Steelcase Inc.

Good morning, good afternoon, good evening. My name is Ruel and I will be your conference operator today. At this time, I would like to welcome everyone to the Steelcase Second Quarter Fiscal 2022 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. O'Meara, you may begin your conference.

Thank you, Ruel. Good morning, everyone. Thank you for joining us for the recap of our second quarter fiscal 2022 financial results. Here with me today are Jim Keen, our President and Chief Executive Officer, Sarah Umbruster, our Executive Vice President, 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. The 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. 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.

Jim Keene Thanks, Mike, and good morning, everyone. I'm glad to be with you to share our update today. Our second quarter orders grew 24 percent over prior year and 12 percent sequentially versus the first quarter, reflecting the recovery we discussed last quarter. The order growth was broad-based across all segments, including strong growth in every regional market in the Americas. Our confidence in the recovery is supported by the fact we saw parts of our business approaching or exceeding pre-pandemic order levels. Our second quarter order levels at Smith System, Orange Box, and AMQ were all higher than the same period in FY20, before the pandemic. Our EMEA and APAC regions We're within 5% of those same FY20 levels. And in Asia Pacific, that includes overcoming a large decline in India where the pandemic impacts were quite significant. The order strength sets up a strong revenue outlook for the third quarter. Unfortunately, due to ongoing supply chain challenges, we were not able to ship everything we anticipated in the second quarter, which caused some of our revenue to shift out of the quarter. 90 days ago, we spoke to you about supply chain challenges such as procuring raw materials, logistics disruption, and labor shortages at some suppliers. And since then, some of those issues have improved, but others have lasted longer than we expected, and new issues also arose. Our teams have been resilient and are working diligently to overcome the challenges. When our suppliers have been late, we've expedited logistics and run overtime to catch up. When commodity sourcing has been difficult, we found alternative supply sources and sometimes changed product materials. As ocean freight has become less reliable, we've increased our safety stocks, ordered earlier to allow for longer port transit, and we incurred air freight when needed to meet critical customer commitments. It's a long list of challenges, but we've seen minimal cancellations given that these disruptions are impacting our entire industry. And of course, other industries are facing many of the same challenges. We've also seen higher levels of commodity inflation, and steel inflation has been extraordinary. I said last quarter when we announced our second price increase of the year that some of these material costs were anticipated to decline, but if they didn't, we'd need to consider another adjustment. Since then, the cost of steel and several other commodities have continued to increase and are expected to stay high for a longer time. Therefore, we announced this week an unprecedented third price increase, which will begin to take effect in November. When we spoke last time, vaccines had just recently become widely available in the U.S. and many customers were planning return to office dates immediately after Labor Day. Since then, vaccination rates plateaued and the Delta variant began to spread across the U.S., which caused many companies to delay their plans. We sense many of our customers are quite eager to get their employees back to the office. And in fact, many companies have established vaccine mandates in recent weeks. The Biden administration recently announced federal mandates we believe will provide a clearer path for our customers and their employees and is a real positive for our business. As we look at some of the pre-sales activity in the Americas during the second quarter, we had mixed signals. Our in-person customer visits were up, but our pipeline of project opportunities and new RFPs were down a bit. That might be because the Delta variant pushed back return to office plans, or it could be the supply chain disruptions are a distraction. As orders were very strong during the quarter and continue to be strong through the first three weeks in September, and we have seen virtually no cancellation of existing orders, we continue to be optimistic. We have more confidence now about how the workplace of the future will take shape. While there are extremes at either end, The mainstream perspective is the office will remain the primary place for work because of the informal interactions critical to productivity, innovation, and culture. It's also clear that most companies will offer employees a hybrid work experience, giving more permission for them to occasionally work from home or other locations. Those who don't will struggle to compete for talent. For customers who already modernize their workplaces, this shift will happen naturally. But for many other customers, their office is not ready and hybrid will be hard. They will need to update their allocation of individual and team spaces. They will need to shift from rigid fixed office architecture and furniture to more flexible solutions. And they will need to integrate digital layers to every environment to support video conferencing. We believe there's a lot of change coming to the office. As we previously announced, I'll be stepping down as CEO next month after more than seven years in this role. And I'll be retiring in January of 2022 after 25 years with the company. I'm really pleased we're seeing the post COVID recovery, picking up steam around the world. And even here in the Americas where order rates have been so strong, it's a good time to be making the transition to Sarah Armbruster. I'm pleased with so many things the people of Steelcase have done over my tenure here. And even though these last 18 months have been so challenging, I feel we are emerging from the crisis stronger than ever and more relevant than ever to our customers. Our APAC business is growing again, and our EMEA business has made so much progress in terms of profitability and market presence over the last few years. Our Americas business has expanded into new markets through successful acquisitions and has an updated product portfolio in the core. I'm also proud of our ongoing commitment to ESG, We just released our 2021 impact report last week, so I won't go through it all here except to highlight our commitment to reducing carbon emissions and the accountability we set up to measure our progress against DEI goals. I'm really optimistic about our future because of our trajectory. We continue to learn and we continue to get better every year. I'm also really optimistic because of Sarah, who has the right experience, skills, and character to lead this company next. And Sarah has a terrific team of people with so much experience working together. I'm excited to see what they do next. So now I'd like to ask Sarah to make a few remarks as she prepares to take over as CEO.