Steelcase Inc.

Thank you, Rob. Good morning, everyone. Thank you for joining us for the recap of our first quarter fiscal 2026 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 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 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.

Hi, everyone, and thanks for joining the call. Today, I'll highlight our financial results and where we continue to build momentum against our strategy. And I'll start with our results. We saw a very strong start to the first quarter with the majority of our businesses and geographies performing well. The T1 results continued our momentum from fiscal year 2025. In the first quarter, we delivered 7% revenue growth, which drove strong earnings improvement. And our adjusted earnings per share of 20 cents was up 25% versus the prior year. Our Q1 adjusted operating margin was 5%, or 110 basis points higher than last year, driven by the Americas, which posted a 6.7% margin. I'm proud to say we delivered our 12th consecutive quarter of year-over-year growth margin expansion. Looking at total orders in Q1, we saw a less than 1% decline compared to the prior year, and we're up 7% on a two-year stack basis. In the Americas, we continue to see order growth from large corporate customers. We've been predicting that our customers would recognize the need to transform their space to support hybrid work once their employees return to the office. And this growth from large customers was offset, however, by some declines from our education and government customers, which we believe were largely impacted by changes in federal funding policies. In international, growth in many of our markets was offset by declines in Germany and France, which were impacted by macroeconomic challenges. So we're doing the right things to win as much available business as possible. And at the same time, we're aligning our resources to focus on the best opportunities. In the Americas, our win rates in the first quarter continued to remain strong and orders from our global client collaboration customers grew again this quarter. The positive performance is the result of executing our strategy. So I'll take a few minutes now to describe how we're delivering on our three strategic pillars. So I'll start with leading the transformation of the workplace. Across the large corporate customer base, we continue to lead the transformation of the workplace. At the beginning of last fiscal year, the Americas experienced order growth from financial services companies as those customers returned to the office. This quarter, we saw strong order growth from our large technology customers who are now also increasing their workplace presence and related investments. Companies across these leading industries, I think, are seeing the opportunity to use space to drive outcomes around productivity, innovation, and growth. Earlier this month, I met with multiple customers at the Design Days event in Chicago, where we unveiled a brand new work-life center in Fulton Market, which is the city's vibrant west side neighborhood, which is centered on design, commerce, art, and culture. We saw thousands of attendees over the few days as they toured our space. We introduced an expansion of our innovative ocular collection, that creates a reimagined hybrid work experience and improves how people see, hear, and connect with each other and their content. We also showcase a variety of ancillary lines, most notably our new Jean Nouvel Seating Collection by Coalesce, which underscores our commitment to premium design and functional versatility. One customer mentioned that our Jean Nouvel Collection was the most comfortable lounge at the trade show. These products create great conversation spaces for any work environment and help maximize the limited real estate that employers have. The response from our applications at Design Days reinforces the positive sentiment we're feeling in the market right now. In fact, one influential architect commented that the new showroom highlights the full capabilities of what Steelcase has the potential to deliver. We also saw a large client's facilities team placing orders as they toured our space, remarking several times that they wanted to embed various applications into their upcoming project. Attendees left design days with strong optimism about our brands and applications. And we're hearing and seeing the momentum building for Steelcase to continue to lead the transformation of the workplace. Now, as we think about expanding our reach within the markets we serve, which is our second strategic pillar, We continue to grow our capabilities while each market faces a bit of a different dynamic. In education, changing federal policy is impacting the buying patterns of K-12 school districts. The expiration of ESSER funds and uncertainty in the United States around future funding is causing some budget adjustments and project delays across the sector. Within the entire learning landscape, we're focused on supporting our customers as they manage this environment and on delivering our value proposition because the need to invest in learning environments continues and Steelcase remains well positioned. In health, we're seeing key customers move forward with projects as the demand for healthcare services continues to grow. The need for more healthcare space is climbing as patient demand expands. And this quarter, both orders and revenue from our healthcare customers increased. Across all the vertical businesses, we continue to see our investments pay off. Finally, turning to how we strengthen profitability and reinvest in the business, I want to build on my opening remarks. In fiscal 2025, we delivered 110 basis points of gross margin improvement over the prior year. And we continued that progress in the first quarter when we drove 170 basis points of growth margin improvement. Strong volume growth was a major contributor to the margin increase this quarter, but we also continue to see the benefits of our cost reduction efforts, which partially offset the headwinds from higher tariff costs, net of pricing benefits. Our teams continue to do a great job improving processes, implementing new technologies, and adjusting our production flow to drive higher efficiency. So in closing, our first quarter results were a strong start to the year. We continue to make progress against our strategy while we work through a dynamic environment of evolving tariffs and trade policies. But as we highlighted last quarter, we continue to make adjustments in the business to navigate the uncertainty. We're proud of the momentum we're seeing from our businesses that are performing well. And I'll now turn it over to Dave to review the financial results and our outlook in more detail.

Thank you, Sarah, and good morning, everyone. My comments today will start with the highlights related to our first quarter results, balance sheet, and cash flow. I will then cover the outlook for the second quarter. Our first quarter revenue of $779 million was in the upper end of the estimated range we provided in March. Our adjusted earnings of $0.20 per share finished above our range, driven by favorable gross margins and lower operating expenses in the Americas. The impact of tariffs was in line with our projections for the first quarter and approximated $7 million net of pricing benefits. Our international segment finished near our expectations as Asia Pacific performed better than expected, while EMEA results were below our expectations. Compared to the prior year, we posted organic revenue growth of 7%, including 9% growth in the Americas and a 1% decline in international. The Americas growth was driven by a strong beginning backlog versus the prior year and was led by our large corporate customers. The Americas posted an adjusted operating income margin of 6.7% or 200 basis points higher than the prior year. The international organic revenue decline of 1% included declines in Germany and France, mostly offset by growth in India, the UK, and China. Our adjusted EPS increased 4 cents over prior year, and our adjusted operating income increased $11 million due primarily to the strong revenue growth. We incurred $9 million of restructuring costs in the Americas in the first quarter related to the exit of approximately 85 salaried employees. The expected benefits from those reductions were reflected in the fiscal 2026 targets we communicated in March. And these actions were done to prioritize investments in our strategic growth initiatives. As it relates to cash flow in the balance sheet, We used $141 million of cash in operating activities during the first quarter, primarily related to seasonal disbursements of fiscal 2025 variable compensation and retirement plan contributions, and $45 million of higher working capital driven by the initial building of inventory for summer seasonality. Our trailing four-quarter adjusted EBITDA of $266 million was 8.3% of revenue. Our total liquidity, which includes the cash render value of Coley, aggregated to $392 million at the end of the quarter, and our total debt was $447 million. Shifting to orders, Q1 declined modestly compared to the prior year, driven by a 1% decline in the Americas and 1% growth in international. In the Americas, continued order growth from large corporate customers was offset by declines from education and government customers, who had grown strongly in the prior year and now are being impacted by changes in federal funding policies. The growth in large corporate customers was driven by the technology sector as well as our Halcon brand. In the prior year, the Americas orders grew 10% compared to the first quarter of fiscal 2024, which included strong growth from large corporate customers in the financial services sector. For international, the 1% growth in orders was driven by India, China, and Central Europe, largely offset by continued weakness in Germany and France, which reflected order declines from small to mid-sized businesses that are likely impacted by the soft macroeconomic environment. In response, we have initiated procedures with applicable unions and work councils in Europe as part of actions which are targeted to further reduce our cost structure. These actions are in support of our broader goal to improve profitability in our international segment. Turning to our outlook for the second quarter, our overall backlog at the end of the first quarter was up 2% compared to the prior year. Orders during the first three weeks of the second quarter grew significantly versus the prior year. However, they include the pull-forward benefit ahead of a price increase we recently implemented. Accordingly, we expect to report revenue in the second quarter within a range of $860 to $890 million. which represents organic growth of up to 3% compared to the prior year, with expected growth from large corporate customers projected to more than offset expected declines in the education and government segments. As it relates to earnings, we expect to report adjusted earnings of between 36 and 40 cents per share in the second quarter, which compares to 39 cents in the prior year. In addition to the projected range of revenue, the adjusted earnings estimate includes gross margin of approximately 33 to 33.5%, which includes an assumption that higher tariff costs and inflation of approximately $20 million will be offset by higher pricing benefits in the Americas as compared to the prior year. and operating expenses of between $230 to $235 million, which includes $4.3 million of amortization related to purchased intangible assets. Lastly, we expect interest expense and other non-operating items to net to approximately $3 million of expense, and we're projecting an effective tax rate of approximately 27%. In closing, and as Sarah mentioned, We're encouraged by the momentum we sustained into our first quarter with the majority of our business performing well as compared to the prior year and as compared to our year-to-date expectations for fiscal 2026. Importantly, our large corporate customers are continuing to invest more significantly in their workplaces. We have a strong balance sheet. And we're implementing necessary actions to, one, address the tariff and inflationary environment to mitigate the impact on our operating results. Two, respond to the soft macroeconomic environment in Germany and France and bolster our prospects for improved international profitability. And three, prioritize our strategic growth initiatives in the Americas. From there, we'll turn it back to the operator for questions.