Mike O'Meara - Director, Investor Relations and Financial Planning and Analysis Jim Keane - President and Chief Executive Officer Dave Sylvester - Senior Vice President and Chief Financial Officer Mark Mossing - Corporate Controller and Chief Accounting Officer

Budd Bugatch - Raymond James Matt McCall - Seaport Global Securities Kathryn Thompson - Thompson Research Group Greg Burns - Sidoti & Company Peter Van Roden - Spitfire Capital

Good day, everyone and welcome to Steelcase’s First Quarter Fiscal Year 2018 Conference Call. As a reminder, today’s call is being recorded. For opening remarks and introductions, I would like to turn the conference call over to Mr. Mike O'Meara, Director of Investor Relations and Financial Planning and Analysis. Mike O'Meara: Thank you, Jessie. Good morning, everyone. Thank you for joining us for the recap of our first quarter fiscal 2018 financial results. Here with me today are Jim Keane, our President and Chief Executive Officer; Dave Sylvester, our Senior Vice President and Chief Financial Officer; and Mark Mossing, Corporate Controller and Chief Accounting Officer. Our first quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast and this webcast is a copyrighted production of Steelcase Inc. A replay of this webcast will be posted to ir.steelcase.com later today. Our discussion today may include references to non-GAAP financial measures and forward-looking statements. Reconciliations to the most comparable GAAP measures and details regarding the risks associated with the use of forward-looking statements are included in our earnings release. And we are incorporating, by reference into this conference call, the text of our Safe Harbor statement included in the release. Following our prepared remarks, we will respond to questions from investors and analysts. I will now turn the call over to our President and Chief Executive Officer, Jim Keane.

Thanks, Mike and good morning, everyone. We are reporting today on a first quarter that was consistent with our expectations as we grew the top line by 4% on an organic basis and delivered earnings in the middle of the estimated range we provided in March. The revenue growth was driven by continued strength in our Asia-Pacific region, which is included in the other category and a solid beginning backlog of orders in the Americas. Earnings were similar to the prior year as we increased the operating expense investments in new product development and other growth initiatives. I will go through each region briefly starting with our Asia-Pacific business. Over the last several years, we committed to growing our business by investing in new manufacturing capacity, new products, and by adding people in key areas. During those years, we saw very little operating leverage, because we increased our operating expenses at about the rate of sales growth. Over the last few quarters, those investments really paid off with some key project wins and some new global account contracts. In Q1, our Asia-Pacific business posted record revenues yet again, and the other category in which it’s included had the highest profit margin percentage in the company. This is still a relatively small business, but it shows that our growth investments worked and I am excited about the future our team is building in Asia. In EMEA, we knew our softer beginning backlog would lead to a challenging quarter. Behind the curtain, our operational performance continues to improve, our dealer’s sentiment is positive, and we are pleased to see 6% growth in orders for the quarter compared to a year ago. We are focused on improving our project win rate, but we would like to see a stronger opportunity pipeline in the UK, France, and some other areas. While the UK will likely remain a destabilized market, we are hopeful that French elections will over time lead to higher levels of business investment, a growing workforce, and more furniture opportunities. Americas sales and operating income were as we expected in the quarter. Orders grew in March, but then declined in April and May versus the prior year. BIFMA April orders were down 6% and they have not yet published May order data. Our analysis of our orders reveals a significant decline in large projects and large customers, which is consistent with remarks of another public company in our industry. Yet we don’t see any evidence of a broader slowdown in the economy and our day-to-day orders did not see new declines this quarter. It’s possible ongoing questions about tax reform and tariffs may be causing some companies to pause before starting new projects. On the other hand, our conversations with the A&D community suggest that they are very busy and they are often a leading indicator of demand for our products. That gives us reason to believe this is a short-term blip although we feel better if we saw stronger growth in our pipeline for future project opportunities. Another consideration is the ongoing shift in large customer demand from legacy private office in cubical applications and towards more open-benching, share desking, and ancillary applications. We saw higher rate of the year-over-year decline in our legacy product lines during Q1 and faster growth in new products aimed at the new applications. The new products and product enhancements we launched in the last 3 years in the Americas grew more than 25% in the first quarter versus the prior year quarter. Our most recently launched products are ahead of first year expectations. So, this commitment to product development is working, but we don’t believe we are yet capturing the same share of customer spend as we…

Ladies and gentlemen, please stand by. Your conference call will resume momentarily. Once again, thank you for your patience and please standby. [Technical Difficulty]

Ladies and gentlemen, we do apologize for the inconvenience reconnecting the call now. Mike O'Meara: We apologize for that technical difficulty. Jim Keane is going to start again.

And since we don’t know exactly when it cut out. We are going to start at the beginning of my remarks. So I apologize for redundancy. So again, we are reporting today on the first quarter that was consistent with our expectations as we grew the top line by 4% on an organic basis and delivered earnings in the middle of the estimated range we provided in March. The revenue growth was driven by continued strength in our Asia-Pacific region, which is included in the other category and a solid beginning backlog of orders in the Americas. Earnings were similar to the prior year as we increased operating expense investments in new product development and other growth initiatives. I will go through each region briefly starting with our Asia-Pacific business. Over the last several years, we committed to growing our business by investing in new manufacturing capacity, new products, and by adding people in key areas. During those years, we saw very little operating leverage, because we increased our operating expenses at about the rate of sales growth. Over the last few quarters, those investments really paid off with some key project wins and some new global account contracts. In Q1, our Asia-Pacific business posted record revenues yet again and the other category in which it’s included had the highest profit margin percentage in the company. This is still a relatively small business, but it shows that our growth investments worked. And I am excited about the future our team is building in Asia. In EMEA, we knew our softer beginning backlog will lead to a challenging quarter. Behind the curtain, our operational performance continues to improve, our dealer sentiment is positive, and we are pleased to see 6% growth in orders for the quarter compared to a year ago. We are focused on improving our project win rate, but we would like to see a stronger opportunity pipeline in the UK, France, and some other areas. While the UK will likely remain a destabilized market, we are for hopeful the French elections will over time lead to higher levels of business investment, a growing workforce, and more furniture opportunities. Americas sales and operating income were as we expected in the quarter. Orders grew in March, but then declined in April and May versus the prior year. BIFMA April orders were down 6% and they have not yet published May order data. Our analysis of our orders reveals a significant decline in large projects and large customers which is consistent with remarks of another public company in our industry, yet we don’t see any evidence of a broader slowdown in the economy, and our day-to-day orders did not see new declines this quarter. It’s possible ongoing questions about tax reform and tariffs may be causing some companies to pause before starting new projects. On the other hand, our conversations with the A&D community suggest they are very busy and they are often a leading indicator of demand for our products. That gives us reason to believe this is a short-term blip although we feel better if we saw stronger growth in our pipeline for future project opportunities. Another consideration is the ongoing shift in large customer demand from legacy private office and cubicle applications and towards more open benching, share desking, and ancillary applications. We saw a higher rate of the year-over-year decline in our legacy product lines during Q1 and faster growth in new products aimed at the new applications. The new products and product enhancements we launched in the last 3 years in the Americas grew more than 25% in the first quarter versus the prior year quarter. Our most recently launched products are ahead of first year expectations. So this commitment to product development is working, but we don’t believe we are yet capturing the same share of customer spend as we did with the legacy products. Up until now we have been able to offset the decline in legacy business, so we need to continue to expand our new products if we are going to grow. It’s also worth noting that these new applications are more efficient, so customers are able to spend less furniture dollars per white-collar worker as they made the shift. We can capture the same share of spend and still face downward pressure, so we need to increase our addressable market within our customers. This is why we are also extending our offering to include architectural products like reconfigurable walls which is one of the fastest growing categories this quarter. It is why we are doing more of a technology including our smart and connected offering coming later this year and the partnership we announced with Microsoft. Our health and education businesses further expand our addressable market in the Americas and we are broadening our furniture offering beyond our own product development efforts through partnerships like Blu Dot. Again these initiatives are working, so we need to continue to expand the breadth of our business beyond the core benching, desking and storage in order to grow. The increasing breadth of our business was pretty evident at near time where the Steelcase space was awarded best large showroom by IIDA and our education and health businesses launched products that are in best of NeoCon awards. Designtex also won two awards for some very innovative new materials. I was proud of our team’s work on the Steelcase showroom. It can be so tempting to mimic the fashion trends and fads we see in our industry. And frankly a lot of industry experts are clear about what customers don’t want and by that I mean traditional corporate spaces and not so clear about what they do want and how will help drive business results. Historically these are not proud moments for our industry. In the past we would see everyone rushing out to food – small tables and lava lamps and then the fad would end and we would all look at that ridiculous. I think we won the showroom award because we focused on real people and real work, creative work and we represented authentic spaces inspired by our experience and our research into the real work of creativity. Sure, these spaces use new materials, new colors and a new freedom to blend different styles. They are on trend, but then its core, our showroom was about a new kind of work it’s likely to be important for quite some time. Along with Microsoft we were able to demonstrate how new technologies can augment human creativity and how space can bring these forces together. I believe we have the right story to help our customers make sense of the changing workplace and help them reach higher levels of productivity by enhancing creativity. I feel strongly that we need to continue to ramp up the level of investment and the pace of our product development and partnerships to update our portfolio to reflect the new way of working and the new spaces customers are demanding. With the increasing decline in the legacy business, we are taking additional steps to reduce our spending in some areas to help fund these investments. But in total we will still sustain a higher level of innovation related spending than in the past. We have seen our most recent product development investments have exceeded expectations and are on track to earn a very good return on investment. One more thing, we are also broadening our product line to deliver Steelcase performance at lower price points. We revealed our new seating product called Series 1 on the first day of near time to meet all our quality standards and includes ergonomic technologies like light back, 4D arms and weight-activated mechanism, but at a more accessible price. We think it will introduce new customers to Steelcase dealers and to the Steelcase family of products. We also think it’s a great choice for existing customers to using shared spaces, meeting spaces and other fast growing applications for higher performing test chair like gesture might not always be necessary. Customer feedback and dealer feedback was outstanding as folks saw this as a chair of very relevant to today’s market and we believe it will help us capture a greater share of our dealers business. This chair was made possible by the increased investments we made in product development last year and we believe these investments are critical to maintaining our market leadership. We expect to begin seeing revenues from this product in our fourth quarter. Our outlook for the second quarter reflects the weaker Americas backlog, because of the factors I discussed including large customer order patterns. This was somewhat offset by the continuation of strong demand in Asia-Pacific. Our operating income outlook reflects the continuation of the increase in investment in product development and sales force capabilities we began last year. Again, we are taking some additional steps to reduce spending in some other areas, but those efforts will not materially affect the second quarter. And with that I will turn it over to Dave.

Thank you, Jim. I will cover our financial results first noting where the results differed from our expectations and highlighting year-over-year and sequential quarter comparisons and then I will talk about our balance sheet and cash flow before getting into our order patterns and outlook. As Jim said we were pleased to report revenue and earnings within the estimated range we provided in March which included the impact of annuitizing three of our smaller defined benefit plans. Order patterns in the Americas were soft during April and May and I will provide more detailed commentary about that in a moment. But first I want to share a few other highlights some of which Jim just referenced. First, Asia-Pacific posted record levels of revenue and operating income again in this quarter, realizing a $6.5 million profit improvement compared to the prior year, which resulted in a strong double digit operating income margin this quarter. As we have said on the previous calls, we are continuing to secure more and more business with leading organizations headquartered in China and India and our level of customer order backlog and pipeline of project activity remains strong. Second, the level of demand for our new products in the Americas has remained strong as revenue from new products as a group continues to exceed our revenue, gross margin and return on invested capital expectations. In addition, revenue from products which have been significantly enhanced during the last 3 years also grew and the rate of growth was well above the Americas average growth in the quarter. At the same time, demand for our legacy panel-based furniture systems continues to decline. And the market remains dynamic, particularly around ancillary trends, price points and the integration of technology. Thus we intend to remain invested in our product development and new business strategies. Third, we were pleased to report order growth in EMEA during the quarter driven by project activity in Eastern Europe and the Middle East as well as vended solutions at our owned dealers. In addition, day-to-day business in France, Germany and Iberia has continued to grow. As it relates to revenue in the first quarter, the organic growth of approximately 4% included exceptional strength in Asia-Pacific, which drove 20% organic growth in the other category. The Americas, PolyVision and Designtex also grew revenue in the quarter, while the organic revenue decline in EMEA was driven by a 17% decline in customer order backlog entering the quarter. Revenue across the segments was largely consistent with our internal estimates, but I will make a few comments about our business mix and other factors in the Americas, EMEA and Asia-Pacific. For the Americas, the 3% organic growth was driven by project revenue, which exceeded 50% of our total revenue in the quarter and included revenue from the very large project we have mentioned on previous calls. Revenue from continuing agreements and marketing programs was lower than the prior year. This business mix, along with some shifts in our product mix had an unfavorable impact on our gross margin percentage compared to the prior year, which included $6 million of warranty retrofit charges. For EMEA, the 4% organic revenue decline was broad-based with the exception of the Middle East, which benefited from a relatively large project. With the improvement of economic and political sentiment in France and Germany, we are beginning to see modest growth in our pipeline or project activity compared to the prior year. And we believe the opening of our new learning and innovation center in Munich will contribute to an improvement in our win rate as we compete for larger projects across the region. And in Asia-Pacific, the exceptional revenue growth was driven by India, but we also posted strong double-digit growth rates in China, Japan and Southeast Asia. And our optimism in this region continues given the current level of customer order backlog, our pipeline of project activity and growing demand for our new products. From an earnings perspective, the $0.15 per share in the quarter included a $7.3 million charge related to annuitizing three of our smaller defined benefit plans, which reduced our earnings per share by approximately $0.03 after consideration of related variable compensation and tax effects. Operating income approximated the level contemplated in our earnings estimate and benefited from a record level of quarterly profit in Asia-Pacific that was better than expected, which offset modest shortfalls in EMEA and the Americas. While lower volume prevented us from reporting year-over-year improvements in EMEA operating results again this quarter, we were pleased with the fact that the record level of profitability in Asia-Pacific substantially offset EMEA’s operating loss. Other income net was consistent with our forecast in total, but included better-than-expected results from our unconsolidated affiliates offset by $2 million of foreign exchange losses driven by reductions in the strength of the U.S. dollar relative to other currencies. In addition, our effective tax rate of 36.3% included an unfavorable impact of adopting the new accounting standard related to stock compensation largely offset by favorable discrete tax items. Switching to year-over-year comparisons, adjusted operating income decreased by $3 million. Note that the current year results included the $7.3 million of charges related to the defined benefit plan annuitizations and the prior year results included approximately $6 million of warranty retrofit charges. The operating leverage generated by the organic revenue growth in the quarter was more than offset by higher operating expenses and the unfavorable shifts in business mix that I mentioned previously. The increased spending included investments in product development, sales, marketing and information technology that support our strategies including developing new products, enhancements and applications such as the smart and connected workplace and Creative Spaces. It also included expanding our ancillary offerings addressing certain product gaps and pursuing other areas. Sequentially, first quarter adjusted operating income was lower compared to the fourth quarter due to seasonally lower revenue, the impact of annuitizing the defined benefit plans, higher spending in support of our strategies and the unfavorable shifts in business mix that I mentioned previously. Moving to the balance sheet and cash flow, cash used in operating activities was largely consistent with our seasonal trends totaling $51 million in the current quarter compared to $66 million in the prior year. The reduction was driven by lower variable compensation payments and increased customer deposits offset in part by increased working capital and timing of VAT recoveries. Capital expenditures totaled $17 million in the first quarter and we continue to expect fiscal 2018 to fall within a range of $80 million to $90 million driven by our intention to sustain a high level of product development to strengthen our industrial capabilities, enhance our information technology systems and continue to invest in our customer-facing facilities. We returned approximately $16 million to shareholders in the first quarter through the payment of the cash dividend of $0.1275 per share. And yesterday, the Board of Directors approved the same level of dividend to be paid in July. The share repurchases during the quarter were associated with the vesting of equity awards and satisfaction of participant tax obligations. Turning to order patterns, I will start with the Americas segment, where our orders in the first quarter declined by approximately 3% compared to the prior year, reflecting a 4% decline in orders for our branded solutions and growth from other products and services sold by our own dealers. We posted modest order growth in March followed by mid single-digit percentage declines in April and May. Customer order backlog at the end of the quarter was 6% lower compared to the prior year and order patterns through the first three weeks of June have grown over last year though continuing to be up and down week to week. The order decline in the quarter was driven by a significant reduction in demand from our largest corporate customers compared to the prior year. Historically, this group has accounted for more than 20% of our business and has also driven our largest orders booked in a quarter. Based on our internal analysis, we do not believe we are losing any share of wallet from this group as it relates to their investments in the workplace, but rather we are likely feeling the effects of a reduction in total capital investment across the group which we determine based on our review of publicly available information. Turning to vertical markets in the Americas, order patterns were mixed reflecting declines from 6 of the 10 vertical markets we tracked and growth from the other 4. The declines were most significant across the information technology, manufacturing, and insurance sectors and growth rates were the highest across the energy, education and financial sectors. Across quote types, project orders declined by 6% and day-to-day business declined by 2%, reflecting a 9% decline in our marketing programs aimed at smaller day-to-day business partially offset by modest growth in orders from continuing agreements. Throughout the previous four quarters, we talked about the year-over-year strength we were seeing in our pipeline of large project activity in the Americas. You will recall our pipeline calculation includes project business that we have already been awarded or that we believe we have a significant probability of winning. And that when aggregated is expected to result in at least $3 million of revenue from each customer over the next four quarters. For the first time in five quarters, this pipeline at the end of the first quarter was lower compared to the prior year. The reduction is due to the recent substantial completion of the very large project we won during the first quarter of the prior year and thereafter included in the pipeline prior to it being ordered. Excluding this large project from the comparison, the pipeline still grew year-over-year, but at a rate lower than previous quarters. This lower growth rate could be a function of our current and expected win rates, but we also see a similar pattern across our entire pipeline of project activity, which includes business with medium to lower levels of confidence. It’s only one piece of data and is contrasted by the continued strength in CEO and small business sentiment, but based on what we are seeing, it seems the pace of large company investments has cooled somewhat similar to what we experienced in the fall of 2015. For EMEA, the order growth of approximately 6% in the current quarter was driven by project business in Eastern Europe and the Middle East as well as vended products sold by our own dealers. Order patterns across the balance of the region reflected growth in France and Iberia and declines in Germany and the UK. Order backlog in EMEA ended the quarter down 2% compared to the prior year, a significant improvement over the 17% year-over-year decline entering the first quarter. Order patterns through the first three weeks of June reflected year-over-year declines. Within the other category, orders in total grew 20% compared to the prior year and included very strong orders in Asia-Pacific again this quarter as well as double-digit growth rate at PolyVision and a mid single-digit growth rate at Designtex. The order strength is Asia-Pacific continues to be led by strong growth in India and China, but most other markets also grew orders compared to the prior year. Turning to the second quarter of fiscal 2018, we expect to report revenue in the range of $750 million to $780 million, which reflects in a range of an organic decline of 1% to organic growth of 3%. Our revenue estimate contemplates significant growth from the other category in the second quarter and an organic decline in the Americas. Related to EMEA, we expect to report year-over-year improvements in the level of our operating loss in the second quarter, primarily due to the elimination of disruption costs and inefficiencies incurred in the prior year. In the Americas, we expect some improvement in our business mix in the second quarter compared to the first quarter and we expect sequentially higher operating expenses reflecting our commitment to increase the level of investment in product development and other growth initiatives. In total, we expect to report a year-over-year increase in operating expenses in the second quarter similar to the first quarter. As a result of these factors, we expect to report second quarter earnings within a range of $0.21 to $0.25 per share. From there, we will turn it over for questions.

[Operator Instructions] And our first question comes from the line of Budd Bugatch with Raymond James. Your line is now open.

Good morning, Jim. Good morning, David. Good morning, Mark. I guess the first question will go to pricing, just talk about pricing, particularly in the Americas, what are you seeing there? We have talked about lower price points, but what does the competitive set look like?

Yes. So, I’d say first of all, as you heard me say before, pricing is always intense in our industry. It’s always competitive industry. And so, I think that has been true and continues to be true.

Got it.

That said, I think from quarter-to-quarter, we can see changes in behaviors by different competitors, and we will – we monitor all that and we study all that and when we win and when we lose, we always evaluate how – what were the factors and sometimes price is a factor. I’d say price is not typically about factor, it’s usually a whole bunch of other things involving how well did we understand our customers’ needs, how well did we position our products for those needs, did we have all the products we needed. And I don’t want to diminish that, because I think sometimes we can always rely on pricing to be the factor and it doesn’t feel like that. Again that said, I do think that over the last several months, we have seen some situations we were surprised at the pricing that we would see other people offer. But again, I don’t know that, that’s the first time I would have said that. So, I see generally an increased level of sharpness on pricing and of course we adjust as we see that play out.

Okay. My next question really goes to the guidance, maybe help, I know David you talk about growth mostly in the other category in fact primarily driven by APAC, but can you kind of frame where you think what your plan is for the growth there, the declines in America and EMEA what it will add to top line? Can you give us kind of a revenue range of those two segments?

Well, I think for the Americas, given the backlog is down 6% going into the second quarter and when we look at the backlog breakdown what’s expected to shift in the second quarter, it’s down a little bit more than the 6%. That’s where the anticipated decline in the Americas is being driven. And while I feel good about the fact that orders in the first three weeks have increased over prior year, they have been down two weeks and up only one. So, we are being, I would say, appropriately cautious about the second quarter from an Americas perspective, and our estimate therefore contemplates an organic revenue decline. In EMEA, the backlog is closer to flat with last year. It’s only down 2%. Their orders have declined in the first three weeks, but we are feeling that things are starting to improve. Our pipeline is starting to show a little bit of improvement over prior year. The increased level of customer visits that we are continuing to see at Munich even before we are open has been positive and some of the political and economic sentiment gives us – makes us feel like we could be in the range of flat, it could be – we could see a little growth or we could see a decline in EMEA. The fact that the first three weeks have declined would make me lean a little bit more toward a decline, I guess in EMEA, but you have to decide that on your own. And then in the other category, I think you will continue to see very strong growth as I said in my scripted remarks, particularly from Asia-Pacific, but the other businesses continued to do quite well in addition to Asia-Pacific. All-in, it could be down 1% to up 3% and….

In the other category, can you give us the relative strength now in the size of APAC versus Designtex and PolyVision?

Sure. I mean, I will give you relative non-specifics, but as I have said before, if you take the other category and divide by three and then take Asia-Pacific and add revenue, because it’s the biggest and take revenue away from PolyVision, because it’s the smallest, you have got the ranked order, but Asia-Pacific is becoming much more meaningful with growth rates that it’s been posting.

Okay, thank you very much. I will cede the floor to others.

Thank you. Our next question comes from the line of Matt McCall with Seaport Global Securities. Your line is now open.

Thank you. Good morning, everybody.

Hi, Matt.

So, Jim, you talked about, I think it was Jim maybe it was Dave, might have been Dave that the pace of activity with large companies was slowing, and it looked a lot like what was happening in the fall of 2015. I am just curious comparing the macro situations there of the overall industry backdrops. Why – I mean, it feels like that just from a pace perspective or it feels like another period of time because of what’s going on macro. What I am getting at here is it seems like the lead indicators are good, but not turning into orders and you said maybe it’s tax and trade policy or whatever, but what do you think is behind this? What are you hearing from your customers that is causing them to pull back so noticeably?

Yes. To the question, we ask that question a lot and we talked to customers everyday of course about their business. So, I’d say first of all compared to previous times when we see orders fall like this, we can almost always in those previous times point to something going on in the economy and it’s more difficult this time. There is no question that if we look at core economic drivers around business capital spending overall and job growth and CEO confidence, these are the factors you have heard us talk about before Matt and those aren’t doing badly. I mean maybe they are off their peaks a little bit like CEO confidence was very strong just after the election and has come down a little bit since then, but it’s not bad. General state of the economy maybe is off a little bit in some sectors, but it’s not bad. So, compared to other softenings that we saw, where we did wonder if it’s related to the economy, at this time I don’t feel that. So, that gives me little bit more confidence that we are not feeling about something that’s quite so macro. So, then as we think about it, we say well, what’s going on in our industry, what’s going on with our customers. It could be that some are just pausing, hesitating and we have some anecdotal stories around that. The customers are waiting to see what happens with healthcare reform for example. So, if you are in the healthcare industry, you might be curious about what’s going to happen as that gets unveiled and how does that shape your investments. If you are interested in growing and you need to hire workers in the U.S. you might be interested in immigration reform and how that might affect your business and whether you can invest in new facilities for that. If you are interested in spending some of your repatriated cash, you are interested in tax reform and how repatriation might play a role there as that could affect investments you might make in facility. So, we have heard anecdotal stories like that. Again, I can’t put my finger in any one of those factors and say that too, but we know those factors are out there. At the same time, even more micro related to our industry is this shift from the old ways of working in the legacy spaces people have to these new ways of working. And it could be also anecdotally we have evidence of this that some customers are saying, you know what I am going to slowdown my rate of reinvestment in the model that I have and prepare for a shift to this new model. And if that’s true, we would see pretty much what we are seeing. So, if that’s the case what you would expect to see is the reduction in demand for similar legacy business even as new projects are showing up in A&D firms and maybe we haven’t seen them yet, but they are out there. So that’s hypothesis we have and that could be what’s going on. So that – in that case, it’s not really a macro factor, it’s more of a factor discrete and unique to our industry. And then we also as Dave mentioned, we don’t believe we are losing share of wallet of our customers, but we do know that our customers are looking for new kinds of solutions. We know that the range of products that we have that we developed over 25 years to cover the spaces they have today leads to the kind of market share we have in the share of wallet we enjoyed. And we have been working to develop new products at a pretty fast clip, but we probably don’t have enough new products covering a broad enough range to cover the full share of wallet in the future. So that’s why we are ramping up those investments to make sure that we are not losing a little bit of share of wallet along the edges as customers make the shift from the old to the new. So, maybe a little longer question, answer than you with that question.

Yes, that’s helpful. So, I actually want to hit on one of the points, so when you – I think you mentioned Series 1, I saw it at NeoCon, the feature-rich value priced product, right. And so I guess those words, I feel like they have been taboo in the past that we didn’t want to go this low from a pricing perspective. Are you concerned about any impact on margins? Are you concerned about moving that lower price point with the Steelcase brand just curious about what – I know what’s changed, but how do you expected to impact those other parts of the business?

So, I love the question. So, we first of all never defined the Steelcase brand based on a particular price point. We define it based on insights and when it comes to seating, the science in the seating. So as we think about products like that, our commitment is that we want to make sure that it needs all of our quality standards that meets our standards around ergonomic performance which it does. The seat comfort is actually very good and the LiveBack technology as represented in the product provides a really good ergonomic experience for users using it in certain ways. You have 40 arms, I am really proud of the science that we have been able to deliver in that product. Now, the way we deliver it is in a way that involves some trade-offs in terms of lower cost and a different feeling around the mechanism. So the arms might provide a little differently than they would on the higher end share. The materiality, the materials we use are different, but it doesn’t compromise on the science. So, I am quite proud of that. And the way – the other way we find ourselves is around being relevant to our customers. So, we have a very kind of laser focused not on us in what we want to be, but really on our customers on what they need from us. And as we watch these new ways of working emerge which is really clear and something we predicted actually is you have fewer situations for somebody who is sitting at their desk and their chair for eight hours a day those people are working in new ways. They are not at their desk full time and so they are sitting in a lot of different chairs over the course of the day, but not sitting in any particular chair for very long. And as people adopt to towing [ph] and mobility and other things that where [indiscernible] actually they need new kinds of seating that are relevant to those purposes. And that’s what the customers have been saying to us. So we think this product actually follow their insights around how work is changing, delivers a science and the quality that the Steelcase brand is known for and it’s quite relevant to the customers we always serve. At the same time as I said in my remarks I think it will have a nice side benefit which will introduce other customers to the Steelcase brand, people who might have thought that our products were out of reach for them and now they will find products like Series 1 to be affordable. And they will find that there is other product lines are also relevant for them in their budgets.

Okay, that’s helpful. Thank you. And one more if I can sorry. Just the standalone desking phenomenon and you would – I think you have seen some increased competition now you guys dove pretty deeply into the your share position when you look at standalone desking and adjustable height desking, what kind of share trends you are seeing there relative maybe to your overall trends and systems or overall share and systems or seating or just broadly for the market?

Well, we would say the share has got a numerator and denominator. We know more about the numerator than we do with the denominator. From a numerator perspective meaning our sales, we know that our sales of products like college and other products that address this market height adjustable desks and you can do benches and things like that. We know that our products that address that market are growing fast. And so as we said before this is part of the shift from our legacy fixed height desking there might be more space towards products like that. But we are not as sure about the denominator. So the industry guide that we get kind of brings together a number of different products including legacy desks as well as these new kind of adjustable height desk, we can’t be as sure about how fast that specific segment is growing. But I can tell you that part is definitely growing faster for us.

Okay, alright. Thank you, Jim.

Yes.

Thank you. Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is now open.

Hi, thanks for taking my questions. Just digging a little bit further into the flavor of the type of products you are seeing more consistent growth in the small orders maybe if you could I know that orders had been choppy, but are there certain categories that are seeing more consistent growth and really the driver for that question is what is that telling you about the help of the end market and also of what’s driving customer demand? Thank you.

Sure. So we are seeing – as I was saying in the question – in Matt’s question, I think first of all we are seeing a shift away from what I would call traditional systems based furniture towards product psychology which are height adjustable desks towards benches which continue to grow. We have increased our range of our products that address those markets and as we do we see growth in those product segments. We are also seeing more growth in mid-priced seating than we have seen in the higher priced seating. But our higher priced seating products continue to do very well just most of the growth and speed of the market. I mean for us again I can’t say this is an industry trend, but I can say for us we are seeing growth in architectural products across the full range of products we offer. And I think this is because as people move towards open plan there is also a counterforce which is that people are seeking privacy and they are seeking spaces they can create that are flexible as well as reconfigurable that can create rooms for people to – in which they meet or places where people can kind of get away and concentrate for a bit. And so we are seeing at the same time the shift away from the legacy towards more open mobile reconfigurable furniture. We are also seeing the shift towards architectural solutions. So I hope that answered…

Only thing I would add Kathryn is that our Turnstone brand continues to grow nicely, above average for three of the last four quarters.

Okay, that’s very helpful. I would assume that once again panel system would be the greater driver for a large order weakness with your bigger customers as you talk about in your prepared commentary?

Yes. So if you get a little bit more color on that actually and then we will give you another question anyway, so the – it’s true that we are seeing this legacy category fall and I have talked about, but it’s not really a new thing that’s been going on for a while. It was a little bit more of decline this quarter than what we have seen before. What is possible is that there is a cross correlation between the drop in the large customers and their order patterns, because they tend to buy a lot of that legacy stuff. So when we see the largest customers show signs of weakness we would expect to see our legacy business also shows signs of weakness. So it might not be that the legacy stuff is accelerating and its declined so much as the large customers were down in this particular quarter and so it’s more evident. So it was kind of a cross fact there that I can’t quite unpack and say what’s more one or the other. I think they are interrelated and then back to Kathryn, sorry about that.

Yes. No problem, you have been able to answer a lot of questions that I have had to preparation. The only final thing I would say is as we are seeing and you did give some color in your prepared commentary just around the guidance and how to think about EMEA, but as we think beyond just the quarter just in front of us, how should we think about you that’s been an area that’s been in continual improvement for a better time now, how should we think about as we look beyond the next two quarters margin progression and then what’s really realistic in your opinion in terms of the top line and but candidly is really a pretty murky market in Europe? Thank you.

Well, you kind of answered your own question, because the biggest unknown is the top line, whether or not that economy and our industry is going to continue to pick up and we are going to be able to recover some of the share that we have lost throughout the last couple of years in some markets due to all the restructuring activities that we have done and that’s the biggest unknown. We do have as we have talked about in the past, the number gross margin improvement initiatives that continue to contribute they contributed in the first quarter to year-over-year improvement, but because of the volume declined we didn’t see it come through in our gross margin percentage through the absorption in tax and lower volume. We do think that you will see that some of that in year-over-year improvement in the second quarter as I highlighted we expect our results to show improvement year-over-year in the second quarter largely because of eliminated disruption and inefficiencies that we had last year. I also in my reference to Budd’s question in the top line, we think the top line at EMEA could be plus or minus flat with maybe some downside risk given the first three weeks of order patterns that we have seen out of EMEA. In the balance of the year Q3 and Q4 that is and has pended to be the strongest part of the year, their seasonality is much better second half than first half. And we hope to see that. Our pipeline is improving a little bit, which is nice to see. And we are hopeful that Munich will help us increase or improve our win rates across larger projects in the region but that’s all the biggest unknown. I do feel confident that our gross margin improvement initiatives are going to continue to drive improvement, but whether or not it’s masked by continued pressure on the top line remains to be seen.

I will do that. I will add to that comment. So, I had a conversation with some folks who are leading our EMEA business over the last few days and this is not new news, this has been true probably for the last 6 months, but the tone is very different today among our people and among our dealers and everyone versus 2 years ago when we are going to the restructuring. Those are difficult restructuring. It led to some customer interruptions that led to lot of challenging situations. And today, the enthusiasm of our dealers, enthusiasm of our sales people and really all the people we have working for our company in EMEA is quite positive. So they are seeing this pivot from the old days, the new days and have a lot of enthusiasm. Now, we all like to see that translate right away into orders and shipments and nobody wants that more than I do. But I will say that the tone is quite different. The tone is quite different. The other thing I will say is that these investments we are making in product development, in the old days like I’ll say 5 or 10 years ago, Steelcase is operating as a regional enterprise, a series of regional enterprises. So we might make product development investments for the Americas market and then we need separate investments for our EMEA and separate investments for Asia and everyone have their own care and their own products and everything. Because of the work we have been doing over the last 5 years, our portfolio is way more global than it was then. So, product side Series 1 that we have talked about 5 years ago might have been a Chair for North America, now it’s a chair for the world. So, these investments we are making in product development will also help enhance the portfolio of products we sell in EMEA and help improve our relevance. And the same trends we are seeing here with customers is a shift from legacy spaces to new kinds of spaces are also happening in EMEA. They are coming from a different legacy history, but where they are headed is very much the same. So, it’s interesting as we look at it this kind of convergence of customer need around how to drive productivity, how to drive creativity and the kinds of spaces they are seeking are becoming a bit more similar and that plays in our favor. So, these investments should be something that will help us scale up globally.

Okay, perfect. And just one final cleanup question just to confirm that raw materials particularly still didn’t necessarily meaningfully impact margins in the quarter?

More rounding than impact.

Okay, good. Perfect. Thank you very much.

Thank you. Our next question comes from the line of Greg Burns with Sidoti & Company. Your line is now open.

Good morning. Could you quantify what percentage of your business comes from those legacy systems that have been declining and maybe on average kind of how we should think about the pace of decline of that portion of the business?

Well, Greg, it’s less and less percentage of our business I can tell you that and that’s about all we will say and we don’t necessarily want to quantify that publicly as it’s a little bit difficult to quantify too, because one of our best products answer furniture systems can be applied in the legacy application kind of way as well as in an open floor plan kind of way and with our new enhancements that we introduced at NeoCon that we showed you around answer beam and answer fence, it can be even further applied in the open plan. So, it really depends on how some of our systems are applied in addition to some of our legacy furniture systems that we have really not invested in significantly in the last 5 or more years. But it’s difficult to quantify and it’s also something that we prefer not to have out in front of our competitors.

Okay, thanks. And I guess with the restructuring activities in Europe largely complete, you have some extra I guess management bandwidth now, can you talk about capital allocation and maybe the role of M&A going forward? Thanks.

Well, it’s a great question. We are spending significantly less on any kind of restructuring activity. In fact, we have reported zero restructuring costs in the current quarter and expect – don’t expect any additional restructuring costs over the balance of the year and that does free up the significant amount of capital and bandwidth of the management team, which I think you get a sense is being shifted toward growth with all of the investments in product development investments in our facilities, the focus on Asia-Pacific, the smart connected strategy, Creative Spaces, etcetera. Whether or not acquisitions will play a role, I would say we are spending more time than we used to spend of looking at acquisitions and maybe even beginning to be a little bit more proactive versus reactive and reacting to those companies that are just reacting to those companies that are for sale, but I don’t know that you will see a dramatic increase in our focus on acquisitions. Again, the way we have always thought about them is to the extent a bolt-on to that existing strategy and allows us an acceleration of that strategy. We get excited about that, but we are not about getting bigger where we are already big and we are doubling down on the structural decline and trying to make efficiency or value plays by combining with another large competitor or something like that.

I agree with all that. I will also added that business development these days continues to include M&A which we have always been open to, but also includes partnerships and that’s another area where we have been doing more and are likely to do more. It’s a nice way of broadening our offering, increasing relevance to our customers without the same kind of capital allocation need. And we have been successful with that so far.

Okay. Just a follow-up on that partnerships comment, can you talk about maybe the pipeline of potential partnerships that you might have to follow-on and – but when you currently have and maybe the why a partner as opposed to acquire some these companies? Thank you.

So I would say I won’t get specific other than probably repeat myself a little bit. I think I like the idea of acquisitions when we see a scale advantage that we can bring and when the positive synergies we bring are better than any kind of negative synergies we may also bring. Partnerships allow you to be more agile and they help us address product categories that it looks it is another company that has a great portfolio of products in a particular category and we see a need for that kind of product for a period of time. Partnership is a faster way to offer those kinds of products through our channel and through our supply chain and that’s actually the way we are thinking about it. Right now we just have some beginnings of some of those partnerships, but we believe we will have more of those 1 year from now, 2 years from now.

Okay, perfect. Thank you.

Thank you. [Operator Instructions] And our next question comes from the line of Peter Van Roden with Spitfire Capital. Your line is now open.

Hi guys.

Hi Peter.

So I guess my big question is around the operating expense growth in Americas, it looks like you guys are going to if the trend continues, OpEx in the Americas is going to increase kind of $50 million this year, so I guess a couple of questions around that, what exactly are you guys spending on and where will we start to see the benefit of that as shareholders. And then the second question is, is that one-time or are you permanently increasing the OpEx of that business, so those are the two questions around American OpEx?

Well, Peter, I will start by saying I think you are seeing the benefits right now with the fact that our product development, our new – revenue from new products is ahead of its expectations on the top line gross margin and return on invested capital. And so I will start there. In the release and in our scripted remarks we try to give additional color. What we have said in prior quarters as what we are spending that money on whether it is to expand our offerings into areas like the smart and connected strategy or to develop new products and applications that include things like create spaces or products that have lower price points for new product offerings that address ancillary or other gaps. And we have also mentioned in the past too that we are investing to expand our organizational capability to handle a larger amount of new products coming through the pipeline so that it can include things like engineering, design, project management and IT resources. And we feel that that’s very important given the continued decline in legacy furniture applications that are built around private office cubicle that we have been seeing. So I would say nothing new here. We are continuing to invest in a lot of things we have been talking about over the last couple of quarters. It is at a larger pace more recently, because of the opportunities that we have in front of us and the success that we have been experiencing. We feel that it’s smart, the double down a bit on product development and that’s what we are doing.

I would also add – feet on the street part of this which is also part of this. We added feet on the street to address the market in the Americas. That is an America’s investment. When it comes to product development it’s really of investment. So some of it shows up in the America’s P&L, but it’s really going to – as you think about it as a global investment, because those products really aim that markets all over the world, so it will help fuel ongoing growth in Asia, help fuel growth in EMEA as well as America. In terms of the long-term, so you asked permanent, permanent is a long time, so I can’t comment on that. But I will say that we don’t think this is a matter of the six months print and then we go back to normal. I think there will be a need for us to sustain a higher level of innovation and related investments across a variety of areas that I said earlier in order to broaden our addressable market and to broaden our relevancy to our customers. And so we are ramping that up. And we think we are on the right track. We think near time was a nice endorsement of that and that we are on the right track, relevant to customers. We have products that they see that they need. And we feel we need to sustain that level of investment for a while there.

Okay. And just to push a little bit further on this because you said that you are seeing the return on the investment, but I think earlier in the call you said that the decline in the legacy products is – hasn’t really changed and so I guess my question is where are we seeing it in the P&L if the decline is kind of similar and you guys aren’t growing faster than we were before, so I am just wondering how you are touching that?

Well, the order rates for legacy products was down a bit more in this quarter than it was before. What I was saying earlier is that it’s unclear whether that’s because there is an acceleration and the decline of demand for those products across the board or whether that’s related to the fact that large customers are also down. Large customers tend to be big consumers of the legacy products. I am going to – that is a combination of those two. The decline of legacy is not a new thing, it’s been happening for years. We have managed to largely offset and do a little bit more than that because of innovation and other things we have been doing. In order to grow we think we have to accelerate those innovations. We would bring even more products to market faster and that’s why the operating expense is going up. Now, when we look at the results from the things we have done, we are seeing what you said. We are seeing that the first year sales of the products we have launched about a year ago are exceeding our expectations collectively and when we look back over products the launch of the last several years. We believe again that overall those products are ahead of their expectations and are growing faster than – importantly faster than the core business, faster than the industry as a whole, we just need more...

And the growth of those new products as well as the growth from products that have been enhanced help to reduce the impact from the reduced demand from our largest corporate customers in the quarter because their – that level of demand was down significantly and that is the newer news.

Also as we have said – begin here. We are really responsible when it comes to these investments in new products. Every new product has the financial screen in terms of return on investment, in terms of even payback to make sure we are using shareholder money responsibly. Those are not easy tests that they pass and yet we have been hitting a lot of those goals. And so while – as we spend more on product development, it’s not because we are lowering the bar in anyway. We still expect everyone of these products to achieve the kinds of metrics we expected in the past. We just have a lot of new ideas and we think we need to invest in them.

Got it, okay. And is there any I guess hope for as you guys look through maybe engage in base budgeting that as the legacy products become less and less important, can you shift any of the spend that you might have had related to that and sort of repurpose it and so that the overall impact of the P&L is as drastic as we have seen in the first two quarters of the year?

We have already done that. We have done that years ago. We really have not invested significantly in our legacy applications and some of the – some of the highest margin products that we have are related to those legacy applications because the tooling is fully depreciated and much of the equipment that’s used to produce those products is fully depreciated. So we have not funneled investment for them in quite a few years and have been reaping the benefits of those legacy applications at very nice margins, but that is shrinking consistently quarter-after-quarter with a little bit of a bigger shrink in the first quarter of this year.

In fact one of the things we talked about internally is truly important, because we have a very important and large segment of customers. They are likely to remain customers of our legacy business for a very long time and they do expect those products to be kept up-to-date and to be modernized. And so we maintain a level of investment of those products and should, but it is at a instead of maintenance and it’s kind of I’ll call it incremental improvement level, which I think is probably appropriate, but competition never ends. So, you have to compete aggressively in that core business and then you have – I’ll scale this investment in growth. And the way you try to make the math work on those is by trying to be as efficient as you possibly can. So, we are always challenging our teams to look at ways for us to use automation and look at ways to just think a little bit harder about places where we can reduce cost in our business, so we can shift our investments in the things that would drive growth.

Got it. Thanks. And then just final question is around EMEA, Dave, you talked about wanting to get to the high 20s in terms of gross profit margins obviously to step back in this quarter and I know that seasonally the business is weak, but do you think that you can exit the year in that range? Just I guess talk just a little bit about what your expectations are for gross margins in EMEA?

You said profit margin, I think you met gross margin. And I think the 28% reference you might be making is a comment that I have made maybe on the last call – last quarter’s call about our run-rate of gross margin being in the high 20%. So, we finished fiscal year last year at 26.5% gross margin I think excluding restructuring costs. But I was – because they had been improving throughout the year, I was suggesting that they are probably in the – better than that, maybe they are as good as 28% on a run-rate basis. Q1 and Q2 will be lower than that, because volume is substantially lower than in the back half of the year. I will go back to what I said earlier we do believe that we will see year-over-year improvement in our operating results largely because of elimination of disruption costs in the prior year in the second quarter. And so you should see improvement in gross margins. We expect to see it in the second quarter in EMEA. And in the balance of the year, it will be dependent on the ongoing success of our gross margin improvement initiatives and the top line. If we are flat volume in constant currency, we should see – we would expect to see improvements in our gross margins in the back half of the year, but it really depends on whether or not we see that flat volume or potential improvement in the top line in the back half of the year.

Okay, that’s all I have. Thanks so much, guys.

Thank you. I am showing no further questions at this time. I would now like to turn the call back to Mr. Jim Keane for closing remarks.

Thank you. Again, we apologize for the technical difficulties at the beginning of the call. It caused us to repeat some of the remarks and led to a longer call than usual. So thank you all for staying with us through that. I will stop just by saying that we see the changes in work and the changes in customer demand as a net positive. It stimulates demand for new innovative solutions and it’s much healthier than a stagnant unchanging industry. And we believe at the core of this, customers are looking for ways to attract, retain and inspire a new generation of workers and ultimately see this closely went to our own strategies in our mission to unlock human promise. I think NeoCon endorsed that we are on the right track as we continue towards that mission. And our challenge now is just to get there faster and the investments we are making are tightly focused on that goal. So we are excited about the future. We are excited about the opportunity to lead in that future. Thank you again for joining the call today and thank you for your interest in Steelcase.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Everyone have a great day.