Q4 2024 Steelcase Inc Earnings Call

Good morning, My name is Dennis and I will be your conference operator today.

Operator: Good morning, my name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Steelcase fourth quarter fiscal 2024 conference call. All lines have been placed on mute to prevent any background noise.

Speaker Change: At this time I would like to welcome everyone to the Steelcase fourth quarter of fiscal 'twenty 'twenty four conference call.

Dennis: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Mr. O'Meara, you may begin your conference. Thank you, Dennis. Good morning, everyone.

Dennis: If you would like to ask a question. During this time simply press star followed by the number one the envoy telephone keypad. If you would like to withdraw your question Press Star One again, Mr. O'meara you may begin your conference.

O'meara: Thank you Dennis good morning, everyone. Thank you for joining us for the recap of our fourth quarter and fiscal 2024 financial results here with me today are Sarah Armbruster, our President and Chief Executive Officer, and Dave Sylvester, Our senior Vice President and Chief Financial Officer.

Mike O'Meara: Thank you for joining us for the recap of our fourth quarter and fiscal 2024 financial results. Here with me today are Sara Armbruster, our President and Chief Executive Officer, and Dave Sylvester, our Senior Vice President and Chief Financial Officer. Our fourth quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast, and this webcast is a copyrighted production of Steelcase Inc. A replay of this webcast will be posted to ir.steelcase.com later today.

O'meara: Our fourth quarter earnings release, which crossed the wires yesterday is accessible on our website. This conference call is being webcast and this webcast is a copywriter production of Steelcase, Inc.

O'meara: A replay of this webcast will be posted to IR steelcase com later today.

Mike O'Meara: 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 risks associated with the use of forward-looking statements are included in our earnings release, and we are incorporating by reference into this conference call the text 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, Sara Armbruster. Thanks, Mike. Hi everyone.

O'meara: 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 risks associated with the use of forward looking statements are included in our earnings release, and we are incorporating by reference into this conference call. The text of our Safe Harbor statement included in the release.

O'meara: 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, Sarah Armbruster.

Sara E. Armbruster: Thanks, Mike Hi, everyone and thanks for joining the call today, our fourth quarter results reflect strong earnings growth as we continue to make progress on our profit improvement initiatives.

Sara E. Armbruster: And thanks for joining the call today. Our fourth-quarter results reflect strong earnings growth as we continue to make progress on our profit improvement initiative. This progress is evidenced by our year-over-year gross margin improvement of 140 basis points, marking the seventh consecutive quarter of year-over-year gross margin improvement. For the full fiscal year, our earnings per share more than doubled versus the prior year, and our adjusted earnings per share increased by more than 60%.

Sara E. Armbruster: This progress is evidenced by our year over year gross margin improvement of 140 basis points, marking the seventh consecutive quarter of year over year gross margin improvement.

Sara E. Armbruster: For the full fiscal year, our earnings per share more than doubled versus the prior year and our adjusted earnings per share increased by more than 60%.

Sara E. Armbruster: I'm proud of our employees for actively helping to capture price increases to offset the significant inflationary costs we absorbed over the past couple of years, for implementing improvements in various aspects of our operations, and for continuing to drive our overall fitness initiatives. These efforts to improve our profitability and to reallocate resources are supporting specific growth initiatives and transformation priorities, allowing us to continue to invest in our strategy while strengthening our financial results. Building on this, I'm pleased to share that our international segment posted additional improvement this quarter with over $3 million of adjusted operating income, following strong results in the third quarter. These past two quarters reflect significantly improved performance from the nearly $15 million adjusted operating loss that the international segment recorded in the first half of the year. To continue to enhance our competitiveness, we implemented additional restructuring actions in the fourth quarter in our Asia-Pacific business. And Dave will provide some further details about our expectations for the international segment when he covers our outlook.

Sara E. Armbruster: How'd of our employees for actively helping to capture price increases to offset the significant inflationary costs, we absorbed over the past couple of years for implementing improvements in various aspects of our operations and for continuing to drive our overall fitness initiatives.

Sara E. Armbruster: These efforts to improve our profitability and to reallocate resources are supporting specific growth initiatives and transformation priorities, allowing us to continue to invest in our strategy, while strengthening our financial results.

Building on this I'm pleased to share that our international segment posted additional improvement this quarter with over $3 million of adjusted operating income following strong results in the third quarter.

Sara E. Armbruster: These past few quarters reflects significantly improved performance from the nearly $15 million adjusted operating loss at the International segment recorded in the first half of the year.

Sara E. Armbruster: To continue to enhance our competitiveness, we implemented additional restructuring actions in the fourth quarter in our Asia Pacific business and Dave will provide some further details about our expectations for the international segment when he covers our outlook.

David C. Sylvester: So turning to orders we grew 4% overall in the fourth quarter versus the prior year and that includes 8% growth in the Americas.

Sara E. Armbruster: So turning to orders, we grew 4% overall in the fourth quarter versus the prior year, and that included 8% growth in the Americas. Similar to last quarter, Americas growth was once again led by the large corporate customer segment. Customers tell us they need our help to create spaces that will attract new talent and engage and retain employees and help teams and individuals perform. And they know their spaces must do more, and they must be designed to support a range of needs, such as providing places to focus, collaborate, build social connections, and foster well-being. So I'll reinforce this point with a quick anecdote.

David C. Sylvester: Similar to last quarter, the Americas growth. Once again was led by the large corporate customer segment.

David C. Sylvester: Customers tell us they need our help to create spaces that will attract new talent and engage and retain employees and help teams of individuals' perform.

David C. Sylvester: And they know their spaces must do more and they must be designed to support a range of needs such as providing places to focus collaborate.

Speaker Change: Built social connections and foster wellbeing. So all reinforced this point with a quick anecdote I was with the CEO of a major Global Corporation recently NSE contemplated the upcoming renovation and expansion of their innovation center. He shared with me is absolute certainty that the new space must do more to support innovation.

Sara E. Armbruster: I was with the CEO of a major global corporation recently, and as he contemplated the upcoming renovation and expansion of their innovation center, he shared with me his absolute certainty that the new space must do more to support innovation teams. And he said, I know what outcomes we want this building to deliver, but I don't know how to make that happen.

Speaker Change: Teams and he said I know what outcomes, we want this building to deliver but I don't know how to make that happen.

Sara E. Armbruster: And in that moment, when a client knows they need new thinking and expert advice, Steelcase shines. We've stayed invested in workplace research and new product development to maintain and enhance our portfolio, and we believe this is reflected in the continued strength of our win rate. We're further encouraged by data points in the Business Roundtable survey on CEO confidence, which showed a significant increase this quarter, and it reached the highest level in the past 18 months as optimism in the United States economy is strengthening. We believe this increase in confidence could also support increased business investment. As we seek to lead the transformation of work and diversify the customer and market segments we serve, we continue to expand our product portfolio, including new launches this quarter. In EMEA, our Orange Box brand launched Beyond the Desk, which is a modular upholstery system that offers a supportive upright sit in combination with ergonomic fixed work tables. It effectively divides spaces, offering privacy for individuals, teams, and larger collaborative workgroups.

Speaker Change: And in that moment, when a client knows they need new thinking and expert advice is where steelcase shines.

Speaker Change: He stayed invested in workplace research and new product development to maintain and enhance our portfolio and we believe this is reflected in the continued strength of our win rates or.

Speaker Change: We're further encouraged by data point.

This roundtable survey on CEO confidence, which showed a significant increase this quarter and it reached the highest level in the past 18 months, there's optimism in the United States economy is strengthening we.

Speaker Change: We believe this increase in confidence could also support increased business investment levels.

Speaker Change: As we seek to lead the transformation of work and diversify the customary market segments. We serve we continue to expand our product portfolio, including new launches this quarter in EMEA, our Orange box brand launched beyond the desk, which is a modular upholstery system that offers a supportive upright fit in.

Speaker Change: Combination with ergonomic fixed work tables, it effectively goodbye spaces offering privacy for individuals teams and larger collaborative work groups.

Sara E. Armbruster: At AMQ, the Personality Plus Task Chair leverages our Asia Pacific portfolio to bring a new offering to the Americas. Personality Plus is designed to give small and medium businesses a new option for comfortable, supportive, ergonomic seating. And similarly, the Steelcase Learning Agree chair leverages our Smith System brand to offer a versatile and simple seating option at a lower price point to our education customers.

Speaker Change: At <unk>, the personality, plus cash chair Leverages, our Asia Pacific portfolio to bring a new offering to the Americas.

Speaker Change: Personality plus is designed to give small and medium business is a new option for comfortable supportive ergonomic seating.

Speaker Change: And similarly, the Steelcase learning agreed chair Leverages, our Smith system brand to offer a versatile and simple seating option at a lower price point to our education customers.

Sara E. Armbruster: All three of these examples highlight our efforts to deliver innovation and value to our customers, leverage our scale, and complement our broader portfolio of products from across our brands. Finally, I'd like to share a little more about our business transformation initiative, which is one of the drivers of our increased investment level in fiscal 2025. Business transformation, for us, is about optimizing and automating our business processes. We introduced business transformation about a year ago at our investor day when we were in the initial phases of planning. And since then, we've been designing streamlined and modernized end-to-end processes.

Speaker Change: All three of these examples highlight our efforts to deliver innovation and value to our customers leverage our scale and complement our broader portfolio of products from across our brands.

Speaker Change: Finally, I'd like to share a little more about our business transformation initiative, which is one of the drivers of our increased investment level in fiscal 2025.

Speaker Change: Business transformation for us is about optimizing and automating our business processes.

Speaker Change: We introduce business transformation about a year ago at our Investor day, when we were in the initial phases of planning and since then we've been designing streamlined and modernized end to end processes.

Sara E. Armbruster: These improvements are aimed at providing new capabilities to serve our customers and make it easier to do business with Steelcase. We also expect to drive higher levels of efficiency in the ways we operate our business, which should free up resources and lower our costs. So over the next year, we'll be continuing that work and implementing a new enterprise resource planning system as part of our business transformation initiative. We view this as a major opportunity to increase efficiency and effectiveness, and it will also require significant resources.

Speaker Change: These improvements are aimed at providing new capabilities to serve our customers and make it easier to do business with C. L case.

Speaker Change: We also expect to drive higher levels of efficiency in the way, we operate our business, which should free up resources and lower our costs.

Speaker Change: So over the next year will be continuing that work and implementing a new enterprise resource planning system as part of our business transformation initiatives. We view this as a major opportunity to increase efficiency and effectiveness and it will also require significant resources.

Sara E. Armbruster: So we're eager to see the impact of this work evolve over the next year, and we'll have more details to report in the coming quarter. In closing, we delivered strong profit improvement in fiscal 2024. Over the past two quarters, we have seen stronger demand levels, especially from our large corporate customers. We're seeing more and more companies settle into a stronger in-office presence, and we are optimistic their investment levels will increase in response to new business needs. We remain focused on executing our strategy to lead the workplace transformation, diversify the customer and market segments we serve, and improve our profitability. With that, I'll turn it over to Dave to review the financial results and share details regarding our first quarter outlook and fiscal 2025 target. Thank you, Sara. And good morning, everyone.

Speaker Change: So we're eager to see the impact of this work evolve over the next year and we'll have more details to report in the coming quarters.

Speaker Change: In closing, we delivered strong profit improvement in fiscal 2024 over the past two quarters, we have seen stronger demand levels, especially from our large corporate customers.

Speaker Change: We're seeing more and more companies settle into a stronger in office presence and we are optimistic that their investment levels will increase in response to new business needs.

Speaker Change: We remain focused on executing our strategy to lead the workplace transformation diversify the customary market segments, we serve and improve our profitability.

Speaker Change: With that I'll turn it over to Dave to review the financial results and share details regarding our first quarter outlook and fiscal 2025 targets.

David C. Sylvester: Thank you Sarah and good morning, everyone. My comments today will provide some additional color around our fourth quarter results, including a comparison to the outlook. We provided in December as well as some comments regarding our orders the balance sheet and our cash flow.

David C. Sylvester: My comments today will provide some additional color around our fourth-quarter results, including a comparison to the outlook we provided in December, as well as some comments regarding our orders, the balance sheet, and our cash flow. I will also cover the outlook for the first quarter and our targets for fiscal 2025. Our fourth-quarter adjusted earnings of 23 cents per share was at the top end of the range we provided in December.

David C. Sylvester: I will also cover the outlook for the first quarter and our targets for fiscal 2025.

David C. Sylvester: Our fourth quarter adjusted earnings of 23 per share was at the top end of the range we provided in December.

David C. Sylvester: Our revenue of $775 million was near the midpoint of our range, and our gross margin and operating expenses were in line with our expectations. Our adjusted earnings per share benefited by approximately two cents from net favorable adjustments which were related to our unconsolidated affiliates and were reflected in other income. Moving on to the sequential comparison of our fourth quarter results versus the third quarter, adjusted operating income of $34 million in the fourth quarter represented a sequential decrease of $16 million, including a $10 million decrease in the Americas and a $6 million decrease in international. The declines were due to third quarter benefits, which totaled $15 million and were related to the revaluation of an earn out liability and gains from the sale of land and fixed assets. For the international segment, this was the second consecutive quarter of posting adjusted operating income following a challenging first half of the year. For the second half, the international segment posted adjusted operating income of $12 million, which compares to an adjusted operating loss of $15 million in the first half.

David C. Sylvester: Our revenue of $775 million.

David C. Sylvester: It was near the midpoint of our range and our gross margin and operating expenses were in line with our expectations.

David C. Sylvester: Our adjusted earnings per share benefited by approximately <unk> <unk> from net favorable adjustments, which were related to our unconsolidated affiliates and were reflected in other income.

David C. Sylvester: Moving on to the sequential comparison of our fourth quarter results versus the third quarter adjusted operating income of $34 million in the fourth quarter represented a sequential decrease of $16 million.

David C. Sylvester: Including a $10 million decrease in the Americas, and a $6 million decrease in international.

The declines were due to third quarter benefits, which totaled $15 million and were related to the revaluation of an earn out liability and gains from the sale of land in fixed assets.

David C. Sylvester: For the International segment. This was the second consecutive quarter of posting adjusted operating income following a challenging first half of the year for.

David C. Sylvester: For the second half the international segment posted adjusted operating income of $12 million, which compares to an adjusted operating loss of $15 million in the first half.

David C. Sylvester: As it relates to cash flow on the balance sheet, we generated $57 million of cash from operations in the fourth quarter, driven by strong earnings and a $24 million reduction in working capital as we continue to manage down our inventory level. In addition, we generated $20 million of proceeds from the sale of our remaining corporate aircraft. And we funded $10 million of capital expenditures and $12 million of dividends during the quarter. Our liquidity totaled $486 million at the end of the quarter, and our total debt was $446 million.

David C. Sylvester: Okay.

David C. Sylvester: As it relates to cash flow and the balance sheet, we generated $57 million of cash from operations in the fourth quarter, driven by strong earnings and a $24 million reduction in working capital as we continued to manage down our inventory levels.

David C. Sylvester: In addition, we generated $20 million of proceeds from the sale of our remaining corporate aircraft and.

David C. Sylvester: And we funded $10 million of capital expenditures and $12 million of dividends during the quarter.

David C. Sylvester: Our liquidity totaled $486 million at the end of the quarter and our total debt was $446 million.

David C. Sylvester: Our trailing four quarter adjusted EBITDA is $264 million, or 8.4% of revenue, reflecting a 190 basis point improvement over the same timeframe last year. We further strengthened our access to liquidity this quarter with a renewal and expansion of our credit facility, whereby we extended its maturity to February 2029 and expanded the borrowing capacity from $250 to $300 million. Orders in the quarter grew 4% compared to the prior year, including 8% growth in the Americas and a 6% decline in international. Across the months, we posted 4% growth in December, a 1% decline in January, and 10% growth in February. The order growth in the Americas was primarily driven by large corporate customers across both continuing and project business.

David C. Sylvester: Our trailing four quarter, adjusted EBITDA is $264 million or eight 4% of revenue.

David C. Sylvester: <unk>, a 190 basis point improvement over the same timeframe last year.

David C. Sylvester: We further strengthened our access to liquidity this quarter with the renewal and expansion of our credit facility, whereby we extended its maturity to February 2029, and expanded the borrowing capacity from $250 million to $300 million.

David C. Sylvester: Orders in the quarter.

David C. Sylvester: <unk>, 4% compared to the prior year, including 8% growth in the Americas, and a 6% decline in international.

David C. Sylvester: Cross the months, we posted 4% growth in December a 1% decline in January and 10% growth in February.

David C. Sylvester: The order growth in the Americas was primarily driven by large corporate customers across both continuing and project business.

David C. Sylvester: Q4 marks the fourth consecutive quarter of year-over-year order growth from continuing business, and we believe the growth in orders related to project business is reflective of our strong win rates in fiscal 2024. Across other customer segments in the Americas, we saw order growth from our education and small to midsize customers, while orders from the health, government, and consumer retail sectors declined. The order decline in International was driven by EMEA as we experienced softness in the UK and France.

David C. Sylvester: Q4 marks the fourth consecutive quarter of year over year order growth from continuing business and we believe the growth in orders related to project business is reflective of our strong win rates in fiscal 2024.

David C. Sylvester: Across other customer segments in the Americas, we saw order growth from our education and small to midsized customers, while orders from the health government and consumer retail sector has declined.

David C. Sylvester: The order decline in international was driven by EMEA as we experienced softness in the UK and France.

David C. Sylvester: However, in Asia-Pacific, we had double-digit order growth again this quarter, which was driven by India, Japan, and Australia, partially offset by continued softness in China. Turning to our outlook for the first quarter, our Q4 orders grew 4%, including 10% growth in February, and orders during the first three weeks of Q1 grew by 10% compared to the prior year. However, our beginning backlog was down 8% compared to the prior year, which was impacted by customer orders that had accumulated in part due to supply chain disruptions and extended delivery timeframes.

David C. Sylvester: However in Asia Pacific, We had double digit order growth again, this quarter, which was driven by India, Japan, and Australia, partially offset by continued softness in China.

David C. Sylvester: Turning to our outlook for the first quarter, our Q4 orders grew 4%, including 10% growth in February and orders during the first three weeks of Q1 grew by 10% compared to the prior year.

David C. Sylvester: However, our beginning backlog was down 8% compared to the prior year, which was impacted by customer orders that had accumulated in part due to supply chain disruptions and extended delivery timeframes as.

David C. Sylvester: As a result, we expect to report revenue within a range of $715 to $740 million, which translates to a range of down 3% to approximately flat on an organic basis compared to the prior year. We expect to report adjusted earnings of between 8 and 12 cents per share, which compares to 9 cents in the prior year. In addition to the projected range of revenue, the adjusted earnings estimate includes estimated gross margin of approximately 32% and projected operating expenses of between $215 to $220 million, which includes $4.3 million of amortization related to purchased intangible assets. And lastly, we expect interest expense and other non-operating items to net to approximately two million dollars of expense, and we're projecting an effective tax rate of approximately 27%.

David C. Sylvester: As a result, we expect to report revenue within a range of $715 million to $740 million, which translates to a range of down 3% to approximately flat on an organic basis compared to the prior year.

David C. Sylvester: We expect to report adjusted earnings of between 8% and 12 per share, which compares to nine in the prior year.

In addition to the projected range of revenue. The adjusted earnings estimate includes estimated gross margin of approximately 32%.

David C. Sylvester: Rejected operating expenses of between $215 million to $220 million, which includes $4 3 million of amortization related to purchased intangible assets.

David C. Sylvester: And lastly, we expect interest expense and other non operating items to net to approximately $2 million of expense.

David C. Sylvester: And we are projecting an effective tax rate of approximately 27%.

David C. Sylvester: As we begin fiscal year.

David C. Sylvester: As we begin fiscal year 2025, we remain optimistic about the growing number of companies in the United States that are emphasizing a physical presence in their offices for a minimum number of days per week. And we believe this trend positively impacted our fiscal 2024 order level. For fiscal 2025, we are targeting a mid-single-digit growth rate for orders, including continued growth from our large corporate customers and growth across most other customer segments and geographical regions. However, we enter fiscal 2025 with a lower beginning backlog, which will negatively impact our revenue growth early in the fiscal year.

David C. Sylvester: 2025, we remain optimistic about the growing number of companies in the United States that are emphasizing physical presence in their offices for a minimum number of days per week and.

David C. Sylvester: And we believe this trend positively impacted our fiscal 2024 order levels.

David C. Sylvester: For fiscal 2025, we are targeting a mid single digit growth rate for orders.

Including continued growth from our large corporate customers and growth across most other customer segments and geographical regions.

David C. Sylvester: However, we enter fiscal 2025 with a lower beginning backlog, which will negatively impact our revenue growth early in the fiscal year.

David C. Sylvester: As a result, we are targeting organic revenue growth for the full year within a range of 1 to 5%. Fiscal year 2025 will also benefit from an extra week of revenue and the related marginal earnings in the fourth quarter, but that revenue benefit is not included in our projection of organic growth. As it relates to earnings, I want to first provide some context around fiscal 2024 results as a basis for comparison. Recall our fiscal 2024 adjusted earnings of $0.93 per share included the benefits of lower operating expenses associated with the revaluation of an earnout liability and gains from the sales of land and fixed assets, which together aggregated to $20.4 million or approximately $0.12 per share after adjusting for variable compensation and tax. Excluding these items, our fiscal 2024 adjusted earnings would have approximated $0.81 per share compared to our fiscal 2025 targeted adjusted earnings of between $0.85 and $1 per share.

David C. Sylvester: As a result, we are targeting organic revenue growth for the full year within a range of 1% to 5%.

David C. Sylvester: Fiscal year 2025 will also benefit from an extra week of revenue and the related marginal earnings in the fourth quarter, but that revenue benefit is not included in our projection of organic growth.

David C. Sylvester: As it relates to earnings I want to first provide some context around fiscal 2024 results as a basis for comparison.

David C. Sylvester: Recall, our fiscal 2024 adjusted earnings of 93 per share included the benefits of lower operating expenses associated with the revaluation of an earn out liability and gains from the sales of land in fixed assets, which together aggregated to <unk> 24.

David C. Sylvester: Million dollars or approximately <unk> 12 per share after adjusting for variable compensation and taxes.

David C. Sylvester: Excluding these items our fiscal 2024 adjusted earnings would have approximated 81 per share compared to our fiscal 2025 targeted adjusted earnings of between 85 and $1 per share.

David C. Sylvester: In addition to the projected range of revenue, our fiscal 2025 earnings targets assume an improvement in gross margin to between 32.5% and 33.5% and increased operating expenses, including higher investments in our business transformation initiative, strategic growth initiatives, and employee costs. And lastly, we are targeting non-operating items to net to approximately $11 million. We are assuming an effective tax rate of 27 percent, and we are targeting capital expenditures of between $75 to $85 million.

David C. Sylvester: In addition to the projected range of revenue our fiscal 2025 earnings targets assumes an improvement in gross margin to between 32, 5% and 33, 5%.

David C. Sylvester: And increased operating expenses, including higher investments in our business transformation initiatives strategic growth initiatives and employee costs.

David C. Sylvester: And lastly, we are targeting non operating items to net to approximately $11 million. We are assuming an effective tax rate of 27% and we are targeting capital expenditures of between $75 million to $85 million.

David C. Sylvester: Our fiscal 2025 capital expenditure target includes an expected increase of between $20 million to $30 million as compared to fiscal 2024, due primarily to higher investments related to our new ERP system, which is part of the business transformation initiative that Sarah previously.

David C. Sylvester: Our fiscal 2025 capital expenditure target includes an expected increase of between $20 to $30 million as compared to fiscal 2024, due primarily to higher investments related to a new ERP system, which is part of the business transformation initiative that Sara previously mentioned. For the international segment, we are targeting positive adjusted operating income in fiscal 2025, including a smaller loss in the first half of the year as compared to fiscal 2024. In closing, fiscal 2024 earnings marked our strongest performance since the start of the pandemic and the onset of extraordinary inflation and supply chain disruption. Our adjusted earnings per share exceeded the targets we communicated a year ago, and we strengthened our balance sheet by generating $238 million of liquidity over the last four quarters.

David C. Sylvester: <unk> mentioned.

David C. Sylvester: For the International segment, we are targeting positive adjusted operating income in fiscal 2025, including a smaller loss in the first half of the year as compared to fiscal 2024.

David C. Sylvester: In closing fiscal 2024 earnings marked our strongest performance since the start of the pandemic and onset of the extraordinary inflation and supply chain disruptions.

David C. Sylvester: Our adjusted earnings per share exceeded the targets, we communicated a year ago, and we strengthened our balance sheet by generating $238 million of liquidity over the last four quarters.

David C. Sylvester: And we also renewed and expanded our credit facility in recent weeks. As we begin fiscal 2025, we're optimistic, and we remain resolved to continue leading the transformation of the workplace while diversifying our revenue base and improving our profitability. From there, we will turn it over to the questions. At this time, I would like to remind everyone that in order to ask a question, simply press star and then the number one on your telephone keypad. Your first question is from the line of Reuben Garner with Benchmark. Please go ahead. Thank you. Good morning, everybody. Hi Reuben,

David C. Sylvester: And we also renewed and expanded our credit facility in recent weeks.

David C. Sylvester: As we begin fiscal 2025, we're optimistic and we remain resolved to continue leading the transformation of the workplace.

David C. Sylvester: While diversifying our revenue base and improving our profitability from there we will turn it over for questions.

Speaker Change: At this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad.

Speaker Change: Your first question is from the line of Reuben Garner with benchmark. Please go ahead.

Reuben Garner: Thank you and good morning, everybody.

Reuben Garner: Hi, Reuben.

Reuben Garner: So.

Reuben Garner: So, in the last six to nine months, a lot of your internal pre-order activities have foreshadowed this recovery. Can you talk about, you know, what they are looking like at a high level today and tell me about the future and, I guess, kind of how that transpires into your targeted new single-digit organic growth outlook for the year? Oh, yeah, it still feels pretty good.

Reuben Garner: The last six to nine months a lot of your.

Reuben Garner: Internal preorder activity.

Reuben Garner: Foreshadowed.

Reuben Garner: Recovery.

Speaker Change: Can you talk about.

Speaker Change: What those are looking like at a high level.

Speaker Change: Good day, and telling you about the future and I guess kind of how.

Speaker Change: How that.

Speaker Change: Transpires and you're targeting mid single digit organic growth outlook for the year.

Speaker Change: Yes, it still feels pretty good.

Unknown Speaker: I don't have the specific stats of all the different variables that we highlighted six or nine months ago. We were actually starting to see the evidence in the order patterns, but generally, visits, mock-ups, and quoting have remained relatively high. Look at our pipelines and opportunity creation. It's a little lumpy as the opportunity creation is coming in, but our high confidence levels within our project opportunity pipelines, these are either projects we've won, it's business with an incumbent, a customer that we've been working with for years, or we feel like we're strongly positioned to win. So our sales have rated these projects as high confidence.

Speaker Change: I don't have the specific stats of all the different <unk>.

Speaker Change: Variables that we highlighted six or nine months ago before we were actually starting to see the evidence in the order patterns, but generally visits mock ups quoting.

Speaker Change: Have remained relatively high and look at our pipelines and opportunity creation, it's a little lumpy as the opportunity creation is coming in but our high confidence levels within our project opportunity pipelines. These are either projects we've won it.

Speaker Change: <unk> business with an incumbent a customer that we've been working with for years and we feel like we're strongly positioned to win so our sales team have raided these projects is high confidence that portion of the pipeline still reflects growth.

Unknown Speaker: That portion of the pipeline still reflects growth, and we feel pretty good about that as we look forward. I think even your recent survey over the last few months has shown improvement in the back half of the year projections from dealers across the industry. That, coupled with improved CEO confidence and a macroeconomic outlook, feels pretty good. I mean, I wouldn't call us bullish but certainly optimistic. Reuben, your line may be on mute if you're asking a follow-up question.

Speaker Change: We feel pretty good about that as we look forward.

Speaker Change: I think even your recent survey over the last few months has shown improvement about the back half of the year projections from dealers across the industry.

Speaker Change: That coupled with improved CEO confidence the macroeconomic outlook it feels pretty good.

I wouldn't call it bullish but certainly optimistic.

Speaker Change: Ruben you allow me on mute, if you're asking a follow up.

Ruben: Thank you.

Unknown Speaker: Yep, thank you. It was indeed. So, can you talk about how your price costs trended to close your fiscal year? What is left over from any pricing actions that you've announced over the last few years? And I don't believe you've announced one this year. Is that simply because you still have some carryover that can offset any inflation? Can you just kind of update us on the price cost side?

Ruben: It was.

Ruben: Can you talk about how your.

Ruben: Price cost trended to close your fiscal year, what is leftover for menu pricing actions.

Ruben: Now over the last few years and I don't believe you've announced one this year is that simply because you still have some carryover that can offset any inflation can you just kind of update updated from the price cost side.

Unknown Speaker: Unknown Speaker Yeah, the sales teams across the globe actually have continued to do a terrific job implementing the price adjustment that we did over a period of 18 months back two years ago. Those have continued to roll into some of our contracts, based on anniversary dates and other negotiations with our clients. So, we did continue to see some incremental pricing benefits, which has helped offset the extraordinary inflation that we saw and continue to see, actually. It's come down in some places, but only marginally relative to the level of inflation that we experienced over the last two or three years.

Ruben: Yes, the sales teams across the globe actually have continued to do a terrific job.

Ruben: Implementing the price adjustments that we did.

Ruben: Over a period of 18 months.

Ruben: Back two years ago.

Ruben: Those have continued to roll into some of our contracts.

Ruben: On the anniversary dates and other negotiations with our with our clients.

Ruben: So we did continue to see some incremental pricing benefits, which has helped offset the extraordinary inflation that we.

Ruben: We saw and continue to see actually.

Ruben: Come down come down in some places, but marginally relative to the level of inflation that we took over the last two or three years.

Unknown Speaker: So yeah, we saw benefits in the fourth quarter, and I think next year we'll see some residual benefits from those previous actions, you know, on a year-over-year basis and a little bit on a sequential basis. But as far as price adjustments, you're correct, we have not announced a price adjustment, I don't think since July of 2022. We did roll off the surcharge.

So yes, we saw benefits in the fourth quarter and I think next year, we will see some remaining residual benefits from those previous actions on a year over year basis.

Ruben: And a little bit on a sequential basis, but.

Speaker Change: As far as price adjustments you are correct, we have not announced the price adjustment I don't think since July of 2022.

Speaker Change: We did roll off the surcharge, we had a surcharge that we also put in place in July of 'twenty, two and so.

Unknown Speaker: We had a surcharge that we also put in place in July of 22, and we So our most recent pricing action was actually a reduction when we rolled back the surcharge in the Americas, I think in January of 23. And just to be clear, you are still experiencing inflation in certain areas? I know you mentioned you referenced employee costs and the release, but what about how are materials and other items kind of trending? Do you just not need a price increase because they're going off, and we just kind of update from that? I mean, in recent months, they've been turning summer up and summer down.

Speaker Change: So our most recent pricing action was actually a reduction when we rolled back the surcharge.

Speaker Change: In the Americas I think in January of 'twenty three.

Speaker Change: And just to be clear you are still.

Speaker Change: Inflation.

Speaker Change: Certain areas I know you mentioned you referenced employee costs in the loop, but what about.

Speaker Change: Our materials and Omar.

Speaker Change: Sure.

Speaker Change: And kind of Brendan.

Speaker Change: Just not need a price increase because Dave.

Speaker Change: Fallen off and we will come out from that.

Speaker Change: In recent months some are up some are down if I look at it over the last like two or three years it still inflated.

Unknown Speaker: If I look at it over the last like two or three years, it's still inflated. It's come off the peak a little bit, which is why we rolled off the surcharge back in January of 23. Okay, thanks. I'll pass it on.

Speaker Change: It's come off the peak, a little bit which is why we rolled off the surcharge.

Speaker Change: Back in January January of 'twenty three.

Speaker Change: Okay. Thanks, I'll pass it on congrats guys and good luck on the new year.

Unknown Speaker: Congratulations, guys, and good luck in the new year. Thank you. Your next question is from the line of Greg Burns with Sidoti. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Your next question is from the line of Greg Burns with Sidoti. Please go ahead.

Gregory John Burns: Morning. Obviously, you've done a great job of kind of repairing and improving margins over the last year or so, and I guess looking for a little bit more expansion next year. But do you have a longer-term target of where you think you could get? The consolidated operating margin for the business, I think, prior to the pandemic, was in the sixes.

Gregory John Burns: Good morning.

Gregory John Burns: Obviously, you've done a great job of.

Gregory John Burns: Repairing and improving margins over the last year.

Gregory John Burns: So.

And I guess looking for a little bit more expansion next year, but do you have a longer term target of where you think you could get.

Gregory John Burns: The consolidated operating margin for the business I think.

Gregory John Burns: Prior to the pandemic it was in the sixes, but where do you think whats a good target for.

David C. Sylvester: But, you know, where do you think is a good target for margins for the business as we look out maybe two to three years? Yeah, I think consistent with what we communicated on May 23 at our investor day, we're targeting a six to 7% adjusted operating margin in the midterm. So last year, we said that it was, Mike, four to five years out. So I guess this year, it's three to four years out. And I think you've heard us consistently talk about an international target in the mid single digits. So the Americas would have to be. Unknown Speaker: Okay, great.

Gregory John Burns: Margins for the business.

Gregory John Burns: As we look out maybe two to three years.

Speaker Change: Yes, I think consistent with what we communicated in May 23 at our Investor day, we're targeting a 6% to 7% adjusted operating margin in the mid term.

Speaker Change: So last year, we said that was what my four to five years out. So I guess this year, it's three to four years out.

Speaker Change: And I think you've heard us consistently talk about international target in the mid single digit so the Americas would have to be.

Speaker Change: Higher than that.

Speaker Change: Okay, great. Thanks, and I think at the Analyst Day, you had you had outlined a target of maybe $50 million of savings Central goes all cost of goods or elsewhere, how far along are you in progress.

David C. Sylvester: Thanks. And I think an analyst that you had, you had outlined a target of maybe 50 million in savings. I don't know if that was all close to goods or elsewhere. You know, how far along are you in progress towards that goal?

Towards that goal.

Speaker Change: It was $50 million and it was.

David C. Sylvester: It was $50 million, and it was really targeted at gross margin, and it excluded benefits from volume growth and pricing actions that we were continuing to try to put in place at the time. So it was really related to our overall footprint and efficiency in global operations. And we have made good progress. But we still have a ways to go.

Speaker Change: Really targeted on gross margin and it excluded.

Speaker Change: Benefits from volume growth and pricing actions that we were continuing to try to put in place at the time.

Speaker Change: So it was really related to our overall footprint and efficiency and.

Speaker Change: In global operations, and we have made good progress we still have a ways to go but we've seen some benefits, but there have been other parts of our.

David C. Sylvester: We've seen some benefits, but there have been other parts of our broader operations organization that have increased in cost, so we haven't seen the net benefit that we would like yet, but we're targeting in fiscal 25 incremental benefits from many of the actions that Sara has mentioned over the last few quarters. So I would say early to mid innings on achieving that objective. Okay, and then behind, Okay, great.

Speaker Change: Broader operations organization that has increased has experienced increased costs. So we haven't we haven't seen the net benefit that we would like yet, but we are targeting in fiscal 'twenty five incremental benefits.

Speaker Change: From many of the actions that Sarah has mentioned over the last few a few quarters. So I would say early to mid <unk>.

Speaker Change: Earnings on achieving that objective.

Speaker Change: Okay, and then in <unk>.

David C. Sylvester: And then lastly, you know, your balance sheets are in really good shape. So, what's your view on capital allocation priorities? Maybe acquisitions or, you know, relooking at the dividend, possibly or share buybacks? Well, I think all three should remain part of our capital allocation.

Speaker Change: Behind us.

Speaker Change: Alright, great. Thanks, and then lastly.

Speaker Change: You bet your balance sheet is in really strong shape shapes. So whats your view on capital allocation priorities maybe.

Speaker Change: Maybe acquisitions or.

Speaker Change: Looking at the dividend, possibly or share buybacks.

Speaker Change: Well I think all three are they remain part of our capital allocation. We obviously look to reinvest in the business and acquisitions have been a part of our allocation and ideally will be part of our allocation go forward.

David C. Sylvester: We first, obviously, look to reinvest in the business, and acquisitions have been a part of our allocation and, ideally, will be part of our allocation going forward. We think of ourselves again as more bolt-ons, targeting bolt-ons that will help accelerate one of our existing strategies. And we are, I would say, periodically, if almost not continuously, talking to different companies. We just haven't found the right fit at the right price yet, so hopefully, something will materialize in the coming quarters on that front.

Speaker Change: We think of US again as more bolt on targeting bolt ons that will help accelerate one of our existing strategies.

Speaker Change: And we are I would say periodically if almost not continuously talking to different companies. We just haven't found the right fit at the right price yet so hopefully.

Speaker Change: Something will materialize in the coming quarters on that front.

David C. Sylvester: We do have higher capital expenditures in front of us over the next couple of years as we finish our ERP system. It's not going to chew up, you know, a tremendous amount of liquidity, but it's certainly more than usual than our usual rate of CAPEX. The dividend is an important part of how we return value to shareholders, and it always has been. We are trying to keep it in line with earnings. So I don't; it's a board decision, and they evaluate it every quarter.

Speaker Change: Do have higher capital expenditures in front of us over the next couple of years as we finish our.

Speaker Change: ERP system, that's not going to chew up a tremendous amount of liquidity, but it's certainly more than usual.

Speaker Change: Then our usual rate of Capex.

Speaker Change: The dividend is an important part of how we return value to shareholders always has been we are trying to keep it in line with earnings.

Speaker Change: I know, it's a board decision and they evaluated every quarter. So as our earnings grow its certainly possible imaginable that we might increase our quarterly dividend.

David C. Sylvester: So as our earnings grow, it's certainly possible, imaginable that we might increase our quarterly dividend. And yeah, we have taken note of repurchase opportunities. We had a 10B5 program in place for the last six months. Unfortunately, or fortunately, we did not buy any shares.

Speaker Change: And yes, we have taken note of.

Speaker Change: Repurchase opportunities, we had a <unk> program in place for the last six months.

Speaker Change: Unfortunately, or Fortunately, we did not buy any shares the stock price just didn't go down to levels that we were targeting so I guess, that's good news bad news from.

David C. Sylvester: The stock price just didn't go down to levels that we were targeting. So I guess that's good news, but bad news, from a repurchase standpoint. But we have had a couple million shares of dilution over the last two years from equity awards related to executive and director compensation, so we're always looking to minimally offset that. Okay, great. Thank you. Your next question is from the line to Budd Bugatch with Water Tower Research. Please go ahead.

Speaker Change: From a repurchase standpoint.

But we have had a couple of million shares of dilution over the last two years from equity awards related to executive and director compensation. So.

Speaker Change: We're always looking to a minimally offset that.

Speaker Change: Okay, great. Thank you.

Speaker Change: Your next question is from the line of Budd <unk> with water Tower Research. Please go ahead.

Budd Bugatch: Good morning, Sara. Good morning, David. Good morning, Mike, and congratulations on your progress and, certainly, the quarter and the balance sheet, for sure. Thank you, sir. I'd love to I'd love to get your view on and in your new presentation, you talk about several years of disruption, which is certainly, I guess, an understatement. What does demand growth look like? You've changed a little bit of the target, David, as you noted, I think from five to seven to four to six for the next three to four years, in terms of percentage annual percentage of growth. But business is being done a little differently now. And just how do you how do you see that?

Budd: Good morning, Sarah Good morning, David Good morning, Mike and congratulations on.

On Euro progress certainly the.

Speaker Change: Quarter on the balance sheet for sure.

Speaker Change: Thank you sure I'd love to I'd love to get your view on that.

Speaker Change: Sure.

Speaker Change: New presentation, you talked about several years of disruption, which you certainly.

Speaker Change: I guess an understatement.

Speaker Change: What is demand growth look like.

Speaker Change: Change that a little bit of a target David as you noted I think from 5% to 7% to <unk> 46 for the next three to four years in terms of percentage annual percentage of growth, but business is being done a little differently now.

Speaker Change: How do you how do you see that and what can we take away from that.

Sara E. Armbruster: And what can we take away from that? I guess, but I would say that I don't know that I see business being done dramatically differently. I do think that the customers that we serve, who are looking to update and modernize their spaces and make their spaces work harder, are thinking differently about what those spaces look like, and they're thinking, perhaps differently, about what kinds of solutions and amenities they need to provide in their spaces to attract and retain talent and to drive their business initiatives and business outcomes. So I think those things are certainly different in some respects than they were prior to the pandemic. In terms of how business gets done, in terms of how customers are behaving, in terms of, You know, how they think about timelines of projects and decision making and how they interact with us from a kind of, you know, putting in the order and us serving them, I don't think that that's dramatically different than before the pandemic. It's really more about the kinds of solutions they're trying to implement to support their businesses and their employees as they look forward. But haven't you changed a little bit of that technique?

Speaker Change: Okay.

Speaker Change: I guess.

Speaker Change: But I would say that I don't know that IC business being done dramatically differently I do think that the customers that we serve.

Speaker Change: We're looking to update and modernize their spaces and make their spaces work harder.

Speaker Change: Our.

Speaker Change: Differently about what those pieces look like and Theyre thinking perhaps differently about what kinds of solutions and amenities they need to provide in their spaces to attract.

Speaker Change: <unk> and retain talent and to drive their business initiatives and business outcomes. So I think those things are certainly.

Speaker Change: Difference in some respects than they were prior to the pandemic in terms of of how business gets done in terms of how customers are behaving in terms of.

Speaker Change: How they think about timelines it projects and decision, making and how they interact with us for that kind of putting in the order in and serving them I don't think that that's dramatically different than before the pandemic, it's really more about.

Speaker Change: The kinds of solutions, they're trying to.

Speaker Change: Implement to support their businesses and their employees as they look forward.

Speaker Change: But havent changed a little bit about the techniques.

Sara E. Armbruster: I mean, you folded down Steelcase Aviation, so you now have, I think, more reliance on your local showrooms. And does that change the cycle of the way it works? I would say that we have seen gradual shifts in how customers wanted to engage for several years, going back to well before the pandemic, you know, gradual shifts in how customers wanted to engage. I think, you know, we certainly saw lots of interest still in visiting us in Grand Rapids and experiencing what we have to offer here in this sort of flagship location. But we also saw, you know, many customers increasingly looking to have more local market experiences closer to home, and in some cases, maybe more specialized experiences. So clients, for example, from higher education, looking to really immerse themselves deeply in learning solutions, you know, or healthcare customers looking to immerse more deeply in healthcare-focused solutions, those kinds of things.

Speaker Change: You pulled it down.

Speaker Change: Steelcase aviation for you have now I think more reliance on your local showrooms Andrew is that true yes.

Andrew: The site.

Andrew: The way it works.

Andrew: I would say that we had seen for several years going back to well before the pandemic gradual shifts and.

Andrew: And how customers wanted to engage I think.

Andrew: Certainly lots of interest still in visiting us in Grand Rapids, and experiencing what we have to offer here.

Andrew: In this sort of flagship location, but we also saw many customers increasingly looking to have more local market experience is closer to home and in some cases may be more specialized experiences. So clients for example from higher education.

Andrew: Looking at your really immersive deeply in learning solutions.

Andrew: Our health care customers looking to immerse more deeply in healthcare targeted solutions those kinds of things. So I think that our shift to local market experiences our investments in pop up studios, our investments and significant renovations of many of our major locations those kinds of choices.

Sara E. Armbruster: So I think that our shift to local market experiences, our investments in pop-up studios, our investments in significant renovations of many of our major locations, those kinds of choices were really a reflection of us wanting to be able to meet customers where they are and really provide a diverse set of experiences and offerings to help them on their journey as they look at solutions and contemplate ideas and they make. Does that stretch corporate selling resources a bit more than usual? I mean, if people are coming to Grand Rapids, it helps to concentrate the selling effort if it's a lot more local. How does corporate support that? And does it take more resources? No, I wouldn't say it takes more resources.

Andrew: We are really a reflection of us wanting to be able to meet customers, where they are at and really provide a diverse set of experiences and offerings.

Andrew: To help them on their journey as they look at solutions and they contemplate ideas and they make decisions.

Andrew: Good.

Andrew: Greg corporate selling resources, a bit more than usual I mean people will come into Grand Rapids. It helps the concentrates the selling effort. If there if it's a lot more local corporate corporate supports that.

Andrew: Did you take more resources.

Sara E. Armbruster: I think we're just using the resources we have differently. Because remember, in all the local markets where we're creating these experiences, we have local sales teams; we have terrific people, you know, all over the country and all over the world who are ready to engage and host and help curate those experiences for clients. And I think we're fortunate to have experts, researchers, people with insights that are available and accessible in lots of different locations. And we've just, I think, been, frankly, smarter and more efficient in terms of how we leverage those kinds of people, talent, and resources to create, you know, the most meaningful kinds of experiences for customers in a way that's very bespoke and tailored to what that particular customer is looking for. For a relatively long time, and it remains true today, we've had someone connect to a customer visit virtually because we wanted them involved in that particular customer, and they were just in a different part of the country at that time.

Gregory John Burns: No I wouldn't say it takes more resources I think we're just using the resources, we have definitely because remember in all of the local markets, where we're creating these experiences we have local sales teams. We have terrific people all over the country and all over the world, who are who are ready to engage with hosting.

Gregory John Burns: And health care at those experiences for clients and I think we've.

Gregory John Burns: We're fortunate to have.

Experts researchers people with insights that are available and accessible in lots of different locations and we've just I think Ben.

Gregory John Burns: Frankly, smarter and more efficient in terms of how we leverage.

Gregory John Burns: Those kinds of people and talent and resources to create.

Gregory John Burns: The most meaningful kinds of experiences for customers in a way that's serious bespoke and tailor to what that particular customer is looking for.

Gregory John Burns: Relatively long time and it remains true today, we've had someone connecting to a customer visit virtually because we wanted them involved in that particular customer and they were in just a different part of the country at that time. So we've been leveraging virtual connections as part of our customer visits for quite a while.

David C. Sylvester: So we've been leveraging virtual connections as part of our customer visits for quite a while, and so that remains part of our approach. We've also Sarah's pushed hard on the reallocation of resources as we've been pursuing different strategies. So the reduction in aviation was really in some ways in response to the need to invest more significantly in local experiences. It was also in recognition that the large corporate customers were flying our corporate jets less and less, primarily because of governance restrictions. But, they were still coming to see us. They just weren't flying on our aircraft.

Gregory John Burns: Oil and so that remains part of our approach we've also.

Gregory John Burns: <unk> pushed hard on reallocation of resources.

Gregory John Burns: As we've been pursuing different strategies. So the the reduction in aviation was really in some ways in response to the need to invest more significantly in local experiences.

Gregory John Burns: It was also in recognition that the large corporate customers, we're flying our corporate just less and less primarily because of governance restrictions I mean, they were still coming to see us. They just werent playing on our aircraft and that's really why we built a corporate aviation group, some 40 or 50 years ago was for the large corporates.

David C. Sylvester: And that's really why we built a corporate aviation group some 40 or 50 years ago for the large corporations. So, and the central team actually continues to support visits here, but they also support visits out in the different locations, either virtually or through travel. Okay, that's, I think that's very interesting and, and, and exciting to change the sailing time of the selling cycle. I got a few other questions if I could.

So.

Gregory John Burns: And the central team actually continues to support visits here, but they also support visits out in the different locations either virtually or traveling.

Gregory John Burns: Okay.

Speaker Change: That's very interesting.

Speaker Change: Thanks.

Speaker Change: Does it change the sailing the time of the selling cycle and I've got a few other questions quickly.

Sara E. Armbruster: I don't know if it, I don't know if we've got the evidence to say it changes the timing of the selling cycle, but I do think that what it's allowed us to do is create maybe more agile and even more tailored and bespoke experiences, you know, for specific clients. You know, because again, every one of our showrooms and every one of our experiences reflects Steelcase and the Steelcase portfolio, the Steelcase brand, and Steelcase insights. But they also all have a bit of a different local flavor that's, you know, more tailored to that market. So certain markets are more, you know, A&D driven; certain markets have a higher preponderance of, you know, say higher education focus.

Speaker Change: I don't know that I don't know that we've got the evidence to say it changes the timing of the selling cycle, but I do think that what it's allowed us to do is create maybe more agile and even more tailored and bespoke experiences.

Speaker Change: For specific clients.

Speaker Change: Because again every one of our showrooms and every one of our experiences reflects the steelcase and steelcase portfolio until case, Brandon location site, but they also all have a bit of a different local flavor, that's more tailored to that market to certain markets or more.

Speaker Change: Our A&D driven certain markets have a higher preponderance of say higher education. Okay. So we've been able to I think.

Sara E. Armbruster: So we've been able to, I think, you know, weave that into those experiences. And so, you know, I think certainly being able to meet customers where they are in that sense, you know, hopefully helps them, you know, get to decisions faster and more effectively, but we don't have hard data to... Yeah, the sales cycle doesn't seem like it's really changed from beginning to end, but what has changed, probably more as a result of the supply chain disruptions that the whole industry faced, is the lead times on orders. You know, pre-pandemic, we used to average more in the eight week range.

Speaker Change: We have that into those experiences and so.

Speaker Change: I think certainly being able to meet customers where they are.

Speaker Change: Uh huh.

Speaker Change: Hopefully helps them get to TD.

Speaker Change: Decisions faster and more effectively but we don't have hard data to give the sales cycle. It doesn't seem like it's really changed from beginning to end, but what has changed probably more a result of the supply chain disruptions that the whole industry faced as the lead times on orders.

Speaker Change: Pre pandemic, we used to average more in the eight week range.

David C. Sylvester: And from the supply chain disruptions, we were as high as 14 weeks, I, And it hasn't come back down to pre-pandemic levels. So we're still kind of in this 1011 week range. So orders are coming in a little bit sooner, which isn't a bad thing, it gives us more visibility, but it does mean that our backlog doesn't turn quite as quickly as it used to. And that it is interesting that I had not fully appreciated that.

Speaker Change: And from the supply chain disruptions, we were as high as 14 weeks I think and it hasnt come back down to pre pandemic levels. So we're still in kind of this 10 11 week range. So orders are coming in a little bit sooner.

Speaker Change: Which isn't a bad thing it gives us more visibility, but it does mean that our our backlog doesn't turn quite.

Speaker Change: As quickly as it used to.

Speaker Change: And that is interesting.

Doug fully.

Speaker Change: I appreciate it.

David C. Sylvester: David, you talked a little bit about the order of volatility during the quarter with plus four in December, minus one in January, and plus 10 in February. Anything to read into that as in house, and to any sense do you want to talk a little bit about March? But what do you think caused that volatility was February last year, particularly this week? I don't think so. I think maybe a little bit of it was the timing of when the seasonality kicked in last year versus the time this year, but we don't, I wouldn't say we saw anything extraordinarily noteworthy to share. I just thought I figured we'd get the question about the months, so I thought I would share them.

Speaker Change: David you talked a little bit about the order volatility during the quarter with plus four in December minus one in January and plus 10 in February anything to read into that is in house Amy to any extent that you want to talk a little bit about March but what do you what.

Speaker Change: Cause that volatility was February last year were particularly weak.

Amy: I don't think so I think maybe a little bit of it was the timing of when the seasonality kicked in last year versus the timing.

Amy: This year.

Amy: But we don't I wouldn't say, we saw anything extraordinarily noteworthy to share I just thought I.

I figured we'd get the question about the months, so I thought I would share and I did think it was interesting that.

David C. Sylvester: And I did think it was interesting that the first three weeks have stayed at the same rate of growth over the prior year as February. But I don't, again, it could be that seasonality is just showing up a little bit sooner this year than it did last year. Okay, what I like about our order patterns is that we're seeing continued growth and continued business. You know, because we thought we predicted that, and we've seen it for four straight quarters.

Amy: First three weeks of stayed at the same rate of growth over prior year as February.

Amy: But I don't.

Amy: It could be that seasonality is just showing up a little bit sooner this year than it did last year.

Amy: Okay.

Order patterns is that we're seeing continued growth and continuing business.

Because we thought we predicted that and we've seen it for four straight quarters, and I really like that our project opportunity pipeline that has shown growth at the high confidence.

David C. Sylvester: And I really like that our project opportunity pipeline, which has shown growth across high confidence, high-competence projects, is starting to materialize into project order growth over the last two quarters. But combining that with your previous comment about the fact that the backlog is turning slower would mean that orders that come in during a particular quarter, if you might have delivered, oh, half of the orders or a third of the orders, you'll now deliver fewer of those; it goes into a larger backlog, and at the end, you'll be growing that backlog. That's right. I mean, that's what happened last quarter.

Amy: Cross high confidence projects is starting to materialize into project order growth over the last two quarters.

Amy: But combining that with your prior to your previous comment about the fact that the backlog is turning slower would mean the orders that come in during a particular quarter. If you Mike might have delivered.

Amy: So half of the orders are.

Amy: Third are the orders you'll know we deliver fewer of those more.

A larger backlog at the end growing that backlog.

Speaker Change: That's right I mean, that's what happened last quarter. In Q3, you May remember, we had 15% order growth I think was the total right Mike and.

David C. Sylvester: In Q3, you might remember we had 15% order growth, I think that was the total, right, Mike? And we were a little bit short on our revenue forecast because we had extended delivery times. So they weren't what we had been thinking.

Mike: And we were a little bit short on our revenue.

Mike: Our forecast because we had extended.

Mike: Delivery times.

Mike: Have you.

David C. Sylvester: Yeah, it just changes the way we have to model the quarter. Those items, a couple of them are just quick questions, acquisitions, you talked about being open to them, but you've got two that you did in the last couple years for CarBay and Halcon. Any commentary on color on how they are performing integrated into the corporation impact on the business? Halcon, you wanted to move up a little bit. Carvey was, I think, in Spain if I remember right.

Mike: <unk> been seeing.

Speaker Change: Yes, just changes the way we have some model.

Speaker Change: In the quarter.

Speaker Change: Okay.

Speaker Change: Those items a couple of other just quick questions acquisitions, you talked about being open to them, but you've got to that you did during the last couple of years for car Bay and Alcon any commentary on color on how they are performing integrated into the corporation impact on the business show how crowded you wanted to move upscale a little bit.

Speaker Change: <unk> was I think in Spain, if I remember right.

Speaker Change: Yes.

Budd Bugatch: Yeah, yeah, no. I think overall, we're really happy with those acquisitions and the performance. I think Bacarbi has added sort of a new element to our portfolio that's getting, you know, rave reviews from architects and designers, so we're really excited about that. I think with Halcon, I mean, they have just continued to be tremendously successful in ways that are both driven by Halcon, as well as the ability to kind of cross sell and leverage sort of Halcon relationships in the Halcon portfolio, along with some of the traditional Steelcase relationships that we've been really happy with how that, you know, has been working. So I think overall, we feel really good about both of those transactions, and they are part of the family Okay. And last for me, ERP is our initials that sometimes get investors a little nervous when you talk about the plan. Can you maybe give us some color as to the length of the ERP implementation and, in particular, has it been decided which ERP you're going to go with? What kind of color can we get on that?

Speaker Change: No I think overall, we're really happy with those acquisitions and the performance.

Speaker Change: I think for Kirby has added sort of a new element to our portfolio Thats getting rave reviews from architects and designers. So we're really excited about that I think with Alcon I mean, they have just continued to be tremendously successful in ways that.

Speaker Change: Are both driven by <unk> as well as the ability to kind of cross sell and leverage sort of Hawk had relationships in the Hong Kong portfolio, along with some of the traditional steelcase relationships that we've been really happy with how that's been.

Speaker Change: <unk> been working so I think overall, we feel really good about about both of those transactions.

Speaker Change: And they are out they are part of the family.

Speaker Change: Okay and last from me ERP as our initial sometimes get investors a little nervous and you talked about the plan could you maybe give us some color as to the length of the ERP implementation in any particular has it been decided which ERP you are going to go with.

And.

Speaker Change: What kind of colors, when we get on that.

David C. Sylvester: Yeah. Well, those three letters make management teams nervous, too. But that's why we're taking such a careful effort to think about how we want to transform the business in advance. So, the implementation of our new ERP. We are just now going into the design, build phase, and we are targeting a go live next fiscal year in the Americas, and then we'll roll it to the international segments thereafter.

Speaker Change: Well those.

Speaker Change: Those three letters make management teams nervous too, but that's why we're taking this careful.

Speaker Change: Effort to think about how we want to transform the business in advance of.

Speaker Change: The implementation of our new ERP. So we are just now going into the design build phase.

Speaker Change: And we are targeting a go live.

Speaker Change: Next fiscal year in the Americas, and then we will roll it to the international segments thereafter.

Okay.

David C. Sylvester: What I'm really pleased about is the level of capability that we're staying with SAP, but we're really pleased with the cape, the advanced capability that the new versions of SAP have. So we believe we will have to customize the system much less. And we also have shown a high degree of willingness by our internal teams and working with our dealers to, I'd say, modernize and simplify some of our business processes to be more fit to standard, is the phrase that the teams use. So we won't necessarily have to necessarily customize the ERP because either they've advanced the solution or we're modernizing or simplifying our business processes. Well, congratulations on the progress. I mean, it has been a tough couple of years for sure, and nobody, nobody wanted to go through that, but you've come through it, and the balance sheet just shows you a remarkable and very strong position going forward. Thank you very much. Thanks, Bud. Thanks, Bud. Again, if you would like to ask a question, simply press star and then the number one on your telephone keypad.

What I'm really pleased about is the level of <unk>.

Capabilities.

Speaker Change: We're staying with SAP.

Speaker Change: Really pleased with the keep the advanced capability. The new versions of SAP have so we believe we will have to customize the system much less.

Speaker Change: And we also have shown a high.

Speaker Change: Degree of willingness by our internal teams and working with our dealers to.

Speaker Change: I would say modernize and simplify some of our business processes to be more fit to standard is the phrase that the teams use.

Speaker Change: So we won't have necessarily customize the ERP because either they have advanced the solution or where modernize or simplifying our business process.

Speaker Change: Okay, well congratulations on the progress I mean, it has been a tough couple of years for sure.

Speaker Change: Nobody nobody wanted to go through that but you've come through at the balance sheet. Just shows you a remarkable and very strong.

Speaker Change: Position going forward. Thank you very much thanks.

Speaker Change: Thanks, Bob Thanks Budd.

Speaker Change: Again, if you would like to ask a question simply press Star then the number one on your telephone keypad.

Steven Ramsey: For our next questions from the line, I've been Ramsey with Thompson Research Group. You go ahead. Hi, good morning.

Your next question is from kind of an Ramsey with Thompson Research group. Please go ahead.

Ken Ramsey: Hey, good morning, Greg.

Sara E. Armbruster: Great color on the call so far. Maybe to dig in a little bit more on large corporations driving the order. You've talked about the increase in continuing business and the project side showing two quarters of growth. Now, what do you attribute this project growth to the last couple of quarters? Can you give us a sense for what is spurring companies to finally pull the trigger on these projects? Is it moving offices? Is it refreshing the existing space? and workers come in more frequently; just any drivers you see to boost the project business. Yeah, excuse me, a great question.

Steven Ramsey: Great color on the call so far maybe to dig in a little bit more on.

Steven Ramsey: Large corporates driving order you've talked about the increase in continuing business and the project side showing two quarters of growth now.

Steven Ramsey: What have you.

Steven Ramsey: Attribute this project growth too for the last couple of quarters.

Steven Ramsey: Give us a sense for what is spurring companies to finally pull the trigger.

Steven Ramsey: On these projects is it moving offices at refreshing the existing space.

Steven Ramsey: Its workers come in more frequently just any driver QC to boost the project business.

Steven Ramsey: Yeah.

Speaker Change: Great question and I think it's all of the above I mean, I think broad strokes I was attributed to.

Sara E. Armbruster: And I think it's all of the above. I mean, I think in broad strokes it can be attributed to, you know, large organizations by and large recognizing that, you know, in office, in person presence is really critical to the success of their business. And we know that that's not, in most cases, going to look like, you know, the old days of the kind of nine to five, you know, five days a week in the office. But, you know, now that we are what, you know, four years, past four years into the post-pandemic world, I think organizations are really seeing that, and they're willing to make the investments to create the kinds of spaces and the kind of experiences that attract their employees and allow their employees to do their best work.

Speaker Change: Large organizations by and large recognizing that in office in person presence together is really critical to the success of our business and we know that that's not in most cases going to look like the old days of the kind of 95.

Speaker Change: Five days a week in the office, but.

Speaker Change: I think now that we are what four years past four years into that into the post pandemic World. I think organizations are really are really seeing that and they are willing to make the investments to create the kinds of spaces in the kind of experiences that attract their employees and allow their employees to.

Speaker Change: So we're kind of work do their best work, so I think by and large that's what we're seeing and it continues to be.

Sara E. Armbruster: So I think, by and large, that's what we're seeing. And it continues to be, you know, a steady, steady, you know, kind of drumbeat of little by little increasing investment in that direction. So I think that's really ultimately what's driving the strength that we're, Okay, helpful. And one question to carry that a little bit further, this project demand that's getting better, is it broad-based across corporations? Are there any certain sectors or geographic concentrations that maybe have been flipping this deposit over the past couple of quarters?

Speaker Change: Steady steady.

Speaker Change: Kind of drum beat of.

Speaker Change: Little by little increasing.

Speaker Change: No.

Speaker Change: Vestment in that direction. So I think that's really ultimately what's driving the strength that we're seeing in large corporates.

Speaker Change: Okay helpful and one contained one question to carry that a little bit further this project demand that's getting better is it broad based across corporates are there any certain sectors or geographic concentration that maybe are slipping.

Speaker Change: Positive over the past couple of quarters.

Speaker Change: Yeah, it's pretty broad based in terms of sector. So we definitely see demand from across different types of <unk>.

Sara E. Armbruster: Yeah, it's pretty broad in terms of sector. So, you know, we definitely see demand from across different types of verticals or subsegments within large corporations. Geographically, at least here in the US, obviously, I think, you know, the West Coast, which we've talked about before, which has been a bit of a laggard, you know, all along, continues to be a laggard.

Speaker Change: Vertical or sub segments within large corporate.

Speaker Change: Geographically at least here in the U S. Obviously, I think there will be other west coast. This was talking about before which has been a bit of a.

A laggard.

Speaker Change: Along continues to be a laggard, but I would say outside of that we see pretty nice activity in multiple regions.

David C. Sylvester: But I would say, outside of that, we see pretty nice activity in multiple regions. So it's, it's relatively broad-based. Yeah, I mean, it's been a little stronger on the New York and New Jersey financial services side and a little weaker on the tech West Coast side. But I wouldn't want you to think that there's no business in tech right now either. So it is pretty broad-based, but I feel like it's a little correlated with some of those organizations that lean in first a little bit more explicitly about minimum numbers of days in the office. So as they got their people back, they started to restart their day-to-day business, which then started to spur some dialogue about project activity, which is now starting to show up. Okay, that's that's a great color.

Speaker Change: So it is it's relatively broad based.

Speaker Change: Yes, I mean, it's been a little stronger in the New York, New Jersey financial services side, and a little weaker in the tech West coast side, but I wouldn't want you to think that there is no business in tech right now either.

Speaker Change: So it is pretty broad based but it was I feel like it's a little correlated with some of those organizations that leaned in first a little bit more explicitly about minimum numbers of days in the office. So as they got their people back they started to restart their day to day business, which then started to spur some dialogue about.

Speaker Change: Project activity, which is now starting to show up.

Speaker Change: Okay, that's great color.

Steven Ramsey: Um, and then last one for me, working capital was a great benefit to cash flow this year, even with organic sales down in the final three quarters of the year with organic sales growth expected for FY 25. Can you talk about the working capital benefit to cash flow this year? I should say benefit but impact to cash flow this year. Yeah, I mean, this year was largely about, I would say, managing our inventories down. We did have a few spots and receivables that we have been attending to, and feel like we have those in very good shape. Those were some markets that, historically, around the world, have had very high DSO for us, and I think just about any industry.

Speaker Change: And then last one for me working capital was a great benefit to cash flow this year, even even with organic sales down in the in the final three quarters of the year with organic sales growth.

Speaker Change: That did for FY 'twenty five can you talk about.

Speaker Change: The working capital benefit to cash flow this year, I should say benefit but impact free cash flow this year.

Speaker Change: Yes, I mean this year was largely about I would say managing our inventories down we did have a few spots in receivables.

Speaker Change: We have been attending to and feel like we have those in very good shape. Those were some markets that historically around the world has had very high DSO.

Speaker Change: For us and I think just about any industry and we've we've addressed that and feel really good about where we are in those markets, but the big improvement. This year was pulling inventory levels back to more of a normalized level. After the build that we had in safety stocks.

Steven Ramsey: And we've addressed that and feel really good about where we are in those markets. But the big improvement this year was pulling inventory levels back to more of a normalized level. After the build that we had in safety stock because of the supply chain disruptions we had 18 months, two years ago, so I think it's more normalized. So I think as we grow, you'll see a growth in working capital, and it'll be relative to sales. But if you look at where our kind of fourth-quarter DSO and DII is, That's about normalized and would be a good projection go forward for you to leverage.

Speaker Change: Because of the supply chain disruptions, we had 18 months two years ago.

Speaker Change: So I think it's more normalized so I think as we grow you will see a growth in working capital.

And it'll be relative to sales, but if you look at where our kind of fourth quarter DSO in DIY is.

Speaker Change: That's about normalized would be a good projection go forward for you to leverage.

Speaker Change: Okay. That's helpful. Thank you.

David C. Sylvester: Okay, that's helpful. Thank you. There are no further questions at this time. Ms. Armbruster, I turn the call back over to you. Great. Well, thank you all for joining us and we appreciate your interest in Steelcase and hope you have a terrific day. This concludes today's conference call. You may now disconnect.

Okay.

Speaker Change: Yeah.

Speaker Change: There are no further questions at this time, Mr. Armbruster, I turn the call back over to you.

Armbruster: Great well. Thank you all for joining and we appreciate your interest in Steelcase and hope you have a terrific day.

Armbruster: Okay.

Speaker Change: This concludes today's conference call you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change:

Speaker Change: Okay.

Speaker Change: Yeah.