Q4 2024 Steelcase Inc Earnings Call

Presentation

Operator

Your conference operator today. At this time, I would like to welcome everyone to the Steelcase fourth quarter fiscal 2024 a conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Mr. O'Meara, you may begin your conference.

Thank you, Dennis.
Good morning. Everyone. Thank you for joining us for the recap of our fourth quarter and fiscal 2024 financial results. With me today are Sara Armbruster, our President and Chief Executive Officer; and Dave Sylvester, our Senior Vice President and Chief Financial Officer. Our fourth-quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast and this webcast is a copyrighted production of Steelcase, Inc. A replay of this webcast will be posted to ir dot steelcase.com later today.
Our discussion today may include references to non-GAAP financial measures and forward-looking statements. Reconciliations to the most comparable GAAP measures and details regarding the risks associated with the use of forward-looking statements are included in our earnings release and we are incorporating by reference into this conference call, the text of our Safe Harbor statement included in the release. Following our prepared remarks, we will respond to questions from investors and analysts.
I will now turn the call over to our President and Chief Executive Officer, Sara Armbruster.

Thanks, Mike. Hi, everyone, and thanks for joining the call today. Our fourth quarter results reflect strong earnings growth as we continue to make progress on our profit improvement initiatives. This progress, as evidenced by our year-over-year gross margin improvement of 140-basis points marking the seventh consecutive quarter of year-over-year gross margin improvement.
For the full fiscal year, our earnings per share more than doubled versus the prior year, and our adjusted earnings per share increased by more than 60% and proud of our employees for actively helping to capture price increases to offset the significant inflationary costs we absorbed over the past couple of years for implementing improvements in various aspects of our operations and for continuing to drive our overall fitness initiatives. These efforts to improve our profitability and to reallocate resources are supporting specific growth initiatives and transformation priorities, allowing us to continue to invest in our strategy while strengthening our financial results.
Building on this, I'm pleased to share that our international segment posted additional improvement this quarter with over $3 million of adjusted operating income following strong results in the third quarter. Its past two quarters reflects significantly improved performance from the nearly $15 million adjusted operating loss that the international segment reported in the first half of the year to continue to enhance our competitiveness. We implemented additional restructuring actions in the fourth quarter in our Asia Pacific business, and Dave will provide some further details about our expectations for the international segment when he covers our outlook.
So turning to orders, we grew 4% overall in the fourth quarter versus the prior year, and that includes 8% growth in the Americas, similar to last quarter. The Americas growth, once again was led by the large corporate customer segment. Customers tell us they need our help to create spaces that will attract new talent and engage and retain employees and help teams and individuals perform.
And they know their spaces must do more and they must be designed to support a range of needs, such as providing places to focus, collaborate, it builds social connections and posture well-being. So I'll reinforce this point with a quick anecdote. I was with the CEO of a major global corporation recently. And as you contemplated the upcoming renovation and expansion of their innovation center, he shared with me is absolute certainty that the new space must do more to support innovation teams. \
And you said I know what outcomes we want this building to deliver, but I don't know how to make that happen. And in that moment, when a client knows they need new thinking and expert advice is where Steelcase shines. We stayed invested in workplace research and new product development to maintain and enhance our portfolio, and we believe this is reflected in the continued strength of our win rate.
We're further encouraged by data point on the Business Roundtable survey on CEO confidence, which showed a significant increase this quarter and it reached the highest level in the past 18 months as optimism in the United States economy is strengthening.
We believe this increasing confidence could also support increased business investment levels as we seek to lead the transformation of work and diversify the customer market segments we serve. We continue to expand our product portfolio, including new launches this quarter in EMEA, our Orange Box brand launched beyond the desk, which is a modular opposed through system that offers a supportive upright fit in combination with ergonomic fixed work tables it effectively combined spaces, offering privacy for individuals, teams and larger collaborative work groups at AMP. with a personality plus cash share leverages our Asia Pacific portfolio to bring a new offering to the Americas.
Personality plus is designed to give small and medium businesses, a new option for comfortable supportive, ergonomic seating. And similarly, the Steelcase learning agreed chair leverages our Smith System brand to offer a versatile and simple feeding option at a lower price point to our education customers. All three of these examples highlight our efforts to deliver innovation and value to our customers, leverage our scale and complement our broader portfolio of products from across our brands.
Finally, I'd like to share a little more about our business transformation initiative, which is one of the drivers of our increased investment level in fiscal 2025. Business transformation for us is about optimizing and automating our business processes. We introduced Business Transformation about a year ago at our Investor Day when we were in the initial phases of planning.
And since then, we've been designing streamlined and modernized end to end processes. These improvements are aimed at providing new capabilities to serve our customers and make it easier to do business with Steelcase. We also expect to drive higher levels of efficiency in the way we operate our business, which should free up resources and lower our costs.
So over the next year, we'll be continuing that work and implementing a new enterprise resource planning system as part of our business transformation initiative. We view this as a major opportunity to increase efficiency and effectiveness, and it will also require significant resources. So we're eager to see the impact of this work evolve over the next year, and we'll have more details to report in the coming quarters.
In closing, we delivered strong profit improvement in fiscal 2024. Over the past two quarters, we have seen stronger demand levels, especially from our large corporate customers. We're seeing more and more companies settle into a stronger in-office presence, and we are optimistic that their investment levels will increase in response to new business needs. And we remain focused on executing our strategy to lead the workplace transformation, diversify the customer and market segments we serve and improve our profitability.
With that, I'll turn it over to Dave to review the financial results and share details regarding our first quarter outlook and fiscal 2025 targets.

Thank you, Sarah, and good morning, everyone. My comments today will provide some additional color around our fourth quarter results, including a comparison to the outlook we provided in December as well as some comments regarding our orders, the balance sheet and our cash flow. I will also cover the outlook for the first quarter and our targets for fiscal 2025.
Our fourth-quarter adjusted earnings of $0.23 per share was at the top end of the range we provided in December. Our revenue of $775 million was near the midpoint of our range, and our gross margin and operating expenses were in line with our expectations. Our adjusted earnings per share benefited by approximately $0.02 from net favorable adjustments, which were related to our unconsolidated affiliates and were reflected in other income.
Moving on to the sequential comparison of our fourth quarter results versus the third quarter adjusted operating income of $34 million in the fourth quarter represented a sequential decrease of $16 million, including a $10 million decrease in the Americas and a $6 million decrease in international. The declines were due to third quarter benefits, which totaled $15 million and were related to the revaluation of an earn-out liability and gains from the sale of land and fixed assets for the international segment.
This was the second consecutive quarter of posting adjusted operating income following a challenging first half of the year. For the second half, the international segment posted adjusted operating income of $12 million, which compares to an adjusted operating loss of $15 million in the first half.
As it relates to cash flow in the balance sheet, we generated $57 million of cash from operations in the fourth quarter, driven by strong earnings and a $24 million reduction in working capital as we continued to manage down our inventory levels. In addition, we generated $20 million of proceeds from the sale of our remaining corporate aircraft, and we funded $10 million of capital expenditures and $12 million of dividends during the quarter.
Our liquidity totaled $486 million at the end of the quarter and our total debt was $446 million. Our trailing four quarter adjusted EBITDA is $264 million or 8.4% of revenue, reflecting a 190-basis point improvement over the same timeframe last year.
We further strengthened our access to liquidity this quarter with the renewal and expansion of our credit facility, whereby we extended its maturity to February 2029 and expanded the borrowing capacity from $250 million to $300 million.
Orders in the quarter grew 4% compared to the prior year, including 8% growth in the Americas and a 6% decline in international across the months. We posted 4% growth in December, a 1% decline in January and 10% growth in February. The order growth in the Americas was primarily driven by large corporate customers across both continuing and project business.
Q4 marks the fourth consecutive quarter of year-over-year order growth from continuing business, and we believe the growth in orders related to Project business is reflective of our strong win rates in fiscal 2024 across other customer segments.
In the Americas, we saw order growth from our education and small to midsize customers, while orders from the health, government and consumer retail sectors declined. The order decline in international was driven by Amea as we experienced softness in the UK and France. However, in Asia Pacific, we had double digit order growth again this quarter, which was driven by India, Japan and Australia, partially offset by continued softness in China.
Turning to our outlook for the first quarter, our Q4 orders grew 4%, including 10% growth in February, and orders during the first three weeks of Q1 grew by 10% compared to the prior year. However, our beginning backlog was down 8% compared to the prior year, which was impacted by customer orders that had accumulated in part due to supply chain disruptions and extended delivery time frames.
As a result, we expect to report revenue within a range of $715 million to $740 million, which translates to a range of down 3% to approximately flat on an organic basis compared to the prior year. We expect to report adjusted earnings of between $0.08 and $0.12 per share, which compares to $0.09 in the prior year.
In addition to the projected range of revenue, the adjusted earnings estimate includes estimated gross margin of approximately 32%, projected operating expenses of between $215 million to $220 million, which includes 4.3 million of amortization related to purchased intangible assets. And lastly, we expect interest expense and other nonoperating items to net to approximately $2 million of expense, and we are projecting an effective tax rate of approximately 27%.
As we begin fiscal year 2025, we remain optimistic about the growing number of companies in the United States that are emphasizing physical presence in their offices for a minimum number of days per week. And we believe this trend positively impacted our fiscal 2024 order levels. For fiscal 2025, we are targeting a mid-digit growth rate for orders, including continued growth from our large corporate customers and growth across most other customer segments and geographical regions.
However, we entered fiscal 2025 with a lower beginning backlog, which will negatively impact our revenue growth early in the fiscal year. As a result, we are targeting organic revenue growth for the full year within a range of 1% to 5%.
Fiscal year 2025 will also benefit from an extra week of revenue and the related marginal earnings in the fourth quarter. But that revenue benefit is not included in our projection of organic growth as it relates to earnings. I want to first provide some context around fiscal 2024 results as a basis for comparison,
Recall, our fiscal 2024 adjusted earnings of $0.93 per share included the benefits of lower operating expenses associated with the revaluation of an earn-out liability and gains from the sales of land and fixed assets, which together aggregated to $20.4 million or approximately $0.12 per share after adjusting for variable compensation and taxes.
Excluding these items, our fiscal 2024 adjusted earnings would have approximated $0.81 per share compared to our fiscal 2025 targeted adjusted earnings of between $0.85 and $1 per share. In addition to the projected range of revenue, our fiscal 2025 earnings targets assumes an improvement in gross margin to between 32.5% and 33.5% and increased operating expenses, including higher investments in our business transformation initiatives, strategic growth initiatives and employee costs.
And lastly, we are targeting non-operating items to net to approximately $11 million. We are assuming an effective tax rate of 27%, and we are targeting capital expenditures of between $75 million to 85 million. Our fiscal 2025 capital expenditure target includes an expected increase of between $20 million to $30 million as compared to fiscal 2024 due primarily to higher investments related to a new ERP system, which is part of the business transformation initiative that Sara previously mentioned for the international segment, we are targeting positive adjusted operating income in fiscal 2025, including a smaller loss in the first half of the year as compared to fiscal 2024.
In closing, fiscal 2024, earnings marked our strongest performance since the start of the pandemic and onset of the extraordinary inflation and supply chain disruptions. Our adjusted earnings per share exceeded the targets we communicated a year ago, and we strengthened our balance sheet by generating $238 million of liquidity over the last four quarters. And we also renewed and expanded our credit facility in recent weeks.
As we begin fiscal 2025, we're optimistic and we remain resolved to continue leading the transformation of the workplace. While diversifying our revenue base and improving our profitability from there, we will turn it over for questions.

Question and Answer Session

Operator

Reuben Garner, Benchmark.

Good morning, everybody. Everyone so the last six to nine months, a lot of your time internal preorder activity as foreshadowed business recovery. Can you talk about what those are looking like at a high level Tom today and telling you about the future and I guess kind of how that on transpires in either targeted mid-single-digit organic growth outlook for the year target still?

Feels pretty good um, I don't have the specific stats of all the different variables that we highlighted six or nine months ago before.
We were actually starting to see the evidence in the order patterns. But generally visits, mockups quoting have remained relatively high. I look at our pipelines and opportunity creation.
It's a little lumpy as the opportunity creation is coming in, but our high confidence levels within our project opportunity pipeline.
These are either projects. We've won business with an income and a customer that we've been working with for years. And we feel like we're strongly positioned to win. So our sales team have rated these projects has high confidence. That portion of the pipeline still reflects growth. We feel pretty good about that as we look forward. I think even your recent survey over the last few months has shown improvement about the back half of the year, projections on from dealers across the industry. And that coupled with improved CEO. confidence and macroeconomic outlook, there feels pretty good. I mean, I wouldn't call it bullish, but certainly optimistic.

Operator

Rubin, your line may be on mute. If you're asking a follow up.

Yes, thank you. It was indeed. So can you talk about how your price cost changes to close your fiscal year? What is left over from any pricing actions that you've announced over the last few years, and I don't believe you've announced one this year. Is that simply because you still have some carryover that can offset any inflation? Can you just kind of update updated from the cost side?

Yes. The sales teams across the globe actually have continued to do a terrific job on implementing the price adjustments that we did over a period of 18 months back two years ago. Those have continued to roll into some of our contracts based on anniversary dates and other negotiations with our with our clients. So we did continue to see some incremental pricing benefits, which has helped offset the extraordinary inflation that we saw. We saw and continue to see actually sites come down, come down in some places, but marginally relative to the level of inflation that we took over the last two or three years.
So yes, we saw benefits in the fourth quarter and I think next year we'll see some remaining residual benefits from those previous actions on a year-over-year basis and a little bit on a sequential basis. But as far as price adjustments, you're correct. We have not announced a price adjustment. I don't think since July of 2022, we did roll off the surcharge. We had a surcharge that we also put in place in July of 2022. And we so our most recent pricing action was actually a reduction when we rolled back the surcharge in the Americas. I think in January of 2023.

And just to be clear, you are still seeing some inflation in certain areas. I know you mentioned you referenced employee costs in the release, but what about and our materials and other items kind of branding on. We just need a price increase because they've played falling off in recent updates from that in recent months to some are up some are down.

If I look at it over the last two or three years, it's still inflated, but it's come off the peak a little bit, which is why we pulled off the surcharge and back in January, January of 2023.

Okay, thanks. I'll pass it on. Congrats, guys, and good luck on the new year.

Thank you, Paul.

Operator

Greg Burns, Sidoti & Company.

Morning, Tom, you obviously have done a great job of kind of repairing and improving margins over the last year. Or so. And I guess looking for a little bit more expansion next year, but do you have a longer-term target of where you think you can get the consolidated operating margin for the business. I think part of the pandemic was in the sixes. But where do you think what's a good target for margins for the business as we look out maybe two, three years?

Yes, I think consistent with what we communicated in May of 2023 at our Investor Day, we're targeting a 6% to 7% adjusted operating margin in the midterm. So last year, we said that was what my four to five years out. So I guess this year, it's three to four years out. And I think you've heard us consistently talk about international target in the mid-single digit. So the Americas would have to be and higher than that.

Okay, great.
Thanks.
And I think at Analyst Day you had you had outlined a target of maybe $50 million of savings and are those all cost of goods or elsewhere? How far along you are progress towards that goal?

And it was $50 million and it was really targeted on gross margin and it excluded benefits from volume growth and pricing actions that we were continuing to tried to put in place at the time. So it was really related to our overall footprint and efficiency in global operations.
And we have made good progress.
We still have a ways to go how we've seen some benefits, but there have been other parts of our broader operations organization that has increased has experienced increased costs. So we haven't we haven't seen the net benefit that we would like yet, but we are targeting in fiscal 2025 incremental benefits from many of the actions that Sarah has mentioned over the last few a few quarters. So I would say early to mid-innings on achieving that objective.

And then lastly, on your, but your balance sheet's in really strong shape. So what's your view on capital allocation priorities, maybe acquisitions or relooking at the dividend possibly or share buybacks?

Well, I think all three are they remain part of our capital allocation. We first obviously look to reinvest in the business and acquisitions have been a part of our allocation and ideally will be part of our allocation go forward. We think of us again as more bolt-on targeting bolt-ons that will help accelerate one of our existing strategies.
And we are, I would say periodically, if not almost not continuously talking to different companies we just haven't found the right fit at the right price yet. So hopefully something will materialize in the coming quarters on that front?
No, we do have higher capital expenditures in front of us over the next couple of years as we finish our ERP system. That's not going to chew up a tremendous amount of liquidity, but it's certainly more than usual than our usual rate of CapEx.
The dividend is an important part of how we return value to shareholders always has been. We are trying to keep it in line with earnings so I know it's a Board decision and they evaluated every quarter. So as our earnings grow, it's certainly possible imaginable that we might increase our quarterly dividend. And yes, we have taken note of some repurchase opportunities. We had a [10b5] program in place for the last six months. It was unfortunately or fortunately we did not buy any shares.
The stock price just didn't go down to levels that we were targeting.
So I guess that's good news, bad news from a repurchase standpoint, but we have had a couple of million shares of dilution over the last two years from equity awards related to executive and director compensation.
So we are always looking to minimally offset that.

Operator

Budd Bugatch, Water Tower.

Good morning, Sheryl.
Good morning, David.
Good morning, Mike, and congratulations on your progress and certainly the quarter and the balance sheet for sure on make sure I'd love to I'd love to get your view on New York new presentation. You talk about several years of disruption, which you certainly are, I guess, an understatement on what is demand growth look like you changed a little bit of the target?
David, as you noted, I think from five to seven to four to six for the next three to four years in terms of percentage annual percentage of growth. But business is being done a little differently now. And just how do you how do you see that and what can we do take away from that against that?

I would say that I don't know that I see business being done dramatically differently. I do think that the customers that we serve who are looking to update and modernize their spaces and make their spaces where Carter ITO are thinking differently about what those pieces look like and they're thinking perhaps differently about what kinds of solutions and I-many's they need to provide in their spaces to attract and retain talent and to drive their business initiatives. And business outcomes.
So I think those things are certainly different in some respects than they were prior to the pandemic in terms of how business gets done in terms of how customers are behaving in terms of, you know, how they think about timelines and projects and decision making and how they interact with us from a, you know, kind of, you know, putting in the order in and us serving them. I don't think that that's dramatically different than before the pandemic. It's really more about the kinds of solutions they're trying to implement to support their businesses and their employees as they look forward.

But having changed a little bit of that, that technique, I mean, you folded down the Steelcase aviation. So you have now more, I think, more reliance on your local showrooms. And there's that Jay asked the site harm and the way it works.

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

Does that stretch corporate selling resources some a bit more than usual on the people who come into Grand Rapids. It helps the concentrates the selling effort, if they're if it's a lot more local. There's Corporate Head of Corporate support that come and take more resources.

Now I want to take my resources. I think like innovations that we have definitely because remember in all the local markets where we are creating the experiences. We have local sales teams. We have terrific people all over the country and all over the world who are who are ready to engage in Houston and help curate those experiences for clients. And I think we've, you know, we're fortunate to have and experts and researchers people with insights that are available and accessible in lots of different locations.
And we've just I think, Ben, frankly, smarter and more efficient in terms of how we leverage those kinds of people and talent and resources to create yield the most meaningful kinds of experiences for customers in a way that Sirius is bespoke and tailored to what that particular customer's looking for.

For a relatively long time and remains true today, had someone kind of connecting to a customer visit virtually because we wanted them involved in that particular customer.
And they were in just a different part of the country at that time. So we've been leveraging virtual connections as part of our customer visits for quite a while. And so that remains part of our approach.
We've also seen has pushed hard on reallocation of resources as we've been pursuing different strategies.
So the reduction in aviation was really in some ways in response to the need to invest more significantly in local experiences. I mean was also in recognition that the large corporate customers were flying, our corporate jets less and less primarily because of government's restrictions mean they were still coming to see us, they just weren't flying on our aircraft. And that's really why we built a corporate aviation group. Some 40 or 50 years ago was for the large corporates and so that the central team actually continues to support visits here, but they also support visits out in the different locations, either virtually or traveling Kenexa.

That's I think that's very interesting and exciting change the sailing time of the selling cycle.
And I got a few other questions, if I could.

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

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

And that is interesting. I had done fully appreciated that, David, you talked a little bit about the order volatility during the quarter with plus four in December, minus 1 in January and plus 10 in February. Anything to read into that as in-house and to any extent you want to talk a little bit about March, but from what do you what the cause of that volatility was February last year, particularly weak, I don't think so.

I think maybe a little bit of it was the timing of when the seasonality kicked in last year versus the timing of this year. But we don't I wouldn't say we saw anything extraordinarily noteworthy to share.
I just thought I figured we get the question about the months. So I thought I would share. And I did think it was interesting that the first three weeks have stayed at the same rate of growth over prior year as February on it. But I don't. Again, I think it could be that seasonality is just showing up a little bit sooner this year than it did last year.
Okay.
What I like remodeling order patterns that we're seeing continued growth in continuing business because we saw we predicted that and we've seen it for four straight quarters. And I really like that our project opportunity pipeline that has shown growth at the high confidence, a prop cross high competence projects is starting to materialize into project order growth over the last two quarters.

But combining that with your price, your previous comment about the fact that the backlog is turning slower would mean that orders that come in during a particular quarter, you might have delivered go low half of the orders are a third of the orders and book-to-bill now deliver fewer. Those are more club closure, a larger backlog at the end, just by growing that backlog?

That's right. I mean, that would have been last quarter in Q3, you may remember we had 15% order growth, I think was the total rate, Mike, and we were a little bit short on our revenue forecast because we had extended some delivery times.

So they've learned from that particular area has been seeing, Scott just changes the way we have to monitor over the quarter, if you could go in that those items.
A couple of other just quick questions on acquisitions. You talked about being open to them, but you've got two that you did during the last couple of years for car Bay and help on any commentary on color on how they are performing integrated into the corporation impact on the business?
So I'll tell you one of the move upscale a little bit Dakar Bay was, I think, in Spain, if I remember right?

Yeah, I think overall, we're really happy with those acquisitions and the proforma. I think the economy has added sort of a new element to our portfolio that's getting rave reviews from architects and designers that were really excited about that I think with how economy data just continue to be tremendously successful in ways that are both driven by household as well as the ability to kind of cross-sell and leverage sort of Telkom relationships in the Hong Kong portfolio, along with some of the traditional Steelcase relationships that we've been really happy with how that's been working. So I think overall, we feel really good about both of those transactions and they are out they are part of the family.

And whereas from AERPI.s is our initials that sometimes get investors are a little nervous and you talk about the plan. Can you maybe give us some color as to the length of the ERP implementation? And any particular has it been decided which ERP you're going to go with? And what kind of color can we get on that?

Well, those three letters make management teams nervous, too, but that's why we're taking such a careful effort and to think about how we want to transform the business in advance of the implementation of our new ERP.
So we are just now going into the design build phase.
And we are targeting a go-live from next fiscal year in the Americas, and then we'll roll it to the international segments thereafter.
What I'm really pleased about is the level of capabilities that we're seeing with SAP. But we're really pleased with the keep the advanced capabilities that the new versions of SAP have. So we believe we will have to customize the system much less.
And we also have shown a high degree of willingness by our internal teams and working with our dealers to, I'd say, modernize and simplify some of our business processes to be more fit to standard is the phrase that the teams use, Tom. So we won't have to necessarily customize the ERP. because either they've advanced solution or modernize or simplifying our business process.

Okay.

Well, congratulations on the progress. I mean, it has been a tough couple of years for sure, and nobody wanted to go through that, but you've come through at the balance sheet just shows you a remarkable and a very strong position going forward. Thank you very much.

Thanks, Bob.

Thanks, Brian.

Operator

Steven Ramsey, Thompson Research Group.

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

Yes, as you know, great question. And I think it's all of the above. I mean, I think at broad strokes, I would attribute it to a large organization, by-and-large, recognizing that in office in-person presence together is really critical to the success of their business.
And we know that that's not in those cases going to look like in the old days of a kind of a 95, five days a week in the office. But I think now that we are way in oh four years of Pheno past four years into that into the post pandemic world. I think organizations are really are really seeing that and they're willing to make the investments to create the kinds of spaces and the kinds of experiences that attract our employees and allow their employees to add units to work kind of work that do their best work.
So I think by and large, that's what we're seeing. And it continues to be a steady, steady yield kind of drumbeat of little by little increasing, you know, investment in that direction. So I think that's really ultimately what's driving the strength that we're seeing in large corporates.

Okay, helpful. And we'll continue with the question to carry that a little bit further. This project demand that's getting better. Is it broad based across corporates? Are there any certain sectors or geographic concentrations that maybe you are flipping the hardest to positive over the past couple of quarters?

Yes, it's pretty broad-based in terms of sectors. So we definitely see demand from across different types of verticals or sub-segments within large corporates, geographically, at least here in the US Obviously, I think that the West Coast, as we've talked about before, which has been a bit of a laggard all along, continues to be a laggard. But I would say outside of that, we see pretty nice activity in multiple regions. And so it's relatively broad-based.

I mean, it's been a little stronger in New York, New Jersey Financial Services side, and a little weaker in the tech and West Coast side.
But I wouldn't want you to think that there is no business in tech right now either. So it is pretty broad-based, but it was I feel like it's a little correlated with some of those organizations that leaned in first a little bit more explicitly about minimum numbers of days in the office. So as they get their people back, they started to restart their day-to-day business, which then certain disperse some dialogue about project activity, which is now starting to show up.

Okay, that's great color. And then last one for me, working capital was great benefit to cash flow this year, even with the organic sales down in the final three quarters of the year with organic sales growth expected for FY25. Can you talk about the working capital benefit to cash flow this year? I should say benefit but impact the cash flow this year?

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

That's helpful. Thank you.

Operator

Yes, there are no further questions at this time. Mr. Armbruster, I turn the call back over to you.

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

Operator

This concludes today's conference call. You may now disconnect.