Steelcase Inc. (NYSE:SCS) Q4 2024 Earnings Call Transcript

Steelcase Inc. (NYSE:SCS) Q4 2024 Earnings Call Transcript March 21, 2024

Steelcase Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Steelcase Fourth Quarter Fiscal 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Mr. O’Meara, you may begin your conference.

Mike O’Meara: Thank you, Dennis. Good morning, everyone. Thank you for joining us for the recap of our fourth quarter and fiscal 2024 financial results. Here with me today are Sara 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 will now turn the call over to our President and Chief Executive Officer, Sara Armbruster.

Sara Armbruster: Thanks, Mike. Hi, everyone, and thanks for joining the call today. Our fourth quarter results reflect strong earnings growth, as we continued to make progress on our profit improvement initiatives. This progress is evidenced by our year-over-year gross margin improvement of 140 basis points, marking the seventh consecutive quarter of year-over-year gross margin improvement. For the full fiscal year, our earnings per share more than doubled versus the prior year, and our adjusted earnings per share increased by more than 60%. I’m proud of our employees for actively helping to capture price increases to offset the significant inflationary costs we absorbed over the past couple of years, for implementing improvements in various aspects of our operations, and for continuing to drive our overall fitness initiatives.

These efforts to improve our profitability and to reallocate resources are supporting specific growth initiatives and transformation priorities, allowing us to continue to invest in our strategy, while strengthening our financial results. Building on this, I’m pleased to share that our International segment posted additional improvement this quarter with over $3 million of adjusted operating income, following strong results in the third quarter. These past two quarters reflect significantly improved performance from the nearly $15 million adjusted operating loss that the International segment recorded in the first half of the year. To continue to enhance our competitiveness, we implemented additional restructuring actions in the fourth quarter in our Asia Pacific business, and Dave will provide some further details about our expectations for the International segment when he covers our outlook.

So, turning to orders, we grew 4% overall in the fourth quarter versus the prior year, and that includes 8% growth in the Americas. Similar to last quarter, the Americas growth once again was led by the large corporate customer segment. Customers tell us they need our help to create spaces that will attract new talent and engage and retain employees and help teams and individuals perform. And they know their spaces must do more and they must be designed to support a range of needs such as providing places to focus, collaborate, build social connections and foster well-being. So, I’ll reinforce this point with a quick anecdote. I was with the CEO of a major global corporation recently. And as he contemplated the upcoming renovation and expansion of their innovation center, he shared with me his absolute certainty that the new space must do more to support innovation teams.

And he said, “I know what outcomes we want this building to deliver, but I don’t know how to make that happen.” And that moment, when a client knows they need new thinking and expert advice, is where Steelcase shines. We’ve stayed invested in workplace research and new product development to maintain and enhance our portfolio, and we believe this is reflected in the continued strength of our win rates. We’re further encouraged by data points [such as] (ph) Business Roundtable survey on CEO confidence, which showed a significant increase this quarter, and it reached the highest level in the past 18 months as optimism in the United States economy is strengthening. We believe this increase in confidence could also support increased business investment levels.

As we seek to lead the transformation of work and diversify the customer and market segments we serve, we continue to expand our product portfolio, including new launches this quarter. In EMEA, our Orangebox brand launched Beyond the Desk, which is a modular upholstery system that offers a supportive upright sit, in combination with ergonomic fixed worktables. It effectively divides spaces, offering privacy for individuals, teams and larger collaborative workgroups. At AMQ, the Personality Plus task chair leverages our Asia Pacific portfolio to bring a new offering to the Americas. Personality Plus is designed to give small and medium businesses a new option for comfortable, supportive, ergonomic seating. And similarly, the Steelcase Learning Agree Chair leverages our Smith System brand to offer a versatile and simple seating option at a lower price point to our education customers.

All three of these examples highlight our efforts to deliver innovation and value to our customers, leverage our scale, and complement our broader portfolio of products from across our brands. Finally, I’d like to share a little more about our business transformation initiative, which is one of the drivers of our increased investment level in fiscal 2025. Business transformation for us is about optimizing and automating our business processes. We introduced business transformation about a year ago at our Investor Day when we were in the initial phases of planning. And since then, we’ve been designing streamlined and modernized end-to-end processes. These improvements are aimed at providing new capabilities to serve our customers and make it easier to do business with Steelcase.

We also expect to drive higher levels of efficiency in the ways we operate our business, which should free up resources and lower our costs. So, over the next year, we’ll be continuing that work and implementing a new enterprise resource planning system as part of our business transformation initiative. We view this as a major opportunity to increase efficiency and effectiveness, and it will also require significant resources. So, we’re eager to see the impact of this work evolve over the next year, and we’ll have more details to report in the coming quarters. In closing, we delivered strong profit improvement in fiscal 2024. Over the past two quarters, we have seen stronger demand levels, especially from our large corporate customers. We’re seeing more and more companies settle into a stronger in-office presence, and we are optimistic their investment levels will increase in response to new business needs.

We remain focused on executing our strategy to lead the workplace transformation, diversify the customer and market segments we serve and improve our profitability. With that, I’ll turn it over to Dave to review the financial results and share details regarding our first quarter outlook and fiscal 2025 targets.

Dave Sylvester: Thank you, Sara, and good morning, everyone. My comments today will provide some additional color around our fourth quarter results, including a comparison to the outlook we provided in December, as well as some comments regarding our orders, the balance sheet and our cash flow. I will also cover the outlook for the first quarter and our targets for fiscal 2025. Our fourth quarter adjusted earnings of $0.23 per share was at the top end of the range we provided in December. Our revenue of $775 million was near the midpoint of our range. And our gross margin and operating expenses were in line with our expectations. Our adjusted earnings per share benefited by approximately $0.02 from net favorable adjustments, which were related to our unconsolidated affiliates and were reflected in other income.

Moving on to the sequential comparison of our fourth quarter results versus the third quarter, adjusted operating income of $34 million in the fourth quarter represented a sequential decrease of $16 million, including a $10 million decrease in the Americas and a $6 million decrease in International. The declines were due to third quarter benefits, which totaled $15 million and were related to the revaluation of an earn-out liability and gains from the sale of land and fixed assets. For the International segment, this was the second consecutive quarter of posting adjusted operating income following a challenging first half of the year. For the second half, the International segment posted adjusted operating income of $12 million, which compares to an adjusted operating loss of $15 million in the first half.

As it relates to cash flow and the balance sheet, we generated $57 million of cash from operations in the fourth quarter, driven by strong earnings and a $24 million reduction in working capital as we continued to manage down our inventory levels. In addition, we generated $20 million of proceeds from the sale of our remaining corporate aircraft, and we funded $10 million of capital expenditures and $12 million of dividends during the quarter. Our liquidity totaled $486 million at the end of the quarter, and our total debt was $446 million. Our trailing four-quarter adjusted EBITDA is $264 million, or 8.4% of revenue, reflecting a 190 basis point improvement over the same timeframe last year. We further strengthened our access to liquidity this quarter with the renewal and expansion of our credit facility, whereby we extended its maturity to February 2029 and expanded the borrowing capacity from $250 million to $300 million.

Orders in the quarter grew 4% compared to the prior year, including 8% growth in the Americas and a 6% decline in International. Across the months, we posted 4% growth in December, a 1% decline in January and 10% growth in February. The order growth in the Americas was primarily driven by large corporate customers across both continuing and project business. Q4 marks the fourth consecutive quarter of year-over-year order growth from continuing business, and we believe the growth in orders related to project business is reflective of our strong win rates in fiscal 2024. Across other customer segments in the Americas, we saw order growth from our education and small to midsize customers, while orders from the health, government and consumer retail sectors declined.

The order decline in International was driven by EMEA, as we experienced softness in the U.K. and France. However, in Asia Pacific, we had double-digit order growth again this quarter, which was driven by India, Japan and Australia, partially offset by continued softness in China. Turning to our outlook for the first quarter, our Q4 orders grew 4%, including 10% growth in February, and orders during the first three weeks of Q1 grew by 10% compared to the prior year. However, our beginning backlog was down 8% compared to the prior year, which was impacted by customer orders that had accumulated, in part due to supply chain disruptions and extended delivery timeframes. As a result, we expect to report revenue within a range of $715 million to $740 million, which translates to a range of down 3% to approximately flat on an organic basis compared to the prior year.

We expect to report adjusted earnings of between $0.08 and $0.12 per share, which compares to $0.09 in the prior year. In addition to the projected range of revenue, the adjusted earnings estimate includes estimated gross margin of approximately 32%, projected operating expenses of between $215 million to $220 million, which includes $4.3 million of amortization related to purchased intangible assets. And lastly, we expect interest expense and other non-operating items to net to approximately $2 million of expense. And we are projecting an effective tax rate of approximately 27%. As we begin fiscal year 2025, we remain optimistic about the growing number of companies in the United States that are emphasizing physical presence in their offices for a minimum number of days per week, and we believe this trend positively impacted our fiscal 2024 order levels.

For fiscal 2025, we are targeting a mid-single-digit growth rate for orders, including continued growth from our large corporate customers and growth across most other customer segments and geographical regions. However, we entered fiscal 2025 with a lower beginning backlog, which will negatively impact our revenue growth early in the fiscal year. As a result, we are targeting organic revenue growth for the full year within a range of 1% to 5%. Fiscal year 2025 will also benefit from an extra week of revenue and the related marginal earnings in the fourth quarter, but that revenue benefit is not included in our projection of organic growth. As it relates to earnings, I want to first provide some context around fiscal 2024 results as a basis for comparison.

Recall, our fiscal 2024 adjusted earnings of $0.93 per share included the benefits of lower operating expenses associated with the revaluation of an earn-out liability and gains from the sales of land and fixed assets, which together aggregated to $20.4 million or approximately $0.12 per share after adjusting for variable compensation and taxes. Excluding these items, our fiscal 2024 adjusted earnings would have approximated $0.81 per share compared to our fiscal 2025 targeted adjusted earnings of between $0.85 and $1 per share. In addition to the projected range of revenue, our fiscal 2025 earnings targets assumes an improvement in gross margin to between 32.5% and 33.5% and increased operating expenses, including higher investments in our business transformation initiative, strategic growth initiatives and employee costs.

And lastly, we are targeting non-operating items to net to approximately $11 million. We are assuming an effective tax rate of 27%. And we are targeting capital expenditures of between $75 million to $85 million. Our fiscal 2025 capital expenditure target includes an expected increase of between $20 million to $30 million as compared to fiscal 2024, due primarily to higher investments related to a new ERP system, which is part of the business transformation initiative that Sara previously mentioned. For the International segment, we are targeting positive adjusted operating income in fiscal 2025, including a smaller loss in the first half of the year as compared to fiscal 2024. In closing, fiscal 2024 earnings marked our strongest performance since the start of the pandemic and onset of the extraordinary inflation and supply chain disruptions.

Our adjusted earnings per share exceeded the targets we communicated a year ago, and we strengthened our balance sheet by generating $238 million of liquidity over the last four quarters. And we also renewed and expanded our credit facility in recent weeks. As we begin fiscal 2025, we’re optimistic, and we remain resolved to continue leading the transformation of the workplace, while diversifying our revenue base and improving our profitability. From there, we will turn it over for questions.

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Q&A Session

Operator: [Operator Instructions] Your first question is from the line of Reuben Garner with Benchmark. Please go ahead.

Reuben Garner: Thank you. Good morning, everybody.

Dave Sylvester: Hey, Reuben.

Reuben Garner: So, in the last six to nine months, a lot of your internal preorder activity has foreshadowed this recovery. Can you talk about what those are looking like at a high level today and telling you about the future, and, I guess, kind of how that transpires into your targeted mid-single-digit organic growth outlook for the year?

Dave Sylvester: Yeah, it still feels pretty good. I don’t have the specific stats of all the different variables that we highlighted six or nine months ago before we were actually starting to see the evidence in the order patterns. But generally, visits, mockups, quoting have remained relatively high. Look at our pipelines and opportunity creation, it’s a little lumpy as the opportunity creation is coming in, but our high confidence levels within our project opportunity pipelines, these are either projects we’ve won, it’s business with an incumbent, a customer that we’ve been working with for years, or we feel like we’re strongly positioned to win. So, our sales teams have rated these projects as high confidence. That portion of the pipeline still reflects growth.

We feel pretty good about that as we look forward. I think even your recent survey over the last few months has shown improvement about the back half of the year projections from dealers across the industry. That, coupled with improved CEO confidence, the macroeconomic outlook that feels pretty good, I wouldn’t call us bullish, but certainly optimistic.

Operator: Reuben, your line may be on mute, if you’re asking a follow-up.

Reuben Garner: Yep. Thank you. It was indeed. So, can you talk about how your price-cost trended to close your fiscal year? What is left over from any pricing actions that you’ve announced over the last few years? And I don’t believe you’ve announced one this year. Is that simply because you still have some carryover that can offset any inflation? Can you just kind of update us on the price-cost side?

Dave Sylvester: Yeah. The sales teams across the globe actually have continued to do a terrific job implementing the price adjustments that we did over a period of 18 months back two years ago. Those have continued to roll into some of our contracts based on anniversary dates and other negotiations with our clients. So, we did continue to see some incremental pricing benefits, which has helped offset the extraordinary inflation that we saw and continue to see actually. It’s come down in some places, but marginally relative to the level of inflation that we took over the last two or three years. So, yeah, we saw benefits in the fourth quarter. And I think next year, we’ll see some remaining residual benefits from those previous actions on a year-over-year basis and a little bit on a sequential basis.

But as far as price adjustments, you’re correct, we have not announced a price adjustment, I don’t think, since July of 2022. We did roll off the surcharge. We had a surcharge that we also put in place in July of ’22, and we — so our most recent pricing action was actually a reduction when we rolled back the surcharge in the Americas, I think, in January of ’23.

Reuben Garner: And just to be clear, you are still seeing inflation in certain areas? I know you mentioned you referenced employee costs in the release, but what about — how are materials and other items kind of trending? Do you just not need a price increase because they’ve fallen off? Can you just kind of update us on that?

Dave Sylvester: In recent months, they — some are up, some are down. If I look at it over the last like two or three years, it’s still inflated. It’s come off the peak a little bit, which is why we rolled off the surcharge back in January of ’23.

Operator: Your next question is from the line of Greg Burns with Sidoti. Please go ahead.

Greg Burns: Good morning. Obviously, you’ve done a great job of kind of repairing and improving margins over the last year or so, and I guess, looking for a little bit more expansion next year. But do you have a longer-term target of where you think you could get the consolidated operating margin for the business? I think prior to the pandemic, it was in the 6%s. But where do you think — what’s a good target for margins for the business as we look out maybe two to three years?

Dave Sylvester: Yes. I think consistent with what we communicated in May of ’23 at our Investor Day, we’re targeting a 6% to 7% adjusted operating margin in the midterm. So last year, we said that was, what, might four to five years out. So I guess, this year, it’s three to four years out. And I think you’ve heard us consistently talk about International target in the mid-single digit. So the Americas would have to be higher than that.

Greg Burns: Okay. Great. Thanks. And I think at Analyst Day, you had outlined a target of maybe $50 million of savings. I don’t know if that was all cost of goods or elsewhere. How far along are you in progress towards that goal?

Dave Sylvester: It was $50 million, and it was really targeted on gross margin, and it excluded benefits from volume growth and pricing actions that we were continuing to try to put in place at the time. So, it was really related to our overall footprint and efficiency in global operations. And we have made good progress. We still have ways to go. We’ve seen some benefits, but there have been other parts of our broader operations organization that has experienced increased costs. So, we haven’t seen the net benefit that we would like yet. But we’re targeting, in fiscal ’25, incremental benefits from many of the actions that Sara has mentioned over the last few quarters. So, I would say, early to mid innings on achieving that objective [indiscernible] behind us.

Greg Burns: Okay. Great. Thanks. And then lastly, your balance sheet is in really strong shape. So, what’s your view on capital allocation priorities, maybe acquisitions or relooking at the dividend, possibly, or share buybacks?

Dave Sylvester: Well, I think all three. They remain part of our capital allocation. We first obviously look to reinvest in the business. And acquisitions have been a part of our allocation and ideally will be part of our allocation go forward. We think of us again as more bolt-on — targeting bolt-ons that will help accelerate one of our existing strategies. And we are, I would say, periodically, if almost not continuously, talking to different companies. We just haven’t found the right fit at the right price yet. So hopefully, something will materialize in the coming quarters on that front. Now, we do have higher capital expenditures in front of us over the next couple of years as we finish our ERP system. That’s not going to chew up a tremendous amount of liquidity, but it’s certainly more than usual than our usual rate of CapEx. The dividend is an important part of how we return value to shareholders, always has been.

We are trying to keep it in line with earnings. So, I don’t — it’s a Board decision, and they evaluate it every quarter. So, as our earnings grow, it’s certainly possible, imaginable that we might increase our quarterly dividend. And yeah, we have taken note of repurchase opportunities. We had a 10b-5 program in place the last six months. Unfortunately or fortunately, we did not buy any shares. The stock price just didn’t go down to levels that we were targeting. So, I guess that’s good news, bad news from a repurchase standpoint. But we have had a couple of million shares of dilution over the last two years from equity awards related to executive and director compensation. So, we’re always looking to minimally offset that.

Operator: Your next question is from the line of Budd Bugatch with Water Tower Research. Please go ahead.

Budd Bugatch: Congratulations on your progress, and certainly the quarter and the balance sheet for sure. Sara, I’d love to get your view on — and in your new presentation, you talk about several years of disruption, which is certainly, I guess, an understatement. What does demand growth look like? You’ve changed a little bit of the target, David, as you noted, I think, from 5% to 7% to 4% to 6% for the next three to four years in terms of percentage — annual percentage of growth. But business is being done a little differently now. And just how do you see that? And what can we take away from that?

Sara Armbruster: I guess, Budd, I would say that I don’t know that I see business being done dramatically differently. I do think that the customers that we serve, who are looking to update and modernize their spaces and make their spaces work harder, are thinking differently about what those spaces look like, and they’re thinking perhaps differently about what kinds of solutions and amenities they need to provide in their spaces to attract and retain talent and to drive their business initiatives and business outcomes. So, I think those things are certainly different in some respects than they were prior to the pandemic. In terms of how business gets done, in terms of how customers are behaving, in terms of how they think about timelines of projects and decision-making and how they interact with us from a kind of putting in the order and us serving them, I don’t think that that’s dramatically different than before the pandemic.

It’s really more about the kinds of solutions they’re trying to implement to support their businesses and their employees as they look forward.

Budd Bugatch: But haven’t you changed a little bit of that technique? I mean, you folded down the Steelcase Aviation, so you have now, I think, more reliance on your local showrooms. And does that change the cycle of the way it works?

Sara Armbruster: I would say that we had seen, for several years, going back to well before the pandemic, gradual shifts in how customers wanted to engage. I think we saw certainly lots of interest still in visiting us in Grand Rapids and experiencing what we have to offer here in this sort of flagship location. But we also saw many customers increasingly looking to have more local market experiences closer to home, and in some cases, maybe more specialized experiences. So, clients, for example, from higher education, looking to really immerse deeply in learning solutions, or healthcare customers looking to immerse more deeply in healthcare-targeted solutions, those kinds of things. So, I think that our shift to local market experiences, our investments in pop-up studios, our investments in significant renovations of many of our major locations, those kinds of choices were really a reflection of us wanting to be able to meet customers where they’re at and really provide a diverse set of experiences and offerings to help them on their journey as they look at solutions and they contemplate ideas and they make decisions.

Budd Bugatch: Does that stretch corporate selling resources a bit more than usual? If people were coming to Grand Rapids, it helps to concentrate the selling effort. If it’s a lot more local, there’s corporate — how does corporate support that? And does it take more resources?

Sara Armbruster: No, I wouldn’t say it takes more resources. I think we’re just using the resources we have differently because remember, in all the local markets where we’re creating these experiences, we have local sales teams. We have terrific people all over the country and all over the world who are ready to engage and host and help curate those experiences for clients. And I think we’re fortunate to have experts, researchers, people with insights that are available and accessible in lots of different locations. And we’ve just, I think, been, frankly, smarter and more efficient in terms of how we leverage those kinds of people and talent and resources to create the most meaningful kinds of experiences for customers in a way that’s very bespoke and tailored to what that particular customer is looking for.

Dave Sylvester: Yeah, for a relatively long time, and it remains true today. We’ve had someone connecting to a customer visit virtually because we wanted them involved in that particular customer, and they were in just a different part of the country at that time. So, we’ve been leveraging virtual connections as part of our customer visits for quite a while. And so, that remains part of our approach. We’ve also — Sara has pushed hard on reallocation of resources as we’ve been pursuing different strategies. So, the reduction in aviation was really in some ways in response to the need to invest more significantly in local experiences. It was also in recognition that the large corporate customers were flying our corporate jets less and less, primarily because of governance restrictions.

They were still coming to see us. They just weren’t flying on our aircraft. And that’s really why we built a corporate aviation group some 40 or 50 years ago was for the large corporates. And the central team actually continues to support visits here, but they also support visits out in the different locations, either virtually or traveling.

Budd Bugatch: Okay. I think that’s very interesting and exciting. Does it change the selling — the time of the selling cycle? And I got a few other questions, if I could.

Sara Armbruster: I don’t know that we’ve got the evidence to say it changes the timing of the selling cycle, but I do think that what it’s allowed us to do is create maybe more agile and even more tailored and bespoke experiences for specific clients because, again, every one of our showrooms and every one of our experiences reflects Steelcase and the Steelcase portfolio and the Steelcase brand and Steelcase insights. But they also all have a bit of different local flavor that’s more tailored to that market. So, certain markets are more A&D-driven. Certain markets have a higher preponderance of, say, higher education focus. So, we’ve been able to, I think, weave that into those experiences. And so, I think certainly being able to meet customers where they are, in that sense, hopefully helps them get to decisions faster and more effectively. But we don’t have hard data to…

Dave Sylvester: Yeah. The sales cycle doesn’t seem like it’s really changed from beginning to end. But what has changed, probably more a result of the supply chain disruptions that the whole industry faced, is the lead times on orders. Pre-pandemic, we used to average more in the eight-week range. And from the supply chain disruptions, we were as high as 14 weeks, I think, and it hasn’t come back down to pre-pandemic levels. So, we’re still in kind of this 10-week, 11-week range. So, orders are coming in a little bit sooner, which isn’t a bad thing. It gives us more visibility. But it does mean that our backlog doesn’t turn quite as quickly as it used to.

Budd Bugatch: That is interesting. I had not fully appreciated that. David, you talked a little bit about the order volatility during the quarter with plus 4% in December, minus 1% in January, and plus 10% in February. Anything to read into that? And to any extent, do you want to talk a little bit about March? But what do you — what caused that volatility? Was February last year particularly weak?

Dave Sylvester: I don’t think so. I think maybe a little bit of it was the timing of when the seasonality kicked in last year versus the timing this year. But we don’t — I wouldn’t say we saw anything extraordinarily noteworthy to share. I just thought — I figured we’d get the question about the months, so I thought I would share them. And I did think it was interesting that the first three weeks have stayed at the same rate of growth over prior year as February. But I don’t — again, it could be that seasonality is just showing up a little bit sooner this year than it did last year. What I like about our order patterns is that we’re seeing continued growth and continuing business because we saw — we predicted that and we’ve seen it for four straight quarters.

And I really like that our project opportunity pipeline that has shown growth at the high-confidence — across high-confidence projects is starting to materialize into project order growth over the last two quarters.

Budd Bugatch: But combining that with your previous comment about the fact that the backlog is turning slower would mean that orders that come in during a particular quarter, if you might have delivered half of the orders or a third of the orders, you’ll now deliver fewer of those, and more goes to a larger backlog at the end, so you’d be growing that backlog.

Dave Sylvester: That’s right. That’s what happened last quarter. In Q3, you might remember, we had 15% order growth, I think, was the total, right, Mike? And we were a little bit short on our revenue forecast because we had extended delivery times. So they weren’t what we were — had been seeing.

Budd Bugatch: Yeah, it just changes the way we have to model the quarter between those items. A couple other just quick questions. Acquisitions, you talked about being open to them, but you’ve got two that you did during the last couple of years, Viccarbe and HALCON. Any commentary on — color on how they are performing integrated into the corporation, impact on the business? HALCON, you wanted to move upscale a little bit. Viccarbe was, I think in Spain, if I remember right.

Sara Armbruster: Yeah. No, I think overall, we’re really happy with those acquisitions and the performance. I think Viccarbe has added sort of a new element to our portfolio that’s getting rave reviews from architects and designers. So, we’re really excited about that. I think with HALCON, they have just continued to be tremendously successful in ways that are both driven by HALCON, as well as the ability to kind of cross-sell and leverage sort of HALCON relationships and the HALCON portfolio, along with some of the traditional Steelcase relationships. So, we’ve been really happy with how that’s been working. So, I think overall, we feel really good about both of those transactions, and they are part of the family.

Budd Bugatch: Okay. And last for me, ERP are initials that sometimes get investors a little nervous. And you talked about the plan. Can you maybe give us some color as to the length of the ERP implementation and any particular — has it been decided which ERP you’re going to go with? And what kind of color can we get on that?

Dave Sylvester: Yes. Well, those three letters make management teams nervous, too, but that’s why we’re taking such careful effort to think about how we want to transform the business in advance of the implementation of our new ERP. So, we are just now going into the design-build phase, and we are targeting a go-live next fiscal year in the Americas, and then we’ll roll it to the International segments thereafter. What I’m really pleased about is the level of capability that — we’re staying with SAP, but we’re really pleased with the advanced capability that the new versions of SAP have. So, we believe we will have to customize the system much less. And we also have shown a high degree of willingness by our internal teams and working with our dealers to, I’d say, modernize and simplify some of our business processes to be more fit to standard, is the phrase that the teams use.

So, we won’t have to necessarily customize the ERP because either they’ve advanced the solution or we’re modernizing or simplifying our business process.

Budd Bugatch: Okay. Well, congratulations on the progress. It has been a tough couple of years for sure. And nobody wanted to go through that, but you’ve come through it, and the balance sheet just shows you a remarkable and a very strong position going forward. Thank you very much.

Dave Sylvester: Thanks, Budd.

Sara Armbruster: Thanks, Budd.

Operator: [Operator Instructions] Your next question is from [indiscernible] with Thompson Research Group. Please go ahead.

Unidentified Analyst: Hey, good morning. Been great color on the call so far. Maybe to dig in a little bit more on large corporates driving order, you talked about the increase in continuing business and the project side showing two quarters of growth now. What do you attribute this project growth to for the last couple of quarters? Can you give us a sense for what is spurring companies to finally pull the trigger on these projects? Is it moving office? Is it refreshing the existing space as workers come in more frequently? Just any drivers you see to boost the project business.

Sara Armbruster: Yeah. Excuse me, great question. And I think it’s all of the above. I think at broad strokes, I would attribute it to large organizations, by and large, recognizing that in-office, in-person presence together is really critical to the success of their business. And we know that that’s not, in most cases, going to look like the old days of the kind of 9:00 to 5:00, five days a week in the office. But I think now that we are, what, four years — past four years into the post-pandemic world, I think organizations are really seeing that, and they’re willing to make the investments to create the kinds of spaces and the kind of experiences that attract their employees and allow their employees to kind of work — do their best work.

So, I think, by and large, that’s what we’re seeing, and it continues to be a steady kind of drumbeat of little by little increasing investment in that direction. So, I think that’s really ultimately what’s driving the strength that we’re seeing in large corporates.

Unidentified Analyst: Okay. Helpful. And one question to carry that a little bit further. This project demand that’s getting better, is it broad-based across corporates? Or are there any certain sectors or geographic concentrations that maybe are flipping this to positive over the past couple of quarters?

Sara Armbruster: Yeah, it’s pretty broad-based in terms of sectors. So, we definitely see demand from across different types of verticals or sub-segments within large corporates. Geographically, at least here in the U.S., obviously, I think the West Coast, which we’ve talked about before, which has been a bit of a laggard all along, continues to be a laggard. But I would say, outside of that, we see pretty nice activity in multiple regions. So, it’s relatively broad-based.

Dave Sylvester: Yeah. It’s been a little stronger in the New York, New Jersey financial services side and a little weaker in the tech West Coast side. But I wouldn’t want you to think that there’s no business in tech right now either. So it is pretty broad-based. But it was — I feel like it’s a little correlated with some of those organizations that leaned in first a little bit more explicitly about minimum numbers of days in the office. So, as they got their people back, they started to restart their day-to-day business, which then started to spur some dialogue about project activity, which is now starting to show up.

Unidentified Analyst: Okay. That’s great color. And then, last one for me. Working capital was a great benefit to cash flow this year, even with organic sales down in the final three quarters of the year. With organic sales growth expected for FY ’25, can you talk about the working capital benefit to cash flow this year — I shouldn’t say, benefit, but impact to cash flow this year?

Dave Sylvester: Yeah. I mean, this year was largely about, I would say, managing our inventories down. We did have a few spots in receivables that we have been attending to, and feel like we have those in very good shape. Those were some markets that historically around the world have had very high DSO for us, and I think just about any industry. And we’ve addressed that and feel really good about where we are in those markets. But the big improvement this year was pulling inventory levels back to more of a normalized level after the build that we had in safety stocks because of the supply chain disruptions we had 18 months, two years ago. So, I think it’s more normalized. So, I think as we grow, you’ll see a growth in working capital, and it will be relative to sales. But if you look at where our kind of fourth quarter DSO and DII is, that’s about normalized and would be a good projection going forward for you to leverage.

Unidentified Analyst: Okay. That’s helpful. Thank you.

Operator: There are no further questions at this time. Ms. Armbruster, I turn the call back over to you.

Sara Armbruster: Great. Well, thank you all for joining, and we appreciate your interest in Steelcase, and hope you have a terrific day.

Operator: This concludes today’s conference call. You may now disconnect.