Steelcase Inc.

Good morning. My name is Rob and I will be your at this time. I would like to welcome everyone. Fiscal 2023 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'd like to ask a question, followed by the number one on your telephone keypad.

If you'd like to withdraw your question, again, just press star one. Thank you. Mr. Romero, you may begin your conference. Thank you, Rob. Good morning, everyone. Thank you for joining us for the recap of our first quarter fiscal 2023 financial results.

Here with me today are Sarah Armbruster, our president and chief executive officer, and Dave Sylvester, our senior vice president, and Chief Cross Lawyers 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 will now turn the call over to our President and Chief Executive Officer, Sarah Ambruster.

Thanks, Mike, and good morning, everyone. Our results this quarter were better than we expected, thanks in part to the great work being done by our people in this challenging environment. Our operations teams have continued to manage supply chain challenges and improve our operational output, which helps drive 33% revenue growth. We've made adjustments to increase our inventory levels, change suppliers and in-source production, and remain agile by shifting resources as needed. I'm delighted that we're seeing the impact of this work on our results. We continue to engage with our customers to help them create inspiring workplaces, and I'm pleased to say that our sales team drove another quarter of strong year-over-year order growth. We're also doing the hard but necessary work of implementing price increases in response to extraordinary inflation levels, including skyrocketing fuel and logistics costs. Dave will discuss this in more detail when he covers the financials. I want to acknowledge that although our second quarter outlook is impacted by recent increased inflation and the typical timing lag of implementing our price increases, we remain committed to achieving our 2023 targets. We plan to achieve those targets by implementing actions to offset higher costs and by slowing the pace of our incremental spending while remaining invested in key growth priorities. Across our segments, the Americas drove 38% revenue growth and EMEA grew 36% organically. Our order growth of 22% overall was stronger than we had anticipated. And in the Americas, we've now outpaced our industry in each of the last eight months of available data. Strong orders have helped sustain our high level of backlog, which finished Q1 at $927 million, or up 52% versus last year. Our EMEA segment recorded a very good quarter with operating income of $1.3 million, which was our most profitable first quarter in EMEA in over 10 years. I'm proud of the work our teams have done to drive and improve our operating expense leverage. In the other category, our revenue was impacted this quarter by COVID-related restrictions in China. Many of those restrictions recently have been lifted, and we expect our business to improve later in the year as China reopens. I'm pleased to report we recently completed our acquisition of Halcon and have welcomed this organization to Steelcase. Halcon provides a level of master craftsmanship that is uniquely appreciated by the design community and by many brands for two main reasons. First, we believe this acquisition will position us to win new business.

Hybrid work is fostering a renewed emphasis on professional services firms, a large part of Halcon's customer base.

Additionally, according to some data, these same segments have outpaced others in returning to the office, and that provides a strong tailwind to sales. Beyond that, we expect to drive revenue synergies as we begin to connect Halcon with our customer and dealer network. Secondly, their products are highly coveted by the design community, and they fill a gap in our current portfolio. Last week at Neocon, we had an award for their newly launched Helm conference table. This is the top award for any product shown at Neocon, and it's a great recognition for HelmCon's innovative designs and beautiful aesthetic.

It complements their already awards. or winning portfolio. Hybrid work was a big focus at the MediaCon trade show last week, where we estimate attendance in our showrooms was within 70% of pre-pandemic levels.

Customers, dealers, and designers experienced our solutions designed to support hybrid work, such as Flux Personal Spaces, Everwall, and new pods from Orangebox. Many conversations started with hybrid work and quickly evolved to how the workplace needs to transform.

Company leaders resoundingly agreed that being together more often is the best way to build their cultures and to enable business strategies.

We believe that in many cases, companies will update their office environments to earn the commute from their employees. At Neocon, we also demonstrated the solutions for hybrid collaboration that we're developing in partnership with leading technology firms such as Microsoft, Zoom, Logitech, Crestron, and VergeSense. And we're engaging innovative technology capabilities into spaces. A great example of this is the table we created to support the Microsoft Teams front row experience. This solution offers many benefits, including a wider screen angle that creates a more equitable experience for both in-person and remote participants. We are working to create truly compelling experiences and to prompt companies to completely rethink their conference room designs in light of a hybrid future. We've also made notable progress in our other growth strategies. AMQ had a strong first quarter.

This was fueled partly by AMQ's quick-ship model that appeals to many small and mid-sized businesses, which we... ...the Anobi Agile workspaces at Neocon, which include fully integrated mobile workstations... ...that allow for more flexibility as teams move between individual and collaborative work... ...television... and installs in about five minutes. Our education business also and higher education institutions. Smith System expects to grow revenue by more than 50% over the first half of this year versus the prior year. Our efforts to build our APAC education business also are working, as its revenue and orders and localizing the supply chain for certain Smith System products. All of this good news gives me confidence that our strategies are working and that we're well-positioned to lead the hybrid work transformation.

Our teams are working tirelessly to overcome the inflationary headwinds we're facing, and they're finding new ways to help us grow and to deliver results. I'm proud of their efforts and their commitment to our customers. Steel Pace was recently included on the Forbes 2022 list of best employers for new graduates, ranking 43rd out of 300 organizations. We believe this reflects our efforts to invest in people, continuously improve our culture, and attract top talent. The best part is that these professionals in the United States. It's great to see this demographic makes their career aspirations. Awards like this come from our commitment to ESG. And just last week, Steelcase was again included in the Civic 50, a group of just 50 of the most community-minded companies in the United States. The Civic 50 is sponsored by Points of Light, which also named Steelcase a consumer discretionary sector leader for the second year in a row. We believe our high levels of employee volunteerism reflection of our core values and our commitment to helping people everywhere reach their full potential. Despite the cost headwinds impacting our near-term financial results, our order levels remain strong, the impact from our pricing actions in response to inflation continues to build, and we're continuing to push on our fitness efforts. We also feel the momentum from the success of our Neocon engagement of customers and the positive response we've received from our dealers and the design community. With that, I'd now like to turn it over to Dave to review the financial results and our second quarter outlook.

Thank you, Sarah, and good morning, everyone. My comments today will include highlights related to our first quarter results, including comparisons to the outlook we provided in March and sequential comparisons to the fourth quarter. Plus, I will cover the balance sheet and cash flow, our outlook for the second quarter, and our thoughts about the second half of fiscal 2023. Beginning with a comparison to our outlook, first quarter revenue and earnings were both better than the top ends of the range

we provided in March.

For revenue, we recorded organic growth of 35% compared to the prior year, which included both volume growth and benefits from increased pricing in response to the rapidly increasing inflation over the last several quarters. We estimate that pricing benefits represented approximately one quarter of the growth. Order intake was strong and above average, and the better-than-expected revenue was also driven by higher conversion of our backlog to shipments than we anticipated. We are still managing a significant level of supply chain challenges, but our operations teams have continued to make adjustments which improved our order fulfillment patterns more significantly than we estimated. For earnings, We exceeded our projected range due to the higher revenue, which more than offset the negative impacts of increasing inflation across several commodities, fuel, and logistics. Inflation net of pricing benefits was $12 million higher than the prior year, and in the prior year, inflation net of pricing benefits was $7 million higher than the first quarter of fiscal 2021, So on a two-year stack basis, the total negative impact approximates $19 million. I will cover inflation in more depth when I address our outlook. Moving to the sequential comparison of the first quarter results versus the fourth quarter, the earnings comparison is impacted by the timing of our annual stock awards and the expense recognition related to retirement-eligible participants which wastes the expense more heavily to the first quarter each year when the majority of awards are granted. Excluding stock compensation expense and restructuring costs, adjusted EBITDA of $27 million in the first quarter represents a sequential decrease of $2 million as the impact of lower revenue due to seasonal demand patterns and moderately higher spending was mostly offset by a small land gain recorded in the first quarter and higher net pricing benefits, as the sequential increase in pricing benefits from previous adjustments outpaced the sequential increase in inflation. Regarding orders, we posted year-over-year organic order growth of 22%, which included both volume growth and increased pricing. We estimate that pricing benefits represented approximately one-third of the order growth. We had growth across all of our reporting segments, with 25% growth in the Americas, 19% growth in EMEA, and 4% growth in the other category. The growth in the Americas and EMEA was broad-based across most regional markets, including some that had been slower to return to the office. And we had strong growth at AMQ, Smith System, and Orange Box. The growth in the upper category was tempered by the pandemic-related lockdowns in China, which resulted in a year-over-year decline in orders in that market. But that was offset by a strong rebound in India, which faced pandemic-related challenges in the prior year. On a sequential basis, first quarter orders grew 19% compared to the fourth quarter of fiscal 2022, driven by additional benefits from our pricing actions, and seasonal demand patterns, including at Smith System. With our corporate customers, we're seeing positive trends as they invest in their workspaces and contemplate solutions that support hybrid work. For example, we're seeing an increase in interest for applications that support enhanced privacy, focused work, and video connection in the open plan. And that can include screens, barriers, architectural walls, and other approaches to space division. all of which can increase the amount of investment per office worker. Plus, we're seeing efforts by customers to improve their collaborative spaces in order to better connect distributed teams in a hybrid model. Others are contemplating activation of their in-between spaces, using inspiration from the home that has been a primary workplace for many over the last two years. We believe these shifts are positive for our industry, and we believe we are well positioned to lead our customers through this transformation of the workplace. Turning to cash flow and the balance sheet, we ended the quarter with $117 million in cash and $280 million in total liquidity, which was a sequential decrease of $89 million compared to the fourth quarter of fiscal 2022. For the quarter, We recorded adjusted EBITDA of $27 million, or 3.6% of revenue, and over the last four quarters, our adjusted EBITDA totaled $152 million, or 5.1% of revenue. Operating cash flow in Q1 included a $51 million increase in inventory as we prepared for the strong summer seasonality of Smith's system, and continued to adjust our purchasing patterns to protect against supply chain disruptions. Operating cash flows also included $32 million of seasonal disbursements of accrued variable compensation and retirement plan contributions and $30 million of U.S. income tax recoveries. Investing activities included $14 million of capital expenditures which we now expect to total between $60 and $70 million for the full year. We returned $17 million to shareholders during the quarter through our quarterly dividend of $0.145 per share. On June 10th, following the close of the first quarter, we completed our purchase of Halcon and funded the purchase price from cash on hand and $68 million of borrowings under our credit facility which we expect to repay by the end of Q3. Moving to the outlook, consolidated backlog at the start of the second quarter totaled $927 million, which was 52% higher than the prior year and continued to include a higher than normal amount of orders expected to ship beyond the next quarter. As a result, we expect to report revenue within a range of $875 to $900 million for the second quarter, which represents year-over-year organic growth of 20% to 24% and a sequential increase of 18% to 22% compared to the first quarter. We expect a sequential increase in revenue to be driven by the strong backlog at the start of the quarter and continued order growth, normal business seasonality, which includes Smith System and other education projects that shift in the second quarter, and revenue from Halcon, which will be included in our consolidated results for most of the second quarter. We expect to report adjusted earnings per share of between 11 to 15 cents for the second quarter. The earnings estimate reflects the impact from the expected increase in revenue, as well as our projections of pricing benefits net of inflation of approximately $10 million when compared to the prior year, which would begin to reduce the cumulative negative impact of inflation, which has been ahead of our pricing actions, by approximately $20 million in Q2 of the prior year. We also expect operating expenses of $225 to $230 million, which includes Halcon's operating expenses, prioritized investments in marketing and product development, increased sales conditions at Smith System, and investments in our employees. Lastly, we expect interest expense and other non-operating items to net to approximately $4 million of expense and we're projecting an effective tax rate of approximately 27%. Adjusted earnings are projected to benefit modestly from the consolidation of Halcon. Looking to the second half of fiscal 2023, we continue to target the full-year ranges of organic revenue growth and earnings per share that we communicated in March, taking into account the impacts of restructuring costs in Q1 and the recent acquisition of Halcon. While there are significant headwinds, including a sluggish return to office in some of our largest markets, significantly higher levels of inflation, and reduced CEO and CFO sentiment, we are encouraged by the strength of our backlog and positive sentiment from our sales organization and dealer community. Pre-sales activities remain solid in most markets, and we hear from many clients that they want their people back in the office. and are working on plans to motivate their employees. Regarding inflation, we are currently projecting an increase of at least $85 million compared to our initial estimates for fiscal 2023, driven by significant changes in the external projections of steel prices, higher energy costs, and rapidly increasing costs of petroleum-based products, freight, and deliveries. However, we announced an additional global price increase in May to take effect in July, and we recently announced a surcharge in the Americas, which will take effect on new orders beginning in mid-July. In addition, we have slowed incremental spending and continue to focus on fitness initiatives, which will help combat the near-term impact of these higher costs while preserving our ability to invest in our strategy and longer-term growth initiatives. For your modeling purposes, the July adjustment totals 9% in the Americas and 8% across EMEA and Asia Pacific. And these adjustments are in addition to the adjustments we announced in February, which took effect in April, and approximated 10% in the Americas and a mid-single-digit percentage elsewhere. The surcharge, which equals 2% of published list pricing, is only applicable in the Americas, but excludes a few brands that have taken separate pricing actions like Smith System and AMQ. In closing, first, we are pleased with the strong growth in revenue and orders that we achieved in the first quarter. And we believe our strong backlog, pre-sales activity, and projected order growth are supportive of our targeted organic revenue growth for the full year. And second, inflation and supply chain challenges negatively impacted our operating results in the first quarter, and are expected to remain significant challenges for the remainder of the fiscal year. However, we are implementing actions to combat these higher costs and mitigate the disruption, and we're slowing incremental spending while prioritizing critical growth investments to help protect our chances of delivering our targeted earnings in fiscal 2023 in a very dynamic environment. From there, I will turn it over for questions.

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. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Greg Burns from Sedani. Your line is open.

Morning. In terms of the $85 million of higher inflation costs versus your prior expectations, Based on the – how much of that are you able to offset with the April price increase and the July price increase that you project? Are you going to offset all of that or only a portion?

Well, we expect to offset all of it and get our margin on that inflation over time. But I think your question is probably about the fiscal year impact, and it will be substantially less. I would put it in the range of – 50 to maybe 60 million of pricing to offset the 85 in the current fiscal year, plus or minus somewhere in that range.

Okay. Okay, so I guess, but the outlook would still be for in the second half to see a little bit of a margin improvement or better price realization and margin improvement in the second half from where you were in the first half of the year?

That's correct.

Okay.

That's our target.

Okay. And then in terms of order trends, it doesn't sound like the recent kind of change in the macro outlook has impacted orders. Can you just talk about what you've seen since the end of the quarter, if you're starting to see any change in conversations with your customers or demand trends more recently?

I would say nothing meaningful, meaningfully different than what we have been seeing. The growth rates compared to the prior year are going to be impacted by the fact that in the prior year, orders were strengthening. So as we move through the year, the year-over-year comparisons become more difficult. But the absolute level of orders have not, I would say, surprised us in a negative way in any kind of significant pattern.

Okay. And then lastly, in terms of How come? Can you just talk about what their prior distribution was like? Were they a national brand, regional? What kind of leverage are you going to be able to get putting it through your distribution network? And were they previously sold by any competitors, dealers? And will there be any disenergies in that regard?

Yeah, so they are a national brand. In fact, they do do also a small amount of business outside the United States, so they're pretty well distributed across markets. They do have a very broad distribution network that's not exclusively tied to any particular manufacturer or any particular network. Even so, we still think there's significant opportunity to expand their revenue and support their growth by more closely and better connecting them to the Steelcase distribution network, so we certainly expect to see revenue upside there. And as far as dis-synergies, we did assume a bit of dis-synergy, but I think we certainly know that their brand reputation and the quality of their products is quite strong, and that customers who ultimately desire Halcon products desire a Halcon product. So we have assumed some dis-synergy, but we don't think that that impact over time will be significant.

Okay, great. Thank you.

Our next question comes from the line of Catherine Thompson from Thompson Research Group. Your line is open.

Hi, thank you for taking my questions today. First, it's just focusing on production and backlog balance. Q1 results seem to reflect greater production efficiency Do you think production will be as good or better into Q2? And do you think backlogs are likely to decline sequentially simply because of better production rates?

Well, I'll start by saying we did have better production than we expected in Q1. So it was more consistent with Q4. over the whole quarter. In Q4, though, what we were seeing and feeling was a little bit of a deterioration toward the end of the quarter, and we kind of quickly made that up and got back to the average of Q4 across Q1. In Q2, we will have to have further improved production from where we are to meet the revenue targets. But a big component of our revenue guidance for Q2 is also linked to Smith System, who is more of a made-to-stock model and has been ordering and receiving component parts and finished goods for the last several months to support the strong summer seasonality that they have. So I think there might be a little risk, you know, of overall production, but Our ops team is doing a terrific job wrestling with multiple challenges and making incremental progress at the same time. So I'm pretty confident that they're going to be able to continue to do that through the summer. And I think your last question is about what does backlog look like at the end of the second quarter. We expect order growth to continue in the second quarter. And I would expect that we will have a particularly strong surge in orders in advance of the price adjustment and surcharge effective dates of mid-July, which will sit in backlog at the end of the quarter, most likely given our average lead times are not what they normally have been. So I would expect we'll have a pretty meaningful backlog going into Q3. I think the biggest question is, you know, what does Q4 look like? And that's where we need a little bit of return to office to continue to gain traction. We need the economy to stabilize a little bit. And if that happens, we'll have a good year and feel like our targets that we communicated in March are achievable.

Okay, helpful. Shifting the EMDA had some solid growth there despite just a challenging environment. Two questions related to that market. What do you see driving demand? Is it sustainable? And then do you expect to see continued sequential margin improvement as we progress in the year?

I'll take the second one, maybe see if Sarah wants to comment on the first one. On the sequential margin improvement, I think our margins will likely be pressured in Q2 because of the August shutdowns that the the whole continent basically experiences in the month of August. So we typically see a little bit of margin pressure. But thereafter, in the back half of the year, we would expect their pricing benefits to continue to help margins along with the continued emphasis on improving the profitability in Europe. Q1 was one of the best first quarters we've had in a long time. Q2 will also be a good quarter, we suspect, based on the backlog that we have and the presales activity. And the back half of the year is really going to be dependent on how the economy stabilizes and whether or not our draw-to-order patterns continue to hold. What I feel good about is the presales activity continues to be pretty strong. So maybe with that I'll leave it to Sarah to see if she wants to comment more about kind of the overall demand environment.

Yeah, I'll just add a little bit more to Dave's comments. Just building on his last point about order patterns, I think the return to office across that region has been strong. So we don't see, at least among our customers in those EMEA markets, as much, I'll say, tension there. between employers and employees about work from home versus work from office as we tend to see in North America. So I think that certainly helps give us confidence in the likelihood of future demands. I think the other thing I would add is that a number of our growth strategies as we seek to diversify the top line involve continuing to invest in some of our initiatives outside of the Americas and continuing to grow in places like Europe. For example, we are putting extra focus on our education business in Europe and seeing nice growth there. We certainly have plans to leverage the carbide acquisition that we completed last November to broaden their presence in Europe. So I think there are a number of things that we continue to stay invested in with respect to our strategy that will also provide nice tailwinds to our growth across the EU.

Okay, that's helpful. And then final question, this is just a bigger picture question. From our perspective, from TRG's perspective, kind of that big COVID-driven move is largely passed. However, the secular trend of the population shift to the southeast and the southwest has continued more favorable tax, labor, and then just candidly building momentum And the most interesting one and perhaps shocking one was last week's announcement of Caterpillar moving its headquarters from Illinois to Texas. As you plan out your business and look at these types of big shifts, how is that impacting how you plan your business? And what are your big global customers telling you about overall trends and how they think about the office as they make these big regional moves to Southeast and Southwest. Thank you.

So maybe I'll start and answer, and Dave can chime in if you'd like to add color. I think with our staff to shift across the U.S., I mean, it has long been our strategy to support our customers wherever they need us to support them, whether that's across the U.S. or globally. And I think that's a big reason that we've always invested heavily in our dealer network and in supporting dealer partners who we believe are the best in the industry. And I think as our teams work closely with our dealer partners in local markets, whether it's in Illinois or Texas or Atlanta or pick your market, a significant part of what they're putting their energy into is sort of joint planning and thinking about those shifts, about how different markets are going to grow, what the potential and opportunity in a given region is. and making sure that we, in combination with the dealer, have that shared plan and have a shared perspective on how we bring the right resources to that market to capture business and to serve customers. So I think that the rhythm of those types of conversations have long been built into how we think about our dealer network and how we work with our dealer partners. And I think that will hold us in good stead. as we do see some of these shifts in population lose in corporate news over time. So I don't know, David, do you want to add anything to that? No.

Great. Thank you very much. Thanks, Doug.

And again, if you'd like to ask a question, hit star 1 on your telephone keypad. Your next question comes from the line of Bud Bugach from Water Tower Research. Your line is open.

uh good morning and uh congratulations on on the revenue growth and the order growth and continuing to manage in this dynamic environment i guess i'll uh i'll echo a little bit with cath with catherine said uh because we are here in the south uh in the south and uh the west coast of florida the traffic is uh is uh is confirming the a lot of the growth down here I guess let's just start with a little bit of a big picture. You've just come back from Neocon, which really was the first one in this time of the year during this, during after COVID. What are you seeing from the customers? What are you hearing from the customers in terms of change behavior? Can you maybe talk about that? I know you talk about more increased privacy, but maybe give us a little bit more color than that.

Sure, Beth. This is Sarah. So thanks for the question. So a couple of things that we're hearing in addition to changing needs for privacy are also related to that, the need for individual focus. So thinking about the idea that when people are in the office, they're not just there for meetings and for collaboration, but they also have moments or periods of time in between the meetings where they need really terrific individual spaces that support their individual focus work. Two other things I would touch on are the growing demand, of course, for hybrid collaboration. I think our perspective and point of view is that going forward every single space no matter what type of space it is, needs to be ready to support a hybrid interaction, whether it's a group meeting where you need to dial in someone on Zoom, whether it's an individual working space where someone might choose to dial someone up on their laptop. So I think needs and desires from customers to understand how they can think about Furniture, display, video, acoustics, all of the things, lighting, all of the things that you need to create a terrific hybrid experience are top of mind for customers. And then the other thing I would mention is certainly the need for social spaces. One of the best reasons or most important reasons for people to come to the office is to be with their colleagues. Lots of customers, lots of business leaders and decision makers are talking about the desire to rebuild trust, to rebuild social connection, to help their employees feel reconnected to the broader organization and the company's purpose. And those in-between spaces, those informal spaces, those social kinds of spaces, whether it's a lounge area, a cafe, et cetera, there's a lot of interest in thinking about those kinds of spaces, even from the kinds of customers that I would say anecdotally in my experience prior to the pandemic felt that that was fluffy, that those kinds of spaces were not suitable for doing real work. Even some of the more I think previously reluctant customers to think about the idea of social interactions in the office are now really eager to explore those types of solutions.

Okay, thank you. And other things that are changing so dynamically in the environment, we're also not just affecting Steelcase, but affecting all of us. We're seeing higher interest rates in relation to the Fed's work trying to to slow down the economy and the inflation that we have seen. How is that impacting Steelcase? What's the impact on interest rates to you? And Dave, if you can maybe give us a feel of that. I'm going to come back to inflation as the next part of that as well.

It's relatively small, Bud, because the substantial majority of our debt is public debt with a fixed rate. We have, I think, less than $50 million of aircraft financing that is a variable interest rate, so it's relatively small.

Gotcha. That's good news. And can we talk a little bit about, you say in the presentation that you expect pricing to become a tailwind fiscal 23. And just maybe go back just to the beginning of the pandemic. It would be 19 for most people. I think it would be your fiscal 20. How much – what's the total – can we get an idea of total dollars of inflation and total dollars of pricing between then and now? And maybe how that varies by segment, too, because I think there's a difference in the timing of pricing and inflation by segment. So maybe review that because I'm confused – And I think I pay attention. So you had five tuition increases and a surcharge, and I'm kind of confused as to where the totals lie.

I'll suggest on that particular aspect you have a follow-up with Mike and go through the disclosures that we've had maybe over the last several quarters, and then I think we can piece together for you how it's impacted the segments because we've provided a lot of that color either on the calls or in the queues. But in the aggregate, I mean, we're now at about $100 million of net inflation in excess of pricing benefits. So if you just think about that, that's the hole that we're in that we're beginning to climb out of in Q2 with our projection that pricing should be ahead of year-over-year inflation by about $10 million. And it's the back half of the year where we start to climb out more significantly because of the incremental adjustments and surcharges. Initially, we had anticipated Q2 would start to show more meaningful year-over-year improvement. $10 million is still meaningful, but it would have been a lot better had we not had the latest surge in petroleum-based products, fuel and logistics costs, as well as steel not playing out anywhere near what external indices have projected. It's come down, but not nearly to the extent that it was projected to come down.

But most that's been in the Americas, as you would expect, obviously. We can definitely get more granular.

And that's what I was trying to get to. I do think I understand that. And for the year, that delta of $10 million, what do you think it is for the full year?

I don't know that I have that number off the top of my head. We did disclose $120 to $140 million in our initial targets, and in the dialogue with Greg just a minute ago, we kind of sized that that could be impacted in the $30 million range, plus or minus, because of the latest round of $85 million of inflation, not of the incremental pricing benefits. So call the 120 to 140, something closer to something maybe lower than 100 to something higher than 100.

Okay, that is very helpful. Okay, well, congratulations on kind of managing through this. This is, as I said, a very challenging environment. You certainly said that as well, and thank you. Best of luck for the rest of it.

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

Great. Well, I just want to thank all of you for joining us. We appreciate your interest in Steelcase, and have a great day.

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