comparing against the prior year period that benefited from unwinding demand that had built up during the back half of 2022, our first quarter revenue and order growth rates are somewhat distorted due to that issue. Second, consistent with broader housing trends, R&R performed worse on a year-over-year basis than new construction. And third, the year-over-year revenue decrease was modestly worse than expected, primarily due to slower new construction, which was negatively impacted by weather early in the quarter and more recently by incrementally higher interest rates and inconsistent builder sentiment. Looking forward, year over year, single-family permits and starts are showing healthy growth, which supports new construction improvement going forward. In 2024 segment orders showed improvement consistent with the broader market indicators. In the first quarter, orders in new construction outperformed remodel retrofit with newbuild orders down only low single digits year over year despite some near-term headwinds, we are bullish on the intermediate to long-term dynamics for the business. In addition to the solid long-term market fundamentals, we have unique growth opportunities and content continue to invest in the areas of category awareness, new product innovation, online capabilities and the expansion of our wholly owned installing distributor footprint.
In summary, order trends in our Residential Building Products segment improved during the quarter and the intermediate to long-term demand dynamics continue to remain encouraging for this business.
Looking to the remainder of 2024, we expect growth and margin expansion to return through that through the year.
I will now turn the call over to Marshall to discuss our outlook for 2024 Marshall.

Marshall Bridges

Thanks, Jeff. Let's start with our demand outlook, we expect 2024 organic revenue and Workplace Furnishings to grow at a low single-digit rate year over year. Now that outlook is unchanged from what we communicated on our last call, we expect demand conditions to remain generally in line with those experienced over the last nine months, and we continue to expect demand will be choppy but stable in a range in residential building products. Revenue trends are expected to improve as the year progresses, with year-over-year growth returning in the second half. For the full year, Residential Building Products revenue is expected to be flat to slightly down versus 2023 levels.
All right.
Let's shift to our outlook for 2024 earnings. We expect full year EPS to strongly increase from 2023 levels, primarily due to continued margin expansion in Workplace Furnishings and the full year benefit of accretion from KI.
Looking at the second quarter of 2024, we expect earnings per share to solidly increase year over year. Again, we expect the benefit of Kimball International and continued profit transformation and legacy Workplace Furnishings to drive increase I would like to point out that we are now facing increasingly difficult year-ago comps as the second quarter of 2023 showed notable benefits from our profit transformation initiatives. We expect second quarter Workplace Furnishings organic revenue to be down slightly versus the same quarter of 2023.
Moving to Kimball International for the second quarter of 2024, we expect KI. to be accretive to non-GAAP EPS generally in line with first quarter results. KI. is expected to add $75 million to $80 million of incremental revenue to the second quarter. As a reminder, this is reflective of two months of incremental revenue as we anniversary the closing of the transaction in June.
Finally, residential building products year over year declines are expected to moderate with second quarter revenue down in the low single digits versus a year ago period. This reflects new construction growth and moderating declines in R&R.
Shifting to the balance sheet, we maintained our strong financial position. Our gross leverage ratio of 1.9 times remained below two times for the second straight quarter as higher profit offset a modest seasonal increase in debt. Looking forward, we expect to modestly reduce leverage and improve our already strong balance sheet over the rest of the year. In addition, during the quarter, we accelerated our share repurchase activity. While the total outlay during the quarter was modest, our ability to hold leverage steady while deploying cash speaks to our strong cash flow characteristics. Our low leverage and consistent cash flow generation provides substantial financial flexibility and ample capacity for capital deployment. Our current priorities for cash deployment remain reinvesting in the business, funding dividends and pursuing share buybacks and M&A opportunities.
All right. I'll now turn the call back over to Jeff.

Jeffrey Lorenger

Thanks, Marshall. We have an excellent start to 2024 as our strategies continue to deliver outstanding earnings growth. We are committed to expanding margins in Workplace Furnishings and driving long-term revenue growth and residential building products. Our results to begin 2024 reflect the dedication of our member owners, the strength of our business model and our ability to manage through all parts of the economic cycle, and we anticipate another strong year in 2024. We will now open the call to your questions.

Question and Answer Session

Operator

As a reminder, if you ask a question, please press star followed by the number one on your telephone keypad. Our first question will come from the line of Reuben Garner with The Benchmark Company. Please go ahead.

Reuben Garner

Thank you.
Good morning, everybody.

Jeffrey Lorenger

Good morning.

Reuben Garner

So maybe just start with the big picture question on earnings or margin performance. The last three or four quarters has been pretty remarkable on. Can you you mentioned difficult comps, Marshall, kind of starting in the second quarter. Can you talk about what what's left to go in terms of what you control in terms of earnings expansion as the year progresses and into next year?

Marshall Bridges

Yes, Reuben, I think we still have the same primary drivers, productivity, cost control in the SG&A line. And of course, price cost is just that all of those up against stronger comps. So in particular, our price cost is going to taper off here or there was a decent benefit in the first quarter.
We still expect it will be a benefit for the remainder of the year, just less so.

Jeffrey Lorenger

everyone I'd just add that, you know, the marginal hit it. I mean, really, we got our lean efforts both in both segments, both businesses, labor flow materials. We're seeing early benefits from our investments in mainly Mexico, Mexico and the Workplace Furnishings side and Amerigon's procurements savings as well on. So we've probably pumped in about $30 million to $35 million of benefit in '24. But I think as you look out past '24, I think I'd anticipate another $30 million or so on top of the '24 number.

Marshall Bridges

And that $30 million would be from the Mexico investment as well as synergies from KI. We have our usual lean efforts on top of that that's after this year, just to clarify.

Reuben Garner

Okay.
That's helpful. And then I guess on the Building Products side, anything in terms of the size of homes or affordability that concerns you or signs that you've seen or where we might be running into headwinds on the number of fireplaces per home? Or do you guys have an offering at that price points that kind of offset it if affordability for the builders and the homebuyers becomes a bigger issue?

Jeffrey Lorenger

Yes, that's good question. I mean, affordability has been an issue for a while now. And so we watch that and we will our product pipe accounts for that.
The other thing I would talk about is we got some newer units in the electric category that are that really address some of that as well that we've got a lot a lot of innovation going there. So So no, I don't see the headwinds being any more than they've been candid with last couple of years.

Reuben Garner

Okay.
And last last one for me. Rates moving up again here of late on your conversations, I guess specifically in the SMB side, it doesn't sound like the outlook has changed a lot. Any and any risk to that or you think the other drivers are more than offsetting it on a go-forward basis?

Jeffrey Lorenger

Yes. I think look, it's a '24 is an interesting time given given kind of the economic cycle and election year. But for the most part, we see that business and the drivers holding pretty solid on, I would say that you know, the orders in most of those. What we look at are most of those areas are running running at where we band or slightly up.

Marshall Bridges

Yes.
I mean that's a business that's done pretty well for the last several quarters, and we're still seeing growth on top of those. Strong comps were pretty pretty I feel pretty good about it. I think the encouraging thing is we're starting to see contract converge with that growth. So contract orders were up in the first quarter and we're expecting some reasonable growth in the second half from both contract and SMB.

Reuben Garner

Great.
Thanks for the color, guys, and congrats on the strong quarter and good luck going forward.

Jeffrey Lorenger

Thank you.

Operator

Your next question will come from the line of Greg Burns with Sidoti & Company. Please go ahead.

Gregory Burns

Morning.
On the dynamic you -- (multiple speakers) with that with Kimbell impacting revenue recognition, I guess there this quarter was that pulled forward and I'm just trying to gauge like are you are you expecting, I guess, your guide for the second quarter lower than it would have been otherwise like I'm sure kind of gauge if this is like the normal seasonality that you're expecting for the business going forward? Or if this is just timing issue with some of this these orders you were expecting to shift around?

Marshall Bridges

Yes, it's a timing issue and it did pull from the second quarter. So if you look at our guide for the incremental revenue from KI., it's pretty much the same as it was last quarter, but we got more of it in the first quarter, and that's a business that is project oriented. So there's not necessarily seasonality to it just it just depends on when the timing of those projects occur.

Gregory Burns

Okay.
And then what's the split of your revenue now on the Building Products side between new construction and remodel retrofit does that change much?

Marshall Bridges

It hasn't changed much. It's very close to 50-50.
Yes, certainly with the remodel retrofit being down more than new construction, maybe a tad more new construction right now, but it's close enough to 50-50 to not change that ratio.

Gregory Burns

Okay.
And then I guess you kind of touched on this, but it seems like you're contract side of the businesses seems to be showing some more activity from a U.S. Maybe can you just talk about what you're seeing in terms of funnel activity there, conversations with your customers any more color you have there? Do you feel better about that side of the business and see maybe a improving demand outlook there?

Jeffrey Lorenger

Yes, Greg, I think that's that's how I would characterize it. Current trends we think are our funnel. Our quoting or preorder activity is solid. It's actually we've got double digit growth rates in all those preorders. Our preorder metrics on. What I would say is that we've got some segments that are showing some pretty decent activity, both project pipe, Fed, Gov, corporate accounts in that space as well. Now having said all that, what I would say is and I think it's going to be a slow, steady grind up on. It's not a, you know, to the moon. I think it's but the good news is those those Prodomax, those are starting to convert and we're having those. Those preorder metrics are on are up nicely. And I think the cycles are really long dated. So it's just going to kind of be a slow, steady grind, but it does predict, you know, the outlook will be will be growth in the contract space as we go forward.

Gregory Burns

Okay. Thank you.

Operator

Your next question will come from the line of Budd Bugatch with Water Tower Research. Please go ahead.

Budd Bugatch

Good morning, Jeff.
Good morning, Marshall and Matt. And Jay, but congratulations on the performance in the quarter. Very, very heartening on Jack, you talked about those four items. And I think, Marshall, it's true of stress that price cost was important during this quarter and still remains positive, but busy but less so going forward.
Can you talk about which rank of the other three in terms of importance in this quarter and what's left to get on in terms of productivity?
Streamlining costs are simplifying?

Marshall Bridges

Yes, but in the first quarter, we had about $14 million of favorable price cost and that was that was the biggest item, but very close. Second is productivity, which is about $12 million of benefit year over year. The actual SG&A cost was smaller than that moving forward. It's about productivity. Price cost is still going to be positive, as I mentioned, the rest of the year. That meant less so in productivity ramps up. So as Jeff mentioned, we're expecting around $35 million incremental net productivity, a benefit year over year and compare that to maybe price cost of the year of [$15 to $20, $14], which was already in the first quarter.

Budd Bugatch

Okay. And by the end of the year, where do you think government the legacy HNI Workplace Furnishings margins will be and what's still the goal?
It still goes double digits.

Marshall Bridges

Look, our goal is more ambitious than double digit, but we'll we may not quite get there this year, but we're we're certainly trying and expect to see margin expansion going forward.

Budd Bugatch

Okay. On I'm going to ask you to pick the final word forming and that word is solidly, which is an adjective. You used to describe the performance in the second quarter, you're up put some framework on Avon solidly.

Marshall Bridges

Gas, but that's a tricky one.

Budd Bugatch

Some of you know it.
All right here, Margaret, you know, that kind of.

Marshall Bridges

Yes, I'm not sure we got a lot of color for you on that when the split maybe point to, but is the I think the consensus estimates for the second quarter is a like $0.64. And so I think that would be up solidly versus the prior year to kind of give some color to it.

Budd Bugatch

Okay. Well, let's take that check and it takes you a different way. Do we get to the normal earnings per shares seasonality performance of maybe one-third, two-thirds or [30%, 70%] for the first half, second half, was that you're thinking?

Marshall Bridges

Yes, that's exactly what we're thinking that that 70% ,30% one-third, two-thirds range is right on.

Budd Bugatch

Okay. That's very helpful. On in Residential Building Products, I'm curious, everybody here pretty much said business is a little punk, but we're optimistic going forward. And I'm trying to understand the reasons for the optimism and where are you seeing that are you seeing it in in orders? Is the order book come so solid, giving you that improvement.

Jeffrey Lorenger

But what I would say is on the new construction side, if you look at our Q1 orders, we were down low single digits, and that's now flipped to a positive order growth rate in the new construction side. So that's probably what we're talking about but even even if you talk about R&R, you know, the decline was in the low 20s in the order book, but it's now that decline is moderating. So it's some you know that's signed. That's a sign of some optimism as we as we go out throughout the year and '24 on the RVP side.

Marshall Bridges

Maybe just to add to that, the the first quarter rates. I think Jeff mentioned this in his prepared comments, are kind of distorted. So I don't they don't provide a very good look through of what like the next quarter's revenue would be because of all the noise in the prior comp. So maybe that helps a bit too collection.

Budd Bugatch

And for me, I just want to make sure I understand something I'm very happy and I am delighted to hear that you're seeing improvement in contract and I've had no problem with the thought that it was going to grind forward until about sometime middle part of last week when the ABI. came out and hit me in the face with a pretty sizable drop on. And that always is a worrisome issue, and this is dissuade me of that insurance.

Marshall Bridges

But I think that the drivers in contract are mix. There's a there's a lot of reasons to believe we're going to see some good growth in our pure metrics are up. Certainly the adoption of hybrid and people moving space, taking advantage of attractive lease rates, create furniture events. Those are all good but then there's things like you just mentioned, ideas down. People are worried, rates are up. So that's why we kind of think it mixes together to be a kind of a slow grind up. And so that's where we're at. We're not thinking we're seeing dramatically high growth in the back half, but maybe something in a small, mid-single digits in the back half year over year for contracts.

Jeffrey Lorenger

Yes, but it is clearly still choppy out there on all those factors Marshall just mentioned, but a slight as you kind of snap a line on this, we see it just slightly ticking up, which which is which is great news for us because we're able to kind of deliver expanded margins without that. And once that volume growth, even even a couple of points comes that that's going to lever through pretty good for us.

Budd Bugatch

And I lied, I do have one more question on that $75 million to $80 million of increment incremental Kimbell revenues. Is that above the $50 million or $52 million or $56 million that you reported in the second quarter of '23?

Marshall Bridges

Kind of credit.
Yes, yes, correct. But that's incremental versus last year. So that's not their total revenue for the quarter. That's just the incremental year over year.

Budd Bugatch

So it will be in that $135 million to $140 million range is your best guess now?

Marshall Bridges

Correct.

Budd Bugatch

Okay, Marshall, thank you very much and Jeff fire and team.
Congratulations on a really, as you would say, solid quarter, it will have a face.

Operator

But your next question comes from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.

Kathryn Thompson

Thank you for taking my questions today. And following up on the nonres end market in the ABI., our primary research and feedback from the field pace a little bit different picture than the ABI. large commercial contractors are sharing with us is that mega projects and some projects simply aren't being captured by the ABS, which I guess leads to the question of as you look at mega projects in what ways does and HNI participate and in what ways are ways that you can win.

Marshall Bridges

Catherine, good question. Just to just to clarify, you're referring to Workplace Furnishings and how we will participate in large projects there.

Jeffrey Lorenger

Korea capital, I mean, we yes, yes, we participate strongly in those projects. We have we have corporate account sales teams, we've got dealers that are that are well positioned and we have a lot of activity in that space. You know, when I and I tend to agree with you. There is activity that that people have been on the sidelines for quite some time. And a lot of people now have kicked the can and the leases can't be kicked anymore. And so people are starting to get active in that space. And so we have exposure to that space. We always have we talk about S. and D. a lot because we're kind of uniquely positioned there. But where we're clearly positioned in the top 10 markets for those mega projects as well and and routinely, um, you know, have those in our funnel and you know, track them. And I would say that there is there is more dialogue on on those types of events than there has been last couple of years.

Kathryn Thompson

Yeah, following an on-treatment scan on the commercial contractor space.
Historically, HNI has been focused on middle America, whereas the Coast have been for from some of your peers and trend to this relative strength and with population shift, it's been much talked about Southeast and Southwest. A lot of it still is in middle America, but it's just kind of shifted U.S. South. As you look at growth at growth in these big cities, are you able to capture your fair share and the southern half of Middle America? Is it versus just kind of for the Midwestern portions of the U.S. I hope that question makes sense. It's just mainly about capturing your fair share where that population shift is going.

Marshall Bridges

Yes, just maybe to clarify, we participate broadly through the U.S. We were in large cities were large coastal cities. We have good share in those cities.
So I just want to make sure that don't get the impression that we're just adjusting the Midwest, that's definitely the case were brought --

Kathryn Thompson

on Walmart, no pressure right now are always my own money like more town, Manhattan parcels, Paccar and that that type of Miami versus Nashville?

Marshall Bridges

Right. I think we look a lot like the US employment base where it is spread out. And of course, we've got our unique position in the non-top 10 markets where we really have very strong position. But that's not to say we're not also participate in larger markets. And I think, hey, I better positions us for that population shift as well as the product shift that's going on. So we feel pretty good about they'll catch the growth that is out there, Katherine.

Jeffrey Lorenger

Yes, absolutely. I think I think come we kind of have been sitting in a neutral in some of these larger markets like a lot of people have been because the clients have been sitting in neutral. So as I just commented, those those are starting those engines are starting to warm up a bit. And we like that. We like the population migration and you know, we see a high margins that only strengthens that because the secondary geographies, the product breadth and depth of price points, the product mixing that's going on for flexibility. It all allows us to capture our fair share, if not more than our fair share in those markets.

Kathryn Thompson

Okay, great.
And then a final question for the day. I'm Temple is given some great detail on the call today and in the Q&A, it clearly made some solid progress from a margin step-up expansion standpoint. But stepping back and look at the forest for the trees as we come to the anniversary of that deal. Part of that, a two or three things that have been upside to you that may be learned after to acquire a company that gives you hope and optimism for the future?

Jeffrey Lorenger

Yes, Catherine, I would say I kind of said that in my in my opening remarks, I would say, you know, the product application that they have the exposure, we like that. But I think that's probably stronger than we even imagined on the hospitality space, which, you know, we didn't know a lot about but is it's been a nice surprise and upside. And in health care, we didn't have a lot of exposure to health care and they have a they have a nice piece of healthcare business as well. That has has really added. And then you wrap all of that in what I say is the real super ingredient is the cultural fit. The deals tend to turn on, you know, culture and people. And if you stack that and wrap that around the three things I just mentioned and it's all been, you know, A plus plus we knew was a plus, but it's been a plus plus from my perspective.

Kathryn Thompson

Perfect. Thanks for that base.

Operator

And there are no further questions at this time. I'll turn the call back over to Mr. Laurent <unk> for any closing remarks.

Jeffrey Lorenger

Thank you.
Thank you for your interest in HNI, and thanks, everybody taking the time to join us on this Monday morning every day.

Operator

That will conclude our call for today. Thank you all for joining. You may now disconnect.