Steelcase(US:SCS)2023-06-23 14:00PART I Financial Information Item 1. Financial Statements (Unaudited) Unaudited Q1 FY2024 financials show a return to profitability with $1.5 million net income and positive operating cash flow Condensed Consolidated Statements of Operations Q1 FY2024 revenue increased 1.5% to $751.9 million, with gross profit up 22.4%, leading to $1.5 million net income Q1 FY2024 vs Q1 FY2023 Statement of Operations (in millions, except per share data) | Metric | Q1 2024 (ended May 26, 2023) | Q1 2023 (ended May 27, 2022) | Change | | :--- | :--- | :--- | :--- | | Revenue | $751.9 | $740.7 | +1.5% | | Gross Profit | $234.6 | $191.6 | +22.4% | | Operating Income (Loss) | $7.3 | $(12.6) | Improved by $19.9M | | Net Income (Loss) | $1.5 | $(11.4) | Improved by $12.9M | | Diluted EPS | $0.01 | $(0.10) | Improved by $0.11 | | Dividends per Share | $0.100 | $0.145 | -31.0% | Condensed Consolidated Balance Sheets Total assets decreased to $2,125.5 million, while liabilities also fell, resulting in a slight increase in shareholders' equity Balance Sheet Comparison (in millions) | Account | May 26, 2023 | February 24, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $40.2 | $90.4 | | Total current assets | $815.9 | $884.0 | | Total assets | $2,125.5 | $2,202.8 | | Total current liabilities | $533.6 | $603.3 | | Total liabilities | $1,296.4 | $1,376.6 | | Total shareholders' equity | $829.1 | $826.2 | Condensed Consolidated Statements of Cash Flows Operating cash flow turned positive to $11.3 million, with a net cash decrease of $50.6 million for the quarter Cash Flow Summary (in millions) | Activity | Three Months Ended May 26, 2023 | Three Months Ended May 27, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $11.3 | $(55.1) | | Net cash used in investing activities | $(11.2) | $(7.3) | | Net cash used in financing activities | $(50.3) | $(20.7) | | Net decrease in cash | $(50.6) | $(84.4) | - The significant use of cash in financing activities was primarily due to a $32.2 million repayment on a note payable and $12.1 million in dividend payments23 Notes to Condensed Consolidated Financial Statements Notes detail segment realignment, Q1 2024 restructuring costs of $8.1 million, and HALCON acquisition accounting completion - In Q1 2024, the company realigned its reportable segments into Americas and International (aggregating EMEA and Asia Pacific), with all prior period data reclassified for this change767881 - New restructuring actions were announced in Q1 2024 due to declining order volume and inflation, involving workforce reductions across regions, resulting in $8.1 million of restructuring costs during the quarter8586 - The purchase accounting for the HALCON acquisition, which occurred in Q2 2023, was completed, adding $51.8 million in identifiable intangible assets and $36.6 million in goodwill to the Americas segment7273 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2024 profitability to pricing actions, with revenue up 2% and gross margin improving 530 bps - Q1 2024 revenue benefited from pricing actions, but volume declines substantially offset these benefits, particularly in the International segment, with orders declining 7% year-over-year but growing 21% sequentially from Q4 202393 - The company reported a significant improvement in profitability, with operating income of $7.3 million compared to a loss of $12.6 million in the prior year, driven by higher pricing benefits94 Non-GAAP Financial Measure Reconciliation | Measure | Q1 2024 (ended May 26, 2023) | Q1 2023 (ended May 27, 2022) | | :--- | :--- | :--- | | Adjusted Operating Income (Loss) | $19.7M | $(4.6)M | | Adjusted EPS | $0.09 | $(0.05) | | Organic Revenue Growth | 0% | N/A | Business Segment Review Americas segment drove profitability with 5% revenue growth, while International segment's operating loss widened Segment Performance (in millions) | Segment | Revenue (Q1'24) | Revenue Change (YoY) | Operating Income (Loss) (Q1'24) | Operating Income (Loss) (Q1'23) | | :--- | :--- | :--- | :--- | :--- | | Americas | $572.8 | +5% | $19.8 | $(10.7) | | International | $179.1 | -9% | $(12.5) | $(1.9) | - Americas' operating income improvement was driven by higher pricing benefits of approximately $65 million and operational efficiencies, partially offset by lower volume and higher variable compensation102103104 - International's increased operating loss was driven by lower volume (approx $30 million impact), higher operating expenses, and $6.8 million in restructuring costs, which more than offset pricing benefits108109 Liquidity and Capital Resources Total liquidity was $470.3 million, with operating cash flow improving to $11.3 million, sufficient for future needs Liquidity Sources (in millions) | Source | May 26, 2023 | February 24, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $40.2 | $90.4 | | Company-owned life insurance | $159.7 | $157.3 | | Availability under credit facilities | $270.4 | $269.7 | | Total liquidity sources available | $470.3 | $517.4 | - In Q1 2024, the company borrowed and repaid $67.2 million under its global facility to fund operations and a $31.8 million balloon payment for a matured note125 - Planned capital expenditures for fiscal 2024 are expected to be approximately $70 to $80 million, an increase from $59.1 million in 2023134 Quantitative and Qualitative Disclosures About Market Risk No material changes occurred in market risk exposures, including foreign currency, interest rate, and commodity price risks - The nature of market risks, including foreign exchange, interest rate, commodity price, and fixed income/equity price risks, has not materially changed during Q1 2024139140141 Controls and Procedures Disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of May 26, 2023, the company's disclosure controls and procedures were effective144 - No material changes to the company's internal control over financial reporting occurred during the first fiscal quarter145 PART II Other Information Risk Factors No material changes to previously disclosed risk factors were reported in the current period - There have not been any material changes to the risk factors set forth in the company's most recent Annual Report on Form 10-K148 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 429,624 shares for $3.3 million to cover tax obligations, with $6.4 million remaining Q1 2024 Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | 02/25/2023 - 03/31/2023 | 429,624 | $7.71 | | Total | 429,624 | $7.71 | - All shares were repurchased to satisfy participants' tax withholding obligations upon the issuance of shares under equity awards151 - As of May 26, 2023, $6.4 million remained available for repurchase under the Board-approved program from January 2016150 Exhibits This section lists exhibits filed with the Form 10-Q, including the Credit Agreement and required certifications - Exhibits filed include the Third Amended and Restated Credit Agreement, Sarbanes-Oxley Section 302 and 906 certifications, and various Inline XBRL data files153 Signatures The report was signed on June 23, 2023, by Nicole C. McGrath, VP, Corporate Controller & Chief Accounting Officer - The Form 10-Q report was signed and authorized by Nicole C. McGrath, Vice President, Corporate Controller & Chief Accounting Officer, on June 23, 2023156158