Steelcase Inc.

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

Thank you, Rex. Good morning, everyone. Thank you for joining us for the recap of our second quarter fiscal 2023 financial results. Here with me today are Sarah Armbooster, 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. 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 Armbruster.

Thanks, Mike, and good morning, everyone. I'm pleased to share that our earnings this quarter were better than expected, and we've delivered significantly higher order growth in the Americas than the rest of our industry over the past year. Our win rates remain strong, and halfway through the year, our financial results are on target. These results are due in part to the great work our teams are doing to implement pricing actions designed to combat the continued inflationary pressure our industry is experiencing, and I'm proud of the progress we're making. Dave will cover our results in more detail in a few minutes, but I'd like to spend my time today on two things, reinforcing our strategy and outlining our plans to lower planned spending in certain parts of our business. So first, our strategy remains centered on work, and that includes leading the hybrid work transformation. We remain committed to helping people create places that work better because we believe people will continue to come together in person to imagine and to create and to achieve, even if the patterns that shape where and how they work continue to change. Our investments in innovation have led to new additions to the Steelcase portfolio, such as our new architectural product, Everwall. Acquisitions like Orange Box, Ficarbe, and most recently, Halcon demonstrate our commitment to leading the hybrid work transformation. We're seeing early positives from the Halcon acquisition as our teams are responding to the strong sales activity in the professional services sector, and we're starting to realize cost benefits from our shared purchasing power. In partnerships with technology companies like Microsoft, Zoom, Crestron, and others, along with our own innovations, are also core to our strategy and investment mix as we help our customers solve for the hybrid transformation. And we believe our strategy is working. Aside from the increased market share, as I mentioned a minute ago, our customer interactions indicate that we're well positioned to be successful in our core business, which serves large, leading organizations. And there have been some very recently released data points which show an uptick in the return to office level in many cities in the U.S. But the reality is some companies have paused their investments as they define their own workplace strategies or weigh their choices in a volatile macroeconomic environment. The lagging return to office that so many companies are facing, primarily in the Americas, along with the possibility of a recession, are likely contributing to slower decision-making. We've begun to see the impact of that slowdown on our incoming order volume level in the Americas, and we believe others in our industry are feeling that same downward pressure. So despite the positive trends I just mentioned, this last quarter, our order volume was down 8% in our Americas core business, meaning our Americas segment excluding the recent acquisitions and our own dealers. And at the same time, inflationary pressures persist and remain significant. Supply chain disruptions also continue to impact our profitability. We've taken actions to address those challenges, but they're still substantial factors. As we've been sharing with you over the past several quarters, we've been making tradeoffs to mitigate the impacts of these headwinds, such as holding back on portions of our spending plans. For example, we've slowed our rate of planned spending increases in both the Americas and Asia Pacific, and will continue to drive fitness throughout every part of our business and region to enhance our profitability. We're also committed to sustaining investments in our future, by right-sizing our core business in the Americas and corporate functions. This move will position us to organize more fully around our plan to reinvest for growth and to diversify our revenue, while remaining more profitable at current levels of volume. So we're taking actions to reduce our plan spending levels, and this unfortunately will require a reduction in our current headcount. I also expect to communicate additional detail in the future regarding how we intend to evolve our operational model to drive greater efficiency and resiliency. Even with these reductions in planned spending, we remain appropriately invested in our core business, as we do believe companies will continue to look to Steelcase as they reimagine their workplaces and invest in the hybrid solutions they need to grow and innovate. Our continued focus on investing to support growth through leading the hybrid work transformation, appropriately scaling our core business, and increasing our fitness complements the opportunities we see to add more diversity to the markets and customers we serve. And that's another key element of our strategy. Our AMQ business is one example of how we're already executing our focus to serve small and mid-sized customers. AMQ revenue grew 50% this quarter against the prior year by meeting the unique needs that this customer set. Over the past quarter, we've improved our speed of delivery through enhancements to our operational model and created an improved customer experience through new digital tools that will allow us to better reach and serve this segment. Our education business also continues to flourish. Smith Systems had the highest quarterly revenue in its history this quarter. growing by more than 50% over the prior year. And finally, our retail business revenue grew 17% versus prior year, and we continue to allocate increased investments to this business to drive more significant growth. One final area of our strategy that remains a key focus is our commitment to ESG. This quarter, we continued our series of global educational webinars for suppliers. to encourage them to set science-based carbon targets and to consider sustainability improvements in the packaging of incoming parts. We also published our first chemical ingredient declare labels for two of our products to demonstrate our commitment to material health and transparency. In addition to that environmental progress, I'm excited to share we've been recognized by Ford twice. as being one of America's best employers for women and as a best employer for new graduates. And Steelcase was again honored by the Civic 50 as one of the most community-minded companies in the nation. This is our third year in a row on the Civic 50 list, and we're pleased to be again named among so many other great organizations making a difference in their business and their communities. In closing, despite the economic hurdles facing our industry, I'm proud of the ways we've navigated the challenges over these past 18 months. We've taken aggressive actions to achieve our targets during the first half of the year, and we're seeing success on multiple fronts as we execute our strategy. We're making the necessary adjustments to prioritize our investments and right-size our business, and we believe that will lead to improved profitability and more diversified growth opportunities in the future. So with that, I'll turn it over to Dave to review the financial results and our outlook more deeply.