Steelcase Inc

NYSE:SCS

Earnings Call Transcript 2020-Q4

[Operator]

Good day, everyone, and welcome to Steelcase's Fourth Quarter and Fiscal 2020 Conference Call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Mike O'Meara, Director of Investor Relations, and Financial Planning and Analysis.

[Michael O'Meara, Director of IR, Financial Planning and Analysis]

Thank you, Kevin. Good morning, everyone. Thank you for joining us for the recap of our fourth quarter and fiscal 2020 financial results. With me today are Jim Keane, 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'll now turn the call over to our President and Chief Executive Officer, Jim Keane.

[James Keane, President and CEO]

Thanks, Mike, and good morning, everyone. I want to start by recognizing, this is an extraordinary time, this call this morning is about our financial results and the things we are doing to prepare our economics to weather the crisis. But before we do that, I have to acknowledge that this is first of all, a human health crisis, probably the worst in our lifetimes. People are suffering all around the world. And some of you might be worried about a friend or family member who is personally affected by this. And if so I truly hope they recover quickly. And I hope everyone else stays safe.

Okay. In a few minutes, I'll share what we're seeing and doing in our business in response to the COVID-19 coronavirus outbreak, but first, I want to provide some highlights regarding our recent financial results. Our fourth quarter results were better than our expectations and capped off a great fiscal 2020, a year where we made progress against our strategic growth initiatives. It was our best year in nearly 20 years in terms of revenue and operating income.

Our adjusted earnings per share growth of 34% in the fourth quarter brought our full year growth to 25%. The $1.50 per share is well ahead of the $1.20 to $1.35 range that we targeted at the beginning of the year.

Our divestiture of PolyVision lead to a large gain being recognized in the quarter, but strategically the divestiture enables us to provide greater focus and resources on our growth strategies, while also letting PolyVision operate with more focus under their new ownership. It also strengthens our current liquidity level, which although not the intent of the divestiture, further strengthens the company. I want to thank all the employees of PolyVision that were part of Steelcase for so many years, and wish them continued success. And we are now a customer of PolyVision and will continue to sell certain of their products to our customers.

Our organic revenue declined slightly against the prior year quarter, which has grown 15% against the previous year. On a 2-year stack basis, our organic revenue was up 14%. So we feel very good about how our top-line performed. Overall orders grew 7% organically, and top of 5% growth in Q4 last year. That's global, so includes APAC and it’s a 12% 2-year stack, and it's through February. So our orders were still very strong through the quarter. We improved our operating margin by 210 basis points, compared to the prior year, in part due to the PolyVision gain, but more importantly, because we had a great quarter in EMEA.

I'm very pleased with the progress we've made in that business. I told you before, we have dedicated teams working on a number of opportunities across every area of our business and this quarter we got a taste of the benefits. EMEA delivered over $8 million of operating income this quarter, which is close to a $7 million improvement versus last year. For the full year, EMEA delivered nearly $10 million of operating income, or 1.5% as a percentage of revenue. And again, that's really because of a very strong fourth quarter as all our actions were starting to come together and showing results.

In the Americas, a 6% order growth for the quarter is driven by our ability to bring innovative competitive solutions to help our customers modernize their workplace to compete for talent. This order growth rate surpasses the industry growth rate of 4% over the last three reported months through January. As we continued to strengthen our portfolio of solutions to new product development, partnerships and acquisitions, we were able to grow faster than the market. Our acquisitions continue to contribute to our overall growth as they collectively grew their revenues by over 10% this fiscal year.

We are pleased with the execution against our revenue synergy strategies for the acquisitions. Together with the core Steelcase portfolio, the acquired businesses broaden the ways we can address our customers’ needs and it also helps us serve entirely new customers. So it was a really good year, and a really good quarter. The results show that our strategies are working, and we're executing those strategies very well. Our customers see our solutions as relevant to the problems they're facing.

Now I'm going to switch to the things we're doing to prepare our business for the next phase of the COVID-19 crisis. And really what we're preparing for is the potential economic impact on Steelcase of the actions that are being taken by local, state and national governments here in the U.S., and in the rest of the world. Those governments are doing what health experts say is necessary to flatten the curve. And we totally support those efforts and those orders. The purpose of our corporation is to do the right thing for all stakeholders at times like this.

Okay. So COVID-19 started for us in China. So we have a factory and lots of customers. And so we were already quite familiar with the crisis in January and February. Our factory closed for the Chinese New Year and had to stay closed for a couple of extra weeks. And when it reopened, we adopted social distancing protocols and ran at partial capacity, gradually working our way up towards normal capacity in the last few weeks. Our office space people worked from home, and now they're mostly back in the office, also practicing the local version of social distancing.

We saw some shipment delays in February, when customers had closed their own offices and were unable to do installations. Importantly, we saw delays but not many order cancellations, nor longer term project cancellations. Now we're starting to ship some of those orders we had to delay. And what's interesting I think is we continue to quote our new business, and we continue to be awarded new business that will be installed later in the year. I'm sure the overall Chinese economy will be weaker for a while than it was. I'm not saying we're back to normal yet, but it's perhaps not as negative there as you might think. That said, we don't know what the experience in the rest of the world will be like China.

Italy was probably the next hardest hit area along with South Korea initially, but we have relatively low sales in those countries. We saw some modest impacts to our supply chain, but nothing significant. As the virus began to appear and then spread in the rest of EMEA and in the Americas, and was starting to appear elsewhere in APAC, we had already learnt a lot from our China experience and we knew what to expect. Still, the scale became global. And so we organized an ink-level crisis response team. Dave Sylvester led it at the beginning and as year-end approached we transferred the overall role to Sara Armbruster, another of my direct reports. Sara is using a team of teams approach. At a central level, she and her dedicated team set principles, share information, establish multiple workflows and coordinate actions where needed. She and that team rely on a large number of specific local leaders to make local decisions as quickly as needed. It's been working really well. I'm really pleased with how we've managed this, and particularly how we've been able to stay ahead of it.

For the last few weeks, I've also been working on almost nothing else. I'm connecting with Sara and the team throughout the day to help with certain decisions and workflows. I'm also connected with other companies through my role on the Business Roundtable COVID-19 Task Force, and with similar groups here in Michigan. We're learning from others, and we're sharing our own best practices to help other companies who’re seeing it for the first time.

We're also helping our healthcare customers get ready for what's next. In just a few days, our teams have co-designed and delivered furniture-like products to create safe barriers between administrative workers and potential patients. Within the company, we've been focused on two objectives. First, made sure our people are safe. We've taken actions all around the world to restrict travel and [adapt] social distancing, for example. We've installed screens to protect factory workers where needed. We've adopted a voluntary work-from-home policy, while also keeping our offices open as in action for as long as we can. We've implemented protocols for when people are sick or have been exposed to someone who is sick or when people are being tested. And it's worked. As of today across 13,000 employees, I am aware of less than five cases that are either confirmed or presumed positive.

Second, we have to make sure we protect our business. And that starts by taking care of customers. Our operations teams have done a terrific job, adapting our supply chains and keeping our commitments despite a lot of upstream disruption. Orders keep coming and remained relatively strong through the beginning of March. And upstream activity around new projects has also kept our people very busy. Of course, when we are forced to suspend operations in a particular factory, there's not much we can do about those products. Or when a customer cannot take a shipment because their offices or schools are closed, there's not much we can do. And increasingly, we're finding ourselves in those situations. This is why we could see a temporary but significant drop in our revenues and cash receipts. For that reason, protecting our business also involves maximizing our liquidity and conserving our capital. We've done both.

We ended the year with our highest year-end liquidity in over 10 years, just over $700 million. And still we decided to fully draw on our $250 million credit facility. Dave will talk more about all of that. To conserve capital, we started cutting back on discretionary operating expenses, and we're really reducing plan to capital spending. We're also reducing people related expenditures and that starts with me temporarily taking a $1 base salary, and members of the senior executive team temporarily reducing their pay by 60%. Our Board of Directors also temporarily reduced their cash retainer to zero. We're reducing other people costs through actions like temporary layoffs associated with plant closures, and through significant temporary pay reductions and shorter work weeks, as described in our earnings release.

The specific actions vary a lot across countries because of local laws. What we haven't done and this was quite purposeful, is terminations. We see this as a temporary situation and we want to take temporary measures to protect employees, and our relationships with customers and suppliers, and continue work on product development and all the other initiatives that have been working so well. We have a great team of people, and we want to keep that team together.

Those actions are expected to add up to a significant reduction in our use of cash. We want to put ourselves in a position where we will emerge strong, competitive and ready to serve customers when we're able to bring our factories back to full production. We've modeled weeks, we've modeled months, and we've modeled quarters. We don't know how long it's going to last. But we're in a very strong position, and we've taken some bold actions very quickly. We will continue to adapt as needed. But I feel very good about the decisions we've made and how we're managing this.

Yesterday, the Board of Directors declared a dividend of $0.07 per share. The fact that we declared any dividend at all reflects the recognition of the strong quarter and year we just delivered, shareholders should participate in that. But at the same time, it's a significant reduction. And that's meant to be consistent with our objective to also conserve capital, given the uncertainty of what's ahead. We're not providing revenue or EPS guidance at any time today, there's just too many unknowns.

So next Dave will provide information about orders, backlog and lots of other information that I hope will be helpful to you. Dave?

[David Sylvester, SVP and CFO]

Thank you, Jim, and good morning, everyone. My comments today will include details related to our fourth quarter and full year results, plus some remarks about what we're seeing in the business currently, including some comments related to the developing impact from COVID-19.

As Jim just mentioned, we had a very strong fourth quarter. Relative to the estimates we provided in December, fourth quarter revenue of $946 million was $16 million higher than the top end of our guidance. And the $0.39 of adjusted earnings per share exceeded our estimated range by $0.05. For revenue, the 3% organic decline in the Americas and 8% organic growth in EMEA were better than we estimated due to several factors, including favorable pricing benefits associated with our list price adjustments, and the related migration of customer contract pricing, strong project and day-to-day business, and stronger than expected revenue from our owned dealers and direct services businesses.

Asia Pacific finished below our estimates, due to the initial impacts of COVID-19, which reduced shipments in China at the end of the quarter by approximately $7 million.

Our reported earnings included a $21 million gain on the sale of PolyVision, plus net tax benefits related to being able to carry back the capital loss from this transaction against previously recognized capital gains. These benefits net of related variable compensation expense had the effect of increasing earnings by $0.16 per share. For adjusted earnings, we exceeded the top end of our range by $0.05, due to the revenue strength I just reviewed, plus we had favorable gross margins and lower income tax expense compared to our estimates.

For gross margin, our sales organizations around the world have worked hard migrating clients to more current price lists, which contributed to the better than expected price realization in the quarter. You'll recall that inflation was well ahead of pricing for much of fiscal 2019. In addition, our operations teams did a nice job managing direct labor and overhead costs during the seasonally slower periods of January and February, the current quarter.

Across the segments, EMEA was the most significant contributor to our better than expected adjusted earnings performance. And I should highlight the 4.5% operating margin for the quarter includes $1.8 million of variable compensation expense related to the PolyVision divestiture, which reduced their 4.5% operating margin by approximately 100 basis points.

Lastly, income tax expense benefited from the reversal of a valuation allowance recorded against net operating loss carry forwards in the UK, plus we recorded some other net discreet tax benefits during the quarter.

Diving a little deeper into the year-over-year comparisons, we grew revenue by $34 million or 4% in the quarter, which was driven by $48 million from an extra week of shipments. On an organic basis, revenue declined 1%, compared to a very strong prior year. For example, the organic decline of 3% in the Americas stacks on top of 17% organic growth in the fourth quarter of fiscal 2019. Beyond the strength of the prior year, the year-over-year comparison was also impacted by the unfavorable shipment timing we mentioned last quarter, which included the impact from the timing of Thanksgiving as the holiday fell into the first week of Q4 of this fiscal year, compared to the last week of Q3 in fiscal 2019.

In EMEA, organic growth of 8% was driven by our largest customers. And the decline in the Other category was driven by the shipment delays related to COVID-19 in China. For adjusted earnings, the $0.39 in the quarter compares to adjusted earnings of $0.29 in the prior year. The year-over-year comparison reflects the benefits of improved pricing, lower commodity costs, the extra week of shipments, favorable tax expense, and benefits from gross margin improvement and cost reduction initiatives, partially offset by the impact of the small organic revenue decline and higher interest costs related to our higher level of debt.

As it relates to orders in the quarter, the 7% order growth strengthened through the quarter with December being relatively flat, January coming in at plus 9% and February posting growth of 12%, and that's adjusted for the impact of the extra week. We achieved these growth rates despite the Other category posting a decline, as Asia Pacific was down approximately 25% in January and February, which we largely attribute to the initial impact of COVID-19 in China. It's also important to note that the strengthening trend in Q4 this year was in comparison to a weakening trend in the fourth quarter of the prior year, where in December grew 12%, January was up 7% and February declined 3%.

Moving to cash flow and the balance sheet, cash flow from operations was very strong in the fourth quarter, reaching $142 million and exceeding the prior year by nearly $60 million. The year-over-year improvement was driven by the strong earnings growth in the quarter, plus targeted improvements in working capital. Capital expenditures were $24 million in the quarter, bringing the full year to $73 million. We returned approximately [$17 million] to shareholders in the quarter through the payment of a cash dividend of $0.145 per share. Yesterday, we announced a $0.07 dividend for the fourth quarter, which will be paid in April and represents approximately a $9 million reduction from the dividend paid in January.

We did not repurchase any shares in the fourth quarter. But during the first few weeks of March, we repurchased 3 million shares for approximately $38.6 million under the 10b5 program we had in place that has now been completed. As Jim mentioned, our liquidity position is very strong. We had more than $700 million of liquidity at the end of Q4 between our cash and COLI balances, which is the highest level of liquidity in nearly 10 years. We have no near term refinancing needs. Remember, in the fourth quarter of last year, we issued $450 million of 10-year senior notes and repaid our $250 million notes that were due in 2021. And last month, we renewed and expanded our 5-year global credit facility, which totals $250 million and has a $125 million accordion feature.

From a cash perspective, we do not have any plans for additional share repurchases, and we are significantly reducing our spending as Jim mentioned, and we described more fully in the release. But we will be funding seasonal disbursements in the first quarter, including our annual employee bonus programs and profit sharing plans. As a result and out of an abundance of caution given the uncertainty related to the spread of COVID-19, we chose to further strengthen our liquidity by borrowing the full amount currently available under our new credit facility or $250 million. We also decided to retain the full proceeds from the sale of PolyVision and therefore we did not retire the $41 million of debt we had initially planned.

We estimate approximately 70% to 75% of our cost of sales, before variable compensation expense, varies with revenue, largely direct labor, material, freight and distribution costs; and approximately 10% to 15% of operating expenses, before variable compensation expense, also varies with the overall level of activity in our business, largely from travel and entertainment costs, contractor temporary labor and other discretionary items.

Variable compensation largely varies with our level of profitability, given our historical emphasis on ROIC as a target metric. Beyond these variable costs, employee expenses represent the largest part of our fixed cost structure, with occupancy and other costs representing a much smaller portion. And Jim summarized our actions in the Americas targeted toward reducing our run rate of employee costs.

As we look ahead to fiscal 2021, while the potential impact of COVID-19 does not provide us the visibility to estimate an outlook for the quarter or the year, I will share that our backlog at the beginning of the quarter was approximately $585 million or 17% higher than prior year. But we expect a significant portion to be delayed due to the disruption related to shelter in place restrictions in various places. As a reference point, last year, our beginning backlog represented approximately 60% of our first quarter revenue.

Through the first three weeks of the fiscal quarter, we estimate our revenue was approximately 10% higher than it was at this point last year. Our organic order patterns have been relatively flat compared to the prior year. We have thus far not seen a significant number of customer project cancellations, but we have seen some requests to pause projects and some timelines have been pushed out. And these patterns can be expected to change as more communities move to shelter in place requirements.

And lastly, our mock up levels and customer visits are down versus last year as you might expect. The recent drop in the price of oil is also a new consideration that could have an impact on our results. Approximately 3% of fiscal 2020 revenue in the Americas was in the energy vertical market. Our business in the Middle East, Central Asia, Russia and Africa markets can also be impacted by the price of oil and represented approximately 7% of our EMEA revenue in fiscal 2020.

Lastly, approximately 5% to 10% of our fiscal 2020 cost of goods sold in the Americas is linked to petroleum prices; for example, plastics, transportation carriers, and fuel expenses. So while demand could be impacted, deflation in this commodity category could provide some offset.

I also want to provide some other data points to take into consideration as you update your financial models for next year. Our fiscal 2020 adjusted earnings of $1.50 per share excludes the gain on sale of PolyVision in the fourth quarter. However, there are a few additional items non-recurring in nature that happened in the year that we highlighted in our earnings releases, which had the effect of increasing our earnings by approximately $0.11 per share after taking into consideration the related variable compensation and income tax effects. They include the additional week in our fourth quarter, which had an estimated $0.03 positive effect on earnings per share.

Our effective tax rate benefited from a favorable geographic mix of business and some net discreet tax benefits, which together lowered our effective rate below our ongoing estimate of 27% and increased earnings by approximately $0.04 per share, net of related variable compensation expense.

And lastly, with the divestiture of PolyVision in the fourth quarter, we have deconsolidated their results, which had an approximate $0.04 positive effect on earnings per share in the fiscal year.

So for purposes of the building your year-over-year models, we think that $1.39 is a good estimated baseline for recurring earnings per share fiscal in 2020.

Lastly, a couple of other data points for your fiscal 2021 modeling. We expect interest expense to approximate $31 million for next year, assuming current levels of debt for the entire year, including the recent $250 million draw against our line of credit. And as I said earlier, we continue to estimate our effective tax rate will approximate 27% for the year. And as it relates to uses of cash, we typically expect capital expenditures to fall within a range of 2.5% to 3% of sales. But this year could be lower as we are delaying or canceling several longer term initiatives in light of the growing uncertainty.

From there, I'll turn it back to Jim.

[James Keane, President and CEO]

Thanks, Dave. We're taking the actions we believe are necessary to prepare for various scenarios. We have a management team that has successfully navigated through previous disruptions. I've one of my top leaders focused entirely on managing our COVID-19 response. And Dave is focused on keeping our liquidity strong. We have teams in place that are evaluating our supply chains and how best to meet customer commitments. We will continue to navigate the short-term, while keeping an eye towards being positioned to take advantage of the longer term opportunities we see.

From there, I'll turn it over to the operator for questions.

[Operator]

[Operator Instructions]. Our first question comes from Reuben Garner with The Benchmark Company.

[Reuben Garner, The Benchmark Company]

So maybe I'll start with the moves that you made -- you buys obviously are in a good financial shape coming off a very strong year. I was a little surprised at the extent of the moves that you've already made. Can you talk about the thought process that went into that and how long you kind of assumed that the production would be down and how long this would kind of last that made you go forward with these moves?

[James Keane, President and CEO]

Sure. So we've been planning for various scenarios for quite a while. Again, it helped that we knew what was coming from our experiences in China. The situation -- I'll just caveat a little bit more color on it. The situation in Asia, when we saw that China plants are shut down for the Chinese New Year and then get extended, that the China plant was temporarily paused and then running at lower than full capacity as it ramped back up.

So meanwhile, our plants Malaysia and India continued to run completely unaffected. And we were able to make a lot of transitions in our supply chain to minimize customer disruption. The scenarios that we imagined for Europe and America is might be different. As the virus spread throughout these regions, it is possible that we could see all the factories in EMEA shut down at the same time. It's possible we could see all of the factories in the Americas shut down at the same time, obviously a much bigger part of our business.

We don't know if that's going to happen. And if they do, we don't really know for how long. Just one illustration of that. Our Malaysia factory was shut down a few weeks ago through -- it was announced to be through about the end of March, and just today it’s been now extended out through mid-April. So as these closures happen due to government orders, we realize that they may not last -- any last longer than people are saying.

So as we considered our alternatives, we’re able to imagine the scenario where we could have multiple factories not manufacturing products. Now we have about a week of finished goods typically. So if a factory like Grand Rapids factories are no longer able to operate, we need to continue to ship finished goods for about a week and then revenues very quickly fall to zero. And cash receipts after that was could fall to zero as well.

So those are some of the scenarios we were modeling. It's why we knew we wanted to move very quickly and very decisively. But I will say as well that these are -- that although these are significant measures, but also temporary. And so if it lasts a few weeks, if it’s last longer than that, we're ready to adapt.

[Reuben Garner, The Benchmark Company]

Great, that's very helpful. And so how much -- given that they’re temporary in nature, how much did they save you on -- however you want to put it on a weekly or monthly on an annualized basis?

[James Keane, President and CEO]

I'll let Dave fill that question.

[David Sylvester, SVP and CFO]

Yes, Reuben, we're not going to provide that today. We're just not ready. The numbers are moving around so much so fast. This is Americas or U.S. only at this point and involves layoffs across our direct labor force and some of the hourly folks that otherwise support manufacturing and distribution, and then significant reductions in pays and hours across the salaried workforce. So you know the Americas workforce or the Americas business is our largest segment, and I tried to give you some color around variable and fixed costs, with the largest portion of our fixed costs being employees and employee costs. And in the release and in our comments, we summarized how we're reducing those. We're just not going to be able to provide specific numbers or ranges at this point, given how quickly this is moving and changing. And the fact that we just implemented it within the last 24-48 hours.

[Reuben Garner, The Benchmark Company]

Yes. I totally understand. So just on the production that's currently shut down, what percentage of your -- I mean -- I guess in the Americas, what percentage of your current capacity is offline? And are you -- have you filed for any potential waivers for any of those facilities? Have you -- are you still waiting to hear back if you have?

[James Keane, President and CEO]

Yes, so I'll talk about the waivers and the degree at which we can continue to operate. So in Michigan, for example, and every state is different, every state has its own rules. But in Michigan, we were allowed to continue to operate to the extent we are serving essential industries like healthcare, and the Michigan rule is very clear about -- this is about protecting human rights. And so we're making sure we're honoring that both in terms of the specifics of the order, but also in the principle of the order. So we are continuing to serve healthcare customers. We're continuing to do actually real time co-design and special kinds of products they need just for this crisis as well. And we'll be able to continue to do that. To be able to do that we are -- have to be named as a key designated supplier by these healthcare customers. And we're getting those designations and then we have to provide the employees we have working on those specific projects with the paper orders they need to be able to work. So we are -- we have done that and we are continuing to do that and we imagine that it will again be different in different parts of the country. But that's basically how it works. I'll let Dave see if he has an estimate for the percentage of capacity affected by this?

[David Sylvester, SVP and CFO]

I don't. I mean you -- if you wanted to try to estimate it from previous disclosures, you could look at square footage of facilities that we've disclosed back years ago when that required disclosure. But I'll just remind you that we have two plants in West Michigan, a plant in Athens, Alabama, and two plants in Mexico, one in Tijuana, one in Reynosa. I think you're familiar we make our seating in Reynosa and its component parts are connected to a global supply chain, which include our factory in Malaysia, and we make tops and other products in Tijuana, Athens is a large desking and storage facility. Similarly, in Grand Rapids we do storage and other component parts. And then we have our wood factory here in Grand Rapids.

So with the two factories closed in Grand Rapids, and Athens and the Mexican facilities still being open, they can still be disrupted, even while they're open because of their supply chain linkages to either Grand Rapids facilities, third-party supply chains that may or may not be disrupted, or our global supply chain like our factory in Malaysia, which is currently closed and has been -- the closure has been extended, as Jim just said, through the middle of the month.

[Reuben Garner, The Benchmark Company]

That's all very helpful. And I'm going to sneak one more in, sorry about all the short-term questions, but obviously, it's all top of mind right now. I wanted to try to get one bigger picture question. A lot of folks obviously working from home now, what impact longer term do you think that this virus could potentially have on the industry? How people work, where they work? What kind of impact they could have post the pandemic when we actually past this? Thanks, guys.

[James Keane, President and CEO]

So it's a good question. And I will use that to talk a little bit about how we could imagine coming out of this crisis. So, again, we've experienced this already in China, where people are coming back to the offices and people are coming back to the factories and business is beginning to resume. Although it is important to note that it's not coming back to the way it was before, not exactly. So as people come back, they're far more aware of infection control, they're far more aware of social distancing protocols. There's not a lot of gatherings of people. They're doing things on an ongoing basis that we're all still just getting used to here in the U.S. and in Western Europe. And so I think we enter a kind of a period of new normal. So as it relates to what that means for offices, first of all, we learned that -- in China that the idea of working from home when everyone is forced to, is not as great as people might think it is. So we know from our own research and from again the experiences in China that there's a lot of issues with that, that people experience loneliness, that they experience a sense of separation. Some of the work can be done without really any interruption, but there's a lot of work that can't be done as productively when people aren’t together. Studies by other people have pointed out the same thing, as significant loss in productivity when people are working remotely. And so I think everyone is going to be glad to be able to connect together. And it doesn't mean that remote work or work at home will go away. I think it will take people who have gotten used to it, have learnt how to do it better. What I think people also understand is the differences between the level of productivity and competitiveness. If you're trying to develop a new product, you're trying to serve customers. It's just not the same when everybody is at home. So that's the first part.

Secondly, which is may be more short-term. As people come back to work, whether it's coming back to the factories or it’s coming back to offices, it won't be because of the virus has gone. It's because the healthcare system has now been able to scale up and we've been together able to flatten the curve enough that the healthcare system has been able to respond and manage the virus on an ongoing basis.

So factories will have -- all around the world, not just our factories, but everyone's factories will have to be reconsidered to think about how you improve safety and reduce the risk of infection. Offices will go through the same thing and a lot of our customers are already trying to think about how do we think about how our offices have to be changed. So when the first people come back, they feel safe. Some of the offices that exist around the world are very dense and have embraced products and solutions that have maximized density with very little separation between people.

So we would expect that a lot of customers are going to have to reconsider that and that will be probably the first wave of opportunities. The second wave will be around, I believe collaboration. How do we make it a better experience for people to work remotely? So every meeting has people in the future that will be physically together. But we will continue to have people that are connecting from other places around the world. Through this crisis, from the CEO down to everyone in the company, everyone knows the state of their ability to support remote work right now.

And I believe there'll be a new sensibility about that and new series of expectations that people will have around how remote work should be done more productively, and also how the workplace should be a safer place to be. So we think there are a lot of opportunities for helping clients already. Think about those things. And we’ll continue to bring out more of the research we've done in the past, as people used this pause that a lot of people are feeling in their businesses, to begin to think about what's next.

[Operator]

Thank you. Our next question comes from Greg Burns with Sidoti & Company.

[Greg Burns, Sidoti & Company]

In terms of EMEA, do the work rules there limit your ability to act as decisively as you did in the Americas or do you have a plan of action in place that maybe might take a little bit longer to rollout for that area too? Thanks.

[James Keane, President and CEO]

So the work rules are different in every country. And so any attempts that would need to generalize it would fail. I'd say, they're just different. So for example, in the U.S., we are all used to hear the idea that the way the government supports businesses through a period like this is that people are often laid off and then the state unemployment benefits begin to respond. And so that's related to some of the actions we tool yesterday, as our people are temporarily laid off, the State of Michigan has a -- its unemployment system that has been extended specifically for this crisis. It’s been enhanced for this crisis and our people will be able to take advantage of that.

In countries -- in Europe, it works differently. So in some of the countries, the employee stay on the payroll, albeit at a lower rate and then the government reimburses the company instead of the employees. And so it looks different and it is different in each of those countries. And so we take a very local view of that. We've been working through those things as we've actually faced the situation. So as I mentioned, as of now, we have -- our plant in France is closed and our plants in Spain and the UK are likely to go through that very shortly. Our plant in Germany and in the Czech Republic continues to operate. So each country is different and we handle it differently.

[Greg Burns, Sidoti & Company]

And obviously, you don't know how long these mandatory shutdowns are going to last. But once they are lifted, how fast can you spin up your operations in Americas and the U.S. and what's your expectation to kind of getting back to normal?

[James Keane, President and CEO]

So, it's a good question. And we’re -- I have to be frank that -- I'll tell you what I think and then I also have to admit that we never actually had to do this before. The idea that you would bring -- we would bring a factory down for a summer vacation in the past and bring it back up. But we had much less notice this time than we do normally. So what we expect though, and this is one of the benefits of the approach we took, by shifting our salaried workforce, including a lot of the people who work on order management and so on to a part-time or 21-hour basis. It allows us even during this period when the factories have been paused, it allows us to begin planning and resorting our production schedules. So what could happen as we come out is that customers want to receive the orders in a different way than we were expecting when we were coming into the crisis. You might have some parts of the country that released their ability to receive and install furniture earlier. And so we may have to kind of repriortize and resort. And that's exactly -- there's a lot of complexity behind that. But that's the kind of stuff we'll be doing. But we also believe, if you go back and say, what did we learn in China, is that factories come up gradually over time. It may not be that we bring the factory from zero to a 100% on day one, maybe we start bringing certain lines up, we begin preparing for certain products. So that's all ahead of us and it’s still speculation, but I just gave you a few of the scenarios we’re thinking of.

[Greg Burns, Sidoti & Company]

Okay. And Dave in the press release you mentioned some potential working capital or inventory issues. I don't think you mentioned that in your prepared remarks. But what's the status of maybe the inventory that's getting built up now and what kind of levels you expect you have to carry in terms of while this is all playing out? Thanks.

[David Sylvester, SVP and CFO]

Sure. From an inventory perspective, I think you're familiar that first were made to order. And with the implementation of lean in our global supply chain, we carry very low inventory days. Raw material is quite low and finished goods as Jim referenced is in the approximate range of about a week for of finished goods that's either at the end of the manufacturing line or in between the plant and the distribution centers are sitting at our regional distribution centers.

What we imagine is we've procured material for production next week, so that inventory is on its way. Of course, we're working with our supply chain to try to slow it down, have our suppliers hold it, cancel those orders, delay those orders, et cetera. But some of that is just normal flow and it's on its way to our factories or its inventory that we're going to be obliged to take. And our finished goods is sitting in our distribution centers in many of the parts of the country where we are shut down. So I think what you're going to see is the inventory levels are going to -- are likely going to build especially relative to the volumes that we're producing simply because we're in a shutdown mode. That's about all I would say relative to that.

And on the other parts of working capital, where -- receivables are pretty good, have been good up until recently and really haven't changed much in any kind of significant way. But you can imagine if our dealers are not able to ship and deliver and collect revenue that it could in some ways disrupt our inflow of cash receipts related to receivables.

Now we've got terrific incentives that are available -- that have always been available to our dealers to get early payment and we hope those will continue. And in some circumstances, we're also considering expanding those to really encourage our dealers to get deposits or early payment from their customers in order to keep the cash inflows on our existing receivables coming in.

[James Keane, President and CEO]

I will also just add to that. As we're focused on the closures that happened in Michigan this week, we continue to run that really huge factory in Alabama. And two factories in Mexico, and that can change at any time. So we have no way of really knowing what could happen with the government order. But we're running production in Alabama. We're shipping production in Alabama. We're running production in Mexico. And so the scenario we're talking about is the potential scenario that all the factories can be closed at the same time, but we're open for business. And we're running a lot of production today.

[Operator]

Our next question comes from Stephen Ramsey with Thompson Research Group.

[Stephen Ramsey, Thompson Research Group]

I guess to pick up on the dealer conversation, is the dealer health good broadly in the Americas? Are there bold measures that dealers are having to take to survive or are you concerned about the viability of dealers in this time period? Or does it depend on the timeframe of this whole thing?

[James Keane, President and CEO]

So overall dealer health is really, really good. We just had the best year in 20 years, which means our dealers also had a really good year, collectively. So if you compare -- if you had to pick a time, and you would never pick a time to have something like this happen. But if you had to pick one, people are -- I would say are very, very strong right now. We gained market share in orders, as we said over that last quarter. We shipped a lot of products. We've been responding to the opportunities in ancillary, the acquisitions have been well. So our dealers are in very good shape.

And when we call our dealers, and we have a phone call that our Head of Sales and his team do every single day just to check in on the top dealers to see if there's anything changing, because the situation is changing quite quickly. It's really remarkable and if you sit back and think about it, you go, yes, I guess that's what I would expect. So if you talk to a dealer, who might be in a market that's closed, so some of the West Coast markets where these orders have gone in place, and the dealers can still operate to serve healthcare customers that they’ve really had to adjust their business, as those orders have taken hold, they’re definitely feeling some effect of that. But they're in pretty good shape. And we haven’t heard anything concerning about that. Meanwhile dealers in other parts of U.S. have had literally no impact. I mean they haven't had the orders in their states. If anything, they're calling us, asking us, can we please ship the product that they ordered so they can deliver to their customers? And our inability to now manufacture those products in certain places is becoming the number one issue they're facing. So it's our ability to ship.

So this is still a very localized kind of thing state-by-state. And I hope that helped to answer your question. Dave, I don't know if you have anything you want to add to that, because we also have a lot of people in the finance group monitoring dealer health.

[David Sylvester, SVP and CFO]

Yes, no, I won't repeat anything. What Jim said, I agree with everything. I would just say that, if you use 2008 -- the financial crisis, 2009 as a reference point, I was so impressed with how our distribution channel handled that significant dramatic drop in revenue that hit everybody. It showed how variable their cost structures are and how quickly they move to adjust their fixed costs. So I know they've been through it before, not -- certainly not a pandemic or anything like this, but they know how to manage their business quite effectively. And as Jim said, they just finished the best year and maybe 20 years for them as well.

[Stephen Ramsey, Thompson Research Group]

Thanks for the color. I guess shifting to EMEA orders, strong there, what drove that? And kind of in conjunction with oil prices coming down, are those orders being pushed out and the demand is still fine there, even though oil certainly has an impact on certain areas?

[James Keane, President and CEO]

This is Jim. So I'll start just talking overall about EMEA. So the -- I'd say what's happening there is, the coming together of all these things we talked about now for the last couple years. We have first of all done a lot to enhance our product portfolio to update it, to broaden it, have a lot more relevant current products to sell today than we had a few years ago. And secondly, we've done a lot on the manufacturing side to improve our quality, improve our on-time performance. We've had issues sometimes in the past but we've had a really good run here of consistent performance that gives dealers and customers a lot of confidence during -- the way I want to -- I will remind you, there was already a period of uncertainty and we had a lot going on in the world before this. So I'm very happy about that.

Second thing is that we opened the LINC a few years ago, and we’re been sharing with all of you the number of customers who have come to visit showcasing the LINC. It’s really kind of a -- not just a experience that is about our business in Germany, it's about our business across EMEA and across the world.

And that has helped us convert a lot more potential customers into customers, we’ve won new business. And we can attribute it specifically to experiences that customers had in the LINC, not because of the building necessarily but because of our people. The way we’re able to interact with people in an environment like that, helps clients understand how the research translates into better ideas for office spaces and helps us compete more effectively.

So I'd say it’s products, it’s operations, it’s the LINC. And then we’ve won some really key customers over this last year, and that volume is continuing to build and it's starting to show up in the results. So nothing really I'd say specific to the fourth quarter. It's more of a combination of things that a lot of people have been working on over the last several years. And Dave, I don't know if you have anything specific about the Middle East and oil prices for Europe or EMEA for now?

[David Sylvester, SVP and CFO]

Well, we tried to cite it in my remarks. It's not the largest piece, but it is an important piece. And historically, it's been one of the more profitable areas of our business. So I wanted at least give some color and remind about -- people about that. The only other thing I really would add to what Jim said about the overall region is, and he certainly hit on it a bit, is the leadership around -- the sales leadership around the region is really -- is terrific. Take the UK as an example, to be reversing evaluation allowance against the net operating loss, tax carry forward in the midst of Brexit, it is almost counterintuitive. But the results that we've been achieving in the UK have just been terrific. And I think that's a function of the leadership throughout the region, including in the specific markets.

[Stephen Ramsey, Thompson Research Group]

I want to shift the day-to-day business and then try to get a little bit of a picture of the demand that is out there aside from -- maybe if possible kind of aside from the issues going on, but how is day-to-day business holding up in recent weeks. And can you talk to that by segments or geography?

[David Sylvester, SVP and CFO]

Yes, unfortunately, Stephen, I don't have weekly split of revenue. Mike was able to cobble together kind of what our weekly revenue was looking like through the first three weeks compared to last year, which I referenced was up nicely. But I don't have the breakdown on a weekly basis of whether it's day-to-day, project, et cetera. What was interesting is through Q4 our growth or the success was driven by day-to-day and project business.

The other -- another data point that's kind of interesting is, it is pre COVID-19 coming into the Americas, but we did have nice opportunity creation in our pipelines late in the fourth quarter, which helped bring the full fiscal year to reflect growth. Now, again, it's project activity in our CRM tools. So it's only a portion of our overall business meaning day-to-day business is very important. But before this thing had really spread significantly in the U.S., we were seeing nice opportunity creation and our pipelines were improving coming into the fiscal year.

So that's another reason why I think it's important that we manage the short-term like we're managing while it's simultaneously preparing for reentry. Because when we do come out of this, I do think there's going to be a level of pent up demand. Our organization -- everything we hear from our people is they are still very busy working from home, working on projects that are still in flight, whether they're planned in the near term or later in the fiscal year.

[Stephen Ramsey, Thompson Research Group]

Great to hear. Last thing from me. On -- I may have missed this in the prepared remarks, what is maintenance CapEx levels? And are you [posing] going below maintenance CapEx levels even as long as this lasts?

[David Sylvester, SVP and CFO]

Well, it's a good question. And yes, in this time period, we do think different about maintenance CapEx. If you went back and looked at previous downturns or financial crisis and looked at the level of CapEx that we had in those periods, it was quite low, less than $50 million a year. And so we know how to do that. And we're -- we've looked at every single relatively large capital project to ensure that we want to make a decision on whether we move them forward or we slow them down or stop them. I think our maintenance CapEx is going to behave like it did in the financial crisis. So you will see it come down considerably. But we're also going to protect some of our investments in new products and growth ideas. Because again, we do think we will emerge from this thing at some point, and we want to come out strong when we do.

[Operator]

Our next question comes from Bill Dezellem with Tieton Capital.

[Bill Dezellem, Tieton Capital]

Thank you. I'm curious relative to your supply chain. When -- I guess if you were in need of building product today say with Alabama and the Mexican facilities, where are your biggest supply chain bottlenecks? And then, in China, when you ramp back up -- this is my second question, were your delivery requests or your, I guess, bottleneck to ramping that facility? Or was it the workers being able to achieving the return to the plant that created the bottleneck in ramping?

[James Keane, President and CEO]

Yes, this is Jim. So I'll start the -- I'll answer those questions and maybe Dave can help me if he has other ideas. So the -- on supply chain, our supply chain is pretty broadly distributed. Up until the last week -- I think I don't have an update on the last two days, from those recent announcements. But up until last week, we’ve done really well to being able to continue to meet customer commitments without disruption, despite changes that were happening in other parts of the world. So, we do have some suppliers that are based in Asia, based in China, other parts of Asia, parts and other components that are kind of upstream of what we do. And some of them did experience disruptions. And in most cases, it was a slowing of their capacity or it might have been a delay, or it might have been a reduction in their capacity.

Our teams were able to manage their working process so that castle is on the water, weeks of inventory, buffer inventory. And we were able to work that down in a way that we had very little customer disruption when you get down to the end of finished goods. Our operations teams are continuing to do that sort of thing.

Now, it's not perfect. You can have sometimes a situation where there's a particular supplier that makes a particular thing and if they can't make it then you can't make that particular product. There is also opportunity sometimes for customers for us to go back to them and say hey, you ordered this product, and that product may -- they have a longer lead time now, but there's other products that are similar that they can switch over from the first product to the second product, and they can make that choice themselves. So that's the way it's worked up until now. Again, it could be different as of today on March 25th, but as of a few days ago I've been really, really pleased with the adaptability and the flexibility, agility of our supply chain.

On your second question about in China, did we find -- and in Asia, did we find, it was our ability to produce and deliver? Or was is it the ability of the customer to receive delivery, or was it our ability to produce? Again, here what’s interesting is, I think it was both and I think they both stayed largely in sync. Much of the production we make in China is for customers in China. So as we were coming back and operating at partial capacity, they were as well. There were definitely some customers who asked us to hold products that were ready to be shipped. There were some that asked us to delay production and things because they weren't ready but we had other customers who we asked for their patience while we caught up. But from what I understand from our teams over there is, it was largely in balance. So if we take it overall, it was largely in balance that it was neither one side, nor the other side. They kind of went down in sync and they came back in sync. That may not be the same in other places around the world now as this happens but that’s what we experienced there.

[Operator]

[Operator Instructions]. And I'm not showing any further questions at this time. I’d like to turn the call back over to Jim.

[James Keane, President and CEO]

Thank you. Stay safe everybody. And thank you for your interest in Steelcase.

[Operator]

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.