Q4 2020 Earnings Call
Mr., Michael <unk> director of Investor Relations and financial planning and analysis.
Thank you Kevin good morning, everyone.
Thank you for joining us for the recap of our fourth quarter and fiscal 2020 financial results.
With me today, or Jim Keane, President and Chief Executive Officer, and Dave Sylvester, Our senior Vice President and Chief Financial Officer.
Fourth quarter earnings release, which crossed the wires yesterday is accessible on our website. This conference call is being webcast and this webcast is the copywriter production of Steelcase Inc. a replay of this webcast will be posted two I heard that steelcase dot com later today.
Our discussion today may include references to non-GAAP financial measures and forward looking statements reconciliations to the most comparable GAAP measures and details regarding the rest associated with the use of forward. Looking statements are included in our earnings release and were incorporating by reference into this conference call. The tax of our Safe Harbor statement included in the release.
Following our prepared remarks, we will respond to questions from investors and analysts I will now turn the call over to our President and Chief Executive Officer, Jim King.
Thanks, Mike Good morning, everyone.
I want to start recognizing this is an extraordinary time.
This call. This morning is about our financial results and the things we are doing pure economics to weather the crisis.
Well, we do that I have to acknowledge that this is first of all the human health crisis, probably the worst in our lifetime.
People are suffering all around the world and some of you might be worried about a friend or family member who is personally affected by this and if so I truly hope they recover quickly and I hope everyone else stay safe.
Okay.
In a few minutes all sure what we're seeing and doing in our business in response to the Kobin 19, Kronos virus outbreak, but first I want to provide some highlights regarding our recent financial results.
Our fourth quarter results were better than our expectations and capped off a great fiscal 2020.
A year, where we made progress against our strategic growth initiatives. It was our best here in nearly 20 years in terms of revenue and operating income.
Our adjusted earnings per share growth of 34% in the fourth quarter brought our full year growth to 25%.
The dollar 50 per share is well ahead of the dollar $22 35 range that we targeted at the beginning of the year.
Our divestiture of Polyvision led to a large game being recognized in the quarter.
But strategically the divestiture enables us to provide greater focus and resources on our growth strategies, well also letting polyvision operate with more focus on it or new ownership.
And also strengthens our current liquidity level, which although not the intensive the divestiture further strengthens the company.
I want to thank all the employees at Polyvision. There were part of still case for so many years I wish them continued success.
And we are now a customer a polyvision and we'll continue to sell certain of their products to our customers.
Our organic revenue declined slightly against the prior year quarter, which I growing 15% against the previous here.
On a two year stack basis organic revenue was up 14%. So we feel very good about how our topline performed.
Overall orders grew 7% organically on top of 5% growth in Q4 last year.
That's global so it includes a pack and it's 12% two year stack and its through February.
Our orders were still very strong through the quarter.
We improved our operating margin by 210 basis points compared to the prior year in part due to the polyvision gain but more importantly, because we had a great quarter in EMEA.
I'm very pleased with the progress we've made in that business I told you before we have dedicated teams working on a number of opportunities across every area of our business and this quarter. We got a taste of the benefits a meal delivered over $8 million of operating income this quarter, which was close to a 7 billion dollar improvement versus last year.
For the full year EMEA delivered nearly $10 million, a property income or 1.5% as a percentage of revenue.
And again, that's really because of a very strong fourth quarter as all our actions were starting to come together and showing results.
In the Americas, or 6% order growth for the quarter is driven by our ability to bring innovative competitive solutions to help our customers modernize their work place to compete for talent.
This order growth rates surpasses the industry growth rate of 4% over the last three reported month through January.
As we've continued to strengthen our portfolio of solutions to new product development partnerships and acquisitions.
Well to grow faster than the market.
Our acquisitions continue to contribute to our overall growth is they collectively grew the revenues by over 10% this fiscal year.
We are pleased with the execution against our revenue synergy strategies for the acquisitions.
Together with the core still case portfolio the acquired businesses broaden the ways, we can address our customers' needs and it also helps to serve entirely new customers.
So it was a really good year had a really good quarter. The results show that our strategies are working.
We're executing the strategy is very well.
Our customers see our solutions is relevant to the problems they're facing.
Now I'm going to switch to the things we're doing to prepare a business for the next phase of the cobot 19 crisis.
And really what we're preparing for is the potential economic impact on steelcase of the actions that are being taken by local state and national governments here in the U.S. and in the rest of the world.
It was governments are doing what health experts say is necessary to flatten the curve and we totally support those efforts and those orders. The purpose of a corporation is to do the right thing for all stakeholders at times like this.
Okay. So cobot 19 started for us in China, but we have a factory and lots of customers and so we were already quite familiar with the crisis in January and February.
Factory close for the Chinese new year and had to stay close for a couple extra weeks and what it reopened we adopted social distancing protocols and ran at partial capacity gradually working our way up towards normal capacity in the last few weeks.
Our office space people work from home and now they're mostly back in the office also practicing the local version of social distances.
We saw some shipment delays in February when customers have close their own offices and were unable to do installations.
Importantly, we saw delays, but not many order cancellations nor longer term project cancellations.
Now we're starting to ship some of those orders we had to delay.
It's interesting I think if we continue to quote on new business. We continue to be awarded new business that will be installed later in the year.
I'm sure the overall Chinese economy will be weaker for a while than it was I'm not saying we're back to normal yet, but it's perhaps not as negative there as you might think.
That said, we don't know what the experience in the rest of the world will be like China.
Italy was probably the next hardest hit area, along with South Korea, initially, but we have relatively low sales in those countries. We saw some modest impacts to our supply chain, but nothing significant.
As the virus began to appear and then spread in the rest of EMEA and in the Americas. It was starting to appear elsewhere in Asia Pac we had already learned a lot from our China experience, we knew what to expect.
Still skill became global and so we organized inc. level crisis response team.
Dave Sylvester, let it at the beginning and as year end approached we transfer the overall role to Sarah Armbruster. Another of my direct reports.
Sarah is using a team of teams approach.
Central level, she had a dedicated team subprincipals share information.
Publish multiple workflows and coordinate actions where needed.
She and her team rely on a large number of specific local leaders to make local decisions as quickly as needed.
It's been working really well I'm really pleased with how we've managed to us I, particularly how we've been able to stay ahead of it.
For the last few weeks.
I've also been working on almost nothing else I'm connecting with Sarah and the team throughout the day to help with certain decisions and workflows I'm also conducted with other companies through my role on the business round table Cobot 19 task force and with similar groups here in Michigan.
Regarding from others, and we're sharing our own best practices to help other companies who are seeing it for the first time.
We're also helping our health care customers get ready for what's next.
Just a few days our teams have co design and delivered furniture like products to create safer barriers between administrative workers and potential patients.
Within the company, we've been focused on two objectives.
First make sure our people are safe.
We've taken actions all around the world to restrict travel and adapt social distancing for example, we've installed screens to protect factory workers where needed.
We've adopted a voluntary work from home policy well also keeping our offices open it as an option for as long as we can.
We have implemented protocols for when people are sick well have been exposed to someone who is selling well when people are being tested.
And its work.
As of today across 13000 employees I am aware of less than five cases that are either confirmed or presumed positive.
Second we have to make sure we protect our business.
And that starts by taking care of customers. Our operations teams have done a terrific job adapting our supply chains and keeping our commitments. Despite a lot of upstream disruption.
Orders keep coming I remain relatively strong through the beginning of March and upstream activity around new projects has also kept our people very busy.
Of course, when we are forced to suspend operations in a particular factory there's not much we can do about those products are.
When a customer cannot take a shipment because their offices are schools are close there's not much we can do.
And increasingly we're finding ourselves in those situations.
This is why we could see a temporary but significant drop in our revenues and cash receipts.
That reason protecting our business also involves maximizing our liquidity and conserving our capital we've done both.
We ended the year was our highest you read liquidity in over 10 years, just over $700 million.
It's still we decided to fully draw on our 250 million dollar credit facility, Dave will talk more about all of that.
To conserve capital we started cutting back on discretionary operating expenses, and we're really reducing plan to capital spending.
We're also reducing people related expenditures and that starts with me temporarily taking a one dollar base salary and members of the senior executive team Tempur leave reducing their pay by 60%.
Our board of directors also temporarily reduce their cash we cater to zero.
We are reducing other people costs through actions by temporary layoffs associated with plant closures and three significant temporary pay reductions and shorter work weeks as described in our earnings release.
The specific actions vary a lot across countries because of local laws.
Well, we haven't done and this was quite purposeful is termination.
We see this is a temporary situation and we want to take temporary measures to protect employees and our relationships with customers and suppliers and continue work on product development and all the other initiatives that have been working so well.
We have a great team of people and we want to keep that team together.
Those actions are expected to add up to a significant reduction in our use of cash we want to put ourselves in a position, but we will emerge strong competitive and ready to serve customers. When we're able to bring our factories back to full production.
We've modeled weeks, we've modeled months, we've modeled quarters, we don't know how long, it's gonna last fall where in a very strong position we've taken some bold actions very quickly.
We will continue to adapt as needed, but I feel very good about the decisions, we've made and how we're managing this.
Yesterday, the board of directors declared a dividend of seven cents per share.
The fact that we declared any dividend at all reflects a recognition of the strong quarter in Europe, we just delivered shareholder should participate in that.
But at the same time, it's a significant reduction that's meant to be consistent with our objective to also conserve capital given the uncertainty of what's ahead.
We're not providing revenue or EPS guidance of any kind today, there's just too many unknowns.
So next Dave will provide information about orders backlog and and lots of other information that I hope will be helpful to you gave.
Thank you Jim and good morning, everyone.
My comments today will include details relating to our fourth quarter full year results close some remarks about what we're seeing in the business currently including some comments related to the developing impact from Kogut 19.
As Jim just mentioned, we had very strong fourth quarter.
Looks it to the estimates we provided in December 4th quarter revenue of $946 million was $16 million higher than the top end of our guidance.
And the 39 cents of adjusted earnings per share exceeded our estimated range by five cents.
For revenue.
3% organic decline in the Americas, and 8% organic growth in EMEA were better than we estimated due to several factors including.
Favorable pricing benefits associated with their list price adjustments and the related migration of customer contract pricing.
Strong project in day to day business.
And stronger than expected revenue from our own to dealers and direct services businesses.
Asia Pacific finished below our estimates due to the initial impacts of cold at 19, which reduced shipments in China at the ended the quarter by approximately $7 million.
Our reported earnings included a 21 million dollar gain and the sale of Polyvision.
Plus net tax benefits related to being able to carry back the capital loss from this transaction against previously recognized capital gains.
These benefits net of related variable compensation expense had the effect of increasing earnings by 16 cents per share.
Three adjusted earnings we exceeded the top end to the range by five cents due to the revenue strength I just reviewed plus we had favorable gross margins and lower income tax expense compared to our estimates.
For gross margin our sales organizations around the world have worked hard mark migrating clients to more current priceless, which contributed to the better than expected price realization in the quarter.
You'll recall that inflation was well ahead of pricing for much in fiscal 2019.
In addition, aberrations teams did a nice job managing direct labor and overhead costs during the seasonally slower periods of January and February the current quarter.
Across the segments EMEA was the most significant contributor to our better than expected adjusted earnings performance and I should highlight the 4.5% operating margin for the quarter includes $1.8 million that variable compensation expense related to the Polyvision divestiture.
Which reduced their 4.5% operating margin by approximately 100 basis points.
Lastly income tax expense benefited from the reversal of a valuation allowance recorded against <unk> operating loss carry forwards in the UK.
Plus we recorded some other discrete tax benefits during the quarter.
Diving, a little deeper into the year over year comparisons.
We grew revenue by $34 million for 4% in the quarter, which was driven by $48 million from an extra week of shipments.
On an organic basis revenue declined 1% compared to a very strong prior year.
For example, the organic decline of 3% in the Americas stacks on top of 17% organic growth in the fourth quarter fiscal 2019.
Beyond the strength of the prior year the year over year comparison was also impacted by the end favorable shipment timing, we mentioned last quarter, which included the impact from the timing of Thanksgiving as the holiday fell into the first week of Q4 this fiscal year compared to the last week in Q3. This.
Well 2019.
In EMEA organic growth of 8% was driven by our largest customers.
And the decline in the other category was driven by the shipment delays related to covert.
China.
Were adjusted earnings the 39 cents in the quarter compares to adjusted earnings of 29 cents in the prior year.
The year over year comparison reflects the benefits of improved pricing lower commodity costs.
Extra week of shipments favorable tax expense and benefits from gross margin improvement and cost reduction initiatives, partially offset by the impact of the small organic revenue decline and higher interest costs related to our higher level of debt.
As it relates to orders in the quarter, the 7% order growth strengthened through the quarter with December being relatively flat January coming in at plus 9% in February posted growth of 12% and that's adjusted for the impact to the extra week.
We achieved these growth rates. Despite the other category posting a decline as Asia Pacific was down approximately 25% in January and February, which we largely attribute to the initial impacted cobot 19 in China.
It's also important to note that the strengthening trending Q4. This year was in comparison to a weakening trends in the fourth quarter of the prior year. We're in December grew 12% January was up 7% and February declined 3%.
Moving to cash flow in the balance sheet cash flow from operations was very strong in the fourth quarter, reaching $142 million and exceeding the prior year by nearly $60 million. So year over year improvement was driven by the strong earnings growth in the quarter plus targeted improvements in working capital.
Capital expenditures were $24 million in the quarter, bringing the full year to $73 million.
We returned approximately $17 million to shareholders shareholders in the quarter.
Through the payment of a cash dividend of 14, and a half cents per share.
Yesterday, we announced a seven cents dividend for the fourth quarter, which will be paid in April and represents approximately a 9 million dollar reduction from the dividend paid in January.
We did not repurchased any shares in the fourth quarter.
During the first few weeks of March we repurchased 3 million shares for approximately $38.6 million under the Tenbfive program. We had in place that has now been completed.
As Jim mentioned, our liquidity position is very strong.
We had more than $700 million of liquidity at the end of Q4 between our cash and coli balances, which is the highest level of liquidity in nearly 10 years.
We have no near term refinancing needs remember in the fourth quarter of last year, we issued $450 million 10 year senior notes and repaid our 250 million dollar notes that were due in 2021.
And last month, we renewed and expanded our five year global credit facility, which totals $250 million and has a 125 million dollar accordion feature.
From a cash perspective, we do not have any plans for additional share repurchases and we're significantly reducing our spending as Jim mentioned and we described more fully in the release.
But we will be funding seasonal disbursements in the first quarter, including our annual employee bonus programs and profit sharing plan.
As a result and out of an abundance of caution given the uncertainty related to the spread of cobot 19.
We chose to further strengthen our liquidity barb by borrowing the full about currently available under our new credit facility were $250 million.
We also decided to retain the full proceeds from the sale of Polyvision and therefore, we did not retire the $41 billion of that we had initially planned.
We estimate approximately 70% to 75% of our cost of sales before variable compensation expense varies with revenue.
Largely direct labor material freight and distribution costs.
And approximately 10% to 15% of operating expenses before variable compensation expense also varies with the overall level of activity in our business largely from travel and entertainment costs contractor temporary labor and other discretionary items.
Variable compensation largely varies with our level of profitability given our historical emphasis on ROI see as a target metric.
Beyond these variable costs employee expenses represent the largest part of our fixed cost structure with occupancy and other cost representing a much smaller portion.
And Jim summarize your actions in the Americas targeted toward reducing our run rate of employee costs.
As we look ahead to fiscal 2021.
Well the potential impact of Cobot 19 does not provide us the visibility to estimate the outlook for the quarter for the year I will share.
That our backlog at the beginning of the quarter was approximately $585 million or 17% higher than prior year.
But we expect a significant portion to be delayed due to the disruption related to shelter in place restrictions in various places.
As a reference point last year are beginning backlog represented approximately 60% of our first quarter revenue.
Through the first three weeks of the fiscal quarter.
We estimate our revenue was approximately 10% higher than it was at this point last year.
Our organic order patterns have been relatively flat compared to the prior year.
We have thus far not seen a significant number of customer project cancellations, but we have seen some requests to pause projects and some time lines have been pushed out.
And these patterns can be expected to changes more communities moved to shelter in place requirements.
And lastly, our mockup levels and customer visits are down versus last year as you might expect.
The recent drop in the price of oil is also a new consideration that could have an impact on our results.
Approximately 3% of fiscal 2020 revenue in the Americas was in the energy vertical market.
Our business in the Middle East Central Asia, Russia, and Africa markets can also be impacted by the price of oil and represented approximately 7% of our EMEA revenue in fiscal 2020.
Lastly, approximately 5% to 10% of our fiscal 2020 cost of goods sold in the Americas.
He is linked to petroleum prices for example, plastics transportation carriers and fuel expenses.
So while demand could be impacted deflation in this commodity category could provide some offset.
I also want to provide some other data points to take into consideration as you update your financial models for next year.
Our fiscal 2020 adjusted earnings of $1.50 cents per share excludes the gain on sale of Polyvision in the fourth quarter.
However, there are a few additional items.
Nonrecurring in nature that happened in the year that we've highlighted in our earnings releases, which had the effect of increasing our earnings by approximately 11 cents per share after taking into consideration the related variable compensation an income tax effects.
They include the additional weaken or fourth quarter.
Which had an estimated three cents positive effect on earnings per share.
Our effective tax rate benefited from a favorable geographic mix of business and some net discrete tax benefits.
It's low which together lowered our effective rate below our ongoing estimate of 27% and increased earnings by approximately four cents per share net of related variable compensation expense.
And lastly, with the divestiture polyvision in the fourth quarter, we have de consolidated their results, which had an approximate four cents positive effect on earnings per share.
The fiscal year.
So for purposes of building your year over year models, we think a dollarsthirty nine is a good estimated baseline for recurring earnings per share fiscal 2020.
Lastly, a couple of other data points for your fiscal 2021 modeling.
We expect interest expense to approximate $31 million for next year, assuming current levels of debt for the entire year, including the recent $250 million draw against our line of credit.
And as I said earlier, we continue to estimate or effective tax rate will approximate 27% for the year.
And as it relates to uses of cash we typically expect capital expenditures to fall within a range of 2.5% to 3% of sales, but this year could be lower as we are delaying or canceling several longer term initiatives in light of the growing uncertainty.
From there I'll turn it back to Jim.
Thanks, Dave.
We're taking the actions we believe are necessary to prepare for various scenarios. We have a management team that has successfully navigated through previous disruptions I have one of my top leaders focus entirely on managing our cobot 19 response, and Dave is focused on keeping our liquidity strong.
We have teams in place that are evaluating our supply chain. So how best to meet customer commitments will continue to navigate the short term well keeping an eye towards being positioned to take advantage of the longer term opportunities we see.
From there I'll turn it over to the operator for questions.
If you like to ask the question. Please go please do so by pressing star followed by the one on your Touchtone telephone if you're using a speakerphone. Please make sure your mute function. It has turned off to allow your signal to reach our equipment.
My first question comes from Rubin Gardiner with the benchmark company.
Thank you good morning, everybody.
Good morning.
Morning, So.
We will start with the the moves that you made a you guys. Obviously are in good financial shape.
Coming off a very strong year was a little surprised that the extent of the the news that you've already made can you talk about you know the thought process that went into that and how long you kind of assume that the.
The production would be down and how long this would kind of last that major go forward with these are these moves.
Sure. So we've been planning for various scenarios for quite awhile and get it helped that we knew what was coming from our experiences in China.
The situation now just maybe add a little bit more color on its you know the situation in Asia, we saw the China plant shutdown for the Chinese new year, and then get extended that the China plant was temporarily paused and then running at lower than full capacity as it ramps back up the Meanwhile, our plants in Malaysia, and India cutting.
Moving to run completely unaffected and we were able to make a lot of hi transitions.
Our supply chain to minimize customer disruption.
Scenarios that you can imagine for Europe in Americas might be different as the virus spreads throughout these regions. It is possible that we could see.
All the factories in EMEA shut down at the same time, it's possible. We can see all of the factories in the Americas shutdown at the same time, obviously, a much bigger part of our business. We don't know that that's going to happen and we and if they do we don't really know for how long.
Just one illustration of that are Malaysia factory was shutdown.
A few weeks ago through and it was announced to these two about the end of March and just today. It's been now extended low to mid April so as these closures happens into government orders Halloween.
Realized that they may not last you may last longer than people are saying so as we considered our alternatives we handle imagine a scenario, where we could have a multiple factories not main fashion product now we have about a week finished goods typically sell a factory like Grand Rapids factories, I no longer able to operate.
We may continue to shift finished goods for about a week and then revenues very quickly thoughts of zero and cash machines after that could fall to zero as well.
So those are some of those scenarios, we were modeling and that's why we knew we wanted to move very quickly and very decisively.
But I will say well the fees are.
Although these are significant measures, they're also temporary and out and so if they last a few weeks into last longer than that we're ready to adapt.
Great. That's that's very helpful and so how much you know a given that there they are temporary in nature, how much did they save you on a.
However, you want to put it on a weekly or monthly on an annualized.
Basis.
I'll, let Dave I feel that question.
Yeah Rubin, we're not going to provide that today, we're just not ready the numbers are moving around so ah. So much. So fast this is Americas or U.S. only at this point.
And involves lay offs across our direct labor force and some of the hourly folks that otherwise support manufacturing and distribution.
And then a significant reductions and pays and ours.
Across the salaried workforce. So you know the Americas workforce or the Americas business is our largest oh.
Segment, and I tried to give you some color around variable and fixed costs with the largest portion of our fixed cost being.
Employees and employee costs and the in the release in in our comments, we summarize how we're.
Reducing those I would just not going to be able to provide specific numbers are ranges at this point given how quickly this is moving in changing.
The fact that we just a implemented that within the last.
24 48 hours.
Yes, I'm totally understand.
So.
Just on the production that's that's currently shut down what percentage.
Your I mean, I guess in the Americas, what percentage of your current capacity is off line and are you have you filed for any potential waivers for any of those facilities that you are you still waiting to hear back if you do you have.
Yes, I'll talk about the.
The waiver isn't a degree to which we can continue to operate so.
In Michigan for example in every state is different every state has its own walls, but in Michigan. We're allowed to continue to operate to the extent were serving essential industries.
Like health care and Michigan.
Rule is very clear about this is about the testing for them license. So were making sure were honoring that those.
In terms of the specific suddenly Warner but also in the principle of numerator. So we are continuing to serve healthcare customers.
That's a team to do absolutely no real time co design on special kinds of products. They need just for this crisis as well.
We'll be able to do that.
To be able to do that we are have to be name.
As a as a key designated supplier Biden health care customers and getting those presentations and then we have to provide employees. We have working on those specific projects, let's take one thing to be able to work. So we are well we have done that and we are continuing to do that and we would imagine that will again be different and different.
Parts of the country, but that's basically held works.
I'll let.
Okay.
He has an estimate for the percentage of capacity affected by that.
I don't I mean, you if you wanted to try to estimated from previous disclosures you could look at square footage of facilities that we've disclosed back years ago, when that that's required disclosure, but I'll just remind you that we have two plants in west, Michigan, a plant in Athens, Alabama.
And two plants and Mexico wanted to you want to whatever dalsa.
I think you're familiar we make her seating and reynosa and.
And it's good component parts are connected to a global supply chain.
Which include our factory in Malaysia.
And we make cops and.
And other products and tier one Athens is because a large desking and storage facility.
Similarly in Grand Rapids, we do a storage and the.
Other other component parts and then we have our would factory here in Grand Rapids, So with the two factories closed in Grand Rapids, and Athens, and the Mexican facilities still being open they can still be disrupted even while they're open because of their supply chain linkages to either a grand rapids facilities.
Third party supply chains that may or may not be disrupted for our global supply chain like our factory in Malaysia, which is currently close and has been exposure has been extended as Jim just said.
Through the middle of the month.
Got it that's that's all very helpful and I'm going to sneak one more in sorry about all the.
Short term questions, but obviously, it's all top of mind right now I wanted to try to get one bigger picture question.
Lot of folks obviously working from home now what impact you no longer term do you think that this virus could potentially have on the the industry how people work where they work.
What what kind of impact it could have post the push the pandemic.
When we actually get that thanks, guys.
Sure. So it's a good question then.
I will use that to talk a little bit about how we can imagine coming out of this crisis. So again, we've experienced that's already in China, where people are coming back to the offices and people are coming back to the factories and business is beginning to resume although it is important to note that is not coming back to the.
The way it was before not exactly so as people come back they are far more aware of infection control and far more aware of social testing protocols.
There's not a lot of gatherings of people you know there is doing things on an ongoing basis said.
We're also just getting Easton here in the U.S. and in Western Europe.
And so I think led to a kind of a period of normal so as it relates to what that means for offices.
First of all we learned that.
I never said that he is working for home from home when everyone is forced to is not.
It's great it's completely ticket is.
So we know from our own research in front of again these spaces in China that there's a lot of issues with that people experience loneliness and sense of separation. Some of the work can be done without really any interruption, but there's a lot of work.
That can't be done its productively when people aren't together studies by other people have pointed out the same thing a significant plot Boston positivity.
People are working remotely.
And so I think everyone is gonna be glad to be able to come back together.
That is it doesn't mean that a remote mark or look at home will go away I think it'll take people have gotten used to would have learned how to do it better but I think we'll also understand is a big difference between the level of productivity competitiveness.
I'm trying to develop new product to kind of serve customers. It's just that same when everybody at home.
So that's the first part secondly, when she's maybe more short term.
As people come back to work, whether it's going back the factories or its coming back to offices. It wont be because the virus has got.
Because the healthcare system has now been able to scale up and then together able to flatten the curve enough that the healthcare system has been able to fine yeah.
Just a virus on an ongoing basis. So fascinating we'll have all around the world not just our factories everyone's factories will have to be are we consider to think about how you improve safety and we can divest of infection.
Offices will go to the same thing a lot of our customers are already trying to think about how do we how do we think about her off this happened to change so when the first people come back they feel safe.
Some of the opposite offices that exists around the world are very dense urban have embraced.
Products and solutions that have.
Maximize density with very little separation.
So we would expect a lot of customers are gonna have to reconsider that that'll be probably the first wave of opportunity. The second wave will be around I believe collaboration how do we make.
The better experience for people to work remotely. So every meeting has people in the future there will be physically together, but we'll continue to have people that are connecting from other places around the world for this crisis from the CEO down to everyone. In the company everyone knows the state of their ability to support remote work right now.
And I believe there'll be a new Uh huh.
Stability about that the new hearings expectations that people will have.
Around how what should be done more productively and also how a couple of price could be a safer place to be.
We think there's a lot of opportunities where helping clients already think about those things we're continuing to bring out more of the research we've done in the past.
As people use this caused said a lot of people listening in their businesses begin to think about what's next.
Thank you. Our next question comes from a bread Burns with Sidoti and company.
Morning.
In terms of.
The work rules there limit your ability to access.
The Americas.
Maybe take a little bit longer rollout for that area.
So the work rules are different in every country and so any pets that would make to generalize it.
I would fail.
I'd say, they're just different so for example in the U.S.. We are all used to hear the idea that the way people the way the government support business.
Studies like this is government is that people are often laid off and then yet see unemployment benefits begin to respond and so that's related to some of the actions we took yesterday as our people.
Temporarily laid off.
Hey, Visteon has a unemployment system that has been extended specifically for this crisis et cetera has for this crisis and our people be able to take advantage of that in countries in Europe. It works differently. So in some of the countries.
The including stay on the payroll, albeit at a lower rate and the government reimbursement the company.
Instead of the employing.
And so it looks different and it is different in each of those countries and so let me take a very local deals that we've been working through those things Asms actually think situation. So as I mentioned as of now we have.
Our plan to France is close than our class in Spain, and UK are likely to go through that very shortly.
Plant in Germany, and in the Czech Republic. He's operate so each country is different than we handle it.
Okay. Thanks.
No.
Yes.
Mandatory shutdowns.
Once once they are lifted how fast can.
Operations.
In the Americas.
Yes.
What's your expectation.
Getting back to normal.
So it's a good question where I.
I have to be Frank that.
I'll tell you what I think and then also have to admit that we never actually had Adidas before.
Idea that you would bring would bring a factory down for a summer vacation in the past and bring it back up but we had much less notice this time than we normally so.
Where we expect though and this is one of the benefits of the approach we took.
By shifting.
Our salaried workforce, including a lot of the people who work I don't want her management I wanted to that our time or 21 hour basis.
I was just even during this period when the assassins husband pause it allows us to begin planning and resorting how production schedules. So what could happen as we come out is that customers want to receive the orders in a different way than we were expecting when we were coming into the crisis.
Might have some parts of the country that business there.
Ability to receive in itself furniture earlier, and so we may have to kind of Reprioritizing resort and that's exactly there's lot of complexity behind that but that's the kind of stuff will be doing.
We also believe it can go back and say what did we learn in China is that that can come up.
Gradually over time it may not be that we think the taxes from zero to 100% on day, one maybe was suffering a certain lines up with became apparent for certain products. So thats. All ahead of us it's still speculation, but it just give me a few the scenarios with it.
Okay.
David.
You mentioned.
Working capital.
<unk>.
Yeah.
Inventory, that's getting filled up.
Yes.
What kind of levels expected to carry.
Thanks.
Sure.
From an inventory perspective, I think you're familiar that first were made to order and with the implementation of lean and our global supply chain, we carry very low inventory days.
Raw material is quite load finished goods as Jim references in the approximate range of about a week of finished goods that that's either at the end of the manufacturing line or in between the plant and the distribution centers are sitting at our regional distribution centers.
What we imagine as we've we've procured material or production next week. So that inventory is on its way of course, we're working with their supply chain to try to slow it down however, suppliers hold it cancel those orders to lay those orders et cetera, but some of that is just normal flow and it's.
It's on its way through our factories or its its inventory that we're going to be obliged to take and our finished goods is sitting in our in our distribution centers in many of the parts of the country, where we are shut down so I think what.
What you're going to see is the inventory levels are going to are likely going to build especially relative to the volumes that were producing simply because we're in a shutdown mode.
That's about all I would say relative to that up to the other parts of working capital.
Oh, we're receivables are pretty good have been good up until recently and really haven't changed much any kind of significant way.
You can imagine if our if our dealers are.
Not able to ship and deliver and collect revenue that it could so in some ways disrupt our.
Inflow of cash receipts related to receivables now Weve got terrific incentives.
That are available that has always been available to our dealers to get early payment and we hope those will continue and in some circumstances were also considering expanding those two really encourage our or dealers to get deposits or early payment.
From their customers in order to keep the a cash inflows on our existing receivables are coming in.
I'll just add to that as we're focused on the close as they have been in Michigan. This week, we continue to run that that really huge patching, Alabama and two factories in Mexico that can change at any time, we have no way really knowing what could happen over the government water, but we're running.
Production in Alabama, where shipping production in Alabama, we're running production in Mexico, and so that's an area. We're talking about is the potential scenario that all the factors can be close same time, but we're open for business and we're running a lot of production today.
Okay. Thank you.
Our next question comes from Stephen Ramsey with Thompson Research group.
Good morning, I guess to pick up on the dealer conversation.
Our dealer Hell.
Good broadly in the Americas.
Or their bold measures that dealers are having to take to survive very concerned about the viability of dealers and this time period or does it depends on the timeframe. This whole thing.
So overall dealer health is really really good now we just had.
The best here in 20 years, which means our dealers also had a really good here collectively.
Hi, so.
Compare if he had to pick a time, we've never pick a time to have something like this happens, but if you had to pick one that people are.
I would say are very very strong right now.
Gained market share in orders as we said over that last quarter.
We shipped a lot of product.
We've been responding to the opportunities and ancillary the acquisitions are doing well give us I'm very good shape.
And then we color he lives and we have a phone call that our head of sales and his team every single day just to check in on the top healing.
It does anything change because of the choices changing quite quickly.
It's really remarkable and yet if you sit back and think about email yeah. I guess, that's what I'd expect so can talk to a dealer who might be in a market. That's close so some of the west coast markets, where.
Orders have gone in place and they give us console operate.
Healthcare customers, but they really had to adjust their business as those orders have taken hold the definitely feeling some effect of that but they're pretty good shape and never heard anything concerning about that Meanwhile, dealers in other parts of the U.S. have had literally no impact I mean, they havent had the orders in their state.
If anything they're calling us asking us.
Can we couldn't ship the product that.
They have orders and that can deliver to their customers and you know our inability to now of manufacture those types in certain places becoming number one issue there can be seen since our ability to ship.
So.
This is still a very localized kind of thing state by state and.
I hope that that help answer your question, Dave I don't know if you have anything you want to add to that sounds a lot of people off I guess could monitoring dealer health.
Yes, no I won't repeat anything Jim said I agree with everything I would just say that.
If you use 2008, the financial crisis 2009, as a reference point I was so impressed with how our distribution channel handled that significant dramatic drop in revenue that hit everybody. It showed how variable their cost structures are and how quickly they moved to adjust their.
For their fixed cost so I I know they they've they've been through it before not certainly not a pandemic or anything like this but they they know how to manage their business quite effectively and as Jim said. They just finished the the best year, and maybe 20 years for them as well.
Thanks for the color.
I guess shifting to.
You may or orders.
You know strong what drove that and kind of in conjunction with oil prices.
Coming down.
Are those orders being pushed out into the band.
Phil I'm fine there even though.
Well certainly has an impact on certain area.
[noise] doesn't Jim So I'll start to say talking overall about EMEA. So the I'd say, what's happening there in the coming together of all these things we've talked about now for the last couple of years, we have.
First of all done a lot to enhance our product portfolio updater broaden it has a lot more relevant current products to sell today than we had a few years ago and it's definitely we've done a lot.
On the manufacturing side to improve our quality improve our on time performance.
We've had issues sometimes in the past the we've had really good run here consistent performance against dealers and customers a lot of confidence.
Doing well.
Great well do I'll remind you all was already a period of uncertainty we had a lot going on in the world before the.
We're.
Very happy about that second second thing is that we open the link a few years ago and even sharing with all of you the number of customers come to visit.
Okay signaling, it's really kind of pain that not just they experienced that is about our business in Germany, it's about our business across them yet across the world and that has helped us convert a lot more potential customers into customers, who won new business and we can attribute it specifically who experiences the cuts.
I've had the like that because of the building necessarily that because our people. The way we are able to interact with people in an environment like that helps clients understand how the research translates into better ideas for office spaces and helps us compete more effectively so I'd say, it's it's products this operations.
The link and then we've won some really key customers over the last year and that volume is continuing to build and it's starting to show up in the results. So.
Nothing really I think specific to the fourth quarter.
It's more the culmination of things that a lot of people and working on over the last several years and Dave I don't know if you have anything specific about.
The middle East and oil prices for Europe Privia for now.
Well, we tried to size did in my remarks itself the largest piece, but it is an important piece and historically, it's been one or the more profitable areas of our business. So I want to at least give some color and remind about people about that well. The other thing I'd, maybe would add to what Jim said about the overall region as city in the certainly hit on it.
But is the leadership around sales leadership around the region as really.
Ben is terrific is that pick the UK as an example to be reversing evaluation allowance against a net operating loss tax carry forward in the midst of Brexit.
It is almost counterintuitive, but the results that we've been achieving in the UK have just been terrific and I think that's a function of the leadership.
Throughout the region, including in the specific markets.
Great I'll, let me shift to.
Data date businesses and try to get a little bit up a picture.
The demand.
Out there aside from that.
Maybe if possible kind of aside from the issues going on but but how long dated day business holding up in recent we.
Can you talk that by segment for geography.
Yeah. Unfortunately, Stephen I don't have weekly split of revenue, Mike was able to cobbled together you know kind of what are weekly revenue was looking like through the first three weeks compared to last year, which I referenced was up nicely, but I don't have the breakdown on or on a weekly basis of whether its day to day process.
Correct.
That's true what was interesting is through Q4.
Our growth or the success was driven by day to day and project.
Business. The other another data point, that's kind of interesting is it is pre Ur cobot 19 coming into the Americas, but we did have nice opportunity creation in our pipelines late in the fourth quarter, which helped bring the full fiscal year to reflect growth.
No again its project activity in our CRM tools. So it's only a portion of our overall business, meaning day to day business is very important.
But before this thing has really spread significantly in the U.S., we were seeing nice opportunity creation, and our pipelines were improving coming into the fiscal year.
So that's another reason why I think it's important that we manage the short term like we're managing while simultaneously preparing for re entry.
Because when we do come out of this I do I do think there's going to be a level of pent up demand arc, our organization that everything we hear from our people is they are still very busy working from home working on projects that are still in inflate whether they are planned in the near term for later in the fiscal year.
Great to hear lasting for me on.
I may have missed this in the prepared remarks, what it what is maintenance capex levels and are you pondering going below.
Maintenance Capex levels, even you know as long as this last.
Well.
It's a good question and yes in this time period, we do think different about maintenance kinda Capex. If you went back and looked at previous downturns are financial crisis and looked at the level of.
Capex that we had.
In those periods it was quite low less than $50 million a year.
And so we know how to do that and we're we've looked at every single relatively large capital project.
To to ensure that we want to.
Make a decision on whether remove them forward or we slow them down or stop them I think our maintenance capex is going to behave like it did in the financial crisis, you'll see it come down considerably, but we're also going to protect some of our investments in new products and growth ideas. Because again, we do think will emerge from this thing its.
One point and we want to come out strong.
When we do.
Great. Thank you.
Our next question comes from Bill Dolsten with Titan capital.
Thank you I'm curious relative to your supply chain win.
Yes, if you were in need of.
Building product today.
Say with Alabama, and the Mexican facilities, where are your biggest supply chain.
Bottlenecks and then.
In China when you ramp back up this is my second question.
Where your delivery requests for your bottom you're you're I.
I guess bottlenecks are ramping that facility for was it the workers.
Being able to we're choosing to return to the plant that created the Oh, the bottleneck and ramping.
Yeah. This is Jim it's all set the I'll answer those questions and maybe Dave can help me if he has other idea so the.
And supply chain no supply chain is pretty broadly distributed.
Up until let's say last week and think that don't have an update in the last two days.
In Wisconsin and Austin.
Up until last week, we've done really well being able to continue to meet customer commitments without disruption despite changes ever happening in other parts of the world. So we do have some suppliers.
Oh that are based in Asia based in China other parts of Asia.
Parts and other components that are kind of upstream of for me Dan Yes. Some of them did experience disruptions and in most cases it was a slowing of their capacity or it might have been <unk> delay or it might have been a reduction in their capacity.
Our teams were able to manage their.
Working process.
So it was on the water weeks of inventory buffer inventory and we were able to worked that down in a way that we had very little customer disruption you get down to the end of finished goods on operations teams that contain yes. Our thing now it's not perfect you can't have sometimes a situation where there is a particular supplier that makes a particular thing and if they can make a fan.
Okay, I think that particular product.
It's also opportunity sometimes for customers for us to go back them to say you or is this product and that probably I mean, they have a longer lead time now, but but there's other products that are somewhere that you could switch order from the first part for the second product and they think they can I make that choice themselves.
So that's the way it's worked up until now again this into the different as of today in March myself, but has a few days ago I've been.
Really really pleased with the adaptability and flexibility agility of our supply chain.
On your second question about in China, I didn't mean fine and in Asia, We find it was our ability to produce and deliver a CLO.
Was it the ability of cuts MRMC delivery or was that our ability to produce.
Again here well, what's interesting is I think it was both in the both they've largely in sync a much of the production we make in China is core customers in China. So as we were coming back and operating a partial capacity they were as well there were definitely some customers who asked us to hold.
Hi products have a range the concept.
There was some that assets distillate production on things because they weren't ready how could we have plenty of other customers, who we asked.
Now for their patients, while we caught up but from what I understand from our teams over there. It was largely imbalance I can take it overall it was largely imbalance that neither.
The one side not the other side they kind of downing thinking they came back in saying that may not be the same.
Other places around the world now this happens, but that's okay experience there.
Thank you for the color.
Again, ladies and gentlemen, you have a question or comment at this time. Please press Star then one key on your Touchtone telephone.
And I'm not showing any further questions. We're talking about turn the call back over to Jim.
Thank you stay safe everybody and thank you for your interest that's okay.
Ladies and gentleman supposed conclude todays presentation. You may now disconnect have a wonderful day.