Steelcase Inc.

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Steelcase fourth quarter and 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, again, press star 1. Thank you. Mr. O'Meara, you may begin your conference.

Thank you, Rob. Good morning, everyone. Thank you for joining us for the recap of our fourth quarter fiscal 2022 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. 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. 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'll now turn the call over to our President and Chief Executive Officer, Sarah Armbruster.

Thanks, Mike, and good morning, everyone. I'm happy to share that our orders grew strongly again this quarter, which was a continuation of the strength in our second and third quarters. But like so many other companies, we continue to be impacted by a significant number of supply chain challenges and inflationary costs. As we saw in our earnings release, we expect much of this pressure to continue into our first quarter, which Dave will cover in more depth. But I want to affirm we are starting to see the positive effects of actions we've taken in fiscal 22 and believe they will drive improved results in fiscal 23. Our fourth quarter orders growth of 27% was broad-based across all segments, including in all of our main geographic markets and across most vertical markets. Orders for the quarter for our entire company were within 10% of pre-pandemic levels. Orders for Smith System, AMQ, and Orange Box, along with our Asia Pacific region, exceeded the same period in fiscal 20. As I mentioned last quarter, these businesses have been key parts of our growth strategy, and I'm proud that we've been able to drive that growth. I also want to highlight our financial performance in EMEA, which finished the year with over $3 million of operating income. which is an improvement of $18 million versus the adjusted loss we posted last year. Our strategy in EMEA is to drive strong top-line growth while improving our growth margins and operating expense leverage, and our team has done a great job executing against that strategy over the past year. So while we've seen momentum that is fueling our progress, we're experiencing some friction too. Supply chain challenges have persisted and continue to lengthen the time to convert orders to shipment and drive additional costs. During the fourth quarter, we made additional adjustments in our supply chain, which included increasing our inventory levels, switching certain suppliers, and insourcing production. And recently, we've seen improvements in our performance as a result of these adjustments. Over the past five weeks, we've achieved a higher level of on-time deliveries and a lower need for overtime and freight expediting. In addition, our order and project pipelines have not experienced any significant cancellation levels. We're also seeing positive signs in the market. This past week, I was in Washington, D.C., meeting with customers and business leaders, and across many different conversations, I continue to hear strong sentiments from those leaders about their plans to implement hybrid models that include substantial presence in the office, with a growing number already having taken this step. Similarly, as I talk with business leaders who come to visit our Grand Rapids workspaces or other CEOs and leaders more broadly, They resoundingly continue to express a broad desire to reshape their culture, and that includes changing their spaces and bringing employees together in person. Our most recent research backs this with 87% of respondents in our latest global report indicating they will go back or are already back in the office, which is not only great for Steelcase, but it's great for innovation and growth across industries and markets. So while we're still seeing companies make a variety of choices about the role of the office and their future workplace plans, these plans almost always involve some aspect of hybrid work. So that remains an incredible opportunity for Steelcase to lead the industry with insights about new ways of working and with products and services designed to help people thrive. And we're seeing similar sentiments about the office from others' research as well. In January, for example, the Harvard Business Review published a new survey detailing the projected impact of hybrid work on real estate demand. Their results reveal workers are seeking less density when they work in the office, and because companies are most likely to see peak attendance in the middle of the week, they do not believe there is much of an opportunity to shrink their footprint. Across respondents, the estimated decrease in office space needs is only 1%. Another positive development from this past quarter was that, according to CBRE's data, the U.S. office real estate market recorded the first positive net absorption since the start of the pandemic. This means more space was occupied than vacated during the fourth quarter of calendar year 2021. We were also emboldened by the overall higher level of leasing activity that CBRE reported. The data showed that new leases accounted for 72% of the Q4 total leasing activity. And this is the highest ratio since the pandemic started. And it's meaningful as new leases are more likely than renewals to lead to new furniture projects. So Steelcase is navigating the current challenges and we see positive market signals, which reinforces our decision to anchor our strategy on work. and on being the leader in helping companies navigate the new era of hybrid work. We're also placing strong emphasis on additional growth opportunities, such as expanding our reach to customers of different sizes, building on the success of our education business globally, and helping more people work better at home through our consumer retail efforts. Developing innovative products to support hybrid work continues to be a core part of our growth plans. Earlier this week, for example, we began taking orders for our new Flex Personal Spaces desking solution. We've received consistently positive feedback since the introduction at Neocon last fall. Customers love the added privacy and how the design drives the floor plan layout that is different from the traditional grid style and the control that Flex provides users within that footprint to address the changing dynamics of the post-pandemic world. The breadth of our Americas ancillary portfolio also continues to expand, and orders for this collection of products grew faster than our overall average during the past year. We're seeing customers solve for the new needs of hybrid work by adding areas for socializing and collaborating adjacent to spaces that support focus and opportunities to rejuvenate. And based on additions like On the QT that Orange Box has made to our architectural pod portfolio, We're expecting strong growth from that business again next year. As we look to further grow our retail business, in the coming months, we expect to expand on our existing e-commerce program with Best Buy. Best Buy will now stock some of our top-selling SKUs with the goal of creating a great consumer experience by offering competitive lead times and providing in-store pickup. Our Smith System business had an outstanding year with revenue growth of 50%. The Smith System business benefited this year from U.S. government stimulus available to K-12 schools, but also drove growth from both the success of new products and a strong focus on customer experience, which included a decision to carry higher inventory levels to ensure product availability. I'd like to close by mentioning a few highlights on our ESG progress. In the environmental arena, we were proud to join with companies like Ford, Xerox, GE, and more than 90 others in a pledge to reduce carbon emissions by at least 50% by 2030 as part of the U.S. Department of Energy's Better Climate Challenge. We were also named among the top 8% of companies recognized as a supplier engagement leader by CDP for working with our suppliers to cascade carbon measurements and environmental action down our supply chain. On the social side, we took action and joined the Valuable 500, a decision that builds on our work with G3ICT in support of inclusive workplaces. The valuable 500 pledge indicates our commitment to innovate for disability inclusion. And we received two notable recognitions this quarter. First, Steelcase was named a world's most admired company by Fortune magazine for the 16th time. And second, Steelcase again earned a 100% score on the Human Rights Campaign's Corporate Equality Index and the designation of being a best place to work for LGBTQ equality. We believe these recognitions are evidence of the strong culture and values that have been in place at Steelcase for many decades. I'd like to offer my special thanks to the employees of Steelcase who live these values every day and who have persevered through a challenging year. Despite some of the headwinds we're experiencing, market signals about returning to the office and implementing a hybrid approach are very strong. We believe we have many reasons to be optimistic, and we look forward to continuing to implement our strategy and drive higher revenue and earnings in fiscal 2023. With that, I'd now like to turn it over to Dave to review the financial results and our fiscal 2023 targets.