Steelcase(SCS) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements Unaudited Q3 2023 financial statements report increased revenue and net income, stable assets, positive operating cash flow, and a significant cash decrease from acquisitions Condensed Consolidated Statements of Income Statement of Income Highlights (in millions, except per share data) | Metric | Three Months Ended Nov 25, 2022 | Three Months Ended Nov 26, 2021 | Nine Months Ended Nov 25, 2022 | Nine Months Ended Nov 26, 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $826.9 | $738.2 | $2,430.9 | $2,019.6 | | Gross Profit | $237.8 | $203.6 | $680.2 | $565.1 | | Operating Income | $20.5 | $15.9 | $36.8 | $18.0 | | Net Income | $11.4 | $9.6 | $19.6 | $6.2 | | Diluted EPS | $0.10 | $0.08 | $0.17 | $0.05 | Condensed Consolidated Balance Sheets Balance Sheet Highlights (in millions) | Metric | Nov 25, 2022 | Feb 25, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $55.0 | $200.9 | | Inventories | $378.5 | $326.2 | | Total current assets | $914.5 | $959.2 | | Total assets | $2,268.4 | $2,261.0 | | Total current liabilities | $679.1 | $567.2 | | Long-term debt | $445.6 | $477.4 | | Total liabilities | $1,458.8 | $1,408.8 | | Total shareholders' equity | $809.6 | $852.2 | Condensed Consolidated Statements of Cash Flows Cash Flow Highlights for Nine Months Ended (in millions) | Metric | Nov 25, 2022 | Nov 26, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $1.4 | $(59.1) | | Net cash used in investing activities | $(127.5) | $(51.3) | | Net cash used in financing activities | $(16.6) | $(101.5) | | Net decrease in cash | $(145.3) | $(213.5) | | Cash, end of period | $61.7 | $282.1 | - The significant use of cash in investing activities for the nine months ended Nov 25, 2022, was primarily driven by acquisitions totaling $105.3 million[22] Notes to Condensed Consolidated Financial Statements - In Q3 2022, the company acquired Viccarbe Habitat, S.L. for $34.9 million in cash, with up to an additional $13.5 million in contingent consideration, resulting in goodwill of $25.8 million and identifiable intangible assets of $11.7 million[69][70] - In Q2 2023, the company acquired Halcon Furniture LLC for $127.5 million, funded by cash and borrowings, resulting in goodwill of $37.1 million and identifiable intangible assets of $51.8 million[74][75] - The company initiated restructuring actions in Q3 2023 to reduce operational spending, resulting in $10.6 million of costs related to the termination of approximately 130 salaried employees in the Americas segment and Corporate functions[87] Revenue by Segment (in millions) | Segment | Three Months Ended Nov 25, 2022 | Three Months Ended Nov 26, 2021 | Nine Months Ended Nov 25, 2022 | Nine Months Ended Nov 26, 2021 | | :--- | :--- | :--- | :--- | :--- | | Americas | $594.7 | $500.3 | $1,767.1 | $1,399.9 | | EMEA | $157.7 | $168.2 | $451.9 | $430.7 | | Other | $74.5 | $69.7 | $211.9 | $189.0 | | Total | $826.9 | $738.2 | $2,430.9 | $2,019.6 | Management's Discussion and Analysis of Financial Condition and Results of Operations Q3 2023 revenue grew 12% from pricing benefits, improving gross margins, despite a 17% order decline due to macroeconomic concerns, maintaining sufficient liquidity Results of Operations - Q3 2023 revenue increased 12% YoY to $826.9 million, driven by significant pricing benefits which exceeded inflation, with organic revenue growth at 13%[94][97] - Orders declined by 17% in Q3 2023 compared to the prior year across all segments, attributed to softening demand from macroeconomic and geopolitical concerns[95] - Gross margin improved as cost of sales as a percentage of revenue decreased by 140 basis points in Q3 2023, driven by approximately $55 million in higher pricing benefits, net of inflation[98] - Operating expenses increased by $20.4 million in Q3 2023, primarily due to higher variable compensation ($14.9 million), expenses from acquisitions ($8.1 million), and higher marketing/sales expenses ($3.4 million)[99][101] Business Segment Review - Americas: Revenue grew 19% in Q3 YoY to $594.7 million, driven by pricing benefits ($65 million) and higher volume ($30 million), with operating income increasing to $21.2 million from $11.1 million[109][110] - EMEA: Revenue decreased 6% in Q3 YoY to $157.7 million, as higher pricing benefits ($15 million) were more than offset by unfavorable currency translation ($25 million) and lower volume, causing operating income to fall to $4.2 million from $8.3 million[114][115] - Other: Revenue increased 7% in Q3 YoY to $74.5 million, driven by growth in India, Designtex, and China, though the segment posted an operating loss of $0.3 million compared to income of $2.0 million in the prior year[119][120] Liquidity and Capital Resources Liquidity Sources (in millions) | Source | Nov 25, 2022 | Feb 25, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $55.0 | $200.9 | | Company-owned life insurance | $161.2 | $168.0 | | Availability under credit facilities | $229.0 | $262.0 | | Total liquidity sources available | $445.2 | $630.9 | - Total consolidated debt was $516.0 million as of November 25, 2022, including $34.0 million outstanding under the $250.0 million global committed bank facility[139][142] - The company is implementing cost-saving initiatives, including workforce reductions expected to save ~$19 million annually and winding down its aviation department for an additional ~$11 million in annualized savings[146] Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes to its market risk exposures, including foreign currency, interest rates, commodity, and equity prices, during Q3 2023 - There were no material changes in the company's market risks related to foreign exchange, interest rates, commodity prices, or fixed income and equity prices during Q3 2023[151][152][153] Controls and Procedures Management concluded disclosure controls were effective as of November 25, 2022, with no material changes to internal control over financial reporting during Q3 - The CEO and CFO concluded that as of November 25, 2022, the company's disclosure controls and procedures were effective[156] - No material changes to the internal control over financial reporting were identified during the third fiscal quarter[157] PART II. OTHER INFORMATION Risk Factors No material changes were reported to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended February 25, 2022 - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended February 25, 2022[160] Unregistered Sales of Equity Securities and Use of Proceeds In Q3 2023, 64,184 shares were repurchased for tax withholding, not under the public program, with $6.4 million remaining for future repurchases Q3 2023 Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 8/27/2022 - 9/30/2022 | — | $— | | 10/1/2022 - 10/28/2022 | 45,358 | $6.97 | | 10/29/22 - 11/25/2022 | 18,826 | $6.95 | | Total | 64,184 | N/A | - All shares repurchased in Q3 were to satisfy tax withholding obligations for equity awards and were not part of the publicly announced repurchase plan[163] - As of November 25, 2022, $6.4 million remained available under the company's share repurchase program approved in January 2016[138][162] Exhibits Form 10-Q exhibits include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, alongside Inline XBRL documents - The exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[165] - Interactive Data Files (Inline XBRL documents) are also included as exhibits[165]