Q2 2025 Steelcase Inc Earnings Call

Operator: 2025 conference call. All lines have been placed on mute to prevent any background noise.

To prevent any background noise. After the Speakers' 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 again press Star one. Thank you. Mr. O'meara you may begin your conference.

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, again, press star one.

Operator: Thank you, Mr. O'Mear. You may begin your conference.

Mike: Thank you, Rob.

Thank you Rob good morning, everyone. Thank you for joining us for the recap of our second quarter of fiscal 2025 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: Good morning, everyone. Thank you for joining us for the recap of our second quarter fiscal 2025 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 second 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. Our discussion today may include references to non-GAAP financial measures and forward-looking statements.

Speaker Change: Our second 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.

Speaker Change: Play of this webcast will be posted to IR steelcase com later today.

Speaker Change: 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.

Mike: Reconciliation to the most comparable gap 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.

Mike: Following our prepared remarks, we will respond to questions from investors and analysts.

Speaker Change: Following our prepared remarks, we will respond to questions from investors and analysts I'll now turn the call over to our President and Chief Executive Officer, Sarah Armbruster.

Sara Armbruster: I'm out from the call over to our President and Chief Executive Officer, Sara Armbruster. Thanks, Mike, and hi everyone, and thanks for joining our call today. I'd like to offer a few remarks explaining how we continue to make progress against our strategy, and I'll cover some of the highlights of our second quarter results.

Speaker Change: Thanks, Mike and hi, everyone and thanks for joining our call today.

Sarah Armbruster: I'd like to offer a few remarks, explaining how we continue to make progress against our strategy and I'll cover some of the highlights of our second quarter results.

Sara Armbruster: As a reminder, our strategy has four pillars. First, to lead the transformation of the workplace. Second, to diversify the customer and market segments we serve. Third is to improve our profitability and force to use our business as a force for good.

As a reminder, our strategy has four pillars first to lead the transformation of the workplace.

Sarah Armbruster: And to diversify the customer end market segments. We serve third is to improve our profitability and fourth to use in our business as a force for good. So let me begin with transformation at Steelcase, we're deeply driven to understand the changing realities of work that our customers face and through human centered design research and.

Sara Armbruster: So let me begin with transformation. At Steelcase, we're deeply driven to understand the changing realities of work that our customers face, and through human center design research and critical thinking, we uncover insights that lead us to innovation and breakthrough design. As you know, we are constantly monitoring and evaluating how companies approach their work through both Steelcase-led research and analysis from top research firms. For example, Gallup tracks the percentages of exclusively remote, hybrid, and onsite employees, and for eight consecutive quarters, Gallup data has shown that among U.S. employees and jobs that can be done remotely. More than half are working in a hybrid capacity.

Sarah Armbruster: Critical thinking we uncover insights that lead us to innovation and breakthrough design.

Sarah Armbruster: As you know we are constantly monitoring and evaluating how companies approach their work through both Steelcase led research and analysis from top research firms.

For example, Gallup tracks the percentages of exclusively remote hybrid and onsite employees and for eight consecutive quarters Gallops data is showing that among U S employees and jobs that can be done remotely more than half are working in a hybrid capacity and their research highlights that hybrid is what the majority of employee.

Sara Armbruster: And their research highlights that hybrid is what the majority of employees prefer. Many organizations have not evolved their physical spaces to address this new reality. These offices still have pre-pandemic designs that don't accommodate hybrid working practices. And some companies who reduce their footprints are finding they have made gone too far and are now evaluating how to add back space in certain areas. And we also see a really a growing number of companies that are mandating the minimum number of days for in-office presence. So organizations I think realize that taking a new approach helps employees feel more connected to the company's purpose, its culture, and to each other.

Sarah Armbruster: Prefer.

Sarah Armbruster: Many organizations have not evolved our physical spaces to address this new reality. These offices still have pre pandemic designs that don't accommodate hybrid working practices.

Sarah Armbruster: And some companies to reduce our footprints are finding they have may gone too far and are now evaluating how to add back space in certain areas and we also see a really a growing number of companies that are mandating the minimum number of days for in office presence.

Speaker Change: So organizations I think realize that taking a new approach helps employees feel more connected to the company's purpose its culture and to each other and steelcase is a leader helping to solve these challenges.

Sara Armbruster: And Steelcase is a leader helping to solve these big challenges. Our leadership is demonstrated by our strong win rate and our continued markets your games in the Americas over the past year. This quarter I've met several customers who are looking to transform their workplaces to increase employee engagement and productivity to help meet their business objectives. For example, one of our largest customers was focused on reinventing their meeting space experience to reflect hybrid working patterns, and they were expanding their workstation applications to enable higher levels of privacy. Our ocular sightline tables and our campers and dense solutions supported that customer's vision.

Speaker Change: Our leadership is demonstrated by our strong win rate and our continued market share gains in the Americas over the past year.

Speaker Change: This quarter I've met several customers, who are looking to transform their workplaces to increase employee engagement and productivity to help meet their business objectives. For example, one of our largest customers was focused on reinventing their meeting space experienced to reflect hybrid working patterns.

Speaker Change: And they were expanding their workstation applications to enable higher levels of privacy.

Speaker Change: Our ocular sightline tables, and our campers and dense solution supported that customer's vision.

Sara Armbruster: And I'm excited about the opportunities like this that we see across many market segments where organizations are transforming their workplaces, and they find their needs met by Steelcase. And as our sales teams continue to work closely with our largest customers, we are confident we will see higher levels of orders in the back half of this year.

Speaker Change: And I'm excited about the opportunities like this that we see across many market segments, where organizations are transforming their workplaces and they find their needs met by steelcase.

Speaker Change: And as our sales teams continue to work closely with our largest customers. We are confident we will see higher levels of orders in the back half of this year.

Sara Armbruster: Moving now to diversification, through the first half of the year, all our customer segments in the Americas have posted year-over-year order growth. In our second quarter, the education segment led this growth with a very strong quarter from our Smith System business, which grew 18% year-over-year. Smith System supports K-12 customers in the U.S. and we see strong growth potential in part due to the number of school districts issuing bonds for new construction or modernization. We recently supported a school district's upgraded eight elementary schools where the previous furniture was up to 30 years old. When that district approached us for ideas on collaboration and cost effectiveness, they chose our best-in-class solutions based on the quality of our furniture.

Speaker Change: Moving now to a diversification.

Speaker Change: The first half of the year, all our customer segments in the Americas have posted year over year order growth.

Speaker Change: In our second quarter. The education segment led this growth with a very strong quarter from our Smith system business, which grew 18% year over year Smith.

Speaker Change: Smith system supports K through 12 customers in the U S and we see strong growth potential in part due to the number of school districts issuing bonds for new construction or modernization.

We recently supported a school districts upgraded eight elementary schools, where the previous furniture was up to 30 years old.

Speaker Change: When that district approached us for ideas on collaboration and cost effectiveness. They chose our best in class solutions based on the quality of our furniture, and our quick and seamless operational support including our dealers delivery and installation. So in the end we expect to impact the lives of more than 5000 kids in that district when they walk.

Sara Armbruster: And our quick and seamless operational support, including our dealers' delivery and installation. So, in the end, we expect to impact the lives of more than 5,000 kids in that district when they walk into brand new classrooms. And while this is just one example, it represents broader opportunity in the K-12 segment.

Speaker Change: And two brand new classrooms, and while this is just one example, it represents broader opportunity in the K 12 segment.

Sara Armbruster: And in addition to education, we're making progress across all of our diversification efforts, including health care, small and medium sized businesses, and consumers.

Speaker Change: And in addition to education, we're making progress across all of our diversification efforts, including healthcare.

Speaker Change: And medium size businesses and consumers.

Sara Armbruster: Turning to profitability, our second quarter results reflect strong earnings growth and 2% organic revenue growth. Our adjusted earnings per share of 39 cents was an increase of 26% versus last year. And for the ninth consecutive quarter, we've driven year-over-year growth margin improvement. Our operations leaders continue to drive cost reduction initiatives, which contributed to our growth margin improvement of quarter. These operations initiatives included moving production lines to increase efficiency and closing a distribution center to optimize our network. More broadly, our employees continue to find efficiencies in managing our spending and to improve profitability. And these profit improvement efforts are helping enable our investments to support our growth initiatives.

Speaker Change: Turning to profitability, our second quarter results reflect strong earnings growth in 2% organic revenue growth.

Speaker Change: Our adjusted earnings per share of 39, with an increase of 26% versus last year and for the ninth consecutive quarter, we've driven year over year gross margin improvement.

Speaker Change: Our operations leaders continue to drive cost reduction initiatives, which contributed to our gross margin improvement. This quarter. These operations initiatives included moving production lines to increase efficiency and closing a distribution center to optimize our network.

Speaker Change: More broadly our employees continue to find efficiencies and managing our spending and to improve profitability.

Speaker Change: And these profit improvement efforts are helping enable our investments to support our growth initiatives.

Sara Armbruster: As we look at our segment performance, the Americans delivered $13 million of adjusted operating income improvement over the prior year and rose 3% organic revenue growth. Our international segment adjusted operating results improved by 2.4 million versus the prior year due to our efforts to reduce our cost structure and to enhance our competitiveness in response to a soft demand environment.

Speaker Change: As we look at our segment performance the Americas delivered $13 million of adjusted operating income improvement over the prior year and rose, 3% organic revenue growth.

Speaker Change: Our international segment adjusted operating results improved by $2 4 million versus the prior year due to our efforts to reduce our cost structure and to enhance our competitiveness in response to a soft demand environment.

Sara Armbruster: Finally, as we think about our efforts to use our business as a force for good and design better futures for people on the planet, I'm excited to share that we published our annual impact report this week. The report shares goals and recent progress in building a stronger sense of community and belonging in the workplace. We are committed to helping communities thrive, fostering inclusion, and acting with integrity. One highlight I'll mention from the report is that our employees have volunteered more than 62,000 hours since 2021 toward our goal of 100,000 hours by 2030. Steelcase is also working toward a better future for the planet by reducing its carbon footprint, designing for circularity, and choosing and using materials responsibly.

Speaker Change: Finally, as we think about our efforts to use our business as a force for good and design better futures for people on the planet I am excited to share that we published our annual impact report this week.

Speaker Change: The report shares goals and recent progress in building, a stronger sense of community and belonging in the workplace.

Speaker Change: We are committed to helping communities thrive.

Speaker Change: Australia inclusion and acting with integrity.

Speaker Change: One highlight I'll mentioned from the report is that our employees have volunteered more than 62000 hours since 2021 toward our goal of 100000 hours by 2030.

Steelcase is also working toward a better future for the planet by reducing its carbon footprint designing for circularity and choosing and using materials responsibly.

Sara Armbruster: So we continue to pilot new ways to package, ship, and deliver products, and we lead the industry in the number of BISMA-level certified products. We now use 40% recycled content on average in all Steelcase brand product packaging. So congratulations to all the employees who have helped Steelcase make meaningful progress toward our people and planet goals as outlined in this year's Impact Report.

Speaker Change: We continue to pilot new ways to package ship and deliver products and we lead the industry and the number of dismal level certified products.

Speaker Change: We now use 40% recycled content on average in all steelcase brand product packaging.

Speaker Change: So congratulations to all the employees, who have helped steelcase, making meaningful progress toward our people and planet goals as outlined in this year's impact report.

Sara Armbruster: So I'll close by sharing that our results through the first half of the year are strong, and we remain positive about the progress we continue to make against our strategy to lead the transformation of the workplace, diversify the customer and market segments we serve, improve our profitability, and use our business as a force for good.

Speaker Change: So I'll close by sharing that our results through the first half of the year are strong and we remain positive about the progress we continue to make against our strategy to lead the transformation of the workplace diversify the customer and market segments, we serve improve our profitability and use our business as a force for good.

Dave Sylvester: So I'll now turn it over to Dave to review the financial results and our outlook.

Speaker Change: I'll now turn it over to Dave to review the financial.

Dave Sylvester: Our results and our outlook.

Dave Sylvester: Thank you, Sarah, and good morning, everyone.

Dave Sylvester: Thank you Sarah and good morning, everyone.

Dave Sylvester: Before I get into the financial details, I would like to first acknowledge Bud Bugach and his unexpected passing in August. Bud worked closely with our industry and Steelcase since becoming a public company 26 years ago, and we benefited from his involvement. His impact on our industry, his advocacy for Steelcase, and his friendship will be missed. Rest in peace, Bud.

Dave Sylvester: Before I get into the financial details I would like to first acknowledge Budd.

Dave Sylvester: It is unexpected passing in August.

Speaker Change: Blood work closely with our industry and steelcase since becoming a public company 26 years ago, and we benefited from his involvement.

Speaker Change: His impact on our industry does advocacy for steelcase and his friendship will be missed.

Speaker Change: And peace Budd.

Dave Sylvester: The balance of my comments today will start with the highlights related to our second quarter results, balance sheet, and cash flow. I will then share a few remarks about our outlook for the third quarter and some thoughts about the full fiscal year. Our second quarter results finished largely as we expected, with our adjusted earnings of 39 cents per share slightly above the midpoint of the estimated range we provided in June, and our revenue of $856 million slightly below the midpoint of our range. Both of our segments performed largely as expected. During the quarter, we completed the sale of approximately 315 acres of unused land for $44 million, which originated from an unsolicited offer and represented the majority of our unused land.

Speaker Change: The balance of my comments today will start with the highlights related to our second quarter results balance sheet and cash flow I will then share a few remarks about our outlook for the third quarter and some thoughts about the full fiscal year.

Speaker Change: Our second quarter results finished largely as we expected with our adjusted earnings of 39 per share slightly above the midpoint of the estimated range. We provided in June and our revenue of $856 million slightly below the midpoint of our range.

Both of our segments performed largely as expected during the quarter. We completed the sale of approximately 315 acres of unused land for $44 million.

Speaker Change: Which originated from an unsolicited offer and represented the majority of our unused land.

Dave Sylvester: The resulting gain net of related variable compensation expense was excluded from the calculation of adjusted operating income, adjusted earnings per share, and adjusted EBITDA. And we have adjusted the non-GAAP measures in the prior periods presented for consistency. CCC. Compared to the prior year, our adjusted operating income was $15 million higher, largely driven by the Americas, which posted 3% organic revenue growth and improved gross margins. The revenue growth was driven by strength from our education business and volume growth from our large corporate customers and government segments. The higher gross margins were driven by favorable business mix and benefits from our operational performance and cost reduction initiatives.

Speaker Change: The resulting gain net of related variable compensation expense was excluded from the calculation of adjusted operating income adjusted earnings per share and adjusted EBITDA and we have adjusted the non-GAAP measures and the prior periods presented for consistency.

Speaker Change: Compared to the prior year, our adjusted operating income was $15 million higher largely driven by the Americas, which posted 3% organic revenue growth and improved gross margins.

The revenue growth was driven by strength from our education business and volume growth from our large corporate customers and government segment.

Speaker Change: The higher gross margins were driven by favorable business mix and benefits from our operational performance and cost reduction initiatives.

Dave Sylvester: The international segment improved second quarter adjusted operating results by $2.4 million compared to the prior year, driven by benefits from the restructuring actions we implemented last year, as well as ongoing cost control measures as the demand environment remains soft. Sequentially, as compared to the first quarter, adjusted operating income increased by $40 million driven by a $129 million increase in revenue, and the sequential increase in revenue was driven by normal business seasonality in the Americas, which includes Smith System and other education projects that tend to shift during the summer months. As it relates to cash flow and the balance sheet, cash and short-term investments increased $127 million from Q1, driven primarily by $90 million of adjusted EBITDA and the proceeds from the landfill.

Speaker Change: The International segment improved second quarter, adjusted operating results by $2 4 million compared to the prior year driven by benefits from the restructuring actions, we implemented last year as well as ongoing cost control measures as the demand environment remains soft.

Speaker Change: Sequentially as compared to the first quarter adjusted operating income increased by $40 million driven by a $129 million increase in revenue.

Speaker Change: And the sequential increase in revenue was driven by normal business seasonality in the Americas, which includes Smith system and other education projects that tend to ship during the summer months.

Speaker Change: As it relates to cash flow and the balance sheet cash and short term investments increased $127 million from Q1, driven primarily by $90 million of adjusted EBITDA and the proceeds from the land sale or.

Dave Sylvester: Our trailing 4-quarter adjusted EBITDA is $285 million or 9.1% of revenue, which is 150 basis points higher than the same time frame last year. Our liquidity aggregated to $507 million at the end of the quarter, which exceeded our total debt of $447 million. We repurchased approximately 200,000 shares in the second quarter, or approximately 1.7 million shares over the first half of the fiscal year. When aggregated with our quarterly dividend of 10 cents per share, we've returned approximately $45 million to shareholders in the first six months of fiscal 2025. Orders in the quarter were down modestly compared to the prior year, with 3% growth in the Americas and an 11% decline in international.

Speaker Change: Our trailing four quarter, adjusted EBITDA is $285 million or nine 1% of revenue.

Speaker Change: Which is 150 basis points higher than the same timeframe last year.

Speaker Change: Our liquidity aggregated to $507 million at the end of the quarter, which exceeded our total debt of $447 million.

Speaker Change: We repurchased approximately 200000 shares in the second quarter were approximately one 7 million shares over the first half of the fiscal year.

Speaker Change: When aggregated with our quarterly dividend of <unk> 10 per share we've returned approximately $45 million to shareholders in the first six months of fiscal 2025.

Speaker Change: Orders in the quarter were down modestly compared to the prior year with 3% growth in the Americas, and an 11% decline in international.

Dave Sylvester: Q2 marks the fourth consecutive quarter of year-over-year order growth in the Americas. The order growth in the Americas was led by our government, education, and healthcare customer vertical markets, offset in part by a decline in orders from our large corporate customers after several quarters in a row of strong year-over-year growth. Our project business grew in Q2, while our continuing business or day-to-day orders declined. We believe the growth in our project business is reflective of how we are leading the transformation of the workplace, as evidenced by our strong wind rates and estimated market share gains over the last year in the Americas.

Speaker Change: Q2 marks the fourth consecutive quarter of year over year order growth in the Americas.

Speaker Change: The order growth in the Americas was led by our government education and healthcare customer vertical markets.

Speaker Change: Offset in part by a decline in orders from our large corporate customers. After several quarters in a row of strong year over year growth.

Speaker Change: Our project business grew in Q2, while our continuing business or day to day orders declined.

Speaker Change: We believe the growth in our project business is reflective of how we are leading the transformation of the workplace as evidenced by our strong win rates and estimated market share gains over the last year in the Americas.

Dave Sylvester: We expect year-over-year order growth from our largest customers to return in the back half of fiscal 2025. The order to climb an international was driven by declines in most of our major markets, with the exception of India where we continued to see strong growth. Turning to the outlook for the third quarter, our overall backlog is approximately flat compared to the prior year and contained a higher percentage of orders expected to shift within 90 days compared to the prior year. We expect to report revenue within a range of $785 to $810 million, which would reflect one to 5% organic growth compared to the prior year.

Speaker Change: We expect year over year order growth.

From our largest customers to return in the back half of fiscal 2025.

Speaker Change: The order decline in international was driven by declines in most of our major markets with the exception of India, where we continued to see strong growth.

Turning to the outlook for the third quarter. Our overall backlog is approximately flat compared to the prior year and contains a higher percentage of orders expected to ship within 90 days compared to the prior year.

Speaker Change: We expect to report revenue within a range of $785 million to $810 million, which would reflect 1% to 5% organic growth compared to the prior year.

Dave Sylvester: As it relates to earnings, we expect to report adjusted earnings of between 21 and 25 cents per share, which compares to $0.29 in the prior year, which included approximately $0.9 of estimated benefits related to the reversal of an accrued earn-out liability and gains from the sale of fixed assets. In addition to the projected range of revenue, the adjusted earnings estimates include gross margin of approximately 32.5 to 33.0%, and operating expenses of between $225 to $230 million, which includes $4.3 million of amortization related to purchase and tangible assets. Lastly, we expect interest expense and other non-operating items to net to approximately $2 million of expense, and we're projecting an effective tax rate of approximately 27%.

Speaker Change: As it relates to earnings we expect to report adjusted earnings of between 21% and 25 per share, which compares to 29 in the prior year, which included approximately <unk> <unk> of estimated benefits related to the reversal of an accrued earn out liability and gains from the sale of fixed assets.

Speaker Change: <unk>.

Speaker Change: In addition to the projected range of revenue. The adjusted earnings estimate includes gross margin of approximately $32, 5% to 33.0%.

Speaker Change: And operating expenses of between $225 million to $230 million, which includes $4 3 million of amortization related to purchased intangible assets.

Speaker Change: Lastly, we expect interest expense and other non operating items to net to approximately $2 million of expense and we are projecting an effective tax rate of approximately 27%.

Dave Sylvester: We continue to have confidence of potentially achieving the higher end of the range of our fiscal 2025 adjusted earnings per share targets that we communicated in March. However, it's important to note a few factors which could impact how our results play out in the second half of the year, including the timing of project orders and requested delivery dates related to high confidence opportunities with our largest corporate customers in the Americas could play out differently than projected. And secondly, we anticipate going live on our new ERP system at the start of next fiscal year, and managing through the cutover could have the effect of our customers and dealers requesting shipments earlier in advance of the cutover, pulling business from Q1 of next year into Q4, or requesting shipments after the cutover, pushing business from Q4 into Q1 of next year.

Speaker Change: We continue to have confidence in potentially achieving the higher end of the range of our fiscal 2025 adjusted earnings per share targets that we communicated in March.

However, it is important to note a few factors, which could impact our results play out in the second half of the year, including the timing of project orders and requested delivery dates related to high confidence opportunities with our largest corporate customers in the Americas.

Speaker Change: Could play out differently than projected.

Speaker Change: And secondly, we anticipate going live on our new ERP system at the start of next fiscal year and managing through the cutover could have the effect of our customers and dealers requesting shipments earlier in advance of the cutover pulling business from Q1 of next year into Q4.

Or requesting shipments after the cutover pushing business from Q4 into Q1 of next year.

Dave Sylvester: In summary, we feel good about our financial results through the first half of the year, as well as our outlook for the third quarter. And, as Sarah said, we believe our strategy is working and we're continuing to make progress and are most important initiatives.

Speaker Change: In summary, we feel good about our financial results through the first half of the year as well as our outlook for the third quarter and as Sarah said, we believe our strategy is working and we're continuing to make progress on our most important initiatives from there we will turn it back to the operator for questions.

Operator: From there, we'll turn it back to the operator for questions. At this time, I would like to remind everyone that in order to ask a question, press star, then the number one on your telephone keypad.

Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Your first question comes from the line of Greg Burns from Sidoti. Your line is open.

Greg Burns: Your first question comes from line of Greg Burns from Cedillo. Your line is open. Morning. Could you just talk about the a little bit more about your commentary around corporate orders picking up in the second half? Maybe, what are you seeing? in terms of maybe some of your pipeline metrics that gives you confidence in that outlook.

Greg Burns: Good morning.

Greg Burns: Rick could you just talk about the a little bit more about your commentary around corporate orders picking up in the second half maybe what are you seeing.

Speaker Change: In terms of maybe some of your pipeline metrics that gives you gives you confidence in that outlook.

Dave Sylvester: Yeah, I mean Greg, when we look at what happened in the second quarter, it's really related to our largest corporate customers. And we manage them with a sales team that's really wired toward serving these accounts globally. And when we talk to the leadership of that group, as well as the leadership in the Americas, what they're feeling is quite confident about the balance of the year and their pipeline. What didn't play out in the quarter was that the orders that we were expecting to come in came in schedule. So we, they're still quite confident in the pipeline for those customers.

Speaker Change: Yes, Greg when we look at what happened in the second quarter, it's really related to our largest corporate customers and we manage them with our sales team.

Speaker Change: Thats really wired towards serving these accounts globally and when we talk to the leadership of that group as well as the leadership in the Americas, what Theyre feeling is quite confident about the balance of the year in their pipeline.

Speaker Change: Didn't play out in the quarter was that the orders that we were expecting to come in came in.

Speaker Change: Schedule so.

Speaker Change: There are still quite confident in the.

Speaker Change: Pipeline for those customers.

Greg Burns: They just think the timing is pushed out a little bit toward the back half of the year. Okay, thanks.

Speaker Change: They just think that timing is pushed out a little bit towards the back half of the year.

Speaker Change: Okay. Thanks, and then in terms of Opex for the quarter came in.

Greg Burns: And then, in terms of OPEX for the quarter, it came in pretty significantly lower than I guess you were guiding for going in.

Pretty significantly lower than I guess, you were guiding for going in can you just talk about maybe what drove that and are those.

Dave Sylvester: Just talk about maybe what drove that and you know, are those the permanent cuts that you're making or maybe temporary variable cuts that might come back back in. I think if you take OPEX and you add back the gain net of the variable compensation, you'd see that our OPEX was pretty close pretty closely in line. So make sure you're adding you're adding back the net gain, which is shown in the back of our release and our reconciliation of gap to non gap. Okay, I'll I'll I'll do that.

Speaker Change: The permanent cuts that youre, making or.

Speaker Change: Maybe.

Speaker Change: Temporary variables that might come back.

Speaker Change: I think if you take opex when you add back the gain net of the variable compensation you'd see that our opex was pretty close pretty closely in line. So make sure youre at Youre, adding back the net gain.

Speaker Change: Which is shown in the back of our release in our reconciliation of GAAP to non-GAAP.

Speaker Change: Okay I'll do that thank you.

Greg Burns: Thank you.

Speaker Change: Okay.

Steven Ramsey: Your next question comes from a line of Stephen Ramsey from Thompson Research Group. Your line is open. Good morning. Good to see the continued solid margin improvement in the business again. And I wanted to think about the FY 25 range and maybe even beyond that for your midterm targets. How much flexibility do you have the land in these ranges based on your cost and efficiency moves versus solely just orders and volumes coming through? I would say it's balanced between the two. I mean, we have some work yet to complete to drive additional margin improvements. We've also got the, you know, the readiness for the ERP cut over that will play out, but a big, big driver is the timing of the orders related to these large corporate customers.

Speaker Change: Your next question comes from the line of Steven Ramsey from Thompson Research Group. Your line is open.

Steven Ramsey: Good morning, good to see the continued solid margin improvement in the business again wanted to think about.

Steven Ramsey: FY 'twenty five range and maybe even.

Steven Ramsey: Beyond that for your midterm targets, how much flexibility do you have some land in these ranges based on your cost and efficiency moves versus solely just orders and volumes coming through.

Speaker Change: I would say it's balanced between the two.

Speaker Change: We have some work yet to complete to drive additional margin.

Speaker Change: Improvements we've also got.

Speaker Change: The readiness for the <unk>.

Speaker Change: ERP cutover.

Speaker Change: That will play out, but a big big driver is the timing of the orders.

Related to these large corporate customers.

Dave Sylvester: That's probably the biggest variable and how we'll finish the fiscal year.

Speaker Change: It's probably the biggest variable in how we will finish.

Speaker Change: The fiscal year.

Dave Sylvester: Okay, that's helpful. And then just thinking about wind rates being strong share gains in America. Is this point to incrementally rising wind rates, or would you describe it more as steady, maybe just to put the two in context. So we're thinking about your success there correctly. Well, they're pretty high. I mean, I don't know that I have wind rates that go back in time to know that these are record levels or anything like that, but they're definitely above our target. and they're running higher than they have been in previous years. They're not; I wouldn't say they're at, you know, extraordinary levels, you know, but they're resulting in us gaining share of peace based on the industry information that we see out of Vipa.

Okay. That's helpful and then just.

Speaker Change: Thinking about win rates being strong share gains in Americas.

Speaker Change: This points to incrementally rising win rates or would you describe it more as.

Speaker Change: Eddie maybe just to put the two in context of what we're thinking about your success there correctly.

Speaker Change: Well they are pretty high.

Don't know that I have win rates that go back in time.

Speaker Change: To know that these are record levels or anything like that but they are definitely above our target.

Speaker Change: And they are running higher than they have been in previous years.

Speaker Change: They're not I wouldn't say they're at.

Speaker Change: Extraordinary levels, but they are the resulting in us gaining share at least based on the industry information that we see out of this month.

Dave Sylvester: It suggests that we're gaining market share from these win rates in the Americas.

Speaker Change: It suggests that we're gaining market share from these win rates.

Speaker Change: In the Americas.

Dave Sylvester: Okay, okay, that's helpful. And then lastly, from me, on the expected large corporate rebound in the second half, maybe can you give a flavor for how that business looks? Does it reflect kind of the general trend of improvement that you've seen in project business over the past half year to year, or is it the flavor of what those wins could look like? Is it different than what we've seen? I don't think it's different. You know, what's important to remind you of is project business did grow in the quarter year over year. It was continuing business that was down.

Speaker Change: Okay. Okay. That's helpful and then.

Speaker Change: Lastly from me on the expected.

Speaker Change: Large corporate rebound in the second half.

Speaker Change: Maybe can you give a flavor for for how that business looks does it does it reflect kind of the general trend of improvement that you've seen in project business over the past.

Speaker Change: Half year to year or is it is the flavor.

Speaker Change: What those wins could look like is it different than what we've seen.

I don't think it's different what's.

Speaker Change: What is important to remind you of is project business did grow in the quarter year over year. It was continuing business that was down and because of where we are in.

Dave Sylvester: And because of where we are in the recovery from the pandemic, continuing business is a larger share of our order than it typically is. You know, you've heard us talk in the past that you can generally think of a 40, 40, 20 split between continuing project business and then our marketing programs that are basically programs for customers that don't have agreements with us. And it's not running 40, 40, 20 because project activity is restarting after being shut off at the bottom of the pandemic. So we like the growth rate that we're seeing in project activity.

Speaker Change: Recovery from the pandemic Kantar.

Speaker Change: Continuing business as a larger share of our <unk>.

Speaker Change: Order than it typically is you've heard us talk in the past that you can generally think of a 40 40 20 split between continuing project business and then our marketing programs that are basically programs for customers that don't have agreements with us.

Speaker Change: And it's not running 40 40 20, because project activity is restarting after being shut off at the bottom of the pandemic. So we like the growth rates that we're seeing in project activity Im not sure why continuing was off a little bit versus the prior year, but because of this.

Dave Sylvester: I'm not sure why continuing was off a little bit versus the prior year, but because it's the majority of our orders now, as project is rebuilding, the fact that it was down a little bit influenced the overall trajectory of the large corporate business. But you know, it's also important to note that large corporate is ahead on a year-to-date basis. They grew nicely in Q1 and declined in Q2, and they're ahead for Q1. We've speculated that there could have been, excuse me, some pull-forward business into Q1 from some of our largest customers that were migrating to more recent price lists.

Speaker Change: The majority of our orders now as project is rebuilding the fact that it was down a little bit influence to the overall trajectory of the large corporate business, but it's also important to note that large corporate is ahead on a year to date basis. They grew nicely in Q1.

Speaker Change: And declined in Q2 and they are ahead for Q1.

Speaker Change: We expect related that there could have been.

Speaker Change: Mr. Excuse me some pull forward business into Q1.

Speaker Change: From some of our largest customers that.

Speaker Change: We're migrating to more recent price list. They may have pulled some business forward in advance of that which drove the strength could have contributed to the strength in Q1.

Dave Sylvester: They may have pulled some business forward in advance of that, which drove the strength, could have contributed to the strength in Q1.

Speaker Change: I don't know don't know that for sure, but we're not concerned about what we're seeing in large corporate right now no maybe I would just add to that a little color anecdotally I mean, I continue to meet with customers. Even just to I can think of earlier this week, where they're here, they're visiting they're talking to us and they have significant projects.

Sara Armbruster: I don't know that for sure, but we're not concerned about what we're seeing in large corporate right now.

Sara Armbruster: No, maybe I would just add to that a little color anecdotally. I mean, I continue to meet with customers even just too. I can think of earlier this week where they are here, they are visiting, they are talking to us and they have significant projects in the pipeline. So I think those kinds of conversations and the traffic we see in work life centers and just that ongoing interest to make changes is additional color that helps us feel a sense of confidence.

Speaker Change: In the pipeline so.

Speaker Change: So I think those kinds of conversations and the traffic, we see and work life centers and just just that ongoing interest.

Speaker Change: To make changes.

As additional color that helps us.

Speaker Change: Our sense of confidence.

Greg Burns: Okay, that's excellent color; thank you.

Speaker Change: Okay. That's excellent color. Thank you.

Reuben Garner: Thank you. Your next question comes from Lina, Reuben Garner from Benchmark. Your line is open. Thank you. Good morning, everybody. Hi, Reuben. I'm wondering if you could kind of touch on some of the growth drivers that you're seeing outside of large corporate, just given that you still grew orders in the America despite some of that near term.

Speaker Change: Okay.

Speaker Change: Your next question comes from the line of Reuben Garner from benchmark. Your line is open.

Reuben Garner: Thank you and good morning, everybody.

Hi, Rob.

Speaker Change: Wondering if you could kind of touch on some of the growth drivers that you're seeing outside of large.

Speaker Change: Corporate just given that you still grew orders in EMEA.

Speaker Change: Right.

Speaker Change: Near term pressure, you mentioned education any of the others doing, particularly well and kind of what what.

Dave Sylvester: You mentioned education; any of the others doing particularly well and kind of what do you think is driving that, and how much more do you have to go there? Well, you know from the last couple of years that we're investing in these areas: these particular areas of health, education, small to mid-sized businesses. We also are attentive to government. There are a lot of nice opportunities in the government segment, and our team's doing a terrific job in competing for business in that sector as well. Now, it's not necessarily a big diversification play for us because we've been there historically, but we are emphasizing it a little bit more recently because of the opportunity and the strength of that sector.

Speaker Change: What do you think is driving that and how much runway do you have to go there.

Speaker Change: Well you know from.

Speaker Change: The last couple of years that we're investing in these areas. These vertical areas of health education small to midsized businesses. We also have our attentive.

Speaker Change: The government there are a lot of nice opportunities in the government segment.

Speaker Change: And our team is doing a terrific job competing for business in that sector as well now it's not necessarily a big diversification play for us because we've been there historically, but we are emphasizing it a little bit more recently because of the opportunity and the strength of that of that sector.

Sara Armbruster: Education, I think, has had a lot of opportunity as schools need to, I would say, modernize from the way that their build. Sarah gave a good example of a school that she recently visited that we want. Health care needs to modernize and change as well, and we're participating in that.

Speaker Change: <unk> I think is a lot of us had a lot of opportunity as is.

Speaker Change: Schools need to.

Speaker Change: I would say modernize from the way that they are built Sarah gave a good example of a school that she recently visited that we won.

Cerro: Health care needs to modernize and change as well and we're participating in that maybe I'll just slip Cerro jump in and share some comments about the diversification areas as well, yes, no I think I think gave you covered it well and I would just add that.

Sara Armbruster: Maybe I'll just let Sarah jump in and share some comments about the diversification areas as well. Yeah, no, I think Dave, you covered it well, and I would just add that, you know, these are markets that we focus on because we do believe there's opportunity in the market for all the reasons. Dave just said, and as Dave also mentioned, we really focused our investments to say we're going to need to build our capabilities. Where do we need to continue to push innovation? Where do we need to bring new kinds of solutions that are relevant to those kinds of needs to the market.

Sarah Armbruster: These are markets that we focus on because we do believe there is opportunity in the market for all the reasons, Dave just said and as Dave also mentioned, we've really focused our investments to say, where do we need to build our capabilities, where do we need to continue to push innovation, where do we need to bring new kinds of solutions that are relevant.

Dave Sylvester: To those client needs.

Sara Armbruster: So kind of the mix of what those things we're doing and those investments look like are a bit different for each of those segments, depending on what we think is going to allow us to direct growth the fastest. But we continue to be focused on making sure that we're innovating and really being responsive to what we see happening in those markets to be able to win.

Dave Sylvester: The market so kind of the mixes of what those things we are doing in those investments look like are a bit different for each of those segments depending on.

Speaker Change: You know what we think is going to allow us to drive growth the fastest but we continue to be focused on and making sure that we're that we're innovating and really being responsive to what we see happening in those markets too.

Dave Sylvester: To be able to win.

Reuben Garner: Great, and then our survey of the dealers had a nice bounce recently in the last couple of months. It had pretty strong numbers out west just given how concentrated technology, the technology industry is out there and help kind of depressed that market. It's been owner, and if you had any any color there and any other verticals that jump out to you as being, you know, opportunities or potential areas of risk in the coming quarters would be great. You know, on your survey, Ruben, Mike, and I have actually been waiting to see a little bit of a bump from the West Coast, who was nice to finally see it.

Speaker Change: Great and then.

Speaker Change: <unk>.

Speaker Change: Survey of the dealers.

I had a nice balance recently in the last couple of months, it's had a pretty strong numbers out west just given how.

Speaker Change: So with technology.

Speaker Change: Technology industry is out there and help kind of depressed that market's Dan I was wondering if you had any.

Speaker Change: Any color there and any other verticals that jump out to you as being.

Speaker Change: No.

Speaker Change: <unk>.

Speaker Change: Or potential areas of risk in the coming quarters, it would be great.

Rubin: On your survey Rubin.

Speaker Change: Mike and I have actually been waiting to see a little bit of a bump from the west coast, who is nice to finally see it and the reason we are waiting to see it is.

Dave Sylvester: And the reason we're waiting to see it is our internal information, as well as until we get from our dealers on the west coast, is that tech is starting to wake up a bit. I mean, you've seen recent news about Amazon now expecting five days in the office, and other large tech companies that made similar moves. And some of them too have realized that they've reduced their space a little bit too much during the pandemic, especially as they want to move to a higher number of days in the off. by their people. So the activity levels that are shaping up for next year on the West Coast are actually starting to look pretty interesting.

Speaker Change: Our internal information as well as until we get from our dealers on the West Coast is that tech is starting to.

Speaker Change: Wake up a bit I mean, you've seen recent news about Amazon now now expecting five days in the office other large tech companies have made similar moves.

Speaker Change: Some of them to have realized that they've reduced their space a little bit too much during the pandemic, especially as they want to move to a higher number of days in the office.

Speaker Change: By their people so the activity levels that are shaping up for next year on the West coast are actually starting to look pretty interesting.

Dave Sylvester: In Southern California, we've been pretty pretty busy there for a while. Our dealer and sales team has been competing for a lot of good business, not necessarily all in tech but across the different vertical markets. So I'm glad that the dealers are finally starting to acknowledge in your survey. That the mid to near term outlook is improving. Great.

Speaker Change: In southern California, we've been pretty pretty busy there for a while our dealer sales team has been competing for a lot of good business.

Speaker Change: Not necessarily all in tech, but across the different vertical markets.

Speaker Change: I'm glad that the dealers are finally, starting to acknowledge in your survey that.

Speaker Change: The mid to near term outlook.

Speaker Change: It is improving.

Sara Armbruster: Last one for me and the sequel. We're in the international segment. Obviously, a little bit challenged macro-wise outside of India this quarter, but just, you know, a quick overview of what's going on there in your internal progress. Yeah, no, I think that's right. I mean, you're right that the environment in many of those markets is challenged, but it really varies by market. So I think we've continued both across our e-mail business and APAC to try to maintain a really balanced focus on how do we shift, continue to shift our focus and investments and energy towards places where we see strong opportunity to grow.

Speaker Change: Great and last one for me and sneak one more in.

Speaker Change: In the international segment obviously.

Speaker Change: A little bit challenged macro wise outside of one quarter, but just.

Speaker Change: A quick overview of what's going on there and kind of endured internal progress.

Speaker Change: Yeah, No I think that's right I mean, you're right that the environment in many of those.

Speaker Change: Market is challenged.

Speaker Change: But it really varies by market. So I think we've continued those across our EMEA business in APAC to try to maintain a really balanced focus on how do we shift.

Speaker Change: Continue to shift our focus and investments in energy toward places, where we see strong opportunity to grow I was in India.

Sara Armbruster: I was in India a couple weeks ago, and it was just, you know, incredible to see the amount of activity. We had to talk to customers and everything from local, more local Indian organizations that are doing exciting things to major multinational companies that are continuing to drive investment in India. So we feel really good about that. But at the same time, we know that the market realities are different. So we also continue, I think, to be really disciplined about how do we drive efficiency, how do we work on margins, how do we reset things in the business where we have the opportunity to do so.

Speaker Change: A couple of weeks ago, and it was just incredible to see the amount of activity to talk to customers and everything from from I'll say, a local more local Indian organizations that are gaining exciting things to major multinational companies that are continuing to to to drive investment in India. So we feel really good about that.

Speaker Change: But at the same time, we know that the market realities are different and we also continue I think to be really disciplined about how do we drive efficiency, how do we work on margins.

Speaker Change: How do we set things in the business, where we have the opportunity to do so to make sure that we are.

Reuben Garner: So to make sure that we are, you know, continuing to drive, you know, further profit improvements the way that, you know, we have year over year in this quarter. Great. Thanks for the color, guys.

Speaker Change: Continuing to drive.

Speaker Change: Further profit improvements the way that we have year over year.

Speaker Change: In this quarter.

Speaker Change: Yeah.

Speaker Change: Great. Thanks for the color guys and good luck through year end.

Operator: Good luck through your end.

Brian Gordon: Thank you. Your next question comes from Alina Brian Gordon from Water Tower Research. Your line is open. Hey, good morning, everyone. I just want to follow up on the success that you guys are having with government education and the healthcare markets. We need to look at these. How well, first of all, do you think that there's evidence you guys have gained share in this area? And then, secondly, how big a part of the business DC is getting over the next several years? Well, regarding your question on market share, we don't get data by vertical market across the industry.

Speaker Change: Thanks, Andrew.

Your next question comes from the line of Brian Gordon from Water Tower Research. Your line is open.

Brian Gordon: Hey, good morning, everyone I just wanted to follow up on the success that you guys are having.

Speaker Change: With government education and healthcare markets.

Brian Gordon: When you look at these.

Speaker Change: Well first of all.

Brian Gordon: Do you think that there is evidence that you guys are gaining share in these areas and then secondly, how big a part of the business do you see this getting over the next several years.

Speaker Change: Well regarding your question on market share, we don't get data by vertical market.

Dave Sylvester: So we don't really, really know. What we presented at our investor day, I guess 18 months ago or so, I was in the spring a couple of years ago, because we showed what the mix of our America's business looked like by vertical in 2020 fiscal 20 or calendar 19. What it looked like in the most recent year that we had just completed, and how it could continue to play out if we're successful in executing our strategy of diversification. And what you'd know from those charts might can walk you through them maybe offline, but what you'd know from them is it's a pretty meaningful component of our business. Historically, large corporate has been, I think, more than 50%, and we're acknowledging that it, you know, has it could potentially be less than 50% because it may not recover to the same level.

Speaker Change: The industry so we.

Speaker Change: We don't really.

Speaker Change: Really no.

Speaker Change: What we presented at our Investor day.

Speaker Change: 18 months ago, or so was in the spring a couple of years ago, because we showed what the mix of our Americas business looked like by vertical.

Speaker Change: In 2020 fiscal 'twenty or COVID-19, what it looked like in the most recent year that we had just completed and how it could continue to play out.

Mike: Successful in executing our strategy of diversification and what you'd know from those charts Mike.

Speaker Change: Walk you through them, maybe offline, but what you would know from them is it's a pretty meaningful component of our of our business. Historically large corporate has been I think more than 50%.

Speaker Change: We're acknowledging that it is it could potentially be less than 50% because it may not recover to the same level. It was pre pandemic.

Dave Sylvester: It was pretty pandemic. And therefore, we're investing more aggressively in diversification, and these markets have, as Sarah said, nice growth potential. We were making progress through that time period. We've continued since, but it has the potential to be quite interesting in magnitude of our overall revenue. Is there a similar opportunity? Do you guys see on the horizon for international? I think some of the sectors have opportunity.

Speaker Change: Therefore, we are investing more aggressively in diversification and these markets have cerus at nice growth potential we were making progress through that time period and we've continued.

Speaker Change: But it has the potential to be quite interesting.

Speaker Change: And magnitude of our overall revenue.

Speaker Change: Okay.

Is there a similar opportunity do you guys see on the horizon for international.

Speaker Change: Yes.

I think some of the sectors have opportunity were investing a little bit more of an education, both in Asia Pacific and in Europe, as we see opportunities there.

Dave Sylvester: We're investing a little bit more in education, both in Asia Pacific and in Europe, as we see opportunities there. Healthcare is pretty diversified, and I would say more challenging to make a significant progress, or to find a way to go after it, at least to date. So we're playing in that space, but not as aggressively as we are in the Americas. And I would say really in Europe, a big part of our business has historically been small, the medium-sized businesses, which is often more dealer-led, and we've been fairly successful in that part of the business.

Speaker Change: <unk> care is pretty.

Speaker Change: Pretty diversified.

Speaker Change: And.

Speaker Change: I would say more challenging to make a significant progress were defined as scared away scaled way to go after it at least to date.

Speaker Change: So we're playing in that space, but not as aggressively as we are.

Speaker Change: In the Americas, and I would say really in Europe, a big part of our business has historically been small to medium sized businesses or and which is often more dealer led and we've been fairly successful in that part of the business, where we're really.

Dave Sylvester: Where we're really, I would say, focused in Europe right now, is how do we win a larger share of the larger corporate business in that market. We do okay, but as the industry leader, we feel we should be doing better, and that's an area of emphasis that we've been targeting. And recently, the team has had a couple of nice breakthroughs. Their win rates are starting to improve on large opportunities in Europe, and it's starting to show up in some sequential improvement in their pipeline. So we're pleased with that progress as well. Great.

Speaker Change: I would say.

Speaker Change: Focused in Europe right now is how do we win a larger share of the larger corporate business and.

Speaker Change: In that market, we do okay, but as the industry leader, we feel we should be doing better and thats an area of emphasis that we've been targeting.

Speaker Change: And recently the team is that it has had a couple of nice breakthroughs their win rates are starting to improve on large large opportunities in Europe, and it's starting to show up in <unk>.

Speaker Change: Sequential improvement in their pipeline.

Speaker Change: We're pleased with that progress as well.

Brian Gordon: Thank you very much for that additional color.

Speaker Change: Great. Thank you very much for the additional color.

Speaker Change: No problem.

Operator: And there are no further questions at this time.

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

Sara Armbruster: Ms. Armbruster, I turn the call back over to you. So thank you all for joining today. We appreciate your interest and still taste, and hope you have a great day.

MS Armbruster: So thank you all for joining today, we appreciate your interest in Steelcase and hope you have a great day.

Operator: This concludes today's conference call. You may now disconnect.

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

Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Yeah.