Steelcase Inc.

Good morning. My name is Patricia and I will be your conference operator today. At this time, I would like to welcome everyone to the Steelcase first quarter fiscal 2020 conference call. All lines have been placed on mute to prevent any background noise. 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 the pound key. Thank you. Mr. Omnira, you may begin your conference.

Thank you, Patricia. Good morning, everyone. Thank you for joining us for the recap of our first quarter fiscal 2022 financial results. Here with me today are Jim Keen, our President and Chief Executive Officer, Dave Sylvester, our Senior Vice President and Chief Financial Officer, and Sarah Armbruster, our Executive Vice President. Our first 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 discussions 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, Jim Keene. Thanks, Mike, and good morning, everyone.

It's good to be with you today. We're speaking to you from our Grand Rapids offices, which are fully open, and it's great to see people coming together again. As of this week, our employees in Michigan no longer have to wear masks and we have no distancing restrictions. So we're fully back to normal. In fact, on average, over the first two weeks in June, our in-office attendance in Grand Rapids was at 85% of our normal levels. Customers are also visiting again, and we can feel a renewed energy as they tour our campus and they interact with our people and engage with our spaces. Our EPS for the first quarter was a little better than we expected because of continued strong spending controls, especially in the Americas and EMEA. Despite several supply chain challenges, including material supply for items like steel and foam, labor challenges, logistical constraints, our first quarter revenue finished in line with our expectations. I want to thank our teams around the world for the work they did to control costs and to fulfill our customer commitments. Inflation had a modest impact on our gross margins in the first quarter, and we expect the impact to increase more significantly over the next couple quarters. We're offsetting some of the inflation through ongoing cost reduction initiatives, but when the levels of increase are this high and this broad, we have no choice but to swiftly implement price increases, which we did in April, and we recently announced an additional increase for August. It will take some time for those increases to take full effect, so we expect inflation, net of price increases, to be a larger headwind in the second and third quarters. There are some commodities, like steel, where prices are expected to retreat from their peaks later this year, and we consider that when setting our price increase levels. If these prices do not return to more normal levels, we'll consider future price increases. On our call last quarter, I referenced how we had seen an increase in pre-sales activity levels, and over the past 90 days, we've continued to see even higher levels. In the Americas, our pipeline of customer projects has increased in each of the past five months. Sequentially, our Q1 mock-up requests and customer RFPs were 30% higher than Q4, and Grand Rapids-based customer visits, both in-person and virtual, approximately doubled. In Munich, our customer visits were 50% higher than Q4. Some of that global activity likely contributed to the increased order levels we saw in Q1, which were up 25% sequentially compared to Q4 and 11% against the prior year on a consolidated basis. At a more macro level, especially in the U.S., we're seeing similar positive signs. Design firms are busy, as evidenced by continued increases in the Architectural Billings Index Non-residential fixed investment is now above pre pandemic levels and CEO outlook as measured by the business round table is near an all time high. Customer activity takes a few different forms right now. A lot of it, and probably most of it, are projects that were in flight before or were on the drawing boards and were delayed because of COVID. Those projects are getting restarted. And the designs are often unchanged from what the customer would have done before COVID. We also see some activities specifically related to the post COVID workplace, including the emergence of the hybrid work experience, by which I mean employees working from home as well as in the office. We're seeing a new wave of interest by some customers to provide specific home specific office furniture applications for their employees to use at home. These are not subsidy programs that employees can use for anything, but rather the companies actually providing specific ergonomic solutions, which often include a task chair and height adjustable table. In the post COVID office, we are seeing growing interest in privacy, which can include a return to private offices for some customers or just more options for employees to use when they need to do heads down work or to join a video call while in the office. Our orange box pods are a good example of the kinds of solutions that respond to this need. And of course, our architectural walls portfolio and our wood furniture business have long supported private offices. Many other customers have chosen to focus for now on getting the first few waves of employees back in the office and then taking some time to assess what works best as they experiment with high bid work and then make the appropriate investments. We know from our own experiences where they are likely to find challenges, and we already have a strong portfolio of products ready to help. We're also enhancing our portfolio with new products designed specifically to meet some of the new challenges created by hybrid collaboration. Our Smith System Education Products business is also seeing strong demand signals as COVID-related stimulus money is beginning to be used throughout the US to get schools ready for the fall. Over the last year, We navigated through an unprecedented crisis and we took a lot of unusual actions, including cutting our dividend and cutting pay. It was really extraordinary. And if you recall, we took those actions at the very beginning of the crisis in anticipation of what was coming. Our business is in recovery mode now with strong cashflow and strong liquidity, orders increasing over the prior year, pipelines building, and expectations for a profitable second quarter. That's why our Board of Directors restored the dividend to its pre-pandemic level, and it's why we announced our intention to enter into an agreement to repurchase stock next week once our quarterly trading blackout lifts. This past April, we announced Sarah Armbruster will become our new CEO in October as I transition toward retirement in January. Sarah's announcement was very well received by our employees and our dealer partners, and of course, she has my full support. Sarah has been meeting with many Steelcase customers and dealers over the past couple of months, and I'd like to turn it over to her to share a few thoughts. Sarah?