Steelcase Inc (SCS) 2021 Q2 法說會逐字稿

Good day, everyone, and welcome to Steelcase's Second Quarter Fiscal 2021 Conference Call.

As a reminder, today's call is being recorded.

For opening remarks and introductions, I'd like to turn the call -- conference call over to Mr. Mike O'Meara, Director of Investor Relations and Financial Planning and Analysis.

Thank you, Michelle.

Good morning, everyone.

Thank you for joining us for the recap of our second quarter fiscal 2021 financial results.

Here with me today are Jim Keane, 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, Jim Keane.

Thanks, Mike, and good morning, everyone.

For the second quarter, we reported EPS of $0.47 or $0.55 after adjusting for the restructuring charges.

This is a 10% improvement against last year and beat our own expectations.

And we delivered that earnings growth despite a 17% organic revenue decline.

Our strong profitability was due, first of all, to continued operating expense control from actions we took at the onset of the pandemic.

I also have to give credit to our operations people in all our factories around the world.

In the first quarter, they faced shutdowns or significant restrictions in what they could make.

In the second quarter, they had to ramp up the entire supply chain quickly to work through the large backlog of orders at the start of the quarter, while continuing to control costs.

Our strong gross margins in the second quarter show how efficiently they were able to do that.

So it was a very good quarter because of operational execution and good cost controls.

During the first and second quarters, we had used salary reductions as a way to quickly reduce costs without job eliminations.

Remember, at the beginning of the crisis, many people thought we would effectively control the pandemic and with the help of the stimulus package, some sort of economic recovery would begin in the summer.

Now it's clear that in the Americas and possibly Europe, the economic effects will continue for a while longer.

We could not expect our employees to accept reduced salaries for that long.

So we restored salaries to 100%, and we announced our plans for workforce reductions in the Americas a few weeks ago.

As of last week, those restructuring actions have been implemented.

As we think about what the broader recovery could look like for us, it's helpful to take a closer look at our Asia business.

Of course, China was the first to be hit with the virus, and the government shutdown was aggressive and effective.

Today, about 8 months after it started, our orders in China are back to prior year levels.

That's fast.

And the prior year was a really good year.

So getting back to prior year levels is really terrific.

And that's despite rising political tension between the U.S. and China.

People are generally back in the office, and while life is not back to normal, our business is operating quite normally.

So in China, when the recovery came, it came quickly, and that's because there was pent-up demand.

Projects have been delayed, and everyone is trying to catch up.

In EMEA, our second quarter orders were still down versus the prior year, but we closed the gap a bit because of a few large customers, including government entities preparing for a safe return to school.

In countries where concerns about a second wave continue, our orders remain weak.

But in Germany, where the virus has been well controlled, people are returning to work.

And without much of a lag, our orders have shown a nice recovery.

I think that's good news.

It suggests that once the virus is controlled in a region, the underlying economy wants to bounce back, and demand for office furniture seems to bounce back without delay.

Every recession is different, every recovery is different.

This isn't like the dot-com crash or the financial crisis.

This is unique because of government rules that shut down offices completely and forced so many people to work from home.

That's really unprecedented.

Projects had to stop, new project plans were mothballed.

Even day-to-day business, the replacement of older furniture due to normal wear and tear was reduced dramatically.

So the recovery could also be unprecedented.

We can't say for sure how that will play out in EMEA or the Americas.

But what we've seen in China is our business bounce back pretty quickly as work returned to the office.

In the Americas during the first quarter, we saw signs it could happen as many companies were planning to come back to the office this summer.

But when the second wave got worse, most large companies in larger cities put those plans on hold.

Orders are stable, but they haven't started to recover.

Yet in the last few weeks, we're seeing some signs of increased interest in returning to the office.

I've spoken to large clients in the Americas who are already approaching 50% of their workforce back in the office, with plans to continue to ramp up over the next 2 months.

There are several other companies who are seeing the accumulating negative effects of work from home and have issued top-down directives to return to the workplace in the fall.

And that's all new.

A few weeks ago, I would have said January 1 seemed to be the new start date for most companies with the trend towards later dates.

But now I'm hearing more about companies moving that date earlier than moving it later.

As a result, customers are engaging in conversations with us about what's next.

Yes, part of that is just about safety, and we're helping customers learn from our own experiences as they begin to bring the first workers back to the office.

But we know safety will get even more challenging because as companies get beyond 50% occupancy, high-density areas and desk-sharing policies need to be reconsidered.

This concern is not going to go away when the vaccine arrives because the vaccine won't be perfect and not everyone will get the vaccine.

So safety will remain an important issue and will likely require physical changes to the workplace.

And we can help with that.

The work we're doing with MIT on pathogen transmission is helping us generate new ideas we can bring to customers.

Beyond safety, the central question is, how does the office need to change to support new ways of working that were accelerated during the shutdown?

Some things have changed forever.

We believe, for example, that many more people will work from home from time to time.

And when they do, they will need to connect the meeting rooms in a way that is easy and effective and most meeting rooms are not designed for that.

We can help.

We've been doing that for years with products like media:scape and more recently through our partnership with Microsoft.

We know for some people working from home felt more productive because they didn't have the same distractions they face in their open, shared, high-density workplace.

And so the workplace is going to have to step it up.

It's just not going to be okay that an employee feels more productive at home than in the office.

And we can help with that, too.

Our architectural wall products, solutions like Brody and the pods offered by Orangebox, all respond to this need.

While there are still a few articles about companies deciding to have large parts of their workforce permanently working from home, we see very few examples of this.

Most of our clients aren't even considering it, and they're not interested in even talking about it.

We do see examples of companies rethinking their real estate footprint.

For example, reconsidering how much should be in the city center versus the suburbs.

If these plans are realized, it will lead to change, and change is almost always good for our business.

Because clients see change is inevitable, they are very interested in flexibility and adaptability in their workplace.

Our new Flex product was designed specifically to meet this need.

So again, we can help.

That's the Steelcase investment thesis.

We're focused on work, worker and workplace.

Everything we do starts with understanding how people work and how the workplace needs to change to better support them.

If you believe the workplace will matter, but the workplace will need to change to be safer, more productive, more flexible, more inspiring, well, that's our strategy.

If you believe there's an opportunity for ergonomic furniture to support work at home, we serve that market in multiple ways.

We support business customers who are setting up work from home programs for their employees.

We sell products directly to consumers.

And we sell through retail and e-tail channels.

Our work-from-home business surged this year, as you would imagine, and if you believe change will also need to come to education into health care, while those are also important markets for us, and we're helping clients update classrooms and adapt telehealth.

I can't say exactly when demand is going to recover in each market, but it's already happening in Asia.

It's showing positive signs in EMEA.

And we believe there are signs of customers beginning to return to the office in the Americas.

Before turning it over to Dave, I want to touch on a couple of other topics that are important to many investors in our company.

First, we announced last month, we had achieved the goal of being carbon neutral this year.

We got there because of a 34% reduction in greenhouse gas emissions over the last decade, and through investments we're making in renewable energy.

So now when we set new goals for the next 10 years, we worked with a well-respected third-party to set science-based targets, consistent with the goal of limiting the rise in global temperatures to 1.5 degree Celsius.

We can't achieve those targets through offsets.

We have to continue to reduce our greenhouse gas emissions and work with suppliers so they set and achieve their own targets.

This is hard work.

But it's critical to making progress to reduce the effect of climate change.

Second, as we continue our work on diversity, equity and inclusion, we have identified 3 pillars of action to guide our work, which are to build diverse teams that reflect our communities; ensure equitable access to opportunity across Steelcase; and to curate a culture of inclusion.

We are developing measurable goals around hiring, growth and development, setting up more opportunities for employees to share different perspectives and have engaged outside experts to help us accelerate our diversity strategies.

Finally, I'm pleased to welcome our newest Board member.

Linda Williams is Chief Audit Executive Officer and Vice President of Enterprise Risk Management at Hewlett Packard Enterprise.

Prior to this role, Linda was CFO of a number of HPE divisions.

Linda is the executive sponsor for their International Women's Day event and is a frequent speaker at forms, including their international pride event.

We are all looking forward to working with Linda.

Now I'll turn it over to Dave to review our financials.

Thank you, Jim, and good morning, everyone.

Before I get into the details of our financial results this morning, I'll start by summarizing the takeaways, a couple of which Jim just mentioned.

First, our second quarter results were better than we expected, and the strength was a factor in our recent decision to restore pay to 100% for most of our global salaried workforce.

We recorded higher adjusted operating income compared to the prior year despite the negative impact from the 17% organic revenue decline, due primarily to our strong cost containment efforts.

Second, we are seeing improved demand patterns in Asia Pacific and EMEA.

Some markets are improving more than others, like China, while a few other markets remain very soft, like the U.K., but the monthly order rates -- the monthly rates of order decline in total for both regions showed fairly consistent improvement between April and August.

Plus our quarter end backlogs are higher than the prior year, and our opportunity pipelines have also improved.

While the economic environment remains dynamic and a resurgence of the virus could further delay employees returning to the office and negatively impact demand for furniture, it seems the industry recovery in these regions could be starting to take shape.

In the Americas, the monthly year-over-year order declines also improved through the quarter, but less significantly and ended with a year-over-year decline of 31% in August.

The dollar amount of weekly orders did stabilize, which was good relative to the volatility we experienced in the first quarter as well as compared to seasonal patterns, which sometimes reflect a modest decline over the summer months before rebuilding into the fall.

And orders reflected lower declines in project business and from smaller customers than the overall average, which was also relatively positive.

However, with August orders down 31%, and our pipelines continuing to reflect significant declines compared to the prior year, we decided to implement actions to more permanently reduce our cost structure.

And lastly, our liquidity remains very strong at $684 million, which includes $168 million of COLI balances, and we have full access to our $250 million global credit facility.

Moving into more of the detailed drivers of our financial results, I will start with a sequential comparison of the second quarter versus the first quarter.

Adjusted operating income increased by $139 million from a loss of $35 million in the first quarter to $104 million of income in the second quarter, and the increase was driven by a $336 million increase in revenue.

We shipped much of the strong beginning backlog of customer orders, which exceeded the prior year by 11% and had accumulated while our manufacturing and delivery activities were restricted during the first quarter.

And the second quarter also benefited from the strong summer seasonality of Smith System.

Total revenue of $819 million in the quarter was a little better than we expected, as we experienced minimal supply chain disruptions and fewer project delays compared to the projections we modeled.

The relatively high sequential operating leverage or incremental margin was favorably impacted by a number of factors, including some that were also better than we expected.

First, we tightly controlled our semi-variable and discretionary costs, keeping them relatively flat with the first quarter despite the significant sequential increase in revenue.

Second, the incremental margin benefited from variable compensation expense not being accrued until we had offset the first quarter adjusted operating loss and began to exceed our return on invested capital target thresholds.

Third, our operating performance across manufacturing and distribution was very strong compared to the first quarter and exceeded our expectations.

We experienced minimal inefficiencies once our hourly workforce was called back fully to work through the significant backlog, which is impressive on its own, but especially so given the heat of the summer months and the modifications to standard work due to social distancing and other safety measures.

Plus, given the higher level of revenue, we were able to more efficiently optimize our deliveries compared to what we experienced during the shutdown and initial restart of our operations in the first quarter.

And lastly, we recorded $4 million of land gains during the quarter.

And our COLI income exceeded deferred compensation expense by approximately $3 million versus more closely offsetting each other in a typical quarter.

Compared to the prior year, our second quarter adjusted operating income improved by $19 million, even though revenue declined by 17% organically.

The results were driven by approximately $65 million of cost reductions, including approximately $25 million of lower employee costs driven by the temporary salary reductions, and the balance from essentially eliminating travel, events, contracted services and other discretionary spending.

We also realized pricing benefits compared to the prior year, and we recorded $14 million of lower variable compensation expense.

And lastly, our results also benefited from the land gains and strong COLI income mentioned a moment ago.

Before I move to our liquidity, I will cover the income tax expense recorded in the quarter, which approximated 33% of our pretax income compared to 26% in the prior year and a 30% benefit recorded in the first quarter of this year.

Variations in our quarterly effective tax rate are a function of accounting rules for interim period, discrete items, benefits available under the Cares Act and our financial results.

We recorded our tax provision estimate in the first quarter based only on actual results, essentially as if we were filing a 3-month tax return.

For the second quarter, we are now able to use an estimated annual effective tax rate approach.

Our tax expense in the second quarter includes the impact of transitioning between the 2 methods.

For the third quarter, our earnings estimates include an effective tax rate of approximately 25% or approximately 30% when adjusted for the estimated restructuring costs and related 39% tax benefit, which are considered discrete and must be fully accounted for in the quarter.

We estimate a higher tax benefit on restructuring costs as they contribute to our estimated tax loss for the year in the U.S. that we intend to carry back under the Cares Act to fiscal 2016 when the domestic tax rate was 35%.

Our liquidity of $684 million at the end of the quarter compares to $701 million at the end of fiscal year 2020.

Through the first half of this year, our profitability and working capital management, including a significant increase in customer deposits, has generated strong operating cash flows, which largely offset our seasonal disbursements during the first quarter, year-to-date capital expenditures, which are 45% lower than last year, reduced dividends and the repurchases we completed during the first 3 weeks of March.

Because of the strength of our liquidity profile and the stability of the overall capital markets, we've repaid all of the borrowings under our credit facility, which we had drawn as precaution earlier in the year.

Moving to our outlook for the third quarter.

Our beginning backlog of customer orders totaled $577 million and was 8% lower than the prior year.

Over the first 3 weeks of September, orders declined an average of 38% compared to the prior year, including declines of 41% in the Americas, 27% in EMEA and 37% in the other category.

It will be interesting to see how the fall seasonality plays out in the Americas over the next 3 months.

As I said earlier, we typically see an improvement heading into the end of the calendar year.

It's possible we could see some seasonal improvement from some customers continuing to support their employees through work from home programs and/or if other customers begin to make investments to ready the office for the return of their employees.

But it's also possible that uncertainty around the pandemic, the economy and the political landscape could further push out demand.

Our outlook for the third quarter assumes we will ship most of our current backlog, and demand patterns will remain relatively stable, reflecting a minimal amount of seasonal improvement.

The third quarter revenue estimate of $690 million to $725 million represents a sequential decline of $94 million to $129 million compared to the second quarter or approximately $100 million to $135 million in constant currency.

From the outlook information we provided in the release, you should be able to reverse engineer an estimated range of adjusted operating income in the third quarter, leveraging the projected range of earnings and the estimates we provided for nonoperating expenses and income taxes.

And to further help you with your modeling of adjusted operating income scenarios relative to our revenue estimates, we also included an estimated range of operating expenses for the third quarter.

Our earnings estimate for the third quarter reflects the relatively high decremental margin related to the expected sequential declines in adjusted operating income and revenue.

The following factors are impacting the sequential comparison.

First, the estimated operating expenses of $180 million to $185 million for the third quarter represent a sequential increase compared to the second quarter, which benefited from temporary salary reductions and lower variable compensation expense relative to income due to the netting of the first quarter loss I mentioned earlier.

Plus the second quarter benefited from the land gains and strong COLI income.

Second, we expect some typical seasonal shifts in our business mix including less business from the education sector and increased government business in the Americas, which has an unfavorable impact on our gross margin comparison.

Plus, the very large project in EMEA that is scheduled to ship in the third quarter was competitively priced and leverages our global supply chain over an accelerated time frame, which is expected to increase our costs.

Third, our estimate includes a modest reduction in inefficiencies from the strong level that we experienced across manufacturing and distribution during the second quarter.

As we approach the fourth quarter, our revenue will be dependent on the state of the broader economic recovery and capital spending, which we -- which will be influenced by CEO and CFO sentiment.

There are positive scenarios wherein employees return to the office more quickly and broadly.

And in preparation, companies invest to reconfigure and retrofit their spaces for a post-COVID world, and there are other scenarios wherein one could imagine that companies defer their return to the office and prolonged capital preservation.

Given the ongoing uncertainty, we are unable to provide an outlook for the full year.

What I will share is some updated color around our estimated breakeven point, taking into consideration the restoration of salaries, our workforce reductions and expected modest level of increased investment and the recent strengthening of some foreign currency exchange rates.

At our current level of spending controls, we estimate our adjusted operating income breakeven point approximates $650 million of quarterly revenue.

That level of revenue would represent an approximate organic decline in the fourth quarter of 26% compared to the prior year, adjusted for the sale of PolyVision and the extra week due to the timing of our year-end.

Let me stress, though, that this is not a forecast.

Demand levels remain uncertain, and our breakeven estimate assumes the continuation of our current cost reduction efforts, and those may change or take on a different form as we may choose to more significantly increase our investments in growth strategies over the coming quarters.

In closing, it was a strong quarter in light of the circumstances.

We executed well, delivered strong financial results, which supported the restoration of salaries, and our liquidity remains very strong.

EMEA and Asia Pacific showed positive signs through the end of the quarter.

As the monthly rates of order decline moderated, the level of backlog was higher than the prior year, and our pipelines also improved.

In the Americas, it's more mixed, and the demand environment may remain stressed for at least another quarter or 2, which is why we took the actions to permanently reduce our cost structure.

However, we believe the recovery will include reinvention of the workplace and may begin to take shape as customers get their employees back into their offices.

From there, we will turn it over for questions.

(Operator Instructions) Our first question comes from Kathryn Thompson of Thompson Research.

Appreciate the color you had both for Q2 and the Q3 outlook.

In terms of that Q3 outlook, just a few clarifications in terms of costs that are coming back online and which ones aren't and particularly when it comes from a people standpoint?

But then the second part of that is conceptually, could you discuss overall costs that you believe of more semi-permanent in nature?

Yes, Kathryn, it's Dave.

I'll start.

First of all, the costs that are coming back are largely related to the reinstatement of salaries, which we estimated in the release, approximate $20 million on a quarterly basis.

We're offsetting about half of that through our reductions that we completed last week and will be benefiting the quarter more fully as we get into the fall.

That's the biggest driver between, I think, the $172 million or $173 million we recorded in the second quarter versus the $180 million to $185 million we're projecting for the second -- or for the third quarter.

There -- beyond that, there is a minimal amount of what we refer to as semi-variable costs, whether it's T&E or contracted services, et cetera.

There's a modest level of that and also a modest level of incremental discretionary spending.

Okay.

Helpful.

Circling back on your commentary on order trends, it's highly unusual given 2020 with COVID that it's -- we think it's challenging to look at year-over-year comps in terms of orders.

And particularly, as you noted, we are not seeing the typical seasonality.

But perhaps against this backdrop, could you clarify in terms of what you're seeing with sequential trends, particularly clarifying if you're seeing less volatility with orders or how orders, the cadence of orders, today versus, say, 3 to 6 months ago?

And what that tells you about your business right now?

Sure.

So this is Jim.

And the -- I'll start again region by region.

So in Asia, sequentially, we're seeing improvements in orders with the most notable case being China, which I talked about in my remarks.

In EMEA, we're also seeing evidence of improvement sequentially and -- sequentially here.

And I'm talking month-to-month more than quarter-to-quarter.

So improvements, and we finished the quarter strong in orders in EMEA, in part because of the large education order that I mentioned earlier.

And in the Americas, we are seeing -- I'd say it's more stability in orders over the last few months with a gradual improvement in year-over-year numbers.

But if you don't look at year-over-year, I'd say it's -- stable is the best way to describe it.

Back to the question about volatility.

Volatility is actually kind of not a bad thing.

When we see volatility, what it means these days is that we have some parts of the business or some customers who are beginning to place orders, and some of those orders could be significant.

So right now, we consider volatility to be a positive sign that there's activity starting up, and we're seeing evidence of volatility in the orders in EMEA, for example, in some places in Asia.

Okay.

Final cleanup question on the $650 million breakeven.

Just to clarify, I assume that, that is based on current -- the current cost structure and no changes?

Yes, it basically anticipates a modest sequential increase in the third quarter of our discretionary spending and semi-variable costs, but that's it.

Our next question comes from Reuben Garner of The Benchmark Company.

Jim, you mentioned your conversations with customers.

I was hoping you could elaborate maybe on those conversations and maybe how they've evolved over the last few months about the return to the office and how organizations are thinking about the office of the future?

And maybe more specifically, have we gone from conceptualizing to -- or I guess, what takes us from conceptualizing to actually a trigger point where these companies start placing the order to set the office up to make it safer for folks to come back?

Yes.

I'd be glad to.

So I'd say that -- you sort of answered the question at the end.

I'd say if I were to go back a couple of months ago, most of the conversations were pretty conceptual.

The people we were talking to themselves were working at home.

They were interested, kind of, out of curiosity about what we were seeing and what we could imagine as people had started to return to the office.

But at that point, they didn't have any immediate plans to do it.

So they were just trying to do, kind of, early intelligence gathering and the things we could expect later on.

More recently, now as clients are starting to get some people back in the office, they're starting to have more specific questions about how do we deal with this and how do we deal with that?

So part of that is because we have people back in the office here, and we've learned a lot over the last several weeks of slowly ramping up our occupancy in the office.

So we have a lot of things we can share with them.

But we also have products that are helping people occupy space safely, especially where they have high-density situations.

And so we help them with that, and that's becoming more tangible.

I think in the last few weeks, now the -- as customers have this experience, they're finding that they can get through this, but there's ways of dealing with temperature checking and there's ways of dealing with press rooms and food service, and they're kind of checking those boxes and getting a lot of those decisions behind them now.

The focus of the conversation is shifting to more longer term.

What should the office be after all of this is over, after we get people back?

And so that's where a lot of our conversations are.

And it zeros in on things like the individual spaces, how do we improve productivity?

How do we improve concentration, distraction while also improving safety in individual spaces so that the office can compete against the home for people who have home offices that provide those kinds of benefits?

So that's a big part of the conversation.

Another part is about conference rooms.

And how do we set up confidence rooms so that they're safe and productive that they can also allow remote participants to connect effectively.

What sorts of investments are needed to make that happen and on down the line?

So that's where the conversation begins to shift towards overall use of space and then towards applications and eventually towards product.

And I'd say those conversations have gotten more tangible over the last few weeks.

So I hope that sort of answers your question.

Yes, great.

That was very helpful.

And on that same note in those conversations, how -- the working from home trend, I mean, are you guys increasingly participating or working with the companies to set that up?

I know we've seen some evidence of companies that are providing stipends to their employees and links to your organization's website to order product.

Is that something we should expect to become a bigger and bigger piece of your business?

Or do you think that's kind of just a near-term small phenomenon that won't really gain any traction?

Well, so far, we've definitely seen growth in it.

So if I were to compare working home in total to a year ago, it's up multiple times.

It's off a small base, but it's up multiple times.

So it's the fastest-growing part of the business.

And it includes all the things you talked about.

So it includes, first of all, programs where we've worked with customers, commercial customers, who are trying to set up programs for their employees' home offices.

And those can take lots of different forms.

Sometimes it can be the company providing that furniture directly to those employees.

Sometimes, it can be in the form of a stipend.

And in those cases, it might be directed at, okay, so it might be a case where the employees get the stipend, and they can spend the money as they wish.

And so we're competing for that business.

That's been really growing, as I said, in some of the larger orders would be seen this year related to that, collectively.

And we continue to take steps to make it easier for customers to do those programs.

Secondly, we have our own direct business through Steelcase store where we sell furniture to consumers, and that includes a lot of people in who are looking for furniture for their home office.

And then finally, sales through retailers and e-tailers, a whole host of different channels that we've set up in years past that are now growing rapidly as demand is increasing for work-from-home products.

In terms of the longer term, hard to say, I would expect, though, as I've mentioned earlier, that consistent with what we've been recommending to clients that the work is done best when the employees have lots of choices and lots of control over their choices to make the best choices for where they should be working today, tomorrow, from hour to hour.

That's true within the workplace.

Gone are the days when people would come in and sit at one desk, and that was their desk for the whole day.

Now people move freely throughout the building and throughout the campus.

And that includes working from home.

It includes traveling on the road, visiting customers and suppliers.

Work is quite mobile.

And so that's been a conversation we've had with clients for many years.

I think what's changed very rapidly here is that a lot of clients who are reluctant to try those things have all found themselves experimenting with it and have found that done right, there's a lot of effectiveness in that.

So I do expect that we'll see a more working from home on an ongoing basis, but not in a way where large groups of people are told to work permanently from home.

It's more about giving people the freedom to work from home when it makes sense for them.

Just as we do here, at Steelcase.

And as that continues to grow, we could imagine that more of these employees of different companies will be interested in upgrading their home offices.

That's because a lot of the research we've done shows that for senior executives, like Dave or I, we generally have home offices with plenty of space.

And of course, we've access to ergonomic furniture for our home offices.

But a lot of other people don't have that kind of space, and they haven't made those investments.

So there is an opportunity to go from where we are today to a state where people are going to realize they're going to want better-quality furniture for their homes.

So I do expect that we'll see ongoing increased demand for that segment of our business.

And any way to quantify, it sounds like you've got 3 avenues to sell to working for home.

Any way to quantify how much of your business that was, say, a year ago?

And how much it is today?

I can't quantify it, but I would say that compared to our total business, it has historically been a relatively small part of our business.

And even with the growth, it's still relatively small.

You look across those 3 segments, though, I'd say the part that's new is the idea that companies would set up programs for their employees, stipends or actually buying it outright.

We haven't really seen anything like that before.

I don't mean to say it's never happened, but that's definitely new, and that's probably something that's happening during the, kind of, the urgency of the COVID crisis.

I'm not sure we're going to see that on an ongoing basis.

The other 2 segments I would expect will continue to be really important.

Okay.

Great.

And then last one for me is just a clarification, Dave, on the breakeven point in the fourth quarter, you referenced -- I think it was roughly $40 million or $45 million in savings from lower things like P&E and other discretionary spending.

Is that breakeven point anticipating that, that kind of level of cost takeout or savings remains?

Or does it assume that some of that comes back as we move through your fiscal year?

Just a little bit of it, Reuben.

The $45 million you're referencing is a year-over-year comparison in the current quarter.

So we would anticipate some of that to come back but just a little bit.

(Operator Instructions) Our next question comes from Greg Burns of Sidoti.

So I just wanted to follow-up on those last line of questioning on the work from home and e-commerce.

Is that an area of business where you feel like you need to either invest in different new products, different price points or channels like more investments behind e-commerce?

Or are you just kind of trying to address the market with the infrastructure and the products that you have and really focusing on the office?

I just wanted to kind of get a sense for how the importance of that part of the business and your view on kind of further investing in it to support it.

We're happy with the range of products that we have available right now between Steelcase products and the AMQ acquisition we made recently, we think we've got the range of products that we need to be successful.

But I do think there's a lot of opportunity for us to continue to make investments in that area.

Specifically, for example, I'm spending a lot of time on this.

I'm spending at least 2 or 3 mornings a week, working with the team that is leading that business to think through how we better connect our supply chains with the front end of the business.

We're working through to make sure that consumers are aware of our entire product line.

And we're making sure we're just handling all the blocking and tackling for business that's growing at the rate it's growing.

We want to make sure we've got everything lined up appropriately.

So we're making investments, I'd say, mostly on the execution side right now.

Now that said, it is interesting that as consumers have made their own choices about what they buy from our pipeline, they've tended to choose the flagship products.

The products get deliver the best economic performance, which might be different than you might expect.

You might think that this is all about low cost and so on.

But we've actually been very successful with some of the high-performance products in our line.

Now that might be because people are less aware of some of the other products.

So that's why we see that is a good thing but also see it as an opportunity.

Okay, great.

And then in terms of your outlook for Capex, obviously, you've cut it pretty significantly at the beginning of the pandemic.

You're starting to bring back some other spending -- areas of spending.

I just want to get your thoughts on CapEx and maybe other growth investments that you might be looking to make now?

Yes, on the CapEx side, Greg, we'll put in the queue an estimate of $50 million for the fiscal year, which will reflect a little bit of a ramp-up in spending over the balance of this year in part because of we're moving plants in China, moving from our current facility to a new facility.

The $50 million we estimate will include in the Q.

Okay.

And then are you seeing any stress in your dealer network with the orders remaining kind of depressed in North America, any challenges with your dealer network?

No.

And we're really happy about that.

Our dealers have done a great job of managing their businesses and taking the actions they need to take to make sure they align the cost structure with the revenues.

And we monitor that very closely.

And so far, we've seen evidence that dealing network seems to be quite healthy.

So we're happy about that.

Dave, do you want to add anything to that?

No.

Highly resilient.

There are no further questions.

I'd like to turn the call back over to Jim Keane for any closing remarks.

Thank you.

So again, we're pleased to see -- to have been able to deliver a strong second quarter, pleased to see improvements in APAC and EMEA and signs of renewed interest in return to office in the Americas.

We're confident we've got the cost structure that we need and the liquidity we need to emerge strong as the economy begins to recover from the COVID crisis.

Thank you all for joining the call today, and thank you for your interest in Steelcase.

Ladies and gentlemen, this does conclude the conference call.

You may now disconnect.

Everyone, have a great day.