HNI (HNI) Q4 2025 Earnings Call Transcript

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DATE

Wednesday, Feb. 25, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer — Jeffrey D. Lorenger
• Executive Vice President and Chief Financial Officer — Vincent Paul Berger

TAKEAWAYS

• Non-GAAP EPS (legacy business) -- $3.74 for the full year, up 22% with an average annual growth rate exceeding 15% over the past four years.
• Total Net Sales -- Increased 12% for the year, with 6% organic growth, excluding Steelcase impact.
• Adjusted Operating Margin -- Expanded 80 basis points year over year to 9.4%, driven by volume gains, productivity, Kimball International synergies, and price/cost benefits.
• Workplace Furnishings Organic Sales -- Rose 6% for the year, helped by contract brand strength and an additional week in the fiscal period.
• Workplace Furnishings Non-GAAP Operating Margin -- Expanded 100 basis points to 10.5%, meeting the double-digit margin target.
• Residential Building Products Segment Revenue -- Grew nearly 6% for the year, with fourth quarter up more than 10%; remodel/retrofit volume grew double digits, balancing flat new construction revenue.
• Residential Building Products Non-GAAP Operating Profit Margin -- Increased 60 basis points to 18.1% for the full year.
• Steelcase Acquisition -- Closed December 10, resulting in consolidated revenue exceeding $5.8 billion on a pro forma basis, with expected total adjusted EBITDA near $750 million and annual free cash flow around $350 million.
• Synergy Targets -- $120 million projected, focused on Americas, with $1.20 per share full synergy accretion; management stated, "the expected timing and magnitude of our projected $120 million of synergies and $1.20 of accretion are unchanged and unimpacted by the stub period."
• Steelcase Q4 Standalone Performance -- Revenue up approximately 5%; earnings up about 9% year over year, excluding purchase accounting and transaction costs.
• 2026 Outlook for Non-GAAP EPS -- Expected to see fifth consecutive year of double-digit growth, off the $3.53 base (excluding purchase accounting), per Vincent Paul Berger: "the double-digit growth for 2026 would be off of...$3.53."
• 2026 Consolidated Net Sales Guidance -- Anticipated to increase by more than 130% due to Steelcase consolidation.
• Interest, Tax, and D&A Guidance -- 2026 interest expense expected at $75 million-$80 million, tax rate about 25%, with depreciation and amortization of $175 million-$180 million.
• Network Optimization Benefits -- Expected to deliver $0.25-$0.30 in EPS over next three years, including $0.10 in 2026, based on plant closures and ongoing efficiency programs.
• Balance Sheet Leverage -- Net debt to EBITDA ended at 2.0x; projected to return to pre-acquisition levels of 1.0x-1.5x within 18 to 24 months via cash flow.

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RISKS

• Management expects "continued new construction weakness in 2026" for Residential Building Products due to high interest rates, elevated prices, and low affordability, which may restrict segment growth.
• First quarter 2026 projected to experience earnings pressure "driven by revenue and expense recognition timing and the increased investment," with margin improvement expected to resume in later quarters.
• "Modest year-over-year revenue pressure in Workplace is expected to be limited to the first quarter," signaling a potentially soft start before projected acceleration.
• Management cited that "While new supply of office space will remain a headwind," despite improved office activity.

SUMMARY

Management provided clear quantitative and segment-level operating performance, reporting a fourth consecutive year of double-digit non-GAAP EPS growth and material margin expansion in both major business units. The Steelcase acquisition closed with only a three-week "stub" period consolidated, but pro forma projections anticipate significant increases in scale, EBITDA, and free cash flow, while integrating $120 million of targeted synergies. Multi-year network optimization initiatives, including facility closures, are expected to support additional EPS gains over the next three years, with identified near-term impact in 2026. Stringent balance sheet guidance was reaffirmed, and cash flow projections show leverage returning to pre-deal ratios over 18-24 months.

• Management expects 2026 non-GAAP EPS growth to be calculated from a base of $3.53, explicitly excluding purchase accounting adjustments.
• Segment guidance indicates Workplace Furnishings revenue projected to grow at a "mid-single digits" pace for 2026 after a timing-related first quarter softness.
• Residential Building Products revenue is guided for "low single digits" growth with stable operating margins despite weak new construction trends.
• Front-end investments, particularly in Residential Building Products, are generating share gains evidenced by double-digit remodel/retrofit growth and increased market presence in new and retail channels.
• Management noted that no material changes are planned for dealer partnerships, sales force, or brand distribution post-Steelcase integration to preserve business continuity.

INDUSTRY GLOSSARY

• Stub Period: The partial period of financial consolidation following a transaction, here referencing the three weeks in December after the Steelcase acquisition that were included in HNI Corporation's reported results.
• KII Synergies: Cost and efficiency gains from the 2023 acquisition and integration of Kimball International, Inc.
• LIRA: Leading Indicator of Remodeling Activity, an industry projection referenced for modeling U.S. residential remodel/retrofit market growth.
• FHH: HNI Corporation's segment or subsidiary referenced as part of their large installing distributor network (exact acronym usage not defined in call; context suggests business unit or platform).

Full Conference Call Transcript

Jeffrey D. Lorenger: Good morning, and thank you for joining us. 2025 was a seminal year for HNI Corporation. Our members delivered excellent results, as we reported a fourth straight year of double-digit non-GAAP EPS growth despite persistent soft and uncertain macro conditions. The positive momentum of our strategies, the benefits of our diversified revenue streams, our ongoing focus on items within our control, and the merits of our customer-first business model continued to deliver strong shareholder value. And late in the year, we completed the acquisition of Steelcase. This combination will not only transform our company, but also the workplace furnishings industry.

On today’s call, we will review our fourth quarter and full year 2025 results, and provide some commentary around our expectations for 2026 and beyond, including the benefits of the Steelcase acquisition.

Before I discuss our recent performance, I want to reflect on the fundamental improvements we have driven at HNI Corporation. Our transformation has taken multiple steps and years. I will begin with Workplace Furnishings where margins have been reset. Three years ago, our legacy Workplace Furnishings business launched a profitability improvement initiative that was instrumental in expanding operating margin nearly 1,000 basis points. In 2023, price/cost recovery following the period of elevated inflation drove the first phase of expansion. Since then, multiple portfolio management moves, ongoing network optimization efforts, KII synergies, and the benefits of ramping our Mexico facility have supported consistent profitability improvement.

Based on the initiatives already underway, including the recently announced plans to close our Wayland, New York manufacturing facility, we have line of sight to continued operating margin expansion in the coming years. And our margin expansion story is increasingly supported by a firming macroeconomic picture in our Workplace Furnishings segment. I will provide more macro commentary later in the call.

Shifting to our Residential Building Products segment, our evolution started with the strategic shifts following the Great Financial Crisis. Since then, we have adjusted our cost structure, fully embraced lean manufacturing, and continue to pursue a vertically integrated business model with the leading brands in all product categories. The result was more than 1,000 basis points of operating margin expansion over the decade post-2009. In addition, since 2019, the efficiency, nimbleness, and uniqueness of our Building Products business have supported consistently strong profitability with sustained operating margins in the mid- to high-teens. This consistency of both margins and cash flow are foundational elements to HNI Corporation’s financial strength.

We expect this profitability and cash generation to continue into 2026 and beyond.

More recently, our focus in Residential Building Products has shifted to the front end of the business and on driving top-line growth. Structural changes have been implemented to organize around the customer and ensure we have laser-focused go-to-market strategies to support our growth initiatives. These front-end investments are paying off in the absence of cyclical support. In 2025, we reported segment revenue growth of 6% despite continued weakness in the new home market. We expect to outperform again in 2026.

This historical context helps set the stage as we enter the next exciting chapter of the HNI Corporation story. The acquisition of Steelcase unites two industry leaders to meet the dynamic marketplace’s evolving needs of the workplace and accelerating in-office work trends. We have brought together two highly respected companies with shared values, talented teams, strong financial profiles, and highly complementary capabilities—innovation, thought leadership, and operational excellence chief among them. This strong foundation, combined with expected synergies, will accelerate our ability to invest in long-term operational enhancements, digital transformation, customer-centered buying experiences, and products to meet evolving customer needs. Our integration efforts are underway and we are leveraging a disciplined and proven approach informed by recent experience, while continuing to build on the iconic brands for which both companies are widely respected. HNI Corporation will now have total revenue of more than $5.8 billion. Including all synergies, total adjusted EBITDA will be nearly $750 million, and annual free cash flow will be approximately $350 million. We are now the market leader in both of our industries: Workplace Furnishings and Hearth Products.

I can report that the integration of the Steelcase acquisition is off to a strong start. Six months following the announcement, I am even more confident in our move to add Steelcase to the HNI Corporation family. The complementary go-to-market nature of the two businesses—from a capability, product, brand, customer, and cultural perspective—has been reinforced as we have begun to work together. We also remain confident in our ability to deliver the targeted synergies of $120 million and drive margin expansion at Steelcase. Our current synergy projections are focused on the Americas business and do not include any revenue synergies. And importantly, we are laser focused on minimizing any front-end disruption across our Workplace Furnishings businesses.

As we have consistently stated, there are no plans to change dealer partnerships, sales forces, or brand distribution. And as I have been traveling and engaging with our teams, it is clear that this continuity is being received positively by customers, industry influencers, and our dealers.

Now I will turn the call over to Vincent Paul Berger to provide some additional detail about 2025, discuss our outlook for 2026, and give some thoughts on how we see the full year playing out. I will then provide a longer-term perspective on the opportunities surrounding our businesses before we open the call to your questions. VP?

Vincent Paul Berger: Thanks, Jeff. I will start with some additional comments about 2025. Fiscal 2025 non-GAAP diluted earnings per share for our legacy business were $3.74, which increased 22% from 2024 levels. Again, this was our fourth consecutive year of double-digit earnings growth, with the average annual growth rate exceeding 15%. Total net sales for the year increased 12% overall and 6% on an organic basis. Excluding all impacts from Steelcase, full year adjusted operating margin for HNI Corporation expanded 80 basis points, reaching 9.4%. The improvement was driven by volume growth, productivity gains, Kimball International synergy capture, and price/cost benefits.

From a segment perspective, in our legacy Workplace Furnishings business, full year organic net sales increased 6% year over year, fueled primarily by the strength of our contract brands and the benefit of an extra week in fiscal 2025. Full year profitability, excluding the Steelcase stub period, benefited from volume growth; our profit transformational efforts; KII synergy capture; and while we continued to invest in future growth initiatives. Full year non-GAAP operating profit margin expanded 100 basis points year over year to 10.5%, as we delivered on our previously stated goal of achieving double-digit operating margin. Non-GAAP operating margin has expanded nearly 900 basis points over the past three years.

Looking ahead, we expect revenue growth and margin expansion in our legacy Workplace Furnishings business for the full year 2026, even as we continue to invest to drive growth.

In Residential Building Products, fourth quarter revenue grew more than 10% versus the same period of 2024, driven by the strength in the remodel/retrofit market and the benefits of the extra week. For the full year, revenue increased nearly 6% versus 2024. New construction revenue was flat, with the remodel/retrofit up at a double-digit pace with solid volume improvement. Segment non-GAAP operating profit margin in 2025 expanded 60 basis points year over year to a strong 18.1%. We remain encouraged about the long-term opportunities tied to the broader housing market, and we continue to invest and grow our operating model and revenue streams.

As we look to 2026, we expect modest segment revenue and profit growth despite ongoing challenges in the new construction market.

Overall, as Jeff mentioned, 2025 was an outstanding year for HNI Corporation. Before I move to our outlook, a couple comments about Steelcase impact on the quarter. We completed the acquisition of Steelcase on December 10. Thus, we consolidated Steelcase’s performance for the final three weeks of December into our reported results. December is a lower shipment and production period for our industries. Consequently, that stub period included seasonally lower levels of daily shipment activity, which were more than offset by the recognition of full costs and expenses for the period. We excluded this impact from our adjusted results as it does not provide any fundamental insight into our performance.

And as Jeff mentioned, the expected timing and magnitude of our projected $120 million of synergies and $1.20 of accretion are unchanged and unimpacted by the stub period. For the fourth calendar quarter, Steelcase generated strong results. Revenue grew approximately 5% year over year, and earnings grew about 9% from the fourth quarter 2024 levels, absent purchase accounting, restructuring, and acquisition-related costs.

Now I will transition to our outlook. For 2026, as Jeff mentioned, we expect a fifth year of double-digit non-GAAP EPS growth. Revenue growth is expected to continue while we drive bottom-line improvement. In addition, our network optimization efforts continue to support our ongoing earnings visibility story we have been discussing with you. Our favorable fourth quarter 2025 results included accelerating the benefits of these efforts. Looking forward, these initiatives—including KII synergies, the ramp-up of our Mexico facility, the closure of Hickory, and the planned closure of Wayland—are expected to yield an incremental $0.25 to $0.30 over the next three years. Approximately $0.10 of this will be recognized in 2026.

Finally, we now are expecting modest EPS accretion from Steelcase in 2026, excluding the impact of purchase accounting.

Finally, a few additional comments to assist you with your 2026 modeling. Combined, depreciation and amortization are expected to be approximately $175 million to $180 million. Interest expense is expected to be between $75 million and $80 million, and our tax rate should be approximately 25%. For 2026, we expect total net sales to increase by more than 130% year over year. Non-GAAP EPS is expected to decrease slightly from 2025 levels temporarily. First quarter earnings pressure is expected to be driven by revenue and expense recognition timing and the increased investment. Modest year-over-year revenue pressure in Workplace is expected to be limited to the first quarter, and we expect mid-single digits for the full year.

Building Products revenue is expected to be up low single digits for the first quarter and the full year. And we expect year-over-year adjusted earnings per share to return in the second quarter and accelerate as the year progresses.

Finally, a comment on cash flow and the balance sheet. Post the closing of the Steelcase acquisition, our balance sheet ended the year with a net debt to EBITDA ratio of 2x. We expect our cash flow strength to continue and accelerate with the addition of Steelcase. As a result, leverage is expected to return to pre-deal levels in the 1.0x to 1.5x range in the next 18 to 24 months. Finally, we remain committed to payment of our long-standing dividend and continue to invest in the business to drive future growth. I will now turn the call back over to Jeff for some long-term thoughts and closing comments.

Jeffrey D. Lorenger: Thanks, VP. Our fourth quarter and 2025 results demonstrate the strength of our strategies, and our ability to manage through uncertain macroeconomic conditions while we remain focused on investing for the future. We expect strong results to continue in 2026, driven by our margin expansion efforts, synergy recognition, and continued revenue growth. As we look forward, the timing was right for the acquisition of Steelcase from a strategic, financial, and cyclical perspective. We are increasingly bullish about the Workplace Furnishings demand dynamics as the macroeconomic picture continues to firm, which return to office continues to be a positive driver of activity, with levels of remote work expected to continue to fall in 2026.

Office leasing activity established a new post-pandemic high in the fourth quarter, with annual leasing activity up more than 5% for the full year 2025, and net absorption of office space, which has historically been a leading indicator of future industry demand, was meaningfully positive in 2025. In fact, GLL believes a new expansionary cycle in the office space has begun. While new supply of office space will remain a headwind, we see multiple cyclical drivers of growth outside of new construction.

Moving to housing, headlines continue to point to ongoing softness, especially in the new build space. Interest rates remain relatively elevated, prices remain high, and affordability remains low. As a result, we expect continued new construction weakness in 2026. However, our structural changes and growth investments should allow us to continue to outperform the market. In remodel/retrofit, we are assuming modest growth in 2026. This is consistent with the LIRA projections. In addition, we expect continued market outperformance in our R&R business. And importantly, we expect ongoing margin and cash flow consistency in this segment.

Finally, our optimism continues to build around the addition of Steelcase to the HNI Corporation family. As I stated earlier, we are confident in our projected synergies of $120 million and accretion of $1.20. And as VP mentioned, we now expect modest accretion in 2026. We entered 2026 a transformed and fundamentally stronger organization. Upon recognition of all targeted synergies, the profile of HNI Corporation will include substantially higher earnings, stronger margins, greater cash flow, and a continued strong balance sheet. This will enable us to deliver exceptional value to our shareholders, customers, dealers, members, and communities. Thank you again for joining us. We will now open the call to your questions.

Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Reuben Garner with The Benchmark Company. Your line is now open. Please go ahead.

Reuben Garner: Thank you. Good morning, guys. Morning. Maybe to start, just the clarification about the outlook for the year, given the stub period and your efforts to show what the underlying business did in the fourth quarter. Are the revenue and double-digit earnings growth comments for next year off of the base without Steelcase or the base with Steelcase?

Vincent Paul Berger: Perfect, Reuben. I will walk through the pieces. So if you look at the, on the face of the $3.46, that is including the Steelcase stub, as well as all the purchase accounting, which is close to $4.6 million a headwind. If you take out the purchase accounting, it is $3.53. That is what you are going to want to compare to for the future years because that is what ran through the P&L. And that specific number is going to actually be up 16% if you talk about the growth. And then if you look at the $3.74, that is excluding purchase accounting and the Steelcase stub period.

Reuben Garner: And the double-digit growth for 2026 would be off of which one of those three numbers?

Vincent Paul Berger: $3.53.

Reuben Garner: Perfect. Okay. And then your comments about Workplace Furnishings in the first quarter, I do not think I heard you mention weather. You know, just seeing what is happening in some of the major cities in the Northeast and knowing that New York in particular is playing a role in the recovery, is that driving the kind of flattish, I think you said, first quarter? And what gives you confidence about the acceleration that you are expecting as the year progresses in the mid-single-digit full year guide? Is there any kind of backlog or order numbers from Steelcase and HNI Corporation legacy that gives you confidence in a pretty meaningful acceleration as the year moves on?

Vincent Paul Berger: Yeah, Reuben. That is a good question. I mean, weather can always impact. We do not really hang our hat on that. I think it probably has some impact. It has been a little choppy, even in the fireplace business, the hearth business, because they are outside and getting the homes to install. So there is a little pent-up there probably and a little headwind. But the bottom line is both when you look at legacy and Steelcase, we have got really strong, healthy activity, bid counts, both number and dollars, particularly in the contract side, are in the high teens.

The funnel, our funnel metrics are up in count and in dollars, and particularly in large projects over $5 million. And I would say these are consistent across what I would call both legacy and the Steelcase business. You look at it, and that is what is driving our confidence, in addition to the macro topics that I talked about firming up on office and net absorption, things like that. So you have got that going on macro, and micro internally, we see these bid numbers and presale activity numbers all trending nicely positive.

Reuben Garner: And then, Jeff, you have had a little over sixty days, I think, if my math is right, since the deal closed, that you have been able to get in and meet with people, see how they do things. What have you learned? What has surprised you to the upside or downside? What opportunities do you think you have developed or seen over the last couple of months?

Jeffrey D. Lorenger: Yeah. It is a good question, Reuben. I spent a lot of time with the teams in Grand Rapids and a lot of time in the market. And I would say, first of all, confidence continues to grow on why we did this transaction. If you look at the customer reach and the complementary nature of the brands and the geographies, go to markets, the talented teams are working well together. We are out of the gates quick. And then I would tell you the positive response we have seen from customers, dealers, Salesforce, influencers—basically, people in the value chain—as I have been out in the market and talked to them, are very positive on this combination.

And so that has been a real, I mean, we predicted that to be the case, but actually going to talk to customers in their locations and hearing the questions they ask and the enthusiasm they have shown for this, it has been really strong.

Reuben Garner: Alright. Thanks. And I am going to sneak one more in. I am not going to count that first one as the full question. So, the Building Products space, your outlook for low single-digit growth is super encouraging, very impressive given how you performed in 2025. It looked like you changed some things up about how you are selling or displaying the product down at the builder show a couple weeks ago. I guess talk about what is driving your outperformance of the industry. There are not a lot of categories in building products talking about even flattish volume environments for this year.

So for you guys to do it on top of what you did in 2025, something has to be working for you. Can you dig into what you are doing there?

Jeffrey D. Lorenger: Yeah. Well, the VP can comment on this as well. I think we started to talk about this a while ago, Reuben, which is really getting closer to the builders and the customer, engaging in the market, being laser focused on what we can bring to the table for our customers. And it is early days, but it is being really well received. We have got a great product lineup. We hit all price points, all fuel types. And as we get in and engage more specifically from a manufacturer side, alongside our industry best-in-class distribution partners, the two things are really starting to have an impact.

And combine that with the service model that we have in our large installing distributors—independent and our FHH—you know, what I would tell you is it is moving the needle. And so we have got a good product pipe, talking about in the electric category. And all these things are really starting to catch hold. And I think that is really what is going on. I mean, it is nothing more than really customer-intimate focus where customers want to be met, whether it be in the R&R segment or in the new home segment.

Vincent Paul Berger: I would add, and the way we measure this, Reuben, is you can, you know, everybody sees the news of permits down 7% year to date. They see contracting markets. We actually measure it market by market, and the initiatives that Jeff is talking about, the intimacy, we can see that we are seeing better results on that. So those are share gains and, in some cases, getting more fireplace spec. So it is the controlling the controllables. And on the remodel side, we have done a nice job on the stove side of our business. We have gone to a single brand to consolidate it.

We have been able to get a lot more reach, a lot more reach into the retail and the big box. So that was an area for growth that is inside the numbers as well. So the long-term investments are paying off. We still have a lot more to do to get to more markets and more builders, but we certainly are not falling victim to a down 7% permit number.

Reuben Garner: Great. Thanks for the detail, guys. Congrats on the strong close to the year and the strong outlook. The stock market is being a bit irrational today, but I assume all this will work itself out, and good luck in 2026.

Jeffrey D. Lorenger: Thank you. Thanks, Reuben.

Operator: Your next question comes from the line of Steven Ramsey with Thompson Research Group. Please go ahead.

Steven Ramsey: Hey. Good morning, everyone. Wanted to start on the synergy number, $120 million being Americas-focused. Couple things on that. First, given your past execution, I think there could be upside to that. I am curious what points or targets you would need to reach to potentially raise that down the road. And then secondly, it being Americas-focused seems to imply that Steelcase International is still projected to be a negative offset. Could that be a source of upside in the future?

Vincent Paul Berger: Perfect, Steven. I will take it in two pieces. The first, the $120 million that we originally announced is through our disciplined approach that we have learned through the KI process. You heard Jeff say, we are still comfortable with that number. It takes every bit of three to six months to get the team working on the specific projects of how we are going to go execute it, which is why I have talked about accretion of $0.60 in the second year once these projects are up and running. And so to your question about timing, six months in, if we have learned more, we will share more.

But right now, we are focused on making sure we understand the buckets between procurement, logistics, SG&A, and network optimization, and we will share with you as we learn more as we go. But I think the key thing from the last time we talked is we expected it to be neutral in year one. Now that we are in there, this is actually going to be modestly accretive in year one. And that is really good considering the capital structure and the additional shares that were issued. It does not change our total target, but it shows that we will start seeing the benefits a little quicker. That is question one.

Question two on International, that is not offsetting anything. The $1.20 stands on its own. The International business has very good assets. You know, as Jeff said, with the business and the teams working together, we are getting up to speed on that business, whether it is APAC or EMEA. We are getting lots of insight of how the business is, their go to market, and their advantages. And I would tell you the teams are energized right now to drive profit improvement plans. They are in place in all of those areas, and that will not be a drag on the $1.20.

Steven Ramsey: Okay. That is great color. Wanted to think about the resi growth investment, and you talked about that being a consistent margin implication—that 2026 resi margin is flattish with sales up? And is there a cadence for the year on the resi margin profile?

Vincent Paul Berger: Yeah. I think that is the right way to think about it, Steven. That business is extremely flexible in profitability, as seen from whether it is $500 million or $850 million. It tracks between 17% and 18%. We are going to continue to make the investments Jeff was talking about with getting closer to the builder. So we would expect those margins with the revenue growth to stay right around the same area.

Steven Ramsey: Okay. And then maybe you can share a bit more on the resi growth investment and if those have shifted in the last year or so as you have started making those. It is clearly working. And it sounds like you are saying it is geared towards builders, yet R&R is the growth driver. So maybe you can connect the dots there on the investments being more to builders, but the growth being from R&R.

Vincent Paul Berger: Yeah. I think there are a couple things on this one, Steven. One, when we talk about investments, this has been a three-year journey. The operational excellence of this business is what has allowed us to deliver the results. In the last three years, we have moved to a front-end structure. We have brought in leaders running each of these business units that bring those front-end points of view, and they are the ones leading the charge in each of the intimacy models in both new home and existing home. We have also made a significant amount of investments in product and innovation.

Part of this success and our offset against the market is we are entering new categories and new areas. Specifically, an example would be wood stoves and DIY. That is a large market we did not have a place in, so we are making investments with go to market there. It is allowing us to do it as well as what Jeff said on the electric side. So I think you are seeing investments on the new home and the remodel side as well. And the cadence to how they come in through the revenue streams are not always at the same time.

Jeffrey D. Lorenger: Yeah. It is a great point. I also would say we are getting really good at, I think someone else mentioned at the IBS show, it is a different look from what we have had in the past. We are connecting more to designers, interior designers. There is a lot of focus there relative to design as well, Steven. So it is kind of across the board, and I lump it all back to getting much closer and intimate with our geographic areas, design trends, customer intimacy, and all the while working that with the changes VP talked about. It has been a couple three-year run, and it is starting to pay dividends, and we are going to keep investing.

Steven Ramsey: Okay. That is all helpful color. Thank you.

Operator: Your next question comes from the line of Greg Burns with Sidoti and Company. Please go ahead.

Gregory John Burns: Morning. I was just hoping to get a little bit more color on the profit headwinds in the first quarter. What exactly are they and why are they rolling off as we move through the balance of the year?

Vincent Paul Berger: Yeah, Greg. It first starts with just the timing of the revenue. It is a little choppy on how some of the contract side of the business flows. Everything that Jeff talked about on the backdrop is all good and favorable for us. And if I look at even how orders came in the fourth quarter, the Workplace was actually up 5%, and Steelcase is actually showing good order trends as well. It is just the timing of when that stuff is going to ship. So the revenue is the first piece, and we have a couple of comps from last year that we are up against.

It is why we do believe it is a short-term issue and the full year is more important. I think on the expense side, there are really two things happening. Bringing in the Steelcase family, there is a comp timing that is hitting in the first quarter that would have hit in the second quarter under their P&L. So that is a little bit of expense pressure. And we are still balancing our investments. We are still making sure that we are thinking about the long game, and the macroeconomics tell us still to keep investing. So I think the revenue growth, the timing of the expense, and us continuing investment puts the short-term pressure.

But more importantly, as we go through the year, you are going to see the double-digit EPS growth accelerate in Q2, Q3, and Q4 based on not only volume but the visibility story we are talking about.

Gregory John Burns: Okay. Great. And I think last quarter, you called out some hospitality orders or the timing on orders. Could you maybe update us on the hospitality market and if there is any change there?

Jeffrey D. Lorenger: Yeah. No. There is not. The hospitality market is solid. We were up against a comp. But similar to the contract market, pipeline is strong. The business is making investments, performing well. They have a market leader position in-room furniture. And so we like that business a lot, and we expect that it will perform at or above prior year.

Gregory John Burns: Okay.

Vincent Paul Berger: Alright. Great. Thank you.

Operator: Your last question comes from the line of David Sutherland MacGregor with Longbow Research. Please go ahead.

David Sutherland MacGregor: Yes. Good morning, everyone. Thanks for taking the questions. I guess from our dealer conversations this quarter, it is pretty clear the demand for design support has accelerated pretty dramatically. And so wondering if you can talk about the amount of work that you believe is developing in the pipeline but maybe not yet in the order backlog, and how you are thinking about the timing of that work converting to orders and then to sales dollars?

Jeffrey D. Lorenger: Yeah. That is the question, is it not, David? I think you are hearing the same stuff that we are seeing, which is there is a lot of activity. I believe it is real. And we are actually, just to get upstream on that a little bit, a lot of our businesses are deploying additional resources to help dealers and customers get things through the pipe because that does become a backlog area relative to the ability to get things designed. We are also working on some AI tools and some other digital tools to be able to help that as well for the long game. But historically, this business has had a pretty stable conversion kind of spec-to-order cycle.

And post-COVID, it has been a little bit all over the map, and it has not really settled down. But I would tell you that once these things start and you see the commitment, particularly on the larger projects, they come in. It is just sometimes they do not fall perfectly in the areas. And the other thing that we are seeing with the Steelcase acquisition is their exposure to the large stuff that, once it gets lit, it goes, is robust. Now we are still working with them on how they view their timing and predict the order-to-revenue cycles and the spec-to-order cycles.

So I cannot really give you a great answer on whether it is 90 days, or 60 days, or 30 days. But it is real.

David Sutherland MacGregor: And it is volatile relative to when it gets put in. But

Jeffrey D. Lorenger: We are bullish.

David Sutherland MacGregor: Yeah. Yeah. It is out there. There is no doubt about it. The second question was just around the discussion around synergies. You talked about the $120 million. It seems like you are bumping the 2026 expectation a little bit, and I am mindful that you have not made a change to the $1.20. But I guess the question is, is the better outlook on 2026 a function of maybe incremental synergies that you have identified? Or is it really timing? And then related to that is the whole discussion around commercial synergies, which I fully understand why you do not want to get into too much detail around that at this point.

But I am wondering if you can discuss at a very high level the actions you are taking to facilitate the eventual capture of those commercial synergies.

Vincent Paul Berger: Yeah. I will take the first part of that, David. The timing and the dollar of year one actually has not changed as it relates to the synergies. We had predicted a little bit more transition costs and some offsets in our original accretion analysis as you put the businesses together. So it is just as a result we will get a little bit more of that two-year look of $0.60 a little bit earlier. So I would tell you our philosophy has not changed, and our approach has not changed as we have set that number.

Jeffrey D. Lorenger: Yeah. And, Dave, on the synergies, you are right. It is early days. What I would tell you, though, as I have traveled, we are seeing some nice, what I would call, organic connections between our networks to support revenue synergies, particularly with some of our open line brands. And so when that formalizes more and gets more structure to it, we are going to let it play out a little bit and see how the natural system works, and then we can look more at that. But we see some organic pull for some of that revenue. And it is early days, but we will probably be talking about that down the road.

But right now, I am encouraged by what I see.

David Sutherland MacGregor: Can I squeeze maybe one more in, and just maybe for the model, if you will—working capital in 2026 and how we should be modeling working capital?

Vincent Paul Berger: Yeah. We benefited with the pulling on the Steelcase balance sheet. We actually sequentially improved a little bit. And just with the timing of expenses, we are going to need to make a little bit of an investment, David, but not significant when you think about the net working capital as we go into 2026 and beyond. But I think one more comment there, though. The operational discipline inside of the HNI Corporation piece, as we bring into that balance sheet, I would tell you there is opportunity as we get into the out years.

David Sutherland MacGregor: Got it. Very much. Good luck with everything.

Jeffrey D. Lorenger: Great. Thanks.

Operator: That concludes our Q&A session. I will now turn the call back over to Jeffrey D. Lorenger for closing remarks.

Jeffrey D. Lorenger: Thank you for joining us today and your interest in HNI Corporation. We look forward to speaking with you again in April. Have a great day.

Operator: Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.

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