HNI Corporation (HNI) Q3 2026 Earnings Call Transcript

Operator: Good day, and thank you for standing by. Welcome to HNI Corporation third quarter fiscal year 2026 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to turn the call over to mister McCall. Please go ahead.

Matthew S. McCall: Good morning. My name is Matthew McCall. I am vice president, investor relations and corporate development for HNI Corporation. Thank you for joining us to discuss our third quarter 2026 results. With me today are Jeffrey D. Lorenger, Chairman, President and CEO and V.P. Berger, executive 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 risks. Actual results could differ materially. The financial news release posted on our website lists additional factors that could affect actual results. The corporation assumes no obligation to update any forward looking statements made during the call. I am now pleased to turn the call over to Jeffrey D. Lorenger. Jeffrey?

Jeffrey D. Lorenger: Good morning, and thank you for joining us. In the third quarter, we drove volume growth in both segments, while our members continue to demonstrate focus and diligence. In addition to the benefits of operating leverage from the higher volume, cost and expense management, legacy productivity benefits, and price cost favorability drove third quarter results that significantly exceeded our expectations. Encouragingly, our internal leading indicators--preorder activity, orders and backlog, continue to provide reasons to be optimistic. The positive momentum of our strategies both revenue and cost focused, the benefits of our diversified revenue streams, the merits of our customer first business model, and the integration of Steelcase continue to deliver strong shareholder value. And we expect the fifth consecutive year of double digit earnings improvement in 2026 and full year organic revenue growth in the low single digits in both segments. On today's call, I will break my comments into 3 sections. First, our quarterly results surprised to the upside. Second, our revenue backdrop remains strong and is expected to support a solid fourth quarter. And third, we have elevated visibility into profit growth as we look to 2027 and beyond. Following my comments, VP will provide more details about the third quarter, our outlook, cash flow and balance sheet. I will close with some additional commentary. before we open the call to your questions. I will start with some highlights from the third quarter. Non GAAP EPS of $1.62 exceeded our internal expectations and was up nearly 50% year over year. Both segments reported volume and order growth, in the quarter while we continue to effectively manage the middle of the income statement. Profit improvement versus the prior year was driven by the Steelcase acquisition, operational productivity benefits, price-cost, and organic volume growth. Revenue overall was in line with our projections, with building products nicely exceeding our forecast and offsetting a slight miss in workplace. In our legacy workplace furnishings businesses, our profit transformation efforts are working. And revenue is continuing to grow. Third quarter net sales were up 6% year over year on an organic basis. We remain optimistic about the industry backdrop and our internal indicators continue to provide reasons to be encouraged about future top line trends. Non GAAP segment operating margin, excluding Steelcase, expanded 390 basis points year over year reaching a third quarter record of 16.2%. And when including Steelcase, non GAAP operating income was more than double the prior year level. For the full year 2026, we continue to expect solid margin expansion in our legacy workplace businesses resulting from strategic cost transformation initiatives and leverage on volume improvement. While we continue to invest to drive future growth. At Steelcase, our integration efforts are on track Synergy capture is ahead of plan. Net sales and orders improved on a year over year basis, and we saw accretion from Steelcase in the third quarter. From a synergies perspective, we now expect total capture to reach at least $130 million when fully mature versus our original target of $120 million. And the original target of $120 million is now expected to be achieved by the end of year 4, earlier than previously expected. In Residential Building Products, our organizational realignment and growth initiatives are working, fueling 5% net sales growth in the quarter strong results given the headwinds in the housing markets. This growth exceeded our expectations communicated on the second quarter call, as the benefits of structural changes organizing around the consumer and growth investments drove continued market outperformance. Revenue from the remodel retrofit business increased double digits and more than offset continued market driven weakness in the new construction channel. The top line strength in our lean model drove operating profit and margin upside. With 180 basis points of margin expansion and 16% profit growth on a year over year basis. We remain encouraged about the opportunities tied to our growth initiatives, despite expectations of ongoing housing market headwinds. And importantly, we continue to invest to grow our unique operating model and diversified revenue streams including ongoing go to market changes to organize around our customers. In summary, for HNI overall, the strength of our growth strategies and ability to stay focused on our profit levers despite ongoing macroeconomic uncertainty was evident in our third quarter results. And we expect strong profit growth again in the fourth quarter. That leads to my comments on our outlook for the fourth quarter of 2026. Again, our revenue backdrop remains strong in the third quarter. From a segment perspective, beginning in our legacy workplace businesses, orders in the third quarter saw a solid increase compared to the prior year period, As a result, we expect net sales growth again in the fourth quarter versus the prior year in legacy workplace. Our segment outlook continues to be supported by external industry metrics and by internal pipeline data. Specifically, in addition to strengthening orders in the quarter, preorder metrics remained encouraging, including project funnel, bid quotes, and design requests. For Steelcase, order growth exceeded our legacy workplace businesses consistent with the strong preorder activity and accelerating order momentum we discussed on the second quarter call. And as I mentioned, our synergy capture is running ahead of plan. In 2026, the synergy upside will be partially offset by temporary price cost pressure from accelerating inflation. Importantly, we expect our pricing actions will bring price cost neutrality in 2027. In addition, in Steelcase's international markets, the benefits of our ongoing cost actions and profit improvement plans are being partially offset by geopolitical turmoil. Slowing the rate of earnings improvement in 2026. We will continue to aggressively manage the cost structure with a focus on profitability in these markets. With the new leadership team in place, a focus on growth, and disciplined management, the Steelcase business is positioned for a strong 2027. In Residential Building Products, our members continue to drive market outperformance. Segment orders grew solidly compared to the third quarter of 2025. For the full year, we continue to expect modest price driven revenue growth. With volume improvement adding to the pricing benefits in the second half. Again, that is despite the persistent housing market headwinds that have been with us all year. From a profit perspective, we expect residential building products non GAAP operating margin to significantly expand again in the fourth quarter. And for the full year overall. The fourth quarter will mark the anniversary of our Steelcase acquisition, and a full year of our consolidated results. This will also mark an operating margin trough for the combined company. As we move forward, with substantial revenue and profit opportunities, we expect significant margin expansion ahead. Now moving on to my third point, our outlook for 2027 and beyond. Cost management initiatives and efforts to streamline priorities across the organization to focus on profitable growth will deliver improved profitability over the remainder of 2026 and in 2027. This is despite expectations of ongoing geopolitical and macro uncertainty. Further, we continue to expect manufacturing network optimization savings in our legacy workplace furnishings businesses to total nearly $30 million. We expect to recognize about a third of this savings in 2026, with the remaining 2-thirds benefiting 2027 and 2028 equally. In addition, synergies associated with the integration of Steelcase are progressing ahead of plan, and are now expected to add at least $130 million of operating profit when fully mature. As a result, from an earnings perspective, we expect double digit EPS growth again in 2027. And while our outlook for double digit EPS growth in 2027 is not reliant on top line growth we do expect net sales improvement again in 2027. Beyond next year, the combination of our disciplined cost management Steelcase synergies and ongoing legacy manufacturing optimization projects. Will continue to support our earnings visibility story. A couple of additional items to note. First, our current synergy projections are focused only on the Steelcase Americas business. Second, we are assuming no benefits from revenue synergies. However, we are increasingly confident in the benefits tied to our HNI portfolio initiative, which are focused on increasing sales of the HNI open line brands across our dealer networks. We will provide additional commentary throughout 2027 on this topic. And third, as I discussed earlier, we will continue to aggressively manage the cost structure and profitability In Steelcase's international markets. I will now turn the call over to VP. VP?

Vincent Berger: Thanks, Jeffrey. I will start with some additional comments about the third quarter. GAAP diluted EPS was $1.23 On a non-GAAP basis, diluted EPS totaled $1.62, which was ahead of our internal expectations. Organic volume rebounded in the quarter, with both segments reporting year over year volume growth. Workplace net sales increased 6% year over year organically with volume up 2%. Residential building products net sales grew 5% year-on-year, with volume growing 4%. Total net sales in the quarter increased 13.3% overall. From an organic standpoint, total net sales were up 6% on a year over year basis. Moving to Q3 orders. In the Workplace Furnishing segment, orders in the third quarter increased 6% compared to the prior year period. Order growth rates from contract customers solidly outperformed those from small and medium sized businesses, and Steelcase order growth was stronger than legacy workplace furnishings. Over the most recent 5 week period, segment order growth has continued. Orders in the residential building product segment were up 4% compared to the third quarter of 25. Solid remodel retrofit order growth offset modest declines from the new construction channel. However, both segments continue to outperform the respective markets. Over the most recent 5 week period, segment order growth has continued. Before I discuss our fourth quarter net sales and profit outlook, a reminder that our fiscal 2025 includes an extra week in the fourth quarter. The extra shipping days in the year ago fourth quarter are estimated to create a 3-percentage-point revenue growth headwind in the fourth quarter of 2026. For the fourth quarter of 2026, net sales in legacy workplace furnishings are expected to increase at a low-single-digit rate year over year including the negative impact of the extra week a year ago. Excluding the impact of the extra week, fourth quarter segment sales are expected to increase at a mid-single-digit rate. Including Steelcase, total workplace furnishings net sales are expected to nearly double from the prior year period. In Residential Building Products, fourth quarter 2026 net sales are expected to be roughly unchanged versus the same period in 2025. Again, including the negative impact of the extra week last year. Excluding the impact of the extra week, fourth quarter segment sales are expected to increase at a low-single-digit rate. Non GAAP diluted earnings per share for the fourth quarter of 2026 are expected to increase at a rate in the mid-20 percent range from the fourth quarter 2025 level. The addition of Steelcase productivity savings, expense management, and the benefits of tax planning, are expected to more than offset modest year over year volume pressure a temporary price-cost drag resulting from the accelerated inflation and continued investments to drive future growth. As Jeff noted, we saw solid EPS accretion from Steelcase in the third quarter. As our synergy capture initiatives gained momentum. However, given the international profit pressures, expectations of temporary price-cost headwinds in the fourth quarter, we now expect Steelcase to be neutral to earnings per share in 2026 overall. For consolidated HNI, we continue to expect full year non GAAP EPS growth of 20% to 25% above 2025 full year results of $3.46. As Jeff mentioned, we expect double digit diluted non GAAP EPS growth again next year and we have multiple years of elevated earnings growth visibility beyond 2027. Next, a few items to assist in your 2026 modeling. Net interest expense is expected to total about $80 million. And the full-year tax rate should be approximately 24%. Finally, from a cash flow and balance sheet perspective, our balance sheet is strong. And we remain committed to maintaining significant financial flexibility to fund ongoing business investments to drive growth and the payment of our long standing dividend. Strong free cash flow was used to meaningfully reduce net debt levels during the quarter. Quarter ending debt leverage was at 2.0x, down from 2.4x last quarter. We expect leverage to move back to pre-Steelcase acquisition levels at or below 1.5x on an annualized basis, within 18 to 24 months of the closing of the deal in December 2025. I will now turn the call back over to Jeffrey for some longer term thoughts and closing comments.

Jeffrey D. Lorenger: Thanks, VP. Our members continue to manage our businesses well, Delivering another strong quarter with improving top line trends and earnings that exceeded our expectations. We reported volume growth in Workplace Furnishings. The Residential building products segment continued to overdeliver in the quarter. And our order patterns in both segments showed solid year over year improvement during the quarter. The integration of Steelcase is going well, with Synergy Capture progressing ahead of expectations. And a new leadership team, strategic cost resets and pricing actions have the Steelcase business in a great position as we move toward 2027. And we remain confident and expect significant accretion next year and beyond. The benefits of the Steelcase acquisition strength of our strategies, our financial discipline are expected to drive increasing free cash flows, even as we manage through worsening inflation and softness in the international markets. And while we remain focused, conservative, and ready to adjust as required, Our outlook and investment posture continue to demonstrate our confidence in revenue improvement, our ongoing profit growth visibility story, and our ability to manage through dynamic economic conditions. I will finish with some commentary around our demand indicators. The workplace furnishings backdrop we have discussed the last few quarters is unchanged, and we are encouraged about the demand environment. In short, our customer interactions indicate the good markets, quality buildings, and specific industries are creating real opportunity for us despite the macro noise. Return to office continues to be a positive driver with Class A peak day occupancy in the top-10 MSAs now back above 95%. Office leasing activity grew for the fifth straight quarter in Q3 Net absorption of office space, a historically good leading indicator, of future industry demand, was also positive for the fifth straight quarter. With more than 6 million square feet absorbed in Q3. And nonviable space continues to be removed from the market with 10 million square feet taken offline in the third quarter. We continue to view this as a positive catalyst for furniture events as more tenants are forced to move. And while the supply of new office space remains subdued, we believe furniture demand follows occupied seats and lease events. not new construction cranes. Our customer interactions indicate several drivers of demand despite very little new space. Under construction. Some customers unable to find new space in their existing markets are looking to fit more employees in their existing space. Some are looking for space in suburban areas adjacent to their existing markets, while others are looking to migrate to other primary or secondary markets where space is available. Encouragingly, each of these drivers creates a unique furniture event with the result often being higher furniture spend per square foot. As I mentioned earlier, these encouraging industry drivers are consistent with recent order patterns and internal preorder metrics. In both legacy workplace and at Steelcase. Our funnel continues to expand with third quarter bid quotes up solidly year over year, Customer visits, RFPs, and design requests were all strong during the quarter. Our teams are competing well and win rates are improving. Moving on to housing. Headlines continue to point to a challenging environment, especially in the new build space. Interest rates remain elevated, prices remain high, and affordability concerns are not going away. As a result, we expect continued new construction weakness for the remainder of 2026 and that 2027 will be another challenging year. Despite this backdrop, we are confident that our go to market initiatives and growth investments will allow us to continue to outperform the market. In remodel retrofit, we are assuming modest market growth for the remainder of 2026 and for that to continue as we head into the first half of 2027. We also expect continued market outperformance in our R and R business. And as was the case for this business in 2026, we expect ongoing margin and cash flow consistency in the Residential Building Products segment. In conclusion, post the acquisition of Steelcase, we are transformed and fundamentally stronger organization, The early on benefits of the Steelcase acquisition strength of our strategies, and our financial discipline, are expected to continue to drive strong free cash flow and help us maintain a strong balance sheet. This will enable us to continue to invest with confidence to grow and deliver exceptional value to our shareholders customers, dealers, members and communities. I want to thank all HNI members for their continued focus and commitment. Thank you again for joining us. We will now open the call to your questions.

Operator: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone. You will hear an automated message advising your hand is raised. We also ask that you wait for your name and company to be announced before proceeding with your question. 1 moment while we compile the Q and A roster. Our first question will be coming from the line of Gregory Burns of Sidoti. Please go ahead.

Greg Burns: Morning. So I just wanted to better understand the international dynamics that are occurring in the market. Is it mainly a-- is there a demand destruction happening there, or is it mainly a margin issue? And I thought you had meant-- I do not know if I heard this correctly, but did the 130 million Steelcase synergies were mainly tied to North America, and that is not really considering international. Do you have plans for the international markets maybe to improve the profitability there?

Jeffrey D. Lorenger: Yes, Gregory. Lot there. First, let me start with it. Yes. We do have plans. Yes. The synergy the 130 number is not involving the international markets. it is Americas only. And, yes, I mean, really, what is going on over there is you know, there is a lot of turmoil. Markets are disrupted. We have got to-- and so we are managing it. closely for profit, looking at, you know, our structures and what the demand environment is going to look like. And the bottom line is we got less profit improvement out of that than we thought. And it is really demand driven, to be candid. Well, the actions we are taking are on track, but the market softened up you know, with the war and some other turmoil that is happening there. So that is really what is going on there, but we will continue to focus on that. As we go forward.

Greg Burns: Okay. And I know the main focus or driver at the. Since you acquired Steelcase, it is been mostly from a profit cost perspective. Now with the new management team in place, how should we think about maybe the revenue synergy opportunities and the timing of when those might be. Become more evident in the results?

Jeffrey D. Lorenger: that is a good question, Gregory. I mean, look. We are definitely turning our attention to revenue synergies I would say early on, we wanted to kind of look at it organically, and we have seen some encouraging signs. And right now, we are really spinning up some test and learns. We call it the HNI portfolio initiative. Where we are we are looking to drive our open line HNI brands you know, across all our dealer networks. You know, it includes a collection of initiatives. Some are in pilot form. To sell across those networks, and we will be focused on testing, learning, and quickly scaling those efforts as we see traction. But, again, that was. You are right. A secondary benefit, and a secondary focus that is now coming online. Okay. Thank you.

Operator: Thank you. 1 moment for the next question. Our next question is coming from the line of Reuben Garner of Stonex. Please go ahead.

Reuben Garner: Thank you. Good morning. Everyone. Let's see. So the you mentioned pricing actions, a little bit of near term price-cost pressure In the fourth quarter. What exactly. What pricing actions are you guys taking? Is it largely steel and diesel, or are there other costs that. Cost increases that you are facing? And talk about, I guess, the time line of when those pricing actions start to flow through to kinda get you back to neutral.

Vincent Berger: Yeah. Ruben, you know, obviously, this price cost has been dynamic. And we have maintained that we are looking for price cost neutrality over time. We have been able to do that over the last 2 years. Even when the tariffs started. So the pricing action started in Q2 We had. We went out with, you know, an increased surcharge as well as individual list price changes in all of our businesses. Based on the best assumption that we had. And we actually got price-cost favorable, if you remember, at the end of Q2 as a positive. Even after having some headwinds in our legacy business. So what happened in Q3 is fuel ran more, diesel ran more. Steel ran more. So we have gone out again and taken additional actions. Our backlog is the biggest at that point of this time of year. As a result, we have. We honor those. So there is gonna be a drag in the fourth quarter that we will incur. But our strategy has not changed. So there is a $10 million to $15 million drag in the fourth quarter that we will get back between Q4 actions we are taking as well as Q1 to have 2027 to be price cost neutral. And to answer your second question, it will take a quarter, quarter and a half into 2027 to capture. So all the businesses are doing activity here. And it is still a mix between fuel surcharge and list.

Reuben Garner: Okay. Great. And then the incremental synergies that you found can you talk about what buckets those come in? And it, you know, it sounds like well, yeah, just what buckets do those come in? Sorry.

Vincent Berger: Yeah. You know, you heard Jeffrey say we are actually ahead of plan. So the day 1 public company cost, and that is&A, we made good traction there. We got a little more out of that than we expected. But if you look at where the additional increases going forward are really on the operational side. As we have laid out our project plans, we talked about last quarter, there is more opportunity in procurement. there is more opportunity in logistics. And there is more opportunity, obviously, in network optimization. So that gives us confidence to move from the $121 million to $131 million, at least. So kind of all 4 buckets are seeing some benefit, but the real juice in the future will be on the ops side. Think the other key you know, as a result, we have been talking about $0.60 in year 2 For Steelcase. We are now taking that up to $0.70. Great.

Reuben Garner: And then last 1 for me. The hard performance, very strong, obviously, in this environment, especially on the repair and remodel side. Can you just remind us and walk through double digit growth is pretty impressive. You are not seeing a lot of building product categories see that kind of growth in this market. So can you just remind us the products, the strategies, the investments that you are making and kind of how those benefits are flowing through? Is it new customers? Is it just deeper penetration with existing customers? Just. You know, any color would be helpful. Thanks.

Jeffrey D. Lorenger: Yeah. Look, Reuben, it is a little bit of all of that. I mean, we are getting really, really tight focus. We have done some brand work. We have done some new product work. We have focused on our go to market model and a little more intimacy. And, you know, I think the other thing that is going on here, we got some benefit from the oil prices. some of our install business, You know, from pellet and wood. So you know, fundamentally, I mean, we are really focused overall in this business, not with even the new home side, on the front end of this business. And so there is there is a lot of investments going in and a lot of focus on everything from bringing people into the organization with a different lens to branding work, to new product investment, and to customer tools to make decisions quicker So that is really what is driving that. In and I would say that, you know, we. We are going to continue to invest with confidence there. Because we are seeing results, and the markets are gonna do what they do, but we think there is a lot of opportunity to take share and to grow the category. Great. Thanks, guys, good luck. Thanks.

Operator: Thank you. 1 moment for the question. Next question is coming from the line of Steven Ramsey of Thompson Research Please go ahead.

Chris: Good morning, everyone. This is Chris, calling in for Steven today. The difference between workplace contractor and SMB switch this quarter, I believe. Where SMB outperformed in Q1 and Q2. This quarter, contract. Solidly outperformed, you say. So is SMB slowing? Was it timing? Hoping you can give us a little bit of understanding of what the real trend is here.

Vincent Berger: Yeah. I think you are on the trend as to performance. I would say SMB has been resilient. For the last 2 years. If you look at the growth rates, we have shown, you know, 8 quarters where that is hung in there. So that is obviously distribution, mix of product, and the backdrop of the market. We Jeffrey talked about the macro indicators and what is happening We play well in that space. So that is actually, I would say, has continued. what is happened with contract is really the macro of large commercial coming back, the return to office, the absorption. All those things are supportive of what I would call a large contract return to office. And as you. As a result, you are seeing that stuff accelerate. And that is generally what is happening both on the Steelcase as well as the legacy HNI business.

Jeffrey D. Lorenger: Yeah. I would agree. I do not have a lot to add. I think that is. I think it is less about SMB, kind of. It does ebb and flow a little bit. it is it is quicker to react to you know, it is a shorter cycle business, so you will see it. But it. it is still resilient. I think what V.P. said is the right term there. But this is more about the core commercial contract business you know, getting traction based on, you know, all the things we have been seeing the last couple quarters. Including even some of the verticals. So I think that is that is really how we think about it and position it. how you would probably think about it.

Chris: No. Thank you. Very helpful. And we are also hearing that the return to office is kinda driving growth in some of the other products. That we cover like flooring. So just the final follow-up on this question is this something that you see extending into 2027 and beyond?

Jeffrey D. Lorenger: Yeah. For sure. We do believe that. we are bullish. I mean, you know, Short of anything crazy that nobody can see. But, yeah, I think that is lined up. It started. I think as we commented, there is a lot of lease expirations coming due. that we will start to pop over the next 18, 24 months. So, you know, at the end of the day, you know, we think we are in a good cycle. We think that the combination of Steelcase in the family gives us even more exposure to play all the bases as the cycle goes, whether it be some of the verticals You know? So I think that is absolutely what we are competing well on, and that is what customers are really talking to us about. Thank you.

Chris: And final 1 for me. I appreciate you taking my questions. Just wondering if you can speak a little bit about the regionality of both workplace and Resi. Are you seeing growth in certain regions, or are you seeing it pretty much the same across the nation?

Jeffrey D. Lorenger: that is a good question. I would say in workplace, it is pretty broad based. Right now. You know, there. You know, there are different pockets that kinda come and go, but generally speaking, the trends we are seeing and the activities and the lease expirations and the return to office is kind of across the board. In resi, I do think you see some pockets it is a little more regionalized. You know, it has been. You know, it was a little weak in the Upper Midwest. And, you know, weaker, a little weaker in the Northeast to start. And then the South and West were, you know, stronger. that is kind of been how it is played out. Last couple of years. Now with the remodel with the remodel business going, that is that is. I was kinda talking more new home. You talk about remodel retrofit. that is more like workplaces, pretty broad based. that is helpful. Thank you very much, guys. Thanks.

Operator: Thank you. 1 moment for the next question. Our next question is coming from the line of David Sutherland MacGregor of Longbow Research. Please go ahead.

David Sutherland MacGregor: Longbow. Excuse me. Good morning, everyone. Congratulations on a strong quarter. Great results. Very encouraging. I guess I am wondering to Jeffrey. Jeffrey, I wanted to ask you just how you are thinking about the strong order book and all the strength you are seeing right now in the presale indicators versus your talk about volume pressure outlook in Q4? Is this just really kind of the project calendar building for 2027? Or just talk a little more about that timing and kind of the mechanics of this.

Jeffrey D. Lorenger: Yeah. David, it is a good question. I mean, we have seen where we have got strength in the presale and the order book. Is also large projects. And we have seen some project push. Some of what we are hearing kind of across the board is some tightness with labor. Even though, you know, even though we are not talking about new construction, we are talking about labor to do jobs And so we have seen some of the push there. So We are not really, you know, worried about it. it is there. it is just it is just kind of timing on that, and that is the strongest piece of the business right now. And I would tell you, also, we have seen like I said, we have got strength there. We got strength in what I would call core commercial contract. SMB has been resilient. Health care was strong. But we also have seen some weakness in the education space and in the state and local space. As you can well imagine, you know, post COVID money and bond money, the education kind of taking a breather right now. We are competing well, but it is taking a breather. And state and local governments are also kind of reengineering their budgets as we go. So, you know, I think those 2 things are kind of leaning on some of this softness as well, but those are those are lesser parts of the business. Right.

David Sutherland MacGregor: Right. No. I appreciate that detail. How much of this do you think is just the impact of cost inflation on customer project budgets and people just kind of running out of budget capacity here in 2026 and saying, "Well, we will address that in 2027, or we will divide the project up, and we will do the rest of that in 2027.

Jeffrey D. Lorenger: You know, that is a good-- we hear anecdotal evidence about that from time to time. I think some of that is out there Or a repricing exercise that is not all bad for us with our open line to be candid with this revenue synergy piece. So you know, I think people may have started out on 1 budget and got reduced to another but it does not we have not really seen people saying it is an all stop. it is really what maybe we cannot do what we thought we wanted to do, so we are gonna take another look at this. And that stretches some of this out as well. But I. Again, I think the long game is that is not all bad for us. We do not mind that extra exercise 1 bit.

David Sutherland MacGregor: No. I think I understand that. that is good. I also wanted to get you to maybe drill in a little further on that 390 basis points of adjusted margin operating margin in workplace furnishings, excluding Steelcase. You just bridge that for us and talk about the big pieces? Just help us understand the composition of that. I mean, it is an impressive number. Trying to understand the composition.

Vincent Berger: Yeah. I mean, if you look at Q3, David, the EPS has been up 47%. It was not 1 lever. So there is about $0.60, if I kind of bucket it between pushing off some price cost stuff. Our productivity Jeffrey talked about our transformational efforts and resetting our footprint, continue to deliver significant value creation. We had volume come back for the first time in both of the businesses. You had volume in residential show up at 4%. You had volume show up at 2% in the workplace side. And then, obviously, we got the acquisition You know, you said legacy piece. We got the acquisition of the accretion of Steelcase. You really had 4 or 5 levers coming through and they came through. Compared to expectations even a little bit better on our streamlining our priorities as well as our productivity. So all of that, I would say, is sustainable. So I think if you look to, you know, how do we think about the business in the long term, you know, we did return to growth in the legacy business in 25. We grew again this year. And it is accelerated in the back half. So we are positioned for, to Jeffrey's point, a strong inflection here in 2027 to have these things continue to grow. Great execution. Keep it up. Thank you.

Operator: Thank you. Thank you. And that was the last question for today. Would like to go ahead and turn the call back over to Mister Lorenger for closing remarks. Please go ahead.

Jeffrey D. Lorenger: Great. I appreciate everybody's time today. Thank for taking the time to join us. We look forward to speaking to you again in February. Thanks.

Operator: Thank you all for joining. You may now disconnect.