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Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the Steelcase Third Quarter Fiscal 2023 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Mr. Mr. O'Meara, you may begin your conference.

Thank you, Rob. Good morning, everyone. Thank you for joining us for the recap of our third quarter fiscal 2023 financial results. Here with me today are Sara Armbruster, our President and Chief Executive Officer, and Dave Sylvester, our Senior Vice President and Chief Financial Officer. Our third 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 through ir.steelcase.com later today. Our discussion today may include references to non-GAAP financial measures and forward-looking statements. Reconciliations to the most comparable GAAP measures and details regarding the risks associated with the use of forward-looking statements are included in our earnings release, and we are incorporating by reference into this conference call the text of our Safe Harbor statement included in the release. Following our prepared remarks, we will respond to questions from investors and analysts. I will now turn the call over to our President and Chief Executive Officer, Sara Armbruster.

Thanks, Mike. And hello, everyone, and thanks for joining today's call. Our third quarter results were about what we expected as both revenue and EPS finished within the guidance range we provided in September, and we feel good about that given the challenging environment. Our corporate clients have slowed investment in office space as they face a potential recession and economic uncertainty in many parts of the world, and this has caused our demand levels to soften. We started to see our order pattern flow down at the end of Q2, and this continued throughout our third quarter. On the supply side, inflation persists and our supply chain partners continue to struggle to find enough labor. Yet, in Q3, we delivered results within our expectations by executing against our three strategic pillars and by taking multiple additional actions. Our progress in diversifying the customer and market segments we serve helped offset softness in the corporate market. We continued to implement our pricing action successfully, we managed operating expenses relentlessly, and we mitigated the impact of supply chain disruptions with numerous adjustments in our operations. I also want to note that, in the face of a challenging environment, our EMEA business contributed to our results by delivering $4 million of operating income this quarter. I'm proud of our organization's commitment to deliver solid results despite the headwinds that we're navigating. Dave will share more about current demand patterns, and he'll cover expectations for next quarter and how we're thinking about fiscal 2024 in a minute, and I want to share how we're thinking about the path forward over the next few years. In recent quarters, we've intensified our focus around three primary objectives – leading the hybrid work transformation, diversifying the markets and customers we serve, and improving our profitability. And today, I'd like to paint a more detailed picture of how we see the market landscape evolving and why we think pursuing these three objectives will position us to win with customers and drive improved financial results. We're not ready to share long-term targets right now, but we believe our strategy can deliver significant earnings improvement over the coming years. There's no disputing that our core market, traditionally driven by large corporate customers with offices typically in big cities, is under pressure, especially in the Americas. We believe demand will improve from current levels as recessionary concerns weighing on CEO confidence abate and more customers decide to invest in their offices to support hybrid work strategies. Because it's clear that a more flexible model of work is here to stay, it's wise for us to imagine a contract office furniture market in which customers may invest less in office space and invest in that space differently than prior to the pandemic. And it's essential that we continue to evolve our company to meet customer needs and to compete successfully in that environment. So, there are two important things at play here. First, we don't know what the ultimate size of the contract Americas office furniture market might be as large companies implement hybrid work strategies. But to give you one scenario, if you model the industry recovery stabilizing at a level that's 20% to 25% below pre-pandemic levels, that would obviously create a revenue gap for us to fill. Second, we believe that no matter how the level of demand from corporate customers changes, the nature of that demand, the ways in which they'll support their employees and work is changing. The types of solutions they need today and for the future are different than prior to the pandemic. So, what does this mean for Steelcase? Well, not only do we believe we can expand other parts of our business to fill a hole that may be created by reduced corporate customer demand, we're also confident in our ability to bring insights based innovation to corporate customers and to evolve our portfolio to serve those customers' changing needs. Industry leaders face market shifts and adapt. That's what Steelcase has done for 110 years and that's what we intend to continue to do. And this brings me to the three pillars that we've been sharing with you for the last few quarters. So, first, we intend to lead the hybrid work transformation. Corporate customers are grappling with profound changes in work and the workplace. And our insight and innovation matter now more than ever. That's why we remained invested in our strategies to evolve our product portfolio and our go-to-market model even during the challenges of the past nearly three years. Our product development investment is focused on the most critical needs for hybrid work, such as great hybrid collaboration experiences and new ways of delivering privacy in the workplace. We've engaged customers in our research and introduced solutions based on that research. These products such as Flex Personal Spaces, Flex Active Frame, Everwall and Orangebox pods have reimagined both individual workspaces and collaborative spaces and we plan to introduce more innovative solutions next year. We believe this expanding product portfolio reinforces our position as a leader, ready to help corporate customers understand the future of work and equip their spaces for the ways work is changing. And our relentless focus on supporting customer needs has driven increased market share. Over the past year, as compared to this month, we've grown faster than our industry. We're also redesigning our go-to-market model to be more effective and more efficient. We've shifted sales resources to market segments that provide attractive opportunities for growth, and we continue to align sales roles and resources to support our strategy. The ways in which we engage customers are changing too, and we're delivering high impact customer experiences in more local, accessible and tailored ways. This will enable significantly more customers and influencers to experience who we are and what we have to offer, both in person and virtually. These products and go-to-market innovations position us to maintain a healthy and leading corporate business. Our strategy to lead the hybrid work transformation is focused on gaining a higher share of the corporate market, and we also see tremendous opportunity to expand our business beyond that market segment. So our second pillar targets continued aggressive diversification of the customer and market segments we serve. We believe this also will contribute to offsetting any decline in the corporate market, and potentially enable us to more than offset any decline. Our diversification has been centered around the education mid-market and consumer markets. In education, year-to-date revenue at our Smith System business is approximately 50% about the same point in fiscal 2020 and we've doubled the business since our acquisition, which is ahead of our initial plan. Smith System is a leader in providing solutions for K-12 classrooms and we're very proud of their progress. We also believe higher education, which has been an important market focus of ours, provides additional strong growth potential globally. Our education business in Asia Pacific, for example, has seen good success over the past several years. We expect it will be up approximately 50% this year as compared to fiscal 2020 and we expect that growth to continue. We're also investing to serve the mid-market segment. which typically consists of smaller to mid-size businesses in a more tailored and effective manner. AMQ, which delivers the customer experience smaller companies desire, geared towards speed, simplicity and support, has driven strong revenue growth in the Americas and year-to-date is approximately 20% above fiscal 2020. This business has more than doubled since our acquisition. We've invested this year in operational enhancements at AMQ to accelerate speed of delivery, and we have rolled out an enhanced customer experience that leverages new digital tools to allow AMQ to better reach and serve the mid-market segment. The consumer market represents additional diversification potential, and I'm really excited about our progress here. In the Americas, our consumer business revenue is up over 300% year-to-date compared to fiscal 2020, and we have additional opportunities to grow through retail partners like West Elm and Best Buy. And around the world, we've had solid success initiating and growing consumer businesses. We also expect to grow as we target specific consumer niches, such as eSports, where products like Gesture, provide all day work and play performance. There is significant potential to bring our insights-based innovation and Steelcase quality to consumers who are looking for a higher combination of design, quality and performance to support their work at home. The third pillar of our strategy is to increase our profitability. We are working actively on multiple fronts to drive improvement. First, as we've discussed continuously over the past two years, our industry has experienced extraordinary inflation, and we have responded by taking significant pricing actions. While Q3 reflected year-over-year net pricing benefits for the second consecutive quarter, cumulative inflation still exceeds cumulative pricing benefits. Once these fully offset, and if we can earn margin on the inflation as we intend, we could see a benefit to earnings. Beyond pricing, we've always pursued annual cost improvements. The current environment, however, requires a more aggressive focus on improving our cost structure. So, for the past several months, we've been working on three additional initiatives. First is an evolution of our operational model in the Americas, which include modernizing our footprint, optimizing our product portfolio to reduce operational complexity, and increasing our agility to mitigate supply chain challenges. This work is bearing fruit, with one example being that in October, we were able to close our Denver regional distribution center. Two other examples include investment in new manufacturing technologies that will significantly improve our efficiency and reduce required floor space and the consolidation of similar production processes into one facility which improves our efficiency and reduces redundant equipment. We are also insourcing certain parts and finished goods which provides cost reduction and efficiency gains. These moves are examples of the kinds of action we're taking to streamline operations and reduce costs. The second initiative is focused on business process transformation, which is our effort to design more effective and efficient business processes, while updating our enterprise resource planning system. We are at the beginning of this multi-year effort, but we expect great benefits as we adopt best practices and reduced customization of our business processes and supporting systems. Our teams are working with external consultants to ensure we achieve the maximum gains at the appropriate level of investment as we transition to our future platform. The third initiative is to capture certain efficiencies as we redesign our go-to-market approach, which I mentioned earlier. Our Grand Rapids customer experience will continue to be an important component of our customer engagement strategy. Yet, by engaging with more customers where they are, we can ramp down our customer aviation investment as we adjust our approach. This move not only will reduce our costs and free up capital for potential deployment to better support our go-forward strategy, but it will also reduce our carbon footprint. Dave will cover more specific financial implications of the aviation decision in a minute. Before Dave gets to that, I'd like to summarize why the future is exciting to us. The world is experiencing profound change, and this profound change just reaffirms our aspiration to help people do their best work by creating places that work better. We believe better is possible. And we believe in our path forward. We believe our initiatives to diversify the customer and market segments we serve, along with our investments to increase our market share by leading the hybrid transformation of traditional corporate office space work, have the potential to offset the volume gap we may face from any decline in the corporate market. On the profitability front, we expect to provide more details regarding the anticipated benefits and timelines for our initiatives as our plans develop more fully over the coming quarters. The key point today is that we believe there is the potential to drive meaningfully higher levels of profitability. Fully implemented, we believe our strategy and initiatives could deliver results above our pre-pandemic revenue level of $3.7 billion and operating margin of 6.9%. We'll have more to say in the coming quarters as we assess the timing and ultimate magnitude of these initiatives. So with that, I'll turn it over to Dave to review the financial results and our outlook more deeply.

Thank you, Sara. And good morning, everyone. My comments today will provide some color around our third quarter results, including a comparison to the outlook we provided in September, as well as some comments regarding demand patterns, our recent actions, the balance sheet and our cash flow. I will also cover the outlook for the fourth quarter and share some preliminary thoughts about fiscal 2024. As Sara said, our revenue and adjusted earnings in the third quarter were in line with our expectations. What's notable about our performance is that we delivered the results despite a projected $7 million gain from the sale of property being delayed to the fourth quarter, the continuation of supply chain challenges and the internal disruption of implementing headcount reductions, which we previously announced and completed in the quarter. For revenue, we grew 13% organically compared to the prior year, which was driven by all segments. We estimate year-over-year pricing benefits approximated $85 million and volume growth was modest. Requested delivery dates by our customers remain relatively extended, despite many of our core products being available within standard lead times. Thus, the softening order patterns we experienced in the quarter had a small impact on our top line. As it relates to adjusted earnings, our operating expenses were lower than our projection, and this helped to offset gross margin coming in slightly lower than the range we projected, which was due to some operational inefficiencies. With respect to operating expenses, we implemented the previously announced actions to reduce headcount in the Americas and corporate functions, which resulted in approximately $11 million of restructuring costs in the quarter and is expected to lower our cost structure by approximately $19 million on an annualized basis. As part of this work, we also eliminated more than 50 open job requisitions, many of which were replacement reqs and were part of our cost structure earlier in the year. Beyond these actions, we continue to look for additional opportunities to pull back, pause and/or eliminate spending that is not highly aligned with our go-forward strategy. To support this endeavor, we recently completed a review of our functional spending that was summarized using a Xero-based approach. And through this work, we identified additional opportunities to potentially reduce or reallocate spending next year. Also in connection with the refinement of our go-to-market strategy in the Americas that Sara just summarized, we also made the difficult decision to wind down customer aviation and sell our aircraft over the coming months. We expect this action will result in approximately $3 million of restructuring costs in the fourth quarter and generate approximately $11 million of annualized savings once fully implemented in the first quarter of fiscal 2024. In addition, we expect to use the proceeds from the sale of our aircraft to pay off the related financing, which matures on May 1, 2023. For cash flow and the balance sheet, we ended the quarter with $55 million in cash and $216 million in total liquidity, which was a few million dollars higher than Q2. During the third quarter, we generated $60 million of adjusted EBITDA, a $9 million improvement in working capital, and approximately $17 million of other net positive cash impacts, which collectively funded $14 million in capital expenditures, $11 million of restructuring costs, $12 million of dividend payments, and $46 million of net repayments under our credit facility. At the end of the quarter, our total debt aggregated $516 million, including $34 million of remaining borrowings under our credit facility and $33 million of term debt related to our aircraft financing. We continue to project paying off the credit facility by the end of the fourth quarter. And with the sale of our aircraft, we expect to pay off the related financing, which will reduce our long term debt to $450 million, which represents our long term notes. At the end of the third quarter, our ratio of trailing four quarter debt to adjusted EBITDA approximated 2.9 times, and it's less than two times on a net basis taking into consideration our liquidity. Moving to orders, we saw third quarter orders decline 17% as compared to the prior year, which was driven by broad-based declines across all segments, including 16% in the Americas, 10% in EMEA, and 37% in the other category. In the Americas, we estimate volume declined by approximately 30% year-over-year, partially offset by more than 10% growth due to pricing benefits. Compared to earlier this year, demand patterns are being impacted by softening industry trends, which we believe are linked to reduced sentiment related to macroeconomic and geopolitical concerns. In addition, many customers remain undecided on their strategies to support hybrid work. Across the quarter, the year-over-year comparisons varied significantly. Recall that we disclosed last quarter that our consolidated orders were down 20% through the first three weeks of September versus the prior year. From there, the full month of September declined 16% year-over-year, followed by declines of 13% in October and 24% in November. And through the first three weeks of December, we've seen a decline of approximately 6% compared to the prior year. While order patterns have varied and shown weakness compared to earlier in the year, new project opportunity creation has improved, especially in the Americas, where we have now seen six consecutive months of year-over-year growth. In addition, we are encouraged by the news that some large design firms are hiring, and one of them is returning to their offices more significantly. Shifting to the fourth quarter outlook, we expect to report revenue within the range of $740 million to $765 million, which is approximately flat with the prior year. And we expect to report adjusted earnings per share of between $0.11 and $0.15, which represents a significant improvement over the breakeven adjusted EPS we had in the prior year. In addition to the projected range of revenue, the earnings estimate includes gross margin of approximately 29%, which is nearly 300 basis points higher than the prior year and includes projected year-over-year pricing benefits net of inflation of approximately $65 million. In addition, we are projecting operating expenses of between $195 million to $200 million, which includes $6.5 million of amortization related to purchased intangible assets and approximately $10 million of expected gains from the sale of fixed assets. Lastly, we expect interest expense and other non-operating items to net to approximately $5 million of expense, and we are projecting an effective tax rate of approximately 28%. As we look beyond the fourth quarter and into fiscal year 2024, there are several things to consider. First, we are targeting to more fully realize the pricing benefits from the actions we've taken to offset the extraordinary inflation over the last seven quarters, which we estimate totals approximately $340 million on a cumulative basis. In addition, we are targeting additional gross margin improvement next year from benefits related to the strategic initiatives and actions Sara summarized earlier. And across operations more broadly, we're targeting to offset employee merit pay increases, higher health care costs and some investments in our strategy with benefits from our recurring operational cost reduction activities and fewer supply chain disruptions. For operating expenses, we are planning a similar approach, wherein we will target to offset our incremental investments with the savings from the actions I summarized at the beginning of my comments. The big question for next year is volume. And the questions include how quickly and by how much our revenue might benefit from the improving opportunity creation, how quickly or slowly the recessionary concerns abate, and whether and how fast return to office patterns increase and/or at what pace do our clients invest more significantly to support their strategies for hybrid work? These are all questions for which there aren't clear answers at this point. What is clear is that if the demand environment worsens, we will continue managing our cost structure to target returns for shareholders while investing in our future. And what is also clear is that, if the demand environment improves, we will target a relatively strong contribution margin from the volume growth as we remain partially invested for a recovery and we'll be cautious about increasing our cost structure during its early stages. I know that doesn't paint a clear picture of a targeted range of revenue and earnings for next year, but I wanted to at least share some context with you about how we're thinking about managing through the uncertainty. Longer term, as Sara detailed, we expect our strategy to deliver meaningful earnings improvement. We acknowledge there is an increasing probability that the Americas industry will be smaller compared to pre-pandemic levels once we are beyond the current environment and settle into a future state. However, we are targeting to offset the potential impact on our revenue through our strategies to lead the hybrid transformation and further diversify our revenue base. In addition, we believe our initiatives to improve profitability have the potential to fund additional investments in our strategy and workforce, as well as help enable meaningfully higher returns to shareholders. And we look forward to laying out that path with even more clarity in the quarters to come. So while we're staying very focused on managing through the current environment, we are optimistic about driving improved financial results as we execute our strategy. From there, I will turn it over for questions.

[Operator Instructions]. Your first question comes from the line of Reuben Garner from Benchmark Company.

Maybe if we could start with the diversifying end markets strategy. I know it's early stages, and you mentioned timing and quantification down the road. Can you give us any idea how big those kind of three buckets are today? I think you mentioned education, mid-market and consumer. What percentage of revenue are they today? And you mentioned timeline down the road. Any color for potential goals there that you can share at this point?

Well, you might want to take some of that conversation offline with Mike, where I think you guys could go back and look at initially Ks when we announced the acquisitions. I think we included the initial size of those organizations when we acquired them, and Sara commented on how we've more than doubled or tripled some of those businesses since the acquisition date. So I think you'll get a sense of where they stand today, which might help. But the way I'll answer your question is we don't know how much smaller the industry might be. There, I used a reference of 20% to 25%, trying to at least give some context behind how we're modeling different scenarios. If you imagine a 25% downturn on our FY 2020 Americas revenue, you kind of come up with several hundred million dollars, $400 million, $500 million, let's say. And we see the potential for our diversification initiatives, as well as gaining share in a smaller industry as a way to offset that kind of a decline. Now, I'm not saying that that's what we're predicting because we really don't know how the industry is going to look in two or three years. But to give you kind of a sense of the magnitude of our growth strategies and diversifying our revenue as well as our intention to target a higher share in the industry go-forward, we kind of shared that context. But hopefully that helps, Reuben.

Yes. Just a quick follow-up on that. Where does volume stand today relative to FY 2020?

Well, it's down significantly. What we've been tracking more closely, I would say, are the order patterns in our core business and how it stands to pre-pandemic levels. And it's been tracking as low as in the 35% range versus pre-pandemic levels at the initial part of the pandemic. It improved from there over the kind of interim year, year-and-a-half to more in the 20s, 20 versus pre pandemic levels. And it since has worsened with how the industry has softened and our order patterns have followed.

On the profitability initiatives, I guess, can you help us with a bridge for this coming year? You have $30 million in cost savings between the aviation and your announcements last quarter. It sounds like these incremental – or these initiatives today are incremental to that $30 million, and then you've got some price costs that you're still catching up. And I know you talked about the first quarter, but can you kind of put all those together for what kind of tailwinds you have on the profit line that might offset or more than offset some of the volume headwinds?

Yeah, we'll try to help you with that a little bit more detailed in 90 days. But you've got the bridge, you just don't have the quantifications. And unfortunately, we're not ready to share those today. But the way I'm thinking about it is kind of how you summarized. I think this year, when you take our fourth quarter guidance and you reverse engineer it to get to adjusted operating income, you can kind of conclude that we're targeting in an $80 million range of adjusted operating income this year. From there, I would add targeted pricing benefits for next year and savings in our factories from the initiatives that Sara summarized. Now, we're going to have investments in merits and investments in health care costs and other parts of our strategy. So hopefully, that will net to something positive. But we're not through our planning process at this point. And similarly, on the operating expense side, we will have investments in our people for merits and healthcare costs, and we will continue to make investments in our strategy. But we'll have savings from the initiatives I summarized to largely offset those. From there, the big question is volume. And that's where we are just planning for different scenarios. And one of those scenarios is that it gets better because we do have opportunity creation that is meaningfully improving for six consecutive months. And we've been in this situation for almost three years. And we can feel and sense that our clients want to get back to the office. They just don't know exactly how to think about their work environments. And so, we're helping them with that. And it just feels like more and more companies are getting beyond the initial efforts of asking and offering free lunches and the like, and starting to think a little bit more aggressively about how they get their people back. But we've been here before, Reuben, right? We were here a year ago. We thought return to office would accelerate more meaningfully and we found ourselves in an environment with different variants of COVID and the like. So, I just don't have a view on volume yet for next year.

I'm going to sneak one more in if I can. Going back to the diversifying end markets, Sara, can you maybe elaborate on how exactly – some of those markets, there are already some players and trends there? Do you need to make more acquisitions to get bigger in those areas? Or can you do this organically with what you have and just moving some of your investments to grow in those areas?

I would say, first of all, with respect to opportunities to look at acquisitions, we always keep our eyes open. But I would say, at this point, we feel that we've made a number of significant investments with the acquisition of companies like Smith System to really help accelerate that diversification strategy. And as you just alluded to in your question, yes, it's also true that, in addition, we have been very intentional about shifting resources, dollars, talents, from some parts of our business into those areas that we want to grow dramatically, to help accelerate that organically. So, I think I would say where we sit today, we feel quite good about how we're positioned to move those strategies forward. Of course, we're thinking about additional investments we need to make organically, things we need to do to continue to capitalize on that market potential. But, again, to your question, I think while our eyes are always open, we'll always pick up the phone if there's an interesting opportunity externally. I think we feel good about what we can do with the resources that we have right now.

Your next question comes from the line of Greg Burns from Sidoti.

Just a follow-up on some of those new market opportunities. In terms of the education market, how would you size that market in North America and globally? And what's your current market share?

Not sure we have that answer for you today. I'm looking at Mike to see whether or not we're at a point where we feel comfortable sharing that. Don't have it. I think it's relatively big in the Americas. I know that doesn't help you. Globally, we also see quite a significant opportunity. We're not as penetrated globally as we are in the US, both on the higher ed side and on K-12. But we definitely see opportunities for growth there.

I would just add to that, certainly in the US market, there's been quite a flurry of investment and continues to be in both K-12 and higher education. Some of that supported by federal stimulus funding. We think there's a lot of opportunity that'll continue. In other parts of the world, it's the case in some markets in which we compete that countries or national governments are driving a significant investment in their education infrastructure as part of their broader national plans to support economic growth and wellbeing over time. And in many cases, those school systems in those countries are really eager to adopt new pedagogy and new ways of thinking about education to support learning. And that really plays quite nicely with how Steelcase education and Smith System have approached the market. So there's different dynamics playing out in different parts of the world, but we think there's quite a bit of opportunity really globally.

Is the competitive landscape in the education market different from the traditional corporate market? Like, is it more fragmented? Do you have more scale than others? Or is it kind of a similar type market dynamic where there's a handful of larger players and then maybe some smaller players below that?

Yeah, I think it's similar, but I would say that it is a pretty fragmented market. And I would say that the significant players in education in different parts of the world vary. So I think that is one thing that we look to as we think about our opportunities is to leverage Steelcase scale and Steelcase capabilities that we have thanks to our traditional business to allow us to serve the education market in a really competitive way.

In terms of the new opportunity creation, can you help quantify that? Like, where does that show up? It's not on backlog yet. So at what stage are these opportunities? And are you getting a sense of an acceleration in the timeline of decision making? Like, where is this leading us to, like, well, the next maybe couple quarters or next year? Like, are you kind of feeling that maybe businesses are ready to make a decision here or move forward? Or are they just still on the researching phase here?

Well, I wish I had answers to all those questions, Greg. What I can tell you is that after several months of up and down across opportunity creation in the Americas, we've now seen six consecutive months that had pretty much – I'm looking at the chart now, pretty much double-digit increases, some of which were pretty strong over prior year. Now, some of that could be weakness in the prior year, but six consecutive months of it improving is quite positive. And what it is are coming from our CRM tool where our sales organization are entering opportunities that they're learning about, that they're competing to position Steelcase to win for. When we looked at it – Mike, I think you've looked at across – or the sales team in the Americas looked across regions, vertical markets, to see if there was anything kind of isolated or significant that stuck out. And it seems pretty broad based in the feedback that we got. So I can't help but take it as a positive. And I think it is a positive. But I don't know how quickly it'll materialize into a revenue generation. What I will tell you is there still are not large multi-million dollar deals in the same number that we had pre-pandemic. So there are some of them, but there aren't that many of them. So this tends to suggest that the opportunity creation is more mid-sized or smaller initiatives, which do have the potential to ship faster than larger projects.

Lastly, in terms of the gross margin, we look back a couple of years, it was in the low 30s, 31% to 33% range. Do you think you could get it back there over time? Is there anything that's structurally changed to why you wouldn't be able to get back to that level of profitability?

I think so. We will have to sustain our pricing benefits that we've put in to cover the inflation and earn a margin on that inflation. And we'll need volume to obviously recover, but I don't see any structural difference between the gross margins on the revenue that we're diversifying toward versus our core industry. So, we would expect to get back to or even potentially exceed the gross margins that we had. And like, FY 2020 is an example.

[Operator Instructions]. Your next question comes from the line of Steven Ramsey from Thomson Research Group.

I'm thinking about extended shipping times for backlogs, and backlogs still being at these elevated levels, how much of that is due to delayed shipments to you or from you? How much of that is customers pushing out delivery times after an order is placed? Just any color on larger backlogs and kind of where you see that trending over the next couple of quarters?

I would guess that the majority of it is due to our customers pushing out dates. We hear a lot of noise around labor in construction sites. We certainly still are dealing with supply chain disruptions. We have late POs every week that are still significantly higher than what they were pre pandemic. But it's substantially less than it was 6, 9, 12 months ago. So I think we're probably contributing some, but I would guess the larger contributor is the site readiness, the time it's taking to get sites fully ready for furniture installation.

In the other category with China reopening to a greater degree recently, are you seeing any orders ramping or conversations improving there from the prior months?

That's a good question. We actually did have one relatively large order that did finally get ordered that certainly felt like it was on hold during the lockdowns. So, if that is an indication of a trend, then that would be great. But it was really only one order. But it was a relatively big one with one of our largest customers that our local teams tell us had paused because of the lockdowns in the region.

Last one for me. Thinking about the consumer space, you've been attacking that over the past few years with a number of partnerships that seem to be doing well. Is this still over the next few years a partnership driven approach? What can you do to accelerate growth and profitability in that particular segment? And then lastly, is direct-to-consumer a model that is being pondered for you guys to go after it in a greater way?

Well, I'll start by saying that we do have a direct-to-consumer business today through our Steelcase Online store. So that is part of our retail strategy and a portion of our strategy that we intend to continue. But as you point out, partnerships have also been critical to our strategy, knowing that we can bring the design, the engineering, the quality, the manufacturing, the insights-based innovation and combine that with some of our partners' consumer brand recognition and their reach into the consumer market. And we think that that combination is a really good one. And it's one that has been bearing fruit both here as well as in Europe. And we certainly think that there's potential to continue to grow through those partnership relationships. So I would say for the moment, our strategy has been both direct-to-consumer, but also a strong emphasis on partnership. And in the near term, I think we intend to continue kind of both those tracks. Dave, I don't know if you want to comment on any further.

Can you share anything on profitability in that part of the business and maybe where you see it evolving in the next couple of years?

Profitability is really strong in our kind of our broad consumer business. It's similar to the kind of margins and operating income that you see disclosed separately from some of our competitors.

Your next question comes from the line of Budd Bugatch from Water Tower Research.

Two questions. One, you talked about the structural not seeing much difference in – I think it was the Americas you were referring to, Dave. Is there any structural difference you're seeing in EMEA or in other or the APAC areas that we should be noting?

I don't think so.

Additionally, you talked about and I made – and I'm old enough to remember some of the flash points when the airplane was sold and we had the excess CapEx to fund those for technology and safety reasons in the past. And yet, you're moving away from that which is understandable in today's environment, and laudable, frankly, but you have an enormous asset in Steelcase U. And so, how can you marry the asset you have in Steelcase University to really help customers understand what's going on with work and what's different with work?

That's a great question. And I would say that, first of all, our intent is to certainly continue to leverage Grand Rapids as a significant customer location, just as it has been. We have hundreds of customers visit this location every year, who come here on their own, whether that's commercial aircraft or car or whatever it might be. So we don't intend that to change. And we do see that customer behavior has really changed in this respect, that customers, in many cases, are less willing to travel or less willing to travel significant distances. So we think it really is time not to – certainly not to lessen the importance of Grand Rapids, but really to amp up the importance of many of the other investments that we have, significant investments in other locations around the country and around the world. So, we really look at this as a strategy to be able to allow more people and more customers to experience the best of Steelcase, not just in Grand Rapids, but in all of the other locations where we also have significant investments. And we've really seen during the pandemic terrific traffic in many of those locations. Again, if people have chosen to stay closer to home or have looked to just to make different decisions about how they spend their day. So, we've been really buoyed by that significant traffic and I think there's something there to capitalize on. So, Grand Rapids will continue to be important. We continue to expect to have significant customer visits to this location. But we also need to make sure that we are providing the best of Steelcase to people in other locations as well.

Sara, do we infer from that that there's going to be more showrooms or more mobile events of some sort to go around?

I would say two things. One is that in existing showrooms and locations, we are continually evolving the experience and making sure that we can provide the right kinds of experiences and sort of high impact meaningful engagement with customers in those locations. So that could be using digital tools, that could be bringing in expertise, that could be thinking about how we continue to have our most up to date innovation available and there for customers to try out. So there's a whole host of things that that we intend to do in those locations. But you're right, we've also pursued a strategy of pop up spaces in cities where we don't have a permanent showroom. And that's been quite successful as well. So we also anticipate continuing to leverage pop up locations as part of our overall go-to-market approach.

Last for me. I'm going to sneak one more in if I could. You mentioned and quantified a 20% to 25% hole. Just help me understand the dollar magnitude of that 20% to 25% hole that you're talking about? Because definitely the reporting over the last several years has changed so many times or given us different footings that I'm unable to get a number that may match the percentage?

Well, first of all, I would just remind you that we're not projecting that. We're really just sharing it to give you a sense of – we're not imagining the industry might be only smaller by a few percentage points or that we don't have any scenarios that suggests it's going to be 50% smaller. So we were just trying to, rough, give you a sense of the magnitude of the kind of hole we think our existing strategies can fill. And, therefore, we use an approximation of 20% to 25%. Again, what we're talking about there is what the industry might look like two, three years from now once return to office and hybrid work has found its future state and settled in. We acknowledge there's probability that the industry could be smaller. And if it's smaller by that amount, we think we can fill that hole with our targets to gain share in a smaller industry through our ongoing investments in support of hybrid work, as well as our diversification strategies across the segments that Sara summarized.

Understood. But I was trying to get to the number that, if that happens, what is that dollar number? What is that percentage of? And what does it get us to terms of dollars?

Well, you could start by going back to FY 2020 and looking at the Americas and taking some hair cut for that to try to get to kind of the core traditional contract office furniture and then take 25% of it. So I don't know what the exact math is. But if you took 25% of FY 2020 Americas revenue and then took 25% of that, you'd probably be in the ballpark. But Mike could probably help you with some offline math from different disclosures that we've had over the last few years.

In one sentence, it was industry and then it was Americas, and so I'm just trying to – from apples to oranges. But we'll take it offline.

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

Great. Well, I would just thank all of you for joining us this morning. And we wish you all a happy holiday and appreciate your interest in Steelcase as we navigate through these challenging times and focus on driving improved results. And hope you have a great day.